As filed with the Securities and Exchange Commission on February 28, 2000
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. 67
and
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 68
J.P. MORGAN FUNDS
(formerly The JPM Pierpont Funds)
(Exact Name of Registrant as Specified in Charter)
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area Code:
(617) 557-0700
Margaret W. Chambers, c/o Funds Distributor, Inc.
60 State Street, Suite 1300, Boston, Massachusetts 02109
(Name and Address of Agent for Service)
Copy to: John E. Baumgardner, Jr., Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
It is proposed that this filing will become effective (check appropriate box):
[ ] Immediately upon filing pursuant to paragraph (b) [X] on March 1, 2000
pursuant to paragraph (b) [ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i) [ ] 75 days after filing pursuant to
paragraph (a)(ii) [ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.
If appropriate, check the following box:
[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
<PAGE>
EXPLANATORY NOTE
This post-effective amendment No. 67 to the registration statement of J.P.
Morgan Funds (the "Registrant") on Form N-1A is being filed to update the
Registrant's disclosure in the Prospectus and Statement of Additional
Information relating to (i) J.P. Morgan Federal Money Market Fund, J.P. Morgan
Short Term Bond Fund, J.P. Morgan Bond Fund, J.P. Morgan International Equity
Fund, J.P. Morgan Emerging Markets Equity Fund, and J.P. Morgan Global Strategic
Income Fund, each a series of shares of the Registrant, to include updated
financial information for the fiscal year ended October 31, 1999, and (ii) J.P.
Morgan Prime Money Market Fund, J.P. Morgan Tax Exempt Money Market Fund, J.P.
Morgan European Equity Fund, and J.P. Morgan International Opportunities Fund,
each a series of shares of the Registrant, to include updated financial
information for the fiscal year ended November 30, 1999, and to update other
information in the registration statement.
<PAGE>
- --------------------------------------------------------------------------------
MARCH 1, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN MONEY MARKET FUNDS
Prime Money Market Fund
Federal Money Market Fund
Tax Exempt Money Market Fund
--------------------------------------
Seeking to provide high current income
consistent with the preservation of
capital and same-day liquidity
This prospectus contains essential information for anyone investing in these
funds. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
JPMorgan
<PAGE>
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
1 | Each fund's goal, principal strategies, principal risks, performance and
expenses
J.P. MORGAN MONEY MARKET FUNDS
J.P. Morgan Prime Money Market Fund ...................................... 1
J.P. Morgan Federal Money Market Fund .................................... 3
J.P. Morgan Tax Exempt Money Market Fund ................................. 5
7 | Principles and techniques common to the funds in this prospectus
MONEY MARKET MANAGEMENT APPROACH
J.P. Morgan .............................................................. 7
J.P. Morgan Money Market Funds ........................................... 7
The spectrum of money market funds ....................................... 7
Who may want to invest ................................................... 7
Money market investment process .......................................... 8
9 | Investing in the J.P. Morgan Money Market Funds
YOUR INVESTMENT
Investing through a financial professional ............................... 9
Investing through an employer-sponsored retirement plan .................. 9
Investing through an IRA or rollover IRA ................................. 9
Investing directly ....................................................... 9
Opening your account ..................................................... 9
Adding to your account ................................................... 9
Selling shares ........................................................... 10
Account and transaction policies ......................................... 10
Dividends and distributions .............................................. 11
Tax considerations ....................................................... 11
12 | More about the funds' business operations
FUND DETAILS
Master/feeder structure .................................................. 12
Management and administration ............................................ 12
Financial highlights ..................................................... 13
FOR MORE INFORMATION .............................................. back cover
<PAGE>
J.P. MORGAN PRIME
MONEY MARKET FUND | TICKER SYMBOL: PPMXX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The fund's goal is to maximize current income consistent with the preservation
of capital and same-day liquidity. This goal can be changed without shareholder
approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund looks for investments across a broad spectrum of U.S. dollar-
denominated money market securities, typically emphasizing different types of
securities at different times in order to take advantage of changing yield
differentials. The fund's investments may include obligations issued by the U.S.
Treasury, government agencies, domestic and foreign banks and corporations,
foreign governments, repurchase agreements, reverse repurchase agreements, as
well as asset-backed securities, taxable municipal obligations, and other money
market instruments. Some of these investments may be illiquid or purchased on a
when-issued or delayed delivery basis.
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 8.
Principal Risks
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable dollar weighted average maturity
(currently not to exceed 90 days) at the time. To the extent that the fund
invests in foreign securities, the fund could lose money because of foreign
government actions, political instability, or lack of adequate and accurate
information. Also, the fund may have difficulty valuing its illiquid holdings
and may be unable to sell them at the time or price it desires. While these
possibilities exist, the fund's investment process and management policies are
designed to minimize the likelihood and impact of these risks. To date, through
this process, the fund's share price has never deviated from $1.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<PAGE>
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN PRIME MONEY MARKET FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $52 billion using similar
strategies as the fund.
The advisor uses a team of portfolio managers and traders to manage the fund.
The portfolio management team is led by John Donohue, vice president, who has
been on the team since joining J.P. Morgan in June of 1997 from Goldman Sachs &
Co., where he was an Institutional Money Market Portfolio Manager; and Mark
Settles, vice president, who has been on the team since November 1999 and has
been at J.P. Morgan since 1994. Prior to managing this fund, Mr. Settles was a
fixed income trader on J.P. Morgan's New York and London trading desks. The
traders on the team are Donald Clemmenson, vice president, who has been on the
team since its inception; Gunter Heiland, associate, who has been on the team
since joining J.P. Morgan in June of 1997 from Salomon Brothers, where he was a
sales assistant; and Kimberly Weil, who has been on the team since its
inception.
- --------------------------------------------------------------------------------
Before you invest
Investors considering these funds should understand that:
o There is no assurance that these funds will meet their investment goals
o These funds do not represent complete investment programs
1 | J.P. MORGAN PRIME MONEY MARKET FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Prime Money Market Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last ten calendar years.
The table indicates some of the risks by showing the fund's(1) average annual
returns for the past one year, five years, and ten calendar years.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
12%
9%
8.04
6.07
6%
5.79 5.41 5.35 5.21
4.93
3% 3.67 3.95
2.83
0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Prime Money Market Fund(1)
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 1.97% (for the quarter ended 6/30/90); and the
lowest quarterly return was 0.69% (for the quarter ended 6/30/93).
<PAGE>
PERFORMANCE (unaudited)
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1)
- --------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
<S> <C> <C> <C>
J.P. Morgan Prime Money Market Fund (after expenses) 4.93 5.34 5.12
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3)(%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.11
Marketing (12b-1) fees None
Other expenses 0.34
- --------------------------------------------------------------------------------
Total operating expenses 0.45
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 46 144 252 567
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/12/93. Returns reflect performance of The
Pierpont Money Market Fund, the fund's predecessor, prior to that date.
(2) The fund's fiscal year end is 11/30.
(3) The fund has a master/feeder structure as described on page 12. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year expressed as a percentage of the fund's average net assets.
J.P. MORGAN PRIME MONEY MARKET FUND | 2
<PAGE>
J.P. MORGAN FEDERAL
MONEY MARKET FUND | TICKER SYMBOL: PTYXX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund purchases securities that offer very high credit quality and pay
regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. government agency obligations such as the Federal
Farm Credit Bank, the Tennessee Valley Authority, the Federal Home Loan Bank,
the Student Loan Marketing Association, and in obligations of the U.S. Treasury.
Some of these investments may be purchased on a when-issued or delayed delivery
basis.
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 8.
Principal Risks
While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the Government, investors should bear in mind that any agency
obligations the fund may hold do not have this guarantee, and that in any case
government guarantees do not extend to shares of the fund itself.
Most of the fund's income is generally exempt from state and local personal
income taxes and from some corporate income taxes (although not federal income
taxes). Because of this beneficial tax status, the fund's yields are generally
lower than those of taxable money market funds when compared on a pre-tax basis.
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security could default on its obligation. An unexpected rise in interest rates
could also lead to a loss in share price if the fund is near the maximum
allowable dollar weighted average maturity (currently not to exceed 90 days) at
the time. However, the fund's investment process and management policies are
designed to minimize the likelihood and impact of these risks. To date, through
this process, the fund's share price has never deviated from $1.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<PAGE>
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN FEDERAL MONEY MARKET FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $52 billion using similar
strategies as the fund.
The advisor uses a team of portfolio managers and traders to manage the fund.
The portfolio management team is led by John Donohue, vice president, who has
been on the team since joining J.P. Morgan in June of 1997 from Goldman Sachs &
Co., where he was an Institutional Money Market Portfolio Manager; and Mark
Settles, vice president, who has been on the team since November 1999 and has
been at J.P. Morgan since 1994. Prior to managing this fund, Mr. Settles was a
fixed income trader on J.P. Morgan's New York and London trading desks. The
traders on the team are Donald Clemmenson, vice president, who has been on the
team since its inception; Gunter Heiland, associate, who has been on the team
since joining J.P. Morgan in June of 1997 from Salomon Brothers, where he was a
sales assistant; and Kimberly Weil, who has been on the team since joining J.P.
Morgan in April of 1993.
- --------------------------------------------------------------------------------
Before you invest
Investors considering these funds should understand that:
o There is no assurance that these funds will meet their investment goals
o These funds do not represent complete investment programs
3 | J.P. MORGAN FEDERAL MONEY MARKET FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Federal Money Market Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last six calendar years.
The table indicates some of the risks by showing the fund's average annual
returns for the past one year, five years and life of the fund. The fund's past
performance does not necessarily indicate how the fund will perform in the
future.
Year-by-year total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
6%
5.59 5.18 5.15
4.99 4.74
3% 3.78
0%
- --------------------------------------------------------------------------------
[ ] J.P. Morgan Federal Money Market Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 1.41% (for the quarter ended 6/30/95); and the
lowest quarterly return was 0.67% (for the quarter ended 3/31/94).
PERFORMANCE (unaudited)
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for period ended December 31, 1999(2)
- ----------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
<S> <C> <C> <C>
J.P. Morgan Federal Money Market Fund (after expenses) 4.74 5.13 4.59
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before reimbursement are shown at right. The fund has
no sales, redemption, exchange, or account fees, although some institutions may
charge you a fee for shares you buy through them. The annual fund expenses after
reimbursement are deducted from fund assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.15
Marketing (12b-1) fees None
Other expenses 0.35
- --------------------------------------------------------------------------------
Total operating expenses(4) 0.50
- --------------------------------------------------------------------------------
Expense example(4)
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
3/1/00 through 2/28/01 and total operating expenses unchanged, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 51 160 280 628
- --------------------------------------------------------------------------------
(1) The fund's fiscal year end is 10/31.
(2) The fund commenced operations on 1/4/93. Returns reflect performance of the
fund from 1/31/93.
(3) The fund has a master/feeder structure as described on page 12. 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.
(4) The fund has an agreement dated 3/1/00 by Morgan Guaranty Trust Company of
New York ("Morgan Guaranty"), an affiliate of J.P. Morgan, to reimburse the
fund to the extent expenses exceed 0.55% (excluding extraordinary expenses)
of the fund's average daily net assets through 2/28/01.
J.P. MORGAN FEDERAL MONEY MARKET FUND | 4
<PAGE>
J.P. MORGAN TAX EXEMPT
MONEY MARKET FUND | TICKER SYMBOL: PPTXX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The fund's goal is to maximize current income that is exempt from federal income
tax consistent with the preservation of capital and same-day liquidity. This
goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in high quality municipal obligations whose income is
exempt from federal income taxes. The fund's municipal obligations must fall
into the highest short-term rating category (top two highest categories for New
York State obligations) or be of equivalent quality. The fund may also invest in
certain structured municipal obligations, and in certain municipal or other
obligations whose income is subject to tax, including the alternative minimum
tax. Although the fund is permitted to hold these other obligations or cash, it
aims to be fully invested in municipal obligations. In order to maintain
liquidity, the fund may buy securities with puts that allow the fund to
liquidate the securities on short notice. Some of the fund's securities may be
purchased on a when-issued or delayed delivery basis.
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 8.
The fund's income is generally exempt from federal income taxes. A small portion
may be exempt from state or local income taxes.
Principal Risks
As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable dollar weighted average maturity
(currently not to exceed 90 days) at the time. However, the fund's investment
process and management policies are designed to minimize the likelihood and
impact of these risks. To date, through this process, the fund's share price has
never deviated from $1.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.
<PAGE>
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN TAX EXEMPT MONEY MARKET FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $52 billion using similar
strategies as the fund.
The advisor uses a team of portfolio managers and traders to manage the fund.
The portfolio management team is led by John Donohue, vice president, who has
been on the team since joining J.P. Morgan in June of 1997 from Goldman Sachs &
Co., where he was an Institutional Money Market Portfolio Manager; and Richard
Oswald, vice president, who has been on the team since joining J.P. Morgan in
October of 1996. Prior to managing this fund, Mr. Oswald served as Treasurer of
CBS and President of its finance unit. The traders on the team are Donald
Clemmenson, vice president, who has been on the team since its inception; Gunter
Heiland, associate, who has been on the team since joining J.P. Morgan in June
of 1997 from Salomon Brothers, where he was a sales assistant; and Kimberly
Weil, who has been on the team since its inception.
- --------------------------------------------------------------------------------
Before you invest
Investors considering these funds should understand that:
o There is no assurance that these funds will meet their investment goals
o These funds do not represent complete investment programs
5 | J.P. MORGAN TAX EXEMPT MONEY MARKET FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Tax Exempt Money Market Fund.
The bar chart indicates some of the risks by showing changes in the
performance of the fund's(1) shares from year to year for each of the last ten
calendar years.
The table indicates some of the risks by showing the fund's average annual
returns for the past one year, five years and ten calendar years.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year-by-year total return (%) Shows changes in returns by calendar year(1)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
9%
6%
5.58
4.16
3% 3.52 3.26 3.12 3.07
2.71 2.82 2.50
2.04
0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Tax Exempt Money Market Fund(1)
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 1.39% (for the quarter ended 6/30/90); and the
lowest quarterly return was 0.47% (for the quarter ended 3/31/94).
PERFORMANCE (unaudited)
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(2)
- ----------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
<S> <C> <C> <C>
J.P. Morgan Tax Exempt Money Market Fund 2.82 3.16 3.27
- ----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- ----------------------------------------------
Management fees 0.15
Marketing (12b-1) fees None
Other expenses 0.35
Total operating expenses 0.50
- ----------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 51 160 280 628
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/12/93. Returns reflect performance of the
Pierpont Tax Exempt Money Market Fund, the fund's predecessor, prior to that
date.
(2) The fund's fiscal year end is 11/30. Prior to 1999, the fund's fiscal year
end was 8/31.
(3) The fund has a master/feeder structure as described on page 12. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year expressed as a percentage of the fund's average net assets.
J.P. MORGAN TAX EXEMPT MONEY MARKET FUND | 6
<PAGE>
MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 380 analysts and portfolio managers
around the world and has approximately $349 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN MONEY MARKET FUNDS
Each of these funds invests in high-quality short-term debt securities by
investing through a master portfolio (another fund with the same goal). Each
fund accrues dividends daily, pays them to shareholders monthly, and seeks to
maintain a stable $1 share price.
THE SPECTRUM OF MONEY MARKET FUNDS
The funds described in this prospectus differ primarily in the types of
securities they hold and in the tax status of the income they offer. The table
below provides an overview of the main types of securities in which each fund
may invest. The distinguishing features of each money market fund are described
in more detail on the preceding pages.
<PAGE>
- ------------------------------------------------------
WHO MAY WANT TO INVEST
The funds are designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim
INVESTMENT
o are pursuing a short-term goal
o are seeking income that is generally exempt from state and local income taxes
(in the case of Federal Money Market Fund) or exempt from federal income tax
(in the case of Tax Exempt Money Market Fund) The funds are not designed for
investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
o in the case of Tax Exempt Money Market Fund, are investing through an IRA or
other tax-advantaged retirement plan Money Market Funds and Stability Money
market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable
$1 share price.
Primary investments
- --------------------------------------------------------------------------------
Prime Federal Tax Exempt
Money Money Money
Market Market Market
- --------------------------------------------------------------------------------
U.S. Treasuries* o o
- --------------------------------------------------------------------------------
U.S.
government
agency
instruments o o*
- --------------------------------------------------------------------------------
Domestic &
foreign bank
obligations o
- --------------------------------------------------------------------------------
Domestic &
foreign
short-term
corporate
obligations o
- --------------------------------------------------------------------------------
Foreign
governments o
- --------------------------------------------------------------------------------
Illiquid
holdings o
- --------------------------------------------------------------------------------
Repurchase
agreements and
reverse repurchase
agreements o
- --------------------------------------------------------------------------------
Tax-exempt
municipal
obligations** o
- --------------------------------------------------------------------------------
* Income is generally exempt from state and local income taxes
** Income is generally exempt from federal income taxes
7 | MONEY MARKET MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
MONEY MARKET INVESTMENT PROCESS
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor,
emphasizes investment quality through in-depth research of short-term securities
and their issuers. This allows each fund to focus on providing current income
without compromising share price stability.
In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only securities highly
rated by independent rating agencies as well as J.P. Morgan's proprietary
ratings system are considered for investment.
In managing the funds described in this prospectus, J.P. Morgan employs a
three-step process that combines maturity determination, sector allocation and
fundamental research for identifying portfolio securities:
Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired dollar weighted average maturity
for each fund within the permissible 90-day range. Controlling weighted average
maturity allows the funds to manage risk, since securities with shorter
maturities are typically less sensitive to interest rate shifts than those with
longer maturities.
Sector allocation Analysis of the yields available in different sectors of the
short-term debt market allows J.P. Morgan to adjust each fund's sector
allocation, with the goal of enhancing current income while also maintaining
diversification across permissible sectors.
Security selection Based on the results of the firm's credit research and each
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to each
fund's goal and strategy.
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process to control each fund's sensitivity to
interest rates
[GRAPHIC OMITTED]
The funds invest across different sectors for diversification and to take
advantage of yield spreads
[GRAPHIC OMITTED]
Each fund selects its securities as described earlier in this prospectus
MONEY MARKET MANAGEMENT APPROACH | 8
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Determine the amount you are investing. The minimum amount for initial
investments in a fund is $2,500 and for additional investments $500, although
these minimums may be less for some investors. For more information on
minimum investments, call 1-800-521-5411.
o Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you
may want to use in the future, in order to avoid the delays associated with
adding them later on.
o Mail in your application, making your initial investment as shown below.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
<PAGE>
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to place
a purchase order. Funds that are wired without a purchase order will be
returned uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011000028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FFC: your account number, name of registered owner(s) and fund name
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with your completed application to the Transfer Agent. By
exchange
o Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If you
do not have an investment slip, attach a note indicating your account number
and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
9 | YOUR INVESTMENT
<PAGE>
SELLING SHARES
By phone-- wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone -- check payment
o Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
Redemption in kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
<PAGE>
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that, for tax purposes, an
exchange is considered a sale.
A fund may alter, limit, or suspend its exchange policy at any time.
Business days and NAV calculations The funds' regular business days are the same
as those of the New York Stock Exchange. The funds calculate their net asset
value per share (NAV) every business day at 4:00 p.m. (5:00 p.m. for Prime Money
Market Fund) eastern time.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
each fund must be received by the times indicated in the table below:
Fund Cut-off Time
Prime Money Market 5:00 p.m.
Federal Money Market 2:00 p.m.
Tax Exempt Money Market 12:00 noon
For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. (5:00 p.m. for Prime
Money Market Fund) eastern time on a fund business day. A fund has the
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 | 10
<PAGE>
right to suspend redemption of shares as permitted by law and to postpone
payment of proceeds for up to seven days.
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment.
Redemption orders for each fund received by the respective cut-off times will be
paid in immediately available funds, normally on the same day, according to
instructions on file. In-kind redemptions (described on page 10) will be
available as promptly as is feasible.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, each fund sends out an annual or semi-annual report containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the funds earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
<PAGE>
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. The transactions
below typically create the following tax liabilities:
- ----------------------------------------------------------------------
Transaction Tax status
- ----------------------------------------------------------------------
Income dividends from Prime Ordinary income
- ----------------------------------------------------------------------
Money Market and Federal
Money Market Funds
- ----------------------------------------------------------------------
Income dividends from Tax Exempt from federal
income taxes
- ----------------------------------------------------------------------
Exempt Money Market Fund
- ----------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- ----------------------------------------------------------------------
Every January, each fund issues tax information on its distributions for the
previous year.
Any investor for whom a fund does not have a valid
taxpayer identification number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
11 | YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, each fund is a series of J.P. Morgan Funds, a Massachusetts
business trust, and is a "feeder" fund that invests in a master portfolio.
(Except where indicated, this prospectus uses the term "the fund" to mean the
feeder fund and its master portfolio taken together.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-521-5411. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one full or fractional vote for each dollar or fraction of a
dollar invested.
Each feeder fund and its master portfolio expect to maintain consistent goals,
but if they do not, the feeder fund will withdraw from the master portfolio,
receiving its assets either in cash or securities. Each feeder fund's trustees
would then consider whether the feeder fund should hire its own investment
adviser, invest in a different master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The feeder funds described in this prospectus and their corresponding master
portfolios are all governed by the same trustees. The trustees are responsible
for overseeing all business activities. The trustees are assisted by Pierpont
Group, Inc., which they own and operate on a cost basis; costs are shared by all
funds governed by these trustees. Funds Distributor Inc., as co-administrator,
along with J.P. Morgan, provides fund officers. J.P. Morgan, as
co-administrator, oversees each fund's other service providers.
<PAGE>
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
Advisory services 0.20% of the first $1 billion of
each master portfolio's average
net assets plus 0.10% over
$1 billion
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion of average net
assets in J.P. Morgan-advised
portfolios, plus 0.04% over
$7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.25% of each fund's average
net assets
- --------------------------------------------------------------------------------
J.P. Morgan may also pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
FUND DETAILS | 12
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial tables are intended to help you understand each fund's financial
performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends and distributions). Except when noted, this information has been
audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's
financial statements, are included in the respective fund's annual report, which
are available upon request.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN PRIME MONEY MARKET FUND
Per-share data For fiscal years ended
- ------------------------------------------------------------------------------------------------------------------------------------
11/30/95 11/30/96 11/30/97 11/30/98 11/30/99
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0557 0.0509 0.0524 0.0528 0.0478
Net realized gain (loss)
on investment ($) 0.0005 0.0001 (0.0000)(1) (0.0000)(1) (0.0000)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0562 0.0510 0.0524 0.0528 0.0478
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0557) (0.0509) (0.0524) (0.0528) (0.0478)
Net realized gain ($) -- (0.0005) (0.0003) -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.0557) (0.0514) (0.0527) (0.0528) (0.0478)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 5.71 5.27 5.40 5.40 4.88
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ millions) 2,153 2,155 2,318 2,806 2,885
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net Expenses (%) 0.41 0.40 0.38 0.40 0.45
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 5.56 5.09 5.25 5.27 4.78
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.41 0.40 0.38 0.40 0.45
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Less than $0.0001.
13 | FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN FEDERAL MONEY MARKET FUND
Per-share data For fiscal years ended
10/31/95 10/31/96 10/31/97 10/31/98 10/31/99
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of year ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0536 0.0489 0.0501 0.0513 0.0456
Net realized gain (loss)
on investment ($) 0.0004 0.0006 0.0001 (0.0000)(1) (0.0000)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0540 0.0495 0.0502 0.0513 0.0456
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0536) (0.0489) (0.0501) (0.0513) (0.0456)
Net realized gain ($) -- (0.0003) (0.0005) (0.0000)(1) (0.0000)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.0536) (0.0492) (0.0506) (0.0513) (0.0456)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 5.49 5.03 5.17 5.25 4.66
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 171,120 185,424 239,074 462,885 869,738
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.40 0.40 0.40 0.43 0.48
Net investment income (%) 5.36 4.89 5.00 5.11 4.57
Expenses without reimbursement (%) 0.55 0.53 0.52 0.51 0.50
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Less than $0.0001.
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN TAX EXEMPT MONEY MARKET FUND
Per-share data For fiscal periods ended
- ------------------------------------------------------------------------------------------------------------------------------------
For the three
months ended
8/31/95 8/31/96 8/31/97 8/31/98 8/31/99 Nov. 30, 1999
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0336 0.0318 0.0314 0.0318 0.0272 0.0075
Net realized gain (loss) on investment ($) (0.0002) (0.0000)(1) (0.0000)(1) (0.0000)(1) (0.0000)(1) (0.0000)(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0334 0.0318 0.0314 0.0318 0.0272 0.0075
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0336) (0.0318) (0.0314) (0.0318) (0.0272) (0.0075)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 3.41 3.23 3.18 3.23 2.75 0.75(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ millions) 985 1,050 1,104 1,240 1,637 1,603
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.51 0.48 0.46 0.43 0.50 0.50(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 3.35 3.17 3.13 3.18 2.70 2.99(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Less than $0.0001.
(2) Not annualized.
(3) Annualized.
FUND DETAILS | 14
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on these funds, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for a fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a fund's policies, investment restrictions, and business
structure. This prospectus incorporates each fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the funds, may be obtained by contacting:
J.P. Morgan Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
funds' investment company and 1933 Act registration numbers are:
J.P. Morgan Prime Money Market Fund ............................ 811-07340 and
033-54632
J.P. Morgan Federal Money Market Fund .......................... 811-07340 and
033-54632
J.P. Morgan Tax Exempt Money Market Fund ....................... 811-07340 and
J.P. MORGAN FUNDS AND
THE MORGAN TRADITION
The J.P. Morgan Funds combine a heritage of integrity and financial leadership
with comprehensive, sophisticated analysis and management techniques. Drawing on
J.P. Morgan's extensive experience and depth as an investment manager, the J.P.
Morgan Funds offer a broad array of distinctive opportunities for mutual fund
investors.
JPMorgan
- --------------------------------------------------------------------------------
J.P. Morgan Funds
Advisor Distributor
J.P. Morgan Investment Management, Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
<PAGE>
- -------------------------------------------------------------------------------
MARCH 1, 2000 | PROSPECTUS
- -------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL EQUITY FUNDS
International Equity Fund
European Equity Fund
International Opportunities Fund
Emerging Markets Equity Fund
----------------------------------------
Seeking high total return primarily from
stocks outside the United States
This prospectus contains essential information for anyone investing in these
funds. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. JPMorgan
<PAGE>
- -------------------------------------------------------------------------------
<PAGE>
CONTENTS
- -------------------------------------------------------------------------------
1 | Each fund's goal, principal strategies, principal risks, performance
and expenses
J.P. MORGAN INTERNATIONAL EQUITY FUNDS
J.P. Morgan International Equity Fund ..................................... 1
J.P. Morgan European Equity Fund .......................................... 3
J.P. Morgan International Opportunities Fund .............................. 5
J.P. Morgan Emerging Markets Equity Fund .................................. 7
9 | Principles and techniques common to the funds in this prospectus
INTERNATIONAL EQUITY MANAGEMENT APPROACH
J.P. Morgan ............................................................... 9
J.P. Morgan international equity funds .................................... 9
The spectrum of international equity funds ................................ 9
Who may want to invest .................................................... 9
International equity investment process ................................... 10
11 | Investing in the J.P. Morgan International Equity Funds
YOUR INVESTMENT
Investing through a financial professional ................................ 11
Investing through an employer-sponsored retirement plan ................... 11
Investing through an IRA or rollover IRA .................................. 11
Investing directly ........................................................ 11
Opening your account ...................................................... 11
Adding to your account .................................................... 11
Selling shares ............................................................ 12
Account and transaction policies .......................................... 12
Dividends and distributions ............................................... 13
Tax considerations ........................................................ 13
14 | More about risk and the funds' business operations
FUND DETAILS
Master/Feeder structure ................................................... 14
Management and administration ............................................. 14
Risk and reward elements .................................................. 15
Financial highlights ...................................................... 17
FOR MORE INFORMATION .............................................. back cover
<PAGE>
J.P. MORGAN INTERNATIONAL
EQUITY FUND | TICKER SYMBOL: PPIEX
- --------------------------------------------------------------------------------
(GRAPHIC OMITTED)
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 15-16.
(GRAPHIC OMITTED)
GOAL
The fund's goal is to provide high total return from a portfolio of foreign
company equity securities. This goal can be changed without shareholder
approval.
(GRAPHIC OMITTED)
INVESTMENT APPROACH
Principal Strategies
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 10 and 15.
PRINCIPAL RISKS
The value of your investment in the fund will fluctuate in response to movements
in international stock markets and currency exchange rates. Fund performance
will also depend on the effectiveness of J.P. Morgan's research and the
management team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Foreign markets
tend to be more volatile than those of the U.S., and changes in currency
exchange rates could reduce market performance. To the extent that the fund
hedges its currency exposure into the U.S. dollar, it may reduce the effects of
currency fluctuations. The fund may also hedge from one foreign currency to
another. Foreign stocks are generally riskier than their domestic counterparts.
You should be prepared to ride out periods of underperformance.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN INTERNATIONAL EQUITY FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $349
billion, including approximately $10.9 billion using similar strategies as the
fund.
The portfolio management team is led by Paul A. Quinsee, managing director, who
joined the team in April of 1993 and has been at J.P. Morgan since 1992, and by
Nigel F. Emmett, vice president, who has been on the team since joining J.P.
Morgan in August of 1997. Previously, Mr. Emmett was an assistant manager at
Brown Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.
1 | J.P. MORGAN INTERNATIONAL EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan International Equity Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last 9 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one and five years and life of the fund compare to those of
the EAFE Index. This is an unmanaged index used to track the average performance
of over 900 securities listed on the stock exchanges of countries in Europe,
Australasia and the Far East.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998 1999
40%
29.92
24.37
20%
13.48
10.58
5.65 7.59 8.41
0% 1.17
- --------------------------------------------------------------------------------
(20%) (10.77)
[ ] J.P. Morgan International Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 20.23% (for the quarter ended 12/31/98); and the
lowest quarterly return was -18.05% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(2)
- -------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
<S> <C> <C> <C>
J.P. Morgan International Equity Fund (after expenses) 29.92 11.71 7.76
- -------------------------------------------------------------------------------------------------------
EAFE Index (no expenses) 26.96 12.83 8.68
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.60
Marketing (12b-1) fees none
Other expenses 0.61
- --------------------------------------------------------------------------------
Total annual fund operating expenses 1.21
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 123 384 665 1,466
- --------------------------------------------------------------------------------
(1) The fund's fiscal year end is 10/31.
(2) The fund commenced operations on 6/1/90 and performance is calculated as of
6/30/90.
(3) The fund has a master/feeder structure as described on page 14. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year expressed as a percentage of the fund's average net assets.
J.P. MORGAN INTERNATIONAL EQUITY FUND | 2
<PAGE>
J.P. MORGAN EUROPEAN EQUITY FUND |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 15-16.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return from a portfolio of European
company equity securities. This goal can be changed without shareholder
approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in equity securities from the 14 countries included
in the Morgan Stanley Capital International (MSCI) Europe Index, which is the
fund's benchmark. The fund typically does not invest in U.S. companies.
The fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund generally
keeps its industry weightings similar to those of the MSCI Europe Index,
although it does not seek to mirror the index in its choice of individual
securities. The fund makes its country allocation and currency management
decisions as described on pages 10 and 15.
PRINCIPAL RISKS
The value of your investment in the fund will fluctuate in response to movements
in European stock markets and currency exchange rates. Fund performance will
also depend on the effectiveness of J.P. Morgan's research and the management
team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Foreign markets
tend to be more volatile than those of the U.S., and changes in currency
exchange rates could reduce market performance. To the extent that the fund
hedges its currency exposure into the U.S. dollar, it may reduce the effects of
currency fluctuations. The fund may also hedge from one foreign currency to
another. Foreign stocks are generally riskier than their domestic counterparts.
You should be prepared to ride out periods of underperformance.
By emphasizing undervalued stocks, the fund has the potential to outperform the
MSCI Europe Index. At the same time, the fund seeks to limit its volatility to
that of the index.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN EUROPEAN EQUITY FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $3.5 billion using similar
strategies as the fund.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been at J.P. Morgan since 1992, and by Nigel F. Emmett, vice president, who
has been on the team since February of 1998. Mr. Emmett has been at J.P. Morgan
since August of 1997. Previously, Mr. Emmett was an assistant manager at Brown
Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.
J.P. Morgan European Equity Fund
3 | J.P. MORGAN EUROPEAN EQUITY FUND
<PAGE>
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan European Equity Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last 3 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one year and life of the fund compare to those of the MSCI
Europe Index. This is an unmanaged index comprised of more than 600 companies in
14 European countries.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1997 1998 1999
40%
22.10
20% 19.70 20.27
0%
- --------------------------------------------------------------------------------
[ ] J.P. MORGAN EUROPEAN EQUITY FUND
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 18.61% (for the quarter ended 12/31/99); and the
lowest quarterly return was -18.16% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(2)
- -----------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund
<S> <C> <C>
J.P. Morgan European Equity Fund (after expenses) 20.27 20.69
- -----------------------------------------------------------------------------------------------------
MSCI Europe Index (no expenses) 15.89 22.53
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before and after reimbursement are shown at right. The
fund has no sales, redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.65
Marketing (12b-1) fees none
Other expenses 1.73
- --------------------------------------------------------------------------------
Total operating expenses 2.38
Fee waiver and expense
reimbursement(4) 0.88
- --------------------------------------------------------------------------------
Net expenses(4) 1.50
- --------------------------------------------------------------------------------
Expense example(4)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
3/1/00 through 2/28/01 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 153 658 1,191 2,649
- --------------------------------------------------------------------------------
(1) The fund's fiscal year end is 11/30. Prior to 1998, the fund's fiscal year
end was 12/31.
(2) The fund commenced operations on 5/13/96. For the period 2/29/96 through
5/31/96 returns reflect performance of J.P. Morgan Institutional European
Equity Fund (a separate feeder fund investing in the same master portfolio)
which commenced operation on 2/29/96. These returns reflect lower operating
expenses than those of the fund. Therefore, these returns may be higher
than the fund's would have been had it existed during the same period.
(3) The fund has a master/feeder structure as described on page 14. 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.
(4) Reflects an agreement dated 3/1/00 by Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), an affiliate of J.P. Morgan, to reimburse the
fund to the extent expenses exceed 1.50% (excluding extraordinary expenses)
of the fund's average daily net assets through 2/28/01. Actual net expenses
for the fiscal year ended 12/31/99 were 1.48% of the fund's average daily
net assets.
J.P. MORGAN EUROPEAN EQUITY FUND | 4
<PAGE>
J.P. MORGAN INTERNATIONAL
OPPORTUNITIES FUND | TICKER SYMBOL: PPIOX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 15-16.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities of foreign companies in developed and, to a lesser extent, emerging
markets. This goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund's assets are invested primarily in companies from developed markets
other than the U.S. The fund's assets may also be invested to a limited extent
in companies from emerging markets. Developed countries include Australia,
Canada, Japan, New Zealand, the United Kingdom, and most of the countries of
western Europe; emerging markets include most other countries in the world.
The fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. While the fund
generally follows the process described on page 10, its country allocations and
sector weightings may differ significantly from those of the MSCI All Country
World Index Free (ex-U.S.), the fund's benchmark. The fund makes its currency
management decisions as described on pages 10 and 15.
PRINCIPAL RISKS
The value of your investment in the fund will fluctuate in response to movements
in international stock markets and currency exchange rates. Fund performance
will also depend on the effectiveness of J.P. Morgan's research and the
management team's stock picking and currency management decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Foreign markets
tend to be more volatile than those of the U.S., and changes in currency
exchange rates could reduce market performance. These risks are higher in
emerging markets. To the extent that the fund hedges its currency exposure into
the U.S. dollar, it may reduce the effects of currency fluctuations. The fund
may also hedge from one foreign currency to another. However, the fund does not
typically use this strategy for its emerging markets currency exposure. Foreign
stocks are generally riskier than their domestic counterparts. You should be
prepared to ride out periods of underperformance.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including approximately $3.6 billion using similar
strategies as the fund.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been on the team since the fund's inception and at J.P. Morgan since 1992,
Andrew C. Cormie, vice president, who has been an international equity portfolio
manager since 1997 and employed by J.P. Morgan since 1984, and by Nigel F.
Emmett, vice president, who has been on the team since joining J.P. Morgan in
August of 1997. Previously, Mr. Emmett was an assistant manager at Brown
Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.
5 | J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan International Opportunities Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last 2 calendar years.
The table indicates some of the risks by showing how the fund's average annual
return for the past one year and life of fund compare to that of the MSCI All
Country World Index Free (ex.-U.S.). This is an unmanaged index that measures
developed and emerging foreign stock market performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
Total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1998 1999
40% 40.05
20%
0% 3.47
- --------------------------------------------------------------------------------
[ ] J.P. Morgan International Opportunities Fund
For the period covered by this total return chart, the fund's highest quarterly
return was 21.81% (for the quarter ended 12/31/98); and the lowest quarterly
return was -21.38% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for period ended December 31, 1999(2)
- -----------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund
<S> <C> <C>
J.P. Morgan International Opportunities Fund (after expenses) 40.05 14.75
- -----------------------------------------------------------------------------------------------------
MSCI All Country World Index Free (ex-U.S.) (no expenses) 30.91 15.87
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------
Management fees 0.60
Marketing (12b-1) fees none
Other expenses 0.64
- --------------------------------------------------------------------
Total annual fund
operating expenses 1.24
- --------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 126 393 681 1,500
- --------------------------------------------------------------------------------
(1) The fund's fiscal year end is 11/30.
(2) The fund commenced operations on 2/26/97 and performance is calculated as
of 2/28/97.
(3) The fund has a master/feeder structure as described on page 14. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year expressed as a percentage of the fund's average net
assets.
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND | 6
<PAGE>
J.P. MORGAN EMERGING
MARKETS EQUITY FUND | TICKER SYMBOL: PPEEX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 15-16.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities from emerging markets issuers. This goal can be changed without
shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in equity securities from countries whose economies
or stock markets are less developed. The fund may also invest to a lesser extent
in debt securities of these countries. 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 10 and may
overweight or underweight countries relative to its benchmark, the Morgan
Stanley Capital International (MSCI) Emerging Markets Free Index. The fund
emphasizes stocks that are ranked as undervalued, while underweighting or
avoiding stocks that appear overvalued. The fund typically maintains full
currency exposure to those markets in which it invests. However, the fund may
from time to time hedge a portion of its foreign currency exposure into the U.S.
dollar.
PRINCIPAL RISKS
The value of your investment in the fund will fluctuate in response to move-
ments in international stock and bond markets, interest rates and currency
exchange rates. Fund performance will also depend on the effectiveness of J.P.
Morgan's research and the management team's country allocation and stock picking
decisions.
In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Because
emerging markets carry higher risks than developed markets, the fund's
performance is likely to be more volatile than that of many other international
equity funds. To the extent that the fund hedges its currency exposure into the
U.S. dollar, it may reduce the effects of currency fluctuations. Foreign
securities are generally riskier than their domestic counterparts. You should be
prepared to ride out periods of underperformance.
By emphasizing undervalued stocks, the fund has the potential to produce returns
that exceed those of the fund's benchmark. At the same time, the fund seeks to
limit its volatility to that of the benchmark.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN EMERGING MARKETS EQUITY FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $6.1 billion using similar
strategies as the fund.
The management team is led by Douglas Dooley, managing director, who has been at
J.P. Morgan since 1979 and Satyen Mehta, vice president, who has been at J.P.
Morgan since 1984, both of whom have been on the team since the fund's
inception.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.
7 | J.P. Morgan Emerging MArkets Equity Fund
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Emerging Markets Equity Fund. The bar chart indicates
some of the risks by showing changes in the performance of the fund's shares
from year to year for each of the last 6 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one and five years and life of the fund compare to those of
the MSCI Emerging Markets Free Index. This is a widely recognized, unmanaged
index of emerging markets stocks used as a measure of overall emerging market
equity performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Year-by-year total return(%) Shows changes in returns by calendar year(1)
- ---------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
60%
59.10
50%
40%
30%
20%
10%
8.50
0%
- ---------------------------------------------------------------------------------------
(7.58) (7.63)
(10%)
(10.03)
(20%)
(30%)
(30.79)
(40%)
(50%)
</TABLE>
[ ] J.P. Morgan Emerging Markets Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 25.83% (for the quarter ended 12/31/99); and the
lowest quarterly return was -23.69% (for the quarter ended 6/30/98).
<TABLE>
<CAPTION>
Average annual total return(%) Shows performance over time, for periods ended December 31, 1999(2)
- --------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
<S> <C> <C> <C>
J.P. Morgan Emerging Markets Equity Fund (after expenses) 59.10 (0.14) 1.28
- --------------------------------------------------------------------------------------------------------------
MSCI Emerging Markets Equity Free (no expenses) 66.41 0.86 3.57
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
Investor Expenses
The expenses of the fund before and after reimbursement are shown at right. The
fund has no sales, redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------
Management fees 1.00
Marketing (12b-1) fees none
Other expenses 0.87
- --------------------------------------------------------------------
Total operating expenses 1.87
Fee waiver and expense
reimbursement(4) 0.12
Net expenses(4) 1.75
- --------------------------------------------------------------------
Expense example(4)
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
3/1/00 through 2/28/01 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 178 576 1,000 2,181
- --------------------------------------------------------------------------------
(1) The fund's fiscal year end is 10/31.
(2) The fund commenced operations on 11/15/93 and performance calculated as of
11/30/93.
(3) The fund has a master/feeder structure as described on page 14. 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.
(4) Reflects an agreement dated 3/1/00 by Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), an affiliate of J.P. Morgan, to reimburse the
fund to the extent expenses exceed 1.75% (excluding extraordinary expenses)
of the fund's average daily net assets through 2/28/01. .
J.P. MORGAN EMERGING MARKETS EQUITY FUND | 8
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 380 analysts and portfolio managers
around the world and has more than $349 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN INTERNATIONAL EQUITY FUNDS
These funds invest primarily in stocks and other equity securities of companies
outside the U.S. through a master portfolio (another fund with the same goal).
As a shareholder, you should anticipate risks and rewards beyond those of a
typical U.S. stock fund.
THE SPECTRUM OF INTERNATIONAL EQUITY FUNDS
The funds described in this prospectus pursue a range of goals and offer varying
degrees of risk and potential reward. Differences between these funds include:
o the parts of the world in which they invest
o how closely they follow the weightings of their benchmarks
o how many securities they typically maintain in their portfolios
o the relative weighting of stocks in developed vs. emerging markets
The table below shows degrees of the relative risk and return that these funds
potentially offer. These and other distinguishing features of each international
equity fund were described on the preceding pages.
<PAGE>
- --------------------------------------------------------------------------------
Who May Want to Invest
The funds are designed for investors who:
o are pursuing a long-term goal
o want to add a non-U.S. investment with growth potential to further
diversify a portfolio
o want funds that seek to consistently outperform the markets in which they
invest
The funds are not designed for investors who:
o are uncomfortable with the risks of international investing
o are looking for a less aggressive stock investment
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
- -------------------------
Potential risk and return
- -------------------------
The positions of the funds in this graph reflect long-term performance goals
only and are relative, not absolute.
o Emerging Markets Equity Fund
o European Equity Fund
Return
International
o Opportunities Fund
o International Equity Fund
--------------------------------------------------------------------
Risk
9 | INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INVESTMENT PROCESS
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor, focuses
on allocating assets by country, selecting stocks and managing currency
exposure. The funds largely avoid using sector or market-timing strategies.
Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.
In managing the funds described in this prospectus, J.P. Morgan employs a
three-step process that combines country allocation, fundamental research for
identifying portfolio securities, and currency management decisions:
[GRAPHIC OMITTED]
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 each fund. Country allocation may vary either significantly or
moderately from the benchmark, depending on the fund. J.P. Morgan considers the
developed countries of Europe, excluding the U.K., as a whole while monitoring
the fund's exposure to any one country.
[GRAPHIC OMITTED]
Stocks in each industry are ranked
with the help of models, then
selected for investment
Stock selection Various models are used to quantify J.P. Morgan's fundamental
stock research, producing a ranking of companies in each industry group
according to their relative value. Each fund's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:
o catalysts that could trigger a change in a stock's price
o potential reward compared to potential risk
o temporary mispricings caused by market overreactions
[GRAPHIC OMITTED]
In some funds, J.P. Morgan may adjust
currency exposure to seek to manage
risks and enhance returns
Currency management The funds have access to J.P. Morgan's currency specialists
in determining the extent and nature of each fund's exposure to various foreign
currencies. (The Emerging Markets Equity fund typically maintains full currency
exposure to those markets in which it invests.)
INTERNATIONAL EQUITY MANAGEMENT APPROACH | 10
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in a fund is $2,500 and for
additional investments $500, although these minimums may be less for some
investors. For more information on minimum investments, call
1-800-521-5411.
o Complete the application, indicating how much of your investment you want
to allocate to which fund(s). Please apply now for any account privileges
you may want to use in the future, in order to avoid the delays associated
with adding them later on.
o Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
<PAGE>
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to
place a purchase order. Funds that are wired without a purchase order will
be returned uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FFC: your account number, name of registered owner(s) and fund name
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with your completed application to the Transfer Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that
are wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If
you do not have an investment slip, attach a note indicating your account
number and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
11 | YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
By phone -- wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can
help you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your
fund account.
By phone -- check payment
o Call the Shareholder Services Agent and place your request. Once your
request has been verified, a check for the net amount, payable to the
registered owner(s), will be mailed to the address of record. For checks
payable to any other party or mailed to any other address, please make your
request in writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the
fund name; the amount you want to sell; and the recipients name and address
or wire information, if different from those of the account registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
Redemption in kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
<PAGE>
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that, for tax purposes, an
exchange is considered a sale. A fund may alter, limit, or suspend its exchange
policy at any time.
Business hours and NAV calculations The funds' regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each fund
calculates its net asset value per share (NAV) every business day as of the
close of trading on the NYSE (normally 4:00 p.m. eastern time). The fund's
securities are typically priced using market quotes or pricing services. When
these methods are not available or do not represent a security's value at the
time of pricing, (e.g., when an event occurs after the close of trading that
would materially impact a security's value) the security is valued in accordance
with the fund's fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. A fund has the right to suspend redemption of shares as
permitted by law and to postpone payment of proceeds for up to seven days.
- --------------------------------------------------------------------------------
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 | 12
<PAGE>
- --------------------------------------------------------------------------------
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions. In-kind redemptions
(described on page 12) will be available as promptly as is feasible.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, each fund sends out an annual or semi-annual report containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), the fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the fund reserves the right to close out your account and
send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
Each fund typically pays income dividends and makes capital gains distributions,
if any, once a year. A fund may declare an additional income dividend in a given
year, depending on its tax situation. However, a fund may also make fewer
payments in a given year, depending on its investment results. Dividends and
distributions consist of substantially all of the fund's net investment income
and realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
<PAGE>
- --------------------------------------------------------------------------------
TAX CONSIDERATIONS
In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities for taxable accounts:
- --------------------------------------------------------------------------------
Transaction | Tax status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
Long-term capital gains Capital gains
distributions
- --------------------------------------------------------------------------------
Sales or exchanges of shares Capital gains or losses
owned for more than one year
- --------------------------------------------------------------------------------
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
- --------------------------------------------------------------------------------
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when a fund is about to declare a long-term capital
gains distribution.
Every January, each fund issues tax information on its distributions for the
previous year.
Any investor for whom a fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
13 | YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE
As noted earlier, each fund is a series of J.P. Morgan Funds, a Massachusetts
business trust, and is a "feeder" fund that invests in a master portfolio.
(Except where indicated, this prospectus uses the term "the fund" to mean the
feeder fund and its master portfolio taken together.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-521-5411. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one full or fractional vote for each dollar or fraction of a
dollar invested.
Each feeder fund and its master portfolio expect to maintain consistent goals,
but if they do not, the feeder fund will withdraw from the master portfolio,
receiving its assets either in cash or securities. Each feeder fund's trustees
would then consider whether the feeder fund should hire its own investment
adviser, invest in a different master portfolio, or take other action.
MANAGEMENT AND ADMINISTRATION
The feeder funds described in this prospectus, their corresponding master
portfolios and J.P. Morgan Series Trust are all governed by the same trustees.
The trustees are responsible for overseeing all business activities. The
trustees are assisted by Pierpont Group, Inc., which they own and operate on a
cost basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees each fund's other service
providers.
<PAGE>
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
Advisory services Percentage of the master
portfolio's average net assets
- --------------------------------------------------------------------------------
International Equity 0.60%
European Equity 0.65%
International Opportunities 0.60%
Emerging Markets Equity 1.00%
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-rata
(fee shared with Funds portions of 0.09% of the first $7
Distributor, Inc.) billion of average net assets in J.P.
Morgan-advised portfolios, plus 0.04%
of average net assets over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.25% of the fund's average
net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
FUND DETAILS | 14
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table identifies the main elements that make up each fund's overall risk
and reward characteristics. It also outlines each fund's policies toward various
investments, including those that are designed to help certain funds manage
risk.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign and other market conditions
<S> <C> <C>
o Each fund's share price and o Stocks have generally outperformed o Under normal circumstances the
performance will fluctuate in more stable invest- ments (such as funds plan to remain fully
response to stock and bond market bonds and cash equivalents) over invested, with at least 65% in
movements the long term stocks; stock investments may
include convertible securities,
o The value of most bonds will fall o Foreign investments, which preferred stocks, depository
when interest rates rise; the represent a major portion of the receipts (such as ADRs and EDRs),
longer a bond's maturity and the world's securities, offer trust or partnership interests,
lower its credit quality, the more attractive potential performance warrants, rights, and investment
its value typically falls and opportunities for company securities
diversification
o A fund could lose money because of o The funds seek to limit risk and
foreign government actions, o Most bonds will rise in value when enhance performance through active
political instability, or lack of interest rates fall management, country allocation and
adequate and/or accurate diversification
information o Foreign bonds, which represent a
major portion of the world's fixed o During severe market downturns, the
o Investment risks tend to be higher income securities, offer attractive funds have the option of investing
in emerging markets. These markets potential performance and up to 100% of assets in
also present higher liquidity and opportunities for diversification investment-grade short-term
valuation risks securities
o Emerging markets can offer higher
o Adverse market conditions may from returns o The Emerging Markets Equity Fund
time to time cause the fund to take will invest up to 20% of assets in
temporary defensive positions that debt securities when J.P. Morgan
are inconsistent with its principal believes the potential total return
investment strategies and may exceeds potential total return in
hinder the fund from achieving its emerging markets equity securities
investment objective
- ------------------------------------------------------------------------------------------------------------------------------------
Management choices
o A fund could underperform its o A fund could outperform its o J.P. Morgan focuses its active
benchmark due to its securities benchmark due to these same management on securities selection,
choices and other management choices the area where it believes its
decisions commitment to research can most
enhance returns
- ------------------------------------------------------------------------------------------------------------------------------------
Foreign currencies
o Currency exchange rate movements o Favorable exchange rate movements o Except as noted earlier in this
could reduce gains or create losses could generate gains or reduce prospectus, each fund manages the
losses currency exposure of its foreign
o Currency risks tend to be higher in investments relative to its
emerging markets benchmark and may hedge a portion
of its foreign currency exposure
into the U.S. dollar from time to
time. (see also "Derivatives")
- ------------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed
delivery securities
o When a fund buys securities before o A fund can take advantage of o Each fund uses segregated accounts
issue or for delayed delivery, it attractive transaction to offset leverage risk
could be exposed to leverage risk opportunities
if it does not use segregated
accounts
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
15 | FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Derivatives
o Derivatives such as futures, o Hedges that correlate well with o The funds use derivatives, such as
options, swaps, and forward foreign underlying positions can reduce or futures, options, swaps, and forward
currency contracts (1) that are eliminate losses at low cost foreign currency contracts, for
used for hedging the portfolio or hedging and for risk management
specific securities may not fully o A fund could make money and protect (i.e., to establish or adjust
offset the underlying positions and against losses if the investment exposure to particular securities,
this could result in losses to the analysis proves correct markets or currencies); risk
fund that would not have otherwise management may include management of
occurred o Derivatives that involve leverage a fund's exposure relative to its
could generate substantial gains at benchmark
o Derivatives used for risk management low cost
may not have the intended effects and o The funds only establish hedges that
may result in losses or missed they expect will be highly correlated
opportunities with underlying positions
o The counterparty to a derivatives o While the funds may use derivatives
contract could default that incidentally involve leverage,
they do not use them for the specific
o Derivatives that involve leverage purposes of leveraging their
could magnify losses portfolios
o Certain types of derivatives involve
costs to a fund which can reduce
returns
- ------------------------------------------------------------------------------------------------------------------------------------
Securities lending
o When a fund lends a security, there o A fund may enhance income through the o J.P. Morgan maintains a list of
is a risk that the loaned securities investment of the collateral received approved borrowers
may not be returned if the borrower from the borrower
defaults o The fund receives collateral equal to
at least 100% of the current value of
o The collateral will be subject to the securities loaned
risks of the securities in which it
is invested o The lending agents indemnify a fund
against borrower default
o J.P. Morgan's collateral investment
guidelines limit the quality and
duration of collateral investment to
minimize losses
o Upon recall, the borrower must return
the securities loaned within the
normal settlement period
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid holdings
<S> <C> <C>
o A fund could have difficulty valuing o These holdings may offer more o No fund may invest more than 15% of
these holdings precisely attractive yields or potential growth net assets in illiquid holdings
than comparable widely traded
o A fund could be unable to sell these securities o To maintain adequate liquidity,
holdings at the time or price it each fund may hold investment-grade
desired short-term securities (including
repurchase agreements and reverse
repurchase agreements) and, for
temporary or extraordinary
purposes, may borrow from banks up
to 331/3% of the value of its total
assets
- ------------------------------------------------------------------------------------------------------------------------------------
Short-term trading
o Increased trading could raise a o A fund could realize gains in a short o The funds generally avoid
fund's brokerage and related costs period of time short-term trading, except to take
advantage of attractive or
o Increased short-term capital gains o A fund could protect against losses unexpected opportunities or to meet
distributions could raise if a stock is overvalued and its demands generated by shareholder
shareholders' income tax liability value later falls activity. The turnover rate for
each fund for its most recent
fiscal year end is as follows:
International Equity (70%);
European Equity (68%);
International Opportunities (80%);
and Emerging Markets Equity (87%).
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
predetermined price. A swap is a privately negotiated agreement to exchange
one stream of payments for another. A forward foreign currency contract is
an obligation to buy or sell a given currency on a future date and at a set
price.
FUND DETAILS | 16
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each fund's
financial performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose reports, along with each fund's financial
statements, are included in the representative fund's annual report, which are
available upon request.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL EQUITY FUND
Per-share data For fiscal years ended October 31
- ----------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 11.50 10.68 11.38 10.97 10.56
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.09 0.12 0.15 0.34 0.16
Net realized and unrealized gain (loss)
on investment and foreign currency transactions
and translations($) (0.42) 1.16 0.23 0.14 2.30
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) (0.33) 1.28 0.38 0.48 2.46
- ----------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.24) (0.25) (0.42) (0.31)
Net realized gain ($) (0.49) (0.34) (0.54) (0.47) (0.30)
- ----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.49) (0.58) (0.79) (0.89) (0.61)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 10.68 11.38 10.97 10.56 12.41
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------
Total return (%) (2.71) 12.31 3.46 4.87 24.41
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 185,541 200,720 146,659 76,472 64,860
- ----------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.28 1.14 1.12 1.17 1.21
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.80 1.00 1.11 0.73 0.55
- ----------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.28 1.14 1.12 1.17 1.21
- ----------------------------------------------------------------------------------------------------------------------
Interest expense (%) -- -- -- 0.01 --
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
17 | J.P. MORGAN INTERNATIONAL EQUITY FUNDS
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
J.P MORGAN EUROPEAN EQUITY FUND
Per-share data For fiscal periods ended
- -----------------------------------------------------------------------------------------------------------------------
12/31/96(1) 12/31/97 For the eleven months 11/30/99
ended 11/30/98
<S> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 11.61 13.35 15.42
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.01 0.10 0.12 0.17
Net realized and unrealized gain
on investment and foreign currency transactions($) 1.60 2.45 1.95 1.74
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 1.61 2.55 2.07 1.91
- -----------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.07) -- (0.20)
Net realized gain ($) 0.00(2) (0.74) -- (0.01)
In excess of realized gain ($) -- -- -- (0.06)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) 0.00(2) (0.81) -- (0.27)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 11.61 13.35 15.42 17.06
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Total return (%) 16.10(3) 22.10 15.51(3) 12.61
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 2,072 4,832 14,902 13,262
- -----------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net Expenses (%) 1.42(4) 1.42 1.42(4) 1.48
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.29(4) 0.91 0.91(4) 0.57
- -----------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.50(5) 3.78 2.03 2.38
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------
(1) The fund commenced operations on 5/13/96.
(2) Less than 0.01.
(3) Not annualized.
(4) Annualized.
(5) After consideration of then applicable state limitations.
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
Per-share data For fiscal periods ended November 30
- -----------------------------------------------------------------------------------------------------------------------
1997(1) 1998 1999
<S> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 9.92 10.04
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.06 0.23 0.21
Net realized and unrealized gain (loss)
on investment and foreign currency transactions($) (0.14) (0.01) 2.93
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) (0.08) 0.22 3.14
- -----------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from
Net investment income ($) -- (0.10) (0.30)
Net realized gain ($) -- (0.00)(4) --
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) -- (0.10) (0.30)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.92 10.04 12.88
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Total return (%) (0.80)(2) 2.30 32.13
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 62,939 55,050 67,543
- -----------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net Expenses (%) 1.203 1.20 1.18
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.083 0.96 0.47
- -----------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement and
including interest expense (%) 1.513 1.24 1.24
- -----------------------------------------------------------------------------------------------------------------------
Interest expense (%) -- -- 0.01
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 2/26/97
(2) Not annualized.
(3) Annualized.
(4) Less than 0.01.
J.P. MORGAN INTERNATIONAL EQUITY FUNDS | 18
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
J.P. MORGAN EMERGING MARKETS EQUITY FUND
Per-share data For fiscal years ended October 31
- -----------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 12.43 9.65 10.18 9.78 6.25
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.05 0.08 0.08 0.12(1) 0.08
Net realized and unrealized gain (loss)
on investment and foreign currency transactions($) (2.66) 0.53 (0.42) (3.57)(1) 1.84
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) (2.61) 0.61 (0.34) (3.45) 1.92
- -----------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.03) (0.08) (0.06) (0.08) (0.31)
Net realized gain ($) (0.14) -- -- -- --
In excess of net investment income ($) -- -- -- -- (0.12)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.17) (0.08) (0.06) (0.08) (0.43)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 9.65 10.18 9.78 6.25 7.74
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Total return (%) (21.15) 6.31 (3.34) (35.54) 33.00
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 49,295 59,107 45,444 23,387 35,786
- -----------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 1.80 1.69 1.65 1.76 1.75
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.55 0.68 0.62 1.24 0.73
- -----------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.80 1.69 1.65 1.82 1.87
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
- -------------------
(1) Based on amounts prior to Statement of Position 93-2 adjustments.
19 | J.P. MORGAN INTERNATIONAL EQUITY FUNDS
<PAGE>
- -------------------------------------------------------------------------------
FOR MORE INFORMATION
- -------------------------------------------------------------------------------
For investors who want more information on these funds, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for a fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a fund's policies, investment restrictions, and business
structure. This prospectus incorporates each fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about these funds, may be obtained by contacting:
J.P. Morgan Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-521-5411
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
funds' investment company and 1933 Act registration numbers are:
<TABLE>
<S> <C>
J.P. Morgan International Equity Fund ...................... 811-07340 and 033-54632
J.P. Morgan European Equity Fund ........................... 811-07340 and 033-54632
J.P. Morgan International Opportunities Fund ............... 811-07340 and 033-54632
J.P. Morgan Emerging Markets Equity Fund ................... 811-07340 and 033-54632
</TABLE>
J.P. MORGAN FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Funds combine a heritage of integrity and financial leadership
with comprehensive, sophisticated analysis and management techniques. Drawing on
J.P. Morgan's extensive experience and depth as an investment manager, the J.P.
Morgan Funds offer a broad array of distinctive opportunities for mutual fund
investors.
JPMorgan
- --------------------------------------------------------------------------------
J.P. Morgan Funds |
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
IMPR12
<PAGE>
- --------------------------------------------------------------------------------
MARCH 1, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN FIXED INCOME FUNDS
Short Term Bond Fund
Bond Fund
Global Strategic Income Fund
Emerging Markets Debt Fund
Tax Exempt Bond Fund
New York Tax Exempt Bond Fund
California Bond Fund
------------------------------------
Seeking high total return or current
income by investing primarily in
fixed income securities.
This prospectus contains essential information for anyone investing in these
funds. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc.
JPMorgan
<PAGE>
- --------------------------------------------------------------------------------
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2 | Each fund's goal, principal strategies, principal risks, performance and
expenses
J.P. MORGAN FIXED INCOME FUNDS
J.P. Morgan Short Term Bond Fund .......................................... 2
J.P. Morgan Bond Fund ..................................................... 4
J.P. Morgan Global Strategic Income Fund .................................. 6
J.P. Morgan Emerging Markets Debt Fund .................................... 8
J.P. Morgan Tax Exempt Bond Fund .......................................... 10
J.P. Morgan New York Tax Exempt Bond Fund ................................. 12
J.P. Morgan California Bond Fund .......................................... 14
16 | Principles and techniques common to the funds in this prospectus
FIXED INCOME MANAGEMENT APPROACH
J.P. Morgan ............................................................... 16
J.P. Morgan fixed income funds ............................................ 16
The spectrum of fixed income funds ........................................ 16
Who may want to invest .................................................... 16
Fixed income investment process ........................................... 17
18 | Investing in the J.P. Morgan Fixed Income funds
YOUR INVESTMENT
Investing through a financial professional ................................ 18
Investing through an employer-sponsored retirement plan ................... 18
Investing through an IRA or rollover IRA .................................. 18
Investing directly ........................................................ 18
Opening your account ...................................................... 18
Adding to your account .................................................... 18
Selling shares ............................................................ 19
Account and transaction policies .......................................... 19
Dividends and distributions ............................................... 20
Tax considerations ........................................................ 20
21 | More about risk and the funds' business operations
FUND DETAILS
Business structure ........................................................ 21
Management and administration ............................................. 21
Risk and reward elements .................................................. 22
Investments ............................................................... 24
Financial highlights ...................................................... 26
FOR MORE INFORMATION .................................................back cover
<PAGE>
J.P. MORGAN SHORT TERM BOND FUND | TICKER SYMBOL: JPSBX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN SHORT TERM BOND FUND)
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return, consistent with low volatility
of principal. This goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in fixed income securities, including U.S. government
and agency securities, domestic and foreign corporate bonds, private placements,
asset-backed and mortgage-related securities, and money market instruments, that
it believes have the potential to provide a high total return over time. These
securities may be of any maturity, but under normal market conditions the fund's
duration will range between one and three years, similar to that of the Merrill
Lynch 1-3 Year Treasury Index. For a description of duration, please see fixed
income investment process on page 17.
Up to 25% of assets may be invested in foreign securities, including 20% in debt
securities denominated in foreign currencies of developed countries. The fund
typically hedges its non-dollar investments back to the U.S. dollar. At least
90% of assets must be invested in securities that, at the time of purchase, are
rated investment-grade (BBB/Baa or better) or are the unrated equivalent,
including at least 75% A or better. No more than 10% of assets may be invested
in securities rated B or BB.
Principal Risks
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
duration fixed income funds will depend on the success of the investment
process, which is described on page 17.
Although any rise in interest rates is likely to cause a fall in the price of
bonds, the fund's comparatively short duration is designed to help keep its
share price within a relatively narrow range. Because it seeks to minimize risk,
the fund will generally offer less income, and during periods of declining
interest rates, may offer lower total returns than bond funds with longer
durations. Because of the sensitivity of the fund's mortgage related securities
to changes in interest rates, the performance and duration of the fund may be
more volatile than if it did not hold these securities. The fund uses futures
contracts and other derivatives to help manage duration, yield curve exposure,
and credit and spread volatility. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks, since these bonds are more sensitive to economic news
and their issuers have a less secure financial position. To the extent the fund
invests in foreign securities, it could lose money because of foreign government
actions, political instability, currency fluctuation or lack of adequate and
accurate information. The fund may engage in active and frequent trading,
leading to increased portfolio turnover and the possibility of increased capital
gains. See page 20 for further discussion on the tax treatment of capital gains.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $53 billion using similar
strategies as the fund.
The portfolio management team is led by Connie J. Plaehn, managing director, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1984, and William G. Tennille, vice president, who joined the team in
January of 1994 and has been at J.P. Morgan since 1992.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
2 | J.P. MORGAN SHORT TERM BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Short Term Bond Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last 6 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one year, five years and life of the fund compare to those
of the Merrill Lynch 1-3 Year Treasury Index. This is a widely recognized,
unmanaged index of U.S. Treasury notes and bonds with maturities of 1-3 years
used as a measure of overall short-term bond market performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
20%
10.58
10%
6.84
6.14
4.94
2.81
0% 0.11
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Short Term Bond Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 3.41% (for the quarter ended 6/30/95); and the
lowest quarterly return was -0.54% (for the quarter ended 3/31/94).
<TABLE>
<CAPTION>
Average annual total return Shows performance over time, for periods ended December 31, 1999
- --------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund(1)
<S> <C> <C> <C>
J.P. Morgan Short Term Bond Fund (after expenses) 2.81 6.23 5.06
- --------------------------------------------------------------------------------------------------------
Merrill Lynch 1-3 Year Treasury Index (no expenses) 3.06 6.51 5.42
- --------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before and after reimbursement are shown at right. The
fund has no sales, redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.25
Marketing (12b-1) fees none
Other expenses 0.55
- --------------------------------------------------------------------------------
Total operating expenses 0.80
Fee waiver and expense
reimbursement(4) 0.20
- --------------------------------------------------------------------------------
Net expenses(4) 0.60
- --------------------------------------------------------------------------------
Expense example(4)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
3/1/00 through 2/28/01 and total operating expenses thereafter, and all
shares sold at
the end of each time period. The example is for comparison only; the fund's
actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 61 235 425 971
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/8/93 and returns reflect performance of
the fund from 7/31/93.
(2) The fund's fiscal year end is 10/31.
(3) The fund has a master/feeder structure as described on page 21. 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.
(4) Reflects an agreement dated 7/30/99 by Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.60% of the fund's
average daily net assets through 2/28/01. Actual net expenses for the
fiscal year ended 10/31/99 were 0.57% of the fund's average daily net
assets.
J.P. MORGAN SHORT TERM BOND FUND | 3
<PAGE>
J.P. MORGAN BOND FUND | TICKER SYMBOL: PPBDX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN BOND FUND)
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return consistent with moderate risk of
capital and maintenance of liquidity. This goal can be changed without
shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in fixed income securities, including U.S. government
and agency securities, corporate bonds, private placements, asset-backed and
mortgage-backed securities, that it believes have the potential to provide a
high total return over time. These securities may be of any maturity, but under
normal market conditions the management team will keep the fund's duration
within one year of that of the Salomon Smith Barney Broad Investment Grade Bond
Index (currently about five years). For a description of duration, please see
fixed income investment process on page 17.
Up to 25% of assets may be invested in foreign securities, including 20% in debt
securities denominated in foreign currencies of developed countries. The fund
typically hedges its non-dollar investments back to the U.S. dollar. At least
75% of assets must be invested in securities that, at the time of purchase, are
rated investment-grade (BBB/Baa or better) or are the unrated equivalent,
including at least 65% A or better. No more than 25% of assets may be invested
in securities rated B or BB.
Principal Risks
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 17.
To the extent that the fund seeks higher returns by investing in
non-investment-grade bonds, often called junk bonds, it takes on additional
risks, since these bonds are more sensitive to economic news and their issuers
have a less secure financial position. The fund may use futures contracts and
other derivatives to help manage duration, yield curve exposure, and credit and
spread volatility. To the extent the fund invests in foreign securities, it
could lose money because of foreign government actions, political instability,
currency fluctuation or lack of adequate and accurate information. The fund's
mortgage-backed investments involve risk of losses due to default or to
prepayments that occur earlier or later than expected. The fund may engage in
active and frequent trading, leading to increased portfolio turnover and the
possibility of increased capital gains. See page 20 for further discussion on
the tax treatment of capital gains.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $29 billion using similar
strategies as the fund.
The portfolio management team is led by William G. Tennille, vice president, who
has been at J.P. Morgan since 1992, Connie J. Plaehn, managing director, who has
been at J.P. Morgan since 1984, and John Snyder, vice president, who has been at
J.P. Morgan since 1993. Mr. Tennille and Ms. Plaehn have been on the team since
January of 1994. Mr. Snyder has been a fixed income portfolio manager since
joining J.P. Morgan.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
4 | J.P. MORGAN BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Bond Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last 10 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one, five and ten years and compare to those of the Salomon
Smith Barney Broad Investment Grade Bond Index. This is a widely recognized,
unmanaged index of U.S. Treasury and agency securities and investment-grade
mortgage and corporate bonds used as a measure of overall bond market
performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20%
18.17
13.45
10% 10.09
9.87
9.13
7.36
6.53
3.13
0%----------------------------------------------------------------------------------------------------------------------------------
(0.73)
(2.97)
(10%)
</TABLE>
[ ] J.P. Morgan Bond Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 6.25% (for the quarter ended 6/30/95); and the
lowest quarterly return was -2.39% (for the quarter ended 3/31/94).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.(1)
<S> <C> <C> <C>
J.P. Morgan Bond Fund (after expenses) (0.73) 7.23 7.23
- ------------------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney Broad Investment Grade Bond Index (no expenses) (0.83) 7.74 7.65
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.30
Marketing (12b-1) fees none
Other expenses 0.39
- --------------------------------------------------------------------------------
Total annual fund
operating expenses 0.69
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 70 221 384 859
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/12/93. Returns for the period 1/1/90
through 7/31/93 reflect performance of The Pierpont Bond Fund, the fund's
predecessor, which commenced operations on 3/11/88.
(2) The fund's fiscal year end is 10/31.
(3) The fund has a master/feeder structure as described on page 21. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year expressed as a percentage of average net assets.
J.P. MORGAN BOND FUND | 5
<PAGE>
J.P. MORGAN GLOBAL STRATEGIC
INCOME FUND | TICKER SYMBOL: JPGSX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN GLOBAL STRATEGIC INCOME FUND)
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return from a portfolio of fixed income
securities of foreign and domestic issuers. This goal can be changed without
shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests in a wide range of debt securities from the U.S. and other
markets, both developed and emerging. Issuers may include governments,
corporations, financial institutions, and supranational organizations (such as
the World Bank) that the fund believes have the potential to provide a high
total return over time. The fund may invest directly in mortgages and in
mortgage-backed securities. The fund's securities may be of any maturity, but
under normal market conditions its duration will generally be similar to that of
the Lehman Brothers Aggregate Bond Index (currently about four and a half
years). For a description of duration, please see fixed income investment
process on page 17. At least 40% of assets must be invested in securities that,
at the time of purchase, are rated investment-grade (BBB/Baa or better) or are
the unrated equivalent. The balance of assets must be invested in securities
rated B or higher at the time of purchase (or the unrated equivalent), except
that the fund's emerging market component has no minimum quality rating and may
invest without limit in securities that are in the lowest rating categories (or
are the unrated equivalent).
The management team uses the process described on page 17, and also makes
country allocations, based primarily on macro-economic factors. The team uses
the model allocation shown at right as a basis for its sector allocation,
although the actual allocations are adjusted periodically within the indicated
ranges. Within each sector, a dedicated team handles securities selection. The
fund typically hedges its non-dollar investments in developed countries back to
the U.S. dollar.
Principal Risks
The fund's share price and total return will vary in response to changes in
global bond markets, interest rates, and currency exchange rates. How well the
fund's performance compares to that of similar fixed income funds will depend on
the success of the investment process. Because of credit and foreign and
emerging markets investment risks, the fund's performance is likely to be more
volatile than that of most fixed income funds. Foreign and emerging market
investment risks include foreign government actions, political instability,
currency fluctuations and lack of adequate and accurate information. To the
extent that the fund seeks higher returns by investing in non-investment-grade
bonds, often called junk bonds, it takes on additional risks, since these bonds
are more sensitive to economic news and their issuers have a less secure
financial position. The fund's mortgage-backed investments involve the risk of
losses due to default or to prepayments that occur earlier or later than
expected. Some investments, including directly owned mortgages, may be illiquid.
The fund has the potential for long-term total returns that exceed those of more
traditional bond funds, but investors should also be prepared for risks that
exceed those of more traditional bond funds. The fund may engage in frequent
trading, leading to increased portfolio turnover and the possibility of
increased capital gains. See page 20 for further discussion on the tax treatment
of capital gains.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
MODEL SECTOR ALLOCATION
9% international
non-dollar
(range 0-25%)
35% public/private 13% public/private
mortgages corporates
(range 20-45%) (range 5-25%)
[PIE CHART]
16% emerging
27% high yield markets
corporates (range 0-25%)
(range 17-37%)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $3 billion using similar
strategies as the fund.
The portfolio management team is led by Mark E. Smith, managing director, who
joined J.P. Morgan in 1994 from Allied Signal, Inc. where he managed fixed
income portfolios and oversaw asset allocation activities. He has been on the
team since the fund's inception.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
6 | J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Global Strategic Income Fund.
The bar chart indicates some of the risks by showing the performance of the
fund's shares from year to year for each of the last 2 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one year and life of the fund compare to those of the
Lehman Brothers Aggregate Bond Index. This is a widely recognized, unmanaged
index used as a measure of overall bond market performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Total return (%) Shows changes in returns by calendar year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1999
<S> <C> <C>
20%
10%
2.31
2.08
0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Global Strategic Income Fund
For the period covered by this total return chart, the fund's highest quarterly
return was 3.04% (for the quarter ended 3/31/98); and the lowest quarterly
return was -1.58% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return Shows performance over time, for periods ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan Global Strategic Income Fund (after expenses) 2.08 5.03
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index (no expenses) (0.83) 6.49
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before and after reimbursement are shown at right. The
fund has no sales, redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.45
Marketing (12b-1) fees none
Other expenses 1.09
- --------------------------------------------------------------------------------
Total operating expenses 1.54
Fee waiver and expense
reimbursement(4) 0.54
- --------------------------------------------------------------------------------
Net expenses(4) 1.00
- --------------------------------------------------------------------------------
Expense example(4)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
3/1/00 through 2/28/01 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 102 433 788 1,789
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 11/5/97. For the period 3/31/97 through
11/30/97, returns reflect performance of the J.P. Morgan Institutional
Global Strategic Income Fund (a separate feeder fund investing in the same
master portfolio). These returns reflect lower operating expenses than
those of the fund. Therefore these returns may be higher than the fund's
would have been had it existed during the same period.
(2) The fund's fiscal year end is 10/31.
(3) The fund has a master/feeder structure as described on page 21. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year expressed as a percentage of average net assets.
(4) Reflects an agreement dated 7/30/99 by Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 1.00% of the fund's
average daily net assets through 2/28/01.
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND | 7
<PAGE>
J.P. MORGAN EMERGING
MARKETS DEBT FUND | TICKER SYMBOL: JEMDX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN EMERGING MARKETS DEBT FUND)
[GRAPHIC OMITTED]
RISKS/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return from a portfolio of fixed income
securities of emerging markets issuers. This goal can be changed without
shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APROACH
Principal Strategies
The fund invests primarily in debt securities that it believes have the
potential to provide a high total return from countries whose economies or bond
markets are less developed. This designation currently includes most countries
in the world except Australia, Canada, Hong Kong, Japan, New Zealand, the U.S.,
the United Kingdom, and most Western European countries. Issuers of portfolio
securities may include foreign governments, corporations, and financial
institutions. These securities may be of any maturity and quality, but under
normal market conditions the fund's duration will generally range between three
and five years, similar to that of the Emerging Markets Bond Index Plus. For a
description of duration, please see fixed income investment process on page 17.
The fund does not have any minimum quality rating and may invest without limit
in securities that are rated in the lowest rating categories (or are the unrated
equivalent).
In addition to the investment process described on page 17, the management team
makes country allocation decisions, based primarily on financial and economic
forecasts and other macro-economic factors.
Principal Risks
The fund's share price and total return will vary in response to changes in
emerging bond markets, interest rates, and currency exchange rates. How well the
fund's performance compares to that of similar fixed income funds will depend on
the success of the investment process.
Because the fund is non-diversified and may invest more than 5% of its assets in
a single issuer and its primary securities combine the risks of emerging markets
and low credit quality, its performance is likely to be more volatile than that
of other fixed income investments. These risks and fund volatility are likely to
be compounded when the fund concentrates its investments in a small number of
countries. Emerging market investment risks include foreign government actions,
political instability, currency fluctuations and lack of adequate and accurate
information. The fund may engage in active and frequent trading, leading to
increased portfolio turnover and the possibility of increased capital gains. See
page 20 for further discussion on the tax treatment of capital gains. Since the
fund seeks higher returns by investing in non-investment-grade bonds, often
called junk bonds, it takes on additional risks, since these bonds are more
sensitive to economic news and their issuers have a less secure financial
position. Investors should be prepared to ride out periods of negative return.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $2.7 million using similar
strategies as the fund.
The portfolio management team is led by Michael Cembalest, managing director,
who has been at J.P. Morgan from 1988 to January 1998 and since June 1998, and
Paul Dickson, vice president, who has been at J.P. Morgan since November 1999.
Prior to joining the portfolio management team, Mr. Cembalest was responsible
for sovereign debt analysis in the emerging markets group. From January 1998 to
June 1998, Mr. Cembalest was a portfolio manager at Morgan Stanley. Previously,
Mr. Dickson was the senior emerging markets debt strategist at Lehman Brothers.
From 1993 to 1997, Mr. Dickson served as a strategist with Chase Manhattan Bank.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
8 | J.P. MORGAN EMERGING MARKETS DEBT FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Emerging Markets Debt Fund.
The bar chart indicates some of the risks by showing the performance of the
fund's shares from year to year for each of the last 2 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past year and life of fund compare to those of the Emerging
Markets Bond Index Global. This is a broad-based unmanaged index which tracks
total return for U.S. dollar denominated emerging markets debt, including Brady
bonds, Eurobonds and loans. Previously, the fund's benchmark was the Emerging
Markets Bond Index Plus.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Total return (%) Shows changes in returns by calendar year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
1998 1999
<S> <C> <C>
40%
25.97
20%
0%
- ------------------------------------------------------------------------------------------------------------------------------------
(15.93)
(20%)
</TABLE>
[ ] J.P. Morgan Emerging Market Debt Fund
For the period covered by this total return chart, the fund's highest quarterly
return was 14.16% (for the quarter ended 12/31/99) and the lowest quarterly
return was -21.73% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for period ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan Emerging Market Debt Fund (after expenses) 25.97 3.46
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond Index Global (no expenses) 24.19 6.41
- ------------------------------------------------------------------------------------------------------------------------------------
Emerging Markets Bond Index Plus (no expenses) 25.98 6.24
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before and after reimbursement are shown at right. The
fund has no sales, redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.70
Marketing (12b-1) fees none
Other expenses 1.81
- --------------------------------------------------------------------------------
Total operating expenses 2.51
Fee waiver and expense
reimbursement(4) 1.26
- --------------------------------------------------------------------------------
Net expenses(4) 1.25
- --------------------------------------------------------------------------------
Expense example(4)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
8/1/99 through 11/28/00 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 127 661 1,222 2,751
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 4/17/97 and returns reflect performance
of the fund from 4/30/97.
(2) The fund's fiscal year end is 7/31. Prior to 1999, the fund's fiscal year
end was 12/31.
(3) The fund has a master/feeder structure as described on page 21. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year expressed as a percentage of average net assets.
(4) Reflects an agreement dated 7/30/99 by Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 1.25% of the fund's
average daily net assets through 11/28/00.
J.P. MORGAN EMERGING MARKETS DEBT FUND | 9
<PAGE>
J.P. MORGAN TAX EXEMPT
BOND FUND | TICKER SYMBOL: PPTBX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN TAX EXEMPT BOND FUND)
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide a high level of current income that is exempt from
federal income tax consistent with moderate risk of capital. This goal can be
changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in high quality municipal securities that it believes
have the potential to provide high current income that is free from federal
personal income tax. While the fund's goal is high tax-exempt income, the fund
may invest to a limited extent in taxable securities, including U.S. government,
government agency, corporate, or taxable municipal securities. The fund's
securities may be of any maturity, but under normal market conditions the fund's
duration will generally range between four and seven years, similar to that of
the Lehman Brothers 1-16 Year Municipal Bond Index (currently 5.4 years). For a
description of duration, please see fixed income investment process on page 17.
At least 90% of assets must be invested in securities that, at the time of
purchase, are rated investment-grade (BBB/Baa or better) or are the unrated
equivalent. No more than 10% of assets may be invested in securities rated B or
BB.
Principal Risks
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
tax-exempt funds will depend on the success of the investment process, which is
described on page 17.
Investors should be prepared for higher share price volatility than from a tax
exempt fund of shorter duration. The fund's performance could also be affected
by market reaction to proposed tax legislation. To the extent that the fund
seeks higher returns by investing in non-investment-grade bonds, often called
junk bonds, it takes on additional risks, since these bonds are more sensitive
to economic news and their issuers have a less secure financial position.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $1.3 billion using similar
strategies as the fund.
The portfolio management team is led by Robert W. Meiselas, vice president, who
joined the team in June of 1997 and has been at J.P. Morgan since 1987, and
Benjamin Thompson, vice president, who joined the team in June of 1999. Prior to
joining J.P. Morgan, Mr. Thompson was a senior fixed income portfolio manager at
Goldman Sachs.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
10 | J.P. MORGAN TAX EXEMPT BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Tax Exempt Bond Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the fund's last 10 calendar
years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one, five and ten years compare to those of the Lehman
Brothers 1-16 Year Municipal Bond Index, the fund's current benchmark. Since
this index has not been in existence during all of the past ten years, the table
also shows the performance of the Lehman Quality Intermediate Municipal Bond
Index, the fund's previous benchmark. Both are unmanaged indices that measure
municipal bond market performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20%
13.40
10.92
10%
9.58
7.47 7.42
6.87
5.47
3.54
0%
- ------------------------------------------------------------------------------------------------------------------------------------
(0.88)
(2.70)
(10%)
</TABLE>
[ ] J.P. Morgan Tax Exempt Bond Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 5.09% (for the quarter ended 3/31/95); and the
lowest quarterly return was -3.08% (for the quarter ended 3/31/94).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.(1)
<S> <C> <C> <C>
J.P. Morgan Tax Exempt Bond Fund (after expenses) (0.88) 5.69 6.00
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers 1-16 Year Municipal Bond Index (no expenses) (0.06) 6.32 N/A
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Quality Intermediate Municipal Bond Index (no expenses) 0.30 6.25 6.60
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.30
Marketing (12b-1) fees none
Other expenses 0.38
- --------------------------------------------------------------------------------
Total annual fund
operating expenses 0.68
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 69 218 379 847
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/12/93. For the period 1/1/90 through
7/31/93 returns reflect performance of The Pierpont Tax Exempt Bond Fund,
the predecessor of the fund.
(2) The fund's fiscal year end is 7/31. Prior to 1999, the fund's fiscal year
end was 8/31.
(3) The fund has a master/feeder structure as described on page 21. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year expressed as a percentage of average net assets.
J.P. MORGAN TAX EXEMPT BOND FUND | 11
<PAGE>
J.P. MORGAN NEW YORK
TAX EXEMPT BOND FUND | TICKER SYMBOL: PPNYX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND)
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide a high level of tax exempt income for New York
residents consistent with moderate risk of capital. This goal can be changed
without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in New York municipal securities that it believes
have the potential to provide high current income which is free from federal,
state, and New York City personal income taxes for New York residents. The fund
may also invest to a limited extent in securities of other states or
territories. To the extent that the fund invests in municipal securities of
other states, the income from such securities would be free from federal
personal income taxes for New York residents but would be subject to New York
state and New York City personal income taxes. For non-New York residents, the
income from New York municipal securities is free from federal personal income
taxes only. The fund may also invest in taxable securities. The fund's
securities may be of any maturity, but under normal market conditions the fund's
duration will generally range between three and seven years, similar to that of
the Lehman Brothers 1-16 Year Municipal Bond Index (currently 5.4 years). For a
description of duration, please see fixed income investment process on page 17.
At least 90% of assets must be invested in securities that, at the time of
purchase, are rated investment-grade (BBB/Baa or better) or are the unrated
equivalent. No more than 10% of assets may be invested in securities rated B or
BB.
Principal Risks
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 17. Because most of the fund's investments will typically
be from issuers in the State of New York, its performance will be affected by
the fiscal and economic health of that state and its municipalities. The fund is
non-diversified and may invest more than 5% of assets in a single issuer, which
could further concentrate its risks. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks, since these bonds are more sensitive to economic news
and their issuers have a less secure financial condition.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $1.3 billion using similar
strategies as the fund.
The portfolio management team is led by Robert W. Meiselas, vice president, who
joined the team in June of 1997 and has been at J.P. Morgan since 1987, and
Benjamin Thompson, vice president, who joined the team in June of 1999. Prior to
joining J.P. Morgan, Mr. Thompson was a senior fixed income portfolio manager at
Goldman Sachs.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
12 | J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan New York Tax Exempt Bond Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last 5 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past year and the life of the fund compare to those of the
Lehman Brothers 1-16 Year Municipal Bond Index. This is a widely recognized,
unmanaged index of general obligation and revenue bonds with maturities of 1-16
years used as a measure of overall tax-exempt bond market performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
20%
13.03
10%
7.41
5.39
3.96
0%
- ------------------------------------------------------------------------------------------------------------------------------------
(0.84)
(10%)
</TABLE>
[ ] J.P. Morgan New York Tax Exempt Bond Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 4.80% (for the quarter ended 3/31/95) and the
lowest quarterly return was -1.83% (for the quarter ended 6/30/99).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan New York Tax Exempt Bond Fund (after expenses) (0.84) 5.06
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers 1-16 Year Municipal Bond Index (no expenses) (0.06) 5.95
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before and after reimbursement are shown at right. The
fund has no sales, redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.30
Marketing (12b-1) fees none
Other expenses 0.48
- --------------------------------------------------------------------------------
Total operating expenses 0.78
Fee waiver and expense
reimbursement(4) 0.08
- --------------------------------------------------------------------------------
Net expenses(4) 0.70
- --------------------------------------------------------------------------------
Expense example(4)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
8/1/99 through 11/28/00 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 72 241 425 959
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 4/11/94 and returns reflect performance
of the fund from 4/30/94.
(2) The fund's fiscal year end is 7/31. Prior to 1999, the fund's fiscal year
end was 3/31.
(3) The fund has a master/feeder structure as described on page 21. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of average net assets.
(4) Reflects an agreement dated 7/30/99 by Morgan Guaranty Trust Company of
New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.70% of the fund's
average daily net assets through 11/28/00.
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND | 13
<PAGE>
J.P. MORGAN CALIFORNIA
BOND FUND | TICKER SYMBOL: JPCBX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN CALIFORNIA BOND FUND: SELECT SHARES)
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high after-tax total return for California
residents consistent with moderate risk of capital. This goal can be changed
without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in California municipal securities that it believes
have the potential to provide high current income which is free from federal and
state personal income taxes for California residents. Because the fund's goal is
high after-tax total return rather than high tax-exempt income, the fund may
invest to a limited extent in securities of other states or territories. To the
extent that the fund invests in municipal securities of other states, the income
from such securities would be free from federal personal income taxes for
California residents but would be subject to California state personal income
taxes. For non-California residents, the income from California municipal
securities is free from federal personal income taxes only. The fund may also
invest in taxable securities. The fund's securities may be of any maturity, but
under normal market conditions the fund's duration will generally range between
three and ten years, similar to that of the Lehman Brothers 1-16 Year Municipal
Bond Index (currently 5.4 years). For a description of duration, please see
fixed income investment process on page 17. At least 90% of assets must be
invested in securities that, at the time of purchase, are rated investment-grade
(BBB/Baa or better) or are the unrated equivalent. No more than 10% of assets
may be invested in securities rated B or BB.
Principal Risks
The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 17. Because most of the fund's investments will typically
be from issuers in the State of California, its performance will be affected by
the fiscal and economic health of that state and its municipalities. The fund is
non-diversified and may invest more than 5% of assets in a single issuer, which
could further concentrate its risks. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks, because these bonds are more sensitive to economic
news and their issuers have a less secure financial condition.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $1.3 billion using similar
strategies as the fund.
The portfolio management team is led by Robert W. Meiselas, vice president, who
joined the team in June of 1997 and has been at J.P. Morgan since 1987, and
Benjamin Thompson, vice president, who joined the team in June of 1999. Prior to
joining J.P. Morgan, Mr. Thompson was a senior fixed income portfolio manager at
Goldman Sachs.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
14 | J.P. MORGAN CALIFORNIA BOND FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan California Bond Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the last 3 calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past year compare to those of the Lehman Brothers 1-16 Year
Municipal Bond Index. This is a widely recognized, unmanaged index of general
obligation and revenue bonds with maturities of 1-16 years used as a measure of
overall tax-exempt bond market performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Total return (%) Shows changes in returns by calendar year(1,2)
- ------------------------------------------------------------------------------------------------------------------------------------
1997 1998 1999
<S> <C> <C> <C>
10%
7.61
5.48
5%
0%
- ------------------------------------------------------------------------------------------------------------------------------------
(0.78)
(10%)
</TABLE>
[ ] J.P. Morgan California Bond Fund: Select Shares(1) (a separate class of
shares)
For the period covered by this total return chart, the fund's highest quarterly
return was 3.46% (for the quarter ended 9/30/98) and the lowest quarterly return
was -2.02% (for the quarter ended 6/30/99).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for period ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan California Bond Fund: Select Shares (a separate class of shares) (after expenses) (0.78) 4.04
- ------------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers 1-16 Year Municipal Bond Index (no expenses) (0.06) 4.66
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before reimbursement are shown at right. The fund has
no sales, redemption, exchange, or account fees, although some institutions may
charge you a fee for shares you buy through them. The annual fund expenses after
reimbursement are deducted from fund assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.30
Marketing (12b-1) fees none
Other expenses(4) 0.57
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 0.87
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
(before reimbursement) unchanged, and all shares sold at the end of each time
period. The example is for comparison only; the fund's actual return and your
actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 89 278 482 1,073
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 4/21/97 and returns reflect the
performance of the fund from 5/1/97 forward. For the period 1/1/97 through
4/30/97, returns reflect the performance of J.P. Morgan California Bond Fund:
Institutional Shares (a separate class of shares). Performance during this
period reflects operating expenses which are lower than
those of the fund. Accordingly, performance returns for the fund would have been
lower if an investment had been made in the fund during the same time period.
(2) The fund's fiscal year end is 4/30.
(3) This table shows expenses for the past fiscal year before reimbursement,
expressed as a percentage of average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.35%
and 0.65%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.
J.P. MORGAN CALIFORNIA BOND FUND | 15
<PAGE>
FIXED INCOME MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 380 analysts and portfolio managers
around the world and has approximately $349 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN FIXED INCOME FUNDS
These funds invest primarily in bonds and other fixed income securities, either
directly or through a master portfolio (another fund with the same goal). The
funds seek high total return or high current income.
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor,
emphasizes the potential for consistently enhancing performance while managing
risk.
THE SPECTRUM OF FIXED INCOME FUNDS
The funds described in this prospectus pursue different goals and offer varying
degrees of risk and potential reward. The table below shows degrees of the
relative risk and return that these funds potentially offer. These and other
distinguishing features of each fixed income fund were described on the
preceding pages. Differences among these funds include:
o the types of securities they hold
o the tax status of the income they offer
o the relative emphasis on current income versus total return
Who May Want to Invest
- --------------------------------------------------------------------------------
The funds are designed for investors who:
o want to add an income investment to further diversify a portfolio
o want an investment whose risk/return potential is higher than that of
money market funds but generally less than that of stock funds
o want an investment that pays monthly dividends
o with regard to the Tax Exempt Bond Fund, are seeking income that is exempt
from federal personal income tax
o with regard to the state-specific funds, are seeking income that is exempt
from federal, state, and local (if applicable) personal income taxes in
New York or California
The funds are not designed for investors who:
o are investing for aggressive long-term growth
o require stability of principal
o with regard to the Global Strategic Income or Emerging Markets Debt funds,
are not prepared to accept a higher degree of risk than most traditional
bond funds
o with regard to the federal or state tax-exempt funds, are investing
through a tax-deferred account such as an IRA
Potential risk and return
[The following table was represented as an x-y chart in the printed material.]
Lower Risk, Lower Return (after taxes)
|
| Short Term Bond Fund
|
| Bond Fund
|
| Tax Exempt Bond Fund*
|
| New York Tax Exempt Bond Fund*
| California Bond Fund*
|
| Global Strategic Income Fund
|
| Emerging Markets Debt Fund
V
Higher Risk, Higher Return (after taxes)
The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.
* Based on tax-equivalent returns for an investor in the highest income tax
bracket.
16 | FIXED INCOME MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
FIXED INCOME INVESTMENT PROCESS
J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas, and when consistent with a fund's investment approach,
takes positions in many different areas, helping the funds to limit exposure to
concentrated sources of risk.
In managing the funds described in this prospectus, J.P. Morgan employs a
three-step process that combines sector allocation, fundamental research for
identifying portfolio securities, and duration management.
[GRAPHIC OMITTED]
The funds invest across a range of
different types of securities
Sector allocation The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which a fund may invest. The team
seeks to enhance performance and manage risk by underweighting or overweighting
sectors.
[GRAPHIC OMITTED]
Each fund makes its portfolio decisions
as described earlier in this prospectus
Security selection Relying on the insights of different specialists, including
credit analysts, quantitative researchers, and dedicated fixed income traders,
the portfolio managers make buy and sell decisions according to each fund's goal
and strategy.
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process
to control each fund's sensitivity
to interest rates
Duration management Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish each fund's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securities owned by a fund, duration measures the average time needed to receive
the present value of all principal and interest payments by analyzing cash flows
and interest rate movements. A fund's duration is generally shorter than a
fund's average maturity because the maturity of a security only measures the
time until final payment is due. Each fund's target duration typically remains
relatively close to the duration of the market as a whole, as represented by the
fund's benchmark. The strategists closely monitor the funds and make tactical
adjustments as necessary.
FIXED INCOME MANAGEMENT APPROACH | 17
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in a fund is $2,500 and for additional
investments $500, although these minimums may be less for some investors. For
more information on minimum investments, call 1-800-521-5411.
o Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
o Mail in your application, making your initial investment as shown at right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. Funds that are wired without a purchase order will be returned
uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FFC: your account number, name of registered owner(s) and fund name
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with your completed application to the Transfer Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as described above.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds.
o Mail the check with a completed investment slip to the Transfer Agent. If you
do not have an investment slip, attach a note indicating your account number
and how much you wish to invest in which fund(s).
By exchange
o Call the Shareholder Services Agent to effect an exchange.
18 | YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES
By phone -- wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone -- check payment
o Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
Redemption In Kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.
A fund may alter, limit, or suspend its exchange policy at any time.
Business hours and NAV calculations The funds' regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each fund
calculates its net asset value per share (NAV) every business day as of the
close of trading on the NYSE (normally 4:00 p.m. eastern time). Each fund's
securities are typically priced using pricing services or market quotes. When
these methods are not available or do not represent a security's value at the
time of pricing (e.g., when an event occurs after the close of trading that
would materially impact a security's value), the security is valued in
accordance with the fund's fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. A fund has the right to suspend redemption of shares as
permitted by law and to postpone payment of proceeds for up to seven days.
- --------------------------------------------------------------------------------
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 | 19
<PAGE>
- --------------------------------------------------------------------------------
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months each fund sends out an annual or semi-annual report containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), each fund reserves the right to request that you buy more shares
or close your account. If your account balance is still below the minimum 60
days after notification, each fund reserves the right to close out your account
and send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
Income dividends are typically declared daily and paid monthly. If an investor's
shares are redeemed during the month, accrued but unpaid dividends are paid with
the redemption proceeds. Shares of a fund earn dividends on the business day the
purchase is effective, but not on the business day the redemption is effective.
Each fund distributes capital gains, if any, once a year. However, a fund may
make more or fewer payments in a given year, depending on its investment results
and its tax compliance situation. Each fund's dividends and distributions
consist of most or all of its net investment income and net realized capital
gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares, 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 from the Exempt from federal, state,
New York Tax Exempt Bond and New York City personal
Fund income taxes for New York
residents only
Income dividends from the Exempt from federal and state
California Bond Fund personal income taxes for
California residents only
Income dividends from the Exempt from federal personal
Tax Exempt Bond Fund income taxes
Income dividends from Ordinary income
all other funds
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of Capital gains or
shares owned for more losses
than one year
Sales or exchanges of Gains are treated as ordinary
shares owned for one year income; losses are subject
or less to special rules
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when a fund is about to declare a long-term capital
gains distribution. A portion of the Tax Exempt Bond, New York Tax Exempt Bond
and California Bond funds' returns may be subject to federal, state, or local
tax, or the alternative minimum tax. Every January, each fund issues tax
information on its distributions for the previous year. Any investor for whom a
fund does not have a valid taxpayer identification number will be subject to
backup withholding for taxes. The tax considerations described in this section
do not apply to tax-deferred accounts or other non-taxable entities. Because
each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
20 | YOUR INVESTMENT
<PAGE>
FUND DETAILS
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BUSINESS STRUCTURE
As noted earlier, each fund (except the California Bond Fund) is a series of
J.P. Morgan Funds, a Massachusetts business trust, and a "feeder" fund that
invests in a master portfolio. (Except where indicated, this prospectus uses the
term "the fund" to mean the feeder fund and its master portfolio taken
together.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-521-5411. Generally, when a master
portfolio seeks a vote, each of its feeder funds will hold a shareholder meeting
and cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one full or fractional vote for each dollar or
fraction of a dollar invested.
Each feeder fund and its master portfolio expect to maintain consistent goals,
but if they do not, the feeder fund will withdraw from the master portfolio,
receiving its assets either in cash or securities. Each feeder fund's trustees
would then consider whether it should hire its own investment adviser, invest in
a different master portfolio, or take other action.
The California Bond Fund is a series of J.P. Morgan Series Trust, a
Massachusetts business trust. Information about other series or classes is
available by calling 1-800-521-5411. In the future, the trustees could create
other series or share classes, which would have different expenses.
MANAGEMENT AND ADMINISTRATION
The feeder funds described in this prospectus, their corresponding master
portfolios, and J.P. Morgan Series Trust are all governed by the same trustees.
The trustees are responsible for overseeing all business activities. The
trustees are assisted by Pierpont Group, Inc., which they own and operate on a
cost basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers.
J.P. Morgan, as co-administrator, oversees each fund's other service providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
Advisory services Percentage of the master
portfolio's average net assets
Short Term Bond 0.25%
Bond 0.30%
Global Strategic Income 0.45%
Emerging Markets Debt 0.70%
Tax Exempt Bond 0.30%
New York Tax Exempt Bond 0.30%
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion of average net
assets in J.P. Morgan-advised
portfolios, plus 0.04% of average
net assets over $7 billion
Shareholder services 0.25% of each fund's average
net assets
The California Bond Fund, subject to the expense reimbursements described
earlier in this prospectus, pays J.P. Morgan the following fees for investment
advisory and other services:
Advisory services 0.30% of the fund's average
net assets
Administrative services Fund's pro-rata portion of
(fee shared with Funds 0.09% of the first $7 billion of
Distributor, Inc.) average net assets in J.P. Morgan-
advised portfolios, plus 0.04% of
average net assets over $7 billion
Shareholder services 0.25% of the fund's average
net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
FUND DETAILS | 21
<PAGE>
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RISK AND REWARD ELEMENTS
This table discusses the main elements that make up each fund's overall risk and
reward characteristics. It also outlines each fund's policies toward various
investments, including those that are designed to help certain funds manage
risk.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market conditions
o Each fund's share price, o Bonds have generally o Under normal circumstances the funds plan to remain fully
yield, and total return will outperformed money market invested in bonds and other fixed income securities as noted in
fluctuate in response to investments over the long the table on pages 24-25
bond market movements term, with less risk than
stocks o The funds seek to limit risk and enhance total return or yields
o The value of most bonds will through careful management, sector allocation, individual
fall when interest rates o Most bonds will rise in securities selection, and duration management
rise; the longer a bond's value when interest rates
maturity and the lower its fall o During severe market downturns, the funds have the option of
credit quality, the more its investing up to 100% of assets in investment-grade short-term
value typically falls o Mortgage-backed and securities
asset-backed securities can
o Adverse market conditions offer attractive returns o J.P. Morgan monitors interest rate trends, as well as
may from time to time cause geographic and demographic information related to
a fund to take temporary mortgage-backed securities and mortgage prepayments
defensive positions that are
inconsistent with its
principal investment
strategies and may hinder a
fund from achieving its
investment objective
o Mortgage-backed and
asset-backed securities
(securities representing an
interest in, or secured by,
a pool of mortgages or other
assets such as receivables)
could generate capital
losses or periods of low
yields if they are paid off
substantially earlier or
later than anticipated
Credit quality
o The default of an issuer o Investment-grade bonds have o Each fund maintains its own policies for balancing credit
would leave a fund with a lower risk of default quality against potential yields and gains in light of its
unpaid interest or principal investment goals
o Junk bonds offer higher
o Junk bonds (those rated yields and higher potential o J.P. Morgan develops its own ratings of unrated securities and
BB/Ba or lower) have a gains makes a credit quality determination for unrated securities
higher risk of default, tend
to be less liquid, and may
be more difficult to value
Foreign investments
o A fund could lose money o Foreign bonds, which o Foreign bonds are a primary investment only for the Global
because of foreign represent a major portion of Strategic Income and Emerging Markets Debt funds and may be a
government actions, the world's fixed income significant investment for the Short Term Bond and Bond funds;
political instability, or securities, offer attractive the Tax Exempt Bond, New York Tax Exempt Bond and California
lack of adequate and potential performance and Bond funds are not permitted to invest any assets in foreign
accurate information opportunities for bonds
diversification
o Currency exchange rate o To the extent that a fund invests in foreign bonds, it may
movements could reduce gains o Favorable exchange rate manage the currency exposure of its foreign investments
or create losses movements could generate relative to its benchmark, and may hedge a portion of its
gains or reduce losses foreign currency exposure into the U.S. dollar from time to
o Currency and investment time (see also "Derivatives"); these currency management
risks tend to be higher in o Emerging markets can offer techniques may not be available for certain emerging markets
emerging markets higher returns investments
Management choices
o A fund could underperform o A fund could outperform its o J.P. Morgan focuses its active management on those areas where
its benchmark due to its benchmark due to these same it believes its commitment to research can most enhance returns
sector, securities or choices and manage risks in a consistent way
duration choices
</TABLE>
22 | FUND DETAILS
<PAGE>
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<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Derivatives
o Derivatives such as futures, o Hedges that correlate well o The funds use derivatives, such as futures, options, swaps and
options, swaps and forward with underlying positions forward foreign currency contracts, for hedging and for risk
foreign currency contracts can reduce or eliminate management (i.e., to adjust duration or yield curve exposure,
that are used for hedging losses at low cost or to establish or adjust exposure to particular securities,
the portfolio or specific markets, or currencies); risk management may include management
securities may not fully o A fund could make money and of a fund's exposure relative to its benchmark; the Tax Exempt
offset the underlying protect against losses if Bond, New York Tax Exempt Bond and California Bond funds are
positions(1) and this could management's analysis proves permitted to enter into futures and options transactions,
result in losses to the fund correct however, these transactions result in taxable gains or losses
that would not have so it is expected that these funds will utilize them
otherwise occurred o Derivatives that involve infrequently; forward foreign currency contracts are not
leverage could generate permitted to be used by the Tax Exempt Bond, New York Tax
o Derivatives used for risk substantial gains at low Exempt Bond and California Bond funds
management may not have the cost
intended effects and may o The funds only establish hedges that they expect will be highly
result in losses or missed correlated with underlying positions
opportunities
o While the funds may use derivatives that incidentally involve
o The counterparty to a leverage, they do not use them for the specific purpose of
derivatives contract could leveraging their portfolios
default
o Certain types of derivatives
involve costs to the funds
which can reduce returns
o Derivatives that involve
leverage could magnify
losses
Securities lending
o When a fund lends a o A fund may enhance income o J.P. Morgan maintains a list of approved borrowers
security, there is a risk through the investment of
that the loaned securities the collateral received from o The fund receives collateral equal to at least 100% of the
may not be returned if the the borrower current value of securities loaned
borrower defaults
o The lending agents indemnify a fund against borrower default
o The collateral will be
subject to the risks of the o J.P. Morgan's collateral investment guidelines limit the
securities in which it is quality and duration of collateral investment to minimize
invested losses
o Upon recall, the borrower must return the securities loaned
within the normal settlement period
Illiquid holdings
o A fund could have difficulty o These holdings may offer o No fund may invest more than 15% of net assets in illiquid
valuing these holdings more attractive yields or holdings
precisely potential growth than
comparable widely traded o To maintain adequate liquidity to meet redemptions, each fund
o A fund could be unable to securities may hold investment-grade short-term securities (including
sell these holdings at the repurchase agreements and reverse purchase agreements) and, for
time or price desired temporary or extraordinary purposes, may borrow from banks up
to 33 1/3% of the value of its total assets
When-issued and delayed
delivery securities
o When a fund buys securities o A fund can take advantage of o Each fund uses segregated accounts to offset leverage risk
before issue or for delayed attractive transaction
delivery, it could be opportunities
exposed to leverage risk if
it does not use segregated
accounts
Short-term trading
o Increased trading would o A fund could realize gains o The funds may use short-term trading to take advantage of
raise a fund's transaction in a short period of time attractive or unexpected opportunities or to meet demands
costs generated by shareholder activity. The turnover rate for each
o A fund could protect against fund for its most recent fiscal year end is as follows: Short
o Increased short-term capital losses if a bond is Term Bond (398%), Bond (465%), Global Strategic Income (318%),
gains distributions would overvalued and its value Emerging Markets Debt, for the seven months ended 7/31/99
raise shareholders' income later falls (555%), Tax Exempt Bond, for the eleven months ended 7/31/99
tax liability (29%), New York Tax Exempt Bond, for the four months ended
7/31/99 (8%), and California Bond (40%).
(1) A futures contract is an agreement to buy or sell a set quantity of an underlying instrument at a future date, or to make or
receive a cash payment based on changes in the value of a securities index. An option is the right to buy or sell a set
quantity of an underlying instrument at a pre-determined price. A swap is a privately negotiated agreement to exchange one
stream of payments for another. A forward foreign currency contract is an obligation to buy or sell a given currency on a
future date and at a set price.
</TABLE>
FUND DETAILS | 23
<PAGE>
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Investments
This table discusses the customary types of investments which can be held by
each fund. In each case the principal types of risk are listed on the following
page (see below for definitions).This table reads across two pages.
O Permitted (and if applicable, percentage limitation)
percentage of total assets - bold
percentage of net assets - italic
* Permitted, but not typically used
+ Permitted, but no current intention of use
- -- Not permitted
<TABLE>
<CAPTION>
Global Emerging Tax New York
Short Term Strategic Markets Exempt Tax Exempt California
Principal Types of Risk Bond Bond Income Debt Bond Bond Bond
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asset-backed securities credit, interest
Interests in a stream of rate, market,
payments from specific prepayment O O O * * * *
assets, such as auto or
credit card receivables.
- ------------------------------------------------------------------------------------------------------------------------------------
Bank obligations credit, currency,
Negotiable certificates liquidity, political
of deposit, time deposits O(1) O(1) O O * * *
and bankers' acceptances Domestic Domestic Domestic
of domestic and foreign Only Only Only
issuers.
- ------------------------------------------------------------------------------------------------------------------------------------
Commercial paper credit, currency,
Unsecured short term debt interest rate,
issued by domestic and liquidity, market,
foreign banks or political O(1) O(1) * * O O O
corporations. These
securities are usually
discounted and are rated
by S&P or Moody's.
- ------------------------------------------------------------------------------------------------------------------------------------
Convertible securities credit, currency,
Domestic and foreign debt interest rate,
securities that can be liquidity, market, O(1) O(1) * O -- -- --
converted into equity political, valuation
securities at a future
time and price.
- ------------------------------------------------------------------------------------------------------------------------------------
Corporate bonds Debt credit, currency,
securities of domestic interest rate,
and foreign industrial, liquidity, market, O(1) O(1) O O -- -- --
utility, banking, and political, valuation
other financial
institutions.
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgages (directly held) credit,
Domestic debt instrument environmental,
which gives the lender a extension, interest
lien on property as rate, liquidity, O O O + + + +
security for the loan market, natural
payment. event, political,
prepayment,
valuation
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage-backed credit, currency,
securities Domestic and extension, interest
foreign securities (such rate, leverage,
as Ginnie Maes, Freddie market, political,
Macs, Fannie Maes) which prepayment
represent interests in O(1) O(1) O * -- -- --
pools of mortgages,
whereby the principal and
interest paid every month
is passed through to the
holder of the securities.
- ------------------------------------------------------------------------------------------------------------------------------------
Mortgage dollar rolls The currency, extension,
purchase of domestic or interest rate,
foreign mortgage-backed leverage, liquidity,
securities with the market, political,
promise to purchase prepayment
similar securities upon O(1) O(1) O -- -- -- --
the maturity of the 33 1/3% 33 1/3% 33 1/3%
original security.
Segregated accounts are
used to offset leverage
risk.
- ------------------------------------------------------------------------------------------------------------------------------------
Participation interests credit, currency,
Interests that represent extension, interest
a share of domestic or rate, liquidity, O(1) O(1) O O -- -- --
foreign bank debt or political,
similar securities or prepayment
obligations.
- ------------------------------------------------------------------------------------------------------------------------------------
Private placements Bonds credit, interest
or other investments that rate, liquidity,
are sold directly to an market, valuation O O O O O O O
institutional investor.
- ------------------------------------------------------------------------------------------------------------------------------------
REITs and other credit, interest
real-estate related rate, liquidity,
instruments Securities of market, natural O O O -- -- -- --
issuers that invest in event, prepayment,
real estate or are valuation
secured by real estate.
- ------------------------------------------------------------------------------------------------------------------------------------
Repurchase agreements credit
Contracts whereby the
fund agrees to purchase a
security and resell it to O O O O * * *
the seller on a
particular date and at a
specific price.
- ------------------------------------------------------------------------------------------------------------------------------------
Reverse repurchase credit
agreements Contracts
whereby the fund sells a
security and agrees to O(3) O(3) O(3) O(3) *(3) *(3) *(3)
repurchase it from the
buyer on a particular
date and at a specific
price. Considered a form
of borrowing.
- ------------------------------------------------------------------------------------------------------------------------------------
Sovereign debt, Brady credit, currency,
bonds, and debt of interest rate,
supranational market, political
organizations Dollar- or
non-dollar-denominated
securities issued by O(1) O(1) O O -- -- --
foreign governments or
supranational
organizations. Brady
bonds are issued in
connection with debt
restructurings.
- ------------------------------------------------------------------------------------------------------------------------------------
Swaps Contractual credit, currency,
agreement whereby a interest rate,
domestic or foreign party leverage, market,
agrees to exchange political O(1) O(1) O O O -- --
periodic payments with a
counterparty. Segregated
accounts are used to
offset leverage risk.
- ------------------------------------------------------------------------------------------------------------------------------------
Synthetic variable rate credit, interest
instruments Debt rate, leverage,
instruments whereby the liquidity, market
issuer agrees to exchange -- -- -- -- O O O
one security for another
in order to change the
maturity or quality of a
security in the fund.
- ------------------------------------------------------------------------------------------------------------------------------------
Tax exempt municipal credit, interest
securities Securities, rate, market,
generally issued as natural event,
general obligation and political
revenue bonds, whose * * -- -- O(2) O(2) O(2)
interest is exempt from
federal taxation and
state and/or local taxes
in the state where the
securities were issued.
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. government interest rate
securities Debt
instruments (Treasury
bills, notes, and bonds) O O O O O O O
guaranteed by the U.S.
government for the timely
payment of principal and
interest.
- ------------------------------------------------------------------------------------------------------------------------------------
Zero coupon, pay-in-kind, credit, currency,
and deferred payment interest rate,
securities Domestic and liquidity, market,
foreign securities political, valuation
offering non-cash or
delayed-cash payment. O(1) O(1) O O O O O
Their prices are
typically more volatile
than those of some other
debt instruments and
involve certain special
tax considerations.
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Risk related to certain investments held by J.P. Morgan fixed income funds:
Credit risk The risk a financial obligation will not be met by the issuer of a
security or the counterparty to a contract, resulting in a loss to the
purchaser.
Currency risk The risk currency exchange rate fluctuations may reduce gains or
increase losses on foreign investments.
Environmental risk The risk that an owner or operator of real estate may be
liable for the costs associated with hazardous or toxic substances located on
the property.
Extension risk The risk a rise in interest rates will extend the life of a
mortgage-backed security to a date later than the anticipated prepayment date,
causing the value of the investment to fall.
Interest rate risk The risk a change in interest rates will adversely affect the
value of an investment. The value of fixed income securities generally moves in
the opposite direction of interest rates (decreases when interest rates rise and
increases when interest rates fall).
Leverage risk The risk of gains or losses disproportionately higher than the
amount invested.
Liquidity risk The risk the holder may not be able to sell the security at the
time or price it desires.
Market risk The risk that when the market as a whole declines, the value of a
specific investment will decline proportionately. This systematic risk is common
to all investments and the mutual funds that purchase them.
Natural event risk The risk a natural disaster, such as a hurricane or similar
event, will cause severe economic losses and default in payments by the issuer
of the security.
Political risk The risk governmental policies or other political actions will
negatively impact the value of the investment.
Prepayment risk The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.
Valuation risk The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.
(1) For each of the Short Term Bond and Bond funds, all foreign securities in
the aggregate may not exceed 25% of such fund's assets.
(2) At least 65% of the California Bond Fund's assets must be in California
municipal securities, at least 65% of the New York Tax Exempt Bond Fund's
assets must be in New York municipal securities, and at least 80% of the
New York Tax Exempt and Tax Exempt Bond Funds' assets must be in tax
exempt securities.
(3) All forms of borrowing (including securities lending and reverse
repurchase agreements) in the aggregate may not exceed 33 1/3 of the
fund's total assets.
24 & 25 | FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each fund's
financial performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends and distributions). Except where noted, this information has been
audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's
financial statements, are included in the respective fund's annual report, which
are available upon request.
- --------------------------------------------------------------------------------
J.P. MORGAN SHORT TERM BOND FUND
<TABLE>
<CAPTION>
Per-share data For fiscal years ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.60 9.84 9.86 9.85 9.98
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.57 0.53 0.58 0.56 0.57
Net realized and unrealized gain (loss)
on investment ($) 0.24 0.02 (0.01) 0.13 (0.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.81 0.55 0.57 0.69 0.26
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.57) (0.53) (0.58) (0.56) (0.51)
Net realized gain ($) -- -- -- -- (0.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.57) (0.53) (0.58) (0.56) (0.56)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 9.84 9.86 9.85 9.98 9.68
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 8.70 5.77 5.98 7.24 2.70
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 10,330 8,207 14,519 30,984 38,714
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.67 0.62 0.50 0.50 0.57
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 5.88 5.42 5.94 5.66 5.24
---------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.48 1.61 1.38 0.98 0.80
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Not annualized.
(2) Annualized.
26 | FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
J.P. MORGAN BOND FUND
<TABLE>
<CAPTION>
Per-share data For fiscal years ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 9.64 10.41 10.30 10.42 10.59
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.64 0.62 0.66 0.65 0.58
Net realized and unrealized gain (loss)
on investment ($) 0.77 (0.11) 0.18 0.17 (0.60)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 1.41 0.51 0.84 0.82 (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.64) (0.62) (0.65) (0.65) (0.59)
Net realized gain ($) -- -- (0.07) -- (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.64) (0.62) (0.72) (0.65) (0.70)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 10.41 10.30 10.42 10.59 9.87
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 15.10 5.13 8.58 8.06 (0.23)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 143,004 149,207 169,233 216,285 234,874
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.69 0.66 0.68 0.66 0.69
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 6.40 6.08 6.41 6.14 5.72
---------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.69 0.66 0.68 0.66 0.69
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Not annualized.
(2) Annualized.
- --------------------------------------------------------------------------------
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
<TABLE>
<CAPTION>
Per-share data For fiscal periods ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1998(1) 1999
<S> <C> <C>
Net asset value, beginning of period ($) 10.21 9.77
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.70 0.60
Net realized and unrealized loss
on investment ($) (0.49) (0.38)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.21 0.22
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.63) (0.59)
Return of capital (0.02) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.65) (0.59)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.77 9.40
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 1.97(2) 2.26
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 10,166 9,073
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.00(3) 1.00
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 6.24(3) 6.35
---------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.89(3) 1.54
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 11/5/97.
(2) Not annualized.
(3) Annualized.
FUND DETAILS | 27
<PAGE>
- --------------------------------------------------------------------------------
J.P. MORGAN EMERGING MARKETS DEBT FUND
<TABLE>
<CAPTION>
For the seven
months
Per-share data For periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
12/31/97(1) 12/31/98 7/31/99
<S> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 9.76 7.30
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.58 1.15 0.49
Net realized and unrealized loss
on investment ($) (0.05) (2.64) 0.02
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.53 (1.49) 0.51
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.58) (0.81) (0.52)
Excess of net investment income ($) (0.02) (0.16) --
Net realized gain ($) (0.17) .-- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.77) (0.97) (0.52)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.76 7.30 7.29
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 5.47(2) (15.93) 7.27(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 11,978 19,313 26,216
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.25(3) 1.25 1.25(3)
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 9.71(3) 10.05 12.28(3)
---------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.40(3) 2.09 2.51(3)
---------------------------------------------------------------------------------------------------------------------------------
Interest Expense -- -- 0.02(3)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 4/17/97.
(2) Not annualized.
(3) Annualized.
- --------------------------------------------------------------------------------
J.P. MORGAN TAX EXEMPT BOND FUND
<TABLE>
<CAPTION>
For the 11
months
Per-share data For periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
8/31/94 8/31/95 8/31/96 8/31/97 8/31/98 7/31/99
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 12.04 11.45 11.73 11.63 11.85 12.15
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.51 0.55 0.55 0.55 0.54 0.46
Net realized and unrealized gain (loss)
on investment ($) (0.35) 0.29 (0.08) 0.24 0.30 (0.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.16 0.84 0.47 0.79 0.84 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.51) (0.55) (0.55) (0.55) (0.54) 0.46
Net realized gain ($) (0.24) (0.01) (0.02) (0.02) (0.00)(1) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.75) (0.56) (0.57) (0.57) (0.54) (0.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 11.45 11.73 11.63 11.85 12.15 11.77
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 1.35 7.63 4.01 6.95 7.21 0.83(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 392,460 352,005 369,987 401,007 439,225 431,685
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.71 0.71 0.64 0.64 0.64 0.68(3)
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.39 4.87 4.67 4.67 4.44 4.21(3)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Less than $0.01 per share.
(2) Not annualized.
(3) Annualized.
28 | FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
<TABLE>
<CAPTION>
For the four
months
Per-share data For periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
3/31/95(1) 3/31/96 3/31/97 3/31/98 3/31/99 7/31/99
Net asset value, beginning of period ($) 10.00 10.11 10.34 10.28 10.62 10.66
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.40 0.46 0.46 0.46 0.42 0.13
Net realized and unrealized gain (loss)
on investment ($) 0.11 0.26 (0.03) 0.40 0.14 (0.28)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.51 0.72 0.43 0.86 0.56 (0.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.40) (0.46) (0.46) (0.46) (0.42) (0.13)
Net realized gain ($) -- (0.03) (0.03) (0.06) (0.10) (0.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.40) (0.49) (0.49) (0.52) (0.52) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.11 10.34 10.28 10.62 10.66 10.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 5.26(2) 7.16 4.19 8.49 5.39 (1.41)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 38,137 50,523 56,198 85,161 119,152 115,690
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.75(3) 0.75 0.75 0.71 0.70 0.70(3)
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.31(3) 4.43 4.44 4.33 3.95 3.82(3)
---------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.97(3) 0.79 0.81 0.77 0.74 0.78(3)
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 4/11/94.
(2) Not annualized.
(3) Annualized.
- --------------------------------------------------------------------------------
J.P. MORGAN CALIFORNIA BOND FUND-SELECT SHARES
<TABLE>
<CAPTION>
For the six
months
Per-share data For fiscal periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
4/30/97(1) 4/30/98 4/30/99 10/31/99
(unaudited)
<S> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 10.04 10.35 10.57
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.01 0.41 0.40 0.20
Net realized and unrealized gain (loss)
on investment ($) 0.04 0.31 0.26 (0.39)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.05 0.72 0.66 (0.19)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.01) (0.41) (0.40) (0.20)
Net realized gain ($) -- -- (0.04) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.01) (0.41) (0.44) (0.20)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.04 10.35 10.57 10.18
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 0.51(2) 7.20 6.43 (1.84)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 302 5,811 17,391 15,209
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.62(3) 0.65 0.65 0.65(3)
---------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.52(3) 3.94 3.76 3.76(3)
---------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.17(3) 1.00 0.87 0.83(3)
---------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 40 44 40 0.54
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 4/21/97.
(2) Not annualized.
(3) Annualized.
FUND DETAILS | 29
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on these funds, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for a fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a fund's policies, investment restrictions, and business
structure. This prospectus incorporates each fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:
J.P. Morgan Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-521-5411
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
funds' investment company and 1933 Act registration numbers are:
J.P. Morgan Short Term Bond Fund .......................811-07340 and 033-54632
J.P. Morgan Bond Fund ..................................811-07340 and 033-54632
J.P. Morgan Global Strategic Income Fund ...............811-07340 and 033-54632
J.P. Morgan Emerging Markets Debt Fund .................811-07340 and 033-54632
J.P. Morgan Tax Exempt Bond Fund .......................811-07340 and 033-54632
J.P. Morgan New York Tax Exempt Bond Fund ..............811-07340 and 033-54632
J.P. Morgan California Bond Fund .......................811-07795 and 333-11125
J.P. MORGAN FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Funds combine a heritage of integrity and financial leadership
with comprehensive, sophisticated analysis and management techniques. Drawing on
J.P. Morgan's extensive experience and depth as an investment manager, the J.P.
Morgan Funds offer a broad array of distinctive opportunities for mutual fund
investors.
JPMorgan
- --------------------------------------------------------------------------------
J.P. Morgan Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
<PAGE>
- --------------------------------------------------------------------------------
MARCH 1, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN U.S. EQUITY FUNDS
Disciplined Equity Fund
U.S. Equity Fund
U.S. Small Company Fund
U.S. Small Company Opportunities Fund
Tax Aware U.S. Equity Fund
--------------------------------------
Seeking to outperform U.S. stock
markets over the long term through a
disciplined management approach
This prospectus contains essential information for anyone investing in these
funds. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense for anyone to state or suggest otherwise.
Distributed by Funds Distributor, Inc. JPMorgan
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
2 | Each fund's goal, principal strategies, principal risks, performance and
expenses
J.P. MORGAN U.S. EQUITY FUNDS
J.P. Morgan Disciplined Equity Fund ......................................... 2
J.P. Morgan U.S. Equity Fund ................................................ 4
J.P. Morgan U.S. Small Company Fund ......................................... 6
J.P. Morgan U.S. Small Company Opportunities Fund ........................... 8
J.P. Morgan Tax Aware U.S. Equity Fund ...................................... 10
12 | Principles and techniques common to the funds in this prospectus
U.S. EQUITY MANAGEMENT APPROACH
J.P. Morgan ................................................................. 12
J.P. Morgan U.S. equity funds ............................................... 12
The spectrum of U.S. equity funds ........................................... 12
Who may want to invest ...................................................... 12
U.S. equity investment process .............................................. 13
Tax aware investing at J.P. Morgan .......................................... 13
14 | Investing in the J.P. Morgan U.S. Equity Funds
YOUR INVESTMENT
Investing through a financial professional .................................. 14
Investing through an employer-sponsored retirement plan ..................... 14
Investing through an IRA or rollover IRA .................................... 14
Investing directly .......................................................... 14
Opening your account ........................................................ 14
Adding to your account ...................................................... 14
Selling shares .............................................................. 15
Account and transaction policies ............................................ 15
Dividends and distributions ................................................. 16
Tax considerations .......................................................... 16
17 | More about risk and the funds' business operations
FUND DETAILS
Business structure .......................................................... 17
Management and administration ............................................... 17
Performance of private accounts ............................................. 18
Risk and reward elements .................................................... 20
Financial highlights ........................................................ 22
FOR MORE INFORMATION .................................................back cover
<PAGE>
J.P. MORGAN DISCIPLINED EQUITY FUND | TICKER SYMBOL: JPEQX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 20-21.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide a consistently high total return from a broadly
diversified portfolio of equity securities with risk characteristics similar to
the Standard & Poor's 500 Stock Index (S&P 500). This goal can be changed
without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the S&P 500.
The fund does not look to overweight or underweight industries.
Within each industry, the fund modestly overweights stocks that are ranked as
undervalued or fairly valued while modestly underweighting or not holding stocks
that appear overvalued. (The process used to rank stocks according to their
relative valuations is described on page 13.) Therefore, the fund tends to own a
larger number of stocks within the S&P 500 than the U.S. Equity Fund or the Tax
Aware U.S. Equity Fund.
Principal Risks
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings of that index, the fund seeks returns that modestly exceed those of
the S&P 500 over the long term with virtually the same level of volatility.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN DISCIPLINED EQUITY FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $26 billion using similar
strategies as the fund.
The portfolio management team is led by James C. Wiess and Timothy J. Devlin,
both vice presidents, who have been on the team since the fund's inception. Mr.
Wiess has been at J.P. Morgan since 1992, and prior to managing this fund
managed other structured equity portfolios for J.P. Morgan. Mr. Devlin has been
at J.P. Morgan since July of 1996, and prior to that time was an equity
portfolio manager at Mitchell Hutchins Asset Management Inc.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
2 | J.P. MORGAN DISCIPLINED EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Disciplined Equity Fund.
The bar chart indicates some of the risks by showing the performance of the
fund's shares from year to year for each of the last two calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past year and for the life of the fund compare to those of the
S&P500 Index. This is a widely recognized, unmanaged index of U.S. stocks used
as a measure of overall U.S. stock market performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
Total return (%) Shows changes in returns by calendar year(1)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 1999
40%
31.98
30%
20%
18.02
10%
0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Disciplined Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 22.83% (for the quarter ended 12/31/98); and the
lowest quarterly return was -9.96% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999
- -------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(2)
<S> <C> <C>
J.P. Morgan Disciplined Equity Fund (after expenses) 18.02 25.94
- -------------------------------------------------------------------------------------------------------
S&P 500 Index (no expenses) 21.04 25.81
- -------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before and after reimbursement are shown at right. The
fund has no sales, redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Annual fund operating expenses(4) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.35
Marketing (12b-1) fees none
Other expenses 0.51
- --------------------------------------------------------------------------------
Total operating expenses 0.86
Fee waiver and
expense reimbursement(5) 0.11
- --------------------------------------------------------------------------------
Net expenses(5) 0.75
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Expense example(5)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
3/1/00 through 2/28/01 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 77 263 466 1,051
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 12/31/97.
(2) Life of the fund performance is calculated commencing 1/31/97 as follows:
all performance data from 12/31/97 is that of the fund, and for the period
1/31/97 through 12/31/97, returns reflect performance of J.P. Morgan
Institutional Disciplined Equity Fund (a separate feeder fund investing in
the same master portfolio). These returns reflect lower operating expenses
than those of the fund. Therefore, these returns may be higher than the
fund's would have been had it existed during the same period.
(3) The fund's fiscal year end is 5/31.
(4) The fund has a master/feeder structure as described on page 17. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of average net assets.
(5) Reflects an agreement dated 3/1/00 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.75% of the fund's
average daily net assets through 2/28/01.
J.P. MORGAN DISCIPLINED EQUITY FUND | 3
<PAGE>
J.P. MORGAN U.S. EQUITY FUND | TICKER SYMBOL: PPEQX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 20-21.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return from a portfolio of selected
equity securities. This goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or
overweight industries when it believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the investment process described on page 13. The fund
generally considers selling stocks that appear overvalued.
Principal Risks
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
By emphasizing undervalued stocks, the fund seeks to produce returns that exceed
those of the S&P 500. At the same time, by controlling the industry weightings
of the fund so they can differ only moderately from the industry weightings of
the S&P 500, the fund seeks to limit its volatility to that of the overall
market, as represented by this index.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN U.S. EQUITY FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $17 billion using similar
strategies as the fund.
The portfolio management team is led by Henry D. Cavanna, managing director, who
joined the team in February of 1998, and has been at J.P. Morgan since 1971. He
has served as manager of U.S. equity portfolios prior to managing the fund.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
4 | J.P. MORGAN U.S. EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan U.S. Equity Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the fund's last 10 calendar
years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one, five and ten years compare to those of the S&P500
Index. This is a widely recognized, unmanaged index of U.S. stocks used as a
measure of overall U.S. stock market performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year-by-year total return (%) Shows changes in returns by calendar year(1)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
40%
34.12
32.48
30%
28.41
24.45
21.06
20%
14.69
11.02
10%
8.73
1.38
0%
- ------------------------------------------------------------------------------------------------------------------------------------
(0.61)
(10%)
</TABLE>
[ ] J.P. Morgan U.S. Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 21.33% (for the quarter ended 12/31/98); and the
lowest quarterly return was -11.83% (for the quarter ended 9/30/90).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
<S> <C> <C> <C>
J.P. Morgan U.S. Equity Fund (after expenses) 14.69 24.07 16.97
- ------------------------------------------------------------------------------------------------------------------------------------
S&P500 Index (no expenses) 21.04 28.55 18.21
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.40
Marketing (12b-1) fees none
Other expenses 0.39
- --------------------------------------------------------------------------------
Total annual fund
operating expenses 0.79
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 81 252 439 978
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/18/93. For the period 1/1/89 through
7/31/93 returns reflect performance of The Pierpont Equity Fund, the
predecessor of the fund.
(2) The fund's fiscal year end is 5/31.
(3) The fund has a master/feeder structure as described on page 17. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets.
J.P. MORGAN U.S. EQUITY FUND | 5
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY FUND | TICKER SYMBOL: PPCAX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 20-21.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high total return from a portfolio of small
company stocks. This goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in small and medium sized U.S. companies whose market
capitalizations are greater than $100 million and less than $2 billion. Industry
by industry, the fund's weightings are similar to those of the Russell 2000
Index. The fund can moderately underweight or overweight industries when it
believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the process described on page 13. The fund generally
considers selling stocks that appear overvalued or have grown into large-cap
stocks.
Principal Risks
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
Small-cap stocks have historically offered higher long-term growth than
large-cap stocks, and have also involved higher risks. The fund's small-cap
emphasis means it is likely to be more sensitive to economic news and is likely
to fall further in value during broad market downturns. The fund pursues returns
that exceed those of the Russell 2000 Index while seeking to limit its
volatility relative to this index.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN U.S. SMALL COMPANY FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $4.5 billion using similar
strategies as the fund.
The portfolio management team is led by Marian U. Pardo, managing director, and
Alexandra F. Wells, vice president. Ms. Pardo has been at J.P. Morgan since
1968, except for five months in 1998 when she was president of a small
investment management firm. Prior to managing the fund, Ms. Pardo managed small
and large cap equity portfolios, equity and convertible funds, and several
institutional portfolios. Ms.Wells joined the team in March 1998 and has been
with J.P. Morgan since 1992. Prior to managing the fund, Ms. Wells managed large
cap equity portfolios, and prior to that served as an equity research analyst.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
6 | J.P. MORGAN U.S. SMALL COMPANY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan U.S. Small Company Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the fund's last 10 calendar
years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past one, five and ten years compare to those of the Russell
2000 Index. This is a widely recognized, unmanaged index of small cap U.S.
stocks used as a measure of overall U.S. small company stock performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year-by-year total return (%) Shows changes in returns by calendar year(1)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
60%
59.59
44.00
31.86
30%
22.75
20.75
18.98
8.58
0%
- ------------------------------------------------------------------------------------------------------------------------------------
(5.49)
(5.89)
(24.34)
(30%)
</TABLE>
[ ] J.P. Morgan U.S. Small Company Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 34.68% (for the quarter ended 12/31/99); and the
lowest quarterly return was -30.03% (for the quarter ended 9/30/90).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
<S> <C> <C> <C>
J.P. Morgan U.S. Small Company Fund (after expenses) 44.00 21.61 14.59
- ------------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Index (no expenses) 21.76 16.69 13.40
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.60
Marketing (12b-1) fees none
Other expenses 0.42
- --------------------------------------------------------------------------------
Total annual fund
operating expenses 1.02
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 104 325 563 1,248
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/19/93. For the period 1/1/89 through
7/31/93 returns reflect performance of The Pierpont Capital Appreciation
Fund, the predecessor of the fund.
(2) The fund's fiscal year end is 5/31.
(3) The fund has a master/feeder structure as described on page 17. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets.
J.P. MORGAN U.S. SMALL COMPANY FUND | 7
<PAGE>
J.P. MORGAN U.S. SMALL COMPANY
OPPORTUNITIES FUND | TICKER SYMBOL: JPSOX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 20-21.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide long-term growth from a portfolio of small company
growth stocks. This goal can be changed without shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in stocks of small U.S. companies whose market
capitalization is greater than $150 million and less than $1.25 billion when
purchased. While the fund holds stocks in many industries to reduce the impact
of poor performance in any one sector, it tends to emphasize industries with
higher growth potential and does not track the sector weightings of the overall
small company stock market.
In searching for companies, the fund combines the approach described on page 13
with a growth-oriented approach that focuses on each company's business
strategies and its competitive environment. The fund seeks to buy stocks when
they are undervalued or fairly valued and are poised for long-term growth.
Stocks become candidates for sale when they appear overvalued or when the
company is no longer a small-cap company, but the fund may also continue to hold
them if it believes further substantial growth is possible.
Principal Risks
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
Small-cap stocks have historically offered higher long-term growth than medium-
or large-cap stocks, and have also involved higher risks. The fund's small-cap
emphasis means it is likely to be more sensitive to economic news and is likely
to fall further in value during broad market downturns. Because the fund seeks
to outperform the Russell 2000 Growth Index while not tracking its industry
weightings, investors should expect higher volatility compared to this index or
to more conservatively managed small-cap funds.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN U.S. SMALL COMPANY
OPPORTUNITIES FUND)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $2 billion using similar
strategies as the fund.
The portfolio management team is led by Marian U. Pardo, managing director,
Saira Malik, vice president and CFA, and Carolyn Jones, associate. Ms. Pardo has
been at J.P. Morgan since 1968, except for five months in 1998 when she was
president of a small investment management firm. Prior to managing the fund, Ms.
Pardo managed small and large cap equity portfolios, equity and convertible
funds, and several institutional portfolios. Ms. Malik has been with J.P. Morgan
since July 1995 as a small company equity analyst and portfolio manager after
graduating from the University of Wisconsin with an M.S. in finance. Ms. Jones
has been with J.P. Morgan since July 1998. Prior to managing this fund, Ms.
Jones served as a portfolio manager in J.P. Morgan's private banking group and
as a product specialist at Merrill Lynch Asset Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
8 | J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan U.S. Small Company Opportunities Fund.
The bar chart indicates some of the risks by showing the performance of the
fund's shares from year to year for each of the last two calendar years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past year and for the life of the fund compare to those of the
Russell 2000 Growth Index. This is a widely recognized, unmanaged index of small
cap U.S. growth stocks used as a measure of overall U.S. small cap growth stock
performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) Shows changes in returns by calendar year(1)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1998 1999
80%
61.63
60%
40%
20%
5.21
0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan U.S. Small Company Opportunities Fund
For the period covered by this total return chart, the fund's highest quarterly
return was 23.09% (for the quarter ended 12/31/98); and the lowest quarterly
return was -20.19% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan U.S. Small Company Opportunities Fund (after expenses) 61.63 30.85
- ------------------------------------------------------------------------------------------------------------------------------------
Russell 2000 Growth Index (no expenses) 43.09 19.31
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.
Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- --------------------------------------------------------------------------------
Management fees 0.60
Marketing (12b-1) fees none
Other expenses 0.47
- --------------------------------------------------------------------------------
Total annual fund
operating expenses 1.07
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 109 340 590 1,306
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 6/16/97 and returns reflect performance
of the fund from 6/30/97.
(2) The fund's fiscal year end is 5/31.
(3) The fund has a master/feeder structure as described on page 17. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets.
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND | 9
<PAGE>
J.P. MORGAN TAX AWARE
U.S. EQUITY FUND | TICKER SYMBOL: JPTAX
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 20-21.
[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide high after tax total return from a portfolio of
selected equity securities. This goal can be changed without shareholder
approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or
overweight industries when it believes it will benefit performance.
Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the investment process described on page 13. The fund
generally considers selling stocks that appear overvalued.
To this investment approach the fund adds the element of tax aware investing.
The fund's tax aware investment strategies are described on page 13.
Principal Risks
The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance will also depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.
By emphasizing undervalued stocks, the fund seeks to produce returns that exceed
those of the S&P 500. At the same time, by controlling the industry weightings
of the fund so that they differ only moderately from the industry weightings of
the S&P 500, the fund seeks to limit its volatility to that of the overall
market, as represented by this index. The fund's tax aware strategies may reduce
your capital gains but will not eliminate them. Maximizing after-tax returns may
require trade-offs that reduce pre-tax returns.
An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN TAX AWARE U.S. EQUITY FUND: SELECT SHARES)
PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $820 million using similar
strategies as the fund.
The portfolio management team is led by Terry E. Banet, vice president, and
Louise Sclafani, vice president. Ms. Banet has been on the team since the fund's
inception in December 1996, and has been at J.P. Morgan since 1985. Prior to
managing this fund, Ms. Banet managed tax aware accounts and helped develop
Morgan's tax aware equity process. Ms. Sclafani has been at J.P. Morgan since
1994. Prior to managing this fund, Ms. Sclafani was an equity analyst and
portfolio manager at Brundage, Story and Rose.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:
o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.
10 | J.P. MORGAN TAX AWARE U.S. EQUITY FUND
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Tax Aware U.S. Equity Fund.
The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for each of the fund's last 3 calendar
years.
The table indicates some of the risks by showing how the fund's average annual
returns for the past year and the life of the fund compare to those of the S&P
500 Index. This is a widely recognized, unmanaged index of U.S. stocks used as a
measure of overall U.S. stock performance.
The fund's past performance does not necessarily indicate how the fund will
perform in the future.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Year-by-year total return (%) Shows changes in returns by calendar year(1)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1997 1998 1999
40%
31.18
30.32
20%
18.31
0%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Tax Aware U.S. Equity Fund
For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 21.64% (for the quarter ended 12/31/98) and the
lowest quarterly return was -8.86%(for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan Tax Aware U.S. Equity Fund (after expenses) 18.31 26.46
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 Index (no expenses) 21.04 27.56
</TABLE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund before and after reimbursement are shown at right. The
fund has no sales, redemption, exchange, or account fees, although some
institutions may charge you a fee for shares you buy through them. The annual
fund expenses after reimbursement are deducted from fund assets prior to
performance calculations.
Shareholder transaction expenses(3)
- --------------------------------------------------------------------------------
Redemption fees (% of your cash proceeds)
- --------------------------------------------------------------------------------
Shares held for less than one year 1.00
Shares held one year or longer none
Annual expenses (% of fund assets)
- --------------------------------------------------------------------------------
Management fees 0.45
Marketing (12b-1) fees none
Other expenses 0.45
- --------------------------------------------------------------------------------
Total operating expenses 0.90
Fee waiver and expense
reimbursement(3) 0.05
- --------------------------------------------------------------------------------
Net expenses(3) 0.85
Expense example(3)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
3/1/00 through 2/28/01 and total operating expenses thereafter, and all shares
sold at the end of each time period. In the one year example, the first number
assumes that you continued to hold your shares, the second that you sold all
shares for cash at the end of the period. The example is for comparison only;
the fund's actual return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 89/189 284 496 1,105
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 12/18/96, and returns reflect performance
of the fund from 12/31/96.
(2) The fund's fiscal year end is 10/31.
(3) Reflects an agreement dated 3/1/00 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.85% of the fund's
average daily net assets through 2/28/01.
J.P. MORGAN TAX AWARE U.S. EQUITY FUND | 11
<PAGE>
U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 380 analysts and portfolio managers
around the world and has approximately $349 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.
J.P. MORGAN U.S.EQUITY FUNDS
These funds invest primarily in U.S. stocks either directly or through another
fund. As a shareholder, you should anticipate risks and rewards beyond those of
a typical bond fund or a typical balanced fund.
THE SPECTRUM OF U.S. EQUITY FUNDS
The funds described in this prospectus pursue a range of goals and offer varying
degrees of risk and potential reward. Differences between these funds include:
o how much emphasis they give to the most undervalued stocks
o how closely they follow the industry weightings of their benchmarks
o how many securities they typically maintain in their portfolios
o the size or market capitalization of the companies in which they invest
o whether they focus on before-tax or after-tax returns
The table below shows degrees of the relative risk and return that these funds
potentially offer. These and other distinguishing features of each U.S. equity
fund are described on the following pages.
Potential risk and return
- --------------------------------------------------------------------------------
The positions of the funds in this graph reflect long-term performance goals
only and are relative, not absolute.
^
|-------------------- U.S. Small Company Opportunities Fund o
| |
| |
|---------------------U.S. Small Company Fund o |
R | | |
e | | |
t |-------------------------------------oo Tax Aware U.S. Equity Fund
u | | U.S. Equity Fund |
r | | | |
n | | | |
|-----------------------------o Disciplined Equity Fund |
| | | | |
| | | | |
| | | | |
-------------------------------------------------------------------->
Risk
- --------------------------------------------------------------------------------
Who May Want To Invest
The funds are designed for investors who:
o are pursuing a long-term goal such as retirement
o want to add an investment with growth potential to further diversify a
portfolio
o want funds that seek to outperform the markets in which they each invest over
the long term
o with regard to the Tax Aware Fund, are individuals that could benefit from a
strategy that pursues returns from an after-tax perspective
The funds are not designed for investors who:
o want funds that pursue market trends or focus only on particular industries or
sectors
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves
o with regard to the Tax Aware Fund, are investing through a tax-deferred
account such as an IRA.
12 | U.S. Equity MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
U.S. EQUITY INVESTMENT PROCESS
The J.P. Morgan U.S. equity funds invest primarily in U.S. stocks. The Tax Aware
Fund does so while seeking to enhance after-tax returns.
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor, focuses
on stock picking while largely avoiding sector or market-timing strategies.
In managing the funds, J.P. Morgan employs a three-step process:
[GRAPHIC OMITTED] | J.P. Morgan analysts develop proprietary fundamental
research
Research J.P. Morgan takes an in-depth look at company prospects over a
relatively long period -- often as much as five years -- rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 120 career analysts. The team of analysts
dedicated to U.S. equities includes more than 20 members, with an average of
over ten years of experience.
[GRAPHIC OMITTED] | Stocks in each industry are ranked with the help of models
Valuation The research findings allow J.P. Morgan to rank the companies in each
industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.
[GRAPHIC OMITTED] | Using research and valuations, each fund's management team
chooses stocks for its fund
Stock selection Each fund buys and sells stocks according to its own policies,
using the research and valuation rankings as a basis. In general, each
management team buys stocks that are identified as undervalued and considers
selling them when they appear overvalued. Along with attractive valuation, the
funds' managers often consider a number of other criteria:
o catalysts that could trigger a rise in a stock's price
o high potential reward compared to potential risk
o temporary mispricings caused by market overreactions.
- --------------------------------------------------------------------------------
TAX AWARE INVESTING AT J.P. MORGAN
The Tax Aware U.S. Equity Fund is designed to reduce, but not eliminate, capital
gains distributions to shareholders. In doing so, the fund sells securities when
the anticipated performance benefit justifies the resulting tax liability. This
strategy often includes holding securities long enough to avoid higher,
short-term capital gains taxes, selling shares with a higher cost basis first,
and offsetting gains realized in one security by selling another security at a
capital loss. The fund is aided in this process by a tax-sensitive optimization
model developed by J.P. Morgan.
The Tax Aware U.S. Equity Fund generally intends to pay redemption proceeds in
cash; however it reserves the right at its sole discretion to pay redemptions
over $250,000 in-kind as a portfolio of representative stocks rather than cash.
An in-kind redemption payment can shield the fund -- and other shareholders --
from tax liabilities that might otherwise be incurred. It is not subject to a
redemption fee by the fund. However, the stocks received will continue to
fluctuate in value after redemption and will be subject to brokerage or other
transaction costs when liquidated.
U.S. EQUITY MANAGEMENT APPROACH | 13
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the J.P. Morgan Funds offer several ways to start and add
to fund investments.
INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.
INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.
INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.
INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:
o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in a fund is $2,500 and for additional
investments $500, although these minimums may be less for some investors. For
more information on minimum investments, call 1-800-521-5411.
o Complete the application, indicating how much of your investment you want to
allocate to which fund(s). Please apply now for any account privileges you may
want to use in the future, in order to avoid the delays associated with adding
them later on.
o Mail in your application, making your initial investment as shown on the
right.
For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.
OPENING YOUR ACCOUNT
By wire
o Mail your completed application to the Shareholder Services Agent.
o Call the Shareholder Services Agent to obtain an account number and to place a
purchase order. Funds that are wired without a purchase order will be returned
uninvested.
o After placing your purchase order, instruct your bank to wire the amount of
your investment to:
State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9
FFC: your account number, name of registered owner(s) and fund name.
By check
o Make out a check for the investment amount payable to J.P. Morgan Funds
o Mail the check with your completed application to the Transfer Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
ADDING TO YOUR ACCOUNT
By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that are
wired without a purchase order will be returned uninvested.
o Once you have placed your purchase order, instruct your bank to wire the
amount of your investment as
14 | YOUR INVESTMENT
<PAGE>
SELLING SHARES
By phone -- wire payment
o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.
o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.
By phone-- check payment
o Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net cash amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).
In writing
o Write a letter of instruction that includes the following information: The
name of the registered owner(s) of the account; the account number; the fund
name; the amount you want to sell; and the recipient's name and address or
wire information, if different from those of the account registration.
o Indicate whether you want the proceeds sent by check or by wire.
o Make sure the letter is signed by an authorized party.
The Shareholder Services Agent may require additional information, such as a
signature guarantee.
o Mail the letter to the Shareholder Services Agent.
By exchange
o Call the Shareholder Services Agent to effect an exchange.
Redemption in kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.
ACCOUNT AND TRANSACTION POLICIES
Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.
Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.
A fund may alter, limit, or suspend its exchange policy at any time.
Business days and NAV calculations The funds' regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each fund
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). Each fund's
securities are typically priced using market quotes or pricing services. When
these methods are not available or do not represent a security's value at the
time of pricing (e.g., when an event occurs after the close of trading that
would materially impact a security's value), the security is valued in
accordance with the fund's fair valuation procedures.
Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. A fund has the right to suspend redemption of shares, as
permitted by law, and to postpone payment of proceeds for up to seven days.
- --------------------------------------------------------------------------------
Transfer Agent
State Street Bank and Trust Company
P.O. Box 8411
Boston, MA 02266-8411
Attention: J.P. Morgan Funds Services
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-521-5411
Representatives are available 8:00 a.m. to 5:00 p.m. eastern time on fund
business days.
YOUR INVESTMENT | 15
<PAGE>
- --------------------------------------------------------------------------------
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment, generally the day following execution. When
you sell shares, cash proceeds are generally available the day following
execution and will be forwarded according to your instructions. In-kind
redemptions (described on page 13) will be available as promptly as is feasible.
When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.
Statements and reports The funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months each fund sends out an annual or semi-annual report containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.
Accounts with below-minimum balances If your account balance falls below the
minimum for 30 days as a result of selling shares (and not because of
performance), each fund reserves the right to request that you buy more shares
or close your account. If your account balance is still below the minimum 60
days after notification, each fund reserves the right to close out your account
and send the proceeds to the address of record.
DIVIDENDS AND DISTRIBUTIONS
Income dividends are typically paid four times a year for the Disciplined
Equity, U.S. Equity and Tax Aware U.S. Equity funds; and twice a year for the
U.S. Small Company and U.S. Small Company Opportunities funds. Each fund
typically makes capital gains distributions, if any, once per year. However, a
fund may make more or fewer payments in a given year, depending on its
investment results and its tax compliance situation. Each fund's dividends and
distributions consist of most or all of its net investment income and net
realized capital gains.
Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Fund.
TAX CONSIDERATIONS
In general, selling shares for cash, exchanging shares, and receiving
distributions (whether reinvested or taken in cash) are all taxable events.
These transactions typically create the following tax liabilities for taxable
accounts:
- --------------------------------------------------------------------------------
Transaction Tax status
Income dividends Ordinary income
Short-term capital gains Ordinary income
distributions
Long-term capital gains Capital gains
distributions
Sales or exchanges of shares Capital gains or losses
owned for more than one year
Sales or exchanges of shares Gains are treated as ordinary
owned for one year or less income; losses are subject
to special rules
Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when a fund is about to declare a long-term capital
gains distribution.
Every January, each fund issues tax information on its distributions for the
previous year.
Any investor for whom a fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.
16 | YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
As noted earlier, each fund (except the Tax Aware U.S. Equity Fund) is a series
of J.P. Morgan Funds, a Massachusetts business trust, and is a "feeder" fund
that invests in a master portfolio. (Except where indicated, this prospectus
uses the term "the fund" to mean the feeder fund and its master portfolio taken
together.)
Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-521-5411. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one full or fractional vote for each dollar or fraction of a
dollar invested.
Each feeder fund and its master portfolio expect to maintain consistent goals,
but if they do not, the feeder fund will withdraw from the master portfolio,
receiving its assets either in cash or securities. Each feeder fund's trustees
would then consider whether a fund should hire its own investment adviser,
invest in a different master portfolio, or take other action.
The Tax Aware U.S. Equity Fund is a series of J.P. Morgan Series Trust, a
Massachusetts business trust. Information about other series or classes is
available by calling 1-800-521-5411. In the future, the trustees could create
other series or share classes, which would have different expenses.
MANAGEMENT AND ADMINISTRATION
The feeder funds described in this prospectus, their corresponding master
portfolios, and J.P. Morgan Series Trust are all governed by the same trustees.
The trustees are responsible for overseeing all business activities. The
trustees are assisted by Pierpont Group, Inc., which they own and operate on a
cost basis; costs are shared by all funds governed by these trustees. Funds
Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund
officers. J.P. Morgan, as co-administrator, oversees each fund's other service
providers.
J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
Advisory services Percentage of the master
portfolio's average net assets
Disciplined Equity 0.35%
U.S. Equity 0.40%
U.S. Small Company 0.60%
U.S. Small Company 0.60%
Opportunities
Administrative services Master portfolio's and fund's
(fee shared with Funds pro-rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-advised
portfolios, plus 0.04% of average net assets
over $7 billion
Shareholder services 0.25% of the fund's average
net assets
The Tax Aware U.S. Equity Fund, subject to the expense reimbursements described
earlier in this prospectus, pays J.P. Morgan the following fees for investment
advisory and other services:
Advisory services 0.45% of the fund's average
net assets
Administrative services Fund's pro-rata portion of
(fee shared with Funds 0.09% of the first $7 of average net
billion Distributor, Inc.) assets in J.P. Morgan-advised portfolios,
plus 0.04% of average net assets over $7
billion
Shareholder services 0.25% of the fund's average
net assets
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in a fund.
FUND DETAILS | 17
<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE OF PRIVATE ACCOUNTS
The Disciplined Equity Fund's investment objective and policies are
substantially similar to those used by J.P. Morgan in managing certain
discretionary investment management accounts. The chart below shows the
historical investment performance for a composite of these private accounts (the
"Disciplined Equity Composite") and for the fund's benchmark index.
The performance of the Disciplined Equity Composite does not represent the
fund's performance nor should it be interpreted as indicative of the fund's
future performance. The accounts in the Disciplined Equity Composite are not
subject to the same regulatory requirements and limitations imposed on mutual
funds. If the accounts included in the Disciplined Equity Composite had been
subject to these regulatory requirements and limitations, their performance
might have been lower.
Additionally, although it is anticipated that the fund and the Disciplined
Equity Composite will hold similar securities, their investment results are
expected to differ. In particular, difference in asset size and cash flow
resulting from purchases and redemptions of fund shares may result in different
securities selections, differences in the relative weightings of securities or
differences in the prices paid for particular fund holdings.
The performance of the Disciplined Equity Composite reflects the deductions of
the fund's total operating expenses, after expense reimbursement, and the
reinvestment of dividends and other distributions. The performance information
is the average annual total return of the Disciplined Equity Composite for the
periods indicated.
<TABLE>
<CAPTION>
Annual Total Returns for the Year Ended December 31,
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
Disciplined Equity
Composite -3.24% 30.01% 11.42% 9.87% 1.90% 37.47% 22.90% 32.97% 31.52% 18.47%
- ------------------------------------------------------------------------------------------------------------------------------------
S&P 500 -3.11% 30.47% 7.62% 10.08% 1.32% 37.58% 22.96% 33.36% 28.58% 21.04%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Disciplined Equity Composite currently includes all discretionary
accounts managed by J.P. Morgan using substantially similar investment strategy
as the Disciplined Equity Fund. The inception date for the Disciplined Equity
Composite was October 31, 1989. Prior to January 1, 1993 the composite may not
have included all discretionary accounts.
18 | YOUR INVESTMENT
<PAGE>
- --------------------------------------------------------------------------------
(THIS PAGE IS INTENTIONALLY LEFT BLANK)
| 19
<PAGE>
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up each fund's overall risk and
reward characteristics. It also outlines each fund's policies toward various
investments, including those that are designed to help certain funds manage
risk.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Potential risks | Potential rewards | Policies to balance risk and reward
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Market conditions
o Each fund's share price and o Stocks have generally o Under normal circumstances the
performance will fluctuate in outperformed more stable invest- funds plan to remain fully
response to stock market ments (such as bonds and cash invested, with at least 65% in
movements equivalents) over the long term stocks; stock investments may
include U.S. and foreign common
o Adverse market conditions may stocks, convertible securities,
from time to time cause a fund preferred stocks, trust or
to take temporary defensive partnership interests, warrants,
positions that are inconsistent rights, and investment company
with its principal investment securities
strategies and may hinder a fund
from achieving its investment o The funds seek to limit risk
objective through diversification
o During severe market downturns,
the funds have the option of
investing up to 100% of assets
in investment-grade short-term
securities
Management choices
o A fund could underperform its o A fund could outperform its o J.P. Morgan focuses its active
benchmark due to its securities benchmark due to these same management on securities
and asset allocation choices choices selection, the area where it
believes its commitment to
research can most enhance
returns
Foreign investments
o Currency exchange rate movements o Favorable exchange rate o Each fund anticipates that its
could reduce gains or create movements could generate gains total foreign investments will
losses or reduce losses not exceed 20% of assets
o A fund could lose money because o Foreign investments, which o Each fund actively manages the
of foreign government actions, represent a major portion of the currency exposure of its foreign
political instability, or lack world's securities, offer investments relative to its
of adequate and accurate attractive potential performance benchmark, and may hedge back
information and opportunities for into the U.S. dollar from time
diversification to time (see also "Derivatives")
When-issued and delayed
delivery securities
o When a fund buys securities o A fund can take advantage of o Each fund uses segregated
before issue or for delayed attractive transaction accounts to offset leverage risk
delivery, it could be exposed to opportunities
leverage risk if it does not use
segregated accounts
Short-term trading
o Increased trading would raise a o A fund could realize gains in a o The funds generally avoid
fund's brokerage and related short period of time short-term trading, except to
costs take advantage of attractive or
o A fund could protect against unexpected opportunities or to
o Increased short-term capital losses if a stock is overvalued meet demands generated by
gains distributions would raise and its value later falls shareholder activity. The
shareholders' income tax turnover rate for each fund for
liability its most recent fiscal year end
is as follows: Disciplined
Policies to balance risk and reward Equity (51%), U.S. Equity (84%),
U.S. Small Company (104%), U.S.
Small Company Opportunities
(116%), and Tax Aware U.S.
Equity (29%)
</TABLE>
20 | FUND DETAILS
<PAGE>
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
Potential risks | Potential rewards | Policies to balance risk and reward
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Derivatives
o Derivatives such as futures, o Hedges that correlate well with o The funds use derivatives for
options, swaps, and forward underlying positions can reduce hedging and for risk management
foreign currency contracts that or eliminate losses at low cost (i.e., to establish or adjust
are used for hedging the exposure to particular
portfolio or specific securities o A fund could make money and securities, markets or
may not fully offset the protect against losses if currencies); risk management may
underlying positions1 and this management's analysis proves include management of a fund's
could result in losses to the correct exposure relative to its
fund that would not have benchmark (the U.S. Small
otherwise occurred o Derivatives that involve Company Opportunities Fund is
leverage could generate permitted to use derivatives,
o Derivatives used for risk substantial gains at low cost however, it has no current
management may not have the intention to do so)
intended effects and may result
in losses or missed o The funds only establish hedges
opportunities that they expect will be highly
correlated with underlying
o The counterparty to a positions
derivatives contract could
default o While the funds may use
derivatives that incidentally
o Derivatives that involve involve leverage, they do not
leverage could magnify losses use them for the specific
purpose of leveraging their
o Certain types of derivatives portfolios
involve costs to the funds which
can reduce returns
Securities lending
o When a fund lends a security, o A fund may enhance income o J.P. Morgan maintains a list of
there is a risk that the loaned through the investment of the approved borrowers
securities may not be returned collateral received from the
if the borrower defaults borrower o The fund receives collateral
equal to at least 100% of the
o The collateral will be subject current value of securities
to the risks of the securities loaned
in which it is invested
o The lending agents indemnify a
fund against borrower default
o J.P. Morgan's collateral
investment guidelines limit the
quality and duration of
collateral investment to
minimize losses
o Upon recall, the borrower must
return the securities loaned
within the normal settlement
period
Illiquid holdings
o A fund could have difficulty o These holdings may offer more o No fund may invest more than 15%
valuing these holdings precisely attractive yields or potential of net assets in illiquid
growth than comparable widely holdings
o A fund could be unable to sell traded securities
these holdings at the time or o To maintain adequate liquidity
price it desires to meet redemptions, each fund
may hold investment-grade
Policies to balance risk and reward short-term securities (including
repurchase agreements and
reverse repurchase agreements)
and, for temporary or
extraordinary purposes, may
borrow from banks up to 331/3%
of the value of its total assets
</TABLE>
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
pre-determined price. A swap is a privately negotiated agreement to
exchange one stream of payments for another. A forward foreign currency
contract is an obligation to buy or sell a given currency on a future date
and at a set price.
FUND DETAILS | 21
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial tables are intended to help you understand each fund's financial
performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends are distributions). Except where noted, this information has been
audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's
financial statements, are included in the respective fund's annual report which
are available upon request.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN DISCIPLINED EQUITY FUND
For the
six months
Per-share data For fiscal periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
5/31/98(1) 5/31/99 11/30/99
(unaudited)
<S> <C> <C> <C>
Net asset value, beginning of period ($) 12.98 14.95 18.22
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.03 0.12 0.09
Net realized and unrealized gain
on investment ($) 1.96 3.28 0.83
Total from investment operations ($) 1.99 3.40 0.92
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.02) (0.09) (0.09)
Net realized gains ($) -- (0.04) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.02) (0.13) (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 14.95 18.22 19.05
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 15.33(2) 22.86 4.09(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 18,037 120,592 181,547
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.75(3) 0.75 0.72(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.00(3) 0.89 0.73(3)
Expenses without reimbursement (%) 3.28(3) 0.86 0.76(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 12/31/97.
(2) Not annualized.
(3) Annualized.
22 | FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN U.S. EQUITY FUND
For the
six months
Per-share data For fiscal periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
5/31/95 5/31/96 5/31/97 5/31/98 5/31/99 11/30/99
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 19.38 19.42 22.15 24.63 25.66 25.09
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.32 0.38 0.25 0.18 0.18 0.09
Net realized and unrealized gain
on investment ($) 2.17 4.23 4.72 5.92 3.91 0.31
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 2.49 4.61 4.97 6.10 4.09 0.40
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.28) (0.29) (0.36) (0.23) (0.19) (0.05)
Net realized gains ($) (2.17) (1.59) (2.13) (4.84) (4.47) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (2.45) (1.88) (2.49) (5.07) (4.66) (0.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 19.42 22.15 24.63 25.66 25.09 25.44
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 15.11 25.18 25.00 28.35 18.39 1.59(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 259,338 330,014 362,603 448,144 440,965 434,371
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.90 0.81 0.80 0.78 0.79 0.78(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.74 1.87 1.13 0.71 0.70 0.68(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.91 0.81 0.80 0.78 0.79 0.78(2)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Not annualized.
(2) Annualized.
FUND DETAILS | 23
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN U.S. SMALL COMPANY FUND
For the
six months
Per-share data For fiscal periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
5/31/95 5/31/96 5/31/97 5/31/98 5/31/99 11/30/99
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 21.40 22.02 26.20 26.04 27.68 21.54
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.22 0.26 0.18 0.11 0.08 (0.00)(1)
Net realized and unrealized gain (loss)
on investment ($) 2.13 6.96 2.00 5.58 (3.30) 5.93
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 2.35 7.22 2.18 5.69 (3.22) 5.93
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) . (0.21) (0.26) (0.21) (0.14) (0.08) (0.01)
Net realized gain ($) (1.52) (2.78) (2.13) (3.91) (2.84) --
Total distributions to shareholders ($) . (1.73) (3.04) (2.34) (4.05) (2.92) (0.01)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 22.02 26.20 26.04 27.68 21.54 27.46
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 12.28 35.48 9.49 23.37 (10.95) 27.54(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 179,130 220,917 237,985 261,804 186,879 252,971
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses (%) 0.90 0.90 0.90 0.97 1.02 1.00(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (%) 1.02 1.10 0.71 0.39 0.34 0.22(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.12 1.03 1.03 1.03 1.02 1.00(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Less than 0.01.
(2) Not annualized.
(3) Annualized.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
For the
six months
Per-share data For fiscal periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
5/31/981 5/31/99 11/30/99
(unaudited)
<S> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 12.57 12.17
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) (0.02) (0.01) (0.02)
Net realized and unrealized gain (loss)
on investment ($) 2.59 (0.08) 4.28
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 2.57 (0.09) 4.26
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net realized gain ($) -- (0.31) --
Total distributions to shareholders ($) . -- (0.31) --
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 12.57 12.17 16.43
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 25.70(2) (0.49) 35.00(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 188,932 286,082 442,122
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses (%) 1.19(3) 1.07 1.00(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (%) (0.37)(3) (0.42) (0.37)(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.25(3) 1.07 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 6/16/97.
(2) Not annualized.
(3) Annualized.
24 | FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
Per-share data For fiscal periods ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1997(1) 1998 1999
<S> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 12.57 15.19
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.06 0.08 0.10
Net realized and unrealized gain
on investment ($) 2.52 2.65 3.55
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 2.58 2.73 3.65
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.01) (0.11) (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 12.57 15.19 18.73
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 25.83(2) 21.81 24.05
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 25,649 76,924 163,075
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Net expenses (%) 0.85(3) 0.85 0.85
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.70(3) 0.63 0.58
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.16(3) 1.09 0.90
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover rate (%) 23 44 29
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 12/18/96.
(2) Not annualized.
(3) Annualized.
FUND DETAILS | 25
<PAGE>
- --------------------------------------------------------------------------------
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on these funds, the following documents
are available free upon request:
Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for a fund's most recently completed fiscal year or
half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a fund's policies, investment restrictions, and business
structure. This prospectus incorporates each fund's SAI by reference.
Copies of the current versions of these documents, along with other information
about the funds, may be obtained by contacting:
J.P. Morgan Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
Telephone: 1-800-521-5411
Hearing impaired: 1-888-468-4015
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. Each
fund's investment company and 1933 Act registration numbers are:
J.P. Morgan Disciplined Equity Fund .................... 811-07340 and 033-54632
J.P. Morgan U.S. Equity Fund ........................... 811-07340 and 033-54632
J.P. Morgan U.S. Small Company Fund .................... 811-07340 and 033-54632
J.P. Morgan U.S. Small Company Opportunities Fund ...... 811-07340 and 033-54632
J.P. Morgan Tax Aware U.S. Equity Fund ................. 811-07795 and 333-11125
J.P. MORGAN FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Funds combine a heritage of integrity and financial leadership
with comprehensive, sophisticated analysis and management techniques. Drawing on
J.P. Morgan's extensive experience and depth as an investment manager, the J.P.
Morgan Funds offer a broad array of distinctive opportunities for mutual fund
investors.
JPMorgan
- --------------------------------------------------------------------------------
J.P. Morgan Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
<PAGE>
J.P. MORGAN FUNDS
J.P. MORGAN TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 2000, FOR THE FUND LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORT RELATING
TO THE FUND DATED NOVEMBER 30, 1999. THE PROSPECTUS AND THE FINANCIAL
STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT THEREON, ARE
AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION:
J.P. MORGAN FUNDS (800) 221-7930.
<PAGE>
Table of Contents
Page
General...................................................................1
Investment Objective and Policies.........................................1
Investment Restrictions..................................................10
Trustees, Advisory Board and Officers....................................12
Investment Advisor.......................................................16
Distributor..............................................................18
Co-Administrator.........................................................18
Services Agent...........................................................19
Custodian and Transfer Agent.............................................20
Shareholder Servicing....................................................20
Financial Professionals..................................................21
Independent Accountants..................................................21
Expenses.................................................................21
Purchase of Shares.......................................................22
Redemption of Shares.....................................................22
Exchange of Shares.......................................................23
Dividends and Distributions..............................................23
Net Asset Value..........................................................24
Performance Data.........................................................24
Portfolio Transactions...................................................26
Massachusetts Trust......................................................27
Description of Shares....................................................28
Special Information Concerning
Investment Structure.....................................................30
Taxes....................................................................31
Additional Information...................................................33
Financial Statements.....................................................35
Appendix A - Description of Security Ratings............................A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Tax Exempt Money Market Fund (the "Fund"). The Fund is a series of shares
of beneficial interest of the J.P. Morgan Funds, an open-end management
investment company formed as a Massachusetts business trust (the "Trust"). In
addition to the Fund, the Trust consists of other series representing separate
investment funds (each a "J.P. Morgan Fund"). The other J.P. Morgan Funds are
covered by separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of the Fund
and provides additional information with respect to the Fund and should be read
in conjunction with the Fund's current Prospectus (the "Prospectus").
Capitalized terms not otherwise defined herein have the meanings accorded to
them in the Prospectus. The Fund's executive offices are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), an open-end management investment company having the same
investment objective as the Fund. The Fund invests in the Portfolio through a
two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").
Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor, or any other bank. Shares of the Fund
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other governmental agency. An investment in the
Fund is subject to risk that may cause the value of the investment to fluctuate,
and when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve the
objective by the Portfolio as set forth in the Prospectus. The investment
objective of the Fund and the investment objective of its corresponding
Portfolio are identical. Accordingly, references below to the Portfolio also
include the Fund; similarly, references to the Fund also include the Portfolio
unless the context requires otherwise.
The Fund is designed for investors who seek high current income
consistent with the preservation of capital and same-day liquidity from a
portfolio of high quality money market instruments. The Fund's investment
objective is to maximize current income that is exempt from federal income tax
consistent with the preservation of capital and same-day liquidity. The Fund
attempts to achieve this objective by investing all of its investable assets in
The Tax Exempt Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. dollar-denominated securities described in this
Statement of Additional Information that meet certain rating criteria, present
minimal credit risks, have effective maturities of not more than thirteen months
and earn interest wholly exempt from federal income tax in the opinion of bond
counsel for the issuer. If attractive municipal obligations are not available,
the Fund may hold cash rather than invest in taxable money market instruments.
The Portfolio, however, may temporarily invest up to 20% of total assets in
taxable securities in abnormal market conditions, for defensive purposes only.
For purposes of this calculation, obligations that generate income that may be
treated as a preference item for purposes of the alternative minimum tax shall
not be considered taxable securities. See "Quality and Diversification
Requirements." Interest on these securities may be subject to state and local
taxes. For more detailed information regarding tax matters, including the
applicability of the alternative minimum tax, see "Taxes."
Money Market Instruments
A description of the various types of money market instruments that may be
purchased by the Fund appears below. Also see "Quality and Diversification
Requirements."
Tax Exempt Obligations
The Fund may invest in tax exempt obligations to the extent consistent with
the Fund's investment objective and policies. A description of the various types
of tax exempt obligations which may be purchased by the Fund appears below. See
"Quality and Diversification Requirements."
Municipal Bonds. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund outstanding
obligations and to meet general operating expenses. Public authorities issue
municipal bonds to obtain funding for privately operated facilities, such as
housing and pollution control facilities, for industrial facilities or for water
supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
Municipal Notes. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which the Fund may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes provide that interest rates are adjustable at intervals
ranging from daily to six months, and the adjustments are based upon the prime
rate of a bank or other appropriate interest rate index specified in the
respective notes. Variable rate demand notes are valued at amortized cost; no
value is assigned to the right of the Fund to receive the par value of the
obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, excluded from gross income for federal
income tax purposes. For a description of the attributes of master demand
obligations, see "Money Market Instruments" above. Although there is no
secondary market for master demand obligations, such obligations are considered
by the Fund to be liquid because they are payable upon demand. The Fund has no
specific percentage limitations on investments in master demand obligations.
The Fund may purchase securities of the type described above if they have
effective maturities within thirteen months. As required by regulation of the
Securities and Exchange Commission (the "SEC"), this means that on the date of
acquisition the date the principal amount must be unconditionally paid (or if
called for redemption, the redemption date on which the redemption payment must
be made) must be within thirteen months or the maturity must be deemed to be no
more than thirteen months because of a maturity shortening mechanism, such as a
variable interest rate, coupled with a conditional or unconditional right to
resell the investment to the issuer or a third party. See "Variable Rate Demand
Notes" and "Puts." A substantial portion of the Fund's portfolio is subject to
maturity shortening mechanisms consisting of variable interest rates coupled
with unconditional rights to resell the securities to the issuers either
directly or by drawing on a domestic or foreign bank letter of credit or other
credit support arrangement. See "Foreign Investments."
Puts. The Fund may purchase without limit municipal bonds or notes
together with the right to resell the bonds or notes to the seller at an agreed
price or yield within a specified period prior to the maturity date of the bonds
or notes. Such a right to resell is commonly known as a "put." The aggregate
price for bonds or notes with puts may be higher than the price for bonds or
notes without puts. Consistent with the Fund's investment objective and subject
to the supervision of the Trustees, the purpose of this practice is to permit
the Fund to be fully invested in tax exempt securities while preserving the
necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration date
and in selecting which puts to exercise, the Advisor considers the amount of
cash available to the Fund, the expiration dates of the available puts, any
future commitments for securities purchases, alternative investment
opportunities, the desirability of retaining the underlying securities in the
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.
The Fund values any municipal bonds and notes which are subject to puts
at amortized cost. No value is assigned to the put. The cost of any such put is
carried as an unrealized loss from the time of purchase until it is exercised or
expires. The Advisor would, in connection with the determination of
the value of a put, consider, among other factors, the creditworthiness of the
writer of the put, the duration of the put, the dates on which or the periods
during which the put may be exercised and the applicable rules and regulations
of the SEC.
Since the value of the put is partly dependent on the ability of the put
writer to meet its obligation to repurchase, the Fund's policy is to enter into
put transactions only with municipal securities dealers who are approved by the
Advisor. Each dealer will be approved on its own merits, and it is the Fund's
general policy to enter into put transactions only with those dealers which are
determined to present minimal credit risks. In connection with such
determination, the Advisory will take into consideration, among other things,
the ratings, if available, of their equity and debt securities, their reputation
in the municipal securities markets, their net worth, their efficiency in
consummating transactions and any collateral arrangements, such as letters of
credit, securing the puts written by them. Commercial bank dealers normally will
be members of the Federal Reserve System, and other dealers will be members of
the National Association of Securities Dealers, Inc. or members of a national
securities exchange. The Trustees have directed the Advisor not to enter into
put transactions with any dealer which in the judgment of the Advisor becomes
more than a minimal credit risk. In the event that a dealer should default on
its obligation to repurchase an underlying security, the Fund is unable to
predict whether all or any portion of any loss sustained could subsequently be
recovered from such dealer.
The Trust has been advised by counsel that the Fund will be considered
the owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Fund. Such advice of counsel is based on
certain assumptions concerning the terms of the puts and the attendant
circumstances.
Taxable Investments
The Portfolio attempts to invest its assets in tax exempt securities
and when investments are not available, may hold cash or may invest to a limited
extent in taxable securities. While the Fund does not currently intend to invest
in taxable securities, in abnormal market conditions for defensive purposes
only, it may invest up to 20% of the value of its total assets in securities,
the interest income on which may be subject to federal, state or local income
taxes. The taxable investments permitted for the Portfolio include obligations
of the U.S. Government and its agencies and instrumentalities, bank obligations,
commercial paper and repurchase agreements.
The Fund may make investments in other debt securities with remaining
effective maturities of not more than thirteen months, including without
limitation corporate bonds, and other obligations described in the Prospectus or
this Statement of Additional Information.
U.S. Treasury Securities. The Fund may invest in direct obligations of the
U.S. Treasury, including Treasury bills, notes and bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States.
Additional U.S. Government Obligations. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, the Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
Bank Obligations. The Fund, unless otherwise noted in the Prospectus or
below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
the laws of the United States or any state, (ii) foreign branches of these banks
or of foreign banks of equivalent size (Euros) and (iii) U.S. branches of
foreign banks of equivalent size (Yankees). The Fund may not invest in
obligations of foreign branches of foreign banks. The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank.
Commercial Paper. The Fund may invest in commercial paper, including
master demand obligations. Master demand obligations are obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan acting as agent, for no additional fee.
The monies loaned to the borrower come from accounts managed by Morgan or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. Morgan, an affiliate of the Advisor, has
the right to increase or decrease the amount provided to the borrower under an
obligation. The borrower has the right to pay without penalty all or any part of
the principal amount then outstanding on an obligation together with interest to
the date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by Morgan. Since master demand obligations typically are
not rated by credit rating agencies, the Fund may invest in such unrated
obligations only if at the time of an investment the obligation is determined by
the Advisor to have a credit quality which satisfies the Fund's quality
restrictions. See "Quality and Diversification Requirements." Although there is
no secondary market for master demand obligations, such obligations are
considered by the Fund to be liquid because they are payable upon demand. The
Fund does not have any specific percentage limitation on investments in master
demand obligations. It is possible that the issuer of a master demand obligation
could be a client of Morgan to whom Morgan, in its capacity as a commercial
bank, has made a loan.
Repurchase Agreements. The Fund, unless otherwise noted in the
Prospectus or below, may enter into repurchase agreements with brokers, dealers
or banks that meet the credit guidelines approved by the Fund's Trustees. In a
repurchase agreement, the Fund buys a security from a seller that has agreed to
repurchase the same security at a mutually agreed upon date and price. The
resale price normally is in excess of the purchase price, reflecting an agreed
upon interest rate. This interest rate is effective for the period of time the
Fund is invested in the agreement and is not related to the coupon rate on the
underlying security. A repurchase agreement may also be viewed as a fully
collateralized loan of money by the Fund to the seller. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will the Fund invest in repurchase agreements for more than 397 days.
The securities which are subject to repurchase agreements, however, may have
maturity dates in excess of 397 days from the effective date of the repurchase
agreement. The Fund will always receive securities as collateral whose market
value is, and during the entire term of the agreement remains, at least equal to
100% of the dollar amount invested by the Fund in the agreement plus accrued
interest, and the Fund will make payment for such securities only upon physical
delivery or upon evidence of book entry transfer to the account of the
Custodian. The Fund will be fully collateralized within the meaning of paragraph
(a)(4) of Rule 2a-7 under the Investment Company Act of 1940, as amended (the
"1940 Act"). If the seller defaults, the Fund might incur a loss if the value of
the collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon disposal of the collateral by the Fund may be delayed or
limited.
The Fund may make investments in other debt securities with remaining
effective maturities of not more than thirteen months, including without
limitation corporate bonds, and other obligations described in the Prospectus or
this Statement of Additional Information.
Additional Investments
When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery of
and payment for these securities can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase commitment date or at the time
the settlement date is fixed. The value of such securities is subject to market
fluctuation and for money market instruments and other fixed income securities
no interest accrues to the Fund until settlement takes place. At the time the
Fund makes the commitment to purchase securities on a when-issued or delayed
delivery basis, it will record the transaction, reflect the value each day of
such securities in determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that date. At the time of
settlement a when-issued security may be valued at less than the purchase price.
To facilitate such acquisitions, the Fund will maintain with the Custodian a
segregated account with liquid assets, consisting of cash, U.S. Government
securities or other appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Fund will meet its
obligations from maturities or sales of the securities held in the segregated
account and/or from cash flow. If the Fund chooses to dispose of the right to
acquire a when-issued security prior to its acquisition, it could, as with the
disposition of any other portfolio obligation, incur a gain or loss due to
market fluctuation. Also, a Fund may be disadvantaged if the other party to the
transaction defaults.
Investment Company Securities. Securities of other investment companies
may be acquired by the Fund and Portfolio to the extent permitted under the 1940
Act or any order pursuant thereto. These limits currently require that, as
determined immediately after a purchase is made, (i) not more than 5% of the
value of the Fund's total assets will be invested in the securities of any one
investment company, (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group,
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Fund, provided however, that the Fund may invest
all of its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, the Fund or Portfolio would bear, along with
other shareholders, its pro rata portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Fund or Portfolio bears directly in
connection with its own operations.
Reverse Repurchase Agreements. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Fund to be magnified.
The Fund will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, the Fund will enter into
a reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. The Fund will
not invest the proceeds of a reverse repurchase agreement for a period which
exceeds the duration of the reverse repurchase agreement. The Fund will
establish and maintain with the custodian a separate account with a segregated
portfolio of securities in an amount at least equal to its purchase obligations
under its reverse repurchase agreements. See "Investment Restrictions" for the
Fund's limitations on reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. Subject to applicable investment
restrictions, each Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net assets. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. Loans of
portfolio securities may be considered extensions of credit by the Funds. The
risks to each Fund with respect to borrowers of its portfolio securities are
similar to the risks to each Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". The Funds will not lend
their securities to any officer, Trustee, Member of the Advisory Board,
Director, employee or other affiliate of the Funds, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Fund may invest in privately placed, restricted, Rule 144A or
other unregistered securities. The Fund may not acquire any illiquid holdings
if, as a result thereof, more than 10% of the Fund's net assets would be in
illiquid investments. Subject to this non-fundamental policy limitation, the
Portfolio may acquire investments that are illiquid or have limited liquidity,
such as private placements or investments that are not registered under the
Securities Act of 1933, as amended (the "1933 Act") and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
it is valued by the Portfolio. The price the Portfolio pays for illiquid
securities or receives upon resale may be lower than the price paid or received
for similar securities with a more liquid market. Accordingly the valuation of
these securities will reflect any limitations on their liquidity.
The Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
As to illiquid investments, the Fund is subject to a risk that should
the Fund decide to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. Where an illiquid security must be registered under
the 1933 Act, before it may be sold, the Fund may be obligated to pay all or
part of the registration expenses, and a considerable period may elapse between
the time of the decision to sell and the time the Fund may be permitted to sell
a security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.
Synthetic Instruments. The Fund may invest in certain synthetic
variable rate instruments. Such instruments generally involve the deposit of a
long-term tax exempt bond in a custody or trust arrangement and the creation of
a mechanism to adjust the long-term interest rate on the bond to a variable
short-term rate and a right (subject to certain conditions) on the part of the
purchaser to tender it periodically to a third part at par. Morgan will review
the structure of synthetic variable rate instruments to identify credit and
liquidity risks (including the conditions under which the right to tender the
instrument would no longer be available) and will monitor those risks. In the
event that the right to tender the instrument is no longer available, the risk
to the Portfolio will be that of holding the long-term bond, which may require
the disposition of the bond which could be at a loss. In the case of some types
of instruments credit enhancement is not provided, and if certain events, which
may include (a) default in the payment of principal or interest on the
underlying bond, (b) downgrading of the bond below investment grade or (c) a
loss of the bond's tax exempt status, occur, then (i) the put will terminate,
(ii) the risk to the Fund will be that of holding a long-term bond, and (iii)
the disposition of the bond may be required which could be at a loss.
Quality and Diversification Requirements
The Fund intends to meet the diversification requirements of the 1940
Act. Current 1940 Act diversification requirements require that with respect to
75% of the assets of the Fund: (1) the Fund may not invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities, and (2) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer. As for the
other 25% of the Fund's assets not subject to the limitation described above,
there is no limitation on investment of these assets under the 1940 Act, so that
all of such assets may be invested in securities of any one issuer. Investments
not subject to the limitations described above could involve an increased risk
to the Fund should an issuer, or a state or its related entities, be unable to
make interest or principal payments or should the market value of such
securities decline.
At the time the Fund invests in any taxable commercial paper, master
demand obligation, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's
parent corporation, if any, must have outstanding commercial paper rated Prime-1
by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in Morgan's opinion.
For purposes of diversification and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision is regarded
as the sole issuer. Similarly, in the case of an industrial development revenue
bond or pollution control revenue bond, if the bond is backed only by the assets
and revenues of the nongovernmental user, the nongovernmental user is regarded
as the sole issuer. If in either case the creating government or another entity
guarantees an obligation, the guaranty is regarded as a separate security and
treated as an issue of such guarantor. Since securities issued or guaranteed by
states or municipalities are not voting securities, there is no limitation on
the percentage of a single issuer's securities which the Fund may own so long as
it does not invest more than 5% of its total assets that are subject to the
diversification limitation in the securities of such issuer, except obligations
issued or guaranteed by the U.S. Government. Consequently, the Fund may invest
in a greater percentage of the outstanding securities of a single issuer than
would an investment company which invests in voting securities. See "Investment
Restrictions."
In order to attain its objective of maintaining a stable net asset
value, the Fund will limit its investments to securities that present minimal
credit risks and securities (other than New York State municipal notes) that are
rated within the highest rating assigned to short-term debt securities (or, in
the case of New York State municipal notes, within one of the two highest
ratings assigned to short-term debt securities) by at least two NRSROs or by the
only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to more complicated, but generally similar
rating requirements. The Fund may also purchase unrated securities that are of
comparable quality to the rated securities described above. Additionally, if the
issuer of a particular security has issued other securities of comparable
priority and security and which have been rated in accordance with the criteria
described above that security will be deemed to have the same rating as such
other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than thirteen months and (ii) require the Fund, in the event of certain
downgrading of or defaults on portfolio holdings, to dispose of the holding,
subject in certain circumstances to a finding by the Trustees that disposing of
the holding would not be in the Fund's best interest.
The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when investment
quality is evaluated. The rating of credit-enhanced municipal obligations by a
NRSRO may be based primarily or exclusively on the credit support arrangement.
INVESTMENT RESTRICTIONS
The investment restrictions of the Fund and Portfolio are identical,
unless otherwise specified. Accordingly, references below to the Fund also
include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.
The investment restrictions below have been adopted by the Trust, with
respect to the Fund, and by the Portfolio. Except where otherwise noted, these
investment restrictions are "fundamental" policies which, under the 1940 Act,
may not be changed without the vote of a majority of the outstanding voting
securities of the Fund or Portfolio, as the case may be. A "majority of the
outstanding voting securities" is defined in the 1940 Act as the lesser of (a)
67% or more of the voting securities present at a meeting if the holders of more
than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever the Fund is requested to vote on a change in
the fundamental investment restrictions of the Portfolio, the Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the Fund's
shareholders.
The Fund and its corresponding Portfolio:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940;
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Fund and its corresponding
Portfolio and may be changed by their Trustees. These non-fundamental investment
policies require that the Fund and its corresponding Portfolio:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 10% of the market value
of the Fund's total assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities
(iii)May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
(iv) May not borrow money, except from banks for temporary, extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the Fund's
total assets, taken at cost at the time of such borrowing; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowing in
amounts up to 10% of the value of the Fund's net assets at the time of such
borrowing. The Fund will not purchase securities while borrowings exceed 5% of
the Fund's total assets, provided, however, that the Fund may increase its
interest in an open-end management investment company with the same investment
objective and restrictions as the Fund's while such borrowings are outstanding.
This borrowing provision, for example, facilitates the orderly sale of portfolio
securities in the event of abnormally heavy redemption requests or in the event
of redemption requests during periods of tight market supply. This provision is
not for leveraging purposes.
(v) May not purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Fund assets would be invested in industrial revenue bonds
where payment of principal and interest are the responsibility of companies with
fewer than three years of operating history.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
TRUSTEES, ADVISORY BOARD AND OFFICERS
Trustees
The mailing address of the Trustees of the Trust, who are also the
Trustees of each of the Portfolios and the other Master Portfolios, as defined
below, is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017.
Their names, principal occupations during the past five years and dates of birth
are set forth below:
Frederick S. Addy -- Trustee; Retired; Former Executive Vice President
and Chief Financial Officer, Amoco Corporation. His date of birth is January 1,
1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His date of birth is May 23, 1934.
Matthew Healey1 -- Trustee; Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc. ("Pierpont Group") since prior to 1993. His date of birth
is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His date of
birth is March 17, 1934.
A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Institutional Funds up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), the J.P. Morgan 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, 1999 are set forth below.
- -------------------------------------- ------------------- ---------------------
TOTAL TRUSTEE
COMPENSATION ACCRUED
AGGREGATE TRUSTEE BY THE MASTER
COMPENSATION PORTFOLIOS(*), J.P.
PAID BY THE TRUST MORGAN INSTITUTIONAL
NAME OF TRUSTEE DURING 1999 FUNDS, J.P. MORGAN
SERIES TRUST AND THE
TRUST DURING 1999(***)
- -------------------------------------- ------------------- ---------------------
- -------------------------------------- ------------------- ---------------------
Frederick S. Addy, Trustee $12,720 $75,000
- -------------------------------------- ------------------- ---------------------
- -------------------------------------- ------------------- ---------------------
William G. Burns, Trustee $12,720 $75,000
- -------------------------------------- ------------------- ---------------------
- -------------------------------------- ------------------- ---------------------
Arthur C. Eschenlauer, Trustee $12,720 $75,000
- -------------------------------------- ------------------- ---------------------
- -------------------------------------- ------------------- ---------------------
Matthew Healey, Trustee (**) Chairman $12,720 $75,000
and Chief Executive Officer
- -------------------------------------- ------------------- ---------------------
- -------------------------------------- ------------------- ---------------------
Michael P. Mallardi, Trustee $12,720 $75,000
- -------------------------------------- ------------------- ---------------------
(*) Includes the Portfolio and 18 other portfolios (collectively, the "Master
Portfolios") for which JPMIM acts as investment adviser.
(**) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $153,800, contributed
$23,100 to a defined contribution plan on his behalf and paid $17,300 in
insurance premiums for his benefit.
(***) No investment company within the fund complex has a pension or retirement
plan. Currently there are 17 investment companies (14 investment companies
comprising the Master Portfolios, the J.P. Morgan Institutional Funds, the Trust
and J.P. Morgan Series Trust) in the fund complex.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. The Portfolio and the
Trust have entered into a Fund Services Agreement with Pierpont Group, Inc. to
assist the Trustees in exercising their overall supervisory responsibilities
over the affairs of the Portfolio and the Trust. Pierpont Group, Inc. was
organized in July 1989 to provide services for The Pierpont Family of Funds (now
the J.P. Morgan Family of Funds), and the Trustees are the equal and sole
shareholders of Pierpont Group, Inc. The Trust and the Portfolio have agreed to
pay Pierpont Group, Inc. a fee in an amount representing its reasonable costs in
performing these services to the Trust, the Portfolio and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.
The aggregate fees paid to Pierpont Group, Inc. by the Fund and the
Portfolio during the indicated fiscal periods are set forth below:
Fund -- For the fiscal years ended August 31, 1997, 1998 and 1999: $37,100,
$38,366 and $32,377. For the three months ended November 30, 1999: $6,927.
Portfolio -- For the fiscal years ended August 31, 1997, 1998 and 1999: $43,285,
$53,097 and $46,121. For the three months ended November 30, 1999: $8,727.
Advisory Board
The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust; but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
members thereof was designed so that the Board of Trustees will continuously
consist of persons able to assume the duties of Trustees and be fully familiar
with the business and affairs of each of the Trusts and the Master Portfolios,
in anticipation of the current Trustees reaching the mandatory retirement age of
seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for
serving in this capacity for the Trust, each of the Master Portfolios, the J.P.
Morgan Institutional Funds and the J.P. Morgan Series Trust and is reimbursed
for expenses incurred in connection for such service. The members of the
Advisory Board may hold various other directorships unrelated to these funds.
The mailing address of the Members of the Advisory Board is c/o Pierpont Group,
Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal
occupations during the past five years and dates of birth are set forth below:
Ann Maynard Gray - President, Diversified Publishing Group and Vice
President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.
Officers
The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolio. The Trust and the Portfolio have no
employees.
The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Country Club Estates, 10286 Saint
Andrews Road, Boynton Beach, Florida 33436. His date of birth is August 23,
1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President, Chief
Executive Officer, Chief Compliance Officer and Director of FDI, Premier Mutual
Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an officer of
certain investment companies distributed or administered by FDI. Her date of
birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. His date of birth is March 31,
1969.
JOHN P. COVINO - Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan
Guaranty Trust Company of New York. Ms. Rotundo serves in the Funds
Administration group as a Manager of the Tax Group and is responsible for U.S.
mutual fund tax matters. Prior to September 1995, Ms. Rotundo served as a Senior
Tax Manager in the Investment Company Services Group of Deloitte & Touche LLP.
Her address is 60 Wall Street, New York, New York 10260. Her date of birth is
September 26, 1965.
INVESTMENT ADVISOR
The Fund has not retained the services of an investment adviser because the
Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio. Subject to the supervision of
the Portfolio's Trustees, the Advisor makes the Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Effective October 1, 1998 the
Portfolio's investment advisor is JPMIM. Prior to that date, Morgan was the
Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan
& Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, which manages employee benefit
funds of corporations, labor unions and state and local governments and the
accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $349 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 120 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 380
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is free
to and does render similar investment advisory services to others. The Advisor
serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolio. Such accounts are supervised and employees of the Advisor who
may also be acting in similar capacities for the Portfolio. See "Portfolio
Transactions."
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolio is managed by employees of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.20% of the
Portfolio's average daily net assets up to $1 billion and 0.10% of the
Portfolio's average daily net assets in excess of $1 billion.
The Portfolio paid the following advisory fees to Morgan and JPMIM, as
applicable, for the fiscal periods ended August 31, 1997, 1998 and 1999:
$2,267,159, $2,710,567 and $3,052,997; for the three months ended November 30,
1999: $760,119. See the Prospectus and below for applicable expense limitations.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. The Investment Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or subsidiaries thereof may not sponsor, organize, or control a
registered open-end investment company continuously engaged in the issuance of
its shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreement without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. On November 12, 1999, the Gramm-Leach-Bliley Act was signed into
law, the relevant provisions of which go into effect March 11, 2000. Until March
11, 2000, federal banking law, specifically the Glass-Steagall Act and the Bank
Holding Company Act, generally prohibits banks and bank holding companies and
their subsidiaries, such as the Advisor, from engaging in the business of
underwriting or distributing securities. Pursuant to interpretations issued
under these laws by the Board of Governors of the Federal Reserve System, such
entities also may not sponsor, organize or control a registered open-end
investment company continuously engaged in the issuance of its shares (together
with underwriting and distributing securities, the "Prohibited Activities"),
such as the Trust. These laws and interpretations do not prohibit a bank holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreement without
violation of the laws in effect until March 11, 2000. Effective March 11, 2000,
the sections of the Glass-Steagall Act which prohibited the Prohibited
Activities are repealed, and the Bank Holding Company Act is amended to permit
bank holding companies which satisfy certain capitalization, managerial and
other criteria (the "Criteria") to engage in the Prohibited Activities; bank
holding companies which do not satisfy the Criteria may continue to engage in
any activity that was permissible for a bank holding company under the Bank
Holding Company Act as of November 11, 1999. Because the services to be
performed for the Portfolio under the Advisory Agreement were permissible for a
bank holding company as of November 11, 1999, the Advisor believes that it also
may perform such services after March 11, 2000 whether or not the Advisor's
parent satisfies the Criteria. 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.
Under separate agreements, Morgan provides certain financial, fund
accounting and administrative services to the Trust and the Portfolio and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for the Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of the Fund's shares in accordance with the terms of the
Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Trust's distributor. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI also serves as exclusive
placement agent for the Portfolio. FDI currently provides administration and
distribution services for a number of other investment companies.
The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by its Trustees and (ii) by a vote of a majority of the
Trustees of the Trust who are not "interested persons" (as defined by the 1940
Act) of the parties to the Distribution Agreement, cast in person at a meeting
called for the purpose of voting on such approval (see "Trustees, Members of the
Advisory Board and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolio, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolio, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees,
Members of the Advisory Board and investors; and (vi) maintains related books
and records.
For its services under the Co-Administration Agreements, the Fund and
Portfolio have agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to the Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth the administrative fees paid to FDI for the
fiscal period indicated.
Fund -- For the fiscal years ended August 31, 1997, 1998 and 1999: $35,390,
$28,462 and $23,415. For the three months ended November 30, 1999: $5,493.
Portfolio -- For the fiscal years ended August 31, 1997, 1998 and 1999: $25,082,
$24,913 and $20,175. For the three months ended November 30, 1999: $4,090.
SERVICES AGENT
The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and Portfolio. The Services Agreements may be
terminated at any time, without penalty, by the Trustees or Morgan, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party.
Under the Services Agreements, the Fund and the Portfolio have agreed
to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
The table below sets forth the service fees paid to Morgan for the
fiscal periods indicated. See the Prospectus and below for applicable expense
limitations.
Fund -- For the fiscal years ended August 31, 1997, 1998 and 1999: $336,003,
$354,364 and $391,466. For the three months ended November 30, 1999: $100,847.
Portfolio -- For the fiscal years ended August 31, 1997, 1998 and 1999:
$397,340, $502,654 and $542,467. For the three months ended November 30, 1999:
$128,236.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. The custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of the Fund has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to the Fund; assisting customers
in designating and changing dividend options, account designations and
addresses; providing necessary personnel and facilities to coordinate the
establishment and maintenance of shareholder accounts and records with the
Fund's transfer agent; transmitting purchase and redemption orders to the Fund's
transfer agent and arranging for the wiring or other transfer of funds to and
from customer accounts in connection with orders to purchase or redeem Fund
shares; verifying purchase and redemption orders, transfers among and changes in
accounts; informing the Distributor of the gross amount of purchase orders for
Fund shares; monitoring the activities of the Fund's transfer agent; and
providing other related services.
Effective August 1, 1998 under the Shareholder Servicing Agreement, the
Fund has agreed to pay Morgan for these services a fee at the annual rate of
0.25% (expressed as a percentage of the average daily net asset value of Fund
shares owned by or for shareholders for whom Morgan is acting as shareholder
servicing agent). Morgan acts as shareholder servicing agent for all
shareholders. See the Prospectus and below for applicable expense limitations.
The Fund paid the following shareholder servicing fees to Morgan for
the fiscal periods indicated: For the fiscal years ended August 31, 1997, 1998
and 1999: $1,607,959, $1,907,080 and $3,715,230, respectively; for the three
months ended November 30, 1999: $1,003,173. See "Expenses" in the Prospectus and
below for applicable expense limitations.
As discussed under "Investment Advisor," until March 11, 2000, the
Glass-Steagall Act and other applicable laws and regulations limit the
activities of bank holding companies and certain of their subsidiaries in
connection with registered open-end investment companies. The activities of
Morgan in acting as shareholder servicing agent for Fund shareholders under the
Shareholder Servicing Agreement and providing administrative services to the
Funds and the Portfolios under the Services Agreements, and the activities of
JPMIM in acting as Advisor to the Portfolios under the Investment Advisory
Agreements, may raise issues under these laws. However, JPMIM and Morgan believe
that they may properly perform these services and the other activities described
in the Prospectus without violation of the Glass-Steagall Act or other
applicable banking laws or regulations in effect until March 11, 2000. Effective
March 11, 2000, certain of the sections of the Glass-Steagall Act which limited
the activities of bank holding companies and certain of their subsidiaries in
connection with open-end investment companies are repealed.
The Fund may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide record keeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not remitted to
the Fund or Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolio are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Fund and the Portfolio, assists in the preparation and/or
review of the Fund's and the Portfolio's federal and state income tax returns
and consults with the Fund and the Portfolio as to matters of accounting and
federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees, Members of the
Advisory Board and Officers," "Investment Advisor," "Co-Administrator",
"Distributor," "Services Agent" and "Shareholder Servicing" above, the Fund and
the Portfolio are responsible for usual and customary expenses associated with
their respective operations. Such expenses include organization expenses, legal
fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees and Members of the Advisory Board, costs associated
with their registration fees under federal securities laws, and extraordinary
expenses applicable to the Fund or the Portfolio. For the Fund, such expenses
also include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolio, such expenses
also include custodian fees and brokerage expenses.
PURCHASE OF SHARES
Additional Minimum Balance Information. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), the Fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the Fund reserves the right to close out your account and
send the proceeds to the address of record.
Method of Purchase. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
the Fund may make transactions in shares of the Fund.
The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the Portfolio;
(ii) be acquired by the Fund for investment and not for resale (other than for
resale to the Portfolio); and (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market. The Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Fund should be aware that the Fund attempts
to maintain a stable net asset value of $1.00 per share; however, there can be
no assurance that it will be able to continue to do so, and in that case the net
asset value of the Fund's shares might deviate from $1.00 per share.
Accordingly, a redemption request might result in payment of a dollar amount
which differs from the number of shares redeemed. See "Net Asset Value" below.
If the Trust, on behalf of the Fund, and the Portfolio determine that
it would be detrimental to the best interest of the remaining shareholders of
the Fund to make payment wholly or partly in cash, payment of the redemption
price may be made in whole or in part by a distribution in kind of securities
from the Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust,
on behalf of the Fund, has elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which the Portfolio is obligated to redeem shares solely in cash
up to the lesser of $250,000 or one percent of the net asset value of the Fund
during any 90-day period for any one shareholder. The Trust will redeem Fund
shares in kind only if it has received a redemption in kind from the Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolio has advised the Trust that
the Portfolio will not redeem in kind except in circumstances in which the Fund
is permitted to redeem in kind.
Further Redemption Information. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of the Fund, and the Portfolio reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into shares of any other
J.P. Morgan Institutional or J.P. Morgan mutual fund, without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. The Fund generally intends to pay redemption proceeds in cash,
however, since it reserves the right at its sole discretion to pay redemptions
over $250,000 in-kind as a portfolio of representative securities rather than in
cash, the Fund reserves the right to deny an exchange request in excess of that
amount. See "Redemption of Shares". Shareholders subject to federal income tax
who exchange shares in one fund for shares in another fund may recognize capital
gain or loss for federal income tax purposes. Shares of the Fund to be acquired
are purchased for settlement when the proceeds from redemption become available.
The Trust reserves the right to discontinue, alter or limit the exchange
privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
The Fund declares and pays dividends and distributions as described in
the Prospectus.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
The Fund computes its net asset value once daily on Monday through
Friday as described in the Prospectus. The net asset value will not be computed
on the day the following legal holidays are observed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, and Christmas
Day. In the event that trading in the money markets is scheduled to end earlier
than the close of the New York Stock Exchange in observance of these holidays,
the Fund and Portfolio would expect to close for purchases and redemptions an
hour in advance of the end of trading in the money markets. The Fund and the
Portfolio may also close for purchases and redemptions at such other times as
may be determined by the Board of Trustees to the extent permitted by applicable
law. On any business day when the Bond Market Association ("BMA") recommends
that the securities market close early, the Fund reserves the right to cease
accepting purchase and redemption orders for same business day credit at the
time BMA recommends that the securities market close. On days the Fund closes
early, purchase and redemption orders received after the fund closes will be
credited the next business day. The days on which net asset value is determined
are the Fund's business days.
The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio in valuing its assets.
The Portfolio's portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing the Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to the
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Fund. See "Taxes."
PERFORMANCE DATA
From time to time, the Fund may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information.
Yield Quotations. As required by regulations of the SEC, current yield
for the Fund is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
the Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares. The tax equivalent yield is computed by
first computing the yield as discussed above. Then the portion of the yield
attributable to securities the income of which was exempt for federal income tax
purposes is determined. This portion of the yield is then divided by one minus
the stated assumed federal income tax rate for individuals and then added to the
portion of the yield that is not attributable to securities, the income of which
was tax exempt.
Historical yield information for the period ended November 30, 1999 is as
follows: 7-day current yield: 3.29%; 7-day tax equivalent yield at 39.60% tax
rate: 5.45%; 7-day effective yield: 3.34%.
Total Return Quotations. Historical performance information for the
periods prior to the establishment of the Fund will be that of its corresponding
free-standing predecessor fund and will be presented in accordance with
applicable SEC Staff interpretations.
Historical return information for the Fund for the period ended November
30, 1999 is as follows: Average annual total return, 1 year: 2.78%; Average
annual total return, 5 years: 3.16%; average annual total return, 10 years:
3.29%; aggregate total return, 1 year: 2.78%; aggregate total return, 5 years:
16.84%; aggregate total return, 10 years: 38.29%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
General. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Portfolio, and its operating
expenses. Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Fund's shares, including appropriate market indices or data from
Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average and other industry
publications.
From time to time, the Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, qualified retirement plans and individual stocks and bonds), which
may or may not include the Fund; (7) comparisons of investment products
(including the Fund) with relevant markets or industry indices or other
appropriate benchmarks; (8) discussions of Fund rankings or ratings by
recognized rating organizations; and (9) discussions of various statistical
methods quantifying the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of the Fund.
PORTFOLIO TRANSACTIONS
The Advisor places orders for the Portfolio for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Portfolio. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Portfolio transactions for the Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolio may engage in short-term trading
consistent with its objective. See "Investment Objective and Policies--Portfolio
Turnover." The Portfolio will not seek profits through short-term trading, but
the Portfolio may dispose of any portfolio security prior to its maturity if it
believes such disposition is appropriate even if this action realizes profits or
losses.
In connection with portfolio transactions for the Portfolio, the
Advisor intends to seek the best price and execution on a competitive basis for
both purchases and sales of securities.
The Portfolio has a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnover. Since brokerage commissions are not normally paid on investments which
the Portfolio makes, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolio.
Subject to the overriding objective of obtaining best execution of
orders, the Advisor may allocate a portion of the Portfolio's brokerage
transactions to affiliates of the Advisor. Under the 1940 Act, persons
affiliated with the Portfolio and persons who are affiliated with such persons
are prohibited from dealing with the Portfolio as principal in the purchase and
sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. However, affiliated persons of the Portfolio may serve as
its broker in listed or over-the-counter transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Portfolio may not purchase securities during the existence of
any underwriting syndicate for such securities of which Morgan or an affiliate
is a member or in a private placement in which Morgan or an affiliate serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Portfolio that either comply with rules adopted by the SEC or with
interpretations of the SEC's staff.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of the Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for the Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to the Portfolio. In some instances,
this procedure might adversely affect the Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective January 1, 1998, the name of the Trust was changed from "The
JPM Pierpont Funds" to "J.P. Morgan Funds," and the Fund's name changed
accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of the Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of the
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, Member of the Advisory Board, officer, employee or
agent of the Fund is liable to the Fund or to a shareholder, and that no
Trustee, Member of the Advisory Board, officer, employee, or agent is liable to
any third persons in connection with the affairs of the Fund, except as such
liability may arise from his or its own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or its duties to such third persons. It
also provides that all third persons shall look solely to Fund property for
satisfaction of claims arising in connection with the affairs of the Fund. With
the exceptions stated, the Trust's Declaration of Trust provides that a Trustee,
Member of the Advisory Board, officer, employee, or agent is entitled to be
indemnified against all liability in connection with the affairs of the Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which the Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in the Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in the Fund with each other
share. Upon liquidation of the Fund, holders are entitled to share pro rata in
the net assets of the Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of the Fund have no preemptive or conversion
rights and are fully paid and nonassessable. The rights of redemption and
exchange are described in the Prospectus and elsewhere in this Statement of
Additional Information.
The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 18 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 31, 2000, the following owned of record more than 5% of
the outstanding shares of the Fund: Kingsley & Co./JPM Asset Sweep Fund Omnibus
Account (70.35%).
The address of the owner listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York, 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of the Fund.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in the Master Portfolio, a separate registered investment
company with the same investment objective and policies as the Fund. Generally,
when a Master Portfolio seeks a vote to change a fundamental investment
restriction, its feeder fund(s) will hold a shareholder meeting and cast its
vote proportionately, as instructed by its shareholders. Fund shareholders are
entitled to one vote for each dollar of net asset value (or a proportionate
fractional vote in respect of a fractional dollar amount), on matters on which
shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to the Fund, the Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in the Fund's prospectus.
Certain changes in the Portfolio's fundamental investment policies or
restrictions, or a failure by the Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because the Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no affect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such securities or foreign currency; and (b) diversify its holdings
so that, at the end of each quarter of its taxable year, (i) at least 50% of the
value of the Fund's total assets is represented by cash, cash items, U.S.
Government securities, securities of other regulated investment companies, and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's total assets, and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends generally
will be taxable to a shareholder in the year declared rather than the year paid.
The Fund intends to qualify to pay exempt-interest dividends to its
shareholders by having, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of tax exempt securities. An
exempt-interest dividend is that part of dividend distributions made by the Fund
which is properly designated as consisting of interest received by the Fund on
tax exempt securities. Shareholders will not incur any federal income tax on the
amount of exempt-interest dividends received by them from the Fund, other than
the alternative minimum tax under certain circumstances. In view of the Fund's
investment policies, it is expected that a substantial portion of all dividends
will be exempt-interest dividends, although the Fund may from time to time
realize and distribute net short-term capital gains and may invest limited
amounts in taxable securities under certain circumstances.
For federal income tax purposes, the fund had capital loss
carryforwards for the periods indicated: For the fiscal year ended November 30,
1999, $502,327, of which $8,529 expires in the year 2003, $236,412 expires in
2004 and $257,386 expire in 2007. To the extent that this capital loss is used
to offset future capital gains, it is probable that gains so offset will not be
distributed to shareholders.
Distributions of net investment income and realized net short-term
capital gains in excess of net long-term capital loss (other than exempt
interest dividends) are generally taxable to shareholders of the Fund as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. Distributions to corporate shareholders of the Fund are not
eligible for the dividends received deduction. Distributions of net long-term
capital gains (i.e., net long-term capital gains in excess of net short-term
capital loss) are taxable to shareholders of the Fund as long-term capital gain,
regardless of whether such distributions are taken in cash or reinvested in
additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a 20% rate of tax.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of the Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put option is acquired
or a call option is written thereon or straddle rules are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
If an option written by the Portfolio lapses or is terminated through a closing
transaction, such as a repurchase by the Portfolio of the option from its
holder, the Portfolio will realize a short-term capital gain or loss, depending
on whether the premium income is greater or less than the amount paid by the
Portfolio in the closing transaction. If securities are purchased by the
Portfolio pursuant to the exercise of a put option written by it, the Portfolio
will subtract the premium received from its cost basis in the securities
purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should thus consider the consequences
of purchasing shares in 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. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. Additionally, any loss realized on a redemption or
exchange of shares of the Fund will be disallowed to the extent the shares
disposed of are replaced by securities that are substantially identical to
shares of the Fund within a period of 61 days beginning 30 days before such
disposition, such as pursuant to reinvestment of a dividend in shares of the
Fund. Investors are urged to consult their tax advisors concerning the
limitations on the deductibility of capital losses.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withold 31% of
certain payments made or distributions declared to non-corporate shareholders.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 (or any successor form) is
provided. Transfers by gift of shares of the Fund by a foreign shareholder who
is a nonresident alien individual will not be subject to U.S. federal gift tax,
but the value of shares of the Fund held by such a shareholder at his or her
death will be includible in his or her gross estate for U.S. federal estate tax
purposes.
State and Local Taxes. The Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of the Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolio is organized as a New York trust. The Portfolio is
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by the
Fund in the Portfolio does not cause the Fund to be liable for any income or
franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Fund, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and 1940 Act and the Portfolio's
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference from the Fund's
November 30, 1999 annual report filing made with the SEC on February 7, 2000
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession
Number 0000912057-00-004064). The financial statements are available without
charge upon request by calling J.P. Morgan Funds Services at (800) 521-5411. The
Fund's financial statements include the financial statements of the Portfolio.
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's to
a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
<PAGE>
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but certain
protective elements may be lacking or may be characteristically unreliable
over any great length of time. Such bonds lack outstanding investment
characteristics and in fact have speculative characteristics as well.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
- --------
1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.
<PAGE>
J.P. MORGAN FUNDS
J.P. MORGAN PRIME MONEY MARKET FUND
J.P. MORGAN FEDERAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 2000 FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION
INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER
REPORTS RELATING TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 1999 (FOR THE
FEDERAL MONEY MARKET FUND) AND NOVEMBER 30, 1999 (FOR THE PRIME MONEY MARKET
FUND). THE PROSPECTUS AND THESE FINANCIAL STATEMENTS FOR THE FUNDS LISTED ABOVE,
INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORTS THEREON, ARE AVAILABLE, WITHOUT
CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN FUNDS
(800) 221-7930.
<PAGE>
Table of Contents
Page
General...................................................................1
Investment Objectives and Policies........................................1
Investment Restrictions...................................................9
Trustees, Advisory Board and Officers....................................11
Investment Advisor.......................................................15
Distributor..............................................................17
Co-Administrator.........................................................18
Services Agent...........................................................19
Custodian and Transfer Agent.............................................20
Shareholder Servicing....................................................20
Financial Professionals. . . . . . . . . . . . . . . ....................21
Independent Accountants..................................................22
Expenses.................................................................22
Purchase of Shares.......................................................23
Redemption of Shares.....................................................24
Exchange of Shares.......................................................24
Dividends and Distributions..............................................25
Net Asset Value..........................................................25
Performance Data.........................................................26
Portfolio Transactions...................................................27
Massachusetts Trust......................................................29
Description of Shares....................................................30
Special Information Concerning
Investment Structure. . . . . . . . . . . . . . . . ....................31
Taxes....................................................................33
Additional Information...................................................36
Financial Statements.....................................................37
Appendix A - Description of Security Ratings............................A-1
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Prime Money Market Fund and the J.P. Morgan Federal Money Market Fund
(each, a "Fund" and collectively, the "Funds"). Each Fund is a series of shares
of beneficial interest of the J.P. Morgan Funds, an open-end management
investment company formed as a Massachusetts business trust (the "Trust"). In
addition to the Funds, the Trust consists of other series representing separate
investment funds (each a "J.P. Morgan Fund"). The other J.P. Morgan Funds are
covered by separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of each of
the Funds and provides additional information with respect to the Funds and
should be read in conjunction with the relevant Fund's current Prospectus (the
"Prospectus"). Capitalized terms not otherwise defined herein have the meanings
accorded to them in the Prospectus. The 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, each Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), a corresponding open-end management investment company having the
same investment objective as the Fund. Each Fund invests in a Portfolio through
a two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."
Each Portfolio is advised by J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan Guaranty Trust Company of New York, ("Morgan"), an
affiliate of the Advisor, or any other bank. Shares of a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve the
objective by each Portfolio as set forth in the applicable Prospectus. The
investment objectives of each Fund and the investment objectives of its
corresponding Portfolio are identical. Accordingly, references below to a
Portfolio also include the corresponding Fund; similarly, references to a Fund
also include the corresponding Portfolio unless the context requires otherwise.
J.P. Morgan Prime Money Market Fund (the "Prime Money Market Fund") is
designed for investors who seek high current income consistent with the
preservation of capital and same day liquidity from a portfolio of high quality
money market instruments. The Prime Money Market Fund's investment objective is
to maximize current income consistent with the preservation of capital and same
day liquidity. The Prime Money Market Fund attempts to achieve this objective by
investing all of its investable assets in The Prime Money Market Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Prime Money Market Fund.
The Portfolio seeks to achieve its investment objective by maintaining
a dollar-weighted average portfolio maturity of not more than 90 days and by
investing in U.S. dollar denominated securities described in this Statement of
Additional Information that meet certain rating criteria, present minimal credit
risk and have effective maturities of not more than thirteen months. The
Portfolio's ability to achieve maximum current income is affected by its high
quality standards. See "Quality and Diversification Requirements."
J.P. Morgan Federal Money Market Fund (the "Federal Money Market Fund")
is designed for investors who seek high current income consistent with the
preservation of capital and same day liquidity from a portfolio of high quality
money market instruments. The Federal Money Market Fund's investment objective
is to provide current income, consistent with the preservation of capital and
same-day liquidity. The Federal Money Market Fund attempts to accomplish this
objective by investing all of its investable assets in The Federal Money Market
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Federal Money Market Fund.
The Portfolio attempts to achieve its investment objective by
maintaining a dollar-weighted average portfolio maturity of not more than 90
days and by investing in U.S. Treasury securities and in obligations of certain
U.S. Government agencies, as described in this Statement of Additional
Information that have effective maturities of not more than thirteen months. See
"Quality and Diversification Requirements."
Money Market Instruments
A description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
Additional U.S. Government Obligations. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, each Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
Foreign Government Obligations. The Prime Money Market Fund, subject to
its applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. See "Foreign Investments." These
securities must be denominated in the U.S. dollar.
Bank Obligations. The Prime Money Market Fund, unless otherwise noted
in the Prospectus or below, may invest in negotiable certificates of deposit,
time deposits and bankers' acceptances of (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total assets
and are organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). See "Foreign
Investments." The Prime Money Market Fund will not invest in obligations for
which the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. The Prime Money Market Fund may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
Commercial Paper. The Prime Money Market Fund may invest in commercial
paper, including master demand obligations. Master demand obligations are
obligations that provide for a periodic adjustment in the interest rate paid and
permit daily changes in the amount borrowed. Master demand obligations are
governed by agreements between the issuer and Morgan acting as agent, for no
additional fee. The monies loaned to the borrower come from accounts managed by
Morgan or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. Morgan, an affiliate of
the Advisor, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Since these obligations typically
provide that the interest rate is tied to the Federal Reserve commercial paper
composite rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by Morgan. Since master
demand obligations typically are not rated by credit rating agencies, the Prime
Money Market Fund may invest in such unrated obligations only if at the time of
an investment the obligation is determined by the Advisor to have a credit
quality which satisfies the Prime Money Market Fund's quality restrictions. See
"Quality and Diversification Requirements." Although there is no secondary
market for master demand obligations, such obligations are considered by the
Prime Money Market Fund to be liquid because they are payable upon demand. The
Prime Money Market Fund does not have any specific percentage limitation on
investments in master demand obligations. It is possible that the issuer of a
master demand obligation could be a client of Morgan to whom Morgan, in its
capacity as a commercial bank, has made a loan.
Asset-backed Securities. The Prime Money Market Fund may also invest in
securities generally referred to as asset-backed securities, which directly or
indirectly represent a participation interest in, or are secured by and payable
from, a stream of payments generated by particular assets, such as motor vehicle
or credit card receivables or other asset-backed securities collateralized by
such assets. Asset-backed securities provide periodic payments that generally
consist of both interest and principal payments. Consequently, the life of an
asset-backed security varies with the prepayment experience of the underlying
obligations. Payments of principal and interest may be guaranteed up to certain
amounts and for a certain time period by a letter of credit issued by a
financial institution unaffiliated with the entities issuing the securities. The
asset-backed securities in which a Fund may invest are subject to the Fund's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card debt receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts on credit card debt thereby reducing the
balance due. Additionally, if the letter of credit is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying sales contracts are not realized. Because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of the market cycle has not been tested.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time a Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will any Fund invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Federal Money
Market Fund may only enter into repurchase agreements involving U.S. Treasury
securities and Permitted Agency Securities. The Funds will always receive
securities as collateral whose market value is, and during the entire term of
the agreement remains, at least equal to 100% of the dollar amount invested by
the Funds in each agreement plus accrued interest, and the Funds will make
payment for such securities only upon physical delivery or upon evidence of book
entry transfer to the account of the Custodian. Each Fund will be fully
collateralized within the meaning of paragraph (a)(4) of Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act"). If the seller
defaults, a Fund might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon disposal
of the collateral by a Fund may be delayed or limited.
The Prime Money Market Fund may make investments in other debt
securities with remaining effective maturities of not more than thirteen months,
including, without limitation, corporate and foreign bonds, asset-backed
securities and other obligations described in the Prospectus or this Statement
of Additional Information.
Foreign Investments
The Prime Money Market Fund may invest in certain foreign securities.
All investments must be U.S. dollar-denominated. Investment in securities of
foreign issuers and in obligations of foreign branches of domestic banks
involves somewhat different investment risks from those affecting securities of
U.S. domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Any foreign commercial paper must not
be subject to foreign withholding tax at the time of purchase.
Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
Additional Investments
Municipal Bonds. The Prime Money Market Fund may invest in municipal
bonds issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies, authorities and instrumentalities. The Prime Money Market Fund may
also invest in municipal notes of various types, including notes issued in
anticipation of receipt of taxes, the proceeds of the sale of bonds, other
revenues or grant proceeds, as well as municipal commercial paper and municipal
demand obligations such as variable rate demand notes and master demand
obligations. These municipal bonds and notes will be taxable securities; income
generated from these investments will be subject to federal, state and local
taxes.
When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities, no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transaction defaults.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made, (i)
not more than 5% of the value of a Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group, and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by a Fund, provided however, that a
Fund may invest all of its investable assets in an open-end investment company
that has the same investment objective as the Fund (its corresponding
Portfolio). As a shareholder of another investment company, a Fund or Portfolio
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Fund or Portfolio bears
directly in connection with its own operations.
Reverse Repurchase Agreements. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Funds will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, a Fund will enter into a
reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. A Fund will not
invest the proceeds of a reverse repurchase agreement for a period which exceeds
the duration of the reverse repurchase agreement. Each Fund will establish and
maintain with the custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. See "Investment Restrictions" for each Fund's
limitations on reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. Subject to applicable investment
restrictions, each Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net assets. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. Loans of
portfolio securities may be considered extensions of credit by the Funds. The
risks to each Fund with respect to borrowers of its portfolio securities are
similar to the risks to each Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". The Funds will not lend
their securities to any officer, Trustee, Member of the Advisory Board,
Director, employee or other affiliate of the Funds, the Advisor or the
Distributor, unless otherwise permitted by applicable law.
Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Prime Money Market Fund may invest in privately placed,
restricted, Rule 144A or other unregistered securities. No Fund may acquire any
illiquid holdings if, as a result thereof, more than 10% of a Fund's net assets
would be in illiquid investments. Subject to this non-fundamental policy
limitation, the Funds may acquire investments that are illiquid or have limited
liquidity, such as private placements or investments that are not registered
under the Securities Act of 1933, as amended (the "1933 Act") and cannot be
offered for public sale in the United States without first being registered
under the 1933 Act. An illiquid investment is any investment that cannot be
disposed of within seven days in the normal course of business at approximately
the amount at which it is valued by the Funds. The price the Funds pay for
illiquid securities or receives upon resale may be lower than the price paid or
received for similar securities with a more liquid market. Accordingly the
valuation of these securities will reflect any limitations on their liquidity.
The Prime Money Market Fund may also purchase Rule 144A securities sold
to institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
As to illiquid investments, a Fund is subject to a risk that should the
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the 1933
Act, before it may be sold, a Fund may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell.
Synthetic Instruments. The Prime Money Market Fund may invest in
certain synthetic instruments. Such instruments generally involve the deposit of
asset-backed securities in a trust arrangement and the issuance of certificates
evidencing interests in the trust. The certificates are generally sold in
private placements in reliance on Rule 144A. The Advisor will review the
structure of synthetic instruments to identify credit and liquidity risks and
will monitor those risks. See "Illiquid Investments, Privately Placed and
Certain Unregistered Securities".
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. Current 1940 Act diversification requirements require that with
respect to 75% of the assets of each Fund: (1) the Fund may not invest more than
5% of its total assets in the securities of any one issuer, except obligations
of the U.S. Government, its agencies and instrumentalities, and (2) the Fund may
not own more than 10% of the outstanding voting securities of any one issuer. As
for the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer.
Investments not subject to the limitations described above could involve an
increased risk to a Fund should an issuer, or a state or its related entities,
be unable to make interest or principal payments or should the market value of
such securities decline.
At the time any of the Funds invests in any taxable commercial paper,
master demand obligation, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's or Standard & Poor's,
the issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in Morgan's opinion.
Prime Money Market Fund. In order to achieve its investment objective and
maintain a stable net asset value, the Prime Money Market Fund will (i) limit
its investment in the securities (other than U.S. Government securities) of any
one issuer to no more than 5% of its assets, measured at the time of purchase,
except for investments held for not more than three business days; and (ii)
limit investments to securities that present minimal credit risks and securities
(other than U.S. Government securities) that are rated within the highest
short-term rating category by at least two nationally recognized statistical
rating organizations ("NRSROs") or by the only NRSRO that has rated the
security. Securities which originally had a maturity of over one year are
subject to more complicated, but generally similar rating requirements. A
description of illustrative credit ratings is set forth in "Appendix A." The
Fund may also purchase unrated securities that are of comparable quality to the
rated securities described above. Additionally, if the issuer of a particular
security has issued other securities of comparable priority and security and
which have been rated in accordance with (ii) above, that security will be
deemed to have the same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are unrated; (ii)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than 397 days; and (iii) require the Fund, in the event of certain
downgradings of or defaults on portfolio holdings, to dispose of the holding,
subject in certain circumstances to a finding by the Trustees that disposing of
the holding would not be in the Fund's best interest.
Federal Money Market Fund. In order to achieve its investment objective and
maintain a stable net asset value, the Federal Money Market Fund will limit its
investments to direct obligations of the U.S. Treasury, including Treasury
bills, notes and bonds, and certain U.S. Government agency securities with
remaining maturities of not more than thirteen months at the time of purchase
and will maintain a dollar-weighted average portfolio maturity of not more than
90 days.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The Prime Money Market Fund and the Federal Money Market Fund and their
corresponding Portfolios:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC. In the case of Prime Money Market Fund,
this restriction does not apply to instruments considered to be domestic bank
money market instruments.
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions - Prime Money Market Fund and
Federal Money Market Fund. The investment restrictions described below are not
fundamental policies of the Funds and their corresponding Portfolios and may be
changed by their Trustees. These non-fundamental investment policies require
that the Funds and their corresponding Portfolios:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 10% of the market value
of the Fund's total assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
(iv) The Prime Money Market Fund may not borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts not to exceed 10%
of the value of the Fund's total assets, taken at cost, at the time of such
borrowing. Mortgage, pledge, or hypothecate any assets except in connection with
any such borrowing and in amounts not to exceed 10% of the value of the Fund's
net assets at the time of such borrowing. The Fund will not purchase securities
while borrowings exceed 5% of the Fund's total assets; provided, however, that
the Fund may increase its interest in an open-end management investment company
with the same investment objective and restrictions as the Fund while such
borrowings are outstanding. This borrowing provision is included to facilitate
the orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes and
shall not apply to reverse repurchase agreements.
(v) The Federal Money Market Fund may not borrow money (not including reverse
repurchase agreements), except from banks for temporary or extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the Fund's
or the Portfolio's total assets, taken at cost at the time of such borrowing
(and provided that such borrowings and reverse repurchase agreements do not
exceed in the aggregate one-third of the market value of the Fund's and the
Portfolio's total assets less liabilities other than the obligations represented
by the bank borrowings and reverse repurchase agreements). Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts up to 10% of the value of the Fund's or the Portfolio's net assets at
the time of such borrowing. The Fund or the Portfolio will not purchase
securities while borrowings exceed 5% of the Fund's or the Portfolio's total
assets, respectively; provided, however, that the Fund may increase its interest
in an open-end management investment company with the same investment objective
and restrictions as the Fund while such borrowings are outstanding. This
borrowing provision is included to facilitate the orderly sale of portfolio
securities, for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES, ADVISORY BOARD AND OFFICERS
Trustees
The mailing address of the Trustees of the Trust, who are also the
Trustees of each of the Portfolios and the other Master Portfolios, as defined
below, is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017.
Their names, principal occupations during the past five years and dates of birth
are set forth below:
Frederick S. Addy -- Trustee; Retired; Former Executive Vice President
and Chief Financial Officer, Amoco Corporation. His date of birth is January 1,
1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His date of birth is May
23, 1934.
Matthew Healey1 -- Trustee; Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc. ("Pierpont Group") since prior to 1993. His date of birth
is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His date of
birth is March 17, 1934.
A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Institutional Funds up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of April 1,
1997) for serving as Trustee of the Trust, each of the Master Portfolios (as
defined below), the J.P. Morgan 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, 1999 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 1999 MORGAN SERIES TRUST AND THE
-------------- TRUST DURING 1999(***)-----
NAME OF TRUSTEE
- --------------------------------- ------------------ ---------------------------
- --------------------------------- ------------------ ---------------------------
Frederick S. Addy, Trustee $12,720 $75,000
- --------------------------------- ------------------ ---------------------------
- --------------------------------- ------------------ ---------------------------
William G. Burns, Trustee $12,720 $75,000
- --------------------------------- ------------------ ---------------------------
- --------------------------------- ------------------ ---------------------------
Arthur C. Eschenlauer, Trustee $12,720 $75,000
- --------------------------------- ------------------ ---------------------------
- --------------------------------- ------------------ ---------------------------
Matthew Healey, Trustee (**) $12,720 $75,000
Chairman and Chief Executive
Officer
- --------------------------------- ------------------ ---------------------------
- --------------------------------- ------------------ ---------------------------
Michael P. Mallardi, Trustee $12,720 $75,000
- --------------------------------- ------------------ ---------------------------
(*) Includes the Portfolios and 17 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.
(**) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $153,800,
contributed $23,100 to a defined contribution plan on his behalf and paid
$17,300 in insurance premiums for his benefit.
(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 17 investment companies (14
investment companies comprising the Master Portfolios, the J.P. Morgan
Institutional Funds, the Trust and J.P. Morgan Series Trust) in the
fund complex.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for The J.P. Morgan
Family of Funds (formerly The Pierpont Family of Funds), and the Trustees are
the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolios have agreed to pay Pierpont Group, Inc. a fee in an amount
representing its reasonable costs in performing these services to the Trust, the
Portfolios and certain other registered investment companies subject to similar
agreements with Pierpont Group, Inc. These costs are periodically reviewed by
the Trustees. The principal offices of Pierpont Group, Inc. are located at 461
Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
Prime Money Market Fund -- For the fiscal years ended November 30, 1997, 1998,
and 1999: $80,429, $75,613 and $57,054.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1997, 1998 and 1999: $143,027, $173,032 and $228,328.
Federal Money Market Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $8,221, $10,963 and $14,921.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $12,004, $25,893 and $36,961.
Advisory Board
The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust; but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
members thereof was designed so that the Board of Trustees will continuously
consist of persons able to assume the duties of Trustees and be fully familiar
with the business and affairs of each of the Trusts and the Master Portfolios,
in anticipation of the current Trustees reaching the mandatory retirement age of
seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for
serving in this capacity for the Trust, each of the Master Portfolios, the J.P.
Morgan Institutional Funds and the J.P. Morgan Series Trust and is reimbursed
for expenses incurred in connection for such service. The members of the
Advisory Board may hold various other directorships unrelated to these funds.
The mailing address of the Members of the Advisory Board is c/o Pierpont Group,
Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal
occupations during the past five years and dates of birth are set forth below:
Ann Maynard Gray - President, Diversified Publishing Group and Vice
President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.
Officers
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Country Club Estates, 10286 Saint
Andrews Road, Boynton Beach, Florida 33436. His date of birth is August 23,
1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. His date of birth is March 31,
1969.
JOHN P. COVINO - Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.
JACQUELINE HENNING (of The Prime Money Market Portfolio only); Assistant
Secretary and Assistant Treasurer of the Portfolio only. Managing Director,
State Street Cayman Trust Company, Ltd. since October 1994. Address: P.O. Box
2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman,
Cayman Islands, BWI. Her date of birth is March 27, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolio's Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Effective October 1, 1998 each
Portfolio's investment advisor is JPMIM. Prior to that date, Morgan was the
investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co.
Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, which manages employee benefit
funds of corporations, labor unions and state and local governments and the
accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $349 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 120 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 380
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification and quantitative and credit analysis.
The investment advisory services the Advisor provides to the 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 employees of the Advisor who
may also be acting in similar capacities for the Portfolios. See "Portfolio
Transactions."
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolios are managed by employees of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's average daily net assets up to $1
billion and 0.10% of each Portfolio's average daily net assets in excess of $1
billion.
The table below sets forth for each Portfolio listed the advisory fees
paid to Morgan and JPMIM, as applicable, for the fiscal periods indicated.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1997, 1998 and 1999: $5,063,662, $7,199,733 and $13,226,942.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $659,707, $1,736,610 and $2,858,791.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or subsidiaries thereof may not sponsor, organize, or control a
registered open-end investment company continuously engaged in the issuance of
its shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreement without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. On November 12, 1999, the Gramm-Leach-Bliley Act was signed into
law, the relevant provisions of which go into effect March 11, 2000. Until March
11, 2000, federal banking law, specifically the Glass-Steagall Act and the Bank
Holding Company Act, generally prohibits banks and bank holding companies and
their subsidiaries, such as the Advisor, from engaging in the business of
underwriting or distributing securities. Pursuant to interpretations issued
under these laws by the Board of Governors of the Federal Reserve System, such
entities also may not sponsor, organize or control a registered open-end
investment company continuously engaged in the issuance of its shares (together
with underwriting and distributing securities, the "Prohibited Activities"),
such as the Trust. These laws and interpretations do not prohibit a bank holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreement without
violation of the laws in effect until March 11, 2000. Effective March 11, 2000,
the sections of the Glass-Steagall Act which prohibited the Prohibited
Activities are repealed, and the Bank Holding Company Act is amended to permit
bank holding companies which satisfy certain capitalization, managerial and
other criteria (the "Criteria") to engage in the Prohibited Activities; bank
holding companies which do not satisfy the Criteria may continue to engage in
any activity that was permissible for a bank holding company under the Bank
Holding Company Act as of November 11, 1999. Because the services to be
performed for the Portfolio under the Advisory Agreement were permissible for a
bank holding company as of November 11, 1999, the Advisor believes that it also
may perform such services after March 11, 2000 whether or not the Advisor's
parent satisfies the Criteria. 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.
Under separate agreements, Morgan provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees, Members of the Advisory Board and Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information," in any
case without payment of any penalty on 60 days' written notice to the other
party. The principal offices of FDI are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under 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,
Members of the Advisory Board and investors; and (vi) maintains related books
and records.
For its services under the Co-Administration Agreements, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, the Master Portfolios and certain other
investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
See the Prospectus and below for applicable expense limitations.
Prime Money Market Fund --For fiscal years ended November 30, 1997, 1998 and
1999: $70,148, $56,434 and $42,493, respectively.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1997, 1998 and 1999: $96,662, $115,137 and $147,749, respectively.
Federal Money Market Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $6,930, $8,273 and $10,975, respectively.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $6,218, $12,377 and $16,872, respectively.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
Under the Services Agreements, each of the Funds and the Portfolios has
agreed to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by each Fund and Portfolio is determined by the proportionate share that
its net assets bear to the total net assets of the Trust, the Master Portfolios,
the other investors in the Master Portfolios for which Morgan provides similar
services and J.P. Morgan Series Trust.
The table below sets forth for each Fund listed and its corresponding
Portfolio the fees paid to Morgan as Services Agent. See the Prospectus and
below for applicable expense limitations.
Prime Money Market Fund --For the fiscal years ended November 30, 1997, 1998 and
1999: $700,635, $756,083 and $751,623.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1997, 1998 and 1999: $1,256,131, $1,788,454 and $3,127,566.
Federal Money Market Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $68,154, $109,192 and $191,101.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $101,963, $264,799 and $480,385.
CUSTODIAN AND TRANSFER AGENT
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each Portfolio's
custodian and fund accounting agent and each Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. The custodian maintains
portfolio transaction records. As transfer agent and dividend disbursing agent,
State Street is responsible for maintaining account records detailing the
ownership of Fund shares and for crediting income, capital gains and other
changes in share ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; monitoring the activities of the Funds' transfer agent; and providing
other related services.
Effective August 1, 1998 under the Shareholder Servicing Agreement,
each Fund has agreed to pay Morgan for these services a fee at the annual rate
of 0.25% (expressed as a percentage of the average daily net asset values of
Fund shares owned by or for shareholders for whom Morgan is acting as
shareholder servicing agent).
Morgan acts as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated. See
the Prospectus and below for applicable expense limitations.
Prime Money Market Fund -- For the fiscal years ended November 30, 1997, 1998
and 1999: $3,262,834, $4,667,059 and $7,303,649.
Federal Money Market Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $330,316, $682,629 and $1,849,530.
As discussed under "Investment Advisor," until March 11, 2000, the
Glass-Steagall Act and other applicable laws and regulations limit the
activities of bank holding companies and certain of their subsidiaries in
connection with registered open-end investment companies. The activities of
Morgan in acting as shareholder servicing agent for Fund shareholders under the
Shareholder Servicing Agreement and providing administrative services to the
Funds and the Portfolios under the Services Agreements, and the activities of
JPMIM in acting as Advisor to the Portfolios under the Investment Advisory
Agreements, may raise issues under these laws. However, JPMIM and Morgan believe
that they may properly perform these services and the other activities described
in the Prospectus without violation of the Glass-Steagall Act or other
applicable banking laws or regulations in effect until March 11, 2000. Effective
March 11, 2000, certain of the sections of the Glass-Steagall Act which limited
the activities of bank holding companies and certain of their subsidiaries in
connection with open-end investment companies are repealed.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide record keeping or
other services to certain employee benefit or retirement plans that include the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of each of the Funds and the Portfolios, assists in the preparation
and/or review of each of the Fund's and the Portfolio's federal and state income
tax returns and consults with the Funds and the Portfolios as to matters of
accounting and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees, Members of the
Advisory Board and Officers," "Investment Advisor," "Co-Administrator",
"Distributor", "Services Agent" and "Shareholder Servicing" above, the Funds and
the Portfolios are responsible for usual and customary expenses associated with
their respective operations. Such expenses include organization expenses, legal
fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees and Members of the Advisory Board, costs associated
with their registration fees under federal securities laws, and extraordinary
expenses applicable to the Funds or the Portfolios. For the Funds, such expenses
also include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolios, such expenses
also include custodian fees and brokerage expenses. For additional information
regarding waivers or expense subsidies, see the Prospectus.
J.P. Morgan has agreed that it will reimburse the Fund noted below
until February 28, 2001 to the extent necessary to maintain the Fund's total
operating expenses (which include expenses of the Fund and the Portfolio) at the
following annual rate of the Fund's average daily net assets.
Federal Money Market Fund: 0.55%
This limits does not cover extraordinary expenses. This
reimbursement/waiver arrangement will continue through at least February 28,
2001.
The table below sets forth for each Fund listed the fees and other
expenses J.P. Morgan reimbursed under the expense reimbursement arrangements
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.
Federal Money Market Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $267,752, $317,094 and $122,559.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $250,377, $415,825 and $63,027.
PURCHASE OF SHARES
Additional Minimum Balance Information. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), each Fund reserves the right to request that you buy more shares
or close your account. If your account balance is still below the minimum 60
days after notification, the Fund reserves the right to close out your account
and send the proceeds to the address of record.
Method of Purchase. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); and (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Funds should be aware that the Funds
attempt to maintain a stable net asset value of $1.00 per share; however, there
can be no assurance that they will be able to continue to do so, and in that
case the net asset value of the Fund's shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of the Federal Money Market Fund and its
corresponding Portfolio have elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which such Funds and their corresponding Portfolios are
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of such Fund during any 90-day period for any one
shareholder. The Trust will redeem Fund shares in kind only if it has received a
redemption in kind from the corresponding Portfolio and therefore shareholders
of the Fund that receive redemptions in kind will receive securities of the
Portfolio. The Portfolios have advised the Trust that the Portfolios will not
redeem in kind except in circumstances in which a Fund is permitted to redeem in
kind.
Further Redemption Information. Investors should be aware that
redemptions from a Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into shares of any other
J.P. Morgan or J.P. Morgan Institutional mutual fund, without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Each Fund generally intends to pay redemption proceeds in cash,
however, since it reserves the right at its sole discretion to pay redemptions
over $250,000 in-kind as a portfolio of representative securities rather than in
cash, the Fund reserves the right to deny an exchange request in excess of that
amount. See "Redemption of Shares". Shareholders subject to federal income tax
who exchange shares in one fund for shares in another fund may recognize capital
gain or loss for federal income tax purposes. Shares of the Fund to be acquired
are purchased for settlement when the proceeds from redemption become available.
The Trust reserves the right to discontinue, alter or limit the exchange
privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described in
the Prospectus.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday as described in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, and
Christmas Day. In the event that trading in the money markets is scheduled to
end earlier than the close of the New York Stock Exchange in observance of these
holidays, the Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios may also close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. On any business day when the Bond Market
Association ("BMA") recommends that the securities market close early, the Funds
reserve the right to cease accepting purchase and redemption orders for same
business day credit at the time BMA recommends that the securities market close.
On days the Funds close early, purchase and redemption orders received after the
Funds close will be credited the next business day. The days on which net asset
value is determined are the Funds' business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
The Portfolios' portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing a Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
Yield Quotations. As required by regulations of the SEC, current yield
for the Funds is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
each Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.
Below is set forth historical yield information for the periods
indicated:
Prime Money Market Fund (11/30/99): 7-day current yield: 5.33%; 7-day
effective yield: 5.48%.
Federal Money Market Fund (10/31/99): 7-day current yield: 4.87%; 7-day
effective yield: 4.99%.
Total Return Quotations. Historical performance information for periods
prior to the establishment of the Prime Money Market Fund will be that of its
corresponding free-standing predecessor fund and will be presented in accordance
with applicable SEC staff interpretations.
Below is set forth historical return information for each Fund or its
predecessor for the periods indicated:
Prime Money Market Fund (11/30/99): Average annual total return, 1 year: 4.88%;
average annual total return, 5 years: 5.33%; average annual total return, 10
years: 5.14%; aggregate total return, 1 year: 4.88%; aggregate total return, 5
years: 29.63%; aggregate total return, 10 years: 65.07%.
Federal Money Market Fund (10/31/99): Average annual total return, 1 year:
4.66%; average annual total return, 5 years: 5.12%; average annual total return,
10 years: N/A; commencement of operations (January 4, 1993) to period end:
4.56%; aggregate total return, 1 year: 4.66%; aggregate total return, 5 years:
28.37%; aggregate total return, 10 years: N/A; aggregate total return,
commencement of operations (January 4, 1993) to period end: 35.52%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
General. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices or data from
Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average and other industry
publications.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Portfolio transactions for the Portfolios will be undertaken principally to
accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
The Portfolios have a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.
Subject to the overriding objective of obtaining best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. Under the 1940 Act, persons
affiliated with the Portfolio and persons who are affiliated with such persons
are prohibited from dealing with the Portfolio as principal in the purchase and
sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. However, affiliated persons of the Portfolio may serve as
its broker in listed or over-the-counter transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Portfolio may not purchase securities during the existence of
any underwriting syndicate for such securities of which Morgan or an affiliate
is a member or in a private placement in which Morgan or an affiliate serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Portfolio that either comply with rules adopted by the SEC or with
interpretations of the SEC's staff.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective May 12, 1997, the name of "The Money Market Portfolio" was
changed to "The Prime Money Market Portfolio". Effective January 1, 1998, the
name of the Trust was changed from "The JPM Pierpont Funds" to "J.P.
Morgan Funds", and each Fund's name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by a Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of a Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, Member of the Advisory Board, officer, employee or
agent of a Fund is liable to a Fund or to a shareholder, and that no Trustee,
Member of the Advisory Board, officer, employee, or agent is liable to any third
persons in connection with the affairs of 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, Member of the
Advisory Board, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 18 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 31, 2000, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Prime Money Market Fund: Kingsley & Co./JPM Asset Sweep Fund Omnibus Account
(39.68%).
Federal Money Market Fund: Kingsley & Co./JPM Asset Sweep Fund Omnibus Account
(73.32%).
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a Master Portfolio seeks a vote to change a fundamental
investment restriction, its feeder fund(s) will hold a shareholder meeting and
cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in each Fund's prospectus.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no affect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such securities or foreign currency; and (b) diversify its holdings
so that, at the end of each quarter of its taxable year, (i) at least 50% of the
value of the Fund's total assets is represented by cash, cash items, U.S.
Government securities, investments in other regulated investment companies, and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's total assets, and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends generally will be
taxable to a shareholder in the year declared rather than the year paid.
For federal income tax purposes, the following funds had capital loss
carryforwards for the periods indicated:
Prime Money Market Fund: For the fiscal year ended November 30, 1999, $209,528,
of which $56,817 will expire in the year 2005, $24,423 will expire in 2006 and
$128,288 will expire in 2007.
Federal Money Market Fund: For the fiscal year ended October 31, 1999, $36,706,
of which $581 will expire in the year 2006 and $36,125 will expire in 2007.
To the extent that this capital loss is used to offset future capital
gains, it is probable that gains so offset will not be distributed to
shareholders.
Distributions of net investment income and realized net short-term
capital gains in excess of net long-term capital losses (other than exempt
interest dividends) are generally taxable to shareholders of the Funds as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. Distributions to corporate shareholders of the Funds are not
eligible for the dividends received deduction. Distributions of net long-term
capital gains (i.e., net long-term capital gain in excess of net short-term
capital loss) are taxable to shareholders of a Fund as long-term capital gain,
regardless of whether such distributions are taken in cash or reinvested in
additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a 20% rate of tax.
To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of a Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put option is acquired
or a call option is written thereon or straddle rules are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
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. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. Additionally, any loss realized on a redemption or
exchange of shares of a Fund will be disallowed to the extent the shares
disposed of are replaced within a period of 61 days beginning 30 days before
such disposition, such as pursuant to reinvestment of a dividend in shares of
the Fund. Investors are urged to consult their tax advisors concerning the
limitations on the deductibility of capital losses.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withold 31% of
certain payments made or distributions declared to non-corporate shareholders.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 (or any successor form) is
provided. Transfers by gift of shares of a Fund by a foreign shareholder who is
a nonresident alien individual will not be subject to U.S. federal gift tax, but
the value of shares of the Fund held by such a shareholder at his or her death
will be includible in his or her gross estate for U.S. federal estate tax
purposes.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the Portfolios'
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of
PricewaterhouseCoopers LLP of each Fund are incorporated herein by reference
from their respective annual report filings made with the SEC pursuant to
Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following
financial reports are available without charge upon request by calling 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
Name of Fund Report Filed; Accession Number
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
J.P. Morgan Prime Money Market Fund 11/30/99;
2/7/00;
0000912057-00-004082
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
J.P. Morgan Federal Money Market Fund 10/31/99;
1/3/00;
0000912057-00-000038
- --------------------------------------- ----------------------------------------
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard &
Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated
categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to
pay interest and repay principal. Whereas they normally exhibit
adequate protection parameters, adverse economic conditions or
changing circumstances are more likely to lead to a weakened
capacity to pay interest and repay principal for debt in this
category than for debt in higher rated categories.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined
with the designations 1, 2, and 3 to indicate the relative degree of
safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality.
They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are
protected by a large or by an exceptionally stable margin and
principal is secure. While the various protective elements are
likely to change, such changes as can be visualized are most
unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude or there may
be other elements present which make the long term risks appear somewhat
larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and
are to be considered as upper medium grade obligations. Factors giving
security to principal and interest are considered adequate but elements may
be present which suggest a susceptibility to impairment sometime in the
future.
Baa - Bonds which are rated Baa are considered as medium grade
obligations, i.e., they are neither highly protected nor poorly
secured. Interest payments and principal security appear adequate
for the present but certain protective elements may be lacking or
may be characteristically unreliable over any great length of
time. Such bonds lack outstanding investment characteristics and
in fact have speculative characteristics as well.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have
a superior capacity for repayment of short-term promissory
obligations. Prime-1 repayment capacity will normally be
evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for refinancing,
or both.
MIG-2- MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
- --------
1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.
<PAGE>
J.P. MORGAN FUNDS
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
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 2000 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS RELATING
TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 1999 (FOR THE INTERNATIONAL EQUITY
AND EMERGING MARKETS EQUITY FUNDS) AND NOVEMBER 30, 1999 (FOR THE INTERNATIONAL
OPPORTUNITIES AND EUROPEAN EQUITY FUNDS). THE PROSPECTUS AND THESE FINANCIAL
STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORTS THEREON, ARE
AVAILABLE, WITHOUT CHARGE UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION:
J.P. MORGAN FUNDS (800)221-7930.
<PAGE>
Table of Contents
Page
General...................................................................1
Investment Objective and Policies.........................................1
Investment Restrictions...................................................20
Trustees and Advisory Board...............................................22
Officers..................................................................25
Investment Advisor........................................................27
Distributor...............................................................30
Co-Administrator..........................................................30
Services Agent............................................................31
Custodian and Transfer Agent..............................................32
Shareholder Servicing.....................................................33
Financial Professionals...................................................34
Independent Accountants...................................................34
Expenses..................................................................35
Purchase of Shares........................................................36
Redemption of Shares......................................................37
Exchange of Shares........................................................37
Dividends and Distributions...............................................38
Net Asset Value...........................................................38
Performance Data..........................................................39
Portfolio Transactions....................................................41
Massachusetts Trust.......................................................43
Description of Shares.....................................................44
Special Information Concerning Investment Structure.......................46
Taxes.....................................................................47
Additional Information....................................................51
Financial Statements......................................................52
Appendix A - Description of Security Ratings.............................A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to the J.P. Morgan
International Equity Fund, the J.P. Morgan Emerging Markets Equity Fund, the
J.P. Morgan International Opportunities Fund and the J.P. Morgan European Equity
Fund (collectively, the "Funds"). Each of the Funds is a separate series of
shares of beneficial interest of the J.P. Morgan Funds, an open-end management
investment company formed as a Massachusetts business trust (the "Trust"). In
addition to the Funds, the Trust consists of other series representing separate
investment funds (each, a "J.P. Morgan Fund"). The other J.P. Morgan Funds are
covered by separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objectives and policies, management and operation of each of
the Funds in order to enable investors to select the Fund or Funds which best
suit their needs. The J.P. Morgan Funds operate through a two-tier master-feeder
investment fund structure. Formerly, the J.P. Morgan International Equity Fund
operated as a free-standing mutual fund and not through the master-feeder
structure. Where indicated in this Statement of Additional Information,
historical information for this Fund includes information for its predecessor
entity.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings accorded to them in the Prospectus.
The Funds' executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Funds seek to achieve their investment objectives
by investing all of their investable assets in separate Master Portfolios (each,
a "Portfolio"), a corresponding diversified open-end management investment
company having the same investment objective as the corresponding Fund. Each
Fund invests in a Portfolio through a two-tier master-feeder investment fund
structure. See "Special Information Concerning Investment Structure."
Each Portfolio is advised by J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Investments in the Funds are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York ("Morgan"),
an affiliate of the Advisor, or any other bank. Shares of the Funds are not
federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency. An investment in a Fund is
subject to risk that may cause the value of the investment to fluctuate, and
when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVE AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve the
objective by each Portfolio as set forth in the applicable Prospectus. The
investment objectives of each Fund and the investment objectives of its
corresponding Portfolio are identical. Accordingly, references below to a
Portfolio also include the corresponding Fund; similarly, references to a Fund
also include the corresponding Portfolio unless the context requires otherwise.
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 International Equity Fund's investment objective is to provide high
total return from a portfolio of equity securities of foreign corporations. The
International Equity Fund attempts to achieve its investment objective by
investing all of its investable assets in The International Equity Portfolio
(the "International Equity Portfolio"), a diversified open-end management
investment company having the same investment objective as the International
Equity Fund.
The International Equity 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 International Equity Portfolio expects to invest at least 65%
of its total assets in such securities. The International Equity Portfolio does
not intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of developed foreign countries render investments in
such countries inadvisable.
Investment Process for the International Equity Portfolio
Country allocation: JPMIM's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks. Using a proprietary approach, JPMIM
calculates this risk premium for each of the nations in the International Equity
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, JPMIM analyzes
a variety of qualitative factors as well, including the liquidity, earnings
momentum and interest rate climate of the market at hand. These qualitative
assessments can change the magnitude but not the direction of the country
allocations called for by the risk premium forecast. JPMIM places limits on the
total size of the International Equity Portfolio's country over- and
under-weightings relative to the EAFE Index.
Stock selection: JPMIM's more than 90 international equity analysts,
each an industry and country specialist with an average of nearly ten years of
experience, forecast normalized earnings and dividend payouts for roughly 1,200
non-U.S. companies -- taking a long-term perspective rather than the short time
frame common to consensus estimates. These forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate the purchases in the stocks deemed most
undervalued, and to keep sector weightings close to those of the EAFE Index, the
International Equity Portfolio'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 International Equity Portfolio's return. JPMIM's currency decisions are
supported by a proprietary tactical model which forecasts currency movements
based on an analysis of four fundamental factors -- trade balance trends,
purchasing power parity, real short-term interest differentials and real bond
yields -- plus a technical factor designed to improve the timing of
transactions. Combining the output of this model with a subjective assessment of
economic, political and market factors, JPMIM's currency specialists recommend
currency strategies that are implemented in conjunction with the International
Equity 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 "Emerging Markets Equity
Portfolio"), a diversified open-end management investment company having the
same investment objective as the Emerging Markets Equity Fund.
The Emerging Markets Equity Portfolio seeks to achieve its investment
objective by investing primarily in Equity Securities of emerging markets
issuers. Under normal circumstances, the Emerging Markets Equity Portfolio
expects to invest at least 65% of its total assets in such securities. The fund
may also invest up to 20% in debt securities of emerging markets issuers. The
Emerging Markets Equity Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.
Investment Process for the Emerging Markets Equity Portfolio
Country allocation: JPMIM's country allocation decision begins with a
forecast of the expected return of each market in the Emerging Markets Equity
Portfolio's universe. These expected returns are calculated using a proprietary
valuation method that is forward looking in nature rather than based on
historical data. JPMIM then evaluates these expected returns from two different
perspectives: first, it identifies those countries that have high real expected
returns relative to their own history and other nations in their universe.
Second, it identifies those countries that it expects will provide high returns
relative to their currency risk. Countries that rank highly on one or both of
these scores are overweighted relative to the Emerging Markets Equity
Portfolio's benchmark, the MSCI Emerging Markets Free Index, while those that
rank poorly are underweighted.
Stock selection: JPMIM's 25 emerging markets equity analysts, each an
industry specialist, monitor a universe of approximately 325 companies in these
countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Emerging Markets Equity Portfolio's holdings in the stocks
deemed most undervalued, and to keep sector weightings relatively close to those
of the index. Stocks are generally held until they fall into the bottom half of
JPMIM's rankings.
J.P. Morgan International Opportunities Fund (the "International
Opportunities Fund") is designed for long-term investors who want to invest in
an actively managed portfolio of common stocks and other equity securities of
non-U.S. companies, including companies located in emerging markets. The
International Opportunities Fund's investment objective is to provide high total
return from a portfolio of equity securities of foreign companies in developed
and, to a lesser extent, developing markets. The International Opportunities
Fund attempts to achieve its investment objective by investing all of its
investable assets in The International Opportunities Portfolio (the
"International Opportunities Portfolio"), a diversified open-end management
investment company having the same investment objective as the International
Opportunities Fund.
The International Opportunities Portfolio seeks to achieve its
investment objective by investing primarily in Equity Securities of non-U.S.
issuers in developed and developing countries. Under normal circumstances, the
International Opportunities Portfolio expects to invest at least 65% of its
total assets in such securities. The International Opportunities Portfolio does
not intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of foreign countries render investments in such
countries inadvisable.
Investment Process for the International Opportunities Portfolio
Stock selection: JPMIM's approximately 90 international equity analysts
and 23 emerging markets equity analysts, each an industry and country
specialist, forecast normalized earnings, dividend payouts and cash flows for
roughly 1,200 non-U.S. companies, taking a long-term perspective rather than the
short time frame common to consensus estimates. These forecasts are converted
into comparable expected returns by a dividend discount model, and then
companies are ranked from most to least attractive by industry. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate the International Opportunities
Portfolio's purchases in the stocks deemed most undervalued. Stocks generally
become a candidate for sale when they fall into the bottom half of JPMIM's
rankings. Where available, warrants and convertibles may be purchased instead of
common stock if they are deemed a more attractive means of investing in an
undervalued company.
Currency management: JPMIM actively manages the currency exposure of
the International Opportunities Portfolio's investments in developed countries,
in conjunction with country and stock allocation, with the goal of protecting
and possibly enhancing the International Opportunities Portfolio's return.
JPMIM's currency decisions are supported by a proprietary tactical model which
forecasts currency movements based on an analysis of four fundamental factors --
trade balance trends, purchasing power parity, real short-term interest
differentials and real bond yields -- plus a technical factor designed to
improve the timing of transactions. Combining the output of this model with a
subjective assessment of economic, political and market factors, JPMIM's
currency specialists recommend currency strategies that are implemented in
conjunction with the International Opportunities Portfolio's investment
strategy.
Country allocation (developed countries): The International
Opportunities Portfolio's country weightings primarily result from its stock
selection decisions and may vary significantly from the MSCI All Country World
Index Free (ex-U.S.), the International Opportunities Portfolio's benchmark.
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 MSCI Europe Index which is comprised of
more than 600 companies in 14 European countries. The European Equity Fund's
investment objective is to provide high total return from a portfolio of
European company stocks. The European Equity Fund attempts to achieve its
investment objective by investing all of its investable assets in The European
Equity Portfolio (the "European Equity Portfolio"), a diversified open-end
management investment company having the same investment objective as the
European Equity Fund.
The European Equity Portfolio seeks to achieve its investment objective
by investing primarily in Equity Securities of European companies. Under normal
circumstances, the European Equity Portfolio expects to invest at least 65% of
its total assets in Equity Securities. The European Equity Portfolio does not
intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of European countries render investments in such
countries inadvisable.
Investment Process for the European Equity Portfolio
Stock selection: Various models are used to quantify JPMIM's
fundamental stock research, producing a ranking of companies in each industry
group according to their relative value. The European Equity Portfolio's
management team then buys and sells stocks, using the research and valuation
rankings as well as its assessment of other factors including: catalysts that
could trigger a change in a stock's price, potential reward compared to
potential risk and temporary mispricings caused by market overreactions.
Country allocation: The European Equity Portfolio's country weightings
primarily result from its stock selection decisions and may vary significantly
from the MSCI Europe Index, the European Equity Portfolio's benchmark. In
addition, JPMIM makes active allocations to certain countries. For example,
currently country weightings in continental Europe result from individual stock
selection decisions. With regards to the United Kingdom, the Advisor makes an
active country allocation decision. The Advisor, based on changing market
conditions and experienced judgment, may from time to time adjust the extent to
which country weighting is based on stock selection and active country
allocation.
Equity Investments
The Portfolios invest primarily in Equity Securities. The Equity
Securities in which the Portfolios 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 Portfolios 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 Portfolios 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 Portfolios 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 Portfolios make substantial investments in foreign countries.
Investors should realize that the value of the Portfolios' 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 Portfolios' 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 Portfolios 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 a 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 Portfolio'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 Portfolios 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 Portfolios'
currency exposure related to foreign investments.
The Portfolios 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 Portfolios investments in those countries and the
availability to a 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 Portfolios investments in such countries illiquid and more volatile
than investments in more developed countries, and a 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 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.
Sovereign and Corporate Debt Obligations. The Emerging Markets Equity
Fund may invest in sovereign debt obligations. Investment in sovereign debt
obligations involves special risks not present in corporate debt obligations.
The issuer of the sovereign debt or the governmental authorities that control
the repayment of the debt may be unable or unwilling to repay principal or
interest when due, and the Fund may have limited recourse in the event of a
default. During periods of economic uncertainty, the market prices of sovereign
debt, and the Fund's net asset value, may be more volatile than prices of U.S.
debt obligations. In the past, certain emerging markets have encountered
difficulties in servicing their debt obligations, withheld payments of principal
and interest and declared moratoria on the payment of principal and interest on
their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward principal international lenders and local
political constraints. Sovereign debtors may also be dependent on expected
disbursements from foreign governments, multilateral agencies and other entities
to reduce principal and interest arrearages on their debt. The failure of a
sovereign debtor to implement economic reforms, achieve specified levels of
economic performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
Corporate debt obligations, including obligations of industrial,
utility, banking and other financial issuers, are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.
Brady Bonds. The Emerging Markets Equity Fund may invest in Brady
bonds. Brady bonds are securities created through the exchange of existing
commercial bank loans to public and private entities in certain emerging markets
for new bonds in connection with debt restructurings. Brady bonds have been
issued since 1989 and do not have a long payment history. In light of the
history of defaults of countries issuing Brady bonds on their commercial bank
loans, investments in Brady bonds may be viewed as speculative. Brady bonds may
be fully or partially collateralized or uncollateralized, are issued in various
currencies (but primarily the dollar) and are actively traded in
over-the-counter ("OTC") secondary markets. Incomplete collateralization of
interest or principal payment obligations results in increased credit risk.
Dollar-denominated collateralized Brady bonds, which may be either fixed-rate or
floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady bonds.
Obligations of Supranational Entities. The Emerging Markets Equity Fund
may invest in obligations of supranational entities designated or supported by
governmental entities to promote economic reconstruction or development and of
international banking institutions and related government agencies. Examples
include the International Bank for Reconstruction and Development (the "World
Bank"), the European Coal and Steel Community, the Asian Development Bank and
the Inter-American Development Bank. Each supranational entity's lending
activities are limited to a percentage of its total capital (including "callable
capital" contributed by its governmental members at the entity's call), reserves
and net income. There is no assurance that participating governments will be
able or willing to honor their commitments to make capital contributions to a
supranational entity.
Investment in Lower Rated Obligations.
While generally providing higher coupons or interest rates than
investments in higher quality securities, lower quality debt securities involve
greater risk of loss of principal and income, including the possibility of
default or bankruptcy of the issuers of such securities, and have greater price
volatility, especially during periods of economic uncertainty or change. These
lower quality debt obligations tend to be affected by economic changes and
short-term corporate and industry developments to a greater extent than higher
quality securities, which react primarily to Fund invests in such lower quality
securities, the achievement of its investment objective may be more dependent on
the Advisor's credit analysis.
Lower quality debt obligations are affected by the market's perception
of their credit quality, especially during time of adverse publicity, and the
outlook for economic growth. Economic downturns or an increase in interest rates
may cause a higher incidence of default by the issuers of these securities,
especially issuers that are highly leveraged. The market for these lower quality
fixed income securities is generally less liquid than the market for investment
grade fixed income securities. It may be more difficult to sell these lower
rated securities to meet redemption requests, to respond to changes in the
market, or to value accurately the Fund's portfolio holdings for purposes of
determining the Fund's net asset value.
Money Market Instruments
Although the Portfolios intend under normal circumstances and to the
extent practicable, to be fully invested in Equity Securities, each Portfolio
may invest in money market instruments to the extent consistent with its
investment objective and policies. The Portfolios 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 Portfolios appears below. Also see
"Quality and Diversification Requirements."
U.S. Treasury Securities. Each of the Portfolios 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 Portfolios 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 Portfolio 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
Portfolio 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 Portfolios, 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 Portfolios 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 Portfolios 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 Portfolios 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 Portfolios may invest in commercial
paper, including master demand obligations. Master demand obligations are
obligations that provide for a periodic adjustment in the interest rate paid and
permit daily changes in the amount borrowed. Master demand obligations are
governed by agreements between the issuer and Morgan acting as agent, for no
additional fee. The monies loaned to the borrower come from accounts managed by
Morgan or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. Morgan has the right to
increase or decrease the amount provided to the borrower under an obligation.
The borrower has the right to pay without penalty all or any part of the
principal amount then outstanding on an obligation together with interest to the
date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by Morgan. Since master demand obligations typically are
not rated by credit rating agencies, the Funds may invest in such unrated
obligations only if at the time of an investment the obligation is determined by
the Advisor to have a credit quality which satisfies the Portfolio's quality
restrictions. See "Quality and Diversification Requirements." Although there is
no secondary market for master demand obligations, such obligations are
considered by the Portfolios to be liquid because they are payable upon demand.
The Portfolios 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 Portfolios may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trustees. In a repurchase agreement, a Portfolio 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 Portfolio 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
Portfolio to the seller. The period of these repurchase agreements will usually
be short, from overnight to one week, and at no time will the Portfolios 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
Portfolios 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 Portfolios in each agreement plus accrued
interest, and the Portfolios 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 Portfolio 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 Portfolio may be delayed or
limited.
Each of the Portfolios 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. Each of the Portfolios 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.
Additional Investments
When-Issued and Delayed Delivery Securities. Each of the Portfolios may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Portfolio until settlement
takes place. At the time a Portfolio makes the commitment to purchase securities
on a when-issued or delayed delivery basis, it will record the transaction,
reflect the value each day of such securities in determining its net asset value
and calculate the maturity for the purposes of average maturity from that date.
At the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, each Portfolio will maintain
with the Custodian a segregated account with liquid assets, consisting of cash,
U.S. Government securities or other appropriate securities, in an amount at
least equal to such commitments. On delivery dates for such transactions, each
Portfolio will meet its obligations from maturities or sales of the securities
held in the segregated account and/or from cash flow. If a Portfolio chooses to
dispose of the right to acquire a when-issued security prior to its acquisition,
it could, as with the disposition of any other portfolio obligation, incur a
gain or loss due to market fluctuation. Also, a Portfolio may be disadvantaged
if the other party to the transaction defaults.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolio to the
extent permitted under the 1940 Act or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made,
(i)not more than 5% of the value of a Fund's total assets will be invested in
the securities of any one investment company, (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group, and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by a Fund; provided,
however, that a Fund may invest all of its investable assets in an open-end
investment company that has the same investment objective as the Fund (its
corresponding Portfolio). As a shareholder of another investment company, a Fund
or Portfolio would bear, along with other shareholders, its pro rata portion of
the other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that a Fund or Portfolio
bears directly in connection with its own operations.
The Securities and Exchange Commission ("SEC") has granted the
Portfolio an exemptive order permitting it to invest its uninvested cash in any
of the following affiliated money market funds: J.P. Morgan Institutional Prime
Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P.
Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional
Treasury Money Market Fund. The order sets forth the following conditions: (1)
the Portfolio may invest in one or more of the permitted money market funds up
to an aggregate limit of 25% of its assets; and (2) the Advisor will waive
and/or reimburse its advisory fee from the Portfolio in an amount sufficient to
offset any doubling up of investment advisory and shareholder servicing fees.
Reverse Repurchase Agreements. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Funds will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, a Fund will enter into a
reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. A Fund will not
invest the proceeds of a reverse repurchase agreement for a period which exceeds
the duration of the reverse repurchase agreement. Each Fund will establish and
maintain with the custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. See "Investment Restrictions" for each Fund's
limitations on reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. Each 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,
Member of the Advisory Board, employee or other affiliate of the Portfolios, the
Advisor or the Distributor, unless otherwise permitted by applicable law.
Privately Placed and Certain Unregistered Securities. A Portfolio may
not acquire any illiquid securities if, as a result thereof, more than 15% of
the Portfolio's net assets would be in illiquid investments. Subject to this
non-fundamental policy limitation, the Portfolios may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the 1933 Act and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
it is valued by a Portfolio. The price a Portfolio pays for illiquid securities
or receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.
The Portfolios may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
As to illiquid investments, a Portfolio is subject to a risk that
should the Portfolio decide to sell them when a ready buyer is not available at
a price the Portfolio deems representative of their value, the value of the
Portfolio's net assets could be adversely affected. Where an illiquid security
must be registered under the 1933 Act, before it may be sold, a Portfolio may be
obligated to pay all or part of the registration expenses, and a considerable
period may elapse between the time of the decision to sell and the time the
Portfolio may be permitted to sell a holding under an effective registration
statement. If, during such a period, adverse market conditions were to develop,
a Portfolio might obtain a less favorable price than prevailed when it decided
to sell.
Quality and Diversification Requirements
Each of the Portfolios intends to meet the diversification requirements
of the 1940 Act. Current 1940 Act diversification requirements require that with
respect to 75% of the assets of the Portfolio: (1) the Portfolio 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 Portfolio may not own more than 10% of the outstanding voting securities of
any one issuer. As for the other 25% of the Portfolio'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 Portfolio 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 Portfolios 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 Portfolios may invest in convertible debt securities, for which
there are no specific quality requirements. In addition, at the time a Portfolio
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 Portfolio 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 Trustees. While exchange-traded options are obligations of the
Options Clearing Corporation, in the case of OTC options, a Portfolio relies on
the dealer from which it purchased the option to perform if the option is
exercised. Thus, when a Portfolio purchases an OTC option, it relies on the
dealer from which it purchased the option to make or take delivery of the
underlying securities. Failure by the dealer to do so would result in the loss
of the premium paid by the Portfolio as well as loss of the expected benefit of
the transaction.
Provided that a Portfolio has arrangements with certain qualified
dealers who agree that the Portfolio may repurchase any option it writes for a
maximum price to be calculated by a predetermined formula, a Portfolio may treat
the underlying securities used to cover written OTC options as liquid. In these
cases, the OTC option itself would only be considered illiquid to the extent
that the maximum repurchase price under the formula exceeds the intrinsic value
of the option.
Futures Contracts and Options on Futures Contracts. The Portfolios may
purchase or sell (write) futures contracts and may purchase and sell (write) put
and call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Portfolio are paid by the Portfolio into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the SEC's interpretations thereunder.
Combined Positions. The Portfolios may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, a Portfolio may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a
Portfolio's current or anticipated investments exactly. A Portfolio may invest
in options and futures contracts based on securities with different issuers,
maturities, or other characteristics from the securities in which it typically
invests, which involves a risk that the options or futures position will not
track the performance of the Portfolio's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Portfolio's investments well. Options and futures contracts prices are affected
by such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Portfolio may purchase or sell options
and futures contracts with a greater or lesser value than the securities it
wishes to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Portfolio's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a
Portfolio to enter into new positions or close out existing positions. If the
market for a contract is not liquid because of price fluctuation limits or
otherwise, it could prevent prompt liquidation of unfavorable positions, and
could potentially require a Portfolio to continue to hold a position until
delivery or expiration regardless of changes in its value. As a result, the
Portfolio's access to other assets held to cover its options or futures
positions could also be impaired. (See "Exchange Traded and OTC Options" above
for a discussion of the liquidity of options not traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Portfolio or the Advisor may be
required to reduce the size of its futures and options positions or may not be
able to trade a certain futures or options contract in order to avoid exceeding
such limits.
Asset Coverage for Futures Contracts and Options Positions. Although the
Portfolios will not be commodity pools, certain derivatives subject the
Portfolios to the rules of the Commodity Futures Trading Commission which limit
the extent to which the Portfolio can invest in such derivatives. Each Portfolio
may invest in futures contracts and options with respect thereto for hedging
purposes without limit. However, the Portfolio may not invest in such contracts
and options for other purposes if the sum of the amount of initial margin
deposits and premiums paid for unexpired options with respect to such contracts,
other than for bona fide hedging purposes, exceeds 5% of the liquidation value
of the Portfolio's assets, after taking into account unrealized profits and
unrealized losses on such contracts and options; provided, however, that in the
case of an option that is in-the-money at the time of purchase, the in-the-money
amount may be excluded in calculating the 5% limitation.
In addition, the Portfolios will comply with guidelines established by
the SEC with respect to coverage of options and futures contracts by mutual
funds, and if the guidelines so require, will set aside appropriate liquid
assets in a segregated custodial account in the amount prescribed. Securities
held in a segregated account cannot be sold while the futures contract or option
is outstanding, unless they are replaced with other suitable assets. As a
result, there is a possibility that segregation of a large percentage of the
Portfolio's assets could impede portfolio management or the Portfolio's ability
to meet redemption requests or other current obligations. Swaps and Related Swap
Products
Each of the Portfolios may engage in swap transactions, including, but
not limited to, interest rate, currency, securities index, basket, specific
security and commodity swaps, interest rate caps, floors and collars and options
on interest rate swaps (collectively defined as "swap transactions").
Each Portfolio may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities a Portfolio anticipates purchasing at a later date, or to gain
exposure to certain markets in the most economical way possible. A Portfolio
will not sell interest rate caps, floors or collars if it does not own
securities with coupons which provide the interest that a Fund may be required
to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Portfolio is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by a Portfolio, payments by the
parties will be exchanged on a "net basis", and a Portfolio will receive or pay,
as the case may be, only the net amount of the two payments.
The amount of a Portfolio's potential gain or loss on any swap
transaction is not subject to any fixed limit. Nor is there any fixed limit on a
Portfolio's potential loss if it sells a cap or collar. If the Portfolio buys a
cap, floor or collar, however, the Portfolio's potential loss is limited to the
amount of the fee that it has paid. When measured against the initial amount of
cash required to initiate the transaction, which is typically zero in the case
of most conventional swap transactions, swaps, caps, floors and collars tend to
be more volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of a Portfolio will be less favorable than if these techniques had
not been used. These instruments are typically not traded on exchanges.
Accordingly, there is a risk that the other party to certain of these
instruments will not perform its obligations to a Portfolio or that a Portfolio
may be unable to enter into offsetting positions to terminate its exposure or
liquidate its position under certain of these instruments when it wishes to do
so.
Such occurrences could result in losses to a Portfolio.
The Advisor will, however, consider such risks and will enter into swap
and other derivatives transactions only when it believes that the risks are not
unreasonable.
Each Portfolio will maintain cash or liquid assets in a segregated
account with its custodian in an amount sufficient at all times to cover its
current obligations under its swap transactions, caps, floors and collars. If a
Portfolio enters into a swap agreement on a net basis, it will segregate assets
with a daily value at least equal to the excess, if any, of a Portfolio's
accrued obligations under the swap agreement over the accrued amount a Fund is
entitled to receive under the agreement. If a Portfolio enters into a swap
agreement on other than a net basis, or sells a cap, floor or collar, it will
segregate assets with a daily value at least equal to the full amount of a
Portfolio's accrued obligations under the agreement.
Each Portfolio will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, a Portfolio may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset a Portfolio's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, a Portfolio will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and a Portfolio's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which a
Portfolio may engage in such transactions.
Risk Management
The Portfolios may employ non-hedging risk management techniques.
Examples of risk management strategies include synthetically altering a
portfolio's exposure to the equity markets of particular countries by purchasing
futures contracts on the stock indices of those countries to increase exposure
to their equity markets. Such non-hedging risk management techniques are not
speculative, but because they involve leverage include, as do all leveraged
transactions, the possibility of losses as well as gains that are greater than
if these techniques involved the purchase and sale of the securities themselves
rather than their synthetic derivatives.
Portfolio Turnover
The table below sets forth the portfolio turnover rates for the
Portfolios corresponding to the Funds. A rate of 100% indicates that the
equivalent of all of the Portfolio's assets have been sold and reinvested in a
year. High portfolio turnover may result in the realization of substantial net
capital gains or losses. To the extent net short term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. See "Taxes" below.
The International Equity Portfolio (International Equity Fund) For the fiscal
year ended October 31, 1998: 74%. For the fiscal year ended October 31, 1999:
70%.
The Emerging Markets Equity Portfolio (Emerging Markets Equity Fund) For the
fiscal year ended October 31, 1998: 44%. For the fiscal year ended October 31,
1999: 87%.
The International Opportunities Portfolio (International Equity Fund) For the
fiscal year ended November 30, 1998: 143%. For the fiscal year ended November
30, 1999: 80%.
The European Equity Portfolio (European Equity Fund) For the period January 1,
1998 through November 30, 1998: 99%. For the fiscal year ended November 30,
1999: 68%
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
Each Fund and its corresponding Portfolio:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Funds and their
corresponding Portfolios and may be changed by their Trustees. These
non-fundamental investment policies require that the Funds and their
corresponding Portfolios:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Fund's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, JPMIM may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if JPMIM determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, JPMIM
may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND ADVISORY BOARD
Trustees
The mailing address of the Trustees of the Trust, who are also the
Trustees of each of the Portfolios and the other Master Portfolios, as defined
below, is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017.
Their names, principal occupations during the past five years and dates of birth
are set forth below:
Frederick S. Addy -- Trustee; Retired; Former Executive Vice President and
Chief Financial Officer, Amoco Corporation. His date of birth is January 1,
1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His date of birth is May
23, 1934.
Matthew Healey1 -- Trustee; Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc. ("Pierpont Group") since prior to 1993. His date of birth
is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His date of
birth is March 17, 1934.
A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Institutional Funds up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), the J.P. Morgan 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, 1999 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 1999 MORGAN SERIES TRUST AND THE
------------- TRUST DURING 1999 **
NAME OF TRUSTEE
- -------------------------------- ------------------- ---------------------------
- -------------------------------- ------------------- ---------------------------
Frederick S. Addy, Trustee $12,720 $75,000
- -------------------------------- ------------------- ---------------------------
- -------------------------------- ------------------- ---------------------------
William G. Burns, Trustee $12,720 $75,000
- -------------------------------- ------------------- ---------------------------
- -------------------------------- ------------------- ---------------------------
Arthur C. Eschenlauer, Trustee $12,720 $75,000
- -------------------------------- ------------------- ---------------------------
- -------------------------------- ------------------- ---------------------------
Matthew Healey, Trustee *** $12,720 $75,000
Chairman and Chief Executive
Officer
- -------------------------------- ------------------- ---------------------------
- -------------------------------- ------------------- ---------------------------
Michael P. Mallardi, Trustee $12,720 $75,000
- -------------------------------- ------------------- ---------------------------
* Includes the Portfolios and 15 other portfolios (collectively, the "Master
Portfolios") for which JPMIM acts as investment advisor.
** No investment company within the fund complex has a pension or retirement
plan. Currently there are 17 investment companies (14 investment companies
comprising the Master Portfolios, J.P. Morgan Institutional Funds, the Trust and
J.P. Morgan Series Trust) in the fund complex.
*** During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $153,800, contributed
$23,100 to a defined contribution plan on his behalf and paid $17,300 in
insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group to
assist the Trustees in exercising their overall supervisory responsibilities
over the affairs of the Portfolios and the Trust. Pierpont Group, Inc. was
organized in July 1989 to provide services for the J.P. Morgan Family of Funds
(formerly "The Pierpont Family of Funds"), and the Trustees are the equal and
sole shareholders of Pierpont Group, Inc. The Trust and the Portfolios have
agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services. These costs are periodically
reviewed by the Trustees. The principal offices of Pierpont Group are located at
461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
International Equity Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $6,713, $3,379 and $1,398, respectively.
International Equity Portfolio -- For the fiscal years ended October 31, 1997,
1998 and 1999: $32,439, $18,453 and $9,765, respectively.
Emerging Markets Equity Fund -- For the fiscal years ended October 31, 1997,
1998 and 1999: $2,169, $1,387 and $622, respectively.
Emerging Markets Equity Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $34,045, $11,566 and $3,334, respectively.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $1,143. For the fiscal
years ended November 30, 1998 and 1999: $2,225 and $1,073, respectively.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $5,110. For the fiscal
years ended November 30, 1998 and 1999: $13,264, and $6,949, respectively.
European Equity Fund -- For the fiscal year ended December 31, 1997: $117. For
the period January 1, 1998 through November 30, 1998: $336. For the fiscal year
ended November 30, 1999: $274.
European Equity Portfolio -- For the fiscal year ended December 31, 1997:
$21,837. For the period January 1, 1998 through November 30, 1998: $738. For the
fiscal year ended November 30, 1999: $498.
Advisory Board
The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust; but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
members thereof was designed so that the Board of Trustees will continuously
consist of persons able to assume the duties of Trustees and be fully familiar
with the business and affairs of each of the Trusts and the Master Portfolios,
in anticipation of the current Trustees reaching the mandatory retirement age of
seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for
serving in this capacity for the Trust, each of the Master Portfolios, the J.P.
Morgan Institutional Funds and the J.P. Morgan Series Trust and is reimbursed
for expenses incurred in connection for such service. The members of the
Advisory Board may hold various other directorships unrelated to these funds.
The mailing address of the Members of the Advisory Board is c/o Pierpont Group,
Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal
occupations during the past five years and dates of birth are set forth below:
Ann Maynard Gray - President, Diversified Publishing Group and Vice
President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.
OFFICERS
The Trust's and 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
Portfolio. The Trust and the Portfolios have no employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolios. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Country Club Estates, 10286 Saint
Andrews Road, Boynton Beach, Florida 33436. His date of birth is August 23,
1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President, Chief
Executive Officer, Chief Compliance Officer and Director of FDI, Premier Mutual
Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an officer of
certain investment companies distributed or administered by FDI. Her date of
birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. His date of birth is March 31,
1969.
JOHN P. COVINO; Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolios only. Managing Director, State Street Cayman Trust Company, Ltd.
since October 1994. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor,
Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI. Her date of birth
is March 27, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment advisor
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 Portfolios' Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. Prior to October 1, 1998, Morgan
was each Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, manages employee
benefit funds of corporations, labor unions and state and local governments and
the accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $349 billion.
J.P. Morgan has a long history of service as advisor, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 120 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 380
capital market researchers, portfolio managers and traders.
The 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 employees of the Advisor who
may also be acting in similar capacities for the Portfolios. See "Portfolio
Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolios in which the Funds
invest are currently: The International Equity Portfolio -- EAFE; The Emerging
Markets Equity Portfolio -- MSCI Emerging Markets Free Index; The International
Opportunities Portfolio -- MSCI All Country World Index Free (ex-U.S.); The
European Equity Portfolio - MSCI Europe Index.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolios are managed by employees of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
International Equity: .60%
Emerging Markets Equity: 1.00%
International Opportunities: .60%
European Equity: .65%
The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to Morgan and JPMIM, as applicable, 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, 1997:
$5,305,885. For the fiscal year ended October 31, 1998: $3,581,301. For the
fiscal year ended October 31, 1999: $2,881,754.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31, 1997:
$9,422,758. For the fiscal year ended October 31, 1998: $3,584,676. For the
fiscal year ended October 31, 1999: $1,648,556.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $904,113. For the fiscal
year ended November 30, 1998: $2,687,804. For the fiscal year ended November 30,
1999: $2,133,208.
European Equity Portfolio -- For the fiscal year ended December 31, 1997:
$3,879,040. For the period January 1, 1998 through November 30, 1998: $166,971.
For the fiscal year ended November 30, 1999: $163,353.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or subsidiaries thereof may not sponsor, organize, or control a
registered open-end investment company continuously engaged in the issuance of
its shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreement without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. On November 12, 1999, the Gramm-Leach-Bliley Act was signed into
law, the relevant provisions of which go into effect March 11, 2000. Until March
11, 2000, federal banking law, specifically the Glass-Steagall Act and the Bank
Holding Company Act, generally prohibits banks and bank holding companies and
their subsidiaries, such as the Advisor, from engaging in the business of
underwriting or distributing securities. Pursuant to interpretations issued
under these laws by the Board of Governors of the Federal Reserve System, such
entities also may not sponsor, organize or control a registered open-end
investment company continuously engaged in the issuance of its shares (together
with underwriting and distributing securities, the "Prohibited Activities"),
such as the Trust. These laws and interpretations do not prohibit a bank holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreement without
violation of the laws in effect until March 11, 2000. Effective March 11, 2000,
the sections of the Glass-Steagall Act which prohibited the Prohibited
Activities are repealed, and the Bank Holding Company Act is amended to permit
bank holding companies which satisfy certain capitalization, managerial and
other criteria (the "Criteria") to engage in the Prohibited Activities; bank
holding companies which do not satisfy the Criteria may continue to engage in
any activity that was permissible for a bank holding company under the Bank
Holding Company Act as of November 11, 1999. Because the services to be
performed for the Portfolio under the Advisory Agreement were permissible for a
bank holding company as of November 11, 1999, the Advisor believes that it also
may perform such services after March 11, 2000 whether or not the Advisor's
parent satisfies the Criteria. 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.
Under separate agreements, Morgan provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Members of the Advisory Board" and "Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information," in any
case without payment of any penalty on 60 days' written notice to the other
party. The principal offices of FDI are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under 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,
Members of the Advisory Board 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 fiscal year ended October 31, 1997: $5,802.
For the fiscal year ended October 31, 1998: $2,482. For the fiscal year ended
October 31, 1999: $1,009.
International Equity Portfolio -- For the fiscal year ended October 31, 1997:
$21,379. For the fiscal year ended October 31, 1998: $11,630. For the fiscal
year ended October 31, 1999: $6,065.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1997:
$1,882. For the fiscal year ended October 31, 1998: $997. For the fiscal year
ended October 31, 1999: $463.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31, 1997:
$22,642. For the fiscal year ended October 31, 1998: $7,255. For the fiscal year
ended October 31, 1999: $2,073.
International Opportunities Fund -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $966. For the fiscal year
ended November 30, 1998: $1,626. For the fiscal year ended November 30, 1999:
$810.
International Opportunities Portfolio -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $3,446. For the fiscal year
ended November 30, 1998: $8,417. For the fiscal year ended November 30, 1999:
$4,338.
European Equity Fund -- For the fiscal year ended December 31, 1997: $105. For
the period January 1, 1998 through November 30, 1998: $246. For the fiscal year
ended November 30, 1999: $201.
European Equity Portfolio -- For the fiscal year ended December 31, 1997:
$14,117. For the period January 1, 1998 through November 30, 1998: $468. For the
fiscal year ended November 30, 1999: $308.
SERVICES AGENT
The Trust, on behalf of each Fund, and each Fund's corresponding
Portfolio have entered into Administrative Services Agreements (the "Services
Agreements") with Morgan effective December 29, 1995, as amended August 1, 1996,
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
Under the Services Agreements, Morgan provides certain administrative
and related services to the Fund and the Portfolio, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.
Under the amended Services Agreements, the Funds and the Portfolios
have agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by each Fund and Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, the Master Portfolios, the other investors in the Master Portfolios for
which Morgan provides similar services and J.P. Morgan Series Trust. 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, 1997:
$56,612. For the fiscal year ended October 31, 1998: $31,866. For the fiscal
year ended October 31, 1999: $17,391.
International Equity Portfolio -- For the fiscal year ended October 31, 1997:
$274,750. For the fiscal year ended October 31, 1998: $174,789. For the fiscal
year ended October 31, 1999: $124,528.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1997:
$18,465. For the fiscal year ended October 31, 1998: $12,828. For the fiscal
year ended October 31, 1999: $8,070.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31, 1997:
$292,269. For the fiscal year ended October 31, 1998: $106,124. For the fiscal
year ended October 31, 1999: $42,701.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $10,235. For the fiscal
year ended November 30, 1998: $21,655. For the fiscal year ended November 30,
1999: $14,351.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $46,055. For the fiscal
year ended November 30, 1998: $129,873. For the fiscal year ended November 30,
1999: $91,386.
European Equity Fund -- For the fiscal year ended December 31, 1997: $1,095. For
the period January 1, 1998 through November 30, 1998: $3,400. For the fiscal
year ended November 30, 1999: $3,546.
European Equity Portfolio -- For the fiscal year ended December 31, 1997:
$184,239. For the period January 1, 1998 through November 30, 1998: $7,380. For
the fiscal year ended November 30, 1999: $6,472.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's and each of the Portfolio's custodian and fund
accounting agent. Pursuant to the Custodian Contracts, BONY is responsible for
holding portfolio securities and cash and maintaining the books of account and
records of portfolio transactions. In the case of foreign assets held outside
the United States, the custodian employs various subcustodians.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Fund's transfer and dividend
disbursing agent. As transfer agent and dividend disbursing agent, State Street
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of 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 for the fiscal periods indicated.
International Equity Fund -- For the fiscal year ended October 31, 1997:
$455,302. For the fiscal year ended October 31, 1998: $271,861. For the fiscal
year ended October 31, 1999: $167,059.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1997:
$148,687. For the fiscal year ended October 31, 1998: $109,292. For the fiscal
year ended October 31, 1999: $77,984.
International Opportunities Fund -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $83,769. For the fiscal year
ended November 30, 1998: $186,424. For the fiscal year ended November 30, 1999:
$139,554.
European Equity Fund -- For the fiscal year ended December 31, 1997: $8,926. For
the period January 1, 1998 through November 30, 1998: $29,634. For the fiscal
year ended November 30, 1999: $34,421.
As discussed under "Investment Advisor," until March 11, 2000, the
Glass-Steagall Act and other applicable laws and regulations limit the
activities of bank holding companies and certain of their subsidiaries in
connection with registered open-end investment companies. The activities of
Morgan in acting as shareholder servicing agent for Fund shareholders under the
Shareholder Servicing Agreement and providing administrative services to the
Funds and the Portfolios under the Services Agreements, and the activities of
JPMIM in acting as Advisor to the Portfolios under the Investment Advisory
Agreements, may raise issues under these laws. However, JPMIM and Morgan believe
that they may properly perform these services and the other activities described
in the Prospectus without violation of the Glass-Steagall Act or other
applicable banking laws or regulations in effect until March 11, 2000. Effective
March 11, 2000, certain of the sections of the Glass-Steagall Act which limited
the activities of bank holding companies and certain of their subsidiaries in
connection with open-end investment companies are repealed.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by a Fund, financial
professionals may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among financial professionals but in all cases
will be retained by the financial professional and not be remitted to the Fund
or J.P. Morgan.
Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of each of the Funds and the Portfolios, assists in the preparation
and/or review of each Fund's and Portfolio's federal and state income tax
returns and consults with the Funds and the Portfolios as to matters of
accounting and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Members of the
Advisory Board," "Officers," "Investment Advisor," "Co-Administrator",
"Distributor," "Services Agent" and "Shareholder Servicing" above, the Funds and
the Portfolios are responsible for usual and customary expenses associated with
their respective operations. Such expenses include organization expenses, legal
fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees and Members of the Advisory Board, 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.
J.P. Morgan has agreed that it will reimburse the Funds noted below
until February 28, 2001 to the extent necessary to maintain the Fund's total
operating expenses (which include expenses of the Fund and the Portfolio) at the
following annual rates of the Fund's average daily net assets.
European Equity Fund: 1.50%
Emerging Markets Equity Fund: 1.75%
These limits do not cover extraordinary expenses. These
reimbursement/waiver arrangements will continue through at least February 28,
2001.
The table below sets forth for each Fund listed the fees and other
expenses J.P. Morgan reimbursed under the expense reimbursement arrangements
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.
Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1997: N/A.
For the fiscal year ended October 31, 1998: $28,944. For the fiscal year ended
October 31, 1999: $36,814.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31, 1997:
N/A. For the fiscal year ended October 31, 1998: N/A. For the fiscal year ended
October 31, 1999: N/A.
International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $105,187. For the fiscal
year ended November 30, 1998: $34,643. For the fiscal year ended November 30,
1999: $31,228.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $42,119. For the fiscal
year ended November 30, 1998: $2,053. For the fiscal year ended November 30,
1999: $ N/A.
European Equity Fund -- For the fiscal year ended December 31, 1997: $84,359.
For the period January 1, 1998 through November 30, 1998: $72,575. For the
fiscal year ended November 30, 1999: $122,165.
European Equity Portfolio -- For the fiscal year ended December 31, 1997:
$58,185. For the period January 1, 1998 through November 30, 1998: $62,269. For
the fiscal year ended November 30, 1999: $147,071.
PURCHASE OF SHARES
Additional Minimum Balance Information. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), each Fund reserves the right to request that you buy more shares
or close your account. If your account balance is still below the minimum 60
days after notification, the Fund reserves the right to close out your account
and send the proceeds to the address of record.
Method of Purchase. Investors may open accounts with a Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. Each Fund reserves the right to accept or reject at
its own option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
financial professional, and the financial professional may establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. Morgan may pay fees to financial professionals for
services in connection with fund investments. See "Financial Professionals"
above.
REDEMPTION OF SHARES
If the Trust, on behalf of a Fund, and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of all of the Funds and their corresponding
Portfolios have elected to be governed by Rule 18f-1 under the 1940 Act pursuant
to which the Funds and their corresponding Portfolios are obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
asset value of the Fund during any 90 day period for any one shareholder. The
Trust will redeem Fund shares in kind only if it has received a redemption in
kind from the corresponding Portfolio and therefore shareholders of the Fund
that receive redemptions in kind will receive securities of the Portfolio. The
Portfolios have advised the Trust that the Portfolios will not redeem in kind
except in circumstances in which a Fund is permitted to redeem in kind.
Further Redemption Information. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into shares of any other
J.P. Morgan Fund or J.P. Morgan Institutional Fund without charge. An exchange
may be made so long as after the exchange the investor has shares, in each fund
in which he or she remains an investor, with a value of at least that fund's
minimum investment amount. Shareholders should read the prospectus of the fund
into which they are exchanging and may only exchange between fund accounts that
are registered in the same name, address and taxpayer identification number.
Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Each Fund generally intends to pay redemption proceeds in cash,
however, since it reserves the right at its sole discretion to pay redemptions
over $250,000 in-kind as a portfolio of representative securities rather than in
cash, the Fund reserves the right to deny an exchange request in excess of that
amount. See "Redemption of Shares." Shareholders subject to federal income tax
who exchange shares in one fund for shares in another fund may recognize capital
gain or loss for federal income tax purposes. Shares of the Fund to be acquired
are purchased for settlement when the proceeds from redemption become available.
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 or foreign securities
exchange, including National Association of Securities Dealers Automated
Quotations ("NASDAQ") is based on the last sale prices on the exchange on which
the security is principally traded (the "primary exchange"). If there has been
no sale on the primary exchange on the valuation date, and the spread between
bid and asked quotations on the primary exchange is less than or equal to 10% of
the bid price for the security, the security shall be valued at the average of
the closing bid and asked quotations on the primary exchange, except under
certain circumstances, when the average of the closing bid and asked price is
less than the last sales price of the foreign local shares, the security shall
be valued at the last sales price of the local shares. Under all other
circumstances (e.g. there is no last sale on the primary exchange, there are no
bid and asked quotations on the primary exchange, or the spread between bid and
asked quotations is greater than 10% of the bid price), the value of the
security shall be the last sale price on the primary exchange up to ten days
prior to the valuation date unless, in the judgment of the portfolio manager,
material events or conditions since such last sale necessitate fair valuation of
the security. With respect to securities otherwise traded in the
over-the-counter market, the value shall be equal to the quoted bid price. 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.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
p.m. New York time. Stock index futures and related options, which are traded on
commodities exchanges, are valued at their last sales price as of the close of
such commodities exchanges which is currently 4:15 p.m., New York time. Options
and futures traded on foreign exchanges are valued at the last sale price
available prior to the calculation of the Fund's net asset value. Securities or
other assets for which market quotations are not readily available (including
certain restricted and illiquid securities) are valued at fair value in
accordance with procedures established by and under the general supervision and
responsibility of the Trustees. Such procedures include the use of independent
pricing services which use prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. Short-term investments which mature in
60 days or less are valued at amortized cost if their original maturity was 60
days or less, or by amortizing their value on the 61st day prior to maturity, if
their original maturity when acquired by the Portfolio was more than 60 days,
unless this is determined not to represent fair value by the Trustees.
Trading in securities on most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of actual
distributions, average annual and aggregate annual total returns or capital
appreciation in reports, sales literature and advertisements published by the
Trust. Shareholders may obtain current performance information by calling the
number provided on the cover page of this Statement of Additional Information.
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 European Equity Fund will be that of the J.P. Morgan
Institutional European Equity Fund (another investor in the same master
portfolio) 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: 10/31/99: Average annual total return, 1 year:
24.41%; average annual total return, 5 years: 8.08%; average annual total
return, commencement of operations* to period end: 6.42%; aggregate total
return, 1 year: 24.41%; aggregate total return, 5 years: 47.49%; aggregate total
return, commencement of operations* to period end: 79.71%.
Emerging Markets Equity Fund: 10/31/99: Average annual total return, 1 year:
33.00%; average annual total return, 5 years: (7.03)%; average annual total
return, commencement of operations** to period end: (2.43)%; aggregate total
return, 1 year: 33.00%; aggregate total return, 5 years: (30.54)%; aggregate
total return, commencement of operations** to period end: (13.66)%.
International Opportunities Fund: 11/30/99: Average annual total return, 1 year:
32.13%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations *** to period end: 11.22%; aggregate total return, 1
year: 32.13%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations *** to period end: 34.10%.
European Equity Fund: 11/30/99: Average annual total return, 1 year: 12.61%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations **** to period end: 18.76%; aggregate total return, 1
year: 12.61%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations **** to period end: 84.39%.
- --------------------------
* International Equity Fund commenced operations on June 1, 1990.
** Emerging Markets Equity Fund commenced operations on November 15, 1993.
*** International Opportunities Fund commenced operations on February 26, 1997.
**** European Equity Fund commenced operations on May 13, 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.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
From time to time, the funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the funds; (5) descriptions of investment strategies for one or more of the
funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the funds; (7)
comparisons of investment products (including the funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all Portfolios. See "Investment Objectives and Policies."
Portfolio transactions for a Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies --
Portfolio Turnover".
In connection with portfolio transactions, the overriding objective is
to obtain the best execution of purchase and sales orders.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of each Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolios in light of facts and circumstances deemed relevant from time to
time, and, in that connection, will receive reports from the Advisor and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of an individual Portfolio. The Advisor believes that the value of
research services received is not determinable and does not significantly reduce
its expenses. The Portfolios do not reduce their fee to the Advisor by any
amount that might be attributable to the value of such services.
The Portfolios or their predecessors corresponding to the International
Equity, Emerging Markets Equity, International Opportunities and European Equity
Funds paid the following brokerage commissions for the indicated fiscal periods:
International Equity Portfolio -- For the fiscal year ended October 31, 1997:
$2,008,842. For the fiscal year ended October 31, 1998: $1,920,469. For the
fiscal year ended October 31, 1999: $1,073,526.
Emerging Markets Equity Portfolio -- For the fiscal year ended October 31, 1997:
$2,855,850. For the fiscal year ended October 31, 1998: $1,089,000. For the
fiscal year ended October 31, 1999: $866,867.
International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $1,027,285. For the
fiscal year ended November 30, 1998: $2,294,676. For the fiscal year ended
November 30, 1999: $982,901.
European Equity Portfolio -- For the fiscal year ended December 31, 1997:
$1,562,672. For the period January 1, 1998 through November 30, 1998: $104,556.
For the fiscal year ended November 30, 1999: $63,209.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. Under the 1940 Act, persons
affiliated with the Portfolio and persons who are affiliated with such persons
are prohibited from dealing with the Portfolio as principal in the purchase and
sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. However, affiliated persons of the Portfolio may serve as
its broker in listed or over-the-counter transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Portfolio may not purchase securities during the existence of
any underwriting syndicate for such securities of which Morgan or an affiliate
is a member or in a private placement in which Morgan or an affiliate serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Portfolio that either comply with rules adopted by the SEC or with
interpretations of the SEC's staff.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to 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", the "JPM
Pierpont International Opportunities Fund" to the "J.P. Morgan International
Opportunities Fund" and "The JPM Pierpont European Equity Fund" to the "J.P.
Morgan European Equity Fund."
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the 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, Member of the Advisory Board, officer, employee or
agent of a Fund is liable to a Fund or to a shareholder, and that no Trustee,
Member of the Advisory Board, officer, employee, or agent is liable to any third
persons in connection with the affairs of 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, Member of the
Advisory Board, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and non-assessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 18 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares".
As of January 31, 2000, 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: Smith Barney Inc. (28.29%); and Charles Schwab &
Co. (15.33%); Copeland Assoc. Inc. (10.03%).
European Equity Fund: Charles Schwab & Co. Special Custody Account for Benefit
of Customers (16.10%); V. Madrigal (14.48%); Morgan as agent for A. Rowski
(7.81%); E. Boulot (5.34%).
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, Trustees and Members of the Advisory Board as a group
owned less than 1% of the shares of each Fund.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a Master Portfolio seeks a vote to change a fundamental
investment restriction, its feeder fund(s) will hold a shareholder meeting and
cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
described below with respect to the Portfolio.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no effect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments in other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends generally will be
taxable to a shareholder in the year declared rather than the year paid.
For federal income tax purposes, the following funds had capital loss
carryforwards for the periods indicated:
Emerging Markets Equity Fund: For the fiscal year ended October 31, 1999,
$22,047,191, of which $1,159,298 will expire in the year 2004, $15,741,713 will
expire in 2006, and $5,146,180 will expire in 2007.
International Opportunities Fund: For the fiscal year ended November 30, 1999,
$1,881,180, all of which will expire in 2006.
European Equity Fund: For the fiscal year ended November 30, 1999, $22,137 all
of which will expire in 2006.
To the extent that this capital loss is used to offset future capital
gains, it is probable that gains so offset will not be distributed to
shareholders.
Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gains in excess of net long-term capital
losses are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
If dividend payments exceed income earned by a Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Funds
intend to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon or the straddle rules described below are
otherwise applicable. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should thus consider the consequences
of purchasing shares in a Fund shortly before the Fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. In addition, no loss will be allowed on the
redemption or exchange of shares of the Fund, if within a period beginning 30
days before the date of such redemption or exchange and ending 30 days after
such date, the shareholder acquires (such as through dividend reinvestment)
securities that are substantially identical to shares of the Fund. Investors are
urged to consult their tax advisors concerning the limitations on the
deductibility of capital losses.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time 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 invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.
The Portfolios will be permitted to "mark to market" any marketable
stock held by a Portfolio in a PFIC. If a Portfolio made such an election, the
corresponding Fund would include in income each year an amount equal to its
share of the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the adjusted basis of such stock. The Fund
would be allowed a deduction for its share of the excess, if any, of the
adjusted basis of the PFIC stock over its fair market value as of the close of
the taxable year, but only to the extent of any net mark-to-market gains with
respect to the stock included by the Fund for prior taxable years.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 (or any successor form) is
provided. Transfers by gift of shares of a Fund by a foreign shareholder who is
a nonresident alien individual will not be subject to U.S. federal gift tax, but
the value of shares of the Fund held by such a shareholder at his or her death
will be includible in his or her gross estate for U.S. federal estate tax
purposes.
Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of a Fund
(including its share of the assets of the corresponding Portfolio) at the close
of any taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat any foreign income taxes deemed paid by it as paid
directly by its shareholders. A Fund will make such an election only if it deems
it to be in the best interest of its shareholders. A Fund will notify its
shareholders in writing each year if it makes the election and of the amount of
foreign income taxes, if any, to be treated as paid by the shareholders and the
amount of foreign taxes, if any, for which shareholders of the Fund will not be
eligible to claim a foreign tax credit because the holding period requirements
(described below) have not been satisfied. If a Fund makes the election, each
shareholder will be required to include in his income (in addition to the
dividends and distributions he receives) his proportionate share of the amount
of foreign income taxes deemed paid by the Fund and will be entitled to claim
either a credit (subject to the limitations discussed below) or, if he itemizes
deductions, a deduction for his share of the foreign income taxes in computing
federal income tax liability. (No deduction will be permitted in computing an
individual's alternative minimum tax liability.) Effective for dividends paid
after September 5, 1997, shareholders of a Fund will not be eligible to claim a
foreign tax credit with respect to taxes paid by the Fund (notwithstanding that
the Fund elects to treat the foreign taxes deemed paid by it as paid directly by
its shareholders) unless certain holding period requirements are met. A
shareholder who is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or deduction
against such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. A tax-exempt shareholder will not ordinarily benefit from this
election. Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the availability
of the credit) attributable to his or her total foreign source taxable income.
For this purpose, the portion of dividends and distributions paid by a Fund from
its foreign source net investment income will be treated as foreign source
income. A Fund's gains and losses from the sale of securities will generally be
treated as derived from U.S. sources, however, and certain foreign currency
gains and losses likewise will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, if the election is
made, shareholders may nevertheless be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by a Fund.
Effective for taxable years of a shareholder beginning after December 31, 1997,
individual shareholders of the Fund with $300 or less of creditable foreign
taxes ($600 in the case of an individual shareholder filing jointly) may elect
to be exempt from the foreign tax credit limitation rules described above (other
than the 90% limitation applicable for purposes of the alternative minimum tax),
provided that all of such individual shareholder's foreign source income is
"qualified passive income" (which generally includes interest, dividends, rents,
royalties and certain other types of income) and further provided that all of
such foreign source income is shown on one or more payee statements furnished to
the shareholder. Shareholders making this election will not be permitted to
carry over any excess foreign taxes to or from a tax year to which such an
election applies.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, J.P. Morgan or a Financial Professional
as shareholder servicing agent may be tape recorded. With respect to the
securities offered hereby, this Statement of Additional Information and the
Prospectus do not contain all the information included in the Trust's
registration statement filed with the SEC under the 1933 Act and the 1940 Act
and the Portfolios' registration statements filed under the 1940 Act. Pursuant
to the rules and regulations of the SEC, certain portions have been omitted. The
registration statements including the exhibits filed therewith may be examined
at the office of the SEC in Washington D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements and the reports thereon of
PricewaterhouseCoopers LLP of the International Equity, Emerging Markets Equity,
International Opportunities and European 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
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
Name of Fund Report Filed; and Accession Number
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
10/31/99; 1/13/00; 0000912057-00-001128
J.P. Morgan International Equity Fund
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
10/31/99; 1/6/00; 0000912057-00-000395
J.P. Morgan Emerging Markets Equity
Fund
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
11/30/99; 2/1/00; 0000912057-00-003247
J.P. Morgan International Opportunities
Fund
- --------------------------------------- ----------------------------------------
- --------------------------------------- ----------------------------------------
11/30/99; 2/1/00; 0000912057-00-003244
J.P. Morgan European Equity Fund
- --------------------------------------- ----------------------------------------
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's to a
debt obligation. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay principal
although they are somewhat more susceptible to the adverse effects of changes in
circumstances and economic conditions than debt in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay interest
and repay principal. Whereas they normally exhibit adequate protection
parameters, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity to pay interest and repay principal for
debt in this category than for debt in higher rated categories.
BB - Debt rated BB are regarded as having less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic conditions
which could lead to inadequate capacity to meet timely interest and principal
payments.
B - An obligation rated B is more vulnerable to nonpayment than obligations
rated BB, but the obligor currently has the capacity to meet its financial
commitment on the obligation. Adverse business, financial, or economic
conditions will likely impair the obligor's capacity or willingness to meet its
financial commitment on the obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions for the
obligor to meet its financial commitment on the obligation. In the event of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy petition
has been filed or similar action has been taken, but payments on this obligation
are being continued.
Commercial Paper, including Tax Exempt
A -- Issues assigned this highest rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designations 1, 2, and 3 to indicate the relative degree of safety.
A-1 -- This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 -- The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming safety
characteristics are given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity
to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry
the smallest degree of investment risk and are generally referred to as "gilt
edge." Interest payments are protected by a large or by an exceptionally stable
margin and principal is secure. While the various protective elements are likely
to change, such changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all standards.
Together with the Aaa group they comprise what are generally known as high grade
bonds. They are rated lower than the best bonds because margins of protection
may not be as large as in Aaa securities or fluctuation of protective elements
may be of greater amplitude or there may be other elements present which make
the long term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes and are
to be considered as upper medium grade obligations. Factors giving security to
principal and interest are considered adequate but elements may be present which
suggest a susceptibility to impairment sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest payments
and principal security appear adequate for the present but certain protective
elements may be lacking or may be characteristically unreliable over any great
length of time. Such bonds lack outstanding investment characteristics and in
fact have speculative characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative elements; their
future cannot be considered as well-assured. Often the protection of interest
and principal payments may be very moderate, and thereby not well safeguarded
during both good and bad times over the future. Uncertainty of position
characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance of
other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to principal or
interest.
Ca - Bonds which are rated Ca represent obligations which are speculative in a
high degree. Such issues are often in default or have other marked shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and issues so
rated can be regarded as having extremely poor prospects of ever attaining any
real investment standing.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations. Prime-1
repayment capacity will normally be evidenced by the following characteristics:
- - Leading market positions in well established industries.
- - High rates of return on funds employed.
- - Conservative capitalization structures with moderate reliance on debt and
ample asset protection. - Broad margins in earnings coverage of fixed financial
charges and high internal cash generation. - Well established access to a range
of financial markets and assured sources of alternate liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes with this
rating enjoy strong protection from established cash flows of funds for their
servicing or from established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not
as large as MIG-1.
- --------
1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.
<PAGE>
J.P. MORGAN FUNDS
J.P. MORGAN SHORT TERM BOND FUND
J.P. MORGAN BOND FUND
J.P. MORGAN GLOBAL STRATEGIC INCOME FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 2000 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS RELATING
TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 1999. THE PROSPECTUS AND THESE
FINANCIAL STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT ON THE
ANNUAL FINANCIAL STATEMENTS, ARE AVAILABLE, WITHOUT CHARGE UPON REQUEST FROM
FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN FUNDS (800)221-7930.
Table of Contents
Page
General................................. 1
Investment Objectives and Policies...... 1
Investment Restrictions................. 30
Trustees and Advisory Board............. 32
Officers................... ............ 35
Investment Advisor...................... 37
Distributor............................. 40
Co-Administrator........................ 40
Services Agent.......................... 41
Custodian and Transfer Agent............ 42
Shareholder Servicing................... 42
Financial Professionals................. 44
Independent Accountants................. 44
Expenses................................ 44
Purchase of Shares...................... 45
Redemption of Shares.................... 46
Exchange of Shares...................... 47
Dividends and Distributions............. 47
Net Asset Value......................... 48
Performance Data........................ 49
Portfolio Transactions.................. 51
Massachusetts Trust..................... 52
Description of Shares................... 53
Special Information Concerning
Investment Structure.................. 55
Taxes................................... 55
Additional Information.................. 60
Financial Statements.................... 61
Appendix A - Description of Security
Ratings................................ A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to J.P. Morgan
Short Term Bond Fund, J.P. Morgan Bond Fund and J.P. Morgan Global Strategic
Income Fund (collectively, the "Funds"). Each of the Funds is a series of shares
of beneficial interest of J.P. Morgan Funds, an open-end management investment
company formed as a Massachusetts business trust (the "Trust"). In addition to
the Funds, the Trust consists of other series representing separate investment
funds (each a "J.P. Morgan Fund"). The other J.P. Morgan Funds are covered by
separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objectives and policies, management and operation of each of
the Funds in order to enable investors to select the Fund or Funds which best
suit their needs. The J.P. Morgan Funds operate through a two-tier master-feeder
investment fund structure. Formerly, J.P. Morgan Bond Fund operated as a
free-standing mutual fund and not through the master-feeder structure. Where
indicated in this Statement of Additional Information, historical information
for this Fund includes information for its predecessor entity.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings accorded to them in the Prospectus.
The Funds' executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), a corresponding open-end management investment company having the
same investment objective as the Fund. Each Fund invests in a Portfolio through
a two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure." Accordingly, references below to the Fund also
include the Portfolio; similarly, references to the Portfolio also include the
Fund unless the context requires otherwise.
Each Portfolio is advised by J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Investments in a Fund are not deposits or obligations of, or guaranteed
or endorsed by, Morgan Guaranty Trust Company of New York ("Morgan"), an
affiliate of the Advisor, or any other bank. Shares of a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
J.P. Morgan Short Term Bond Fund (the "Short Term Bond Fund") is
designed for investors who place a strong emphasis on conservation of capital
but who also want a return greater than that of a money market fund or other
very low risk investment vehicles. The Short Term Bond Fund is appropriate for
investors who do not require the stable net asset value typical of a money
market fund but who want less price fluctuation than is typical of a longer-term
bond fund. The Short Term Bond Fund's investment objective is to provide high
total return, consistent with low volatility of principal. The Short Term Bond
Fund seeks to achieve this high total return to the extent consistent with
modest risk of capital and the maintenance of liquidity. The Short Term Bond
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Short Term Bond Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Short Term Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in the corporate and government debt obligations and related
securities of domestic and foreign issuers described in this Statement of
Additional Information.
J.P. Morgan Bond Fund (the "Bond Fund") is designed to be an economical
and convenient means of making substantial investments in a broad range of
corporate and government debt obligations and related investments of domestic
and foreign issuers, subject to certain quality and other restrictions. See
"Quality and Diversification Requirements." The Bond Fund's investment objective
is to provide a high total return consistent with moderate risk of capital and
maintenance of liquidity. Although the net asset value of the Bond Fund will
fluctuate, the Bond Fund attempts to conserve the value of its investments to
the extent consistent with its objective. The Bond Fund attempts to achieve its
objective by investing all of its investable assets in The U.S. Fixed Income
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Bond Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in high grade and investment grade corporate and government debt
obligations and related securities of domestic and foreign issuers described in
the Prospectus and this Statement of Additional Information.
J.P. Morgan Global Strategic Income Fund (the "Global Strategic Income
Fund") is designed for the aggressive investor seeking to diversify an
investment portfolio by investing in fixed-income securities of foreign and
domestic issuers. The Global Strategic Income Fund's investment objective is
high total return from a portfolio of fixed-income securities of foreign and
domestic issuers. The Global Strategic Income Fund seeks to achieve its
objective by investing all of its investable assets in the Global Strategic
Income Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Global Strategic Income
Fund.
The Portfolio attempts to achieve its investment objective by investing
primarily in mortgage-backed securities and direct mortgage obligations; below
investment grade debt obligations of U.S. and non-U.S. issuers; investment grade
U.S. dollar-denominated debt obligations of U.S. and non-U.S. issuers;
investment grade non-dollar denominated debt obligations of non-U.S. issuers;
and obligations of emerging market issuers.
The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
Fixed Income Investments
Each Fund may invest in a broad range of debt securities of domestic
and foreign corporate and government issuers. The corporate securities in which
the Funds may invest include debt securities of various types and maturities,
e.g., debentures, notes, mortgage securities, equipment trust certificates and
other collateralized securities and zero coupon securities. Collateralized
securities are backed by a pool of assets such as loans or receivables which
generate cash flow to cover the payments due on the securities. Collateralized
securities are subject to certain risks, including a decline in the value of the
collateral backing the security, failure of the collateral to generate the
anticipated cash flow or in certain cases more rapid prepayment because of
events affecting the collateral, such as accelerated prepayment of mortgages or
other loans backing these securities or destruction of equipment subject to
equipment trust certificates. In the event of any such prepayment a Fund will be
required to reinvest the proceeds of prepayments at interest rates prevailing at
the time of reinvestment, which may be lower. In addition, the value of zero
coupon securities which do not pay interest is more volatile than that of
interest bearing debt securities with the same maturity.
Corporate Bonds and Other Debt Securities
Each 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."
Mortgage-Backed Securities. Each Fund may invest in mortgage-backed
securities. Each mortgage pool underlying mortgage-backed securities consists of
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar security instruments creating a first lien on
owner occupied and non-owner occupied one-unit to four-unit residential
properties, multifamily (i.e., five or more) properties, agriculture properties,
commercial properties and mixed use properties. The investment characteristics
of adjustable and fixed rate mortgage-backed securities differ from those of
traditional fixed income securities. The major differences include the payment
of interest and principal on mortgage-backed securities on a more frequent
(usually monthly) schedule and the possibility that principal may be prepaid at
any time due to prepayments on the underlying mortgage loans or other assets.
These differences can result in significantly greater price and yield volatility
than is the case with traditional fixed income securities. As a result, a faster
than expected prepayment rate will reduce both the market value and the yield to
maturity from those which were anticipated. A prepayment rate that is slower
than expected will have the opposite effect of increasing yield to maturity and
market value.
Government Guaranteed Mortgage-Backed Securities. Government National
Mortgage Association mortgage-backed certificates ("Ginnie Maes") are supported
by the full faith and credit of the United States. Certain other U.S. Government
securities, issued or guaranteed by federal agencies or government sponsored
enterprises, are not supported by the full faith and credit of the United
States, but may be supported by the right of the issuer to borrow from the U.S.
Treasury. These securities include obligations of instrumentalities such as the
Federal Home Loan Mortgage Corporation ("Freddie Macs") and the Federal National
Mortgage Association ("Fannie Maes"). No assurance can be given that the U.S.
Government will provide financial support to these federal agencies,
authorities, instrumentalities and government sponsored enterprises in the
future.
There are several types of guaranteed mortgage-backed securities
currently available, including guaranteed mortgage pass-through certificates and
multiple class securities, which include guaranteed real estate mortgage
investment conduit certificates ("REMIC Certificates"), other collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities.
Mortgage pass-through securities are fixed or adjustable rate
mortgage-backed securities which provide for monthly payments that are a
"pass-through" of the monthly interest and principal payments (including any
prepayments) made by the individual borrowers on the pooled mortgage loans, net
of any fees or other amounts paid to any guarantor, administrator and/or
servicer of the underlying mortgage loans.
Multiple class securities include CMOs and REMIC Certificates issued by
U.S. Government agencies, instrumentalities (such as Fannie Mae) and sponsored
enterprises (such as Freddie Mac) or by trusts formed by private originators of,
or investors in, mortgage loans, including savings and loan associations,
mortgage bankers, commercial banks, insurance companies, investment banks and
special purpose subsidiaries of the foregoing. In general, CMOs are debt
obligations of a legal entity that are collateralized by, and multiple class
mortgage-backed securities represent direct ownership interests in, a pool of
mortgage loans or mortgaged-backed securities and payments on which are used to
make payments on the CMOs or multiple class mortgage-backed securities.
CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are types of multiple class mortgage-backed securities. Investors may
purchase beneficial interests in REMICs, which are known as "regular" interests
or "residual" interests. The Funds do not intend to purchase residual interests
in REMICs. The REMIC Certificates represent beneficial ownership interests in a
REMIC trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac
or Ginnie Mae guaranteed mortgage-backed securities (the "Mortgage Assets"). The
obligations of Fannie Mae and Freddie Mac under their respective guaranty of the
REMIC Certificates are obligations solely of Fannie Mae and Freddie Mac,
respectively.
CMOs and REMIC Certificates are issued in multiple classes. Each class
of CMOs or REMIC Certificates, often referred to as a "tranche," is issued at a
specific adjustable or fixed interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the assets underlying
the CMOs or REMIC Certificates may cause some or all of the classes of CMOs or
REMIC Certificates to be retired substantially earlier than their final
scheduled distribution dates. Generally, interest is paid or accrues on all
classes of CMOs or REMIC Certificates on a monthly basis.
Stripped Mortgage-Backed Securities. Stripped mortgage-backed
securities ("SMBS") are derivative multiclass mortgage securities, issued or
guaranteed by the U.S. Government, its agencies or instrumentalities or by
private issuers. Although the market for such securities is increasingly liquid,
privately issued SMBS may not be readily marketable and will be considered
illiquid for purposes of the Funds' limitation on investments in illiquid
securities. The Advisor may determine that SMBS which are U.S. Government
securities are liquid for purposes of each Fund's limitation on investments in
illiquid securities in accordance with procedures adopted by the Board of
Trustees. The market value of the class consisting entirely of principal
payments generally is unusually volatile in response to changes in interest
rates. The yields on a class of SMBS that receives all or most of the interest
from Mortgage Assets are generally higher than prevailing market yields on other
mortgage-backed securities because their cash flow patterns are more volatile
and there is a greater risk that the initial investment will not be fully
recouped.
Mortgages (directly held). Each Fund may invest directly in mortgages.
Mortgages are debt instruments secured by real property. Unlike mortgage-backed
securities, which generally represent an interest in a pool of mortgages, direct
investments in mortgages involve prepayment and credit risks of an individual
issuer and real property. Consequently, these investments require different
investment and credit analysis by the Advisor.
The directly placed mortgages in which the Funds invest may include
residential mortgages, multifamily mortgages, mortgages on cooperative apartment
buildings, commercial mortgages, and sale-leasebacks. These investments are
backed by assets such as office buildings, shopping centers, retail stores,
warehouses, apartment buildings and single-family dwellings. In the event that
the Fund forecloses on any non-performing mortgage, and acquires a direct
interest in the real property, the Fund will be subject to the risks generally
associated with the ownership of real property. There may be fluctuations in the
market value of the foreclosed property and its occupancy rates, rent schedules
and operating expenses. There may also be adverse changes in local, regional or
general economic conditions, deterioration of the real estate market and the
financial circumstances of tenants and sellers, unfavorable changes in zoning,
building environmental and other laws, increased real property taxes, rising
interest rates, reduced availability and increased cost of mortgage borrowings,
the need for unanticipated renovations, unexpected increases in the cost of
energy, environmental factors, acts of God and other factors which are beyond
the control of the Fund or the Advisor. Hazardous or toxic substances may be
present on, at or under the mortgaged property and adversely affect the value of
the property. In addition, the owners of property containing such substances may
be held responsible, under various laws, for containing, monitoring, removing or
cleaning up such substances. The presence of such substances may also provide a
basis for other claims by third parties. Costs of clean-up or of liabilities to
third parties may exceed the value of the property. In addition, these risks may
be uninsurable. In light of these and similar risks, it may be impossible to
dispose profitably of properties in foreclosure.
Zero Coupon, Pay-in-Kind and Deferred Payment Securities. Zero coupon
securities are securities that are sold at a discount to par value and on which
interest payments are not made during the life of the security. Upon maturity,
the holder is entitled to receive the par value of the security. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. The Fund accrues income with respect to zero coupon and
pay-in-kind securities prior to the receipt of cash payments. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. While interest payments are not
made on such securities, holders of such securities are deemed to have received
"phantom income." Because a Fund will distribute "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the applicable Fund
will have fewer assets with which to purchase income producing securities. Zero
coupon, pay-in-kind and deferred payment securities may be subject to greater
fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.
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 Fund may invest are subject to the Fund's
overall credit requirements. However, asset-backed securities, in general, are
subject to certain risks. Most of these risks are related to limited interests
in applicable collateral. For example, credit card debt receivables are
generally unsecured and the debtors are entitled to the protection of a number
of state and federal consumer credit laws, many of which give such debtors the
right to set off certain amounts on credit card debt thereby reducing the
balance due. Additionally, if the letter of credit is exhausted, holders of
asset-backed securities may also experience delays in payments or losses if the
full amounts due on underlying sales contracts are not realized. Because
asset-backed securities are relatively new, the market experience in these
securities is limited and the market's ability to sustain liquidity through all
phases of the market cycle has not been tested.
Corporate Fixed Income Securities. Each Fund may invest in publicly and
privately issued debt obligations of U.S. and non-U.S. corporations, including
obligations of industrial, utility, banking and other financial issuers. These
securities are subject to the risk of an issuer's inability to meet principal
and interest payments on the obligation and may also be subject to price
volatility due to such factors as market interest rates, market perception of
the creditworthiness of the issuer and general market liquidity.
Money Market Instruments
Each Fund may invest in money market instruments to the extent
consistent with its investment objective and policies. Under normal
circumstances, the Funds will purchase these securities to invest temporary cash
balances or to maintain liquidity to meet withdrawals. However, the Funds may
also invest in money market instruments as a temporary defensive measure taken
during, or in anticipation of, 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
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
Foreign Government Obligations. Each of the Funds, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."
Bank Obligations. Each of the Funds may invest in negotiable
certificates of deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks which have more than $2 billion
in total assets (the "Asset Limitation") and are organized under the laws of the
United States or any state, (ii) foreign branches of these banks or of foreign
banks of equivalent size (Euros) and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). The Asset Limitation is not applicable to the Global
Strategic Income Fund. See "Foreign Investments." The Funds will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. Each of the Funds may also invest in
obligations of international banking institutions designated or supported by
national governments to promote economic reconstruction, development or trade
between nations (e.g., the European Investment Bank, the Inter-American
Development Bank, or the World Bank).
Commercial Paper. Each of the Funds may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan acting as agent, for no additional fee.
The monies loaned to the borrower come from accounts managed by Morgan or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. Morgan has the right to increase or
decrease the amount provided to the borrower under an obligation. The borrower
has the right to pay without penalty all or any part of the principal amount
then outstanding on an obligation together with interest to the date of payment.
Since these obligations typically provide that the interest rate is tied to the
Federal Reserve commercial paper composite rate, the rate on master demand
obligations is subject to change. Repayment of a master demand obligation to
participating accounts depends on the ability of the borrower to pay the accrued
interest and principal of the obligation on demand which is continuously
monitored by Morgan. Since master demand obligations typically are not rated by
credit rating agencies, the Funds may invest in such unrated obligations only if
at the time of an investment the obligation is determined by the Advisor to have
a credit quality which satisfies the Fund's quality restrictions. See "Quality
and Diversification Requirements." Although there is no secondary market for
master demand obligations, such obligations are considered by the Funds to be
liquid because they are payable upon demand. The Funds do not have any specific
percentage limitation on investments in master demand obligations. It is
possible that the issuer of a master demand obligation could be a client of
Morgan to whom Morgan, in its capacity as a commercial bank, has made a loan.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Funds' Trustees. In a repurchase agreement, a Fund buys a
security from a seller that has agreed to repurchase the same security at a
mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Fund is invested in the agreement and is
not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by a Fund
to the seller. The period of these repurchase agreements will usually be short,
from overnight to one week, and at no time will the Funds invest in repurchase
agreements for more than thirteen months. The securities which are subject to
repurchase agreements, however, may have maturity dates in excess of thirteen
months from the effective date of the repurchase agreement. The Funds will
always receive securities as collateral whose market value is, and during the
entire term of the agreement remains, at least equal to 100% of the dollar
amount invested by the Funds in each agreement plus accrued interest, and the
Funds will make payment for such securities only upon physical delivery or upon
evidence of book entry transfer to the account of the custodian. If the seller
defaults, a Fund might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon disposal
of the collateral by a Fund may be delayed or limited.
Each of the Funds may make investments in other debt securities,
including without limitation corporate bonds and other obligations described in
this Statement of Additional Information.
Tax Exempt Obligations
In certain circumstances the Bond and Short Term Bond Funds may invest in
tax exempt obligations to the extent consistent with each Fund's investment
objective and policies. A description of the various types of tax exempt
obligations which may be purchased by the Funds appears below. See "Quality and
Diversification Requirements."
Municipal Bonds. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund outstanding
obligations and to meet general operating expenses. Public authorities issue
municipal bonds to obtain funding for privately operated facilities, such as
housing and pollution control facilities, for industrial facilities or for water
supply, gas, electricity or waste disposal facilities.
Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of a
special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.
Municipal Notes. The Funds may also invest in municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds, as well as
municipal commercial paper and municipal demand obligations such as variable
rate demand notes and master demand obligations.
Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes, revenue
anticipation notes, grant anticipation notes and project notes. Notes sold in
anticipation of collection of taxes, a bond sale, or receipt of other revenues
are usually general obligations of the issuing municipality or agency.
Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of credit,
lending agreements, note repurchase agreements or other credit facility
agreements offered by banks or institutions.
Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.
Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such note.
The issuer of the municipal obligation may have a corresponding right to prepay
at its discretion the outstanding principal of the note plus accrued interest
upon notice comparable to that required for the holder to demand payment. The
variable rate demand notes in which the Funds may invest are payable, or are
subject to purchase, on demand usually on notice of seven calendar days or less.
The terms of the notes provide that interest rates are adjustable at intervals
ranging from daily to six months, and the adjustments are based upon the prime
rate of a bank or other appropriate interest rate index specified in the
respective notes. Variable rate demand notes are valued at amortized cost; no
value is assigned to the right of each Fund to receive the par value of the
obligation upon demand or notice.
Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, excluded from gross income for federal
income tax purposes. 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 have no specific percentage limitations
on investments in master demand obligations.
Premium Securities. During a period of declining interest rates, many
municipal securities in which the Fund invests likely will bear coupon rates
higher than current market rates, regardless of whether the securities were
initially purchased at a premium. In general, such securities have market values
greater than the principal amounts payable on maturity, which would be reflected
in the net asset value of the Fund's shares. The values of such "premium"
securities tend to approach the principal amount as they near maturity.
Puts. The Funds may purchase without limit, municipal bonds or notes
together with the right to resell the bonds or notes to the seller at an agreed
price or yield within a specified period prior to the maturity date of the bonds
or notes. Such a right to resell is commonly known as a "put." The aggregate
price for bonds or notes with puts may be higher than the price for bonds or
notes without puts. Consistent with the Fund's investment objective and subject
to the supervision of the Trustees, the purpose of this practice is to permit
the Fund to be fully invested in tax exempt securities while preserving the
necessary liquidity to purchase securities on a when-issued basis, to meet
unusually large redemptions, and to purchase at a later date securities other
than those subject to the put. The principal risk of puts is that the writer of
the put may default on its obligation to repurchase. The Advisor will monitor
each writer's ability to meet its obligations under puts.
Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund shares
and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for investment.
In addition, puts may be exercised prior to the expiration date in order to take
advantage of alternative investment opportunities or in the event the Advisor
revises its evaluation of the creditworthiness of the issuer of the underlying
security. In determining whether to exercise puts prior to their expiration date
and in selecting which puts to exercise, the Advisor considers the amount of
cash available to the Fund, the expiration dates of the available puts, any
future commitments for securities purchases, alternative investment
opportunities, the desirability of retaining the underlying securities in the
Fund's portfolio and the yield, quality and maturity dates of the underlying
securities.
The Fund values any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Fund were to invest in municipal bonds and notes with maturities of 60 days or
more that are subject to puts separate from the underlying securities, the puts
and the underlying securities would be valued at fair value as determined in
accordance with procedures established by the Board of Trustees. The Board of
Trustees would, in connection with the determination of the value of a put,
consider, among other factors, the creditworthiness of the writer of the put,
the duration of the put, the dates on which or the periods during which the put
may be exercised and the applicable rules and regulations of the SEC. Prior to
investing in such securities, the Fund, if deemed necessary based upon the
advice of counsel, will apply to the SEC for an exemptive order, which may not
be granted, relating to the amortized valuation of such securities.
Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Fund's policy is to enter
into put transactions only with municipal securities dealers who are approved by
the Advisor. Each dealer will be approved on its own merits, and it is the
Fund's general policy to enter into put transactions only with those dealers
which are determined to present minimal credit risks. In connection with such
determination, the Advisor reviews regularly the list of approved dealers,
taking into consideration, among other things, the ratings, if available, of
their equity and debt securities, their reputation in the municipal securities
markets, their net worth, their efficiency in consummating transactions and any
collateral arrangements, such as letters of credit, securing the puts written by
them. Commercial bank dealers normally will be members of the Federal Reserve
System, and other dealers will be members of the National Association of
Securities Dealers, Inc. or members of a national securities exchange. Other put
writers will have outstanding debt rated Aa or better by Moody's Investors
Service, Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Group
("Standard & Poor's"), or will be of comparable quality in the Advisor's opinion
or such put writers' obligations will be collateralized and of comparable
quality in the Advisor's opinion. The Trustees have directed the Advisor not to
enter into put transactions with any dealer which in the judgment of the Advisor
become more than a minimal credit risk. In the event that a dealer should
default on its obligation to repurchase an underlying security, the Fund is
unable to predict whether all or any portion of any loss sustained could
subsequently be recovered from such dealer.
Entering into a put with respect to a tax exempt security may be
treated, depending upon the terms of the put, as a taxable sale of the tax
exempt security by the Fund with the result that, while the put is outstanding,
the Fund will no longer be treated as the owner of the security and the interest
income derived with respect to the security will be treated as taxable income to
the Fund.
Foreign Investments
The Global Strategic Income Fund makes substantial investments in
foreign countries. The Bond and Short Term Bond Funds may invest in certain
foreign securities. The Short Term Bond and Bond Funds may invest up to 20% of
total assets in fixed income securities of foreign issuers denominated in
foreign currencies. Neither the Bond or Short Term Bond Funds expect to invest
more than 25% of their respective total assets at the time of purchase in
securities of foreign issuers. In the case of the Bond and Short Term Bond
Funds, any foreign commercial paper must not be subject to foreign withholding
tax at the time of purchase.
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 in 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. An
unsponsored depositary may not provide the same shareholder information that a
sponsored depositary is required to provide under its contractual arrangements
with the issuer of the underlying foreign security. Generally, ADRs, in
registered form, are designed for use in the U.S. securities markets, and EDRs,
in bearer form, are designed for use in European securities markets.
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.
Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic companies.
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 a Fund by domestic companies.
Investors should realize that the value of a Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administration or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investment made by a Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
In addition, while the volume of transactions effected on foreign
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In addition, there is generally
less government supervision and regulation of securities exchanges, brokers and
issuers located in foreign countries than in the United States.
Since investments in foreign securities may involve foreign currencies,
the value of the Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. Each Fund may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Fund's
currency exposure. See "Foreign Currency Exchange Transactions" below.
Foreign Currency Exchange Transactions. Because each Fund may buy and
sell securities and receive interest in currencies other than the U.S. dollar, a
Fund may enter from time to time into foreign currency exchange transactions.
The Fund either enters into these transactions on a spot (i.e. cash) basis at
the spot rate prevailing in the foreign currency exchange market or uses forward
contracts to purchase or sell foreign currencies. The cost of the Fund's spot
currency exchange transactions is generally the difference between the bid and
offer spot rate of the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Fund's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.
A Fund may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. A Fund may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Fund would enter into
a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. A Fund will only enter into forward contracts to
sell a foreign currency for another foreign currency if the Advisor expects the
foreign currency purchased to appreciate against the U.S.
dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Fund to assume the risk of
fluctuations in the value of the currency purchased against 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.
Sovereign Fixed Income Securities. Each of the Funds may invest in
fixed income securities issued or guaranteed by a foreign sovereign government
or its agencies, authorities or political subdivisions. Investment in sovereign
fixed income securities involves special risks not present in corporate fixed
income securities. The issuer of the sovereign debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal or interest when due, and a Fund may have limited recourse in
the event of a default. During periods of economic uncertainty, the market
prices of sovereign debt, and a Fund's net asset value, may be more volatile
than prices of U.S. debt obligations. In the past, certain foreign countries
have encountered difficulties in servicing their debt obligations, withheld
payments of principal and interest and declared moratoria on the payment of
principal and interest on their sovereign debts.
A sovereign debtor's willingness or ability to repay principal and pay
interest in a timely manner may be affected by, among other factors, its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient foreign exchange, the relative size of the debt service burden, the
sovereign debtor's policy toward international lenders and local political
constraints. Sovereign debtors may also be dependent on expected disbursements
from foreign governments, multilateral agencies and other entities to reduce
principal and interest arrearages on their debt. The failure of a sovereign
debtor to implement economic reforms, achieve specified levels of economic
performance or repay principal or interest when due may result in the
cancellation of third-party commitments to lend funds to the sovereign debtor,
which may further impair such debtor's ability or willingness to service its
debts.
Brady Bonds. Each Fund may invest in Brady bonds, which are securities
created through the exchange of existing commercial bank loans to public and
private entities in certain emerging markets for new bonds in connection with
debt restructurings. Brady bonds have been issued since 1989 and do not have a
long payment history. In light of the history of defaults of countries issuing
Brady bonds on their commercial bank loans, investments in Brady bonds may be
viewed as speculative. Brady bonds may be fully or partially collateralized or
uncollateralized, are issued in various currencies (but primarily the dollar)
and are actively traded in over-the-counter secondary markets. Incomplete
collateralization of interest or principal payment obligations results in
increased credit risk. Dollar-denominated collateralized Brady bonds, which may
be fixed-rate bonds or floating-rate bonds, are generally collateralized by U.S.
Treasury zero coupon bonds having the same maturity as the Brady bonds.
Obligations of Supranational Entities. Each Fund may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. Each supranational entity's lending activities
are limited to a percentage of its total capital (including "callable capital"
contributed by its governmental members at the entity's call), reserves and net
income. There is no assurance that participating governments will be able or
willing to honor their commitments to make capital contributions to a
supranational entity.
Investing in Emerging Markets
The Global Strategic Income Fund, and to a lesser extent the Bond and
Short Term Bond 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 a Fund's investments in those countries and the
availability to a 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 a Fund's
investments in such countries illiquid and more volatile than investments in
more developed countries, and a 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.
Transaction costs in emerging markets may be higher than in the United
States and other developed securities markets. As legal systems in emerging
markets develop, foreign investors may be adversely affected by new or amended
laws and regulations or may not be able to obtain swift and equitable
enforcement of existing law.
The Global Strategic Income Fund may make investments denominated in
emerging markets currencies. Some countries in emerging markets also may have
managed currencies, which are not free floating against the U.S. dollar. In
addition, emerging markets are subject to the risk of restrictions upon the free
conversion of their currencies into other currencies. Any devaluations relative
to the U.S. dollar in the currencies in which the Fund's securities are quoted
would reduce the Fund's net asset value.
Restrictions on Investment and Repatriation. Certain emerging markets
limit, or require governmental approval prior to, investments by foreign
persons. Repatriation of investment income and capital from certain emerging
markets is subject to certain governmental consents. Even where there is no
outright restriction on repatriation of capital, the mechanics of repatriation
may affect the operation of the Fund.
Additional Investments
Convertible Securities. Each of the Funds may invest in convertible
securities of domestic and, subject to the Fund's investment restrictions,
foreign issuers. The convertible securities in which a Fund may invest include
any debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time.
When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transaction defaults. It is the current
policy of the Bond and Short Term Bond Funds not to enter into when-issued
commitments exceeding in the aggregate 15% of the market value of the Fund's
total assets, less liabilities other than the obligations created by when-issued
commitments.
Structured Securities. The Global Strategic Income Fund may invest in
structured securities, including currency linked securities. The interest rate
or, in some cases, the principal payable at the maturity of a structured
security may change positively or inversely in relation to one or more interest
rates, financial indices, currency rates or other financial indicators
(reference prices). A structured security may be leveraged to the extent that
the magnitude of any change in the interest rate or principal payable on a
structured security is a multiple of the change in the reference price. Thus,
structured securities may decline in value due to adverse market changes in
currency exchange rates and other reference prices.
Risks Associated with Derivative Securities and Contracts. The risks
associated with a Fund's transactions in derivative securities and contracts may
include some or all of the following: market risk, leverage and volatility risk,
correlation risk, credit risk, and liquidity and valuation risk.
Market Risk. Investments in structured securities are subject to the
market risks described above. Entering into a derivative contract involves a
risk that the applicable market will move against the Fund's position and that
the Fund will incur a loss. For derivative contracts other than purchased
options, this loss may substantially exceed the amount of the initial investment
made or the premium received by the Fund.
Leverage and Volatility Risk. Derivative instruments may sometimes
increase or leverage a Fund's exposure to a particular market risk. Leverage
enhances the price volatility of derivative instruments held by a Fund. If a
Fund enters into futures contracts, writes options or engages in certain foreign
currency exchange transactions, it is required to maintain a segregated account
consisting of cash or liquid assets, hold offsetting portfolio securities or
cover written options which may partially offset the leverage inherent in these
transactions. Segregation of a large percentage of assets could impede portfolio
management or an investor's ability to meet redemption requests.
Correlation Risk. A Fund's success in using derivative contracts to
hedge portfolio assets depends on the degree of price correlation between the
derivative contract and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading markets
for the derivative contract, the assets underlying the derivative contract and
the Fund's assets.
Credit Risk. Derivative securities and over-the-counter derivative
contracts involve a risk that the issuer or counterparty will fail to perform
its contractual obligations.
Liquidity and Valuation Risk. Some derivative securities are not
readily marketable or may become illiquid under adverse market conditions. In
addition, during periods of extreme market volatility, a commodity exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. A Fund's ability
to terminate over-the-counter derivative contracts may depend on the cooperation
of the counterparties to such contracts. For thinly traded derivative securities
and contracts, the only source of price quotations may be the selling dealer or
counterparty.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations.
The Securities and Exchange Commission ("SEC") has granted the Portfolios
an exemptive order permitting it to invest its uninvested cash in any of the
following affiliated money market funds: J.P. Morgan Institutional Prime Money
Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan
Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury
Money Market Fund. The order sets the following conditions: (1) the Portfolio
may invest in one or more of the permitted money market funds up to an aggregate
limit of 25% of its assets; and (2) the Advisor will waive and/or reimburse its
advisory fee from the Portfolio in an amount sufficient to offset any doubling
up of investment advisory and shareholder servicing fees.
Reverse Repurchase Agreements. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Funds will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, a Fund will enter into a
reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. A Fund will not
invest the proceeds of a reverse repurchase agreement for a period which exceeds
the duration of the reverse repurchase agreement. Each Fund will establish and
maintain with the custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. See "Investment Restrictions" for each Fund's
limitations on reverse repurchase agreements and bank borrowings.
Mortgage Dollar Roll Transactions. The Funds may engage in mortgage
dollar roll transactions with respect to mortgage securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. In a mortgage dollar
roll transaction, the Fund sells a mortgage backed security and simultaneously
agrees to repurchase a similar security on a specified future date at an agreed
upon price. During the roll period, the Fund will not be entitled to receive any
interest or principal paid on the securities sold. The Fund is compensated for
the lost interest on the securities sold by the difference between the sales
price and the lower price for the future repurchase as well as by the interest
earned on the reinvestment of the sales proceeds. The Fund may also be
compensated by receipt of a commitment fee. When the Fund enters into a mortgage
dollar roll transaction, liquid assets in an amount sufficient to pay for the
future repurchase are segregated with the custodian. Mortgage dollar roll
transactions are considered reverse repurchase agreements for purposes of the
Fund's investment restrictions.
Loans of Portfolio Securities. Subject to applicable investment
restrictions, each Fund is permitted to lend securities in an amount up to 33
1/3% of the value of its total assets. Each of the Funds may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Fund at least equal at all times to 100% of the
market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Fund any income accruing
thereon. Loans will be subject to termination by a Fund in the normal settlement
time, generally three business days after notice, or by the borrower on one
day's notice. Borrowed securities must be returned when the loan is terminated.
Any gain or loss in the market price of the borrowed securities which occurs
during the term of the loan inures to a Fund and its respective investors. The
Funds may pay reasonable finders' and custodial fees in connection with a loan.
In addition, a Fund will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and no Fund will make
any loans in excess of one year. The Funds will not lend their securities to any
officer, Trustee, Member of Advisory Board, Director, employee or other
affiliate of the Funds, the Advisor or the Distributor, unless otherwise
permitted by applicable law.
Illiquid Investments; Privately Placed and Other Unregistered
Securities. No Fund may acquire any illiquid securities if, as a result thereof,
more than 15% of its net assets would be in illiquid investments. Subject to
this non-fundamental policy limitation, each Fund may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), and cannot be offered for public sale in the United States
without first being registered under the 1933 Act. An illiquid investment is any
investment that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which it is valued by a Fund. The price
a Fund pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these securities will reflect any limitations on
their liquidity.
Each Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
As to illiquid investments, a Fund is subject to a risk that should the
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the 1933
Act, before it may be sold, a Fund may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell.
Quality and Diversification Requirements
Each Fund intends to meet the diversification requirements of the 1940
Act. Current 1940 Act diversification requirements require that with respect to
75% of the assets of the Fund: (1) the Fund may not invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities, and (2) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer. As for the
other 25% of the Fund's assets not subject to the limitation described above,
there is no limitation on investment of these assets under the 1940 Act, so that
all of such assets may be invested in securities of any one issuer. Investments
not subject to the limitations described above could involve an increased risk
to a Fund should an issuer, or a state or its related entities, be unable to
make interest or principal payments or should the market value of such
securities decline.
Each 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".
Short Term Bond and Bond Funds. If the assets and revenues of an
agency, authority, instrumentality or other political subdivision are separate
from those of the government creating the subdivision and the obligation is
backed only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial development
revenue bond or pollution control revenue bond, if the bond is backed only by
the assets and revenues of the nongovernmental user, the nongovernmental user is
regarded as the sole issuer. If in either case the creating government or
another entity guarantees an obligation, the guaranty is regarded as a separate
security and treated as an issue of such guarantor. Since securities issued or
guaranteed by states or municipalities are not voting securities, there is no
limitation on the percentage of a single issuer's securities which the Fund may
own so long as it does not invest more than 5% of its total assets that are
subject to the diversification limitation in the securities of such issuer,
except obligations issued or guaranteed by the U.S. Government. Consequently,
the Fund may invest in a greater percentage of the outstanding securities of a
single issuer than would an investment company which invests in voting
securities. See "Investment Restrictions.
The Bond and Short Term Bond Funds invest in a diversified portfolio of
securities that are considered "high grade," "investment grade" and "below
investment grade" as described in Appendix A. In addition, at the time the Fund
invests in any commercial paper, bank obligation, repurchase agreement, or any
other money market instruments, the investment must have received a short term
rating of investment grade or better (currently Prime-3 or better by Moody's or
A-3 or better by Standard & Poor's) or the investment must have been issued by
an issuer that received a short term investment grade rating or better with
respect to a class of investments or any investment within that class that is
comparable in priority and security with the investment being purchased by the
Fund. If no such ratings exists, the investment must be of comparable investment
quality in the Advisor's opinion, but will not be eligible for purchase if the
issuer or its parent has long term outstanding debt rated below BBB.
The Global Strategic Income Fund. The higher total return sought by the
Global Strategic Income Fund is generally obtainable from high yield high risk
securities in the lower rating categories of the established rating services.
These securities are rated below Baa by Moody's or below BBB by Standard &
Poor's. The Global Strategic Income Fund may invest in securities rated as low
as B by Moody's or Standard & Poor's, which may indicate that the obligations
are speculative to a high degree. Lower rated securities are generally referred
to as junk bonds. See the Appendix attached to this Statement of Additional
Information for a description of the characteristics of the various ratings
categories. The Global Strategic Income Fund is not obligated to dispose of
securities whose issuers subsequently are in default or which are downgraded
below the minimum ratings noted above. The credit ratings of Moody's and
Standard & Poor's (the "Rating Agencies"), such as those ratings described in
this Statement of Additional Information, may not be changed by the Rating
Agencies in a timely fashion to reflect subsequent economic events. The credit
ratings of securities do not evaluate market risk. The Global Strategic Income
Fund may also invest in unrated securities which, in the opinion of the Advisor,
offer comparable yields and risks to the rated securities in which the Fund may
invest.
Debt securities that are rated in the lower rating categories, or which
are unrated, involve greater volatility of price and risk of loss of principal
and income, including the possibility of default or bankruptcy of the issuer of
such securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. Although the
Advisor seeks to minimize these risks through diversification, investment
analysis and attention to current developments in interest rates and economic
conditions, there can be no assurance that the Advisor will be successful in
limiting the Global Strategic Income Fund's exposure to the risks associated
with lower rated securities. Because the Global Strategic Income Fund invests in
securities in the lower rated categories, the achievement of the Fund's
investment objective is more dependent on the Advisor's ability than would be
the case if the Fund were investing in securities in the higher rated
categories.
Lower quality fixed income securities are affected by the market's
perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. Economic downturns or an
increase in interest rates may cause a higher incidence of default by the
issuers of these securities, especially issuers that are highly leveraged. The
market for these lower quality fixed income securities is generally less liquid
than the market for investment grade fixed income securities. It may be more
difficult to sell these lower rated securities to meet redemption requests, to
respond to changes in the market, or to determine accurately the Portfolio's net
asset value.
Reduced volume and liquidity in the high yield bond market or the
reduced availability of market quotations may make it more difficult to dispose
of the Global Strategic Income Fund's investments in high yield securities and
to value accurately these assets. The reduced availability of reliable,
objective data may increase the Global Strategic Income Fund's reliance on
management's judgment in valuing high yield bonds. In addition, the Global
Strategic Income Fund's investments in high yield securities may be susceptible
to adverse publicity and investor perceptions whether or not justified by
fundamental factors.
Below Investment Grade Debt. Certain lower rated securities purchased
by each Fund, such as those rated Ba or B by Moody's or BB or B by Standard &
Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of principal
and interest and to greater market fluctuations. While generally providing
greater income than investments in higher quality securities, lower quality
fixed income securities involve greater risk of loss of principal and income,
including the possibility of default or bankruptcy of the issuers of such
securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Fund invests in such lower quality securities, the achievement of its
investment objective may be more dependent on the Advisor's own credit analysis.
Lower quality fixed income securities are affected by the market's
perception of their credit quality, especially during times of adverse
publicity, and the outlook for economic growth. Economic downturns or an
increase in interest rates may cause a higher incidence of default by the
issuers of these securities, especially issuers that are highly leveraged. The
market for these lower quality fixed income securities is generally less liquid
than the market for investment grade fixed income securities. It may be more
difficult to sell these lower rated securities to meet redemption requests, to
respond to changes in the market, or to value accurately the Fund's portfolio
securities for purposes of determining the Fund's net asset value. See Appendix
A for more detailed information on these ratings.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers. Options and Futures Transactions
The Funds may purchase and sell (a) exchange traded and
over-the-counter (OTC) put and call options on fixed income securities, indexes
of fixed income securities and futures contracts on fixed income securities and
indexes of fixed income securities and (b) futures contracts on fixed income
securities and indexes of fixed income securities. Each of these instruments is
a derivative instrument as its value derives from the underlying asset or index.
Each of the Funds may use futures contracts and options for hedging and
risk management purposes. The Funds may not use futures contracts and options
for speculation.
Each of the Funds may utilize options and futures contracts to manage
its exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge a Fund's investments against price fluctuations. Other strategies,
including buying futures contracts and buying calls, tend to increase market
exposure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of a
Fund's overall strategy in a manner deemed appropriate to the Advisor and
consistent with the Fund's objective and policies. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Fund's return. While the use of these instruments by a
Fund may reduce certain risks associated with owning its portfolio securities,
these techniques themselves entail certain other risks. If the Advisor applies a
strategy at an inappropriate time or judges market conditions or trends
incorrectly, options and futures strategies may lower a Fund's return. Certain
strategies limit the Fund's possibilities to realize gains as well as its
exposure to losses. A Fund could also experience losses if the prices of its
options and futures positions were poorly correlated with its other investments,
or if it could not close out its positions because of an illiquid secondary
market. In addition, the Fund will incur transaction costs, including trading
commissions and option premiums, in connection with its futures and options
transactions and these transactions could significantly increase the Fund's
turnover rate.
A Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets. In addition, a Fund will not purchase or sell (write) futures contracts,
options on futures contracts or commodity options for risk management purposes
if, as a result, the aggregate initial margin and options premiums required to
establish these positions exceed 5% of the net asset value of a Fund.
Options
Purchasing Put and Call Options. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. A Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. A Fund may also close out a put option position by
entering into an offsetting transaction, if a liquid market exits. If the option
is allowed to expire, the Fund will lose the entire premium it paid. If a Fund
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price. If a Fund exercises an option on an index,
settlement is in cash and does not involve the actual sale of securities. If an
option is American style, it may be exercised on any day up to its expiration
date. A European style option may be exercised only on its expiration date.
The buyer of a typical put option can expect to realize a gain if the
underlying instrument falls substantially. However, if the price of the
instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Selling (Writing) Put and Call Options. When a Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for the receipt of the premium, the Fund assumes the
obligation to pay the strike price for the instrument underlying the option if
the party to the option chooses to exercise it. The Fund may seek to terminate
its position in a put option it writes before exercise by purchasing an
offsetting option in the market at its current price. If the market is not
liquid for a put option the Fund has written, however, it must continue to be
prepared to pay the strike price while the option is outstanding, regardless of
price changes, and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates the Fund to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
Options on Indexes. Each of the Funds may purchase and sell put and
call options on any securities index based on securities in which the Fund may
invest. Options on securities indexes are similar to options on securities,
except that the exercise of securities index options is settled by cash payment
and does not involve the actual purchase or sale of securities. In addition,
these options are designed to reflect price fluctuations in a group of
securities or segment of the securities market rather than price fluctuations in
a single security. A Fund, in purchasing or selling index options, is subject to
the risk that the value of its portfolio securities may not change as much as an
index because the Fund's investments generally will not match the composition of
an index.
For a number of reasons, a liquid market may not exist and thus a Fund
may not be able to close out an option position that it has previously entered
into. When a Fund purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and the Fund may incur additional
losses if the counterparty is unable to perform.
Exchange Traded and OTC Options. All options purchased or sold by the
Fund will be traded on a securities exchange or will be purchased or sold by
securities dealers (OTC options) that meet creditworthiness standards approved
by the Fund's Board of Trustees. While exchange-traded options are obligations
of the Options Clearing Corporation, in the case of OTC options, the Fund relies
on the dealer from which it purchased the option to perform if the option is
exercised. Thus, when the Fund purchases an OTC option, it relies on the dealer
from which it purchased the option to make or take delivery of the underlying
securities. Failure by the dealer to do so would result in the loss of the
premium paid by the Fund as well as loss of the expected benefit of the
transaction.
Provided that the Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, the Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Futures Contracts
The Funds may purchase and sell futures contracts. When a Fund
purchases a futures contract, it agrees to purchase a specified quantity of an
underlying instrument at a specified future date or to make a cash payment based
on the value of a securities index. When a Fund sells a futures contract, it
agrees to sell a specified quantity of the underlying instrument at a specified
future date or to receive a cash payment based on the value of a securities
index. The price at which the purchase and sale will take place is fixed when
the Fund enters into the contract. Futures can be held until their delivery
dates or the position can be (and normally is) closed out before then. There is
no assurance, however, that a liquid market will exist when the Fund wishes to
close out a particular position.
When a Fund purchases a futures contract, the value of the futures
contract tends to increase and decrease in tandem with the value of its
underlying instrument. Therefore, purchasing futures contracts will tend to
increase the Fund's exposure to positive and negative price fluctuations in the
underlying instrument, much as if it had purchased the underlying instrument
directly. When a Fund sells a futures contract, by contrast, the value of its
futures position will tend to move in a direction contrary to the value of the
underlying instrument. Selling futures contracts, therefore, will tend to offset
both positive and negative market price changes, much as if the underlying
instrument had been sold.
The purchaser or seller of a futures contract is not required to
deliver or pay for the underlying instrument unless the contract is held until
the delivery date. However, when a Fund buys or sells a futures contract it will
be required to deposit "initial margin" with its custodian in a segregated
account in the name of its futures broker, known as a futures commission
merchant (FCM). Initial margin deposits are typically equal to a small
percentage of the contract's value. If the value of either party's position
declines, that party will be required to make additional "variation margin"
payments equal to the change in value on a daily basis. The party that has a
gain may be entitled to receive all or a portion of this amount. A Fund may be
obligated to make payments of variation margin at a time when it is
disadvantageous to do so. Furthermore, it may not always be possible for a Fund
to close out its futures positions. Until it closes out a futures position, the
Fund will be obligated to continue to pay variation margin. Initial and
variation margin payments do not constitute purchasing on margin for purposes of
a Fund's investment restrictions. In the event of the bankruptcy of an FCM that
holds margin on behalf of a Fund, the Fund may be entitled to return of margin
owed to it only in proportion to the amount received by the FCM's other
customers, potentially resulting in losses to the Fund.
Each Fund will segregate liquid assets in connection with its use of
options and futures contracts to the extent required by the staff of the
Securities and Exchange Commission. 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 a Fund's assets could impede portfolio
management or the Fund's ability to meet redemption requests or other current
obligations.
Options on Futures Contracts. The Funds may purchase and sell put and
call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Fund are paid by the Fund into a segregated account, in the
name of the FCM, as required by the 1940 Act and the SEC's interpretations
thereunder.
Combined Positions. Each Fund may purchase and write options in
combination with each other, or in combination with futures or forward
contracts, to adjust the risk and return characteristics of the overall
position. For example, the Fund may purchase a put option and write a call
option on the same underlying instrument, in order to construct a combined
position whose risk and return characteristics are similar to selling a futures
contract. Another possible combined position would involve writing a call option
at one strike price and buying a call option at a lower price, in order to
reduce the risk of the written call option in the event of a substantial price
increase. Because combined options positions involve multiple trades, they
result in higher transaction costs and may be more difficult to open and close
out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a Fund's
current or anticipated investments exactly. A Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures contracts prices are affected by
such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Fund may purchase or sell futures
contracts or purchase put and call options, including put and call options on
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require a Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions could also be impaired.
(See "Exchange Traded and OTC Options" above for a discussion of the liquidity
of options not traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Fund or the Advisor may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
Asset Coverage for Futures Contracts and Options Positions. Although
the Funds will not be commodity pools, certain derivatives subject a Fund to the
rules of the Commodity Futures Trading Commission which limit the extent to
which each Fund can invest in such derivatives. The Funds may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, a Fund may not invest in such contracts and options for other purposes
if the sum of the amount of initial margin deposits and premiums paid for
unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of a Fund's assets, after
taking into account unrealized profits and unrealized losses on such contracts
and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.
In addition, the Funds will comply with guidelines established by the
SEC with respect to coverage of options and futures contracts by mutual funds,
and if the guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures contract or option is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of a Fund's assets
could impede portfolio management or a Fund's ability to meet redemption
requests or other current obligations.
Swaps and Related Swap Products. Each of the Funds may engage in swap
transactions, including, but not limited to, interest rate, currency, securities
index, basket, specific security and commodity swaps, interest rate caps, floors
and collars and options on interest rate swaps (collectively defined as "swap
transactions").
Each Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date, or to gain exposure to
certain markets in the most economical way possible. A Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that a Fund may be required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by a Fund, payments by the parties
will be exchanged on a "net basis", and a Fund will receive or pay, as the case
may be, only the net amount of the two payments.
The amount of a Fund's potential gain or loss on any swap transaction
is not subject to any fixed limit. Nor is there any fixed limit on a Fund's
potential loss if it sells a cap or collar. If the Fund buys a cap, floor or
collar, however, the Fund's potential loss is limited to the amount of the fee
that it has paid. When measured against the initial amount of cash required to
initiate the transaction, which is typically zero in the case of most
conventional swap transactions, swaps, caps, floors and collars tend to be more
volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of a Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to a Fund or that a Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to a Fund.
The Advisor will, however, consider such risks and will enter into swap
and other derivatives transactions only when it believes that the risks are not
unreasonable.
Each Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If a Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of a Fund's accrued
obligations under the swap agreement over the accrued amount a Fund is entitled
to receive under the agreement. If a Fund enters into a swap agreement on other
than a net basis, or sells a cap, floor or collar, it will segregate assets with
a daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.
Each Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset a Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, a Fund will record a realized gain or loss equal to the difference,
if any, between the proceeds from (or cost of) the closing transaction and a
Fund's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which a Fund
may engage in such transactions.
Risk Management
Each Fund may employ non-hedging risk management techniques. Examples
of risk management strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Advisor
wishes to extend maturities in a fixed income portfolio in order to take
advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying long term securities, it might cause the Fund to
purchase futures contracts on long term debt securities. Similarly, if the
Advisor wishes to decrease fixed income securities or purchase equities, it
could cause the Fund to sell futures contracts on debt securities and purchase
futures contracts on a stock index. 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 Short Term Bond Portfolio (Short Term Bond Fund) -- For the fiscal
years ended October 31, 1997 and 1998 and 1999: 219%, 381% and 398%,
respectively.
The U.S. Fixed Income Portfolio (Bond Fund) -- For the fiscal year ended October
31, 1997 and 1998 and 1999: 93%, 115% and 465%, respectively.
The Global
Strategic Income Portfolio (Global Strategic Income Fund) -- For the period
March 17, 1997 (commencement of operations) through October 31, 1997: 212%. For
the fiscal years ended October 31, 1998 and 1999: 368% and 318%.
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 each Fund and by
each corresponding Portfolio. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund or Portfolio, as the case may be. A "majority of the outstanding voting
securities" is defined in the 1940 Act as the lesser of (a) 67% or more of the
voting securities present at a meeting if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy, or (b) more
than 50% of the outstanding voting securities. The percentage limitations
contained in the restrictions below apply at the time of the purchase of
securities. Whenever a Fund is requested to vote on a change in the fundamental
investment restrictions of its corresponding Portfolio, the Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the Fund's
shareholders.
Each Fund and its corresponding Portfolios:
1. May not make any investment inconsistent with the Fund's classification as a
diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that the
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, (b) invest in securities or other
instruments issued by issuers that invest in real estate and (c) make direct
investments in mortgages;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent the Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Funds and their
corresponding Portfolios and may be changed by their Trustees. These
non-fundamental investment policies require that the Funds and their
corresponding Portfolios:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of the Fund's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of the fundamental investment restriction regarding
industry concentration, JPMIM may classify issuers by industry in accordance
with classifications set forth in the Directory of Companies Filing Annual
Reports With The Securities and Exchange Commission or other sources. In the
absence of such classification or if JPMIM determines in good faith based on its
own information that the economic characteristics affecting a particular issuer
make it more appropriately considered to be engaged in a different industry,
JPMIM may classify an issuer accordingly. For instance, personal credit finance
companies and business credit finance companies are deemed to be separate
industries and wholly owned finance companies are considered to be in the
industry of their parents if their activities are primarily related to financing
the activities of their parents.
TRUSTEES AND MEMBERS OF THE ADVISORY BOARD
Trustees
The Trustees of the Trust, who are also, the Trustees of each of the
Portfolios, their business addresses, principal occupations during the past five
years and dates of birth are set forth below.
FREDERICK S. ADDY--Trustee; Retired; Prior to April 1994, Executive Vice
President and Chief Financial Officer, Amoco Corporation. His address is 5300
Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1, 1932.
WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.
MATTHEW HEALEY1--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1993. His address is Pine Tree
Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.
MICHAEL P. MALLARDI--Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
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 J.P. Morgan Institutional Funds, up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), J.P. Morgan Institutional Funds and J.P. Morgan
Series Trust and is reimbursed for expenses incurred in connection with service
as a Trustee. The Trustees may hold various other directorships unrelated to
these funds.
Trustee compensation expenses paid by the Trust for the calendar year
ended December 31, 1999 are set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
- -------------------------------- ------------------------- -----------------------------------
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER
AGGREGATE TRUSTEE PORTFOLIOS(*), J.P. MORGAN
COMPENSATION INSTITUTIONAL FUNDS, J.P. MORGAN
PAID BY THE TRUST SERIES TRUST AND THE TRUST DURING
DURING 1999 1999(**)
--------------------- --------
NAME OF TRUSTEE
Frederick S. Addy, Trustee $12,720 $75,000
William G. Burns, Trustee $12,720 $75,000
Arthur C. Eschenlauer, Trustee $12,720 $75,000
Matthew Healey, Trustee (***) $12,720 $75,000
Chairman and Chief Executive
Officer
Michael P. Mallardi, Trustee $12,720 $75,000
- -------------------------------- ------------------------- -----------------------------------
</TABLE>
(*) Includes the Portfolios and 16 other portfolios (collectively the "Master
Portfolios") for which JPMIM acts as investment advisor.
(**) No investment company within the fund complex has a pension or
retirement plan. Currently there are 17 investment companies (14 investment
companies comprising the Master Portfolios, the Trust, J.P. Morgan Institutional
Funds and J.P. Morgan Series Trust) in the fund complex.
(***) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $153,800,
contributed $23,100 to a defined contribution plan on his behalf and paid
$17,300 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for the J.P. Morgan
Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are
the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolios have agreed to pay Pierpont Group, Inc. a fee in an amount
representing its reasonable costs in performing these services. These costs are
periodically reviewed by the Trustees. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal years are set forth below:
Short Term Bond Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $450, $689 and $736, respectively.
The Short Term Bond Portfolio -- For the fiscal year ended October 31,
1997, 1998 and 1999: $1,343, $3,458 and $6,343, respectively.
Bond Fund -- For the fiscal year ended October 31, 1997, 1998 and 1999: $5,689,
$5,901 and $4,299, respectively.
The U.S. Fixed Income Portfolio -- For the fiscal year ended October 31,
1997, 1998 and 1999: $35,577, $35,661 and $30,562, respectively.
Global Strategic Income Fund - For the period November 5, 1997
(commencement of operations) through October 31, 1998: $243. For the fiscal year
ended October 31, 1999: $213.
Global Strategic Income Portfolio -- For the period March 17, 1997 (commencement
of operations) through October 31, 1997: $1,574. For the fiscal years ended
October 31, 1998 and 1999: $5,766, and $5,003, respectively.
Advisory Board
The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust; but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
members thereof was designed so that the Board of Trustees will continuously
consist of persons able to assume the duties of Trustees and be fully familiar
with the business and affairs of each of the Trusts and the Master Portfolios,
in anticipation of the current Trustees reaching the mandatory retirement age of
seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for
serving in this capacity for the Trust, each of the Master Portfolios, the J.P.
Morgan Funds and the J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection for such service. The members of the Advisory Board may
hold various other directorships unrelated to these funds. The mailing address
of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth
Avenue, New York, New York 10017. Their names, principal occupations during the
past five years and dates of birth are set forth below:
Ann Maynard Gray - President, Diversified Publishing Group and Vice
President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.
Officers
The Trust's and 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
and each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Country Club Estates, 10286 Saint
Andrews Road, Boynton Beach, Florida 33436. His date of birth is August 23,
1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JOHN P. COVINO - Vice President and Assistant Treasurer. Vice President and
Treasury Group Manger of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of (The
U.S. Fixed Income and Short Term Bond Portfolios only). Managing Director, State
Street Cayman Trust Company, Ltd. since October 1994. Address: P.O. Box 2508 GT,
Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman
Islands, BWI. Her date of birth is March 27, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice
President and Senior Counsel of FDI and an officer of certain investment
companies distributed or administered by FDI. From June 1994 to January 1996,
Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark,
Inc. Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY. Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York since 1990. Ms. Pace serves in the Funds Administration
group as a Manager for the Budgeting and Expense Processing Group. Prior to
September 1995, Ms. Pace served as a Fund Administrator for Morgan Guaranty
Trust Company of New York. Her address is 60 Wall Street, New York, New York
10260. Her date of birth is March 13, 1966.
stephanie d. pierce; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer.
Executive Vice President and Client Service Director of FDI since April 1998.
From June 1995 to March 1998, Mr. Rio was Senior Vice President and Senior Key
Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was
Director of Business Development for First Data Corporation. His date of birth
is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolio's Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. Prior to October 28, 1998, Morgan
was each Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, manages employee
benefit funds of corporations, labor unions and state and local governments and
the accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $349 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt, and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 380
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification, and quantitative and credit analysis.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Short Term Bond Portfolio--Merrill Lynch 1-3 Year
Treasury Index; The U.S. Fixed Income Portfolio--Salomon Brothers Broad
Investment Grade Bond Index; The Global Strategic Income Portfolio--The Lehman
Brothers Aggregate Bond Index.
The Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain other investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the 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.
Short Term Bond: 0.25%
U.S. Fixed Income: 0.30%
Global Strategic Income: 0.45%
The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to Morgan and JPMIM, as applicable, for the
fiscal period indicated.
The Short Term Bond Portfolio (Short Term Bond Fund) -- For the fiscal
years ended October 31, 1997, 1998 and
1999: $92,126, $322,384 or $807,631, respectively.
The U.S. Fixed Income Portfolio (Bond Fund) -- For the fiscal years ended
October 31, 1997, 1998 and 1999: $2,908,384, $3,583,060 and $4,514,768,
respectively.
The Global Strategic Income Portfolio (Global Strategic Income Fund) -- For
the period March 17, 1997 (commencement of operations) through October 31, 1997:
$212,934. For the fiscal years ended October 31, 1998 and 1999: $887,960 and
$1,073,105, respectively.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or subsidiaries thereof may not sponsor, organize, or control a
registered open-end investment company continuously engaged in the issuance of
its shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreements without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. On November 12, 1999, the Gramm-Leach-Bliley Act was signed into
law, the relevant provisions of which go into effect March 11, 2000. Until March
11, 2000, federal banking law, specifically the Glass-Steagall Act and the Bank
Holding Company Act, generally prohibits banks and bank holding companies and
their subsidiaries, such as the Advisor, from engaging in the business of
underwriting or distributing securities. Pursuant to interpretations issued
under these laws by the Board of Governors of the Federal Reserve System, such
entities also may not sponsor, organize or control a registered open-end
investment company continuously engaged in the issuance of its shares (together
with underwriting and distributing securities, the "Prohibited Activities"),
such as the Trust. These laws and interpretations do not prohibit a bank 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 laws in effect until March 11, 2000. Effective March 11, 2000,
the sections of the Glass-Steagall Act which prohibited the Prohibited
Activities are repealed, and the Bank Holding Company Act is amended to permit
bank holding companies which satisfy certain capitalization, managerial and
other criteria (the "Criteria") to engage in the Prohibited Activities; bank
holding companies which do not satisfy the Criteria may continue to engage in
any activity that was permissible for a bank holding company under the Bank
Holding Company Act as of November 11, 1999. Because the services to be
performed for the Portfolios under the Advisory Agreements were permissible for
a bank holding company as of November 11, 1999, the Advisor believes that it
also may perform such services after March 11, 2000 whether or not the Advisor's
parent satisfies the Criteria. 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.
Under separate agreements, Morgan provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor.
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 Members of the Advisory Board" and "Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information," in any
case without payment of any penalty on 60 days' written notice to the other
party. The principal offices of FDI are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under 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
Portfolios; (ii) provides officers for the Trust and the Portfolios; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees,
Members of the Advisory Board and investors; and (vi) maintains related books
and records.
For its services under the Co-Administration Agreements, 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, J.P. Morgan Funds, the Master Portfolios
and other investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
Short Term Bond Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $395, $513 and $536, respectively.
The Short Term Bond Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $886, $2,401 and $4,065, respectively.
Bond Fund -- For the fiscal years ended October 31, 1997, 1998 and 1999: $4,898,
$4,423 and $3,161, respectively.
The U.S. Fixed Income Portfolio -- For the fiscal year ended October 31,
1997, 1998 and 1999: $23,296, $22,913 and $19,016, respectively.
Global Strategic Income Fund -- For the period November 4, 1997
(commencement of operations) through October 31, 1998: $183. For the fiscal year
ended October 31, 1999: $149.
The Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through October 31, 1997: $889. For the fiscal
years ended October 31, 1998 and 1999: $2,695 and $2,188, respectively.
SERVICES AGENT
The Trust, on behalf of each Fund, and each Fund's corresponding
Portfolio have entered into Administrative Services Agreements (the "Services
Agreements") with Morgan 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 Funds and the Portfolios, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.
Under the Services Agreements, each of the Funds and its corresponding
Portfolio has agreed to pay Morgan fees equal to its allocable share of an
annual complex-wide charge. This charge is calculated daily based on the
aggregate net assets of the Master Portfolios and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% of the first $7 billion of
their aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion, less the complex-wide fees payable to
FDI. The portion of this charge payable by each Fund and Portfolio is determined
by the proportionate share that their net assets bear to the total net assets of
the Trust, J.P. Morgan Institutional Funds, the Master Portfolios, the other
investors in the Master Portfolios for which Morgan provides similar services
and J.P. Morgan Series Trust.
Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each Fund 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.
The table below sets forth for each Fund listed and its corresponding
Portfolio the fees paid to Morgan as Services Agent. See the Prospectus and
"Expenses" below for applicable expense limitations.
Short Term Bond Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $3,894, $6,767 and $9,317, respectively.
The Short Term Bond Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $11,434, $37,243 and $83,666, respectively.
Bond Fund -- For the fiscal years ended October 31, 1997, 1998 and 1999:
$48,241, $57,899 and $54,771, respectively.
The U.S. Fixed Income Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $300,675, $348,110 and $390,355, respectively.
Global Strategic Income Fund -- For the period November 4, 1997
(commencement of operations) through October 31, 1998: $2,473. For the fiscal
year ended October 31, 1999: $2,579.
The Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through October 31, 1997: $14,195. For the fiscal
years ended October 31, 1998 and 1999: $57,247 and $61,940, respectively.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's and each of the Portfolio's custodian and fund
accounting agent. Pursuant to the Custodian Contracts, BONY is responsible for
holding portfolio securities and cash and maintaining the books of account and
records of portfolio transactions. In the case of foreign assets held outside
the United States, the custodian employs various subcustodians in accordance
with the regulations of the SEC.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Fund's transfer and dividend
disbursing agent. As transfer agent and dividend disbursing agent, State Street
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of 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
includes but is 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.
Effective August 1, 1998, under the Shareholder Servicing Agreement,
each Fund has agreed to pay Morgan for these services a fee at the annual rate
of 0.25% (expressed as a percentage of the average daily net asset value of Fund
shares owned by or for shareholders).
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated. See
the Prospectus and "Expenses" below for applicable expense limitations.
Short Term Bond Fund -- For the fiscal years ended October 31, 1997, 1998
and 1999: $25,107, $50,132 and $89,853, respectively.
Bond Fund -- For the fiscal years ended October 31, 1997, 1998 and 1999:
$311,027, $425,071 and $527,506, respectively.
Global Strategic Income Fund -- For the period November 4, 1997
(commencement of operations) through October 31, 1998: $21,368. For the fiscal
year ended October 31, 1999: $24,786.
As discussed under "Investment Advisor," until March 11, 2000 the
Glass-Steagall Act and other applicable laws and regulations limit the
activities of bank holding companies and certain of their subsidiaries in
connection with registered open-end investment companies. The activities of
Morgan in acting as shareholder servicing agent for Fund shareholders under the
Shareholder Servicing Agreement and providing administrative services to the
Funds and the Portfolios under the Services Agreements and the activities of
JPMIM in acting as Advisor to the Portfolios under the Investment Advisory
Agreements, may raise issues under these laws. However, JPMIM and Morgan believe
that they may properly perform these services and the other activities without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations in effect until March 11, 2000. Effective March 11, 2000, certain of
the section of the Glass-Steagall Act which limited the activities of bank
holding companies and certain of their subsidiaries in connection with open-end
investment companies are repealed.
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.
Each Fund may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide record keeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as J.P. Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.
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 the Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of each of the Funds and the Portfolios, assists in the preparation
and/or review of each of the Fund's and the Portfolio's federal and state income
tax returns and consults with the Funds and the Portfolios as to matters of
accounting and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Members of the
Advisory Board," "Officers," "Investment Advisor," "Co-Administrator,"
"Distributor," "Services Agent" and "Shareholder Servicing" above, the Funds and
the Portfolios are responsible for usual and customary expenses associated with
their respective operations. Such expenses include organization expenses, legal
fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees and Members of the Advisory Board, 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.
J.P. Morgan has agreed that it will reimburse the Funds noted below
until February 28, 2001, as described in the Prospectus, to the extent necessary
to maintain the Fund's total operating expenses (which include expenses of the
Fund and the Portfolio) at the following annual rates of the Fund's average
daily net assets. These limits do not cover extraordinary expenses.
Short Term Bond Fund: 0.60%
Global Strategic Income Fund: 1.00%
The table below sets forth for each Fund listed the fees and other
expenses J.P. Morgan reimbursed under the expense reimbursement arrangements
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.
Bond Fund -- For the fiscal years ended October 31, 1997, 1998 and 1999: N/A,
N/A and N/A, respectively.
The U.S. Fixed Portfolio -- For the fiscal years ended October 31, 1997,
1998 and 1999: N/A, N/A and N/A, respectively.
Short Term Bond Fund -- For the fiscal year ended October 31, 1997, 1998
and 1999: $110,078, $111,407 and $83,986, respectively.
The Short Term Bond Portfolio -- For the fiscal years ended October 31,
1997, 1998 and 1999: $111,329, $166,257 and $171,744, respectively.
Global Strategic Income Fund -- For the period November 4, 1997
(commencement of operations) through October 31, 1998: $76,157. For the fiscal
year ended October 31, 1999: $52,071.
The Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through October 31, 1997: $69,136. For the fiscal
years ended October 31, 1998 and 1999: N/A and $14,518, respectively.
PURCHASE OF SHARES
Additional Minimum Balance Information. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), the Fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the Fund reserves the right to close out your account and
send the proceeds to the address of record.
Method of Purchase. Investors may open Fund accounts and purchase
shares as described in the Prospectus. References in the Prospectus and this
Statement of Additional Information to customers of Morgan or a Financial
Professional include customers of their affiliates and references to
transactions by customers with Morgan or a Financial Professional include
transactions with their affiliates. Only Fund investors who are using the
services of a financial institution acting as shareholder servicing agent
pursuant to an agreement with the Trust on behalf of a Fund may make
transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); and (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
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 Fund, in lieu of cash, in conformity with the applicable
rule of the SEC. If shares are redeemed in kind, the redeeming shareholder might
incur transaction costs in converting the assets into cash. The method of
valuing portfolio securities is described under "Net Asset Value," and such
valuation will be made as of the same time the redemption price is determined.
The Trust, on behalf of all of the Funds and their corresponding Portfolios
(except the Global Strategic Income Portfolio), have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which the Funds and the 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. The Trust is in the process of seeking exemptive
relief from the SEC with respect to redemptions in kind by the Fund. If the
requested relief is granted, the Fund would then be permitted to pay redemptions
to greater than 5% shareholders in securities, rather than in cash, to the
extent permitted by the SEC and applicable law. The method of valuing portfolio
securities is described under "Net Asset Value," and such valuation will be made
as of the same time the redemption price is determined.
Further Redemption Information. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of the Fund, and the Portfolio, reserves the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit. For information regarding
redemption orders placed through a financial professional, please see "Financial
Professionals" above.
EXCHANGE OF SHARES
An investor may exchange shares from the Fund into any other J.P.
Morgan Fund, J.P. Morgan Institutional Fund or J.P. Morgan Series Trust fund
without charge. An exchange may be made so long as after the exchange the
investor has shares, in each fund in which he or she remains an investor, with a
value of at least that fund's minimum investment amount. Shareholders should
read the prospectus of the fund into which they are exchanging and may only
exchange between fund accounts that are registered in the same name, address and
taxpayer identification number. Shares are exchanged on the basis of relative
net asset value per share. Exchanges are in effect redemptions from one fund and
purchases of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. The Funds generally intend to pay
redemption proceeds in cash, however, since they reserve the right at their sole
discretion to pay redemptions over $250,000 in-kind as a portfolio of
representative stocks rather than in cash, each Fund reserves the right to deny
an exchange request in excess of that amount. See "Redemption of Shares".
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. Shares of the fund to be acquired are purchased for settlement when
the proceeds from redemption become available. In the case of investors in
certain states, state securities laws may restrict the availability of the
exchange privilege. The Fund reserves the right to discontinue, alter or limit
its 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. Each Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value separately for each
class of shares outstanding once daily as of the close of trading on the New
York Stock Exchange (normally 4:00 p.m. eastern time) on each business day as
described in the prospectus. The net asset value will not be computed on the day
the following legal holidays are observed: New Year's Day, Martin Luther King,
Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day, and Christmas Day. On days when U.S. trading markets
close early in observance of these holidays, the Fund will close for purchases
and redemptions at the same time. The Fund and the Portfolio may also close for
purchases and redemptions at such other times as may be determined by the Board
of Trustees to the extent permitted by applicable law. The days on which net
asset value is determined are the Funds' business days.
The net asset value of the 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 Portfolio corresponding to the Fund in valuing its assets.
Portfolio securities are valued at the last sale price on the
securities exchange or national securities market on which such securities are
primarily traded. Unlisted securities are valued at the last average of the
quoted bid and asked prices in the OTC market. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing average
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 in most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the 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 yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See also the Prospectus.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
The Funds may advertise "total return" and non-standardized total
return data. The total return shows what an investment in a Fund would have
earned over a specified period of time (one, five or ten years or since
commencement of operations, if less) assuming that all distributions and
dividends by the Fund were reinvested on the reinvestment dates during the
period and less all recurring fees. This method of calculating total return is
required by regulations of the SEC. Total return data similarly calculated,
unless otherwise indicated, over other specified periods of time may also be
used. All performance figures are based on historical earnings and are not
intended to indicate future performance.
Yield Quotations. As required by regulations of the SEC, the annualized
yield for the Funds is computed by dividing each Fund's net investment income
per share earned during a 30-day period by the net asset value on the last day
of the period. The average daily number of shares outstanding during the period
that are eligible to receive dividends is used in determining the net investment
income per share. Income is computed by totaling the interest earned on all debt
obligations during the period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield is then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.
Below is set forth historical yield information for the Funds for the
periods indicated:
Short Term Bond Fund (10/31/99): 30-day yield: 5.07%.
Bond Fund (10/31/99): 30-day yield: 5.89%.
Global Strategic Income Fund (10/31/99): 30-day yield: 6.81%.
Total Return Quotations. The Funds may advertise "total return" and
non-standardized total return data. The total return shows what an investment in
a Fund would have earned over a specified period of time (one, five or ten years
or since commencement of operations, if less) assuming that all distributions
and dividends by the Fund were reinvested on the reinvestment dates during the
period and less all recurring fees. This method of calculating total return is
required by regulations of the SEC. Total return data similarly calculated,
unless otherwise indicated, over other specified periods of time may also be
used. All performance figures are based on historical earnings and are not
intended to indicate future performance.
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.
Historical performance information for periods prior to the
establishment of the Bond Fund will be that of its predecessor free-standing
fund and will be presented in accordance with applicable SEC staff
interpretations.
Historical performance information for periods prior to the
establishment of the Global Strategic Income Fund 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:
Short Term Bond Fund (10/31/99): Average annual total return, 1 year:
2.70%; average annual total return, 5 years: 6.06%; average annual total return,
10 years: N/A; average annual total return, commencement of operations (July 8,
1993) to period end: 5.03%; aggregate total return, 1 year: 2.70%; aggregate
total return, 5 years: 34.19%; aggregate total return, 10 years: N/A; aggregate
total return, commencement of operations (July 8, 1993) to period end: 36.22%.
Bond Fund (10/31/99): Average annual total return, 1 year: (0.23%); average
annual total return, 5 years: 7.21%; average annual total return, 10 years:
7.34%; aggregate total return, 1 year: (0.23%); aggregate total return, 5 years:
41.65%; aggregate total return, 10 years: 103.15%.
Global Strategic Income Fund (10/31/99): Average annual total return, 1 year
2.26%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations (March 17, 1997) to period end: 4.16%; aggregate
total return, 1 year: 2.26%; aggregate total return, 5 years: N/A; aggregate
total return, commencement of operations (March 17, 1997) to period end: 4.27%.
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 the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid.
Portfolio transactions for the Portfolios corresponding to the Funds
will be undertaken principally to accomplish a Portfolio's objective in relation
to expected movements in the general level of interest rates. The Portfolios
corresponding to the Funds may engage in short-term trading consistent with
their objectives. See "Investment Objectives and Policies -- Portfolio
Turnover."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. Under the 1940 Act, persons
affiliated with the Portfolio and persons who are affiliated with such persons
are prohibited from dealing with the Portfolio as principal in the purchase and
sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. However, affiliated persons of the Portfolio may serve as
its broker in listed or over-the-counter transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Portfolio may no purchase securities during the existence of
any underwriting syndicate for such securities of which Morgan or an affiliate
is a member or in a private placement in which Morgan or an affiliate serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Portfolio that either comply with rules adopted by the SEC or with
interpretations of the SEC's staff.
Investment decisions made by the Advisor are the product of many
factors in addition to basic suitability for the particular fund or other client
in question. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the same security. The Portfolio may
only sell a security to other portfolios or accounts managed by the Advisor or
its affiliates in accordance with procedures adopted by the Trustees.
It also sometimes happens that two or more clients simultaneously
purchase or sell the same security. On those occasions when the Advisor deems
the purchase or sale of a security to be in the best interests of the Portfolio,
as well as other clients including other funds, the Advisor to the extent
permitted by applicable laws and regulations, may, but is not obligated to,
aggregate the securities to be sold or purchased for the Portfolio with those to
be sold or purchased for other clients 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 the Advisor's fiduciary obligations to the
Portfolio. In some instances, this procedure might adversely affect the
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 "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.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will 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 will contain a provision to the effect that the
shareholders are not personally liable thereunder.
Effective October 10, 1996, the name of the Trust was changed from "The
Pierpont Funds" to "The JPM Pierpont Funds, and each Fund's name changed
accordingly. Effective January 1, 1998, the name of the Trust was changed from
"The JPM Pierpont Funds" to "J.P. Morgan Funds" and each Fund's name changed
accordingly.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, Member of the Advisory Board, officer, employee or
agent of a Fund is liable to a Fund or to a shareholder, and that no Trustee,
Member of the Advisory Board, officer, employee, or agent is liable to any third
persons in connection with the affairs of 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, Member of the
Advisory Board, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees 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. The Trustees are also required, under certain circumstances, to assist
shareholders in communicating with other shareholders.
The Trustees have authorized the issuance and sale to the public of
shares of 18 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 31, 2000, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Short Term Bond Fund - Morgan as Agent for KKR Sole Proprietorship Plan FBO
J. Kohlbert Jr. (14.39%); Morgan as Agent for J. H. Perry Jr. (12.63%); and E.
Chang as Trustee of The E. Chao Chang Revocable Trust (6.98%);
Bond Fund -- UMBSC & Co. FBO Collins - Aikman Pension Trust (11.56%); BSD&T
as Trustee for Gannett Co. Inc. 401(k) (8.10%).
Global Strategic Income Fund -- Charles Schwab & Co. Special Custody
Account for Benefit of Customers (15.08%); Morgan as Agent for A. Rowski
(9.23%); Morgan as Agent for E. Generous (8.14%); Morgan as Agent for Africa
Univ. Charitable Trust (7.81%); Morgan as Agent for M. S. Smith (7.32%) and
Morgan as Agent for McClelland Palmer Foundation (5.49%).
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, Trustees and Members of the Advisory Board as a group
owned less than 1% of the shares of each Fund.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Fund shareholders are entitled to one vote for each dollar of net asset value
(or a proportionate fractional vote in respect of a fractional dollar amount),
on matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies with respect to the Portfolio described above and in each Fund's
prospectus.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no affect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments in other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends generally will be
taxable to a shareholder in the year declared rather than the year paid.
Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital
losses are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Funds are not eligible for the
dividends received deduction. Each Fund generally pays a monthly dividend. If
dividend payments exceed income earned by the Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Fund
intends to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gains in excess of net short-term capital losses) are taxable
to shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon or the straddle rules described below are
otherwise applicable. Other gains or losses on the sale of securities will be
short-term capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. If an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should thus consider the consequences
of purchasing shares in the Fund shortly before the Fund declares a sizable
dividend distribution.
For federal income tax purposes, the Bond Fund had a capital loss
carryforward at October 31, 1999 of $4,747,539, all of which expires in the year
2007, the Short Term Bond had a capital loss carryforward at October 31, 1999 of
$701,688, all of which expires in the year 2007, and the Global Strategic Income
Fund had a capital loss carryforward at October 31, 1999 of $624,674, of which
$446,636, expires in the year 2006 and $178,038 expires in the year 2007. To the
extent that this capital loss is used to offset future capital gains, it is
probable that gains so offset will not be distributed to sharholders.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. In addition, no loss will be allowed on the
redemption or exchange of shares of the Fund, if within a period beginning 30
days before the date of such redemption or exchange and ending 30 days after
such date, the shareholder acquires (such as through dividend reinvestment)
securities that are substantially identical to shares of the Fund. Investors are
urged to consult their tax advisors concerning the limitations on the
deductibility of capital losses.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time 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 Fund
purchases shares in certain foreign corporations (referred to as passive foreign
investment companies ("PFICs") under the Code), it 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 a
Fund to its shareholders. In addition, certain interest charges may be imposed
on a Fund as a result of such distributions. Alternatively, each Fund may in
some cases be permitted to include each year in its income and distribute to
shareholders a pro rata portion of the foreign investment fund's income, whether
or not distributed to the Fund.
The Funds will be permitted to "mark to market" any marketable stock
held by it in a PFIC. Each Fund will 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. Each
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 a Fund for prior taxable years.
If a correct and certified taxpayer identification number is not on
file, each Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
Foreign Taxes. It is expected that the Global Strategic Income Fund may
be subject to foreign withholding taxes or other foreign taxes with respect to
income (possibly including, in some cases, capital gains) received from sources
within foreign countries. So long as more than 50% in value of the total assets
of the Fund (including its share of the assets of the corresponding Portfolio)
at the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes deemed paid
by it as paid directly by its shareholders. The Fund will make such an election
only if it deems it to be in the best interest of its shareholders. The Fund
will notify its shareholders in writing each year if it makes the election and
of the amount of foreign income taxes, if any, to be treated as paid by the
shareholders and the amount of foreign taxes, if any, for which shareholders of
the Fund will not be eligible to claim a foreign tax credit because the holding
period requirements (described below) have not been satisfied. If the Fund makes
the election, each shareholder will be required to include in his income (in
addition to the dividends and distributions he receives) his proportionate share
of the amount of foreign income taxes deemed paid by the Fund and will be
entitled to claim either a credit (subject to the limitations discussed below)
or, if he itemizes deductions, a deduction for his share of the foreign income
taxes in computing federal income tax liability (no deduction will be permitted
in computing an individual's alternative minimum tax liability). Effective for
dividends paid after September 5, 1997, shareholders of the Fund will not be
eligible to claim a foreign tax credit with respect to taxes paid by the Fund
(notwithstanding that the Fund elects to treat the foreign taxes deemed paid by
it as paid directly by its shareholders) unless certain holding period
requirements are met. A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by the Global Strategic Income Fund from its foreign
source net investment income will be treated as foreign source income. The
Fund's gains and losses from the sale of securities will generally be treated as
derived from U.S. sources, however, and certain foreign currency gains and
losses likewise will be treated as derived from U.S. sources. The limitation on
the foreign tax credit is applied separately to foreign source "passive income,"
such as the portion of dividends received from the Fund which qualifies as
foreign source income. In addition, the foreign tax credit is allowed to offset
only 90% of the alternative minimum tax imposed on corporations and individuals.
Because of these limitations, if the election is made, shareholders may
nevertheless be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by the Global Strategic
Income 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
Telephone calls to the Funds, J.P. Morgan or a Financial Professional
as shareholder servicing agent may be tape recorded. With respect to the
securities offered hereby, this Statement of Additional Information and the
Prospectus do not contain all the information included in the Trust's
registration statement filed with the SEC under the 1933 Act and the 1940 Act
and the Portfolios' registration statements filed under the 1940 Act. Pursuant
to the rules and regulations of the SEC, certain portions have been omitted. The
registration statements including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements and the reports thereon of
PricewaterhouseCoopers LLP of each Fund are incorporated herein by reference to
their respective annual report filings made with the SEC pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial
reports are available without charge upon request by calling J.P. Morgan Funds
Services at (800) 521-5411. Each Fund's financial statements include the
financial statements of the corresponding Portfolio.
- ---------------------------------------- -------------------------------------
Date of Annual Report;
Name of Fund Date Filed;
and Accession Number
- ---------------------------------------- -------------------------------------
J.P. Morgan Short Term Bond Fund 10/31/99
1/3/00;
0000912057-00-000097
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
J.P. Morgan Bond Fund 10/31/98;
1/3/00;
0001047469-99-000098
- ---------------------------------------- -------------------------------------
- ---------------------------------------- -------------------------------------
J.P. Morgan Global Strategic Income Fund 10/31/98;
1/3/00;
0001047469-99-000093
- ---------------------------------------- -------------------------------------
<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.
A-2 - This designation indicates that the degree of safety regarding timely
payment is satisfactory.
A-3 - This designation indicates that the degree of safety regarding timely
payment is adequate.
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.
Prime-2 Issuers rated Prime-2 (or supporting institutions) have a
strong ability for repayment of senior short-term debt
obligations. This will normally be evidenced by many of the
characteristics cited above but to a lesser degree. Earnings
trends and coverage ratios, while sound, may be more subject
to variation. Capitalization characteristics, while still
appropriate, may be more affected by external conditions.
Ample alternate liquidity is maintained.
Prime-3 Issuers rated Prime-3 (or supporting institutions) have an
acceptable ability for repayment of senior short-term
obligations. The effect of industry characteristics and market
compositions may be more pronounced. Variability in earnings
and profitability may result in changes in the level of debt
protection measurements and may require relatively high
financial leverage. Adequate alternate liquidity is
maintained.
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.
- --------
1Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.
<PAGE>
J.P. MORGAN FUNDS
J.P. MORGAN DISCIPLINED EQUITY FUND
J.P. MORGAN U.S. EQUITY FUND
J.P. MORGAN U.S. SMALL COMPANY FUND
J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 2000 FOR EACH OF THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION
INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER
REPORTS RELATING TO EACH OF THE FUNDS LISTED ABOVE DATED MAY 31, 1999 AND
NOVEMBER 30, 1999. THE PROSPECTUS AND THESE FINANCIAL STATEMENTS, INCLUDING THE
INDEPENDENT ACCOUNTANTS' REPORT ON THE ANNUAL FINANCIAL STATEMENTS, ARE
AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION:
J.P. MORGAN FUNDS (800) 221-7930.
<PAGE>
Table of Contents
Page
General................................. 1
Investment Objectives and Policies...... 1
Investment Restrictions................. 20
Trustees and Advisory Board............. 22
Officers................................ 25
Investment Advisor...................... 26
Distributor............................. 29
Co-Administrator........................ 30
Services Agent.......................... 31
Custodian and Transfer Agent............ 32
Shareholder Servicing................... 33
Financial Professionals................. 34
Independent Accountants................. 34
Expenses................................ 35
Purchase of Shares...................... 36
Redemption of Shares.................... 37
Exchange of Shares...................... 37
Dividends and Distributions............. 38
Net Asset Value......................... 38
Performance Data........................ 39
Portfolio Transactions.................. 41
Massachusetts Trust..................... 43
Description of Shares................... 44
Special Information Concerning Investment
Structure............................... 46
Taxes................................... 47
Additional Information.................. 50
Financial Statements.................... 51
Appendix A - Description of
Securities Ratings...................... A-1
<PAGE>
GENERAL
This Statement of Additional Information relates only to J.P. Morgan
Disciplined Equity Fund, J.P. Morgan U.S. Equity Fund, J.P. Morgan U.S. Small
Company Fund and J.P. Morgan U.S. Small Company Opportunities Fund
(collectively, the "Funds"). Each of the Funds is a series of shares of
beneficial interest of J.P. Morgan Funds, an open-end management investment
company formed as a Massachusetts business trust (the "Trust"). In addition to
the Funds, the Trust consists of other series representing separate investment
funds (each a "J.P. Morgan Fund"). The other J.P. Morgan Funds are covered by
separate Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objectives and policies, management and operation of each of
the Funds in order to enable investors to select the Fund or Funds which best
suit their needs. The Funds operate through a two-tier master-feeder investment
fund structure. Formerly, J.P. Morgan U.S. Equity Fund and J.P. Morgan U.S.
Small Company Fund operated as free-standing mutual funds and not through the
master-feeder structure. Where indicated in this Statement of Additional
Information, historical information for each of these Funds includes information
for their respective predecessor entities.
This Statement of Additional Information provides additional
information with respect to the Funds and should be read in conjunction with the
relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not
otherwise defined herein have the meanings accorded to them in the Prospectus.
The Funds' executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Funds seek to achieve their investment objectives
by investing all of their investable assets in separate Master Portfolios (each
a "Portfolio"), a corresponding diversified open-end management investment
company having the same investment objective as the corresponding Fund. Each
Fund invests in a Portfolio through a two-tier master-feeder investment fund
structure. See "Special Information Concerning Investment Structure."
The Portfolios are advised by J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Investments in the Funds are not deposits or obligations of, or
guaranteed or endorsed by any bank. Shares of the Funds are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve
this objective by its corresponding Portfolio as set forth above and in the
Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.
J.P. Morgan Disciplined Equity Fund (the "Disciplined Equity Fund") is
designed for investors seeking enhanced total return relative to that of large
and medium sized companies, typically represented by the S&P 500 Index. The
Disciplined Equity Fund's investment objective is to provide a consistently high
total return from a broadly diversified portfolio of equity securities with risk
characteristics similar to the S&P 500 Index. This investment objective can be
changed without shareholder approval. The Disciplined Equity Fund attempts to
achieve its investment objective by investing all of its investable assets in
The Disciplined Equity Portfolio, a diversified open-end management investment
company having the same investment objective as the Disciplined Equity Fund.
The Disciplined Equity Fund invests primarily in a diversified
portfolio of common stocks and other equity securities. Under normal
circumstances, the Disciplined Equity Fund expects to invest at least 65% of its
total assets in such securities.
Investment Process for The Disciplined Equity Fund
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, follow
approximately 600 medium and large capitalization U.S. companies. Their research
goal is to forecast intermediate-term earnings and prospective dividend growth
rates for the companies that they cover.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the intermediate-term earnings by comparing a company's current stock price with
its forecasted dividends and earnings. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
Stock Selection: A broadly diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are allocated among stocks in the
first three quintiles. Once a stock falls into the fourth and fifth quintiles
either because its price has risen or its fundamentals have deteriorated -- it
generally becomes a candidate for sale. The Disciplined Equity Fund's sector
weightings are matched to those of the S&P 500 Index, the Disciplined Equity
Fund's benchmark. The Advisor, also controls the Disciplined Equity Fund's
exposure to style and theme bets and maintains near-market security weightings
in individual security holdings. This process results in an investment portfolio
containing approximately 300 stocks.
J.P. Morgan U.S. Equity Fund (the "U.S. Equity Fund") is designed for
investors who want an actively managed portfolio of selected equity securities
that seeks to outperform the S&P 500 Index. The U.S. Equity Fund's investment
objective is to provide a high total return from a portfolio of selected equity
securities. This investment objective can be changed without shareholder
approval. The U.S. Equity Fund attempts to achieve its investment objective by
investing all of its investable assets in The U.S. Equity Portfolio, a
diversified open-end management investment company having the same investment
objective as the U.S. Equity Fund.
In normal circumstances, at least 65% of the U.S. Equity Fund's net
assets will be invested in equity securities consisting of U.S. and foreign
common stocks and other securities with equity characteristics comprised of
preferred stock, warrants, rights, convertible securities, depository receipts
(such as ADRs and EDRs) trust certifications, limited partnership interests and
investment company securities (collectively, "Equity Securities"). The U.S.
Equity Fund's primary equity investments are the common stock of large
capitalization U.S. corporations and, to a limited extent, similar securities of
foreign corporations.
Investment Process for The U.S. Equity Fund
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, follow
approximately 700 predominantly large- and medium-sized U.S. companies --
approximately 500 of which form the universe for the U.S. Equity Fund's
investments. Their research goal is to forecast normalized, longer term earnings
and dividends for the companies that they cover. In doing this, they may work in
concert with the Advisor's international equity analysts in order to gain a
broader perspective for evaluating industries and companies in today's global
economy.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with its
forecasted dividends and earnings. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5)
are deemed the most overvalued.
Stock Selection: A diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among first-quintile
stocks; the specific names selected reflect the portfolio manager's judgment
concerning the soundness of the underlying forecasts, the likelihood that the
perceived misvaluation will be corrected within a reasonable time frame, and the
magnitude of the risks versus the rewards. Once a stock falls into the third
quintile -- because its price has risen or its fundamentals have deteriorated --
it generally becomes a candidate for sale. The portfolio manager seeks to hold
sector weightings close to those of the S&P 500 Index, the U.S. Equity Fund's
benchmark.
J.P. Morgan U.S. Small Company Fund (the "U.S. Small Company Fund") is
designed for investors who are willing to assume the somewhat higher risk of
investing in small companies in order to seek a higher return over time than
might be expected from a portfolio of stocks of large companies. The U.S. Small
Company Fund's investment objective is to provide high total return from a
portfolio of small company stocks. This investment objective can be changed
without shareholder approval. The U.S. Small Company Fund attempts to achieve
its investment objective by investing all of its investable assets in The U.S.
Small Company Portfolio, a diversified open-end management investment company
having the same investment objective as the U.S. Small Company Fund.
The U.S. Small Company Fund attempts to achieve its investment
objective by investing primarily in the common stock of small sized U.S.
companies that are included in the Russell 2000 Index, which is composed of
2,000 common stocks of U.S. small-cap companies with market capitalizations
ranging from $100 million to $2 billion.
Investment Process for The U.S. Small Company Fund
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that contains a total of approximately 600 names.
Because the Advisor's analysts follow both the larger and smaller companies in
their industries -- in essence, covering their industries from top to bottom --
they are able to bring broad perspective to the research they do on both.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with the its
forecasted dividends and earnings. Within each industry, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
Stock Selection: A diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among the stocks in
the top two quintiles of the rankings; the specific names selected reflect the
portfolio manager's judgment concerning the soundness of the underlying
forecasts, the likelihood that the perceived misvaluation will soon be
corrected, and the magnitude of the risks versus the rewards. Once a stock falls
into the third quintile -- because its price has risen or its fundamentals have
deteriorated -- it generally becomes a candidate for sale. The portfolio manager
seeks to hold sector weightings close to those of the Russell 2000 Index, the
U.S. Small Company Fund's benchmark.
J.P. Morgan U.S. Small Company Opportunities Fund (the "U.S. Small
Company Opportunities Fund") is designed for investors seeking an actively
managed portfolio of equity securities of companies with high growth potential,
emphasizing growth sectors of the market without undue emphasis on a specific
sector and encompassing a higher degree of risk than some small company stock
portfolios. The U.S. Small Company Opportunities Fund's investment objective is
to provide long-term growth from a portfolio of small company growth stocks.
This investment objective can be changed without shareholder approval. The U.S.
Small Company Opportunities Fund attempts to achieve its investment objective by
investing all of its investable assets in The U.S. Small Company Opportunities
Portfolio, a diversified open-end management investment company having the same
investment objective as the U.S. Small Company Opportunities Fund.
The U.S. Small Company Opportunities Fund attempts to achieve its
investment objective by investing in a diversified portfolio of common stocks
issued by small companies with above average long-term earnings growth potential
that are included in the Russell 2000 Growth Index, an index composed of 2000
equity securities of companies with market capitalizations ranging from $150
billion to $2 billion. The U.S. Small Company Opportunities Fund emphasizes
stocks of U.S. small companies with market capitalizations of less than $1.25
billion when purchased.
Investment Process for The U.S. Small Company Opportunities Fund
Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, continuously
monitor stocks in the small company universe with the aim of identifying
companies that participate in expanding markets or have a competitive advantage
that is sustainable over the long term, exhibit superior potential, sound
financial and operating characteristics and can be purchased at a reasonable
price. Frequent reviews of individual companies focus on the forecasted growth
and profitability inputs to the proprietary valuation analyses. The research
goal is to forecast normalized, long-term earnings and dividends for the most
attractive small capitalization growth companies among those they monitor.
Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with its
forecasted dividends and earnings. Within each industry, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.
Stock Selection: A diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among the stocks in
the top two quintiles of the rankings; the specific names selected reflect the
portfolio manager's judgment concerning the soundness of the underlying
forecasts, the likelihood that the perceived misevaluation will soon be
corrected, and the magnitude of the risks versus the rewards. Once a stock falls
into the third quintile -- because its price has risen or its fundamentals have
deteriorated -- it generally becomes a candidate for sale. While the U.S. Small
Company Opportunities Fund holds stocks in many industries to reduce the impact
of poor performance in any one sector, it tends to emphasize industries with
higher growth potential and does not track the sector weightings of the overall
small company stock market.
The various types of securities in which the Funds may invest are
described below.
Equity Investments
The Funds invest primarily in Equity Securities. The Equity Securities
in which the Funds invest include those listed on any domestic or foreign
securities exchange or traded in the over-the-counter (OTC) market as well as
certain restricted or unlisted securities.
Equity Securities. The Equity Securities in which the Funds may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.
The convertible securities in which the Funds may invest include any
debt securities or preferred stock which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.
The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors, and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.
Common Stock Warrants
The Funds may invest in common stock warrants that entitle the holder
to buy common stock from the issuer of the warrant at a specific price (the
strike price) for a specific period of time. The market price of warrants may be
substantially lower than the current market price of the underlying common
stock, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying common stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.
Foreign Investments
The Funds may invest in certain foreign securities. The Funds do not
expect to invest more than 20% of their respective total assets, at the time of
purchase, in securities of foreign issuers. This 20% limit is designed to
accommodate the increased globalization of companies as well as the
re-domiciling of companies for tax treatment purposes. It is not currently
expected to be used to increase direct non-U.S. exposure.
Investors should realize that the value of the Funds' investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Funds' operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Funds must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.
In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.
Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depository"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depository. ADRs include American Depository Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depository Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depository, whereas an unsponsored facility may be established by a depository
without participation by the issuer of the receipt's underlying security.
Holders of an unsponsored depository receipt generally bear all costs
of the unsponsored facility. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited securities.
Since investments in foreign securities may involve foreign currencies,
the value of a Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Funds may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Funds'
currency exposure related to foreign investments.
Foreign Currency Exchange Transactions
Because each Fund may buy and sell securities and receive interest and
dividends in currencies other than the U.S. dollar, a Fund may enter from time
to time into foreign currency exchange transactions. Each Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies. The cost of a Fund's spot currency exchange
transactions is generally the difference between the bid and offer spot rate of
the currency being purchased or sold.
A forward foreign currency exchange contract is an obligation by the
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.
Each Fund may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. Each Fund may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, a Fund would enter into a
forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Funds will only enter into forward contracts
to sell a foreign currency in exchange for another foreign currency if the
Advisor expects the foreign currency purchased to appreciate against the U.S.
dollar.
Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause a Fund to assume the risk of
fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.
Additional Investments
When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value, and
calculate the maturity for the purposes of average maturity from that date. At
the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, each Fund will maintain with
the custodian a segregated account with liquid assets, consisting of cash, U.S.
Government securities or other appropriate securities, in an amount at least
equal to such commitments. On delivery dates for such transactions, each Fund
will meet its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio obligation, incur a gain or loss due
to market fluctuation. Also, a Fund may be disadvantaged if the other party to
the transaction defaults.
Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations.
The Securities and Exchange Commission ("SEC") has granted the
Portfolios an exemptive order permitting it to invest its uninvested cash in any
of the following affiliated money market funds: J.P. Morgan Institutional Prime
Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P.
Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional
Treasury Money Market Fund. The order sets the following conditions: (1) the
Portfolio may invest in one or more of the permitted money market funds up to an
aggregate limit of 25% of its assets; and (2) the Advisor will waive and/or
reimburse its advisory fee from the Portfolio in an amount sufficient to offset
any doubling up of investment advisory and shareholder servicing fees. The
Portfolio has applied for additional exemptive relief from the SEC to permit the
Portfolio to invest in additional affiliated investment companies. If the
requested relief is granted, the Portfolio would then be permitted to invest in
non-money market affiliated funds, subject to certain conditions specified in
the applicable order.
Reverse Repurchase Agreements. Each of the Funds may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Funds will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, a Fund will enter into a
reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. A Fund will not
invest the proceeds of a reverse repurchase agreement for a period which exceeds
the duration of the reverse repurchase agreement. Each Fund will establish and
maintain with the custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. See "Investment Restrictions" for each Fund's
limitations on reverse repurchase agreements and bank borrowings.
Loans of Portfolio Securities. Each Fund is permitted to lend its
securities in an amount up to 331/3% of the value of such Fund's net assets.
Each of the Funds may lend its securities if such loans are secured continuously
by cash or equivalent collateral or by a letter of credit in favor of the Fund
at least equal at all times to 100% of the market value of the securities
loaned, plus accrued interest. While such securities are on loan, the borrower
will pay the Fund any income accruing thereon. Loans will be subject to
termination by the Funds in the normal settlement time, generally three business
days after notice, or by the borrower on one day's notice. Borrowed securities
must be returned when the loan is terminated. Any gain or loss in the market
price of the borrowed securities which occurs during the term of the loan inures
to a Fund and its respective investors. The Funds may pay reasonable finders'
and custodial fees in connection with a loan. In addition, a Fund will consider
all facts and circumstances before entering into such an agreement, including
the creditworthiness of the borrowing financial institution, and no Fund will
make any loans in excess of one year. The Funds will not lend their securities
to any officer, Trustee, Member of the Advisory Board, Director, employee or
other affiliate of the Funds, the Advisor or the Distributor, unless otherwise
permitted by applicable law.
Illiquid Investments; Privately Placed and Other Unregistered
Securities. No Fund may acquire any illiquid securities if, as a result thereof,
more than 15% of its net assets would be in illiquid investments. Subject to
this non-fundamental policy limitation, each Fund may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), and cannot be offered for public sale in the United States
without first being registered under the 1933 Act. An illiquid investment is any
investment that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which it is valued by a Fund. The price
a Fund pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these securities will reflect any limitations on
their liquidity.
Each Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.
As to illiquid investments, a Fund is subject to a risk that should a
Fund decide to sell them when a ready buyer is not available at a price the Fund
deems representative of their value, the value of the Fund's net assets could be
adversely affected. Where an illiquid security must be registered under the 1933
Act, before it may be sold, a Fund may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time a Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse
market conditions were to develop, a Fund might obtain a less favorable price
than prevailed when it decided to sell.
Money Market Instruments
Although the Funds intend, under normal circumstances and to the extent
practicable, to be fully invested in equity securities, each Fund may invest in
money market instruments to the extent consistent with its respective investment
objective and policies. The Funds may make money market investments pending
other investment or settlement, for liquidity or in adverse market conditions. A
description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."
U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
Additional U.S. Government Obligations. Each of the Funds may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration, and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, each Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which each Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credits of the issuing agency.
Foreign Government Obligations. Each of the Funds, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."
Bank Obligations. Each of the Funds may invest in negotiable
certificates of deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks which have more than $2 billion
in total assets (the "Asset Limitation") and are organized under the laws of the
United States or any state, (ii) foreign branches of these banks or of foreign
banks of equivalent size (Euros) and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). See "Foreign Investments." The Funds will not invest
in obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. Each of the Funds may also invest in
obligations of international banking institutions designated or supported by
national governments to promote economic reconstruction, development or trade
between nations (e.g., the European Investment Bank, the Inter-American
Development Bank, or the World Bank).
Commercial Paper. Each of the Funds may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan Guaranty Trust Company of New York
("Morgan"), an affiliate of the Advisor, acting as agent, for no additional fee.
The monies loaned to the borrower come from accounts managed by Morgan or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. Morgan, an affiliate of the Advisor, has
the right to increase or decrease the amount provided to the borrower under an
obligation. The borrower has the right to pay without penalty all or any part of
the principal amount then outstanding on an obligation together with interest to
the date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve commercial paper composite rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by Morgan. Since master demand obligations typically are
not rated by credit rating agencies, the Funds may invest in such unrated
obligations only if at the time of an investment the obligation is determined by
the Advisor to have a credit quality which satisfies the Fund's quality
restrictions. See "Quality and Diversification Requirements." It is possible
that the issuer of a master demand obligation could be a client of Morgan, to
whom Morgan, an affiliate of the Advisor, in its capacity as a commercial bank,
has made a loan.
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.
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements of
the 1940 Act. To meet these requirements, 75% of the assets of each Fund is
subject to the following fundamental limitations: (1) a Fund may not invest more
than 5% of its total assets in the securities of any one issuer, except
obligations of the U.S. Government, its agencies and instrumentalities, and (2)
a Fund may not own more than 10% of the outstanding voting securities of any one
issuer. As for the other 25% of a Fund's assets not subject to the limitation
described above, there is no limitation on investment of these assets under the
1940 Act, so that all of such assets may be invested in securities of any one
issuer. Investments not subject to the limitations described above could involve
an increased risk to a Fund should an issuer, or a state or its related
entities, be unable to make interest or principal payments or should the market
value of such securities decline.
The Funds will also comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes."
The Funds may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time a Fund invests in
any commercial paper, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in the Advisor's
opinion. At the time a Fund invests in any other short-term debt securities,
they must be rated A or higher by Moody's or Standard & Poor's, or if unrated,
the investment must be of comparable quality in the Advisor's opinion.
In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.
Options and Futures Transactions
Each of the Funds may (a) purchase and sell exchange traded and
over-the-counter (OTC) put and call options on equity securities or indexes of
equity securities, (b) purchase and sell futures contracts on indexes of equity
securities and (c) purchase and sell put and call options on futures contracts
on indexes of equity securities. Each of these instruments is a derivative
instrument as its value derives from the underlying asset or index.
Each Fund may utilize options and futures contracts to manage its
exposure to changing interest rates and/or security prices. Some options and
futures strategies, including selling futures contracts and buying puts, tend to
hedge a Fund's investments against price fluctuations. Other strategies,
including buying futures contracts, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of a Fund's overall strategy in a manner deemed appropriate to
the Advisor and consistent with a Fund's objective and policies. Because
combined options positions involve multiple trades, they result in higher
transaction costs and may be more difficult to open and close out.
The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase a Fund's return. While the use of these instruments by a
Fund may reduce certain risks associated with owning its portfolio securities,
these techniques themselves entail certain other risks. If the Advisor applies a
strategy at an inappropriate time or judges market conditions or trends
incorrectly, options and futures strategies may lower a Fund's return. Certain
strategies limit a Fund's possibilities to realize gains as well as limiting its
exposure to losses. A Fund could also experience losses if the prices of its
options and futures positions were poorly correlated with its other investments,
or if it could not close out its positions because of an illiquid secondary
market. In addition, a Fund will incur transaction costs, including trading
commissions and option premiums, in connection with its futures and options
transactions and these transactions could significantly increase a Fund's
turnover rate.
Each Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of a
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of a Fund's total
assets.
Options
Purchasing Put and Call Options. By purchasing a put option, a Fund
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, a Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. A Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. A Fund may also close out a put option position by
entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, a Fund will lose the entire premium it paid. If a
Fund exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If a Fund exercises an option on an
index, settlement is in cash and does not involve the actual sale of securities.
If an option is American style, it may be exercised on any day up to its
expiration date. A European style option may be exercised only on its expiration
date.
The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).
The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.
Selling (Writing) Put and Call Options. When a Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, a Fund assumes the obligation
to pay the strike price for the instrument underlying the option if the other
party to the option chooses to exercise it. A Fund may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option a Fund has written, however, a Fund must continue to be prepared to pay
the strike price while the option is outstanding, regardless of price changes,
and must continue to post margin as discussed below.
If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer will also profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates a Fund to sell or deliver the option's
underlying instrument in return for the strike price upon exercise of the
option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium a call writer offsets part of the effect of a price decline. At the same
time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.
The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.
Options on Indexes. Options on securities indexes are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. A Fund, in purchasing or selling
index options, is subject to the risk that the value of its portfolio securities
may not change as much as an index because a Fund's investments generally will
not match the composition of an index.
For a number of reasons, a liquid market may not exist and thus a Fund
may not be able to close out an option position that it has previously entered
into. When a Fund purchases an OTC option, it will be relying on its
counterparty to perform its obligations, and a Fund may incur additional losses
if the counterparty is unable to perform.
Exchange Traded and OTC Options. All options purchased or sold by the
Funds will be traded on a securities exchange or will be purchased or sold by
securities dealers (OTC options) that meet creditworthiness standards approved
by a Funds' Board of Trustees. While exchange-traded options are obligations of
the Options Clearing Corporation, in the case of OTC options, a Fund relies on
the dealer from which it purchased the option to perform if the option is
exercised. Thus, when a Fund purchases an OTC option, it relies on the dealer
from which it purchased the option to make or take delivery of the underlying
securities. Failure by the dealer to do so would result in the loss of the
premium paid by a Fund as well as loss of the expected benefit of the
transaction.
Provided that a Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, a Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.
Futures Contracts and Options on Futures Contracts. The Funds may
purchase or sell (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. Futures contracts
obligate the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index. Currently, futures contracts are available on
various types of fixed income securities, including but not limited to U.S.
Treasury bonds, notes and bills, Eurodollar certificates of deposit and on
indexes of fixed income securities and indexes of equity securities.
Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.
The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by a Fund are paid by a Fund into a segregated account, in the
name of the Futures Commission Merchant, as required by the 1940 Act and the
SEC's interpretations thereunder.
Combined Positions. The Funds are permitted to purchase and write
options in combination with each other, or in combination with futures or
forward contracts, to adjust the risk and return characteristics of the overall
position. For example, a Fund may purchase a put option and write a call option
on the same underlying instrument, in order to construct a combined position
whose risk and return characteristics are similar to selling a futures contract.
Another possible combined position would involve writing a call option at one
strike price and buying a call option at a lower price, in order to reduce the
risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in
higher transaction costs and may be more difficult to open and close out.
Correlation of Price Changes. Because there are a limited number of
types of exchange-traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match a Fund's
current or anticipated investments exactly. A Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of a Fund's other investments.
Options and futures contracts prices can also diverge from the prices
of their underlying instruments, even if the underlying instruments match a
Fund's investments well. Options and futures contracts prices are affected by
such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation may also result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. A Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in a Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.
Liquidity of Options and Futures Contracts. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for a Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require a Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, a Fund's access to other assets
held to cover its options or futures positions could also be impaired. (See
"Exchange Traded and OTC Options" above for a discussion of the liquidity of
options not traded on an exchange.)
Position Limits. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, a Fund or the Advisor may be required to
reduce the size of its futures and options positions or may not be able to trade
a certain futures or options contract in order to avoid exceeding such limits.
Asset Coverage for Futures Contracts and Options Positions. Although
the Funds will not be commodity pools, certain derivatives subject a Fund to the
rules of the Commodity Futures Trading Commission which limit the extent to
which each Fund can invest in such derivatives. The Funds may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, a Fund may not invest in such contracts and options for other purposes
if the sum of the amount of initial margin deposits and premiums paid for
unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of a Fund's assets, after
taking into account unrealized profits and unrealized losses on such contracts
and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.
In addition, the Funds will comply with guidelines established by the
SEC with respect to coverage of options and futures contracts by mutual funds,
and if the guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures contract or option is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of a Fund's assets
could impede portfolio management or a Fund's ability to meet redemption
requests or other current obligations.
Swaps and Related Swap Products
Each of the Funds may engage in swap transactions, including, but not
limited to, interest rate, currency, securities index, basket, specific security
and commodity swaps, interest rate caps, floors and collars and options on
interest rate swaps (collectively defined as "swap transactions").
Each Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities a Fund anticipates purchasing at a later date, or to gain exposure to
certain markets in the most economical way possible. A Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that a Fund may be required to pay.
Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.
The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by a Fund, payments by the parties
will be exchanged on a "net basis", and a Fund will receive or pay, as the case
may be, only the net amount of the two payments.
The amount of a Fund's potential gain or loss on any swap transaction
is not subject to any fixed limit. Nor is there any fixed limit on a Fund's
potential loss if it sells a cap or collar. If the Fund buys a cap, floor or
collar, however, the Fund's potential loss is limited to the amount of the fee
that it has paid. When measured against the initial amount of cash required to
initiate the transaction, which is typically zero in the case of most
conventional swap transactions, swaps, caps, floors and collars tend to be more
volatile than many other types of instruments.
The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of a Fund will be less favorable than if these techniques had not
been used. These instruments are typically not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to a Fund or that a Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to a Fund.
The Advisor will, however, consider such risks and will enter into swap
and other derivatives transactions only when it believes that the risks are not
unreasonable.
Each Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If a Fund
enters into a swap agreement on a net basis, it will segregate assets with a
daily value at least equal to the excess, if any, of a Fund's accrued
obligations under the swap agreement over the accrued amount a Fund is entitled
to receive under the agreement. If a Fund enters into a swap agreement on other
than a net basis, or sells a cap, floor or collar, it will segregate assets with
a daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.
Each Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, a Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents utilizing standardized swap documentation. As a result,
the markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.
The liquidity of swap transactions, caps, floors and collars will be as
set forth in guidelines established by the Advisor and approved by the Trustees
which are based on various factors, including (1) the availability of dealer
quotations and the estimated transaction volume for the instrument, (2) the
number of dealers and end users for the instrument in the marketplace, (3) the
level of market making by dealers in the type of instrument, (4) the nature of
the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset a Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.
During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, a Fund will record a realized gain or loss equal to the difference,
if any, between the proceeds from (or cost of) the closing transaction and a
Fund's basis in the contract.
The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which a Fund
may engage in such transactions.
Risk Management
The Funds may employ non-hedging risk management techniques. Risk
management strategies are used to keep the Funds fully invested and to reduce
the transaction costs associated with cash flows into and out of the Funds. The
objective where equity futures are used to "equitize" cash is to match the
notional value of all futures contracts to a Fund's cash balance. The notional
value of futures and of the cash is monitored daily. As the cash is invested in
securities and/or paid out to participants in redemptions, the Advisor
simultaneously adjusts the futures positions. Through such procedures, the Funds
not only gain equity exposure from the use of futures, but also benefit from
increased flexibility in responding to client cash flow needs. Additionally,
because it can be less expensive to trade a list of securities as a package or
program trade rather than as a group of individual orders, futures provide a
means through which transaction costs can be reduced. Such non-hedging risk
management techniques are not speculative, but because they involve leverage
include, as do all leveraged transactions, the possibility of losses as well as
gains that are greater than if these techniques involved the purchase and sale
of the securities themselves rather than their synthetic derivatives.
Portfolio Turnover
The table below sets forth the portfolio turnover rates for the Funds.
A rate of 100% indicates that the equivalent of all of the Fund's assets have
been sold and reinvested in a year. High portfolio turnover may result in the
realization of substantial net capital gains or losses. To the extent net short
term capital gains are realized, any distributions resulting from such gains are
considered ordinary income for federal income tax purposes. See "Taxes" below.
The Disciplined Equity Portfolio (Disciplined Equity Fund) -- For the period
December 30, 1996 (commencement of operations) through May 31, 1997: 20%. For
the fiscal years ended May 31, 1998 and 1999: 61% and 51%, respectively.
The U.S. Equity Portfolio (U.S. Equity Fund) -- For the fiscal years ended
May 31, 1997, 1998 and 1999: 99%, 106% and 84%, respectively.
The U.S. Small Company Portfolio (U.S. Small Company Fund) -- For the
fiscal years ended May 31, 1997, 1998 and 1999: 98%, 96% and 104%, respectively.
The U.S. Small Company Opportunities Portfolio (U.S. Small Company
Opportunities Fund) -- For the period June 16, 1997 (commencement of operations)
through May 31, 1998: 73%. For the fiscal year ended May 31, 1999: 116%.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.
The Funds and their corresponding Portfolios:
1. May not make any investments inconsistent with a Fund's classification
as a diversified investment company under the Investment Company Act of 1940;
2. May not purchase any security which would cause a Fund to concentrate its
investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that a
Fund, in disposing of portfolio securities, may be deemed an underwriter within
the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, a Fund may (a) invest in securities or other instruments
directly or indirectly secured by real estate, and (b) invest in securities or
other instruments issued by issuers that invest in real estate;
7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of ownership of securities or other instruments issued by persons
that purchase or sell commodities or commodities contracts; but this shall not
prevent a Fund from purchasing, selling and entering into financial futures
contracts (including futures contracts on indices of securities, interest rates
and currencies), options on financial futures contracts (including futures
contracts on indices of securities, interest rates and currencies), warrants,
swaps, forward contracts, foreign currency spot and forward contracts or other
derivative instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with their respective
investment objectives and policies and to the extent permitted by applicable
law.
Non-Fundamental Investment Restrictions - The investment restrictions
described below are not fundamental policies of these Funds and their
corresponding Portfolios and may be changed by their respective Trustees.
These non-fundamental investment policies require that the Funds:
(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 15% of the market value
of a Fund's net assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be deemed to
be applicable to the purchase or sale of when-issued or delayed delivery
securities, or to short sales that are covered in accordance with SEC rules; and
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
TRUSTEES AND MEMBERS OF THE ADVISORY BOARD
Trustees
The Trustees of the Trust, who are also the Trustees of each of the
Portfolios and the other Master Portfolios, as defined below, their business
addresses, principal occupations during the past five years and dates of birth
are set forth below.
FREDERICK S. ADDY -- Trustee; Retired; Prior to April 1994, Executive
Vice President and Chief Financial Officer, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1,
1932.
WILLIAM G. BURNS -- Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.
ARTHUR C. ESCHENLAUER -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His address is 14 Alta
Vista Drive, RD #2, Princeton, New Jersey 08540, and his date of birth is May
23, 1934.
MATTHEW HEALEY1 -- Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1993. His address is Pine Tree
Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.
MICHAEL P. MALLARDI -- Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.
A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Institutional Funds, up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), J.P. Morgan Institutional Funds and J.P. Morgan
Series Trust and is reimbursed for expenses incurred in connection with service
as a Trustee. The Trustees may hold various other directorships unrelated to
these funds.
<PAGE>
Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1999 are set forth below.
<TABLE>
<CAPTION>
<S> <C> <C>
- ------------------------------------------------- ----------------------------- ----------------------------------
TOTAL TRUSTEE COMPENSATION
ACCRUED BY THE MASTER PORTFOLIOS
(*), J.P. MORGAN INSTITUTIONAL
FUNDS, J.P. MORGAN SERIES TRUST
AGGREGATE TRUSTEE AND THE TRUST DURING 1999(**)
---------------------
COMPENSATION
PAID BY THE TRUST DURING
NAME OF TRUSTEE 1999
- ------------------------------------------------- ----------------------------- ----------------------------------
- ------------------------------------------------- ----------------------------- ----------------------------------
Frederick S. Addy, Trustee $12,720 $75,000
- ------------------------------------------------- ----------------------------- ----------------------------------
- ------------------------------------------------- ----------------------------- ----------------------------------
William G. Burns, Trustee $12,720 $75,000
- ------------------------------------------------- ----------------------------- ----------------------------------
- ------------------------------------------------- ----------------------------- ----------------------------------
Arthur C. Eschenlauer, Trustee $12,720 $75,000
- ------------------------------------------------- ----------------------------- ----------------------------------
- ------------------------------------------------- ----------------------------- ----------------------------------
Matthew Healey, Trustee (***), $12,720 $75,000
Chairman and Chief Executive
Officer
- ------------------------------------------------- ----------------------------- ----------------------------------
- ------------------------------------------------- ----------------------------- ----------------------------------
Michael P. Mallardi, Trustee $12,720 $75,000
- ------------------------------------------------- ----------------------------- ----------------------------------
</TABLE>
(*) Includes the Portfolios and 15 other Portfolios (collectively the "Master
Portfolios") for which JPMIM acts as investment advisor.
(**) No investment company within the fund complex has a pension or
retirement plan. Currently there are 17 investment companies (14 investment
companies comprising the Master Portfolios, the Trust, J.P. Morgan Institutional
Funds and J.P. Morgan Series Trust) in the fund complex.
(***) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $153,800,
contributed $23,100 to a defined contribution plan on his behalf and paid
$17,300 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for The Pierpont
Family of Funds (now the J.P. Morgan Family of Funds), and the Trustees are the
equal and sole shareholders of Pierpont Group, Inc. The Trust and the Portfolios
have agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services to the Trust, the Portfolios and
certain other registered investment companies subject to similar agreements with
Pierpont Group, Inc. These costs are periodically reviewed by the Trustees. The
principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New
York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal years are set forth below:
Disciplined Equity Fund -- For the period December 31, 1997 (commencement
of operations) through May 31, 1998: $58. For the fiscal year ended May 31,
1999: $1,234.
The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $607. For the fiscal years
ended May 31, 1998 and 1999: $5,818 and $14,804, respectively.
U.S. Equity Fund -- For the fiscal years ended May 31, 1997, 1998 and 1999:
$11,747, $14,143 and $10,353, respectively.
The U.S. Equity Portfolio -- For the fiscal years ended May 31, 1997, 1998
and 1999: $26,486, $30,613 and $18,019, respectively.
U.S. Small Company Fund -- For the fiscal years ended May 31, 1997, 1998
and 1999: $7,545, $9,146 and $5,130, respectively.
The U.S. Small Company Portfolio -- For the fiscal years ended May 31,
1997, 1998 and 1999: $31,320, $36,011 and $13,942, respectively.
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $3,084. For the fiscal year
ended May 31, 1999: $5,042.
The U.S. Small Company Opportunities Portfolio -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $3,088. For the fiscal
year ended May 31, 1999: $5,046.
Advisory Board
The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust; but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
members thereof was designed so that the Board of Trustees will continuously
consist of persons able to assume the duties of Trustees and be fully familiar
with the business and affairs of each of the Trusts and the Master Portfolios,
in anticipation of the current Trustees reaching the mandatory retirement age of
seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for
serving in this capacity for the Trust, each of the Master Portfolios, the J.P.
Morgan Funds and the J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection for such service. The members of the Advisory Board may
hold various other directorships unrelated to these funds. The mailing address
of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth
Avenue, New York, New York 10017. Their names, principal occupations during the
past five years and dates of birth are set forth below:
Ann Maynard Gray - President, Diversified Publishing Group and Vice
President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.
Officers
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer and the officers who are employees of the
Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a
wholly owned indirect subsidiary of Boston Institutional Group, Inc. The
officers conduct and supervise the business operations of the Trust and the
Portfolios. The Trust and the Portfolios have no employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust,
each Portfolio and the other Master Portfolios. The business address of each of
the officers unless otherwise noted is Funds Distributor, Inc., 60 State Street,
Suite 1300, Boston, Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Country Club Estates, 10286 Saint
Andrews Road, Boynton Beach, Florida 33436. His date of birth is August 23,
1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.
JOHN P. COVINO; Vice President and Assistant Treasurer. Vice President and
Treasury Group Manger of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.
JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolios only. Managing Director, State Street Cayman Trust Company, Ltd.
since October 1994. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor,
Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI. Her date of birth
is March 27, 1942.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice
President and Senior Counsel of FDI and an officer of certain investment
companies distributed or administered by FDI. From June 1994 to January 1996,
Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark,
Inc. Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY; Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group as a
Manager for the Budgeting and Expense Processing Group. Prior to September 1995,
Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New
York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth
is March 13, 1966.
stephanie d. pierce; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.
GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.
INVESTMENT ADVISOR
The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of each Portfolio's Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages each Portfolio's investments. Effective October 1, 1998 each
Portfolio's Investment Advisor is JPMIM. Prior to that date, Morgan was the
Investment Advisor.
JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.
J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $349 billion.
J.P. Morgan has a long history of service as adviser, underwriter and
lender to an extensive roster of major companies and as a financial advisor to
national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.
The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The conclusions of
the equity analysts' fundamental research is quantified into a set of projected
returns for individual companies through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector. These values may not be the same
as the markets' current valuations of these companies. This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector.
The investment advisory services the Advisor provides to the Portfolios
are not exclusive under the terms of the Advisory Agreements. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Portfolios. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Portfolios. See
"Portfolio Transactions."
Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Disciplined Equity Portfolio and The U.S. Equity
Portfolio -- S&P 500 Index; The U.S. Small Company Portfolio -- Russell 2000
Index; and The U.S. Small Company Opportunities Portfolio -- Russell 2000 Growth
Index.
Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.
The Portfolios are managed by employees of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain investment management affiliates of J.P. Morgan.
As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio corresponding to each Fund has agreed to pay the
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.
Disciplined Equity: 0.35%
U.S. Equity: 0.40%
U.S. Small Company: 0.60%
U.S. Small Company Opportunities : 0.60%
The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to Morgan and JPMIM, as applicable, for the
fiscal periods indicated. See also the Fund's financial statements which are
incorporated herein by reference.
The Disciplined Equity Portfolio (Disciplined Equity Fund) -- For the period
December 30, 1996 (commencement of operations) through May 31, 1997: $73,985.
For the fiscal years ended May 31, 1998 and 1999: $628,965 and $2,310,525,
respectively.
The U.S. Equity Portfolio (U.S. Equity Fund) -- For the fiscal years ended
May 31, 1997, 1998 and 1999: $3,049,388, $3,534,791 and $2,911,314,
respectively.
The U.S. Small Company Portfolio (U.S. Small Company Fund) -- For the
fiscal years ended May 31, 1997, 1998 and 1999: $5,424,514, $6,161,868 and
$3,367,503, respectively.
The U.S. Small Company Opportunities Portfolio (U.S. Small Company
Opportunities Fund) -- For the period June 16, 1997 (commencement of operations)
through May 31, 1998: $596,695. For the fiscal year ended May 31, 1999:
$1,260,259.
The Investment Advisory Agreements provide that they will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. Each of the Investment Advisory Agreements will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a
majority of the Portfolio's outstanding voting securities, on 60 days' written
notice to the Advisor and by the Advisor on 90 days' written notice to the
Portfolio. See "Additional Information."
The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or subsidiaries thereof may not sponsor, organize, or control a
registered open-end investment company continuously engaged in the issuance of
its shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreements without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. On November 12, 1999, the Gramm-Leach-Bliley Act was signed into
law, the relevant provisions of which go into effect March 11, 2000. Until March
11, 2000, federal banking law, specifically the Glass-Steagall Act and the Bank
Holding Company Act, generally prohibits banks and bank holding companies and
their subsidiaries, such as the Advisor, from engaging in the business of
underwriting or distributing securities. Pursuant to interpretations issued
under these laws by the Board of Governors of the Federal Reserve System, such
entities also may not sponsor, organize or control a registered open-end
investment company continuously engaged in the issuance of its shares (together
with underwriting and distributing securities, the "Prohibited Activities"),
such as the Trust. These laws and interpretations do not prohibit a bank 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 laws in effect until March 11, 2000. Effective March 11, 2000,
the sections of the Glass-Steagall Act which prohibited the Prohibited
Activities are repealed, and the Bank Holding Company Act is amended to permit
bank holding companies which satisfy certain capitalization, managerial and
other criteria (the "Criteria") to engage in the Prohibited Activities; bank
holding companies which do not satisfy the Criteria may continue to engage in
any activity that was permissible for a bank holding company under the Bank
Holding Company Act as of November 11, 1999. Because the services to be
performed for the Portfolios under the Advisory Agreements were permissible for
a bank holding company as of November 11, 1999, the Advisor believes that it
also may perform such services after March 11, 2000 whether or not the Advisor's
parent satisfies the Criteria. 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.
Under separate agreements, Morgan provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for each Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of each Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and Members of the Advisory Board" and "Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information," in any
case without payment of any penalty on 60 days' written notice to the other
party. The principal offices of FDI are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under 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,
Members of the Advisory Board 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 listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
Disciplined Equity Fund -- For the period December 31, 1997 (commencement
of operations) through May 31, 1998: $47. For the fiscal year ended May 31,
1999: $902.
The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $520. For the fiscal years
ended May 31, 1998 and 1999: $3,742 and $9,294, respectively.
U.S. Equity Fund -- For the period August 1, 1996 through May 31, 1997:
$9,811. For the fiscal years ended May 31, 1998 and 1999: $10,661 and $7,329,
respectively.
The U.S. Equity Portfolio -- For the period August 1, 1996 through May 31,
1997: $16,536. For the fiscal years ended May 31, 1998 and 1999: $18,971 and
$11,075, respectively.
U.S. Small Company Fund -- For the period August 1, 1996 through May 31,
1997: $6,272. For the fiscal years ended May 31, 1998 and 1999: $6,881 and
$3,605, respectively.
The U.S. Small Company Portfolio -- For the period August 1, 1996 through
May 31, 1997: $19,652. For the fiscal years ended May 31, 1998 and 1999: $22,248
and $8,564, respectively.
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $2,410. For the fiscal year
ended May 31, 1999: $3,581.
The U.S. Small Company Opportunities Portfolio -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $2,036. For the fiscal
year ended May 31, 1999: $3,103.
The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated.
U.S. Equity Fund -- For the period June 1, 1996 through July 31, 1996: $6,776.
The U.S. Equity Portfolio -- For the period June 1, 1996 through July 31,
1996: $14,675.
U.S. Small Company Fund -- For the period June 1, 1996 through July 31,
1996: $4,383.
The U.S. Small Company Portfolio -- For the period June 1, 1996 through
July 31, 1996: $17,162.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended August 1, 1996, pursuant to which Morgan
is responsible for certain administrative and related services provided to each
Fund and its corresponding Portfolio. The Services Agreements may be terminated
at any time, without penalty, by the Trustees or Morgan, in each case on not
more than 60 days' nor less than 30 days' written notice to the other party.
Under the Services Agreements, Morgan provides certain administrative
and related services to the Funds and the Portfolios, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.
Under the amended Services Agreements, the Funds and the Portfolios
have agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by each Fund and Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, the Master Portfolios, the other investors in the Master Portfolios for
which Morgan provides similar services and J.P. Morgan Series Trust.
Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, each Fund and its corresponding
Portfolio paid Morgan a fee equal to its proportionate share of an annual
complex-wide charge. This charge was calculated daily based on the aggregate net
assets of the Master Portfolios in accordance with the following schedule: 0.06%
of the first $7 billion of the Master Portfolios' aggregate average daily net
assets, and 0.03% of the Master Portfolios' aggregate average daily net assets
in excess of $7 billion.
Disciplined Equity Fund - For the period December 31, 1997 (commencement of
operations) through May 31, 1998: $626. For the fiscal year ended May 31, 1999:
$14,823.
The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $6,614. For the fiscal years
ended May 31, 1998 and 1999: $53,654 and $176,331, respectively. U.S. Equity
Fund -- For the fiscal years ended May 31, 1997, 1998 and 1999: $102,534,
$123,735 and $114,563, respectively.
The U.S. Equity Portfolio -- For the fiscal years ended May 31, 1997, 1998
and 1999: $232,617, $265,956 and $198,407, respectively.
U.S. Small Company Fund -- For the fiscal years ended May 31, 1997, 1998
and 1999: $65,674, $79,620 and $55,836, respectively.
The U.S. Small Company Portfolio -- For the fiscal years ended May 31,
1997, 1998 and 1999: $275,962, $309,695
and $153,123, respectively.
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $29,555. For the fiscal year
ended May 31, 1999: $56,775.
The U.S. Small Company Opportunities Portfolio -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $29,566. For the fiscal
year ended May 31, 1999: $56,809.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's and each of the Portfolio's custodian and fund
accounting agent. Pursuant to the Custodian Contracts, BONY is responsible for
holding portfolio securities and cash and maintaining the books of account and
records of portfolio transactions. In the case of foreign assets held outside
the United States, the custodian employs various subcustodians in accordance
with the regulations of the SEC.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as each Fund's transfer and dividend
disbursing agent. As transfer agent and dividend disbursing agent, State Street
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a financial professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.
Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services at an annual rate of 0.25% (expressed as a percentage
of the average daily net assets of Fund shares owned by or for shareholders for
whom Morgan is acting as Shareholder Servicing Agent). Morgan acts as
Shareholder Servicing Agent for all shareholders.
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated.
Disciplined Equity Fund -- For the period December 31, 1997 (commencement
of operations) through May 31, 1998: $5,379. For the fiscal year ended May 31,
1999: $139,070.
U.S. Equity Fund -- For the fiscal years ended May 31, 1997, 1998 and 1999:
$843,099, $1,030,062 and $1,052,598, respectively.
U.S. Small Company Fund -- For the fiscal years ended May 31, 1997, 1998
and 1999: $540,244, $662,385 and $510,994, respectively.
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $248,525. For the fiscal year
ended May 31, 1999: $524,790.
As discussed under "Investment Advisor," until March 11, 2000 the
Glass-Steagall Act and other applicable laws and regulations limit the
activities of bank holding companies and certain of their subsidiaries in
connection with registered open-end investment companies. The activities of
Morgan in acting as shareholder servicing agent for Fund shareholders under the
Shareholder Servicing Agreement and providing administrative services to the
Funds and the Portfolios under the Services Agreements, and JPMIM in acting as
Advisor to the Portfolios under the Investment Advisory Agreements, may raise
issues under these laws. However, Morgan and JPMIM believe that they may
properly perform these services and the other activities described herein
without violation of the Glass-Steagall Act or other applicable banking laws or
regulations in effect until March 11, 2000. Effective March 11, 2000, certain of
the section of the Glass-Steagall Act which limited the activities of bank
holding companies and certain of their subsidiaries in connection with open-end
investment companies are repealed.
If Morgan were prohibited from providing any of the services under the
Shareholder Servicing Agreement and the Services Agreements, the Trustees would
seek an alternative provider of such services. In such event, changes in the
operation of the Funds or the Portfolios might occur and a shareholder might no
longer be able to avail himself or herself of any services then being provided
to shareholders by Morgan.
The Fund may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in a Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include a
Fund as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as J.P. Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by a Fund, financial
professionals may establish their own terms and conditions for providing their
services and may charge investors a transaction-based or other fee for their
services. Such charges may vary among financial professionals but in all cases
will be retained by the financial professional and not be remitted to a Fund or
J.P. Morgan.
Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of each of the Funds and the Portfolios, assists in the preparation
and/or review of each of the Fund's and the Portfolio's federal and state income
tax returns and consults with the Funds and the Portfolios as to matters of
accounting and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Members of the
Advisory Board," "Officers," "Investment Advisor," "Co-Administrator,"
"Distributor," "Services Agent" and "Shareholder Servicing" above, the Funds and
the Portfolios are responsible for usual and customary expenses associated with
their respective operations. Such expenses include organization expenses, legal
fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees and Members of the Advisory Board, 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).
J.P. Morgan has agreed that it will reimburse the Disciplined Equity
Fund as described in the Prospectus until February 28, 2001 to the extent
necessary to maintain the Fund's total operating expenses (which include
expenses of the Fund and the Portfolio) at 0.75% of average daily net assets.
This limit does not cover extraordinary expenses.
The table below sets forth for each Fund listed the fees and other
expenses J.P. Morgan reimbursed under the expense reimbursement arrangements
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.
Disciplined Equity Fund - For the period December 31, 1997 (commencement of
operations) through May 31, 1998:
$54,443. For the fiscal year ended May 31, 1999: $58,761.
The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $68,970. For the fiscal years
ended May 31, 1998 and 1999: $110,241 and N/A, respectively.
U.S. Equity Fund -- For the fiscal years ended May 31, 1997, 1998 and 1999:
N/A, N/A and N/A, respectively.
U.S. Equity Portfolio -- For the fiscal years ended May 31, 1997, 1998 and
1999: N/A, N/A and N/A, respectively.
U.S. Small Company Fund -- For the fiscal years ended May 31, 1997, 1998
and 1999: $288,871, $164,771 and N/A, respectively.
U.S. Small Company Portfolio -- For the fiscal years ended May 31, 1997,
1998 and 1999: N/A, N/A and N/A, respectively.
U.S. Small Company Opportunities Fund -- For the period June 16, 1997
(commencement of operations) through May 31, 1998: $55,190. For the fiscal year
ended May 31, 1999: N/A.
The U.S. Small Company Opportunities Portfolio -- For the period June 16,
1997 (commencement of operations) through May 31, 1998: $3,597. For the fiscal
year ended May 31, 1999: N/A.
PURCHASE OF SHARES
Additional Minimum Balance Information. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), the Fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the Fund reserves the right to close out your account and
send the proceeds to the address of record.
Method of Purchase. Investors may open accounts with a Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for a Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market; and (iv) if
stock, have a value which is readily ascertainable as evidenced by a listing on
a stock exchange, OTC market or by readily available market quotations from a
dealer in such securities. Each Fund reserves the right to accept or reject at
its own option any and all securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
financial professional, and the financial professional may establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. J.P. Morgan may pay fees to financial professionals
for services in connection with fund investments. See "Financial Professionals"
above.
REDEMPTION OF SHARES
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from a Fund, in lieu of cash, in conformity with the applicable rule
of the SEC. If shares are redeemed in kind, the redeeming shareholder might
incur transaction costs in converting the assets into cash. The method of
valuing portfolio securities is described under "Net Asset Value," and such
valuation will be made as of the same time the redemption price is determined.
The Trust on behalf of all of the Funds and their corresponding Portfolios have
elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the
Funds and their corresponding Portfolios are obligated to redeem shares solely
in cash up to the lesser of $250,000 or one percent of the net asset value of a
Fund during any 90 day period for any one shareholder. The Trust will redeem
Fund shares in kind only if it has received a redemption in kind from a
corresponding Portfolio and therefore shareholders of a Fund that receive
redemptions in kind will receive securities of a Portfolio. The Portfolios have
advised the Trust that the Portfolios will not redeem in kind except in
circumstances in which a Fund is permitted to redeem in kind.
Further Redemption Information. Investors should be aware that
redemptions from a Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, a Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by a Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.
EXCHANGE OF SHARES
An investor may exchange shares from any J.P. Morgan Fund into any
other J.P. Morgan Fund or J.P. Morgan Institutional Fund without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. The Funds generally intend to pay redemption proceeds in cash,
however, since they reserve the right at their sole discretion to pay
redemptions over $250,000 in-kind as a portfolio of representative stocks rather
than in cash, each Fund reserves the right to deny an exchange request in excess
of that amount. See "Redemption of Shares". Shareholders subject to federal
income tax who exchange shares in one fund for shares in another fund may
recognize capital gain or loss for federal income tax purposes. Shares of a fund
to be acquired are purchased for settlement when the proceeds from redemption
become available. In the case of investors in certain states, state securities
laws may restrict the availability of the exchange privilege. The Trust reserves
the right to discontinue, alter or limit the exchange privilege at any time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
under "Dividends and Distribution" in the Prospectus.
Dividends and capital gains distributions paid by the Fund are
reinvested in additional shares of a Fund unless the shareholder has elected to
have them paid in cash. Dividends and distributions to be paid in cash are
credited to the shareholder's account at J.P. Morgan or at his financial
professional or, in the case of certain J.P. Morgan customers, are mailed by
check in accordance with the customer's instructions. The Fund reserves the
right to discontinue, alter or limit the automatic reinvestment privilege at any
time.
If a shareholder has elected to receive dividends and/or capital gain
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday at the time described in the prospectus. The net asset value will
not be computed on the day the following legal holidays are observed: New Year's
Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. On days when
U.S. trading markets close early in observance of these holidays, the Fund will
close for purchases and redemptions at the same time. The Funds and the
Portfolios may also close for purchases and redemptions at such other times as
may be determined by the Board of Trustees to the extent permitted by applicable
law. The days on which net asset value is determined are the Funds' business
days.
The net asset value of each Fund is equal to the value of a Fund's
investment in its corresponding Portfolio (which is equal to a Fund's pro rata
share of the total investment of a Fund and of any other investors in a
Portfolio less a Fund's pro rata share of a Portfolio's liabilities) less a
Fund's liabilities. The following is a discussion of the procedures used by the
Portfolio corresponding to each Fund in valuing its assets.
The value of investments listed on a domestic or foreign securities
exchange, including National Association of Securities Dealers Automated
Quotations ("NASDAQ"), other than options on stock indexes, is based on the last
sale prices on the exchange on which the security is principally traded (the
"primary exchange"). If there has been no sale on the primary exchange on the
valuation date, and the spread between bid and asked quotations on the primary
exchange is less than or equal to 10% of the bid price for the security, the
security shall be valued at the average of the closing bid and asked quotations
on the primary exchange. Under all other circumstances (e.g. there is no last
sale on the primary exchange, there are no bid and asked quotations on the
primary exchange, or the spread between bid and asked quotations is greater than
10% of the bid price), the value of the security shall be the last sale price on
the primary exchange up to ten days prior to the valuation date unless, in the
judgment of the portfolio manager, material events or conditions since such last
sale necessitate fair valuation of the security. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing
currency rate average on the valuation date.
Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
p.m. New York time. Stock index futures and related options, which are traded on
commodities exchanges, are valued at their last sales price as of the close of
such commodities exchanges which is currently 4:15 p.m., New York time. Options
and futures traded on foreign exchanges are valued at the last sale price
available prior to the calculation of the Fund's net asset value. Securities or
other assets for which market quotations are not readily available (including
certain restricted and illiquid securities) are valued at fair value in
accordance with procedures established by and under the general supervision and
responsibility of the Trustees. Such procedures include the use of independent
pricing services which use prices based upon yields or prices of securities of
comparable quality, coupon, maturity and type; indications as to values from
dealers; and general market conditions. Short-term investments which mature in
60 days or less are valued at amortized cost if their original maturity was 60
days or less, or by amortizing their value on the 61st day prior to maturity, if
their original maturity when acquired by the Portfolio was more than 60 days,
unless this is determined not to represent fair value by the Trustees.
Trading in securities on most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of actual
distributions, total return or capital appreciation in reports, sales literature
and advertisements published by the Trust. Shareholders may obtain current
performance information by calling the number provided on the cover page of this
Statement of Additional Information. See also the Prospectus.
Composite performance information shown in the prospectus has been
calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research ("AIMR").
Total Return Quotations. As required by regulations of the SEC, the
annualized total return of the Funds for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Fund over the period are reinvested. It is
then assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
Historical performance information for periods prior to the
establishment of the U.S. Equity, U.S. Small Company and Disciplined Equity
funds will be that of their respective predecessor free-standing and/or
corresponding feeder funds and will be presented in accordance with applicable
SEC staff interpretations.
Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:
Disciplined Equity Fund (11/30/99): Average annual total return, 1 year:
19.29%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations (January 3, 1997)* to period end: 26.12%; aggregate
total return, 1 year: 19.29%; aggregate total return, 5 years: N/A; aggregate
total return, commencement of operations (January 3, 1997)* to period end:
96.31%.
U.S. Equity Fund (11/30/99): Average annual total return, 1 year: 15.45%;
average annual total return, 5 years: 23.32%; average annual total return, 10
years: 16.74%; aggregate total return, 1 year: 15.45%; aggregate total return, 5
years: 185.22%; aggregate total return, 10 years: 370.29%.
U.S. Small Company Fund (11/30/99): Average annual total return, 1 year:
(35.05%); average annual total return, 5 years: 18.91%; average annual total
return, 10 years: 13.20%; aggregate total return, 1 year: (35.05%); aggregate
total return, 5 years: 137.71%; aggregate total return, 10 years: 245.54%.
U.S. Small Company Opportunities Fund (11/30/99): Average annual total
return, 1 year: (49.30%); average annual total return, 5 years: N/A; average
annual total return, commencement of operations (June 16, 1997) to period end:
23.76%; aggregate total return, 1 year: (49.30%); aggregate total return, 5
years: N/A; aggregate total return, commencement of operations (June 16, 1997)
to period end: 68.86%.
General. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.
From time to time, the Funds may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for one or more of
the Funds; (5) descriptions of investment strategies for one or more of the
Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities and municipal bonds and notes are
generally traded at a net price with dealers acting as principal for their own
accounts without a stated commission. The price of the security usually includes
profit to the dealers. In underwritten offerings, securities are purchased at a
fixed price which includes an amount of compensation to the underwriter,
generally referred to as the underwriter's concession or discount. On occasion,
certain securities may be purchased directly from an issuer, in which case no
commissions or discounts are paid. The Advisor intends to seek best execution on
a competitive basis for both purchases and sales of securities.
In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. he
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 corresponding to the Funds paid the following
approximate brokerage commissions for the indicated periods:
Disciplined Equity For the period December 30, 1996 (commencement of
operations) through May 31, 1997: $25,351. For the fiscal year ended May 31,
1998 and 1999: $175,629 and $504,145, respectively.
U.S. Equity - For the fiscal years ended May 31, 1997, 1998 and 1999:
$1,594,078; $1,614,293 and $1,163,432, respectively.
U.S. Small Company for the fiscal years ended May 31, 1997, 1998 and 1999:
$2,174,321, $1,662,968 and $979,033, respectively.
U.S. Small Company Opportunities For the period June 16, 1997 (commencement
of operations) through May 31, 1998: $126,261. For the fiscal year ended May 31,
1999: $93,960.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. Under the 1940 Act, persons
affiliated with the Portfolio and persons who are affiliated with such persons
are prohibited from dealing with the Portfolio as principal in the purchase and
sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. However, affiliated persons of the Portfolio may serve as
its broker in listed or over-the-counter transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Portfolio may no purchase securities during the existence of
any underwriting syndicate for such securities of which Morgan or an affiliate
is a member or in a private placement in which Morgan or an affiliate serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Portfolio that either comply with rules adopted by the SEC or with
interpretations of the SEC's staff.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of 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 October 10, 1996, the name of the Trust was changed from "The
Pierpont Funds" to "The JPM Pierpont Funds," and each Fund's name changed
accordingly. Effective May 12, 1997, the name of the U.S. Equity Fund was
changed from "The JPM Pierpont Equity Fund" to "The JPM Pierpont U.S. Equity
Fund", and the Fund's corresponding Portfolio changed its name accordingly.
Effective May 12, 1997, the name of the U.S. Small Company Fund was changed from
"The JPM Pierpont Capital Appreciation Fund" to "The JPM Pierpont U.S. Small
Company Fund". Effective January 1, 1998, the name of the Trust was changed from
"The JPM Pierpont Funds" to "J.P. Morgan Funds", and each Fund's name changed
accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, Member of the Advisory Board, officer, employee or
agent of a Fund is liable to a Fund or to a shareholder, and that no Trustee,
Member of the Advisory Board, officer, employee, or agent is liable to any third
persons in connection with the affairs of 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, Member of the
Advisory Board, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as a
Massachusetts business trust in which each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to one full or fractional
vote for each dollar or fraction of a dollar invested. Subject to the 1940 Act,
the Trustees themselves have the power to alter the number and the terms of
office of the Trustees, to lengthen their own terms, or to make their terms of
unlimited duration subject to certain removal procedures, and appoint their own
successors, provided, however, that immediately after such appointment the
requisite majority of the Trustees have been elected by the shareholders of the
Trust. The voting rights of shareholders are not cumulative so that holders of
more than 50% of the shares voting can, if they choose, elect all Trustees being
selected while the shareholders of the remaining shares would be unable to elect
any Trustees. It is the intention of the Trust not to hold meetings of
shareholders annually. The Trustees may call meetings of shareholders for action
by shareholder vote as may be required by either the 1940 Act or the Trust's
Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 18 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares".
As of January 31, 2000, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:
Disciplined Equity Fund - Centurion Trust Company FBO Omnibus/Centurion
Capital Management (21.72%); Charles Schwab & Co. Inc. Special Custody Account
for Benefit of Customers (19.21%); National Financial Services Corp. for the
exclusive benefit of Customers (15.76%); Gardner Denver Inc. (11.80%).
U.S. Equity Fund -- Forest Laboratories Inc. Savings and Profit Sharing
Plan (9.64%).
U.S. Small Company Fund -- Forest Laboratories Inc. (8.98%); and Smith
Barney Inc. Book Entry Account (9.01%).
The address of each owner listed above is c/o JPMIM, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers, Trustees and Members of the Advisory Board as a group
owned less than 1% of the shares of each Fund.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally when a corresponding Master Portfolio seeks a vote to change a
fundamental investment restriction, its feeder fund(s) will hold a shareholder
meeting and cast its vote proportionately, as instructed by its shareholders.
The shareholders of the Trust are entitled to a full or fractional vote for each
dollar or fraction of a dollar invested.
In addition to selling a beneficial interest to a Fund, a Portfolio may
sell beneficial interests to other mutual funds or institutional investors. Such
investors will invest in the Portfolio on the same terms and conditions and will
bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in each Fund's Prospectus.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in a
Portfolio's investment restriction, may require withdrawal of a Fund's interest
in the Portfolio. Any such withdrawal could result in a distribution in-kind of
portfolio securities (as opposed to a cash distribution) from a Portfolio which
may or may not be readily marketable. The distribution in-kind may result in a
Fund having a less diversified portfolio of investments or adversely affect a
Fund's liquidity, and a Fund could incur brokerage, tax or other charges in
converting the securities to cash. Notwithstanding the above, there are other
means for meeting shareholder redemption requests, such as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in a Portfolio. For example, if a large
fund withdraws from a Portfolio, the remaining funds may subsequently experience
higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in a Portfolio could have effective voting control
of the operations of a Portfolio. Whenever a Fund is requested to vote on
matters pertaining to its corresponding Portfolio (other than a vote by a Fund
to continue the operation of its corresponding Portfolio upon the withdrawal of
another investor in a Portfolio), the Trust will hold a meeting of shareholders
of a Fund and will cast all of its votes proportionately as instructed by a
Fund's shareholders. The Trust will vote the shares held by Fund shareholders
who do not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of a Fund who do not
vote will have no effect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
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
(other than exempt interest dividends) are generally taxable to shareholders of
the Funds as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. The Funds expect that a portion of these
distributions to corporate shareholders will be eligible for the
dividends-received deduction, subject to applicable limitations under the Code.
If dividend payments exceed income earned by a Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Funds
intend to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put option is acquired or a call option
is written thereon or the straddle rules described below are otherwise
applicable. Other gains or losses on the sale of securities will be short-term
capital gains or losses. Gains and losses on the sale, lapse or other
termination of options on securities will be treated as gains and losses from
the sale of securities. Except as described below, if an option written by 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 consider the consequences of
purchasing shares in a Fund shortly before the Fund declares a sizable dividend
distribution.
For federal income tax purposes, the U.S. Small Company Fund had a
capital loss carryforward at May 31, 1999 of $14,416,582, all of which expire in
the year 2007. The U.S. Small Company Opportunities Fund had a capital loss
carryforward at May 31, 1999 of $14,885,080, all of which expire in the year
2007. To the extent that this capital loss is used to offset future capital
gains, it is probable that gains to offset will not be distributed to
shareholders.
Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. In addition, no loss will be allowed on the
redemption or exchange of shares of the Fund, if within a period beginning 30
days before the date of such redemption or exchange and ending 30 days after
such date, the shareholder acquires (such as through dividend reinvestment)
securities that are substantially identical to shares of the Fund. Investors are
urged to consult their tax advisors concerning the limitations on the
deductibility of capital losses.
Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.
Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.
Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.
The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.
The Portfolios will be permitted to "mark to market" any marketable
stock held by a Portfolio in a PFIC. If a Portfolio made such an election, the
corresponding Fund would include in income each year an amount equal to its
share of the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the adjusted basis of such stock. The Fund
would be allowed a deduction for its share of the excess, if any, of the
adjusted basis of the PFIC stock over its fair market value as of the close of
the taxable year, but only to the extent of any net mark-to-market gains with
respect to the stock included by the Fund for prior taxable years.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, a Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 (or any successor form) is
provided. Transfers by gift of shares of a Fund by a foreign shareholder who is
a nonresident alien individual will not be subject to U.S. federal gift tax, but
the value of shares of the Fund held by such a shareholder at his or her death
will be includible in his or her gross estate for U.S. federal estate tax
purposes.
Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries.
State and Local Taxes. Each Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of a Fund and its shareholders in those states which have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of a Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares or
the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the Portfolios'
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.
No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements of the Funds and the report thereon
of PricewaterhouseCoopers LLP are incorporated herein by reference from their
respective annual report filings made with the SEC pursuant to Section 30(b) of
the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial reports
are available without charge upon request by calling J.P. Morgan Funds Services
at (800) 521-5411. Each Fund's financial statements include the financial
statements of the Fund's corresponding Portfolio.
<TABLE>
<CAPTION>
<S> <C> <C>
- ----------------------------------------- ------------------------------------- -------------------------------------
Date of Annual Report; Date of Annual Report;
Name of Fund Date Annual Report Filed; Accession Date Annual Report Filed; Accession
Number Number
- ----------------------------------------- ------------------------------------- -------------------------------------
- ----------------------------------------- ------------------------------------- -------------------------------------
J.P. Morgan Disciplined Equity Fund 5/31/99; 11/30/99;
8/11/99; 2/07/00;
0001047469-99-031147 00009125057-00-004068
- ----------------------------------------- ------------------------------------- -------------------------------------
- ----------------------------------------- ------------------------------------- -------------------------------------
J.P. Morgan U.S. Equity Fund 5/31/99; 11/30/99;
9/10/99; 2/03/00;
0001047469-99-035303 00009125057-00-003648
- ----------------------------------------- ------------------------------------- -------------------------------------
- ----------------------------------------- ------------------------------------- -------------------------------------
J.P. Morgan U.S. Small Company Fund 5/31/99; 11/30/99;
8/4/99; 2/03/00;
0001047469-99-029676 0000912057-00-003643
- ----------------------------------------- ------------------------------------- -------------------------------------
- ----------------------------------------- ------------------------------------- -------------------------------------
J.P. Morgan U.S. Small Company 5/31/99; 11/30/99;
Opportunities Fund 8/10/99; 1/31/00;
0001047469-99-030639 0000912057-00-002996
- ----------------------------------------- ------------------------------------- -------------------------------------
</TABLE>
<PAGE>
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small degree.
A - Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt in
higher rated categories.
BB - Debt rated BB are regarded as having less near-term vulnerability to
default than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments.
B - An obligation rated B is more vulnerable to nonpayment than
obligations rated BB, but the obligor currently has the capacity to
meet its financial commitment on the obligation. Adverse business,
financial, or economic conditions will likely impair the obligor's
capacity or willingness to meet its financial commitment on the
obligation.
CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is
dependent upon favorable business, financial, and economic conditions
for the obligor to meet its financial commitment on the obligation. In
the event of adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitment on the obligation.
CC - An obligation rated CC is currently highly vulnerable to nonpayment.
C - The C rating may be used to cover a situation where a bankruptcy
petition has been filed or similar action has been taken, but payments
on this obligation are being continued.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest
rating assigned by Standard & Poor's and has a very strong or
strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are
given a "plus" (+) designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred
to as "gilt edge." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be
visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities
or fluctuation of protective elements may be of greater amplitude or
there may be other elements present which make the long term risks
appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics
as well.
Ba - Bonds which are rated Ba are judged to have speculative elements;
their future cannot be considered as well-assured. Often the protection
of interest and principal payments may be very moderate, and thereby
not well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds and
issues so rated can be regarded as having extremely poor prospects of
ever attaining any real investment standing.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance
on debt and ample asset
protection.
- Broad margins in earnings coverage of fixed financial charges
and high internal cash generation.
- Well established access to a range of financial markets
and assured sources of alternate
liquidity.
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest
rating assigned by Moody's for notes judged to be the best
quality. Notes with this rating enjoy strong protection from
established cash flows of funds for their servicing or from
established and broad-based access to the market for
refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of
protection not as large as MIG-1.
- --------
1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.
* Performance for the period 1/3/97 through 12/31/97 is of the J.P. Morgan
Institutional Disciplined Equity Fund, a separate investor in The Disciplined
Equity Portfolio. The J.P. Morgan Institutional Disciplined Equity Fund has a
lower expense ratio the Disciplined Equity Fund and therefore the performance
shown would have been less had an investment been made in the Disciplined Equity
Fund for this period.
<PAGE>
PART C
ITEM 23. EXHIBITS.
(a) Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 26 to the Registration Statement filed on September
27, 1996 (Accession Number 0000912057-96-021331).
(a)1 Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest.*
(a)2 Amendment No. 6 to Declaration of Trust; Amendment and Sixth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(b) to Post-Effective Amendment No. 32 to the
Registration Statement on February 28, 1997 (Accession Number
0001016964-97-000038).
(a)3 Amendment No. 7 to Declaration of Trust; Amendment and Seventh Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(c) to Post-Effective Amendment No. 34 to the
Registration Statement on April 30, 1997 (Accession Number
0001019694-97-000063).
(a)4 Amendment No. 8 to Declaration of Trust; Amendment and Eighth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(d) to Post-Effective Amendment No. 41 to the
Registration Statement on October 21, 1997 (Accession Number
0001042058-97-000006).
(a)5 Amendment No. 9 to Declaration of Trust; Amendment and Ninth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(e) to Post-Effective Amendment No. 45 to the
Registration Statement on December 29, 1997 (Accession Number
0001041455-97-000013).
(a)6 Amendment No. 10 to Declaration of Trust; Amendment and Tenth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest and change voting procedures to dollar-based voting was filed as
Exhibit No. (a)6 to Post-Effective Amendment No. 59 to the Registration
Statement on December 31, 1998 (Accession Number 0001041455-98-000098).
(b) Restated By-Laws of Registrant.*
(b)(1) Amendment to Restated By-Laws of Registrant (filed herewith)
(e) Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*
(g)1 Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*
(g)2 Custodian Contract between Registrant and
The Bank of New York (filed herewith).
(h)1 Co-Administration Agreement between Registrant and FDI.*
(h)2 Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") filed as Exhibit (h)2 to
Post-Effective Amendment No. 53 to the Registration Statement on August 25, 1998
(Accession No. 0001041455-98-000052).
(h)3 Transfer Agency and Service Agreement between Registrant and State
Street.*
(h)4 Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*
(h)5 Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*
(i) Opinion and consent of Sullivan & Cromwell.*
(j) Consent of independent accountants (filed herewith).
(l) Purchase agreements with respect to Registrant's initial shares.*
(n) Financial Data Schedules (not applicable).
(p) Code of Ethics (to be filed by amendment).
------------------------ * Incorporated herein by reference to
Post-Effective Amendment No. 30 to the Registration Statement filed on December
27, 1996 (Accession Number 0001016964-96-000066).
ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.
Not applicable.
ITEM 25. INDEMNIFICATION.
Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.
Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or proceedings,
and certain liabilities that might be imposed as a result of such actions, suits
or proceedings.
Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suite or proceeding) is asserted against the Registrant by such
director, trustee, officer or controlling person or principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.
ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Not Applicable.
ITEM 27. PRINCIPAL UNDERWRITERS.
(a) Funds Distributor, Inc. (the "Distributor") is the principal
underwriter of the Registrant's shares.
Funds Distributor, Inc. acts as principal underwriter for the following
investment companies other than the Registrant:
American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Series Trust
J.P. Morgan Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.
Funds Distributor, Inc. does not act as depositor or investment adviser to
any of the investment companies.
Funds Distributor, Inc. is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Funds Distributor, Inc. is located at 60 State Street, Suite
1300, Boston, Massachusetts 02109. Funds Distributor, Inc. is an indirect
wholly-owned subsidiary of Boston Institutional Group, Inc., a holding company
all of whose outstanding shares are owned by key employees.
(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.:
Director, President and Chief Executive Officer: Marie E. Connolly
Executive Vice President: George Rio
Executive Vice President: Donald R. Roberson
Executive Vice President: William S. Nichols
Senior Vice President: Michael S. Petrucelli
Director, Senior Vice President, Treasurer and
Chief Financial Officer: Joseph F. Tower, III
Senior Vice President: Paula R. David
Senior Vice President: Allen B. Closser
Senior Vice President: Bernard A. Whalen
Director: William J. Nutt
(c) Not applicable.
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).
MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent and administrative services agent).
STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 and 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(records relating to its functions as fund accountant, custodian, transfer agent
and dividend disbursing agent).
THE BANK OF NEW YORK: 1 Wall Street New York, New York 10086, (records
relating to its functions as fund accountant and custodian).
FUNDS DISTRIBUTOR, INC.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and co-administrator).
ITEM 29. MANAGEMENT SERVICES.
Not Applicable.
ITEM 30. UNDERTAKINGS.
(a) If the information called for by Item 5A of Form N-1A is contained in the
latest annual report to shareholders, the Registrant shall furnish each person
to whom a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.
(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act as
though such provisions of the 1940 Act were applicable to the Registrant, except
that the request referred to in the third full paragraph thereof may only be
made by shareholders who hold in the aggregate at least 10% of the outstanding
shares of the Registrant, regardless of the net asset value of shares held by
such requesting shareholders.
<PAGE>
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of New York and State of New York on the 28th day of February, 2000.
J.P. Morgan Funds, The Federal Money Market Portfolio, The Short Term Bond
Portfolio, The U.S. Fixed Income Portfolio, The International Equity Portfolio,
The Emerging Markets Equity Portfolio, The Global Strategic Income Portfolio,
The Prime Money Market Portfolio, The Tax Exempt Money Market Portfolio, The
Institutional European Equity Portfolio, and The International Opportunities
Portfolio
By /s/ Stephanie D. Pierce
-----------------------------
Stephanie D. Pierce
Vice President and Assistant Secretary
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on February 28, 2000.
George Rio*
- ------------------------------
George Rio
President and Treasurer
Officer of the Portfolios
Matthew Healey*
- -----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)
Frederick S. Addy*
- ------------------------------
Frederick S. Addy
Trustee
William G. Burns*
- ------------------------------
William G. Burns
Trustee
Arthur C. Eschenlauer*
- ------------------------------
Arthur C. Eschenlauer
Trustee
Michael P. Mallardi*
- ------------------------------
Michael P. Mallardi
Trustee
*By /s/ Stephanie D. Pierce
----------------------------
Stephanie D. Pierce
as attorney-in-fact pursuant to a power of attorney.
<PAGE>
INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
- ------------- ------------------------
EX-99.(b)(1) Amendment to Restated By-laws
EX-99.(g) Custodian Agreement
EX-99.(j) Consent of Independent Accountants
JPM345A
AMENDED AND RESTATED BY-LAWS
OF
EACH MASTER TRUST LISTED ON SCHEDULE I
AND
EACH FEEDER TRUST LISTED ON SCHEDULE II
AND
EACH STAND ALONE TRUST LISTED ON SCHEDULE III
ARTICLE I
DEFINITIONS
Each Trust listed on Schedule I is referred to in these By-Laws as a
"Master Trust". Each Trust listed on Schedule II is referred to in these By-Laws
as a "Feeder Trust". Each Trust listed on Schedule III is referred to in these
By-Laws as a "Stand Alone Trust".
In the case of each Trust, unless otherwise specified, capitalized
terms have the respective meanings given them in the Declaration of Trust of
such Trust dated as of the date set forth in Schedule I, II or III, as amended
from time to time. In the case of each Feeder Trust and each Stand Alone Trust,
the term "Holder" has the meaning given the term "Shareholder" in the respective
Declarations of Trust.
ARTICLE II
OFFICES
Section 1. Principal Office. In the case of each Master Trust, the
principal office of the Trust shall be in such place as the Trustees may
determine from time to time, provided that the principal office shall be outside
the United States of America if the Trustees determine that the Trust is
intended to be operated so that it is not engaged in United States trade or
business for United States federal income tax purposes. In the case of each
Feeder Trust and each Stand Alone Trust, until changed by the Trustees, the
principal office of the Trust in the Commonwealth of Massachusetts shall be in
the City of Boston, County of Suffolk.
Section 2. Other Offices. The Trust may have offices in such other
places without as well as within the state of its organization and the United
States of America as the Trustees may from time to time determine.
ARTICLE III
HOLDERS
Section 1. Meetings of Holders. Meetings of Holders may be called at
any time by a majority of the Trustees and shall be called by any Trustee upon
written request of Holders holding, in the aggregate, not less than 10% of the
Interests in the case of each Master Trust or 10% of the voting securities
entitled to vote thereat in the case of each Feeder Trust and each Stand Alone
Trust, such request specifying the purpose or purposes for which such meeting is
to be called.
Any such meeting shall be held within or without the state of
organization of the Trust and within, or, if applicable, in the case of a Master
Trust only without, the United States of America on such day
<PAGE>
and at such time as
the Trustees shall designate. Holders of one third of the Interests in the case
of each Master Trust or one third of the voting securities entitled to vote
thereat in the case of each Feeder Trust and each Stand Alone Trust, present in
person or by proxy, shall constitute a quorum for the transaction of any
business, except as may otherwise be required by the 1940 Act, other applicable
law, the Declaration or these By-Laws. If a quorum is present at a meeting, an
affirmative vote of the Holders present in person or by proxy, holding more than
50% of the total Interests in the case of each Master Trust, or 50% of the
voting securities entitled to vote thereat in the case of each Feeder Trust and
each Stand Alone Trust, present, either in person or by proxy, at such meeting
constitutes the action of the Holders, unless a greater number of affirmative
votes is required by the 1940 Act, other applicable law, the Declaration or
these By-Laws.
All or any one or more Holders may participate in a meeting of Holders
by means of a conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
participation in a meeting by means of such communications equipment shall
constitute presence in person at such meeting.
In the case of The Series Portfolio or any Feeder Trust or any Stand
Alone Trust, whenever a matter is required to be voted by Holders of the Trust
in the aggregate under Section 9.1 and Section 9.2 of the Declaration of The
Series Portfolio or Section 6.8 and Section 6.9 and Section 6.9(g) of the
Declaration of the Feeder Trust and the Stand Alone Trust, the Trust may either
hold a meeting of Holders of all series, as defined in Section 1.2 of the
Declaration of The Series Portfolio or Section 6.9 of the Declaration of the
Feeder Trust and the Stand Alone Trust, to vote on such matter, or hold separate
meetings of Holders of each of the individual series to vote on such matter,
provided that (i) such separate meetings shall be held within one year of each
other, (ii) a quorum consisting of the Holders of one third of the voting
securities of the individual series entitled to vote shall be present at each
such separate meeting except as may otherwise be required by the 1940 Act, other
applicable law, the Declaration or these By-Laws and (iii) a quorum consisting
of the Holders of one third of all voting securities of the Trust entitled to
vote, except as may otherwise be required by the 1940 Act, other applicable law,
the Declaration or these By-Laws, shall be present in the aggregate at such
separate meetings, and the votes of Holders at all such separate meetings shall
be aggregated in order to determine if sufficient votes have been cast for such
matter to be voted.
Section 2. Notice of Meetings. Notice of each meeting of Holders,
stating the time, place and purpose of the meeting, shall be given by the
Trustees by mail to each Holder, at its registered address, mailed at least 10
days and not more than 60 days before the meeting. Notice of any meeting may be
waived in writing by any Holder either before or after such meeting. The
attendance of a Holder at a meeting shall constitute a waiver of notice of such
meeting except in the situation in which a Holder attends a meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting was not lawfully called or convened. At any meeting, any
business properly before the meeting may be considered whether or not stated in
the notice of the meeting. Any adjourned meeting may be held as adjourned
without further notice.
In the case of The Series Portfolio and each Feeder Trust and each
Stand Alone Trust, where separate meetings are held for Holders of each of the
individual series to vote on a matter required to be voted on by
2
<PAGE>
Holders of the
Trust in the aggregate, as provided in Article III, Section 1 above, notice of
each such separate meeting shall be provided in the manner described above in
this Section 2.
Section 3. Record Date for Meetings. For the purpose of determining the
Holders who are entitled to notice of and to vote at any meeting, the Trustees
may from time to time fix a date, not more than 90 days prior to the date of any
meeting of Holders as a record date for the determination of the Persons to be
treated as Holders for such purpose.
In the case of The Series Portfolio and each Feeder Trust and each
Stand Alone Trust, where separate meetings are held for Holders of each of the
individual series to vote on a matter required to be voted on by Holders of the
Trust in the aggregate, as provided in Article III, Section 1 above, the record
date of each such separate meeting shall be determined in the manner described
above in this Section 3.
Section 4. Voting, Proxies, Inspectors of Election. At any meeting of
Holders, any Holder entitled to vote thereat may vote by proxy, provided that no
proxy shall be voted at any meeting unless it shall have been placed on file
with the Secretary, or with such other officer or agent of the Trust as the
Secretary may direct, for verification prior to the time at which such vote is
to be taken. A proxy may be revoked by a Holder at any time before it has been
exercised by placing on file with the Secretary, or with such other officer or
agent of the Trust as the Secretary may direct, a later dated proxy or written
revocation. Pursuant to a resolution of a majority of the Trustees, proxies may
be solicited in the name of the Trust or of one or more Trustees or of one or
more officers of the Trust. No proxy shall be valid after one year from the date
of its execution, unless a longer period is expressly stated in the proxy.
In the case of each Master Trust, only Holders on the record date shall
be entitled to vote and each such Holder shall be entitled to a vote
proportionate to its Interest. In the case of each Feeder Trust, (i) only
Holders on the record date shall be entitled to vote, and (ii) each whole Share
shall be entitled to vote as to any matter on which it is entitled to vote and
each fractional Share shall be entitled to a proportionate fractional vote,
except that Shares held in the treasury of the Trust shall not be voted. In the
case of each Stand Alone Trust, unless the Trustees determine that each Share
will entitle Holders to one vote per Share, on any matter submitted to a vote of
Holders of Shares of any series or class thereof, if any, each dollar of net
asset value (number of Shares owned times net asset value per Share of such
series or class, as applicable) shall be entitled to one vote on any matter on
which such shares are entitled to vote and each fractional dollar amount shall
be entitled to a proportionate fractional vote, except that Shares held in the
treasury of the Trust shall not be voted. In the case of each Feeder Trust and
each Stand Alone Trust, (i) Shares shall be voted by individual series or
classes thereof, if any, on any matter submitted to a vote of the Holders of the
Trust except as provided in Section 6.9(g) of the Declaration, and (ii) at any
meeting of Holders of the Trust or of any series or class thereof, if any, a
Shareholder Servicing Agent may vote any Shares as to which such Shareholder
Servicing Agent is the agent of record.
The Chairman of the meeting may, and upon the request of the Holders of
10% of the Interests or Shares, as the case may be, entitled to vote at such
election shall, appoint one or three inspectors of election who shall first
subscribe an oath or affirmation to execute faithfully the duties of inspectors
at such election with strict impartiality and according to the best of their
ability, and shall after
3
<PAGE>
the election certify the result of the vote taken. No
candidate for Trustee shall be appointed such inspector. If there are three
inspectors of election, the decision, act or certification of a majority is
effective in all respects as the decision, act or certificate of all.
At every meeting of the Holders, all proxies shall be required and
taken in charge of and all ballots shall be required and canvassed by the
Secretary of the meeting, who shall decide all questions touching the
qualification of voters, the validity of the proxies, the acceptance or
rejection of votes and any other questions related to the conduct of the vote
with fairness to all Holders, unless inspectors of election shall have been
appointed, in which event the inspectors of election shall decide all such
questions. On request of the Chairman of the meeting, or of any Holder or his
proxy, the Secretary shall make a report in writing of any question determined
and shall execute a certificate of facts found, unless inspectors of election
shall have been appointed, in which event the inspectors of election shall do
so.
When an Interest is held or Shares are held jointly by several Persons,
any one of them may vote at any meeting in person or by proxy in respect of such
Interest or Shares, but if more than one of them is present at such meeting in
person or by proxy, and such joint owners or their proxies so present disagree
as to any vote to be cast, such vote shall not be received in respect of such
Interest or Shares. A proxy purporting to be executed by or on behalf of a
Holder shall be deemed valid unless challenged at or prior to its exercise, and
the burden of proving invalidity shall rest on the challenger.
Section 5. Holder Action by Written Consent. In the case of each Master
Trust, any action which may be taken by Holders may be taken without a meeting
if Holders of all Interests entitled to vote consent to the action in writing
and the written consents are filed with the records of the meetings of Holders.
In the case of each Feeder Trust and each Stand Alone Trust, any action which
may be taken by Holders may be taken without a meeting if Holders holding a
majority of Shares entitled to vote on the matter (or such larger proportion
thereof as shall be required by law, the Declaration or these By-Laws for
approval of such matter) consent to the action in writing and the written
consents are filed with the records of the meetings of Holders.
Such consents shall be treated for all purposes as a vote taken at a
meeting of Holders. Each such written consent shall be executed by or on behalf
of the Holder delivering such consent and shall bear the date of such execution.
No such written consent shall be effective to take the action referred to
therein unless, within one year of the earliest dated consent, written consents
executed by a sufficient number of Holders to take such action are filed with
the records of the meetings of Holders.
Section 6. Conduct of Meetings. The meetings of the Holders shall be
presided over by the Chairman, or if he is not present, by a Chairman to be
elected at the meeting. The Secretary of the Trust, if present, shall act as
secretary of such meetings, or if he is not present, an Assistant Secretary
shall so act; if neither the Secretary nor any Assistant Secretary is present,
then the meeting shall elect its secretary
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ARTICLE IV
TRUSTEES
Section 1. Place of Meeting, etc. The Trustees may hold their meetings,
have one or more offices, and keep the books of the Trust, inside or outside the
state of organization of the Trust or the United States of America, at any
office of the Trust or at any other place as they may from time to time
determine, or in the case of meetings, as they may from time to time determine
or as shall be specified or fixed in the respective notices or waivers of notice
thereof.
Section 2. Meetings. Meetings of the Trustees shall be held from time
to time upon the call of the Chairman or any two Trustees. The President, the
Secretary or an Assistant Secretary may call meetings only upon the written
direction of the Chairman or two Trustees. The Trustees shall hold an annual
meeting for the election of officers and transaction of other business which may
come before such meeting. Regular meetings of the Trustees may be held without
call or notice at a time and place fixed by resolution of the Trustees. Notice
of any other meeting shall be mailed or otherwise given not less than 24 hours
before the meeting but may be waived in writing by any Trustee either before or
after such meeting. Notice shall be given of any proposed action to be taken by
written consent. Notice of a meeting or proposed action to be taken by written
consent may be given by telegram (which term shall include a cablegram), by
telecopier or delivered personally (which term shall include by telephone), as
well as by mail. The attendance of a Trustee at a meeting shall constitute a
waiver of notice of such meeting except in the situation in which a Trustee
attends a meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting was not lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any meeting of the
Trustees need be stated in the notice or waiver of notice of such meeting.
Section 3. Quorum. A quorum for all meetings of the Trustees shall be a
majority of the Trustees. Unless provided otherwise in the Declaration, the 1940
Act or other applicable law, any action of the Trustees may be taken at a
meeting by vote of a majority of the Trustees present (a quorum being present).
In the absence of a quorum, a majority of the Trustees present may adjourn the
meeting from time to time until a quorum shall be present. Notice of an
adjourned meeting need not be given.
With respect to actions of the Trustees, Trustees who are Interested
Persons of the Trust or otherwise interested in any action to be taken may be
counted for quorum purposes and shall be entitled to vote to the extent
permitted by the 1940 Act.
Section 4. Committees. The Trustees, by the majority vote of all the
Trustees then in office, may appoint from the Trustees committees which shall in
each case consist of such number of Trustees (not less than two) and shall have
and may exercise such powers as the Trustees may determine in the resolution
appointing them. Unless provided otherwise in the Declaration or by the
Trustees, a majority of all the members of any such committee may determine its
actions and fix the time and place of its meetings. With respect to actions of
any committee, Trustees who are Interested Persons of the Trust or otherwise
interested in any action to be taken may be counted for quorum purposes and
shall be entitled to vote to the extent permitted by the 1940 Act. The Trustees
shall have power at any time to change the members and powers of any such
committee, to fill vacancies and to discharge any such committee. Each committee
5
<PAGE>
shall keep regular minutes of its meetings and cause them to be filed with the
minutes of the proceedings of the Trustees.
Section 5. Telephone Meetings. All or any one or more Trustees may
participate in a meeting of the Trustees or any committee thereof by means of a
conference telephone or similar communications equipment by means of which all
individuals participating in the meeting can hear each other, and participating
in a meeting by means of such communications equipment shall constitute presence
in person at such meeting. Any conference telephone meeting shall be deemed to
have been held at a place designated by the Trustees at the meeting.
Section 6. Action without a Meeting. Any action required or permitted
to be taken at any meeting of the Trustees or any committee thereof may be taken
without a meeting, if a written consent to such action is signed either by all
the Trustees or all members of such committee then in office or by an 80%
majority of the Trustees or an 80% majority of members of such committee,
provided that no action by 80% majority consent shall be effective unless and
until (i) each Trustee or committee member signing such consent shall have been
advised in writing of the following information: the identity of any Trustee or
committee member not signing such consent and the reasons for his not signing;
and (ii) after receiving such information signing Trustees or committee members
who represent an 80% majority then in office indicate in writing that the
consent shall become effective by 80% majority, rather than unanimous, consent.
All such effective written consents shall be filed with the minutes of the
proceedings of the Trustees and treated as a vote for all purposes.
Section 7. Compensation. The Trustees shall be entitled to receive
such compensation from the Trust for their services as may from time to time
be voted by the Trustees.
Section 8. Chairman. The Trustees may, by a majority vote of all the
Trustees, elect from their own number a Chairman, to serve until his successor
shall have been duly elected and qualified; the Chairman may serve on committees
of the Trustees. The Chairman shall not be an officer of the Trust solely by
virtue of his serving as Chairman. The Chairman shall preside at all meetings of
the Trustees at which he is present, shall serve as the liaison between the
Trustees and the officers of the Trust and between the Trustees and their staff
and shall have such other duties as from time to time may be assigned to him by
the Trustees.
Section 9. Trustees' Staff; Counsel for the Trust and Trustees, etc.
The Trustees may employ or contract with one or more Persons to serve as their
staff and to provide such services related thereto as may be determined from
time to time. The Trustees may employ attorneys as counsel for the Trust and/or
the Trustees and may engage such other experts or consultants as may be
determined from time to time.
Section 10.Advisory Boards; The Trustees may from time to time establish an
advisory board and appoint a member or members thereof. Each member shall serve
at the pleasure of the Trustees. Any advisory board shall be distinct from the
Board of Trustees and shall provide advise as to investments, management and
operations of the Trust and such other roles as may be designed by the Trustees,
but shall have no power to determine that any security or other investment shall
be purchased or sold by any Fund, to conduct any business of the Trust, or to
vote upon any matter put to a vote of the Trustees. Each advisory board member
may be indemnified in respect of claims arising in connection with his or her
services as such, in accordance with the indemnification provisions of the
Trust's Declaration of Trust and By-Laws, as then in effect with respect to the
Trustees. Any member of an advisory board shall be compensated in accordance
with policies in respect thereof adopted b the Trustees. Service by a person on
an advisory board shall not preclude such person's subsequent service as an
Independent Trustee.
ARTICLE V
OFFICERS
Section 1. General Provisions. The Trustees may elect or appoint such
officers or agents as the business of the Trust may require, including without
limitation a Chief Executive Officer, a President, one or more Vice Presidents,
a Treasurer, a Secretary, one or more Assistant Treasurers and one or more
Assistant Secretaries. The Trustees may delegate to any officer or committee the
power to appoint any subordinate officers or agents.
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Section 2. Term of Office and Qualifications. Except as otherwise
provided by law, the Declaration or these ByLaws, each of the principal
executive officer described in Section 4 below, the Treasurer and the Secretary
shall hold office until a successor shall have been duly elected and qualified,
and any other officers shall hold office at the pleasure of the Trustees. Any
two or more offices may be held by the same Person, provided that at least two
different individuals shall serve as officers. Any officer may be, but does not
need be, a Trustee.
Section 3. Removal. The Trustees may remove any officer with or without
cause by a vote of a majority of the Trustees. Any subordinate officer or agent
appointed by any officer or committee may be removed with or without cause by
such appointing officer or committee.
Section 4. Powers and Duties of the Chief Executive Officer; President.
The Chief Executive Officer, if any, shall be the principal executive officer of
the Trust. Subject to the control of the Trustees, the Chief Executive Officer
shall (i) at all times exercise general supervision and direction over the
affairs of the Trust, (ii) have the power to grant, issue, execute or sign such
documents as may be deemed advisable or necessary in the ordinary course of the
Trust's business and (iii) have such other powers and duties as from time to
time may be assigned by the Trustees.
If there is no Chief Executive Officer, the President shall be the
principal executive officer of the Trust and shall have the powers and duties
set forth above in this Section 4. If there is a Chief Executive Officer and a
President, the President shall have such powers and duties as from time to time
may be assigned by the Trustees or the Chief Executive Officer.
Section 5. Powers and Duties of Vice Presidents. In the absence or
disability of the President, any Vice President designated by the Trustees or
the President shall perform all the duties, and may exercise any of the powers,
of the President. Each Vice President shall perform such other duties as from
time to time may be assigned to him by the Trustees or the Chief Executive
Officer.
Section 6. Powers and Duties of the Treasurer. The Treasurer shall be
the principal financial and accounting officer of the Trust. The Treasurer shall
deliver all funds of the Trust which may come into his hands to the Trust's
custodian. The Treasurer shall render a statement of condition of the finances
of the Trust to the Trustees as often as they shall require the same and shall
in general perform all the duties incident to the office of Treasurer and such
other duties as from time to time may be assigned to him by the Trustees.
Section 7. Powers and Duties of the Secretary. The Secretary shall keep
the minutes of all meetings of the Holders in proper books provided for that
purpose; shall keep the minutes of all meetings of the Trustees; shall have
custody of the seal of the Trust, if any; and shall have charge of the Holder
lists and records unless the same are in the charge of the Transfer Agent. The
Secretary shall attend to the giving and serving of notices by the Trust in
accordance with the provisions of these By-Laws and as required by law; and
subject to these By-Laws, shall in general perform all the duties incident to
the office of Secretary and such other duties as from time to time may be
assigned to him by the Trustees.
Section 8. Powers and Duties of Assistant Treasurers. In the absence or
disability of the Treasurer, any Assistant Treasurer designated by the Trustees
shall perform all the duties, and may exercise
7
<PAGE>
any of the powers, of the Treasurer. Each Assistant Treasurer shall perform such
other duties as from time to time may be assigned to him by the Trustees.
Section 9. Powers and Duties of Assistant Secretaries. In the absence
or disability of the Secretary, any Assistant Secretary designated by the
Trustees shall perform all of the duties, and may exercise any of the powers, of
the Secretary. Each Assistant Secretary shall perform such other duties as from
time to time may be assigned to him by the Trustees.
Section 10. Compensation of Officers. Subject to any applicable law or
provision of the Declaration, any compensation of any officer may be fixed from
time to time by the Trustees. No officer shall be prevented from receiving any
such compensation as such officer by reason of the fact that he is also a
Trustee. If no such compensation is fixed for any officer, such officer shall
not be entitled to receive any compensation from the Trust.
Section 11. Bond and Surety. As provided in the Declaration, any
officer may be required by the Trustees to be bonded for the faithful
performance of his duties in the amount and with such sureties as the Trustees
may determine.
ARTICLE VI
SEAL
The Trustees may adopt a seal which shall be in such form and shall
have such inscription thereon as the Trustees may from time to time prescribe.
ARTICLE VII
FISCAL YEAR
The Trust may have different fiscal years for its separate and distinct
series, if applicable. The fiscal year(s) of the Trust shall be determined by
the Trustees, provided that the Trustees (or the Treasurer subject to
ratification by the Trustees) may from time to time change any fiscal year.
ARTICLE VIII
CUSTODIAN
Section 1. Appointment and Duties. The Trustees shall at all times
employ one or more banks or trust companies having a capital, surplus and
undivided profits of at least $50,000,000 as custodian with authority as the
Trust's agent, but subject to such restrictions, limitations and other
requirements, if any, as may be contained in the Declaration, these By-Laws and
the 1940 Act:
(i) to hold the securities owned by the Trust and deliver the same upon
written order; (ii) to receive and receipt for any monies due to the
Trust and deposit the same in its own banking department or elsewhere
as the Trustees may direct; (iii) to disburse such funds upon orders or
vouchers; (iv) if authorized by the Trustees, to keep the books and
accounts of the Trust and furnish clerical and accounting services; and
(v) if authorized by the Trustees, to compute the net income of
8
<PAGE>
the
Trust and the net asset value of the Trust or, in the case of each
Feeder Trust and each Stand Alone Trust, Shares; all upon such basis of
compensation as may be agreed upon between the Trustees and the
custodian.
The Trustees may also authorize the custodian to employ one or more
sub-custodians from time to time to perform such of the acts and services of the
custodian and upon such terms and conditions as may be agreed upon between the
custodian and such sub-custodian and approved by the Trustees. Subject to the
approval of the Trustees, the custodian may enter into arrangements with
securities depositories. All such custodial, sub-custodial and depository
arrangements shall be subject to, and comply with, the provisions of the 1940
Act and the rules and regulations promulgated thereunder.
Section 2. Successor Custodian. The Trust shall upon the resignation
or inability to serve of its custodian or upon change of the custodian:
(i) in case of such resignation or inability to serve, use its best
efforts to obtain a successor custodian; (ii) require that the cash and
securities owned by the Trust be delivered directly to the successor
custodian; and (iii) in the event that no successor custodian can be
found, submit to the Holders before permitting delivery of the cash and
securities owned by the Trust otherwise than to a successor custodian,
the question whether the Trust shall be liquidated or shall function
without a custodian.
ARTICLE IX
INDEMNIFICATION
In the case of each Master Trust, insofar as the conditional advancing
of indemnification monies under Section 5.4 of the Declaration for actions based
upon the 1940 Act may be concerned, such payments will be made only on the
following conditions:
(i) the advances must be limited to amounts used, or to be used, for
the preparation or presentation of a defense to the action, including
costs connected with the preparation of a settlement; (ii) advances may
be made only upon receipt of a written promise by, or on behalf of, the
recipient to repay the amount of the advance which exceeds the amount
to which it is ultimately determined that he is entitled to receive
from the Trust by reason of indemnification; and (iii) (a) such promise
must be secured by a surety bond, other suitable insurance or an
equivalent form of security which assures that any repayment may be
obtained by the Trust without delay or litigation, which bond,
insurance or other form of security must be provided by the recipient
of the advance, or (b) a majority of a quorum of the Trust's
disinterested, nonparty Trustees, or an independent legal counsel in a
written opinion, shall determine, based upon a review of readily
available facts, that the recipient of the advance ultimately will be
found entitled to indemnification.
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ARTICLE X
AMENDMENTS, ADDITIONAL TRUSTS, ETC.
The Trustees shall have the power to alter, amend or repeal
these By-Laws or adopt new By-Laws at any time to the extent such power is not
reserved to the Holders by the 1940 Act, other applicable law or the
Declaration. Action by the Trustees with respect to these By-Laws shall be taken
by an affirmative vote of a majority of the Trustees. The Trustees shall in no
event adopt By-Laws which are in conflict with the Declaration.
One or more additional trusts may be added to Schedule I or Schedule II
by resolution of the trustees of such trust(s), provided that the trustees of
such trust(s) are identical to the Trustees of the Master Trusts, the Feeder
Trusts and the Stand Alone Trusts immediately prior to such addition.
In the case of each Master Trust, the Declaration refers to the
Trustees as Trustees, but not as individuals or personally; and no Trustee,
officer, employee or agent of the Trust shall be held to any personal liability,
nor shall resort be had to their private property for the satisfaction of any
obligation or claim or otherwise in connection with the affairs of the Trust. In
the case of each Feeder Trust and each Stand Alone Trust, the Declaration refers
to the Trustees not individually, but as Trustees under the Declaration, and no
Trustee, officer, employee or agent of the Trust shall be subject to any
personal liability whatsoever to any Person, other than the Trust or its
Holders, in connection with Trust Property or the affairs of the Trust, save
only that arising from bad faith, willful misfeasance, gross negligence or
reckless disregard for his duty to such Person; and all such Persons shall look
solely to the Trust Property for satisfaction of claims of any nature arising in
connection with the affairs of the Trust.
JPM345A
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<PAGE>
SCHEDULE I
MASTER TRUSTS
State of Date of Date
Organiza- Declara- By-Laws
Trust tion tion Adopted
The Treasury Money Market New York 11/4/92 10/10/96
Portfolio
The Money Market Portfolio New York 1/29/93 10/10/96
The Tax Exempt Money Market New York 1/29/93 10/10/96
Portfolio
The Short Term Bond Portfolio New York 1/29/93 10/10/96
The U.S. Fixed Income Portfolio New York 1/29/93 10/10/96
The Tax Exempt Bond Portfolio New York 1/29/93 10/10/96
The Selected U.S. Equity Portfolio New York 1/29/93 10/10/96
The U.S. Small Company Portfolio New York 1/29/93 10/10/96
The Non-U.S. Equity Portfolio New York 1/29/93 10/10/96
The Diversified Portfolio New York 1/29/93 10/10/96
The Non-U.S. Fixed Income New York 6/13/93 10/10/96
Portfolio
The Emerging Markets Equity New York 6/13/93 10/10/96
Portfolio
The New York Total Return Bond New York 6/13/93 10/10/96
Portfolio
The Series Portfolio New York 6/14/94 10/10/96
The Global Strategic Income
Portfolio New York 1/9/97 2/13/97
11
<PAGE>
SCHEDULE II
FEEDER TRUSTS
State of Date of Date
Organization Declara- By-Laws
Trust tion Adopted
The JPM Pierpont Funds Massachusetts 11/4/92 10/10/96
The JPM Institutional
Funds Massachusetts 11/4/92 10/10/96
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<PAGE>
SCHEDULE III
STAND ALONE TRUSTS
State of Date of Date
Organization Declara- By-Laws
Trust tion Adopted
JPM Series Trust Massachusetts 8/15/96 10/10/96
13
CUSTODIAN AND FUND ACCOUNTING AGREEMENT
Between
J.P. MORGAN FUNDS
and
THE BANK OF NEW YORK
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
TABLE OF CONTENTS
Page
1. Employment of Custodian and Property to be Held by It.................................1
2. Duties of the Custodian with Respect to Property of the Portfolios Held
By the Custodian in the United States.................................................2
2.1 Holding Securities...........................................................2
2.2 Deliveries of Securities.....................................................2
2.3 Registration of Securities...................................................5
2.4 Bank Accounts................................................................6
2.5 Availability of Federal Funds................................................6
2.6 Collection of Income.........................................................7
2.7 Payment of Portfolio Monies..................................................7
2.8 Liability for Payment in Advance of Receipt of Securities
Purchased....................................................................9
2.9 Appointment of Agents........................................................9
2.10 Deposit of Portfolio Assets in Securities Systems...........................10
2.11 Portfolio Assets Held in the Custodian's Direct Paper System................11
2.12 Segregated Account..........................................................12
2.13 Ownership Certificates for Tax Purposes.....................................12
2.14 Proxies.....................................................................12
2.15 Communications Relating to Portfolio Securities.............................13
3. Duties of the Custodian with Respect to Property of the Portfolios Held
Outside of the United States................................................13
3.1 Appointment of Foreign Sub-Custodians.......................................13
3.2 Assets to be Held...........................................................13
3.3 Foreign Securities Systems..................................................14
3.4 Holding Assets..............................................................14
3.5 Agreements with Foreign Banking Institutions................................14
3.6 Access of Independent Accountants of the Portfolio(s).......................15
3.7 Reports by Custodian........................................................15
3.8 Transactions in Foreign Custody Account.....................................16
3.9 Liability of Foreign Sub-Custodians.........................................16
3.10 Reimbursement for Advances..................................................16
3.11 Foreign Custody Manager.....................................................17
3.12 Tax Law.....................................................................17
4. Payments for Redemptions or Withdrawals of Interests.................................18
5. Proper Instructions..................................................................18
6. Actions Permitted without Express Authority..........................................19
7. Evidence of Authority................................................................19
8. Duties of Custodian with Respect to the Books of Account.............................19
9. Records..............................................................................19
10. Opinion of Fund's Independent Accountants............................................20
11. Reports to Fund by Independent Accountants...........................................20
12. Compensation of Custodian............................................................20
13. Responsibility of Custodian..........................................................21
14. Effective Period, Termination and Amendment..........................................23
15. Successor Custodian..................................................................24
16. Additional Portfolios................................................................25
17. Prior Agreements.....................................................................25
18. Investor Communications Election.....................................................25
19. Limitation of Liability..............................................................26
20. Confidentiality......................................................................26
21. Year 2000............................................................................27
22. Miscellaneous........................................................................28
SCHEDULE A (NAME OF FUND/PORTFOLIOS).........................................................A-1
SCHEDULE B (FOREIGN SUB-CUSTODIANS)..........................................................B-1
SCHEDULE C (FUND ACCOUNTING ARRANGEMENTS)....................................................C-1
SCHEDULE D (FOREIGN CUSTODY MANAGER).........................................................D-1
SCHEDULE E (CASH MANAGEMENT PROVISIONS)......................................................E-1
</TABLE>
<PAGE>
CUSTODIAN AND FUND ACCOUNTING AGREEMENT
This Agreement between the registered investment company named on
Schedule A hereto (the "Fund") and The Bank of New York, having its principal
place of business at One Wall Street, New York, New York 10286 (the "Custodian"
and with the Fund and the Custodian being referred to individually as a "Party"
and collectively as the "Parties").
WITNESSETH:
WHEREAS, the Fund desires to retain the Custodian to render custody and
fund accounting services to the subtrusts or series of the Fund named on
Schedule A hereto (such subtrusts or series together with all other subtrusts or
series subsequently established by the Fund and made subject to this Agreement
in accordance with Article 16 being herein referred to as the "Portfolio(s)" and
where no Portfolios are enumerated on Schedule A the term "Portfolio" shall
refer to the Fund); and
WHEREAS, each Portfolio's assets are composed of money and property
contributed thereto by the holders ("Investors") of interests (whether in the
form of beneficial interests, shares or any other evidence of ownership) in the
Portfolio ("Interest(s)");
NOW THEREFORE, in consideration of the mutual covenants and agreements
hereinafter contained, the Parties agree as follows:
1. Employment of Custodian and Property to be Held by It
The Fund hereby employs the Custodian as the custodian of the assets of each
Portfolio, including , securities, other instruments, including, without
limitation, options, futures contracts, options on futures contracts and swaps,
and, as the context requires, currencies which the Portfolio desires to be held
in places within the United States (collectively, "domestic securities") and
securities, other instruments, including options, futures contracts, options on
futures contracts and swaps, and, as the context requires, currencies it desires
to be held outside the United States (collectively, "foreign securities" and,
together with domestic securities, "securities") pursuant to the provisions of
the Fund's organizational documents. The Fund agrees to deliver to the Custodian
all securities and cash of each Portfolio, and all payments of income, payments
of principal or capital distributions received by it with respect to all
securities owned by the Fund from time to time, and the cash consideration
received by it for such Interests as may be issued or sold from time to time.
The Custodian shall not be responsible, as custodian, for any property of a
Portfolio held or received by the Portfolio and not delivered to the Custodian.
Upon receipt of "Proper Instructions" (within the meaning of Article 5),
the Custodian shall on behalf of the applicable Portfolio(s) from time to time
employ one or more sub-custodians, located in the United States, but only in
accordance with an applicable vote by the Fund's Board. The Custodian may employ
as sub-custodian for the Portfolio's foreign securities foreign banking
institutions and foreign securities depositories designated in Schedule B hereto
but only in accordance with the provisions of Article 3. 2. Duties of the
Custodian with Respect to Property of the Portfolios Held By the Custodian in
the United States 2.1 Holding Securities The Custodian shall hold and physically
segregate for the account of each
Portfolio all non-cash property to be held by it in the United
States, including all domestic securities owned by such
Portfolio, other than (a) securities which are maintained
pursuant to Section 2.10 in a clearing agency which acts as a
securities depository or in a book-entry system contemplated
by Rule 17f-4(b)(1) or (2) under the Investment Company Act of
1940, as amended (the "1940 Act") (each, a "U.S. Securities
System"), (b) commercial paper of an issuer for which the
Custodian acts as issuing and paying agent ("Direct Paper")
which is deposited and/or maintained in the Direct Paper
System of the Custodian pursuant to Section 2.11, (c) whole
mortgages of which the Fund is the mortgagor that are serviced
by a servicer that is not an "affiliate" (as such term is
defined in the 1940 Act), of the Fund, and (d) such other
property as the Fund identifies by Proper Instructions.
2.2 Deliveries of Securities. The Custodian shall release and
deliver domestic securities owned by each Portfolio held by
the Custodian or in a U.S. Securities System account of the
Custodian or in the Custodian's Direct Paper book entry system
account ("Direct Paper System Account") only upon receipt of
Proper Instructions from the Fund with respect to the
Portfolio, which may be standing instructions (other than in
the case of Sections 2.2(4), 2.2(5), and 2.2(9)) when deemed
appropriate by the Parties, and only in the following cases:
(1) Upon sale of such securities for the account of the
Portfolio and receipt of payment
therefor;
(2) Upon the receipt of payment in connection with any
repurchase agreement related to such securities
entered into by the Portfolio;
(3) In the case of a sale effected through a U.S.
Securities System, in accordance with the provisions
of Section 2.10 hereof;
(4) To the depository agent in connection with tender or
other similar offers for securities of the Portfolio;
(5) To the issuer thereof or its agent when such
securities are called, redeemed, retired or otherwise
become payable; provided that, in any such case, the
cash or other consideration is to be delivered to the
Custodian;
(6) To the issuer thereof, or its agent, for transfer
into the name of any nominee or nominees of the
Custodian or into the name or nominee name of any
sub-custodian appointed pursuant to Article 1; or for
exchange for a different number of bonds,
certificates or other evidence representing the same
aggregate face amount or number of units and in the
same registered form (e.g., with respect to
restrictions); provided that, in any such case, the
new securities are to be delivered to the Custodian;
(7) Upon the sale of such securities for the account of
the Portfolio, to the broker or dealer or its
clearing agent, against a receipt, for examination in
accordance with "street delivery" custom; provided
that in any such case, the Custodian shall have no
responsibility or liability for any loss arising from
the delivery of such securities prior to receiving
payment for such securities except as may arise from
the Custodian's own negligence or willful misconduct;
(8) For exchange or conversion pursuant to any plan of
merger, consolidation, recapitalization,
reorganization or readjustment of the securities of
the issuers of such securities, or pursuant to
provisions for conversion contained in such
securities, or pursuant to any deposit agreement;
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;
(9) In the case of warrants, rights or similar
securities, upon the surrender thereof in the
exercise of such warrants, rights or similar
securities or the surrender of interim receipts or
temporary securities for definitive securities;
provided that, in any such case, the new securities
and cash, if any, are to be delivered to the
Custodian;
(10) For delivery in connection with any loans of
securities made by the Portfolio, but only in
accordance with the terms of a securities lending
agreement to which the Fund is a party;
(11) For delivery as security in connection with any
borrowings by the Fund on behalf of the Portfolio
requiring a pledge of assets by the Portfolio, but
only against receipt of amounts borrowed;
(12) For delivery in accordance with the provisions of any
agreement relating to the Portfolio among the Fund,
the Custodian and a broker-dealer registered under
the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and a member of The National
Association of Securities Dealers, Inc. ("NASD"),
relating to compliance with (a) the rules of The
Options Clearing Corporation and of any registered
national securities exchange, or of any similar
organization or organizations or (b) the rules or
positions of the Securities and Exchange Commission
or its staff, in each case regarding escrow or other
arrangements in connection with transactions by the
Portfolio;
(13) For delivery in accordance with the provisions of any
agreement relating to the Portfolio between the Fund
and a futures commission merchant registered under
the Commodity Exchange Act, relating to compliance
with the rules of the Commodity Futures Trading
Commission and/or any contract market, or any similar
organization or organizations, and Rule 17f-6 of the
1940 Act, regarding account deposits in connection
with transactions in futures contracts and options on
such contracts by the Portfolio;
(14) Upon receipt of instructions from the transfer agent
("Transfer Agent") for the Portfolio, for delivery to
such Transfer Agent or to the Investors in connection
with distributions in kind, as may be described from
time to time in the Fund's currently effective
registration statement on Form N-1A (which, as
applicable, shall include the Fund's current
prospectus and statement of additional
information)(the "Registration Statement") under the
1940 Act, in satisfaction of requests by Investors
for redemption or withdrawal, as the case may be; and
(15) For any other proper corporate purpose, but only upon
receipt of, in addition to Proper Instructions from
the Fund, a certified copy of a resolution of the
Fund's Board or a subcommittee of the Board signed by
an officer of the Fund and certified by the Secretary
or an Assistant Secretary.
In the circumstances described in Sections 2.2(4), 2.2(5) and 2.2(9),
if the Fund shall have given the Custodian standing instructions to do
so, the Custodian also shall release and deliver domestic securities
following the Custodian's receipt of notice from the issuer of the
securities or a Securities System of one or more of the events
described in such Section. For purposes of Section 2.2(5), the
Custodian shall be deemed to have received notice (and thus to have
received actual knowledge for purposes of this Agreement) from the
issuer of the Securities upon publication of notice of the events
described in such Section in a publication identified in Exhibit 1.
Such Exhibit may be revised from time to time by notice from the Fund
to the Custodian requesting the addition of a publication and such
Exhibit shall be deemed amended if the Custodian does not object (which
objection shall be made only if the request places an unreasonable
burden on the Custodian after taking into account increased charges) to
the request at a meeting of representatives of the parties to be held
within ten days of its being made. Unless the parties agree otherwise,
such Exhibit shall not be amended unless such meeting shall have taken
place. The Custodian shall not be deemed to have received notice of any
such event based solely on the receipt of notice by a Securities System
or foreign sub-custodian. The Custodian agrees to furnish promptly to
the Fund copies of notices it receives.
2.3 Registration of Securities. Domestic securities held by the Custodian
(other than bearer securities) shall be registered in the name of a
nominee of the Custodian or in the name or nominee name of any
sub-custodian appointed pursuant to Article 1. All securities received
by the Custodian under the terms of this Agreement shall be in "street
name" or other good delivery form. If, however, the Fund directs the
Custodian to maintain securities in "street name", the Custodian shall
use commercially reasonable best efforts only to timely collect income
due the Portfolio on such securities and to notify the Fund on a
commercially reasonable best efforts basis only of relevant corporate
actions, including, without limitation, pendency of calls, maturities,
tender offers or exchange offers; provided, however, if, in respect of
one or more securities, it is not customary in the relevant market to
hold securities in "street name" and the Fund nonetheless directs the
Custodian to do so, the Custodian, as to such security or securities,
shall have no such obligation to collect income or to give the
Portfolio any such notice of any corporate actions relating to such
securities.
2.4 Bank Accounts. The Custodian shall open and maintain a separate bank
account or accounts in the United States in the name of the Portfolio,
subject only to draft or order by the Custodian acting pursuant to the
terms of this Agreement, and shall hold in such account or accounts,
subject to the provisions hereof, all cash received by it from or for
the account of the Portfolio, other than cash maintained by the
Portfolio in a bank account established and used in accordance with
Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a
Portfolio in accordance with said Rule 17f-3 may be deposited by it to
its credit as Custodian in the banking department of the Custodian or
in such other banks or trust companies as it may in its discretion deem
necessary or desirable; provided, however, that every such bank trust
company shall be qualified to act as a custodian under the 1940 Act and
that each such bank or trust company shall be approved by vote of a
majority of the Fund's Board. Such funds shall be deposited by the
Custodian in its capacity as Custodian and shall be withdrawable by the
Custodian only in that capacity.
2.5 Availability of Federal Funds. Upon mutual agreement between the Fund
and the Custodian, the Custodian shall, upon the receipt of Proper
Instructions from the Fund on behalf of a Portfolio, (i) invest in such
money market funds offered by the Custodian as institutional sweep
vehicles as may be set forth in such Proper Instructions, on the same
day as received, all federal funds received after a time agreed upon by
the Custodian and the Fund and (ii) make federal funds available to the
Fund for the Portfolio as of specified times agreed upon from time to
time by the Fund and the Custodian in the amount of checks received in
payment for Interests in such Portfolio(s) which are deposited into the
account of the Portfolio.
2.6 Collection of Income. Subject to the provisions of Section 2.3, the
Custodian shall collect on a timely basis all income and other payments
with respect to registered domestic securities held hereunder to which
a Portfolio shall be entitled either by law or pursuant to custom in
the securities business, and shall collect on a timely basis all income
and other payments with respect to bearer domestic securities if, on
the date of payment by the issuer, such securities are held by the
Custodian or its agent thereof and shall credit such income, as
collected, to such Portfolio's custodian account. Without limiting the
generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as
and when they become due and shall collect interest when due on
securities held hereunder. Except as otherwise may be provided in any
securities lending agreement to which the Fund and the Custodian are
party, (i) income due the Portfolio on securities loaned pursuant to
the provisions of Section 2.2 (10) shall be the responsibility of the
Fund and (ii) the Custodian will have no duty or responsibility in
connection therewith, other than to provide the Fund with such
information or data as may be necessary to assist the Fund in arranging
for the timely delivery to the Custodian of the income to which each
Portfolio is properly entitled.
2.7 Payment of Portfolio Monies. Upon receipt of Proper Instructions from
the Fund on behalf of the applicable Portfolio, which may be standing
instructions when deemed appropriate by the Parties, the Custodian
shall pay out monies of a Portfolio in the following cases only: (1) In
connection with transactions involving securities for the account of
the Portfolio, but only
(a) against the delivery of such securities or evidence of
title, if any, to options, futures contracts, options on
futures contracts, swaps or other instruments to the Custodian
(or any bank, banking firm or trust company doing business in
the United States or abroad which is qualified under the 1940
Act to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the
name of a nominee of the Custodian referred to in Section 2.3
hereof or in proper form for transfer; (b) in the case of a
purchase effected through a U.S. Securities System, in
accordance with the conditions set forth in Section 2.10
hereof; (c) in the case of a purchase involving the Direct
Paper System, in accordance with the conditions set forth in
Section 2.11; (d) in the case of repurchase agreements entered
into on behalf of the Portfolio between the Fund and the
Custodian, or another bank, or a broker-dealer which is a
member of NASD, (i) against delivery of the securities either
in certificate form or through an entry crediting the
Custodian's account at the Federal Reserve Bank with such
securities, (ii) against delivery of the receipt evidencing
purchase by the Portfolio of securities owned by the Custodian
along with written evidence of the agreement by the Custodian
to repurchase such securities from the Portfolio or (iii)
against such delivery as is customarily used for third-party
repurchase agreements, (e) for transfer to a time deposit
account of the Custodian, as custodian for the Portfolio, in
any bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker
and/or the applicable bank pursuant to Proper Instructions
from the Fund as defined in Article 5, or (f) in the case of
futures contracts, in accordance with the agreement between
the Fund and a futures commission merchant registered under
the Commodity Exchange Act, relating to compliance with the
rules of the Commodity Futures Trading Commission and/or any
contract market, or any similar organization or organizations,
and Rule 17f-6 of the 1940 Act, regarding account deposits in
connection with transactions in futures contracts and options
on such contracts by the Portfolio;
(2) In connection with conversion, exchange or surrender of
securities owned by the Portfolio as set forth in Section 2.2
hereof;
(3) In connection with the deposit of margin in connection with a short
sale of securities; (4) For the redemption or withdrawal of the
Portfolio's Interests as set forth in Article 4 hereof; (5) For the
payment of any expense or liability incurred by the Portfolio,
including but not
limited to the following payments for the account of the
Portfolio: interest, taxes, management, accounting, transfer
agent and legal fees, and operating expenses of the Portfolio
whether or not such expenses are to be in whole or part
capitalized or treated as deferred expenses;
(6) For the payment of any distributions pursuant to the governing
documents of the Fund; (7) For payment of the amount of dividends
received in respect of securities sold short; and (8) For any other
proper purpose, but only upon receipt of, in addition to Proper
Instructions from
the Fund, a certified copy of a resolution of the Fund's Board
or a subcommittee of the Board signed by an officer of the
Fund and certified by its Secretary or an Assistant Secretary.
Notwithstanding any provision elsewhere contained herein, the Custodian
shall not be required to obtain possession of any instrument or
certificate representing any futures contract, and option, or any
futures contract option until after it shall have determined, or shall
have received Proper Instructions from the Fund stating, that any such
instruments or certificates are available. The Fund, if practicable,
shall deliver to the Custodian Proper Instructions to such effect no
later than the business day preceding the availability of any such
instrument or certificate. Before such availability, the Custodian
shall make payments or deliveries specified in Proper Instructions
received by the Custodian in connection with any such purchase, sale,
writing, settlement or closing-out of any futures contract, option or
futures contract option upon its receipt of the Proper Instructions.
2.8 Liability for Payment in Advance of Receipt of Securities Purchased.
Except as specifically stated otherwise in this Agreement, in any and
every case where payment for purchases of domestic securities for the
account of a Portfolio is made by the Custodian in advance of receipt
of the securities purchased in the absence of specific written
instructions from the Fund with respect to the Portfolio to pay in
advance, the Custodian shall be absolutely liable to the Portfolio for
any and all Losses (as defined hereinafter) resulting therefrom.
Notwithstanding the foregoing, settlement and payment for securities
received for the account of the Portfolio and delivery of securities
maintained for the account of the Portfolio may be effected in
accordance with the best customary established securities trading or
securities processing practices and procedures in the market in which
the transaction occurs, including delivering securities to the
purchaser thereof or to a dealer therefor (or an agent for such
purchaser or dealer) against a receipt with the expectation of
receiving later payment for such securities from such purchaser or
dealer.
2.9 Appointment of Agents. Except as otherwise may be provided herein, the
Custodian may not appoint any other entity to act as its agent to carry
out the provisions of this Article 2. The appointment of an agent shall
not relieve the Custodian of its responsibilities or liabilities
hereunder and the Custodian shall be liable for the acts or omissions
of any agent to the same extent as if the Custodian had acted or
omitted to act.
2.10 Deposit of Portfolio Assets in Securities Systems. The Custodian may
deposit and/or maintain securities owned by a Portfolio in a U.S.
Securities System in accordance with applicable Federal Reserve Board
and Securities and Exchange Commission rules and regulations, if any,
and subject to the following provisions: (1) The Custodian may keep
securities of the Portfolio in a U.S. Securities System provided that
such securities are represented in an account ("Account") of
the Custodian in the U.S. Securities System which shall not
include any assets of the Custodian other than assets held as
a fiduciary, custodian or otherwise for customers;
(2) The records of the Custodian with respect to securities of the
Portfolio which are maintained in a U.S. Securities System
shall identify by book-entry those securities belonging to the
Portfolio;
(3) The Custodian shall pay for securities purchased for the
account of the Portfolio upon (i) receipt of advice from the
U.S. Securities System that such securities have been
transferred to the Account, and (ii) the making of an entry on
the records of the Custodian to reflect such payment and
transfer for the account of the Portfolio. The Custodian shall
transfer securities sold for the account of the Portfolio upon
(i) receipt of advice from the U.S. Securities System that
payment for such securities has been transferred to the
Account, and (ii) the making of an entry on the records of the
Custodian to reflect such transfer and payment for the account
of the Portfolio. Copies of all advices from the U.S.
Securities System of transfers of securities for the account
of the Portfolio shall identify the Portfolio, be maintained
for the Portfolio by the Custodian and be provided to the Fund
at the Fund's request. Upon request, the Custodian shall
furnish the Fund on behalf of the Portfolio confirmation of
each transfer to or from the account of the Portfolio in the
form of a written advice or notice and shall furnish to the
Fund on behalf of the Portfolio copies of daily transaction
sheets reflecting each day's transactions in the U.S.
Securities System for the account of the Portfolio on the next
business day;
(4) The Custodian shall provide the Fund with any report obtained
by the Custodian on the U.S. Securities System's accounting
system, internal accounting controls and procedures for
safeguarding securities deposited in the U.S. Securities
System; and
(5) The Custodian shall have received from the Fund the initial certificate
required by Article 14 hereof.
2.11 Portfolio Assets Held in the Custodian's Direct Paper System. The
Custodian may deposit and/or maintain securities owned by a Portfolio
in the Direct Paper System of the Custodian subject to the following
provisions: (1) No transaction relating to securities in the Direct
Paper System will be effected in the
absence of Proper Instructions from the Portfolio;
(2) The Custodian may keep securities of the Portfolio in the
Direct Paper System only if such securities are represented in
an Account of the Custodian in the Direct Paper System which
shall not include any assets of the Custodian other than
assets held as a fiduciary, custodian or otherwise for
customers;
(3) The records of the Custodian with respect to securities of the
Portfolio which are maintained in the Direct Paper System
shall identify by book-entry those securities belonging to the
Portfolio;
(4) The Custodian shall pay for securities purchased for the
account of the Portfolio upon the making of an entry on the
records of the Custodian to reflect such payment and transfer
of securities to the account of the Portfolio. The Custodian
shall transfer securities sold for the account of the
Portfolio upon the making of an entry on the records of the
Custodian to reflect such transfer and receipt of payment for
the account of the Portfolio;
(5) The Custodian shall furnish the Fund confirmation of each
transfer to or from the account of each Portfolio, in the form
of a written advice or notice, of Direct Paper on the next
business day following such transfer and shall furnish to the
Fund copies of daily transaction sheets reflecting each day's
transaction in the U.S. Securities System for the account of
the Portfolio; and
(6) The Custodian shall provide the Fund on behalf of the
Portfolio with any report on its system of internal accounting
control as the Fund may reasonably request from time to time.
2.12 Segregated Account. The Custodian shall upon receipt of Proper
Instructions from the Fund establish and maintain a segregated account
or accounts for and on behalf of each Portfolio, into which account or
accounts may be transferred cash and/or securities, including
securities maintained in an account by the Custodian pursuant to
Section 2.10 or 2.11 hereof, (i) in accordance with the provisions of
any agreement relating to the Portfolio among the Fund, the Custodian
and a broker-dealer registered under the Exchange Act and a member of
the NASD (or any futures commission merchant registered under the
Commodity Exchange Act), relating to compliance with the rules of The
Options Clearing Corporation and of any registered national securities
exchange (or the Commodity Futures Trading Commission or any registered
contract market), or of any similar organization or organizations,
regarding escrow or other arrangements in connection with transactions
by the Portfolio, (ii) for purposes of segregating cash or government
securities in connection with options purchased, sold or written by the
Portfolio or commodity futures contracts or options thereon purchased
or sold by the Portfolio, (iii) for the purposes of compliance by the
Fund and/or the Portfolio with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of
the Securities and Exchange Commission relating to the maintenance of
segregated accounts by registered investment companies and (iv) for
other proper purposes, but only, in the case of clause (iv), upon
receipt of, in addition to Proper Instructions from the Fund, a
certified copy of a resolution of the Fund's Board or a subcommittee of
the Board signed by an officer of the Fund and certified by the
Secretary or an Assistant Secretary.
2.13 Ownership Certificates for Tax Purposes. The Custodian shall execute
ownership and other certificates and affidavits for all federal and
state tax purposes in connection with receipt of income or other
payments with respect to domestic securities of the Portfolio(s) held
by it and in connection with transfers of securities.
2.14 Proxies. The Custodian shall, with respect to the domestic securities
held hereunder, cause to be promptly executed by the registered holder
of such securities, if the securities are registered otherwise than in
the names of the Portfolio(s) or a nominee of the Portfolio(s), all
proxies it receives, without indication of the manner in which such
proxies are to be voted, and shall promptly deliver to the Fund such
proxies, all proxy soliciting materials and all notices relating to
such securities.
2.15 Communications Relating to Portfolio Securities. The Custodian shall
transmit promptly to the Fund all information (including, without
limitation, pendency of calls and maturities of domestic securities and
expirations of rights in connection therewith and notices of exercise
of call and put options written by the Portfolio and the maturity of
futures contracts purchased or sold by the Portfolio) received by the
Custodian from issuers of the securities being held for the Portfolio.
With respect to tender or exchange offers or any other similar
transaction, the Custodian shall transmit promptly to the Fund all
information received by the Custodian from issuers of the securities
whose tender or exchange or other transaction is sought and from the
party (or its agents) making the tender or exchange offer or engaging
in the other similar transaction. If the Portfolio desires to take
action with respect to any tender offer, exchange offer or any other
similar transaction, the Fund shall give the Custodian such written
notice as the parties from time may agree before the time by which the
Custodian is to take such action.
3. Duties of the Custodian with Respect to Property of the Portfolios Held
3.1 Outside of the United States Appointment of Foreign Sub-Custodians.
The Fund hereby authorizes and instructs the Custodian to employ as
sub-custodians for each Portfolio's securities and other assets
maintained outside the United States the foreign banking institutions,
foreign branches of U.S. banks and foreign securities depositories
designated on Schedule B hereto ("foreign sub-custodians"), as Schedule
B may be amended from time to time by the Custodian, provided no such
amendment shall be effective until the Fund shall have actually
received the amended Schedule B. The Custodian agrees to use its best
efforts to provide the Fund at least three days' prior notice of any
change to Schedule B. Upon receipt of Proper Instructions, the Fund may
instruct the Custodian to cease the employment of any one or more such
sub-custodians for maintaining custody of a Portfolio's assets. If the
Custodian has not been appointed as the Foreign Custody Manager (as
defined in Rule 17f-5 under the 1940 Act) in respect of a particular
foreign sub-custodian, the delivery of Proper Instructions by the Fund
to the Custodian directing it to hold Portfolio assets with such
foreign sub-custodian shall constitute a representation and warranty by
the Fund that its Board or a Foreign Custody Manager has determined
that the use of such foreign sub-custodian is not a violation of the
1940 Act and Rule 17f-5 thereunder.
3.2 Assets to be Held.
The Custodian shall limit the securities and other assets maintained in
the custody of the foreign sub-custodians to those permitted by Rule
17f-5(c) under the 1940 Act; provided that the Custodian shall not be
responsible for determining whether the amount of cash held in the
custody of a foreign sub-custodian in a particular jurisdiction exceeds
what would be reasonably necessary to effect the Portfolio's
transactions in such jurisdiction. The Custodian shall identify on its
books as belonging to the Portfolio, the foreign securities of the
Portfolio held by each foreign sub-custodian.
3.3 Foreign Securities Systems. Except as may otherwise be agreed upon in
writing by the Custodian and the Fund, assets of a Portfolio shall be
maintained in a clearing agency which acts as a securities depository
or in a book-entry system for the central handling of securities
located outside the United States (each, a "Foreign Securities System")
only through arrangements implemented by the foreign banking
institutions serving as sub-custodians pursuant to the terms hereof or
through Foreign Securities Systems in which the Custodian is a direct
participant (Foreign Securities Systems, together with U.S. Securities
Systems, are collectively referred to herein as the "Securities
Systems"). Where possible, such arrangements shall include entry into
agreements containing the provisions set forth in Section 3.5 hereof.
3.4 Holding Assets. The Custodian may hold securities and other non-cash
property for all of its customers, including the Fund, with a foreign
sub-custodian in a single account that is identified as belonging to
the Custodian for the benefit of its customers, provided, however, that
(i) the records of the Custodian with respect to securities and other
non-cash property of a Portfolio which are maintained in such account
shall identify by book-entry those securities and other non-cash
property belonging to the Portfolio and (ii) the Custodian shall
require that securities and other non-cash property so held by the
foreign sub-custodian be held separately from any assets of the foreign
sub-custodian or of others who are not customers of the Custodian. The
Custodian shall hold foreign currency and other cash property for a
Portfolio with foreign sub-custodians in an account in the name of the
Custodian, for the benefit of its customers, which account shall be
interest bearing in jurisdictions in which the Custodian, in accordance
with its customary practices, holds the cash of customers that are
investment companies in interest-bearing accounts.
3.5 Agreements with Foreign Banking Institutions. Each agreement with a
foreign banking institution shall be substantially in the forms set
forth in Exhibit 1 hereto and shall provide, in substance, for
indemnification or insurance arrangements (or any combination of the
foregoing) such that each Portfolio will be adequately protected
against the risk of loss of assets held in accordance with such
agreement and that: (a) the assets of each Portfolio will not be
subject to any right, charge, security interest, lien or claim of any
kind in favor of the foreign banking institution or its creditors or
agents, except a claim of payment for their safe custody or
administration or, in the case of cash deposits, liens or rights in
favor of creditors of the foreign banking institution arising under
bankruptcy, insolvency or similar laws; (b) beneficial ownership for
the assets of each Portfolio will be freely transferable without the
payment of money or value other than for custody or administration; (c)
adequate records will be maintained identifying the assets as belonging
to each Portfolio or being held by the Custodian for the benefit of its
customers; (d) officers of or auditors employed by, or other
representatives of the Custodian, including to the extent permitted
under applicable law the independent accountants for each Portfolio,
will be given access to the books and records of the foreign banking
institution relating to its actions under its agreement with the
Custodian or confirmation of the contents of such records; (e) assets
of each Portfolio held by the foreign sub-custodian will be subject
only to the instructions of the Custodian or its agents; and (f) the
Fund will receive periodic reports with respect to the safekeeping of
each Portfolio's assets, including notification of any transfer to or
from a Portfolio's account or a third party account containing assets
held for the benefit of the Portfolio.
3.6 Access of Independent Accountants of the Portfolio(s). Upon request of
the Fund, the Custodian will use its best efforts to arrange for the
independent accountants of the Portfolio(s) to be afforded access to
the books and records of any foreign banking institution employed as a
foreign sub-custodian insofar as such books and records relate to the
performance of such foreign banking institution under its agreement
with the Custodian.
3.7 Reports by Custodian. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of the Portfolio(s) held by foreign
sub-custodians, including an identification of entities having
possession of the Portfolio(s) securities and other assets and advices
or notifications of any transfers of securities to or from each
custodial account maintained by a foreign banking institution for the
Custodian on behalf of the Portfolio indicating, as to securities
acquired for the Portfolio, the identity of the entity having physical
possession of such securities.
3.8 Transactions in Foreign Custody Account.
(a) Except as otherwise provided in paragraph (b) of this
Section 3.8, the provision of Sections 2.2 and 2.7 of this Agreement
shall apply, mutatis mutandis, to the foreign securities of the
Portfolio(s) held outside the United States by foreign sub-custodians.
(b) Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for securities received for the
account of the Portfolio and delivery of securities maintained for the
account of the Portfolio may be effected in accordance with the best
customary established securities trading or securities processing
practices and procedures in the jurisdiction or market in which the
transaction occurs, including delivering securities to the purchaser
thereof or to a dealer therefor (or an agent for such purchaser or
dealer) against a receipt with the expectation of receiving later
payment for such securities from such purchaser or dealer.
(c) Securities maintained in the custody of a foreign
sub-custodian may be maintained in the name of such entity's nominee to
the same extent as set forth in Section 2.3 of this Agreement.
3.9 Liability of Foreign Sub-Custodians. Each agreement pursuant to which
the Custodian employs a foreign banking institution as a foreign
sub-custodian shall require the institution to exercise at least
reasonable care in the performance of its duties and to indemnify and
hold harmless the Custodian and the Fund and/or the Portfolio(s) from
and against any loss, damage, cost, expense, liability or claim arising
out of or in connection with the institution's performance of such
obligations. At the election of the Fund and to the extent permitted by
the Custodian's agreement with the foreign banking institution, it
shall be entitled to be subrogated to the rights of the Custodian with
respect to any claims against a foreign banking institution as a
consequence of any such loss, damage, cost, expense, liability or claim
if and to the extent that the Fund and/or the Portfolio(s) have not
been made whole for any such loss, damage, cost, expense, liability or
claim.
3.10 Reimbursement for Advances. If the Custodian, in its discretion,
advances cash on behalf of a Portfolio in connection with transactions
in securities and foreign currency and in connection with advances or
overdrafts arising out of the cash management services provided for in
Schedule E, any property at any time held for the account of the
applicable Portfolio shall be security therefor (and the Custodian
shall have a continuing lien and security interest therein to the
extent the Custodian shall have possession or control thereof) and,
should the Portfolio fail to repay the Custodian promptly, the
Custodian shall be entitled to utilize available cash and to dispose of
the Portfolio's assets to the extent necessary to obtain reimbursement.
Any such advances shall bear interest at such rate as the Fund and the
Custodian shall agree in writing from time to time.
3.11 Foreign Custody Manager. The Custodian shall serve as Foreign Custody
Manager as provided in Schedule D
-----------------------
hereto.
3.12 Tax Law.
(a) United States Taxes.
The Custodian shall have no responsibility or liability for any
obligations now or hereafter imposed on the Portfolio or the Custodian
as custodian of the Portfolio by the tax law of the United States of
America or any state or political subdivision thereof, except to the
extent such obligations have been imposed as a result of the
Custodian's breach of this Agreement or as a result of its negligence
or willful misconduct. The Custodian will be responsible for informing
the Fund of the income received by the Portfolio which is United States
source income and which is not United States source income and of such
other tax characteristics of such income as the Fund may request from
time to time. (b) Claiming for Exemption or Refund under the Tax Laws
of Non-United States Jurisdictions. The sole responsibility of the
Custodian with regard to the tax laws of non-United States
jurisdictions shall be to identify the income of each Portfolio which
has been subject to withholding and other tax assessments or other
governmental charges by such jurisdictions and the amount thereof and
as to the allocated amount of such income that is attributable to each
Portfolio's Investors, to use reasonable efforts to assist the
Portfolio or its Investors with respect to any claim for exemption or
refund of such charges that can be made on behalf of the Portfolio or
its Investors.
4. Payments for Redemptions or Withdrawals of Interests.
The Custodian shall receive and deposit into the account of each
Portfolio such payments as are received for Interests in the Portfolio issued or
sold from time to time by the Portfolio. The Custodian will provide notification
to the Fund, and, if requested by the Fund, to any Transfer Agent, of any
receipt by it of payments for Interests.
From such funds as may be available for the purpose but subject to the
limitations of the Fund's organizational documents and any applicable votes of
the Fund's Board pursuant thereto, the Custodian shall, upon receipt of
instructions from the Fund, make funds available to an account for each
Portfolio for payment to Investors in the Portfolio who have delivered to the
Fund and/or Portfolio a request for redemption or withdrawal of their Interests.
5. Proper Instructions.
Proper Instructions as used throughout this Agreement means a writing
signed or initialed by one or more person or persons the Custodian reasonably
believes have been authorized to do so by the Fund's Board from time to time.
Each such writing shall set forth the specific transaction or type of
transaction involved, including a specific statement of the purpose for which
such action is requested. Oral instructions will be considered Proper
Instructions if the Custodian reasonably believes them to have been given by a
person authorized to give such instructions with respect to the transaction
involved. The Fund shall cause all oral instructions to be confirmed in writing.
It is understood and agreed that the Fund's Board has authorized J.P. Morgan
Investment Management Inc. ("Morgan"), as investment adviser of the Portfolios,
to deliver Proper Instructions with respect to all matters for which Proper
Instructions are required by Sections 2.2(1) through 2.2(14), 2.5, 2.7(1)
through 2.7(3), 2.7(7), 2.12(i) through 2.12(iii) and 3.8(a). The Custodian may
rely upon the certificate of an officer of Morgan with respect to the person or
persons authorized on behalf of Morgan to sign, initial or give Proper
Instructions for the purposes of such paragraphs. Proper Instructions also may
include communications effected directly between such electro-mechanical or
electronic devices as the Fund and the Custodian may agree to use. For purposes
of this Section, Proper Instructions shall include instructions received by the
Custodian pursuant to any three party agreement which requires a segregated
asset account in accordance with Section 2.12.
6. Actions Permitted without Express Authority.
The Custodian may in its discretion, without express authority from the
Fund:
(1) make payments to itself or others for minor expenses of
handling securities or other similar items relating to its
duties under this Agreement, provided that all such payments
shall be accounted for to the Fund;
(2) surrender securities in temporary form for securities in definitive
form;
(3) endorse for collection, in the name of the Fund and/or a
Portfolio, checks, drafts and other negotiable instruments;
and
(4) in general, attend to all non-discretionary details in
connection with the sale, exchange, substitution, purchase,
transfer and other dealings with the securities and property
of the Portfolios except as otherwise directed by the Fund's
Board.
7. Evidence of Authority
The Custodian shall be protected in acting, in good faith and without
negligence, upon any instruction, notice, request, consent, certificate or other
instrument or paper reasonably believed by it to be genuine and to have been
properly executed by or on behalf of the Fund. The Custodian may receive and
accept a certified copy of a vote of the Fund's Board as conclusive evidence (a)
of the authority of any person to act in accordance with such vote or (b) of any
determination or of any action by the Fund's Board pursuant to the Fund's
organizational documents as described in such vote, and such vote may be
considered as in full force and effect until receipt by the Custodian of written
notice to the contrary. 8. Duties of Custodian with Respect to the Books of
Account.
The Custodian shall keep the books of account of the Fund, as fund
accounting agent, in accordance with such written procedures as shall be agreed
to from time to time by the Custodian and the Fund, including those set forth on
Schedule C hereto.
9. Records.
The Custodian shall create, maintain and retain, with respect to each
Portfolio, all records and information relating to the performance of custodial
services under this Agreement in a manner that complies with applicable law and
is at least as stringent and at least as protective to the Fund as the manner in
which the Custodian creates, maintains and retains records for customers
similarly situated to the Fund and, at a minimum, the Custodian shall (a)
create, maintain and retain an inventory, index and status of all records so as
to allow retrieval within a reasonable period of time and (b) create, maintain
and retain records in secure on-site or off-site locations which provide at a
minimum for secure storage protecting against unauthorized access and protecting
against fire, moisture and destruction. The Custodian shall also comply with its
own record maintenance and retention policies (including as they relate to
destruction of records) to the extent more stringent or more protective to the
Fund than the procedures in the immediately preceding sentence, and the
Custodian shall make its policies available to the Fund upon reasonable notice.
All records created and maintained hereunder shall be the Fund's property. The
Custodian shall, at the Fund's request, supply the Fund with a tabulation(s) of
securities owned by the Portfolio(s) and held by the Custodian and shall, when
requested to do so by the Fund, include certificate numbers in such tabulations.
10. Opinion of Fund's Independent Accountants. The Custodian shall take all
commercially reasonable actions, as the Fund or its independent accountants may
from time to time request, to assist the Fund in obtaining from year to year
favorable opinions for each Portfolio from the Fund's independent accountants
with respect to its activities hereunder in connection with the preparation of
the Registration Statement and the Fund's Form N-SAR or other periodic reports
to the Securities and Exchange Commission and with respect to any other
requirements of such Commission or any other regulatory body to which the Fund
may be subject. 11. Reports to Fund by Independent Accountants.
The Custodian shall provide the Fund, at such times as the Fund may
reasonably require, with reports by independent accountants on the accounting
system, internal accounting controls and procedures for safeguarding each
Portfolio's securities, futures contracts and options on futures contracts,
including securities deposited and/or maintained in a Securities System,
relating to the services provided by the Custodian under this Agreement; such
reports shall be of sufficient scope and in sufficient detail as may reasonably
be required by the Fund to provide reasonable assurance that any material
inadequacies would be disclosed by such examination, and, if there are no such
inadequacies, the reports shall so state. 12. Compensation of Custodian.
The Custodian shall be entitled to reasonable compensation for its
services and expenses as custodian and fund accounting agent, as agreed upon
from time to time between the Fund and the Custodian.
13. Responsibility of Custodian.
The Custodian shall indemnify the Fund against, and hold harmless the
Fund from, any Losses (as defined below) suffered, incurred or sustained by the
Fund or to which the Fund becomes subject, resulting from, arising out of or
relating to:
(a) the negligence (whether through action or inaction) or willful
misconduct of the Custodian under this Agreement, the negligence (whether
through action or inaction) or willful misconduct of any of the Custodian's
agents or the breach or negligence (whether through action or inaction) of any
sub-custodian under its sub-custodian agreement with the Custodian as determined
under the law governing such agreement;
(b) any assertion that the services that the Custodian is responsible
for providing hereunder or the intellectual property, including hardware,
software and trade secrets, employed by the Custodian in connection therewith
infringe upon the proprietary rights of any third party (except as may have been
caused by a direct instruction by the Fund or by Morgan);
(c) any assertion by a third party arising from the Custodian's
negligence or willful misconduct in providing services;
(d) the material inaccuracy, untruthfulness or breach of any
representation or warranty made by the Custodian under this Agreement; and
(e) personal injury (including death) or property damage or loss
resulting from the Custodian's or its agents' acts or omissions.
In no event shall the Custodian be liable for (a) Country Risks (as
defined in Schedule D), (b) any sub-custodian selected by the Fund, (c) the
continued use by the Fund of any sub-custodian after the thirtieth day after the
Fund has been notified of the Custodian's intention to replace such
sub-custodian, (d) Losses due to fire, flood, earthquake, elements of nature or
acts of God, acts of war, terrorism, riots, civil disorders, rebellions or
revolutions, or any other similar cause beyond the reasonable control of the
Custodian or its agents, including failures, interruptions or malfunctions of
utilities not caused by the Custodian or its agents, but only to the extent such
Losses could not have been prevented by reasonable precautions and provided the
Custodian or its agents continue to use their commercially reasonable best
efforts to recommence performance whenever and to whatever extent possible
without delay, including through the use of alternate sources, workaround plans
or other means (the Custodian hereby agreeing to notify the Fund immediately of
the occurrence of any such event and describe in reasonable detail the nature of
such event), or (e) the insolvency of any sub-custodian, provided that the
Custodian has acted without negligence or bad faith in the selection or
retention of such sub-custodian.
Notwithstanding anything to the contrary contained herein, the
Custodian shall have no obligation hereunder for Losses which are sustained or
incurred by reason of any action or inaction by a Securities System, unless such
action or inaction is caused by the negligence or willful misconduct of the
Custodian or from the failure of the Custodian or any of its agents to enforce
against the Securities System effectively such rights as it may have. At the
Fund's election, it shall be entitled to be subrogated to the rights of the
Custodian with respect to any claim against the Securities System or any other
person that the Custodian may have as a consequence of any such loss or damage
if and to the extent the Fund has not been made whole for any such loss or
damage: provided that the Custodian shall, notwithstanding such subrogation,
reimburse the Fund for its reasonable expenses in connection with such claim. In
no event shall either Party be liable to the other or any third party for
indirect, incidental, special or consequential damages arising out of or
relating to its performance or failure to perform under this Agreement.
Without limiting the generality of the foregoing, the Custodian shall
be under no obligation to inquire into, and shall not be liable for, the
validity of any securities purchased or sold by the Fund, the legality of their
purchase or sale, the propriety of the amount paid therefor upon purchase or
sale, or any actions of third parties with respect to the negotiability of
securities.
The Custodian may, with respect to questions of law specifically
regarding this Agreement, obtain the written advice of outside counsel
reasonably acceptable to the Fund, and shall be fully protected with respect to
anything done or omitted by it in good faith in conformity with such advice.
As soon as is commercially reasonable after receiving notice from the
Fund, the Custodian shall, and shall use reasonable efforts to cause its agents
to, provide the Fund with access to, and any assistance or information that it
may require with respect to, information related to the services provided under
this Agreement and the Custodian's control structure policies and procedures to
enable the Fund or any person it reasonably designates (a) to examine all
records and materials of the Custodian pertaining to such services, including an
examination of the operation of the Custodian's equipment, (b) to take extracts
from any record, redacted to remove references to matters other than those under
this Agreement, (c) to visit and inspect the Custodian's premises, (d) to
interview the Custodian's employees and agents regarding such services, (e) to
run computer programs and perform any other functions necessary for control
assessments and/or investigations, (f) to verify the integrity of any data
maintained by the Custodian under this Agreement, (g) to examine the systems
that process, store, support and transmit such data (provided that the Fund
shall not have rights described in this paragraph to the extent prohibited by
any binding third party (that is not an affiliate of the Custodian)
confidentiality agreements, license restrictions or limitations, or trade secret
obligations) and (h) to examine the Custodian's performance of such services
including, to the extent applicable to such services and to the charges
therefor, audits of practices and procedures, systems, applications development
and maintenance procedures and practices, general controls (e.g., organizational
controls, input/output controls, system modification controls, processing
controls, system design controls and access controls) and security practices and
procedures, disaster recovery and back-up procedures, as necessary to enable the
Fund to meet applicable regulatory requirements.
"Losses" shall mean any and all damages, fines, penalties,
deficiencies, losses, liabilities (including settlements, approved by the
Custodian, and judgments) and expenses (including interest, court costs,
reasonable fees and expenses of attorneys, accountants and other experts and
other reasonable fees of litigation and other proceedings and of any claim,
default or assessment).
The provisions of this Article 13 shall survive any termination of this
Agreement.
14. Effective Period, Termination and Amendment.
This Agreement shall become effective as of its execution, shall
continue in full force and effect until terminated as hereinafter provided and
may be amended at any time by mutual agreement of the Parties; provided,
however, that the Custodian shall not with respect to the Fund act under Section
2.10 hereof in the absence of receipt of an initial certificate of the Secretary
or an Assistant Secretary that the Fund's Board has approved the initial use by
each Portfolio of a particular Securities System, as required in each case by
Rule 17f-4 under the 1940 Act, and that the Custodian shall not with respect to
a Portfolio act under Section 2.11 hereof in the absence of receipt of an
initial certificate of the Secretary or an Assistant Secretary that the Fund's
Board has approved the initial use by each Portfolio of the Direct Paper System
by such Portfolio; provided further, however, that the Fund shall not amend or
terminate this Agreement in contravention of any applicable federal or state
regulations, or any provision of the Fund's organizational documents, and
further provided, that the Fund may at any time by action of its Board (i) with
respect to any Portfolio substitute another bank or trust company for the
Custodian by giving notice as described below to the Custodian, or (ii)
immediately terminate this Agreement in the event of the appointment of a
conservator or receiver for the Custodian by the Comptroller of the Currency or
upon the happening of a like event at the direction of an appropriate regulatory
agency or court of competent jurisdiction.
The Custodian may terminate this Agreement only if it ceases to
provide, or to offer to provide, services substantially similar to those
provided herein to customers that are not affiliates of the Custodian, and then
only upon 180 days' prior written notice to the Fund. The Fund may terminate
this Agreement at any time upon at least 30 days' prior written notice to the
Custodian, except that no notice shall be necessary if the Fund terminates this
Agreement as a result of any act by the Custodian that could give rise to a
claim for indemnification under Article 13. Upon termination of this Agreement,
the Fund shall pay to the Custodian such compensation as may be due as of the
date of such termination and shall likewise reimburse the Custodian for its
costs, expenses and disbursements. 15. Successor Custodian.
If a successor custodian for a Portfolio shall be appointed by the
Fund's Board, the Custodian shall, upon termination, deliver to such successor
custodian at the office of the Custodian, duly endorsed and in the form for
transfer, all securities and other instruments of such Portfolio then held by it
hereunder, shall transfer to an account of the successor custodian all of the
securities of the Portfolio held in a Securities System and otherwise shall use
its best efforts to assist the Fund in completing a timely transfer of its
responsibilities as custodian to the successor custodian.
If no such successor custodian shall be appointed, the Custodian shall,
in like manner, upon receipt of a certified copy of a vote of the Fund's Board,
deliver at the office of the Custodian and transfer such securities, funds and
other properties in accordance with such vote.
In the event that no written order designating a successor custodian or
certified copy of a vote of the Fund's Board shall have been delivered to the
Custodian on or before the date when such termination shall become effective,
then the Custodian shall have the right to deliver to a bank or trust company,
which is a "bank" as defined in the 1940 Act, doing business in New York, New
York, of its own selection, having an aggregate capital, surplus, and undivided
profits, as shown by its last published report, of not less than $50,000,000,
all securities, funds and other properties held by the Custodian on behalf of a
Portfolio and all instruments held by the Custodian relative thereto and all
other property held by it under this Agreement on behalf of the Portfolio and to
transfer to an account of such successor custodian all of the securities of the
Portfolio held in any Securities System. Thereafter, such bank or trust company
shall be the successor of the Custodian under this Agreement.
In the event that securities, funds and other property remains in the
possession of the Custodian after the date of termination hereof owing to
failure of the Fund to procure the certified copy of the vote referred to or of
the Fund's Board to appoint a successor custodian, the Custodian shall be
entitled to fair compensation for its services during such period as the
Custodian retains possession of such securities, funds and other property and
the provisions of this Agreement relating to the duties and obligations of the
Custodian shall remain in full force and effect. 16. Additional Portfolios.
In the event that the Fund establishes one or more subtrusts or series,
with respect to which it desires to have the Custodian render services as
custodian under the terms hereof, it shall so notify the Custodian in writing,
and the Custodian shall provide such services under the terms hereof. 17. Prior
Agreements.
This Agreement supersedes and terminates, as of the date hereof, all
prior agreements between the Fund and the Custodian relating to the custody of
the assets of the Portfolio(s).
This Agreement and all schedules, exhibits, attachments and amendments
hereto may be reproduced by any photographic, photostatic, microfilm, microcard,
miniature photographic or other similar process. The Parties hereto each agree
that any such reproduction shall be admissible in evidence as the original
itself in any judicial or administrative proceeding, whether or not the original
is in existence and whether or not such reproduction was made by a Party in the
regular course of business, and that any enlargement, facsimile or further
reproduction of such reproduction shall likewise be admissible in evidence.
18. Investor Communications Election.
Securities and Exchange Commission Rule 14b-2 requires banks which hold
securities for the account of customers to respond to requests by issuers of
securities for the names, addresses and holdings of beneficial owners of
securities of that issuer held by the bank unless the beneficial owner has
expressly objected to disclosure of this information. To comply with the Rule,
the Custodian needs the Fund to indicate whether it authorizes the Custodian to
provide the name, address, and share positions of the Portfolio(s) to requesting
companies whose securities are owned by the Portfolio. If the Fund tells the
Custodian "no", the Custodian will not provide this information to requesting
companies. If the Fund tells the Custodian "yes" or does not check either "yes",
or "no" below, the Custodian is required by the Rule to treat the Fund as
consenting to disclosure of this information for all securities owned by the
Portfolio or any funds or accounts established by the Fund. For the Fund's
protection, the Rule prohibits the requesting company from using the Fund's or
Portfolio's name and address for any purpose other than corporate
communications. Please indicate below whether the Fund consents or objects by
checking one of the alternatives below.
YES [ ] The Custodian is authorized to release such names, address, and
share position(s). NO [x] The Custodian is not authorized to release
such names, address, and share position(s).
19. Limitation of Liability.
The references herein to the Board of the Fund are to the
Board members of the Fund as Board members and not individually or personally.
The obligations of the Fund entered into in the name of or on behalf of each
Portfolio by any of the Board members are not made individually but in their
capacity as Board members and are not binding on any of the Board members
personally. All persons dealing with a Portfolio must look solely to the assets
of that Portfolio for the enforcement of any claims against the Portfolio.
20. Confidentiality.
.........All information relating to the Fund or obtained by the
Custodian pursuant to this Agreement which is designated by the Fund as
confidential or is deemed confidential pursuant to the Services Agreement
(collectively, "Confidential Information") shall be considered and shall remain
a trade secret of, and the sole property of, the Fund and shall be held in
strict confidence by the Custodian and shall be treated in at least the most
restrictive of (a) the same manner as the Custodian protects its own
confidential information and (b) industry standards. The Custodian shall abide
fully by the constraints and requirements of confidentiality and privacy laws
and in particular take all precautions required under such laws to preserve the
security of Confidential Information. The Custodian agrees not to disclose,
publish, release, transfer or otherwise make available Confidential Information
of, or obtained from, the Fund in any form to, or for the use or benefit of, any
person or entity without the Fund's consent. The Custodian shall, however, be
permitted to disclose relevant aspects of Confidential Information to officers,
directors, agents, professional advisers, contractors, sub-contractors and
employees of it and its affiliates to the extent that such disclosure is not
restricted by law or by contract and only to the extent that such disclosure is
reasonably necessary for the performance of its duties and obligations, or the
exercise of its rights and remedies, under this Agreement; provided, however,
that the recipient agrees that the Confidential Information will not be
disclosed or duplicated in contravention of this Agreement by such officers,
directors, agents, professional advisers, contractors, sub-contractors and
employees. The obligations in this Section shall not restrict any disclosure
pursuant to any law (provided that Custodian shall give prompt notice to Fund of
the basis therefor and shall reasonably assist the Fund in resisting such
disclosure). The provisions of this Article 20 shall survive the termination of
this Agreement.
21. Year 2000.
The Custodian represents and warrants that it has used commercially
reasonable efforts to ensure that the Systems (as hereinafter defined) that are
owned by the Custodian and used to provide the custodial and fund accounting
services to be provided hereunder (the "Services") are 2000 Compliant (as
hereinafter defined). With respect to Systems that the Custodian leases or
licenses from third parties and uses in providing the Services ("Third Party
Systems"), the Custodian has used commercially reasonable efforts to test the
same, and, upon request, will certify, in accordance with the Custodian's
standard practices, that the Third Party Systems are 2000 Compliant. With
respect to the Custodian's use of third party service providers to provide the
Services or any portion thereof ("Third Party Services"), the Custodian
represents and warrants that it has used commercially reasonable efforts to
contact such service providers and to obtain from them assurances that the
systems used in providing Third Party Services are 2000 Compliant. If the
Custodian has not obtained such assurance as of the date of this Agreement, the
Custodian will use commercially reasonable efforts to replace such Third Party
Services with services for which the Custodian has received assurances that such
services are 2000 Compliant, if such replacement is available, compatible with
the Custodian's Systems and deemed by the Custodian as appropriate under the
circumstances, and if replacement is not available, the Custodian shall
institute a workaround. The Custodian agrees to provide the Fund, within 10
days' of the date hereof, with a list of all workarounds that are being sought.
Notwithstanding the foregoing, the Parties acknowledge and agree that the
Custodian cannot and does not warrant that the Systems, Third Party Systems or
Third Party Services will continue to interface with the hardware, firmware,
software (including operating systems), records or data used by Morgan or third
parties, nor does the Custodian make any warranties hereunder with respect to
any public utility, communications service provider, securities or commodities
exchange, or funds transfer network.
As used herein, the term "2000 Compliant" means that software and machines
will function without material error caused by the introduction of dates falling
on or after January 1, 2000 and the term "Systems" means all intellectual
property and all computers, related equipment and other equipment used to
provide the services for which the Custodian is responsible for providing
hereunder.
22. Miscellaneous
(a) Except as otherwise specified in this Agreement, all notices,
requests, consents, approvals, agreements, authorizations, acknowledgments,
waivers and other communications required or permitted under this Agreement
shall be in writing and shall be deemed given when sent by facsimile to the
facsimile number specified below or delivered by hand to the address specified
below. A copy of any such notice shall also be sent by express air mail on the
date such notice is transmitted by facsimile to the address specified below:
In the case of the Fund:
George A. Rio
President and Treasurer
Telephone No.: (617) 557-0700
Facsimile No.: (617) 557-0709
with a copy to:
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, New York 10036
Attention: Delphine Jones
Telephone No.: (212) 837-9319
Facsimile No.: (212) 837-8963
In the case of the Custodian:
The Bank of New York
1 Wall Street
New York, New York 10086
Attention: Andrew Bell
Facsimile No.: 212-635-6190
Either Party may change its address or facsimile number for notification
purposes by giving the other Party five days' notice of the new address or
facsimile number and the date upon which it will become effective.
(b) EACH OF THE PARTIES HEREBY WAIVES THE RIGHT TO REQUEST A JURY
TRIAL.
(c) No delay or omission by either Party to exercise any right or power
it has under this Agreement shall impair or be construed as a waiver of such
right or power. A waiver by any Party of any breach or covenant shall not be
construed to be a waiver of any succeeding breach or any other covenant. All
waivers must be signed by the Party waiving its rights.
(d) No right or remedy herein conferred upon or reserved to either
Party (including any termination) is intended to be exclusive of any other right
or remedy, and each and every right and remedy shall be cumulative and in
addition to any other right or remedy under this Agreement, or under law,
whether now or hereafter existing.
(e) No amendment to, or change or discharge of, any provision of this
Agreement shall be valid unless in writing and signed by an authorized
representative of each of the Parties.
(f) This Agreement and the rights and obligations of the Parties under
this Agreement shall be governed by and construed in accordance with the laws of
the State of New York, without giving effect to the principles thereof relating
to the conflict of laws.
(g) Each Party irrevocably agrees that any legal action, suit or
proceeding brought by it in any way arising out of this Agreement must be
brought solely and exclusively in the United States District Court for the
Southern District of New York or in the state courts of the State of New York in
New York County and irrevocably accepts and submits to the sole and exclusive
jurisdiction of each of the aforesaid courts in personam, generally and
unconditionally with respect to any action, suit or proceeding brought by it or
against it by the other Party; provided, however, that this Section shall not
prevent a Party against whom any legal action, suit or proceeding is brought by
the other Party in the state courts of the State of New York in New York County
from seeking to remove such legal action, suit or proceeding, pursuant to
applicable Federal law, to the district court of the United States for the
district and division embracing New York County, and in the event an action is
so removed each Party irrevocably accepts and submits to the jurisdiction of the
aforesaid district court. Each Party hereto further irrevocably consents to the
service of process from any of the aforesaid courts by mailing copies thereof by
registered or certified mail, postage prepaid, to such Party at its address
designated pursuant to this Agreement, with such service of process to become
effective 30 days after such mailing.
(h) Each Party agrees that after the execution and delivery of this
Agreement and, without any additional consideration, each Party shall execute
and deliver any further legal instruments and perform any acts that are or may
become necessary to effectuate the purposes of this Agreement.
IN WITNESS WHEREOF, each of the Parties has caused this instrument to
be executed in its name and behalf by its duly authorized representative and its
seal to be hereunder affixed as of October 18, 1999.
J.P. MORGAN FUNDS
By _________________________
THE BANK OF NEW YORK
By _________________________
<PAGE>
EXHIBIT 1
Corporate Action Sources
Vendors
IDC
Reuters
CCH
Bloomberg
ValorInform
Non-Vendors
Company Web Pages
BNY Custody - Brussels
BNY Costody - New York
<PAGE>
SCHEDULE A (NAME OF FUNDS/PORTFOLIOS AND EFFECTIVE DATE)
J.P. Morgan Funds
J.P. Morgan Prime Money Market Fund .....................
J.P. Morgan Federal Money Market Fund .....................
J.P. Morgan Tax Exempt Money Market Fund .....................
J.P. Morgan Short Term Bond Fund ..................... 2/18/00
J.P. Morgan Bond Fund ..................... 2/18/00
J.P. Morgan Tax Exempt Bond Fund ..................... 2/18/00
J.P. Morgan New York Tax Exempt Bond Fund ..................... 2/18/00
J.P. Morgan U.S. Equity Fund ..................... 10/18/99
J.P. Morgan U.S. Small Company Fund ..................... 10/18/99
J.P. Morgan International Equity Fund ..................... 1/24/00
J.P. Morgan Emerging Markets Equity Fund ..................... 1/24/00
J.P. Morgan Diversified Fund .....................
J.P. Morgan European Equity Fund ..................... 1/24/00
J.P. Morgan Disciplined Equity Fund ..................... 10/18/99
J.P. Morgan International Opportunities Fund ..................... 1/24/00
J.P. Morgan Global Strategic Income Fund ..................... 1/24/00
J.P. Morgan Emerging Markets Debt Fund ..................... 2/18/00
J.P. Morgan U.S. Small Company Opportunities Fund
................... 10/18/99
<PAGE>
SCHEDULE C (FUND ACCOUNTING ARRANGEMENTS)
Pursuant to Article 8, the Custodian agrees to perform the following duties
in accordance with the requirements of the Portfolio's Registration Statement,
the 1940 Act, applicable Internal Revenue Service ("IRS") regulations, and
procedures as may be agreed upon from time to time, including without limitation
those set forth in the Service Level Agreement pertaining to the Fund to which
the Custodian is a party. In all instances, the Custodian agrees to perform such
services in accordance with the highest industry standards and best practices,
which may include those enumerated in the Audits of Investment Companies Audit
and Accounting Guide, as in effect from time to time. Where appropriate, the
Custodian agrees to keep all records on a Portfolio class-by-class basis. The
Custodian agrees to: (a) keep and maintain the books and records of each
Portfolio pursuant to Rule 31a-1 under the 1940 Act, other than those to be
maintained by the Fund's transfer agent, including the following:
(i) journals containing an itemized daily record in detail of all
purchases and sales of securities, all receipts and disbursements of
cash and all other debits and credits, as required by subsection
(b)(1) of said Rule;
(ii) general and auxiliary ledgers reflecting all asset, liability,
reserve, capital, income and expense accounts, including
interest accrued and interest received, as required by
subsection (b)(2)(i) of said Rule;
(iii) separate ledger accounts required by subsections (b)(2)(ii) and
(iii) of said Rule; and
(iv) a monthly trial balance of all ledger accounts (except
shareholder accounts) as required by subsection (b)(8) of said
Rule.
(b) perform the following accounting services daily for each Portfolio:
(i) calculate the net asset value per share;
(ii) obtain security prices from independent pricing services, or
if such quotes are unavailable, obtain such prices from each
Portfolio's investment adviser or its designee, as approved by
the Fund's Board;
(iii) provide exception, stale and halted price reporting to Morgan;
(iv) verify and reconcile with the Custodian's custody records all
daily trade activity;
(v) compute, as appropriate, each Portfolio's net income and
capital gains, dividend payables, dividend factors, 7-day
yields, 7-day effective yields, 30-day yields, weighted
average portfolio maturity and such other agreed-upon rates
and yields;
(vi) review daily the net asset value calculation and dividend
factor (if any) for each Portfolio, check and confirm the net
asset values and dividend factors for reasonableness and
deviations against agreed-upon benchmarks and tolerance
levels;
(vii) distribute net asset values and yields to NASDAQ, the Transfer
Agent, the Fund's administrator and such other third parties
as are agreed upon;
(viii) report to the Fund, at least weekly, about the daily market
pricing of securities in any money market funds, with the
comparison to the amortized cost basis;
(ix) determine unrealized appreciation and depreciation on
securities held in variable net asset value Portfolios;
(x) record all corporate actions affecting securities held by each
Portfolio, including dividends, stock splits and
recapitalizations;
(xi) amortize premiums and accrete discounts on securities
purchased at a price other than face value, if requested by
the Fund;
(xii) record and reconcile with the Transfer Agent all capital stock
activity; (xiii) update fund accounting system to reflect rate changes
on variable interest rate instruments; (xiv) post Portfolio
transactions to appropriate categories; (xv) accrue expenses of each
Portfolio according to instructions received from the Fund's
administrator;
(xvi) calculate book capital account balances; (xvii) maintain tax
books and records;
(xviii) prepare capital allocation reports in accordance with
Regulation 1.704-3(e)(3) (special aggregation rule for
securities partnerships) under the U.S. Internal Revenue Code,
based upon tax adjustments supplied by the Portfolio's
administrator;
(xix) determine the outstanding receivables and payables for all (1)
security trades, (2) Portfolio share transactions and (3)
income and expense accounts;
(xx) provide accounting reports in connection with the Fund's
regular annual audit and other audits and examinations by
regulatory agencies;
(xxi) advise the Fund and Morgan daily of the amount of any
overdraft and the circumstances giving rise to each such
overdraft; and
(xxii) provide such periodic reports as the Fund shall reasonably
request. In connection with the provision of these services, the Custodian
agrees:
(a) to maintain, in a format acceptable to the Fund, documents in accordance
with the applicable provisions of Rule 31a-2 of the 1940 Act, and with
requirements of other applicable domestic regulators, such as the IRS, or
Applicable Foreign Regulators (as hereinafter defined). The Custodian
agrees to make such documents available upon reasonable request for
inspection by officers, employees and auditors of the Fund during the
Custodian's normal business hours. For purposes of this subclause (a),
Applicable Foreign Regulator shall mean a foreign regulator designated as
such by the Fund by Proper Instructions and a foreign regulator actually
known to the Custodian to have authority over the Fund or its operations.
Promptly after the identification of an Applicable Foreign Regulator,
appropriate representatives of the Custodian and the Fund shall meet and
determine the requirements to which the Applicable Foreign Regulator would
subject the Fund. If the Custodian and the Fund determine, in the exercise
of their reasonable judgment, that complying with such requirements would
impose a substantial additional burden on the Custodian, the Fund and the
Custodian agrees to negotiate in good faith, taking into account all
relevant circumstances, an appropriate change in the fees payable
hereunder.
(b) that all records maintained and preserved by the Custodian pursuant to
this Agreement which the Portfolio is required to maintain and preserve
shall be and remain the property of the Portfolio and shall be
surrendered to the Portfolio promptly upon request in the form in which
such records have been maintained and preserved. Upon reasonable
request of the Portfolio, the Custodian shall provide, in the form
reasonably requested by the Fund, any records included in any such
delivery, and the Fund shall reimburse the Custodian for its expenses
of providing such records in such form;
(c) to make reasonable efforts to determine (i) the taxable nature of any
distribution or amount received by or deemed received by, or payable to the
Portfolio; (ii) the taxable nature or effect on the Portfolio or its
shareholders of any corporate actions, class actions, tax reclaims, tax
refunds, or similar events; (iii) the taxable nature or taxable amount of
any distribution or dividend paid, payable, or deemed paid by the Portfolio
to its shareholders; or (iv) the effect under any federal, state or foreign
income tax laws of the Portfolio making or not making any distribution or
dividend payment or any election with respect thereto, in each case subject
to review by the Fund or a designee of the Fund, subject to the following:
(w) with respect to determinations contemplated by this clause (c) that a
Prudent Fund Accountant would reasonably consider to be, and that the
Custodian considers to be, non-routine in nature, the Custodian may seek in
writing the approval or authorization of the Fund or a designee of the Fund
and shall not be required to act in respect of any such determination (as
to which a written request for approval or authorization shall have been
made) without such approval or authorization; (x) the Custodian need not
make any such accrual, unless and until such accrual has been approved and
authorized by the Fund or its designee; (y) the Fund shall, or shall cause
its designee, to provide such approval and authorization, or approval and
authorization of different determinations(s), promptly; and (z) provided
the Custodian has made the reasonable efforts described in this clause (c)
and thereafter has acted in accordance with the approvals and
authorizations of the Fund or its designee, the Custodian shall have no
liability for any such accrual if it otherwise, in performing its services
hereunder, is not in breach of this Agreement. The Custodian shall accrue
for these actions appropriately; and
(d) to provide such records and assistance, including office space within
the Custodian's premises, to the Fund's independent accountants in
connection with the services such accountants provide to the Fund, as
such accountants shall reasonably request.
The parties further agree as follows with respect to the provision of services
pursuant to this Schedule C: (a) The Custodian may provide services similar or
identical to those covered in this Schedule C to other
corporations, associations or entities of any kind. Any and all
operational procedures, techniques and devices developed by the
Custodian in connection with the performance of its duties and
obligations under this Schedule C, including those developed in
conjunction with the Fund (other than those for which the Fund has paid
the Custodian in whole or in part to develop), shall be and remain the
Custodian's property, and the Custodian shall be free to employ such
procedures, techniques and devices in conjunction with the performance
of any other contract with any other person, whether or not the
provisions of such contract are similar or identical to this provision
of this Schedule C.
(b) The Custodian may rely on the Fund's then currently effective
Prospectus, and the Fund shall promptly advise the Custodian of any
amendments thereto and provide copies of such amendments to the
Custodian.
(c) Both the Custodian and the Fund or its designee shall use reasonable
efforts to identify any changes in domestic and foreign laws and
regulations applicable to the Custodian's providing of services under
this Schedule C, each shall promptly advise the other of any changes it
identifies, and upon any such identification the Fund and the Custodian
shall agree on any reasonable alteration to the services to be provided
by the Custodian under this Schedule C.
(d) The Fund or its designee shall (i) furnish promptly to the Custodian
(and the Custodian may rely upon) the amounts of, or written formulas
or methodologies to be used by the Custodian to calculate the amounts
of, Fund liabilities and (ii) specify the timing for accruals of such
liabilities. The Custodian shall request such additional information as
it deems reasonably necessary for it to perform its services under this
Schedule C.
(e) The Custodian shall not be required to include as Fund liabilities and
expenses, nor use in its calculations hereunder, including, without
limitation, as a reduction of net asset value, any accrual for any U.S.
federal or state income taxes, unless and until the Fund or its
designee shall have specified to the Custodian the precise amount of
the same to be included in liabilities and expenses or used to reduce
net asset value. The Custodian agrees to include as a Fund liability
proper accruals for foreign taxes, unless, after being advised of the
amount and the basis for the accrual, the Fund by Proper Instructions
directs the Custodian not to do so.
(f) The Fund or its designee shall furnish to the Custodian, and the
Custodian may rely upon, the following types of information (and
explanations thereof): (i) the Fund's tax basis in debt obligations
acquired by the Fund before the Custodian's becoming custodian
hereunder, the dates of such acquisitions, and the amount of premium
previously amortized and the discount previously included in income,
(ii) the amounts credited to any capital accounts, (iii) the amount of
any reserves, and (iv) similar information which is required by the
Custodian for performing the services and is neither possessed by the
Custodian as custodian nor available from a third party.
(g) References to corporate actions in clause (b)(x) are limited to
corporate actions of which the Custodian has or is deemed to have
knowledge under Section 2.2.
(h) The Custodian shall not be responsible for, and shall not incur any loss or
liability with respect to: any errors or omissions in information supplied
by the Fund or its designee that the Custodian has reviewed and has
concluded is free of manifest error; any improper use by the Fund, its
designees, agents, distributor or investment adviser of any valuations or
computations supplied by the Custodian under this Agreement; any valuations
of securities supplied by the Fund or an independent pricing service
approved by the Fund's Board, provided that, with respect to such
valuations, the Custodian has otherwise complied with this Schedule C, has
reviewed the valuations and has concluded they are free of manifest error;
any tax determination authorized and approved by the Fund or its designee
that the Custodian has reviewed and has concluded is free of manifest
error; or any changes in U.S. law or regulations applicable to the
Custodian's performance not identified by the Custodian's use of reasonable
efforts which are not identified to the Custodian by the Fund.
<PAGE>
SCHEDULE D (FOREIGN CUSTODY MANAGER)
A. Definitions
Whenever used in this Schedule, the following words and phrases, unless
the context otherwise requires, shall have the following meanings:
1........"Eligible Foreign Custodian" shall have the meaning provided in
Rule 17f-5.
2........"Monitoring System" shall mean a system established by BNY to
fulfill the Responsibilities specified in clauses 1(d) and 1(e) of Section C.
3........"Qualified Foreign Bank" shall have the meaning provided in Rule
17f-5.
4........"Responsibilities" shall mean the responsibilities delegated to
the Custodian as a Foreign Custody Manager with respect to each Specified
Country and each Eligible Foreign Custodian selected by the Custodian, as such
responsibilities are more fully described in Section C.
5........"Rule 17f-5" shall mean Rule 17f-5 under the 1940 Act.
6........"Securities Depository" shall mean any securities depository
or clearing agency within the meaning of Section (a)(1)(ii) or (a)(1)(iii) of
Rule 17f-5.
7........"Specified Country" shall mean each country listed on Schedule B
of this Agreement and each country, other than the United States, constituting
the primary market for a security with respect to which the Fund has given
settlement instructions to the Custodian.
B. The Custodian as a Foreign Custody Manager
1........The Fund on behalf of its Board hereby delegates to the
Custodian with respect to each Specified Country the Responsibilities.
2........The Custodian accepts the Board's delegation of
Responsibilities and agrees in performing the Responsibilities to exercise
reasonable care, prudence and diligence such as a person having responsibility
for the safekeeping of the Fund's assets would exercise.
3........The Custodian shall provide to the Board at such times as the
Board deems reasonable and appropriate based on the circumstances of the Fund's
foreign custody arrangements written reports notifying the Board of the
placement of assets of the Fund with a particular Eligible Foreign Custodian
within a Specified Country and of any material change in the arrangements
(including, in the case of Qualified Foreign Banks, any material change in any
contract governing such arrangements and in the case of Securities Depositories,
any material change in the established practices or procedures of such
Securities Depositories) with respect to assets of the Fund with any such
Eligible Foreign Custodian.
C. Responsibilities
1........Subject to the provisions of this Schedule D, the Custodian
shall with respect to each Specified Country select an Eligible Foreign
Custodian. In connection therewith the Custodian shall: (a) determine that
assets of each Portfolio held by such Eligible Foreign Custodian will be subject
to reasonable care, based on the standards applicable to custodians in the
relevant market in which such Eligible Foreign Custodian operates, after
considering all factors relevant to the safekeeping of such assets, including,
without limitation, those contained in paragraph (c)(1) of Rule 17f-5, (b)
determine that the Fund's foreign custody arrangements with each Qualified
Foreign Bank are governed by a written contract with the Custodian (or, in the
case of a Securities Depository, by such a contract, by the rules or established
practices or procedures of the Securities Depository, or by any combination of
the foregoing) which will provide reasonable care for the Fund's assets based on
the standards specified in paragraph (c)(1) of Rule 17f-5; (c) determine that
each contract with a Qualified Foreign Bank shall include the provisions
specified in paragraphs (c)(2)(i)(A) through (F) of Rule 17f-5 or alternatively,
in lieu of any or all of such (c)(2)(i)(A) through (F) provisions, such other
provisions as the Custodian determines will provide, in their entirety, the same
or a greater level of care and protection for the assets of the Fund as such
specified provisions; (d) monitor pursuant to the Monitoring System the
appropriateness of maintaining the assets of the Fund with a particular Eligible
Foreign Custodian pursuant to paragraph (c)(1) of Rule 17f-5 and, in the case of
a Qualified Foreign Bank, any material change in the contract governing such
arrangement and, in the case of a Securities Depository, any material change in
the established practices or procedures of such Securities Depository; and (e)
advise the Fund whenever an arrangement (including, in the case of a Qualified
Foreign Bank, any material change in the contract governing such arrangement and
in the case of a Securities Depository, any material change in the established
practices or procedures of such Securities Depository) described in preceding
clause (d) no longer meets the requirements of Rule 17f-5. Anything in this
Agreement to the contrary notwithstanding the Custodian in no event shall be
deemed to have selected any Securities Depository the use of which is mandatory
by law or regulation or because securities cannot be withdrawn from such
Securities Depository or because maintaining securities outside the Securities
Depository is not consistent with prevailing custodial practices in the relevant
market (each, a "Compulsory Depository"); it being understood however, that for
each Compulsory Depository utilized or intended to be utilized by the Fund, the
Custodian shall provide the Fund from time to time with information addressing
the factors set forth in Section (c)(1) of Rule 17f-5 and the Custodian's
opinions with respect thereto so that the Fund may determine the appropriateness
of placing Fund assets therein.
2........For purposes of clause (d) of preceding Section 1, the
Custodian's determination of appropriateness shall not include, nor be deemed to
include, any evaluation of Country Risks associated with investment in a
particular country. For purposes hereof, "Country Risks" shall mean systemic
risks of holding assets in a particular country including, but not limited to,
(a) the use of Compulsory Depositories, (b) such country's financial
infrastructure, (c) such country's prevailing custody and settlement practices,
(d) nationalization, expropriation or other governmental actions, (e) regulation
of the banking or securities industry, (f) currency controls, restrictions,
devaluations or fluctuations, and (g) market conditions which affect the orderly
execution of securities transactions or affect the value of securities.
<PAGE>
SCHEDULE E (CASH MANAGEMENT PROVISIONS)
A. DEFINITIONS
Whenever used in this Schedule, unless the context otherwise requires,
the following words shall have the meanings set forth below:
1........"Account" shall mean an account in the name of the Fund or its
transfer agent for receiving and disbursing money as provided in this Agreement.
2........"ACCESS" shall mean any on-line communication system provided
by the Custodian hereunder whereby either the receiver of such communication is
able to verify by codes or otherwise with a reasonable degree of certainty the
identity of the sender of such communication, or the sender is required to
provide a password or other identification code.
3........"Authorized Person" shall mean either (A) any person duly
authorized by corporate resolutions of the Fund's Board to give Oral and/or
Written Instructions on behalf of the Fund, such persons to be designated in
Proper Instructions, which contain a specimen signature of such person, or (B)
any person sending or transmitting any instruction or direction through ACCESS.
4........"Federal Funds" shall mean immediately available same day funds.
5........"Omnibus Account" shall mean (A) an account at the Custodian
for the benefit of the Fund and the other investment companies listed on Exhibit
E-1 into which money to be deposited into an Account is initially credited
pending its transfer to such Account pursuant to Section C hereof, and (B) an
account at the Custodian for the benefit of the Fund and such other investment
companies in which money to be transferred from an Account pursuant to Section C
is deposited pending its disbursement pursuant to Section C.
6........"Oral Instructions" shall mean verbal instructions actually
received by the Custodian from an Authorized Person or from a person reasonably
believed by the Custodian to be an Authorized Person.
7........"Written Instructions" shall mean written instructions
actually received by the Custodian from an Authorized Person or from a person
reasonably believed by the Custodian to be an Authorized Person by letter,
memorandum, telegram, cable, telex, facsimile or through ACCESS.
B. APPOINTMENT OF THE CUSTODIAN
The Fund hereby appoints the Custodian as its agent for the term of
this Contract to perform the cash management services set forth herein. The
Custodian hereby accepts appointment as such agent for the Fund and agrees to
establish and maintain one or more Accounts and/or Omnibus Accounts as the
parties shall determine are necessary to receive and disburse money as provided
in this Agreement.
C. CASH MANAGEMENT SERVICES
1........Receipt of Money. The Custodian shall receive money pursuant to
this Schedule E for credit to an Account only:
(i) by wire transfer to an account maintained at the Federal
Reserve Bank of New York as identified in writing by the
Custodian to the Fund;
(ii) by transfer from another Account maintained by the
Fund with the Custodian under this Agreement;
(iii) by transfer from another account maintained by the Fund
with the Custodian, including the Fund's custodian account
under this Contract; or
(iv) ....by transfer from any other account maintained with the
Custodian.
All money received by the Custodian shall be credited upon receipt, but subject
to final payment and receipt by the Custodian of immediately available funds,
and receipt by the Custodian of such forms, documents and information as are
required by the Custodian from time to time and received in the appropriate time
frames. If an Omnibus Account has been established for the Fund for the receipt
of money, such money shall be initially credited to the Omnibus Account pending
its allocation to, and deposit in, an Account. The Custodian, upon 24 hours'
prior notice to the Fund, shall be entitled to reverse any credits previously
made to the Fund's Account or an Omnibus Account where money is not finally
collected or where a credit to such account was in error.
2........Disbursement of Money. The Custodian shall disburse money
credited to an Account pursuant to this Schedule E only pursuant to Written
Instructions of the Fund transmitted through ACCESS to transfer funds as
directed by the Fund. The Custodian shall be required to disburse money in
accordance with the foregoing only insofar as such money is immediately
available and on deposit with the Custodian. If an Omnibus Account has been
established hereunder for the disbursement of money, such money shall be
credited to the Omnibus Account pending such disbursement. All instructions
directing the disbursement of money credited to an Account or Omnibus Account
under this Agreement (whether through ACCESS or by Oral Instructions pursuant to
Section D hereof) must identify an account to which such money shall be
transferred, and include all other information reasonably required by the
Custodian from time to time. It is understood and agreed that with respect to
any such instructions, when instructed to credit or pay a party by both name and
a unique numeric or alpha-numeric identifier (e.g., ABA number or account
number), the Custodian and any other financial institution participating in the
funds transfer may rely solely on the unique identifier, even if it identifies a
party different than the party named. Such reliance on a unique identifier shall
apply to beneficiaries named in such instructions as well as any financial
institution which is designated in such instruction to act as an intermediary in
a funds transfer.
3........Advances. In the event of any advance, overdraft or other
indebtedness in connection with an Omnibus Account in excess of a minimum to be
agreed upon from time to time by the Fund and the Custodian, the Custodian shall
be furnished on the next Business Day after such advance, overdraft or
indebtedness with Written Instructions identifying the Portfolio and each other
investment company to which such advance, overdraft or indebtedness relates, and
the amount allocable to each of them. Any overdraft, advance or indebtedness
arising in any Omnibus Account for the disbursement of money in connection with
any redemption of a Portfolio's shares shall be allocated to such Portfolio,
except that, if such Portfolio invests primarily in the shares of another
investment company, such overdraft, advance or indebtedness shall be allocated
to such other investment company.
4........Compliance with Law. The Fund agrees that upon allocation of
all advances, overdrafts or indebtedness to its account pursuant to Section C.3,
the total borrowings of each Portfolio from all sources (including the
Custodian) shall be in conformity with the requirements and limitations set
forth in the 1940 Act and each Portfolio's prospectus. The Fund shall promptly
(and in any event within one Business Day) notify the Custodian in writing
whenever it fails to comply with any of the foregoing requirements.
D. ACCESS; CALL-BACK SECURITY PROCEDURE.
1........Services Generally. The Fund shall be permitted to utilize
ACCESS to obtain direct on-line access to its Accounts and Omnibus Accounts.
ACCESS shall permit the Fund at the times mutually agreed upon by the Custodian
and the Fund to receive reports, make inquiries, instruct the Custodian to
disburse money in accordance with Section C, and perform such other functions as
are more fully set forth in Exhibit E-2 hereto.
2........Permitted Use; Proprietary Information; Equipment. (a) Upon
delivery to the Fund of software enabling it to utilize ACCESS (the "Software"),
the Custodian grants to the Fund a personal, nontransferable and nonexclusive
license to use the Software solely for the purpose of transmitting Written
Instructions, receiving reports, making inquiries or otherwise communicating
with the Custodian in connection with the Account(s) or the Omnibus Account. The
Fund shall use the Software solely for its own internal and proper business
purposes and not in the operation of a service bureau. Except as set forth
herein, no license or right of any kind is granted to the Fund with respect to
the Software. The Fund acknowledges that the Custodian and its suppliers retain
and have title and exclusive proprietary rights to the Software, including any
trade secrets or other ideas, concepts, know-how, methodologies, or information
incorporated therein and the exclusive rights to any copyrights, trademarks and
patents (including registrations and applications for registration of either),
or other statutory or legal protections available in respect thereof. The Fund
further acknowledges that all or a part of the Software may be copyrighted or
trademarked (or a registration or claim made therefor) by the Custodian or its
suppliers. The Fund shall not take any action with respect to the Software
inconsistent with the foregoing acknowledgments, nor shall the Fund attempt to
decompile, reverse engineer or modify the Software. The Fund may not copy, sell,
lease or provide, directly or indirectly, any of the Software or any portion
thereof to any other person or entity without the Custodian's prior written
consent. The Fund may not remove any statutory copyright notice or other notice
included in the Software or on any media containing the Software. The Fund shall
reproduce any such notice on any reproduction of the Software and shall add any
statutory copyright notice or other notice to the Software or media upon the
Custodian's reasonable request.
3........Limited Representations or Warranties. The Software does not
infringe upon the proprietary rights of any third party and the Custodian has no
actual knowledge that a Destructive Element (as defined below) has been coded or
introduced into the Software. A Destructive Element means code or data (a)
intentionally designed to disrupt, disable, harm, or otherwise impede in any
manner, including aesthetical disruptions or distortions, the operation of the
Software or the computers and related equipment used to provide the services to
be provided under this Schedule E (sometimes referred to as "viruses" or
"worms"), (b) that would disable the Software or the computers and related
equipment used to provide the services to be provided under this Schedule E or
impair in any way their operation based on the elapsing of a period of time,
exceeding an authorized number of copies, advancement to a particular date or
other numeral (sometimes referred to as "time bombs", "time locks", or "drop
dead" devices), (c) that would permit the Custodian to access the Software or
computers and related equipment used to provide the services to be provided
under this Schedule E to cause such disablement or impairment (sometimes
referred to as "traps", "access codes" or "trap door" devices), or (d) which
contains any other similar harmful, malicious or hidden procedures, routines or
mechanisms which would cause such programs to cease functioning or to damage or
corrupt data, storage media, programs, equipment or communications, or otherwise
interfere with operations. Other than provided above, the Custodian and its
manufacturers and suppliers make no warranties or representations, express or
implied, in fact or in law, including but not limited to warranties of
merchantability and fitness for a particular purpose, in connection with the
Fund's use of ACCESS or the Software.
4........Security; Reliance; Unauthorized Use. The Fund will, and will
cause all persons utilizing ACCESS to, treat the user and authorization codes,
passwords and authentication keys applicable to ACCESS with extreme care. The
Custodian is hereby irrevocably authorized to act in accordance with and rely on
Written Instructions received by it through ACCESS. The Fund acknowledges that
it is its sole responsibility to assure that only Authorized Persons use ACCESS
and that the Custodian shall not be responsible nor liable for any unauthorized
use thereof, and agrees that the security procedures to be followed in
connection with the Fund's transmission of Written Instructions through ACCESS
provide to it a commercially reasonable degree of protection in light of its
particular needs and circumstances.
5........Funds Transfer Back-Up Procedure. (a) In the event ACCESS is
inoperable and the Fund is unable to utilize ACCESS for the transmission of
Written Instructions to the Custodian to transfer funds, the Fund may give Oral
Instructions regarding funds transfers, it being expressly understood and agreed
that the Custodian's acting pursuant to such Oral Instructions shall be
contingent upon the Custodian's verification of the authenticity thereof
pursuant to the Call-Back Security Procedures annexed as Exhibit E-3 hereto. In
this regard, the Fund shall deliver to the Custodian a Funds Transfer Telephone
Instruction Authorization in the form of Exhibit E-4 hereto, identifying the
individuals authorized to deliver and/or confirm all such Oral Instructions. The
Fund understands and agrees that the Procedure is intended to determine whether
Oral Instructions received pursuant to this Section are authorized but is not
intended to detect any errors contained in such instructions. The Fund hereby
accepts the Procedure and confirms its belief that the Procedure is commercially
reasonable.
(b)......In the absence of negligence, the Custodian shall have no
liability whatsoever for any funds transfer executed in accordance with Oral
Instructions delivered and confirmed pursuant to this Schedule E.
(c)......The Custodian reserves the right to suspend acceptance of Oral
Instructions pursuant to this Schedule E if conditions exist which the
Custodian, in its sole discretion, reasonably believes have created an
unacceptable security risk. The Custodian agrees to provide one Business Day's
prior notice of its intention to suspend such acceptance, to advise the Fund in
writing of the specific conditions giving rise to its determination and to
cooperate fully with the Fund in correcting the conditions.
6........Export Restrictions. EXPORT OF THE SOFTWARE IS PROHIBITED BY
UNITED STATES LAW. THE FUND AGREES THAT IT WILL NOT UNDER ANY CIRCUMSTANCES
RESELL, DIVERT, TRANSFER, TRANSSHIP OR OTHERWISE DISPOSE OF THE SOFTWARE (IN ANY
FORM) IN OR TO ANY OTHER COUNTRY. IF THE CUSTODIAN DELIVERED THE SOFTWARE TO THE
FUND OUTSIDE OF THE UNITED STATES, THE SOFTWARE WAS EXPORTED FROM THE UNITED
STATES IN ACCORDANCE WITH THE EXPORT ADMINISTRATION REGULATIONS. DIVERSION
CONTRARY TO U.S. LAW IS PROHIBITED. The Fund hereby authorizes the Custodian to
report its name and address to government agencies to which the Custodian is
required to provide such information by law.
7........Encryption. The Fund acknowledges and agrees that encryption
may not be available for every communication through ACCESS, or for all data.
The Fund agrees that Custodian may deactivate any encryption features at any
time, without notice or liability to the Fund, for the purpose of maintaining,
repairing or troubleshooting ACCESS or the Software. The Custodian shall use
reasonable efforts to notify the Fund before deactivating any encryption
feature. If it is unable to provide prior notice, the Custodian agrees to give
the Fund notice of such deactivation as promptly as practicable thereafter and,
in any event, within three days thereafter.
E. CONCERNING THE BANK.
For purposes of this Schedule E only, provided it has acted in good
faith and without negligence, the Custodian shall not be liable for:
(a)......the due authority of any Authorized Person acting on behalf of the
Fund in connection with the services to be provided pursuant to this Schedule E;
(b)......any disbursement directed by the Fund, regardless of the purpose
therefor; or
(c)......the propriety of any transaction in any Account or Omnibus
Account.
Consents of Independent Accountants
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our reports dated July 14, 1999, relating to the
financial statements and financial highlights which appear in the May 31, 1999
Annual Reports of J.P. Morgan U.S. Equity Fund, J.P. Morgan U.S. Small Company
Fund, J.P. Morgan U.S. Small Company Opportunities Fund and J.P. Morgan
Disciplined Equity Fund and the financial statements and supplementary data of
The U.S. Equity Portfolio, The U.S. Small Company Portfolio, The U.S. Small
Company Opportunities Portfolio and The Disciplined Equity Portfolio, which are
also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our reports dated September 15, 1999, relating to the
financial statements and financial highlights which appear in the July 31, 1999
Annual Reports of J.P. Morgan New York Tax Exempt Bond Fund, J.P. Morgan Tax
Exempt Bond Fund and J.P. Morgan Emerging Markets Debt Fund and the financial
statements and supplementary data of The New York Tax Exempt Bond Portfolio, The
Tax Exempt Bond Portfolio and The Emerging Markets Debt Portfolio, which are
also incorporated by reference into the Registration Statement.
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our reports dated December 17, 1999, relating to the
financial statements and financial highlights which appear in the October 31,
1999 Annual Reports of J.P. Morgan Short Term Bond Fund, J.P. Morgan Bond Fund,
J.P. Morgan International Equity Fund, J.P. Morgan Emerging Markets Equity Fund,
J.P. Morgan Global Strategic Income Fund and J.P. Morgan Federal Money Market
Fund and the financial statements and supplementary data of The Short Term Bond
Portfolio, The U.S. Fixed Income Portfolio, The International Equity Portfolio,
The Emerging Markets Equity Portfolio, The Global Strategic Income Portfolio and
The Federal Money Market Portfolio, which are also incorporated by reference
into the Registration Statement.
We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our reports dated January 14, 2000, relating to the
financial statements and financial highlights which appear in the November 30,
1999 Annual Reports of J.P. Morgan Prime Money Market Fund, J.P. Morgan Tax
Exempt Money Market Fund, J.P. Morgan International Opportunities Fund and J.P.
Morgan European Equity Fund and the financial statements and supplementary data
of The Prime Money Market Portfolio, The Tax Exempt Money Market Portfolio, The
International Opportunities Portfolio and The European Equity Portfolio, which
are also incorporated by reference into the Registration Statement.
We also consent to the references to us under the headings "Financial
Highlights", "Independent Accountants" and "Financial Statements" in such
Registration Statement.
PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036
February 25, 2000