As filed with the Securities and Exchange Commission on April 3, 2000
Securities Act File No. 33-72834 Investment Company Act File No.
811-8212
======================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION UNDER THE SECURITIES ACT OF 1933 |X|
Pre-Effective Amendment No. __ | |
Post-Effective Amendment No. 11 |X|
and
REGISTRATION UNDER THE INVESTMENT COMPANY ACT OF 1940 |X|
AMENDMENT NO. 13 |X|
(Check appropriate box or boxes)
J.P. MORGAN SERIES TRUST II
(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: (800) 221-7930
Christopher J. Kelley, 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, NY 10004 It is proposed that this filing will
become effective (check appropriate box) | | immediately upon
filing pursuant to paragraph (b) |X| on April 3, 2000 pursuant to
paragraph (b) | | 60 days after filing pursuant to paragraph (a)(1) |
| on (date) pursuant to paragraph (a)(1) | | 75 days after filing
pursuant to paragraph (a)(2) | | on (date) pursuant to paragraph
(a)(2) 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>
April 3, 2000
PART A <PAGE>
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APRIL 3, 2000 | PROSPECTUS
----------------------------------------------------------------------
J.P. MORGAN SERIES TRUST II
Bond Portfolio
U.S. Disciplined Equity Portfolio
Small Company Portfolio
International Opportunities Portfolio
This prospectus contains essential information for anyone investing in these
portfolios. 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.
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
1 | Each portfolio's goal, principal strategies, principal risks, expenses and
performance
J.P. MORGAN SERIES TRUST II
J.P. Morgan Bond Portfolio ................................................ 1
J.P. Morgan U.S. Disciplined Equity Portfolio ............................. 3
J.P. Morgan Small Company Portfolio ....................................... 5
J.P. Morgan International Opportunities Portfolio ......................... 7
9 |
J.P. MORGAN MANAGEMENT APPROACH
J.P. Morgan ............................................................... 9
Fixed income investment process ........................................... 10
U.S. equity investment process ............................................ 11
International equity investment process ................................... 12
13 | Investing in the J.P. Morgan Series Trust II
BUY/SELL SHARES
Buying shares ............................................................. 13
Selling shares ............................................................ 13
Dividends, distributions and taxes ........................................ 13
14 | More about the portfolios' business operations
FUND DETAILS
Business structure ........................................................ 14
Management and administration ............................................. 14
Financial Highlights ...................................................... 15
For more information .............................................. back cover
Each portfolio is intended to be a funding vehicle for variable annuity
contracts ("VA contracts") and variable life insurance policies ("VLI policies"
and, together with VA contracts, "Policies") offered by the separate accounts of
Participating Insurance Companies. Individuals may not purchase shares directly
from the portfolios. The Policies are described in the separate prospectuses
issued by the Participating Insurance Companies over which the portfolios assume
no responsibility. Portfolio shares also are offered to qualified pension and
retirement plans and accounts permitting accumulation of assets on a
tax-deferred basis ("Eligible Plans"). The investment objectives and policies of
the portfolios may be similar to other funds/portfolios managed or advised by
J.P. Morgan. However, the investment results of the portfolios may be higher or
lower than, and there is no guarantee that the investment results of the
portfolios will be comparable to, any other J.P. Morgan fund/portfolio.
<PAGE>
J.P. MORGAN BOND PORTFOLIO |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The portfolio's goal is to provide high total return consistent with moderate
risk of capital and maintenance of liquidity. This goal can be changed only with
shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The portfolio 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
portfolio's duration within one year of that of the Salomon Smith Barney
Investment Grade Bond Index (currently about five years). For a description of
duration, please see "Fixed Income Investment Process" on page 10.
The portfolio may invest up to 20% of its assets in debt securities denominated
in foreign currencies, and may invest without limitation in U.S.
dollar-denominated securities of foreign issuers. The portfolio 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) by a nationally recognized statistical
rating organization 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 portfolio's share price and total return will vary in response to changes in
interest rates. How well the portfolio's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 10.
The portfolio is subject to credit risk, or the risk that an issuer of bonds
held by the portfolio fails to make timely interest or principal payments,
potentially reducing the portfolio's income or share price. To the extent that
the portfolio 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 portfolio's mortgage backed investments involve risk of losses due
to prepayments that occur earlier or later than expected, or, like any bond, due
to default. The portfolio may engage in active and frequent trading, leading to
increased portfolio turnover and the possibility of increased capital gains.
To the extent the portfolio invests in foreign securities, it could lose money
because of foreign government actions, political instability, currency
fluctuation or lack of adequate and accurate information. While the portfolio
may engage in options, futures and foreign currency transactions for hedging or
risk management purposes only, these transactions sometimes may reduce returns,
increase volatility or result in losses.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in
bond prices.
An investment in the portfolio 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 portfolio's share
price is lower than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN SERIES TRUST II
(J.P. MORGAN BOND PORTFOLIO)
PORTFOLIO MANAGEMENT
The portfolio's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $34 billion using similar
strategies as the portfolio.
The portfolio management team is led by Connie J. Plaehn, managing director,
William G. Tennille, vice president, and John Snyder, vice president. Ms. Plaehn
has been at J.P. Morgan since 1984. Mr. Tennille has been at J.P. Morgan since
1992 and Mr. Snyder has been at J.P. Morgan since 1993. Mr. Tennille and Ms.
Plaehn have been on the team since January 1994. Mr. Snyder has been a fixed
income portfolio manager since joining J.P. Morgan.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the portfolio should understand that:
o There is no assurance that the portfolio will meet its investment goal.
o The portfolio does not represent a complete investment program.
1 | J.P. MORGAN BOND PORTFOLIO
<PAGE>
PAST PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Performance information of the portfolio should not be compared with other funds
that offer their shares directly to the public since the figures provided do not
reflect charges imposed by Participating Insurance Companies under their VA
contracts or VLI policies. These rates will reflect the deduction of mortality
and expense risk charges and will therefore be lower. Policy holders should
consult the prospectus for their contract or policy.
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Bond Portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the portfolio's shares from year to year for each of the last five calendar
years.
The table indicates some of the risks by showing how the portfolio's average
annual returns for the past one year and five years (life of the portfolio)
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 portfolio's past performance does not necessarily indicate how the portfolio
will perform in the future.
Total returns (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
15% 16.85
10% 9.38 8.01
5%
0% 2.09
- --------------------------------------------------------------------------------
- -5% (1.13)
[ ] J.P. Morgan Bond Portfolio
For the period covered by this year-by-year total return chart, the portfolio's
highest quarterly return was 6.18% (for the quarter ended 6/30/95); and the
lowest quarterly return was -2.62% (for the quarter ended 3/31/96).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for years ended December 31, 1999
- ---------------------------------------------------------------------------------------------------------
Past 5 yrs.
Past 1 yr. (Life of portfolio(1)
<S> <C> <C>
J.P. Morgan Bond Portfolio (after expenses) (1.13) 6.86
Salomon Brothers Broad Investment Grade Bond Index (no expenses) (0.83) 7.74
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the portfolio are shown at right. The portfolio has no sales,
redemption, exchange, or account fees. The annual portfolio expenses are
deducted from portfolio assets prior to performance calculations.
Annual portfolio operating expenses (%)
(expenses that are deducted from portfolio assets)
- --------------------------------------------------------------------------------
Management fees 0.30
Marketing (12b-1) fees None
- --------------------------------------------------------------------------------
Other expenses(3) 0.45
- --------------------------------------------------------------------------------
Total operating expenses(3) 0.75
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the portfolio's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 77 240 417 930
- --------------------------------------------------------------------------------
(1) The portfolio's inception date was 12/31/94 and the portfolio commenced
operations on 1/3/95.
(2) The portfolio's fiscal year end is 12/31.
(3) Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan,
agrees to reimburse the portfolio to the extent certain expenses exceed
0.75% of the portfolio's average daily net assets during fiscal year 2000.
J.P. MORGAN BOND PORTFOLIO | 2
<PAGE>
J.P. MORGAN U.S. DISCIPLINED
EQUITY PORTFOLIO |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The portfolio's goal is to provide high total return from a portfolio of
selected equity securities. This goal can be changed only with shareholder
approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The portfolio invests primarily in large- and medium-capitalization U.S.
companies. Industry by industry, the portfolio's weightings are similar to those
of the S&P 500. The portfolio does not look to overweight or underweight
industries.
Within each industry, the portfolio 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 under "U.S. Equity Management Approach".)
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 portfolio seeks returns that modestly exceed those
of the S&P 500 over the long term with virtually the same level of volatility.
Principal Risks
The value of your investment in the portfolio will fluctuate in response to
movements in the stock market. Portfolio performance will also depend on the
effectiveness of J.P. Morgan's research and the management team's stock picking
decisions.
To the extent the portfolio invests in foreign securities, it could lose money
because of foreign government actions, political instability, currency
fluctuation or lack of adequate and accurate information. While the portfolio
may engage in options, futures and foreign currency transactions for hedging or
risk management purposes only, these transactions sometimes may reduce returns,
increase volatility or result in losses.
The portfolio may make money market investments pending other investment to
settlement for liquidity purpose. Under adverse market conditions, the portfolio
could invest some or all of its assets in money market securities. Although the
portfolio would do this to avoid losses, it could have the effect of reducing
the benefit from any upswing in stock prices.
An investment in the portfolio 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 portfolio's share
price is lower than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN SERIES TRUST II
(J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO)
PORTFOLIO MANAGEMENT
The portfolio's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $26 billion using similar
strategies as the portfolio.
The portfolio management team is led by Bernard A. Kroll, managing director,
Nanette Buziak, vice president, and Timothy J. Devlin, vice president. Mr. Kroll
has been at J.P. Morgan since 1996 and prior to managing this portfolio was an
equity derivatives specialist at Goldman Sachs & Co. Ms. Buziak has been at J.P.
Morgan since March of 1997 and prior to that time was an index arbitrage trader
and convertible bond portfolio manager at First Marathon America, Inc. 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 portfolio should understand that:
o There is no assurance that the portfolio will meet its investment goal.
o The portfolio does not represent a complete investment program.
3 | J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO
<PAGE>
PAST PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Performance information of the portfolio should not be compared with other funds
that offer their shares directly to the public since the figures provided do not
reflect charges imposed by Participating Insurance Companies under their VA
contracts or VLI policies. These rates will reflect the deduction of mortality
and expense risk charges and will therefore be lower. Policy holders should
consult the prospectus for their contract or policy.
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan U.S. Disciplined Equity Portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the portfolio's shares from year to year for each of the last five calendar
years.
The table indicates some of the risks by showing how the portfolio's average
annual returns for the past one year and five years (life of the portfolio)
compare to those of the S&P 500 Index. This is a widely recognized, unmanaged
index of U.S. stocks used as a measure of overall U.S. stock market performance.
The portfolio's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
40% 33.91
30% 27.50
20% 21.14 23.28 18.54
10%
0%
- --------------------------------------------------------------------------------
[ ] J.P. Morgan U.S. Disciplined Equity Portfolio
For the period covered by this year-by-year total return chart, the portfolio's
highest quarterly return was 20.73% (for the quarter ended 12/31/98); and the
lowest quarterly return was -11.00% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for years ended December 31, 1999
- -----------------------------------------------------------------------------------------------------------------
Past 5 years
Past 1 yr. (Life of portfolio1)
<S> <C> <C>
J.P. Morgan U.S. Disciplined Equity Portfolio (after expenses) 18.54 24.76
S&P 500 Index (no expenses) 21.04 28.55
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the portfolio, before and after reimbursement, are shown at
right. The portfolio has no sales, redemption, exchange, or account fees. The
annual portfolio expenses after reimbursement are deducted from portfolio assets
prior to performance calculations.
Annual portfolio operating expenses (%)
(expenses that are deducted from portfolio assets)
- --------------------------------------------------------------------------------
Management fees 0.35
Marketing (12b-1) fees none
Other expenses 0.52
- --------------------------------------------------------------------------------
Total operating expenses 0.87
Fee waiver and expense
reimbursement(3) 0.02
- --------------------------------------------------------------------------------
Net expenses(3) 0.85
- --------------------------------------------------------------------------------
Expense example(3)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the first
year, total operating expenses thereafter, and all shares sold at the end of
each time period. The example is for comparison only; the portfolio's actual
return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 87 276 488 1,071
- --------------------------------------------------------------------------------
(1) The portfolio's inception date was 12/31/94 and the portfolio commenced
operations on 1/3/95.
(2) The portfolio's fiscal year end is 12/31.
(3) Reflects an agreement by Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan, to reimburse the portfolio to the extent certain
expenses exceed 0.85% of the portfolio's average daily net assets during
fiscal year 2000.
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO | 4
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The portfolio's goal is to provide high total return from a portfolio of small
company stocks. This goal can be changed only with shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The portfolio invests primarily in small and medium sized U.S. companies whose
market capitalizations are greater than $100 million and less than $2 billion,
typically represented by the Russell 2000 Index. The portfolio can moderately
underweight or overweight industries against the Russell 2000 Index's industry
weightings when it believes it will benefit performance.
Within each industry, the portfolio focuses on those stocks that are ranked as
most undervalued according to the process described on page 14. The portfolio
generally considers selling stocks that appear overvalued or have grown into
large-cap stocks.
Principal Risks
The value of your investment in the portfolio will fluctuate in response to
movements in the stock market. Portfolio 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. Small companies carry
additional risks because their earnings tend to be less predictable, their share
prices more volatile and their securities less liquid than larger, more
established companies. The portfolio'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 portfolio pursues returns that exceed those of the
Russell 2000 Index while seeking to limit its volatility relative to this index.
To the extent the portfolio invests in foreign securities, it could lose money
because of foreign government actions, political instability, currency
fluctuation or lack of adequate and accurate information. While the portfolio
may engage in options, futures and foreign currency transactions for hedging or
risk management purposes only, these transactions sometimes may reduce returns,
increase volatility or result in losses.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in
stock prices.
An investment in the portfolio 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 portfolio's share
price is lower than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN SERIES TRUST II
(J.P. MORGAN SMALL COMPANY PORTFOLIO)
PORTFOLIO MANAGEMENT
The portfolio'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 portfolio.
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 portfolio, 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
at J.P. Morgan since 1992. Prior to managing the portfolio, Ms. Wells managed
large cap equity portfolios, and prior to that served as an equity researcher.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the portfolio should understand that:
o There is no assurance that the portfolio will meet its investment goal.
o The portfolio does not represent a complete investment program.
5 | J.P. MORGAN SMALL COMPANY PORTFOLIO
<PAGE>
PAST PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Performance information of the portfolio should not be compared with other funds
that offer their shares directly to the public since the figures provided do not
reflect charges imposed by Participating Insurance Companies under their VA
contracts or VLI policies. These rates will reflect the deduction of mortality
and expense risk charges and will therefore be lower. Policy holders should
consult the prospectus for their contract or policy.
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Small Company Portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the portfolio's shares from year to year for each of the last five calendar
years.
The table indicates some of the risks by showing how the portfolio's average
annual returns for the past one year and five years (life of the portfolio)
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 portfolio's past performance does not necessarily indicate how the portfolio
will perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
40% 44.39
30% 32.91
20% 21.74 22.50
(10%)
0%
- --------------------------------------------------------------------------------
(10%) (5.51)
[ ] J.P. Morgan Small Company Portfolio
For the period covered by this year-by-year total return chart, the portfolio's
highest quarterly return was 34.41% (for the quarter ended 12/31/99); and the
lowest quarterly return was -21.67% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for years ended December 31, 1999
- -------------------------------------------------------------------------------------------------------
Past 5 yrs.
Past 1 yr. (Life of portfolio(1)
<S> <C> <C>
J.P. Morgan Small Company Portfolio (after expenses) 44.39 22.01
Russell 2000 Index (no expenses) 21.26 16.69
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the portfolio before and after reimbursement are shown at right.
The portfolio has no sales, redemption, exchange, or account fees. The annual
portfolio expenses after reimbursement are deducted from portfolio assets prior
to performance calculations.
Annual portfolio operating expenses(3)(%)
(expenses that are deducted from portfolio assets)
- --------------------------------------------------------------------------------
Management fees 0.60
Marketing (12b-1) fees none
Other expenses 1.97
- --------------------------------------------------------------------------------
Total operating expenses 2.57
Fee waiver and expense
reimbursement(3) 1.42
- --------------------------------------------------------------------------------
Net expenses(3) 1.15
- --------------------------------------------------------------------------------
Expense example(3)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the first
year, total operating expenses thereafter, and all shares sold at the end of
each time period. The example is for comparison only; the portfolio's actual
return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 117 664 1,238 2,799
- --------------------------------------------------------------------------------
(1) The portfolio's inception date was 12/31/94 and the portfolio commenced
operations on 1/3/95.
(2) The portfolio's fiscal year end is 12/31.
(3) Reflects an agreement by Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan, to reimburse the portfolio to the extent certain
expenses exceed 1.15% of the portfolio's average daily net assets during
fiscal year 2000.
J.P. MORGAN SMALL COMPANY PORTFOLIO | 6
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The portfolio's goal is to provide high total return from a portfolio of equity
securities of foreign companies. This goal can be changed only with shareholder
approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies The portfolio's assets are
invested primarily in companies from developed markets other than the U.S. The
portfolio'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 portfolio 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 portfolio
generally follows the process described on page 12, its country allocations and
sector weightings may differ significantly from those of the MSCI All Country
World Index Free (ex-U.S.), the portfolio's benchmark. The portfolio makes its
currency management decisions as described on page 12.
Principal Risks
The value of your investment in the portfolio will fluctuate in response to
movements in international stock markets and currency exchange rates. Portfolio
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. The portfolio's
performance will be influenced by political, social and economic factors
affecting companies around the world. These risks include foreign government
actions, political instability, currency fluctuation or lack of adequate and
accurate information. 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. You should be prepared to ride out
periods of underperformance. To the extent that the portfolio hedges its
currency exposure into the U.S. dollar, it may reduce the effects of currency
fluctuations. The portfolio may also hedge from one foreign currency to another.
However, the portfolio does not typically use this strategy for its emerging
markets currency exposure. Foreign stocks are generally riskier than other
domestic counterparts.
While the portfolio may engage in options, futures and foreign currency
transactions for hedging or risk management purposes only, these transactions
sometimes may reduce returns, increase volatility or result in losses.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in
stock prices.
An investment in the portfolio 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 portfolio's share
price is lower than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN SERIES TRUST II
(J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO)
PORTFOLIO MANAGEMENT
The portfolio's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including approximately $3.6 billion using similar
strategies as the portfolio.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been on the team since the portfolio'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 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 portfolio should understand that:
o There is no assurance that the portfolio will meet its investment goals.
o The portfolio does not represent a complete investment program.
7 | J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
<PAGE>
PAST PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Performance information of the portfolio should not be compared with other funds
that offer their shares directly to the public since the figures provided do not
reflect charges imposed by Participating Insurance Companies under their VA
contracts or VLI policies. These rates will reflect the deduction of mortality
and expense risk charges and will therefore be lower. Policy holders should
consult the prospectus for their contract or policy.
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan International Opportunities Portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the portfolio's shares from year to year for each of the last five calendar
years.
The table indicates some of the risks by showing how the portfolio's average
annual return for the past one year and five years (life of the portfolio)
compare to those of the MSCI All Country World Index Free (ex.-U.S.). This is an
unmanaged index that measures developed and emerging foreign stock market
performance.
The portfolio's past performance does not necessarily indicate how the portfolio
will perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
40% 36.66
30%
20%
10% 12.38 13.12
0% 5.43 4.73
- --------------------------------------------------------------------------------
[ ] J.P. Morgan International Opportunities Portfolio
For the period covered by this year-by-year total return chart, the portfolio's
highest quarterly return was 21.06% (for the quarter ended 12/31/98); and the
lowest quarterly return was -20.24% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for years ended December 31, 1999
- -----------------------------------------------------------------------------------------------------------------
Past 5 years
Past 1 year (Life of portfolio(1)
<S> <C> <C>
J.P. Morgan International Opportunities Portfolio (after expenses) 36.66 13.92
MSCI All Country World Index Free (ex-U.S.) (no expenses) 30.91 12.39
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the portfolio before and after reimbursement are shown at right.
The portfolio has no sales, redemption, exchange, or account fees. The annual
portfolio expenses after reimbursement are deducted from portfolio assets prior
to performance calculations.
Annual portfolio operating expenses (3)(%)
(expenses that are deducted from portfolio assets)
- --------------------------------------------------------------------------------
Management fees 0.60
Marketing (12b-1) fees None
Other expenses 1.38
- --------------------------------------------------------------------------------
Total operating expenses 1.98
Fee waiver and expense
reimbursement(3) 0.78
- --------------------------------------------------------------------------------
Net expenses(3) 1.20
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the first
year, total operating expenses thereafter, and all shares sold at the end of
each time period. The example is for comparison only; the portfolio's actual
return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 122 546 995 2,243
- --------------------------------------------------------------------------------
(1) The portfolio's inception date was 12/31/94 and the portfolio commenced
operations on 1/3/95.
(2) The portfolio's fiscal year end is 12/31.
(3) Reflects an agreement by Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan, to reimburse the portfolio to the extent certain
expenses exceed 1.20% of the portfolio's average daily net assets during
fiscal year 2000.
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO | 8
<PAGE>
J.P. MORGAN MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
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 approximately $349 billion in assets under management,
including assets managed by each portfolio's advisor, J.P. Morgan Investment
Management Inc.
9 | MONEY MARKET 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 takes positions in many different ones, helping the
Bond Portfolio to limit exposure to concentrated sources of risk.
In managing the Bond Portfolio, J.P. Morgan employs a three-step process that
combines sector allocation, fundamental research for identifying portfolio
securities, and duration management.
[GRAPHIC OMITTED]
The Bond Portfolio invests 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 the portfolio may invest. The
team seeks to enhance performance and manage risk by underweighting or
overweighting sectors.
[GRAPHIC OMITTED]
The Bond Portfolio selects its securities
according to its goal and strategy
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 the portfolio's
goal and strategy.
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process to
control the Bond Portfolio'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 the portfolio's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securities owned by the portfolio, 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. The portfolio's duration is generally
shorter than the portfolio's average maturity because the maturity of a security
only measures the time until final payment is due. The portfolio's target
duration typically remains relatively close to the duration of the market as a
whole, as represented by the portfolio's benchmark. The strategists closely
monitor the portfolio and make tactical adjustments as necessary.
FIXED INCOME MANAGEMENT APPROACH | 10
<PAGE>
- --------------------------------------------------------------------------------
U.S. EQUITY INVESTMENT PROCESS
The philosophy of each of the U.S. Disciplined Equity Portfolio and Small
Company Portfolio, developed by the advisor, focuses on stock picking while
largely avoiding sector or market-timing strategies. Also, under normal market
conditions, each portfolio will remain fully invested.
In managing the U.S. Disciplined Equity Portfolio and the Small Company
Portfolio, 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 portfolio's management team
chooses stocks for the portfolio
Stock selection Each portfolio buys and sells stocks according to its own
policies, using the research and valuation rankings as a basis. In general, the
management team buys stocks that are identified as undervalued and considers
selling them when they appear overvalued. Along with attractive valuation, each
portfolio's managers often consider a number of other criteria:
o catalysts that could trigger a rise in a stock's price
o high potential reward compared to potential risk
o temporary mispricings caused by market overreactions
11 | U.S. EQUITY MANAGEMENT APPROACH
<PAGE>
- --------------------------------------------------------------------------------
INTERNATIONAL EQUITY INVESTMENT PROCESS
The International Opportunities Portfolio's philosophy, developed by its
advisor, focuses on allocating assets by country, selecting stocks and managing
currency exposure. The portfolio largely avoids using sector or market-timing
strategies. Under normal market conditions, the portfolio will remain fully
invested.
Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.
In managing the International Opportunities Portfolio, 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 the portfolio. Country allocation may vary either significantly
or moderately from the portfolio's benchmark. J.P. Morgan considers the
developed countries of Europe (excluding the U.K.) as a whole while monitoring
the portfolio'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. The portfolio's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:
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]
J.P. Morgan may adjust currency
exposure to seek to manage
risks and enhance returns
Currency management The portfolio has access to J.P. Morgan's currency
specialists in determining the extent and nature of its exposure to various
foreign currencies.
INTERNATIONAL EQUITY MANAGEMENT APPROACH | 12
<PAGE>
BUY/SELL SHARES
- --------------------------------------------------------------------------------
BUYING SHARES
Portfolio shares are offered only to separate accounts of Participating
Insurance Companies and Eligible Plans. Individuals may not purchase shares
directly from the portfolios. Policy owners should consult the applicable
prospectus of the separate account of the Participating Insurance Company and
Eligible Plan participants should consult the Plan's administrator or trustee
for more information about buying portfolio shares.
The price for portfolio shares is the portfolio's net asset value per share
(NAV), which is generally calculated as of the close of trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open.
Purchase orders from separate accounts received in proper form by the
Participating Insurance Company or from Eligible Plans on a given business day
are priced at the NAV calculated on such day, provided that the order and
Federal Funds in the net amount of such order is received by the portfolio in
proper form on the next business day. The Participating Insurance Company or
Eligible Plan administrator or trustee is responsible for properly transmitting
purchase orders and Federal Funds.
Each portfolio's equity 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 portfolio's fair valuation procedures. Debt
securities with remaining maturities of 60 days or less are valued on an
amortized cost basis. Other debt securities are valued based on market value, or
where market quotations are not readily available, based on fair value which may
be determined by one or more pricing services.
<PAGE>
SELLING SHARES
Portfolio shares may be sold at any time by the separate accounts of the
Participating Insurance Companies or by Eligible Plans. Individuals may not
place sell orders directly with the portfolios. Redemption orders from separate
accounts received in proper form by the Participating Insurance Company or from
Eligible Plans on a given business day are priced at the NAV calculated on such
day, provided that the order is received by the portfolio in proper form on the
next business day. The Participating Insurance Company or Eligible Plan
administrator or trustee is responsible for properly transmitting redemption
orders. Policy owners should consult the applicable prospectus of the separate
account of the Participating Insurance Company and Eligible Plan participants
should consult the Plan's administrator or trustee for more information about
selling portfolio shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
Each portfolio generally pays dividends from its net investment income, and
distributes any net capital gains that it has realized once a year.
Distributions will be reinvested in the portfolio unless instructed otherwise by
a Participating Insurance Company or Eligible Plan.
Portfolio dividends and distributions are taxable to most investors. Since each
portfolio's shareholders are the Participating Insurance Companies and their
separate accounts and Eligible Plans, no discussion is included as to the
Federal income tax consequences to Policy owners and Eligible Plan participants.
For this information, Policy owners should consult the applicable prospectus of
the separate account of the Participating Insurance Company and Eligible Plan
participants should consult the Plan's administrator or trustee.
Participating Insurance Companies and Eligible Plans should consult their tax
advisors about federal, state and local tax consequences.
13 | BUY/SELL SHARES
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
Each portfolio is a series of J.P. Morgan Series Trust II, a Delaware business
trust. Information about other series 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 trustees are responsible for overseeing all business activities. Funds
Distributor, Inc., as co-administrator, along with Morgan Guaranty, provides
fund officers. Morgan Guaranty, as co-administrator, provides certain financial
and administrative services and oversees the portfolios' other service
providers.
J.P. Morgan and Morgan Guaranty receive the following fees for investment
advisory and administrative services, respectively:
Advisory services Percentage of the portfolio's
average daily net assets
Bond 0.30%
Equity 0.35%
Small Company 0.60%
International Opportunities 0.60%
Administrative services*
Bond 0.45%
Equity 0.50%
Small Company 0.55%
International Opportunities 0.60%
*Morgan Guaranty is responsible for reimbursing each portfolio for certain
expenses usually incurred by the portfolio, including dividend disbursing
costs, custody fees, legal and accounting expenses and certain other expenses
described in the Statement of Additional Information. Each portfolio will pay
these expenses directly and these amounts will be deducted from the fees
payable to Morgan Guaranty. If these amounts are more than the fees payable to
Morgan Guaranty, it will reimburse the portfolio for the excess.
FUND DETAILS | 14
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand each
portfolio's financial performance for the past five fiscal years. Certain
information reflects financial results for each portfolio share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the portfolio (assuming reinvestment of all dividends
and distributions). The financial highlights for the three years ended December
31, 1999 were audited by PricewaterhouseCoopers LLP, and the financial
highlights for the two years ended December 31, 1996 were audited by prior
independent accountants. Each portfolio's financial statements, along with the
report of PricewaterhouseCoopers LLP, are in-cluded in each portfolio's annual
report, which is available upon request.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN BOND PORTFOLIO
Per-share data For fiscal years ended December 31
- -------------------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 10.91 10.65 11.29 11.67
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.58 0.47 0.68(4) 0.45 0.40
Net realized and unrealized gain (loss)
on investments, futures and foreign
currency transactions ($) 1.11 (0.25) 0.31(4) 0.45 (0.53)
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 1.69 0.22 0.99 0.90 (0.13)
- -------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.58) (0.47) (0.27) (0.39) (0.27)
Net realized gain ($) (0.20) (0.01) (0.08) (0.13) (0.04)
- -------------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders ($) (0.78) (0.48) (0.35) (0.52) (0.31)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 10.91 10.65 11.29 11.67 11.23
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) 16.85(2) 2.09 9.38 8.01 (1.13)
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 1,417 2,782 15,899 32,541 66,218
- -------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.75(3) 0.75 0.75 0.75 0.75
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 6.00(3) 5.91 6.20 5.39 5.36
- -------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.90(3) 2.18 1.91 1.02 0.75
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 239 198 184 179 479
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolio commenced operations on 1/3/95.
(2) Not annualized.
(3) Annualized.
(4) Based on average daily shares outstanding.
15 | FUND DETAILS
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO
Per-share data For fiscal years ended December 31
- -------------------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 12.63 13.68 14.33 15.84
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.12 0.20 0.11 0.10 0.09
Net realized and unrealized gain (loss)
on investments and futures ($) 3.26 2.44 3.51 3.15 2.80
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 3.38 2.64 3.62 3.25 2.89
- -------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.12) (0.20) (0.11) (0.09) (0.06)
Net realized gain ($) (0.63) (1.39) (2.86) (1.65) (1.32)
- -------------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders ($) (0.75) (1.59) (2.97) (1.74) (1.38)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 12.63 13.68 14.33 15.84 17.35
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) 33.91(2) 21.14 27.50 23.28 18.54
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 4,144 5,339 8,892 18,511 39,484
- -------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.90(3) 0.90 0.90 0.90 0.87
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.48(3) 1.49 0.75 0.81 0.74
- -------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.70(3) 2.13 2.31 1.48 0.87
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66 90 119 82 104
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolio commenced operations on 1/3/95.
(2) Not annualized.
(3) Annualized.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN SMALL COMPANY PORTFOLIO
Per-share data For fiscal years ended December 31
- -------------------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 11.83 12.53 13.09 11.86
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.11 0.06 0.04 0.03 0.00(4)
Net realized and unrealized gain (loss)
on investments ($) 3.18 2.43 2.53 (0.74) 5.23
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 3.29 2.49 2.57 (0.71) 5.23
- -------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.11) (0.06) (0.04) (0.02) (0.01)
Net realized gain ($) (1.35) (1.73) (1.97) (0.15) (0.35)
In excess of net realized gain ($) -- -- -- (0.35) --
- -------------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders ($) (1.46) (1.79) (2.01) (0.52) (0.36)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 11.83 12.53 13.09 11.86 16.73
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) 32.91(2) 21.74 22.50 (5.51) 44.39
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 2,536 3,867 5,196 6,831 16,425
- -------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.15(3) 1.15 1.15 1.15 1.15
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.99(3) 0.54 0.28 0.28 0.07
- -------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 3.22(3) 2.69 3.81 3.43 2.57
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 100 144 85 67 121
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolio commenced operations on 1/3/95.
(2) Not annualized.
(3) Annualized.
(4) Less than 0.01.
FUND DETAILS | 16
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN international opportunities portfolio
Per-share data For fiscal years ended December 31
- -------------------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 10.86 11.73 10.60 10.52
- -------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.15 0.20 0.15 0.14 0.11
Net realized and unrealized gain
on investments and foreign currency transactions($) 1.08 1.23 0.44 0.40 3.71
- -------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 1.23 1.43 0.59 0.54 3.82
- -------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.09) (0.09) (0.41) (0.16) (0.11)
Net realized gain ($) (0.18) (0.47) (1.31) -- (0.40)
In excess of net realized gain ($) -- -- -- (0.46) --
Return of capital ($) (0.10) -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders ($) (0.37) (0.56) (1.72) (0.62) (0.51)
- -------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 10.86 11.73 10.60 10.52 13.83
- -------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------------------------------------------------
Total return (%) 12.38(2) 13.12 5.43 4.73 36.66
- -------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 3,992 6,250 6,780 9,788 22,304
- -------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.20(3) 1.20 1.20 1.20 1.20
- -------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.06(3) 1.25 0.88 0.44 0.85
- -------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 3.16(3) 3.18 4.25 3.26 1.98
- -------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 68 71 149 127 66
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolio commenced operations on 1/3/95.
(2) Not annualized.
(3) Annualized.
18 |
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on these portfolios, 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 portfolio performance for a portfolio's most recently completed fiscal year
or half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of a portfolio's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents, along with other information
about the portfolios, may be obtained by contacting:
J.P. Morgan Series Trust II
60 State Street
Boston, Massachusetts 02109
Telephone: 1-800-521-5411
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-202-942-8090) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
investment company and 1933 Act registration numbers for J. P. Morgan Series
Trust II are 811-08212 and 33-72834.
J.P. MORGAN FUNDS AND
THE MORGAN TRADITION
The J.P. Morgan Family of Funds
combines 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 Family
of Funds offer a broad array of distinctive opportunities for investors.
- --------------------------------------------------------------------------------
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>
<PAGE>
- --------------------------------------------------------------------------------
APRIL 3, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN SERIES TRUST II
Bond Portfolio
--------------------------------------
Seeking high total return by investing
primarily in fixed income securities.
This prospectus contains essential information for anyone investing in the
portfolio. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. JPMorgan
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
1 | The portfolio's goal, principal strategies, principal risks, expenses and
performance
J.P. MORGAN BOND PORTFOLIO
Portfolio description ....................................................... 1
Past performance ............................................................ 2
3|
FIXED INCOME MANAGEMENT APPROACH
J.P. Morgan ................................................................. 3
Fixed income investment process ............................................. 3
4| Investing in the J.P. Morgan Bond Portfolio
BUY/SELL SHARES
Buying shares ............................................................... 4
Selling shares .............................................................. 4
Dividends, distributions and taxes .......................................... 4
5| More about the portfolio's business operations
FUND DETAILS
Business structure .......................................................... 5
Management and administration ............................................... 5
Financial highlights ........................................................ 6
FOR MORE INFORMATION ............................................... back cover
This portfolio is intended to be a funding vehicle for variable annuity
contracts ("VA contracts") and variable life insurance policies ("VLI policies"
and, together with VA contracts, "Policies") offered by the separate accounts of
Participating Insurance Companies. Individuals may not purchase shares directly
from the portfolio. The Policies are described in the separate prospectuses
issued by the Participating Insurance Companies over which the portfolio assumes
no responsibility. Portfolio shares also are offered to qualified pension and
retirement plans and accounts permitting accumulation of assets on a
tax-deferred basis ("Eligible Plans"). The investment objective and policies of
the portfolio may be similar to other funds/portfolios managed or advised by
J.P. Morgan. However, the investment results of the portfolio may be higher or
lower than, and there is no guarantee that the investment results of the
portfolio will be comparable to, any other J.P. Morgan fund/portfolio.
<PAGE>
J.P. MORGAN BOND PORTFOLIO |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The portfolio's goal is to provide high total return consistent with moderate
risk of capital and maintenance of liquidity. This goal can be changed only with
shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The portfolio 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
portfolio'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 3.
The portfolio may invest up to 20% of its assets in debt securities denominated
in foreign currencies, and may invest without limitation in U.S.
dollar-denominated securities of foreign issuers. The portfolio 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) by a nationally recognized statistical
rating organization 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 portfolio's share price and total return will vary in response to changes in
interest rates. How well the portfolio's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 3.
The portfolio is subject to credit risk, or the risk that an issuer of bonds
held by the portfolio fails to make timely interest or principal payments,
potentially reducing the portfolio's income or share price. To the extent that
the portfolio 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 portfolio's mortgage backed investments involve risk of losses due
to prepayments that occur earlier or later than expected, or, like any bond, due
to default. The portfolio may engage in active and frequent trading, leading to
increased portfolio turnover and the possibility of increased capital gains.
To the extent the portfolio invests in foreign securities, it could lose money
because of foreign government actions, political instability, currency
fluctuation or lack of adequate and accurate information. While the portfolio
may engage in options, futures and foreign currency transactions for hedging or
risk management pur- poses only, these transactions sometimes may reduce
returns, increase volatility or result in losses.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in
bond prices.
An investment in the portfolio 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 portfolio's share
price is lower than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN SERIES TRUST II
(J.P. MORGAN BOND PORTFOLIO)
PORTFOLIO MANAGEMENT
The portfolio's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $33.6 billion using the similar
strategies as the portfolio.
The portfolio management team is led by Connie J. Plaehn, managing director,
William G. Tennille, vice president, and John Snyder, vice president. Ms Plaehn
has been at J.P. Morgan since 1984. Mr. Tennille has been at J.P. Morgan since
1992 and Mr. Snyder has been at J.P. Morgan since 1993. Mr. Tennille and Ms.
Plaehn have been on the team since January 1994. Mr. Snyder has been a fixed
income portfolio manager since joining J.P. Morgan.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the portfolio should understand that:
o There is no assurance that the portfolio will meet its investment goal.
o The portfolio does not represent a complete investment program.
1 | J.P. MORGAN BOND PORTFOLIO
<PAGE>
PAST PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Performance information of the portfolio should not be compared with other funds
that offer their shares directly to the public since the figures provided do not
reflect charges imposed by Participating Insurance Companies under their VA
contracts or VLI policies. These rates will reflect the deduction of mortality
and expense risk charges and will therefore be lower. Policy holders should
consult the prospectus for their contract or policy.
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Bond Portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the portfolio's shares from year to year for each of the last five calendar
years.
The table indicates some of the risks by showing how the portfolio's average
annual returns for the past one year and five years (life of the portfolio)
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 portfolio's past performance does not necessarily indicate how the portfolio
will perform in the future.
Total returns (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
16.85
15%
10%
9.38 8.01
5%
2.09
0%
- --------------------------------------------------------------------------------
(1.13)
5%
[ ] J.P. Morgan Bond Portfolio
For the period covered by this year-by-year total return chart, the portfolio's
highest quarterly return was 6.18% (for the quarter ended 6/30/95); and the
lowest quarterly return was -2.62% (for the quarter ended 3/31/96).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for years ended December 31, 1999
- ------------------------------------------------------------------------------------------------------
Past 5 yrs.
Past 1 yr. (Life of portfolio(1))
<S> <C> <C>
Morgan Bond Portfolio (after expenses) (1.13) 6.86
Salomon Brothers Broad Investment Grade Bond Index (no expenses) (0.83) 7.74
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the portfolio are shown at right. The portfolio has no sales,
redemption, exchange, or account fees. The annual portfolio expenses are
deducted from portfolio assets prior to performance calculations.
Annual portfolio operating expenses (%)
(expenses that are deducted from portfolio assets)
- --------------------------------------------------------------------------------
Management fees 0.30
Marketing (12b-1) fees None
Other expenses(3) 0.45
- --------------------------------------------------------------------------------
Total operating expenses(3) 0.75
- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the portfolio's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 77 240 417 930
- --------------------------------------------------------------------------------
(1) The portfolio's inception date was 12/31/94 and the portfolio commenced
operations on 1/3/95.
(2) The portfolio's fiscal year end is 12/31.
(3) Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan,
agrees to reimburse the portfolio to the extent certain expenses exceed
0.75% of the portfolio's average daily net assets during fiscal year 2000.
PAST PERFORMANCE | 2
<PAGE>
FIXED INCOME MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
The portfolio invests across a range
of different types of securities
[GRAPHIC OMITTED]
The portfolio selects its securities
according to its goal and strategy
[GRAPHIC OMITTED]
J.P. Morgan uses a disciplined process
to control the portfolio's sensitivity
to interest rates
<PAGE>
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 approximately $349 billion in assets under management,
including assets managed by the portfolio's advisor, J.P. Morgan Investment
Management Inc.
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 takes positions in many different ones, helping the
portfolio to limit exposure to concentrated sources of risk.
In managing the portfolio, J.P. Morgan employs a three-step process that
combines sector allocation, fundamental research for identifying portfolio
securities, and duration management.
Sector allocation The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which the portfolio may invest. The
team seeks to enhance performance and manage risk by underweighting or
overweighting sectors.
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 the portfolio's
goal and strategy.
Duration management Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish the portfolio's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securities owned by the portfolio, 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. The portfolio's duration is generally
shorter than the portfolio's average maturity because the maturity of a security
only measures the time until final payment is due. The portfolio's target
duration typically remains relatively close to the duration of the market as a
whole, as represented by the portfolio's benchmark. The strategists closely
monitor the portfolio and make tactical adjustments as necessary.
3 | FIXED INCOME MANAGEMENT APPROACH
<PAGE>
BUY/SELL SHARES
- --------------------------------------------------------------------------------
BUYING SHARES
Portfolio shares are offered only to separate accounts of Participating
Insurance Companies and Eligible Plans. Individuals may not purchase shares
directly from the portfolio. Policy owners should consult the applicable
prospectus of the separate account of the Participating Insurance Company and
Eligible Plan participants should consult the Plan's administrator or trustee
for more information about buying portfolio shares.
The price for portfolio shares is the portfolio's net asset value per share
(NAV), which is generally calculated as of the close of trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open.
Purchase orders from separate accounts received in proper form by the
Participating Insurance Company on a given business day or from Eligible Plans
are priced at the NAV calculated on such day, provided that the order and
Federal Funds in the net amount of such order is received by the portfolio in
proper form on the next business day. The Participating Insurance Company or
Eligible Plan administrator or trustee is responsible for properly transmitting
purchase orders and Federal Funds.
Debt securities with remaining maturities of 60 days or less are valued on an
amortized cost basis. Other debt securities are valued based on market value, or
where market quotations are not readily available, based on fair value which may
be determined by one or more pricing services.
<PAGE>
SELLING SHARES
Portfolio shares may be sold at any time by the separate accounts of the
Participating Insurance Companies or by Eligible Plans. Individuals may not
place sell orders directly with the portfolio. Redemption orders from separate
accounts received in proper form by the Participating Insurance Company or from
Eligible Plans on a given business day are priced at the NAV calculated on such
day, provided that the order is received by the portfolio in proper form on the
next business day. The Participating Insurance Company or Eligible Plan
administrator or trustee is responsible for properly transmitting redemption
orders. Policy owners should consult the applicable prospectus of the separate
account of the Participating Insurance Company and Eligible Plan participants
should consult the Plan's administrator or trustee for more information about
selling portfolio shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The portfolio generally pays dividends from its net investment income, and
distributes any net capital gains that it has realized once a year.
Distributions will be reinvested in the portfolio unless instructed otherwise by
a Participating Insurance Company or Eligible Plan.
Portfolio dividends and distributions are taxable to most investors. Since the
portfolio's shareholders are the Participating Insurance Companies and their
separate accounts and Eligible Plans, no discussion is included as to the
Federal income tax consequences to Policy owners and Eligible Plan participants.
For this information, Policy owners should consult the applicable prospectus of
the separate account of the Participating Insurance Company and Eligible Plan
participants should consult the Plan's administrator or trustee.
Participating Insurance Companies and Eligible Plans should consult their tax
advisors about federal, state and local tax consequences.
BUY/SELL SHARES | 4
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The portfolio is a series of J.P. Morgan Series Trust II, a Delaware business
trust. Information about other series 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 trustees are responsible for overseeing all business activities. Funds
Distributor, Inc., as co-administrator, along with Morgan Guaranty, provides
fund officers. Morgan Guaranty, as co-administrator, provides certain financial
and administrative services and oversees the portfolio's other service
providers.
J.P. Morgan and Morgan Guaranty receive the following fees for investment
advisory and administrative services, respectively:
Advisory services 0.30% of the portfolio's average
daily net assets
Administrative services 0.45% of the portfolio's average
daily net assets*
* Morgan Guaranty is responsible for reimbursing the portfolio for certain
expenses usually incurred by the portfolio, including dividend disbursing
costs, custody fees, legal and accounting expenses and certain other expenses
described in the Statement of Additional Information. The portfolio will pay
these expenses directly and these amounts will be deducted from the fees
payable to Morgan Guaranty. If these amounts are more than the fees payable to
Morgan Guaranty, it will reimburse the portfolio for the excess.
5 | FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
portfolio's financial performance for the past five fiscal years. Certain
information reflects financial results for a single portfolio share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the portfolio (assuming reinvestment of all dividends
and distributions). The financial highlights for the three years ended December
31, 1999 were audited by PricewaterhouseCoopers LLP, and the financial
highlights for the two years ended December 31, 1996 were audited by prior
independent accountants. The portfolio's financial statements, along with the
report of PricewaterhouseCoopers LLP, are included in the portfolio's annual
report, which is available upon request.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN BOND PORTFOLIO
Per-share data For fiscal years ended December 31
- ------------------------------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 10.91 10.65 11.29 11.67
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.58 0.47 0.68(4) 0.45 0.40
Net realized and unrealized gain (loss)
on investments ($) 1.11 (0.25) 0.31(4) 0.45 (0.53)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 1.69 0.22 0.99 0.90 (0.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.58) (0.47) (0.27) (0.39) (0.27)
Net realized gain ($) (0.20) (0.01) (0.08) (0.13) (0.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders ($) (0.78) (0.48) (0.35) (0.52) (0.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 10.91 10.65 11.29 11.67 11.23
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 16.85(2) 2.09 9.38 8.01 (1.13)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 1,417 2,782 15,899 32,541 66,218
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.75(3) 0.75 0.75 0.75 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 6.00(3) 5.91 6.20 5.39 5.36
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.90(3) 2.18 1.91 1.02 0.75
- ------------------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 239 198 184 179 479
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolio commenced operations on 1/3/95.
(2) Not annualized.
(3) Annualized.
(4) Based on average daily shares outstanding.
FUND DETAILS | 6
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on the portfolio, 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 portfolio performance for the portfolio's most recently completed fiscal
year or half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the portfolio's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents, along with other information
about the portfolio, may be obtained by contacting:
J.P. Morgan Series Trust II
60 State Street
Boston, Massachusetts 02109
Telephone: 1-800-521-5411
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-202-942-8090) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
investment company and 1933 Act registration numbers for J. P. Morgan Series
Trust II are 811-08212 and 33-72834.
J.P. MORGAN FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Family of 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 Family of Funds offer a broad array of distinctive
opportunities for investors.
JP MORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
IMPR18
<PAGE>
- --------------------------------------------------------------------------------
APRIL 3, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN SERIES TRUST II
U.S. Disciplined Equity Portfolio
----------------------------------------
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 the
portfolio. 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
- --------------------------------------------------------------------------------
1 | The portfolio's goal, principal strategies, principal risks, expenses and
performance
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO
Portfolio description ......................................... 1
Past performance .............................................. 2
3 |
U.S. Equity MANAGEMENT APPROACH
J.P. Morgan ................................................... 3
U.S. equity investment process ................................ 3
4 | Investing in the J.P. Morgan Equity Portfolio
BUY/SELL SHARES
Buying shares ................................................. 4
Selling shares ................................................ 4
Dividends, distributions and taxes ............................ 4
5 | More about the portfolio's business operations
FUND DETAILS
Business structure ............................................ 5
Management and administration ................................. 5
Financial highlights .......................................... 6
FOR MORE INFORMATION ................................. back cover
The portfolio is intended to be a funding vehicle for variable annuity contracts
("VA contracts") and variable life insurance policies ("VLI policies" and,
together with VA contracts, "Policies") offered by the separate accounts of
Participating Insurance Companies. Individuals may not purchase shares directly
from the portfolio. The Policies are described in the separate prospectuses
issued by the Participating Insurance Companies over which the portfolio assumes
no responsibility. Portfolio shares also are offered to qualified pension and
retirement plans and accounts permitting accumulation of assets on a
tax-deferred basis ("Eligible Plans"). The investment objective and policies of
the portfolio may be similar to other funds/portfolios managed or advised by
J.P. Morgan. However, the investment results of the portfolio may be higher or
lower than, and there is no guarantee that the investment results of the
portfolio will be comparable to, any other J.P. Morgan fund/portfolio.
<PAGE>
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The portfolio's goal is to provide high total return from a portfolio of
selected equity securities. This goal can be changed only with shareholder
approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The portfolio invests primarily in large- and medium-capitalization U.S.
companies. Industry by industry, the portfolio's weightings are similar to those
of the S&P 500. The portfolio does not look to overweight or underweight
industries.
Within each industry, the portfolio 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 under "U.S. Equity Management Approach".)
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 portfolio seeks returns that modestly exceed those
of the S&P 500 over the long term with virtually the same level of volatility.
Principal Risks
The value of your investment in the portfolio will fluctuate in response to
movements in the stock market. Portfolio performance will also depend on the
effectiveness of J.P. Morgan's research and the management team's stock picking
decisions.
To the extent the portfolio invests in foreign securities, it could lose money
because of foreign government actions, political instability, currency
fluctuation or lack of adequate and accurate information. While the portfolio
may engage in options, futures and foreign currency transactions for hedging or
risk management purposes only, these transactions sometimes may reduce returns
or increase volatility.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in
stock prices.
An investment in the portfolio 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 portfolio's share
price is lower than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN SERIES TRUST II
(J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO)
PORTFOLIO MANAGEMENT
The portfolio's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $26 billion using similar
strategies as the portfolio.
The portfolio management team is led by Bernard A. Kroll, managing director,
Nanette Buziak, vice president, and Timothy J. Devlin, vice president. Mr. Kroll
has been at J.P. Morgan since 1996 and prior to managing this portfolio was an
equity derivatives specialist at Goldman Sachs & Co. Ms. Buziak has been at J.P.
Morgan since March of 1997 and prior to that time was an index arbitrage trader
and convertible bond portfolio manager at First Marathon America, Inc. 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 portfolio should understand that:
o There is no assurance that the portfolio will meet its investment goal.
o The portfolio does not represent a complete investment program.
1 | J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO
<PAGE>
PAST PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Performance information of the portfolio should not be compared with other funds
that offer their shares directly to the public since the figures provided do not
reflect charges imposed by Participating Insurance Companies under their VA
contracts or VLI policies. These rates will reflect the deduction of mortality
and expense risk charges and will therefore be lower. Policy holders should
consult the prospectus for their contract or policy.
The bar chart and table shown provide some indication of the risks of investing
in J.P. Morgan U.S. Disciplined Equity Portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the portfolio's shares from year to year for each of the last five calendar
years.
The table indicates some of the risks by showing how the portfolio's average
annual returns for the past one year and five years (life of the portfolio)
compare to those of the S&P 500 Index. This is a widely recognized, unmanaged
index of U.S. stocks used as a measure of overall U.S. stock market performance.
The portfolio's past performance does not necessarily indicate how the fund will
perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
40%
33.91
30%
27.50
21.14 23.28
20%
18.54
10%
0%
- --------------------------------------------------------------------------------
[ ] J.P. Morgan U.S. Disciplined Equity Portfolio
For the period covered by this year-by-year total return chart, the portfolio's
highest quarterly return was 20.73% (for the quarter ended 12/31/98); and the
lowest quarterly return was -11.00% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for years ended December 31, 1999
- ------------------------------------------------------------------------------------------------
Past 5 yrs.
Past 1 yr. (Life of portfolio1)
<S> <C> <C>
J.P. Morgan U.S. Disciplined Equity Portfolio (after expenses) 18.54 24.76
S&P 500 Index (no expenses) 21.04 28.55
- ------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the portfolio before and after reimbursement are shown at right.
The portfolio has no sales, redemption, exchange, or account fees. The annual
portfolio expenses after reimbursement are deducted from portfolio assets prior
to performance calculations.
Annual portfolio operating expenses (%)
(expenses that are deducted from portfolio assets)
- --------------------------------------------------------------------------------
Management fees 0.35
Marketing (12b-1) fees none
Other expenses 0.52
- --------------------------------------------------------------------------------
Total operating expenses 0.87
Fee waiver and expense
reimbursement(3) 0.02
- --------------------------------------------------------------------------------
Net expenses(3) 0.85
- --------------------------------------------------------------------------------
Expense example(3)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the first
year, total operating expenses thereafter, and all shares sold at the end of
each time period. The example is for comparison only; the portfolio's actual
return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 87 276 480 1,071
- --------------------------------------------------------------------------------
(1) The portfolio's inception date was 12/31/94 and the portfolio commenced
operations on 1/3/95.
(2) The portfolio's fiscal year end is 12/31.
(3) Reflects an agreement by Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan, to reimburse the portfolio, to the extent certain
expenses exceed 0.85% of the portfolio's average daily net assets during
fiscal year 2000.
PAST PERFORMANCE | 2
<PAGE>
U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
J.P. Morgan analysts develop proprietary
fundamental research
[GRAPHIC OMITTED]
Stocks in each industry are ranked
with the help of models
[GRAPHIC OMITTED]
Using research and valuations,
the portfolio's management team
chooses stocks for the portfolio
<PAGE>
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 portfolio's advisor, J.P. Morgan Investment
Management Inc.
U.S. EQUITY INVESTMENT PROCESS
The portfolio's philosophy, developed by its advisor, focuses on stock picking
while largely avoiding sector or market-timing strategies. Also, under normal
market conditions, the portfolio will remain fully invested.
In managing the portfolio, J.P. Morgan employs a three-step process:
Research J.P. Morgan takes an in-depth look at company prospects over a
relatively long period -- often as much as five years -- rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 120 career analysts. The team of analysts
dedicated to U.S. equities includes more than 20 members, with an average of
over ten years of experience.
Valuation The research findings allow J.P. Morgan to rank the companies in each
industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.
Stock selection The portfolio buys and sells stocks according to its own
policies, using the research and valuation rankings as a basis. In general, the
management team buys stocks that are identified as undervalued and considers
selling them when they appear overvalued. Along with attractive valuation, the
portfolio's managers often consider a number of other criteria:
o catalysts that could trigger a rise in a stock's price
o high potential reward compared to potential risk
o temporary mispricings caused by market overreactions
3 | U.S. EQUITY MANAGEMENT APPROACH
<PAGE>
BUY/SELL SHARES
- --------------------------------------------------------------------------------
BUYING SHARES
Portfolio shares are offered only to separate accounts of Participating
Insurance Companies and Eligible Plans. Individuals may not purchase shares
directly from the portfolio. Policy owners should consult the applicable
prospectus of the separate account of the Participating Insurance Company and
Eligible Plan participants should consult the Plan's administrator or trustee
for more information about buying portfolio shares.
The price for portfolio shares is the portfolio's net asset value per share
(NAV), which is generally calculated as of the close of trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open.
Purchase orders from separate accounts received in proper form by the
Participating Insurance Company or from Eligible Plans on a given business day
are priced at the NAV calculated on such day, provided that the order and
Federal Funds in the net amount of such order is received by the portfolio in
proper form on the next business day. The Participating Insurance Company or
Eligible Plan administrator or trustee is responsible for properly transmitting
purchase orders and Federal Funds.
Equity 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 portfolio's fair valuation procedures. Debt securities with
remaining maturities of 60 days or less are valued on an amortized cost basis.
Other debt securities are valued based on market value, or where market
quotations are not readily available, based on fair value which may be
determined by one or more pricing services.
<PAGE>
SELLING SHARES
Portfolio shares may be sold at any time by the separate accounts of the
Participating Insurance Companies or by Eligible Plans. Individuals may not
place sell orders directly with the portfolio. Redemption orders from separate
accounts received in proper form by the Participating Insurance Company or from
Eligible Plans on a given business day are priced at the NAV calculated on such
day, provided that the order is received by the portfolio in proper form on the
next business day. The Participating Insurance Company or Eligible Plan
administrator or trustee is responsible for properly transmitting redemption
orders. Policy owners should consult the applicable prospectus of the separate
account of the Participating Insurance Company and Eligible Plan participants
should consult the Plan's administrator or trustee for more information about
selling portfolio shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The portfolio generally pays dividends from its net investment income, and
distributes any net capital gains that it has realized once a year.
Distributions will be reinvested in the portfolio unless instructed otherwise by
a Participating Insurance Company or Eligible Plan.
Portfolio dividends and distributions are taxable to most investors. Since the
portfolio's shareholders are the Participating Insurance Companies and their
separate accounts and Eligible Plans, no discussion is included as to the
Federal income tax consequences to Policy owners and Eligible Plan participants.
For this information, Policy owners should consult the applicable prospectus of
the separate account of the Participating Insurance Company and Eligible Plan
participants should consult the Plan's administrator or trustee.
Participating Insurance Companies and Eligible Plans should consult their tax
advisors about federal, state and local tax consequences.
BUY/SELL SHARES | 4
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The portfolio is a series of J.P. Morgan Series Trust II, a Delaware business
trust. Information about other series 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 trustees are responsible for overseeing all business activities. Funds
Distributor, Inc., as co-administrator, along with Morgan Guaranty, provides
fund officers. Morgan Guaranty, as co-administrator, provides certain financial
and administrative services and oversees the portfolio's other service
providers.
J.P. Morgan and Morgan Guaranty receive the following fees for investment
advisory and administrative services, respectively:
Advisory services 0.35% of the portfolio's average
daily net assets
Administrative services 0.50% of the portfolio's average
daily net assets*
* Morgan Guaranty is responsible for reimbursing the portfolio for certain
expenses usually incurred by the portfolio, including dividend disbursing
costs, custody fees, legal and accounting expenses and certain other expenses
described in the Statement of Additional Information. The portfolio will pay
these expenses directly and these amounts will be deducted from the fees
payable to Morgan Guaranty. If these amounts are more than the fees payable to
Morgan Guaranty, it will reimburse the portfolio for the excess.
5 | FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
portfolio's financial performance for the past five fiscal years. Certain
information reflects financial results for a single portfolio share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the portfolio (assuming reinvestment of all dividends
and distributions). The financial highlights for the three years ended December
31, 1999 were audited by PricewaterhouseCoopers LLP, and the financial
highlights for the two years ended December 31, 1996 were audited by prior
independent accountants. The portfolio's financial statements, along with the
report of PricewaterhouseCoopers LLP, are included in the portfolio's annual
report which is available upon request.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO
Per-share data For fiscal years ended December 31
- -----------------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 12.63 13.68 14.33 15.84
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.12 0.20 0.11 0.10 0.09
Net realized and unrealized gain (loss)
on investments and futures ($) 3.26 2.44 3.51 3.15 2.80
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 3.38 2.64 3.62 3.25 2.89
- -----------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.12) (0.20) (0.11) (0.09) (0.06)
Net realized gain ($) (0.63) (1.39) (2.86) (1.65) (1.32)
- -----------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders ($) (0.75) (1.59) (2.97) (1.74) (1.38)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 12.63 13.68 14.33 15.84 17.35
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Total return (%) 33.91(2) 21.14 27.50 23.28 18.54
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 4,144 5,339 8,892 18,511 39,484
- -----------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.90(3) 0.90 0.90 0.90 0.87
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.48(3) 1.49 0.75 0.81 0.74
- -----------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.70(3) 2.13 2.31 1.48 0.87
- -----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 66 90 119 82 104
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolio commenced operations on 1/3/95.
(2) Not annualized.
(3) Annualized.
FUND DETAILS | 6
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on the portfolio, 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 portfolio performance for the portfolio's most recently completed fiscal
year or half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the portfolio's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents, along with other information
about the portfolio, may be obtained by contacting:
J.P. Morgan Series Trust II
60 State Street
Boston, Massachusetts 02109
Telephone: 1-800-521-5411
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-202-942-8090) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
investment company and 1933 Act registration numbers for J.P. Morgan Series
Trust II are 811-08212 and 33-72834.
J.P. MORGAN FUNDS AND
THE MORGAN TRADITION
The J.P. Morgan Family of Funds combines 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 Family of Funds offers a broad array of distinctive
opportunities for investors.
JP MORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Funds |
Advisor
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>
- --------------------------------------------------------------------------------
APRIL 3, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN SERIES TRUST II
Small Company Portfolio
----------------------------------------
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 the
portfolio. 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
- --------------------------------------------------------------------------------
1 | The portfolio's goal, principal strategies, principal risks, expenses and
performance
J.P. MORGAN SMALL COMPANY PORTFOLIO
Portfolio description ........................................................ 1
Past performance ............................................................. 2
3 |
U.S. EQUITY MANAGEMENT APPROACH
J.P. Morgan .................................................................. 3
U.S. equity investment process ............................................... 3
4 | Investing in the J.P. Morgan Small Company Portfolio
BUY/SELL SHARES
Buying shares ................................................................ 4
Selling shares ............................................................... 4
Dividends, distributions and taxes ........................................... 4
5 | More about the portfolio's business operations
FUND DETAILS
Business structure .......................................................... 5
Management and administration ................................................ 5
Financial Highlights ......................................................... 6
FOR MORE INFORMATION................................................. back cover
This portfolio is intended to be a funding vehicle for variable annuity
contracts ("VA contracts") and variable life insurance policies ("VLI policies"
and, together with VA contracts, "Policies") offered by the separate accounts of
Participating Insurance Companies. Individuals may not purchase shares directly
from the portfolio. The Policies are described in the separate prospectuses
issued by the Participating Insurance Companies over which the portfolio assumes
no responsibility. Portfolio shares also are offered to qualified pension and
retirement plans and accounts permitting accumulation of assets on a
tax-deferred basis ("Eligible Plans"). The investment objective and policies of
the portfolio may be similar to other funds/portfolios managed or advised by
J.P. Morgan. However, the investment results of the portfolio may be higher or
lower than, and there is no guarantee that the investment results of the
portfolio will be comparable to, any other J.P. Morgan fund/portfolio.
<PAGE>
J.P. MORGAN SMALL COMPANY PORTFOLIO |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The portfolio's goal is to provide high total return from a portfolio of small
company stocks. This goal can be changed only with shareholder approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The portfolio invests primarily in small and medium sized U.S. companies whose
market capitalizations are greater than $100 million and less than $2 billion,
typically represented by the Russell 2000 Index. The portfolio can moderately
underweight or overweight industries against the Russell 2000 Index's industry
weightings when it believes it will benefit performance.
Within each industry, the portfolio focuses on those stocks that are ranked as
most undervalued according to the process described on page 3. The portfolio
generally considers selling stocks that appear overvalued or have grown into
large cap stocks.
Principal Risks
The value of your investment in the portfolio will fluctuate in response to
movements in the stock market. Portfolio 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. Small companies carry
additional risks because their earnings tend to be less predictable, their share
prices more volatile and their securities less liquid than larger, more
established companies. The portfolio'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 portfolio pursues returns that exceed those of the
Russell 2000 Index while seeking to limit its volatility relative to this index.
To the extent the portfolio invests in foreign securities, it could lose money
because of foreign government actions, political instability, currency
fluctuation or lack of adequate and accurate information. While the portfolio
may engage in options, futures and foreign currency transactions for hedging or
risk management purposes only, these transactions sometimes may reduce returns,
increase volatility or result in losses.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in
stock prices.
An investment in the portfolio 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 portfolio's share
price is lower than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN SERIES TRUST II
(J.P. MORGAN SMALL COMPANY PORTFOLIO)
PORTFOLIO MANAGEMENT
The portfolio'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 portfolio.
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 portfolio, 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
at J.P. Morgan since 1992. Prior to managing the portfolio, Ms. Wells managed
large cap equity portfolios, and prior to that served as an equity research
analyst.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the portfolio should understand that:
o There is no assurance that the portfolio will meet its investment goal.
o The portfolio does not represent a complete investment program.
1 | J.P. MORGAN SMALL COMPANY PORTFOLIO
<PAGE>
PAST PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Performance information of the portfolio should not be compared with other funds
that offer their shares directly to the public since the figures provided do not
reflect charges imposed by Participating Insurance Companies under their VA
contracts or VLI policies. These rates will reflect the deduction of mortality
and expense risk charges and will therefore be lower. Policy holders should
consult the prospectus for their contract or policy.
The bar chart and table shown provide some indication of the risks of investing
in J.P. Morgan Small Company Portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the portfolio's shares from year to year for each of the last five calendar
years.
The table indicates some of the risks by showing how the portfolio's average
annual returns for the past one year and five years (life of the portfolio)
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 portfolio's past performance does not necessarily indicate how the portfolio
will perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
50%
44.39
40%
32.91
30%
21.74 22.50
20%
10%
0%
- --------------------------------------------------------------------------------
(5.51)
(10%)
[ ] J.P. Morgan Small Company Portfolio
For the period covered by this year-by-year total return chart, the portfolio's
highest quarterly return was 34.41% (for the quarter ended 12/31/99); and the
lowest quarterly return was -21.67% (for the quarter ended 9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for years ended December 31, 1999
- ----------------------------------------------------------------------------------------------------
Past 5 yrs.
Past 1 yr. (Life of portfolio(1))
<S> <C> <C>
J.P. Morgan Small Company Portfolio (after expenses) 44.39 22.01
Russell 2000 Index (no expenses) 21.26 16.69
- ----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the portfolio before and after reimbursement are shown at right.
The portfolio has no sales, redemption, exchange, or account fees. The annual
portfolio expenses after reimbursement are deducted from portfolio assets prior
to performance calculations.
Annual portfolio operating expenses(3)(%)
(expenses that are deducted from portfolio assets)
- --------------------------------------------------------------------------------
Management fees 0.60
Marketing (12b-1) fees none
Other expenses 1.97
- --------------------------------------------------------------------------------
Total operating expenses 2.57
Fee waiver and expense
reimbursement(3) 1.42
- --------------------------------------------------------------------------------
Net expenses(3) 1.15
- --------------------------------------------------------------------------------
Expense example(3)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the first
year, total operating expenses thereafter, and all shares sold at the end of
each time period. The example is for comparison only; the portfolio's actual
return and your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 117 664 1,238 2,799
- --------------------------------------------------------------------------------
(1) The portfolio's inception date was 12/31/94 and the portfolio commenced
operations on 1/3/95.
(2) The portfolio's fiscal year end is 12/31.
(3) Reflects an agreement by Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan, to reimburse the portfolio, to the extent certain
expenses exceed 1.15% of the portfolio's average daily net assets during
fiscal year 2000.
PAST PERFORMANCE | 2
<PAGE>
U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
J.P. Morgan analysts develop proprietary
fundamental research
[GRAPHIC OMITTED]
Stocks in each industry are ranked
with the help of models
[GRAPHIC OMITTED]
Using research and valuations,
the portfolio's management team
chooses stocks for the portfolio
<PAGE>
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 portfolio's advisor, J.P. Morgan Investment
Management Inc.
U.S. EQUITY INVESTMENT PROCESS
The portfolio's philosophy, developed by its advisor, focuses on stock picking
while largely avoiding sector or market-timing strategies. Also, under normal
market conditions, the portfolio will remain fully invested.
In managing the portfolio, J.P. Morgan employs a three-step process:
Research J.P. Morgan takes an in-depth look at company prospects over a
relatively long period -- often as much as five years -- rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 120 career analysts. The team of analysts
dedicated to U.S. equities includes more than 20 members, with an average of
over ten years of experience.
Valuation The research findings allow J.P. Morgan to rank the companies in each
industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.
Stock selection
The portfolio buys and sells stocks according to its own policies, using the
research and valuation rankings as a basis. In general, the management team buys
stocks that are identified as undervalued and considers selling them when they
appear overvalued. Along with attractive valuation, the portfolio's managers
often consider a number of other criteria:
o catalysts that could trigger a rise in a stock's price
o high potential reward compared to potential risk
o temporary mispricings caused by market overreactions
3 | U.S. EQUITY MANAGEMENT APPROACH
<PAGE>
BUY/SELL SHARES
- --------------------------------------------------------------------------------
BUYING SHARES
Portfolio shares are offered only to separate accounts of Participating
Insurance Companies and Eligible Plans. Individuals may not purchase shares
directly from the portfolio. Policy owners should consult the applicable
prospectus of the separate account of the Participating Insurance Company and
Eligible Plan participants should consult the Plan's administrator or trustee
for more information about buying portfolio shares.
The price for portfolio shares is the portfolio's net asset value per share
(NAV), which is generally calculated as of the close of trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open.
Purchase orders from separate accounts received in proper form by the
Participating Insurance Company or from Eligible Plans on a given business day
are priced at the NAV calculated on such day, provided that the order and
Federal Funds in the net amount of such order is received by the portfolio in
proper form on the next business day. The Participating Insurance Company or
Eligible Plan administrator or trustee is responsible for properly transmitting
purchase orders and Federal Funds.
Equity 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 portfolio's fair valuation procedures. Debt securities with
remaining maturities of 60 days or less are valued on an amortized cost basis.
Other debt securities are valued based on market value, or where market
quotations are not readily available, based on fair value which may be
determined by one or more pricing services.
<PAGE>
SELLING SHARES
Portfolio shares may be sold at any time by the separate accounts of the
Participating Insurance Companies or by Eligible Plans. Individuals may not
place sell orders directly with the portfolio. Redemption orders from separate
accounts received in proper form by the Participating Insurance Company or from
Eligible Plans on a given business day are priced at the NAV calculated on such
day, provided that the order is received by the portfolio in proper form on the
next business day. The Participating Insurance Company or Eligible Plan
administrator or trustee is responsible for properly transmitting redemption
orders. Policy owners should consult the applicable prospectus of the separate
account of the Participating Insurance Company and Eligible Plan participants
should consult the Plan's administrator or trustee for more information about
selling portfolio shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The portfolio generally pays dividends from its net investment income, and
distributes any net capital gains that it has realized once a year.
Distributions will be reinvested in the portfolio unless instructed otherwise by
a Participating Insurance Company or Eligible Plan.
Portfolio dividends and distributions are taxable to most investors. Since the
portfolio's shareholders are the Participating Insurance Companies and their
separate accounts and Eligible Plans, no discussion is included as to the
Federal income tax consequences to Policy owners and Eligible Plan participants.
For this information, Policy owners should consult the applicable prospectus of
the separate account of the Participating Insurance Company and Eligible Plan
participants should consult the Plan's administrator or trustee.
Participating Insurance Companies and Eligible Plans should consult their tax
advisors about federal, state and local tax consequences.
BUY/SELL SHARES | 4
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The portfolio is a series of J.P. Morgan Series Trust II, a Delaware business
trust. Information about other series 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 trustees are responsible for overseeing all business activities. Funds
Distributor, Inc., as co-administrator, along with Morgan Guaranty, provides
fund officers. Morgan Guaranty, as co-administrator, provides certain financial
and administrative services and oversees the portfolio's other service
providers.
J.P. Morgan and Morgan Guaranty receive the following fees for investment
advisory and administrative services, respectively:
Advisory services 0.60% of the portfolio's average
daily net assets
Administrative services 0.55% of the portfolio's average
daily net assets*
*Morgan Guaranty is responsible for reimbursing the portfolio for certain
expenses usually incurred by the portfolio, including dividend disbursing
costs, custody fees, legal and accounting expenses and certain other expenses
described in the Statement of Additional Information. The portfolio will pay
these expenses directly and these amounts will be deducted from the fees
payable to Morgan Guaranty. If these amounts are more than the fees payable to
Morgan Guaranty, it will reimburse the portfolio for the excess.
5 | FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
portfolio's financial performance for the past five fiscal years. Certain
information reflects financial results for a single portfolio share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the portfolio (assuming reinvestment of all dividends
and distributions). The financial highlights for the three years ended December
31, 1999 were audited by PricewaterhouseCoopers LLP, and the financial
highlights for the two years ended December 31, 1996 were audited by prior
independent accountants. The portfolio's financial statements, along with the
report of PricewaterhouseCoopers LLP, are included in the portfolio's annual
report, which is available upon request.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
J.P. MORGAN SMALL COMPANY PORTFOLIO
Per-share data For fiscal years ended December 31
- ----------------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 11.83 12.53 13.09 11.86
- ----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.11 0.06 0.04 0.03 0.00(4)
Net realized and unrealized gain (loss)
on investments ($) 3.18 2.43 2.53 (0.74) 5.23
- ----------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 3.29 2.49 2.57 (0.71) 5.23
- ----------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.11) (0.06) (0.04) (0.02) (0.01)
Net realized gain ($) (1.35) (1.73) (1.97) (0.15) (0.35)
In excess of net realized gain ($) -- -- -- (0.35) --
- ----------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders ($) (1.46) (1.79) (2.01) (0.52) (0.36)
- ----------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 11.83 12.53 13.09 11.86 16.73
- ----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------------------------
Total return (%) 32.91(2) 21.74 22.50 (5.51) 44.39
- ----------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 2,536 3,867 5,196 6,831 16,425
- ----------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.15(3) 1.15 1.15 1.15 1.15
- ----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.99(3) 0.54 0.28 0.28 0.07
- ----------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 3.22(3) 2.69 3.81 3.43 2.57
- ----------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 100 144 85 67 121
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolio commenced operations on 1/3/95.
(2) Not annualized.
(3) Annualized
(4) Less than $0.01.
FUND DETAILS | 6
<PAGE>
FOR MORE INFORMATION
- --------------------------------------------------------------------------------
For investors who want more information on the portfolio, 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 portfolio performance for the portfolio's most recently completed fiscal
year or half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the portfolio's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents, along with other information
about the portfolio, may be obtained by contacting:
J.P. Morgan Series Trust II
60 State Street
Boston, Massachusetts 02109
Telephone: 1-800-521-5441
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-202-942-8090) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
investment company and 1933 Act registration numbers for J.P. Morgan Series
Trust II are 811-08212 and 33-72834.
J.P. MORGAN FUNDS AND THE
MORGAN TRADITION
The J.P. Morgan Family of Funds
combines 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 Family
of Funds offer a broad array of distinctive opportunities for investors.
JP MORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Funds
Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930
<PAGE>
- --------------------------------------------------------------------------------
APRIL 3, 2000 | PROSPECTUS
- --------------------------------------------------------------------------------
J.P. MORGAN SERIES TRUST II
International Opportunities Portfolio
----------------------------------------
Seeking high total return primarily from
stocks outside the United States
This prospectus contains essential information for anyone investing in the
portfolio. Please read it carefully and keep it for reference.
As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense to state or suggest otherwise.
Distributed by Funds Distributor, Inc. JPMorgan
<PAGE>
CONTENTS
- --------------------------------------------------------------------------------
1 | The portfolio's goal, principal strategies, principal risks, expenses and
performance
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
Portfolio description ..................................................... 1
Past performance .......................................................... 2
3 |
INTERNATIONAL EQUITY MANAGEMENT APPROACH
J.P. Morgan ............................................................... 3
International equity investment process ................................... 3
4 | Investing in the J.P. Morgan International Opportunities Portfolio
BUY/SELL SHARES
Buying shares ............................................................. 4
Selling shares............................................................. 4
Dividends, distributions and taxes ........................................ 4
5 | More about the portfolio's business operations
FUND DETAILS
Business structure ........................................................ 5
Management and administration ............................................. 5
Financial highlights ...................................................... 6
FOR MORE INFORMATION ....,.........................................back cover
This portfolio is intended to be a funding vehicle for variable annuity
contracts ("VA contracts") and variable life insurance policies ("VLI policies"
and, together with VA contracts, "Policies") offered by the separate accounts of
Participating Insurance Companies. Individuals may not purchase shares directly
from the portfolio. The Policies are described in the separate prospectuses
issued by the Participating Insurance Companies over which the portfolio assumes
no responsibility. Portfolio shares also are offered to qualified pension and
retirement plans and accounts permitting accumulation of assets on a
tax-deferred basis ("Eligible Plans"). The investment objective and policies of
the portfolio may be similar to other funds/portfolios managed or advised by
J.P. Morgan. However, the investment results of the portfolio may be higher or
lower than, and there is no guarantee that the investment results of the
portfolio will be comparable to, any other J.P. Morgan fund/portfolio.
<PAGE>
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO |
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
GOAL
The portfolio's goal is to provide high total return from a portfolio of equity
securities of foreign companies. This goal can be changed only with shareholder
approval.
[GRAPHIC OMITTED]
INVESTMENT APPROACH
Principal Strategies
The portfolio's assets are invested primarily in companies from developed
markets other than the U.S. The portfolio'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 portfolio 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 portfolio
generally follows the process described on page 3, its country allocations and
sector weightings may differ significantly from those of the MSCI All Country
World Index Free (ex-U.S.), the portfolio's benchmark. The portfolio makes its
currency management decisions as described on page 3.
Principal Risks
The value of your investment in the portfolio will fluctuate in response to
movements in international stock markets and currency exchange rates. Portfolio
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. The portfolio's
performance will be influenced by political, social and economic factors
affecting companies around the world. These risks include foreign government
actions, political instability, currency fluctuation or lack of adequate and
accurate information. 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. You should be prepared to ride out
periods of underperformance. To the extent that the portfolio hedges its
currency exposure into the U.S. dollar, it may reduce the effects of currency
fluctuations. The portfolio may also hedge from one foreign currency to another.
However, the portfolio does not typically use this strategy for its emerging
markets currency exposure. Foreign stocks are generally riskier than other
domestic counterparts.
While the portfolio may engage in options, futures and foreign currency
transactions for hedging or risk management purposes only, these transactions
sometimes may reduce returns or increase volatility.
Under adverse market conditions, the portfolio could invest some or all of its
assets in money market securities. Although the portfolio would do this to avoid
losses, it could have the effect of reducing the benefit from any upswing in
stock prices.
An investment in the portfolio 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 portfolio's share
price is lower than when you invested.
<PAGE>
REGISTRANT: J.P. MORGAN SERIES TRUST II
(J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO)
PORTFOLIO MANAGEMENT
The portfolio's assets are managed by J.P. Morgan, which currently manages
approximately $349 billion, including more than $3.6 billion using similar
strategies as the portfolio.
The portfolio management team is led by Paul A. Quinsee, managing director, who
has been on the team since the portfolio'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 portfolio should understand that:
o There is no assurance that the portfolio will meet its investment goals.
o The portfolio does not represent a complete investment program.
1 | J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
<PAGE>
PAST PERFORMANCE (UNAUDITED)
- --------------------------------------------------------------------------------
Performance information of the portfolio should not be compared with other funds
that offer their shares directly to the public since the figures provided do not
reflect charges imposed by Participating Insurance Companies under their VA
contracts or VLI policies. These rates will reflect the deduction of mortality
and expense risk charges and will therefore be lower. Policy holders should
consult the prospectus for their contract or policy.
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan International Opportunities Portfolio.
The bar chart indicates some of the risks by showing changes in the performance
of the portfolio's shares from year to year for each of the last five calendar
years.
The table indicates some of the risks by showing how the portfolio's average
annual return for the past one year and five years (life of the portfolio)
compare to those of the MSCI All Country World Index Free (ex.-U.S.). This is an
unmanaged index that measures developed and emerging foreign stock market
performance.
The portfolio's past performance does not necessarily indicate how the portfolio
will perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998 1999
40%
36.66
30%
20%
10% 12.38 13.12
5.43 4.73
0%
- --------------------------------------------------------------------------------
[] J.P. Morgan International Opportunities Portfolio
For the period covered by this year-by-year total return chart, the
portfolio's highest quarterly return was 21.06% (for the quarter ended
12/31/98); and the lowest quarterly return was -20.24% (for the quarter ended
9/30/98).
<TABLE>
<CAPTION>
Average annual total return (%)
Shows performance over time, for year ended December 31, 1999
- --------------------------------------------------------------------------------------------------------
Past 5 yrs.
Past 1 yr. (Life of portfolio(1))
<S> <C> <C>
J.P. Morgan International Opportunities Portfolio (after expenses) 36.66 13.92
- --------------------------------------------------------------------------------------------------------
MSCI All Country World Index Free (ex-U.S.) (no expenses) 30.91 12.39
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the portfolio before and after reimbursement are shown at right.
The portfolio has no sales, redemption, exchange, or account fees. The annual
portfolio expenses after reimbursement are deducted from portfolio assets prior
to performance calculations.
Annual portfolio operating expenses (%)
(expenses that are deducted from portfolio assets)
- --------------------------------------------------------------------------------
Management fees 0.60
Marketing (12b-1) fees None
Other expenses 1.38
- --------------------------------------------------------------------------------
Total operating expenses 1.98
Fee waiver and expense
reimbursement(3) 0.78
- --------------------------------------------------------------------------------
Net expenses(3) 1.20
- --------------------------------------------------------------------------------
Expense example(3)
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
portfolio with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the past year,
total operating expenses thereafter, and all shares sold at the end of each time
period. The example is for comparison only; the portfolio's actual return and
your actual costs may be higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 122 546 995 2,243
- --------------------------------------------------------------------------------
(1) The portfolio's inception date was 12/31/94 and the portfolio commenced
operations on 1/3/95.
(2) The portfolio's fiscal year end is 12/31.
(3) Reflects an agreement by Morgan Guaranty Trust Company of New York, an
affiliate of J.P. Morgan, to reimburse the portfolio, to the extent certain
expenses exceed 1.20% of the portfolio's average daily net assets during
fiscal year 2000.
PAST PERFORMANCE | 2
<PAGE>
INTERNATIONAL EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
[GRAPHIC OMITTED]
J.P. Morgan uses top-down analysis
in determining which
countries to emphasize
[GRAPHIC OMITTED]
Stocks in each industry are ranked
with the help of models, then
selected for investment
[GRAPHIC OMITTED]
J.P. Morgan may adjust currency
exposure to seek to manage
risks and enhance returns
<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 approximately $349 billion in assets under management,
including assets managed by the portfolio's advisor, J.P. Morgan Investment
Management Inc.
International Equity Investment Process
The portfolio's philosophy, developed by its advisor, focuses on allocating
assets by country, selecting stocks and managing currency exposure. The
portfolio largely avoids using sector or market-timing strategies. Under normal
market conditions, the portfolio will remain fully invested.
Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.
In managing the portfolio, J.P. Morgan employs a three-step process that
combines country allocation, fundamental research for identifying portfolio
securities, and currency management decisions:
Country allocation J.P. Morgan takes an in-depth look at the relative valuations
and economic prospects of different countries, ranking the attractiveness of
their markets. Using these rankings, a team of strategists establishes a country
allocation for the portfolio. Country allocation may vary either significantly
or moderately from the portfolio's benchmark. J.P. Morgan considers the
developed countries of Europe (excluding the U.K.) as a whole while monitoring
the portfolio's exposure to any one country.
Stock selection Various models are used to quantify J.P. Morgan's fundamental
stock research, producing a ranking of companies in each industry group
according to their relative value. The portfolio'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
Currency management The portfolio has access to J.P. Morgan's currency
specialists in determining the extent and nature of its exposure to various
foreign currencies.
3 | INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>
BUY/SELL SHARES
- --------------------------------------------------------------------------------
BUYING SHARES
Portfolio shares are offered only to separate accounts of Participating
Insurance Companies and Eligible Plans. Individuals may not purchase shares
directly from the portfolio. Policy owners should consult the applicable
prospectus of the separate account of the Participating Insurance Company and
Eligible Plan participants should consult the Plan's administrator or trustee
for more information about buying portfolio shares.
The price for portfolio shares is the portfolio's net asset value per share
(NAV), which is generally calculated as of the close of trading on the New York
Stock Exchange (usually 4:00 p.m. Eastern time) every day the exchange is open.
Purchase orders from separate accounts received in proper form by the
Participating Insurance Company or from Eligible Plans on a given business day
are priced at the NAV calculated on such day, provided that the order and
Federal Funds in the net amount of such order is received by the portfolio in
proper form on the next business day. The Participating Insurance Company or
Eligible Plan administrator or trustee is responsible for properly transmitting
purchase orders and Federal Funds.
Equity 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 portfolio's fair valuation procedures. Debt securities with
remaining maturities of 60 days or less are valued on an amortized cost basis.
Other debt securities are valued based on market value, or where market
quotations are not readily available, based on fair value which may be
determined by one or more pricing services.
<PAGE>
SELLING SHARES
Portfolio shares may be sold at any time by the separate accounts of the
Participating Insurance Companies or by Eligible Plans. Individuals may not
place sell orders directly with the portfolio. Redemption orders from separate
accounts received in proper form by the Participating Insurance Company or from
Eligible Plans on a given business day are priced at the NAV calculated on such
day, provided that the order is received by the portfolio in proper form on the
next business day. The Participating Insurance Company or Eligible Plan
administrator or trustee is responsible for properly transmitting redemption
orders. Policy owners should consult the applicable prospectus of the separate
account of the Participating Insurance Company and Eligible Plan participants
should consult the Plan's administrator or trustee for more information about
selling portfolio shares.
DIVIDENDS, DISTRIBUTIONS AND TAXES
The portfolio generally pays dividends from its net investment income, and
distributes any net capital gains that it has realized once a year.
Distributions will be reinvested in the portfolio unless instructed otherwise by
a Participating Insurance Company or Eligible Plan.
Portfolio dividends and distributions are taxable to most investors. Since the
portfolio's shareholders are the Participating Insurance Companies and their
separate accounts and Eligible Plans, no discussion is included as to the
Federal income tax consequences to Policy owners and Eligible Plan participants.
For this information, Policy owners should consult the applicable prospectus of
the separate account of the Participating Insurance Company and Eligible Plan
participants should consult the Plan's administrator or trustee.
Participating Insurance Companies and Eligible Plans should consult their tax
advisors about federal, state and local tax consequences.
YOUR INVESTMENT | 4
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
The portfolio is a series of J.P. Morgan Series Trust II, a Delaware business
trust. Information about other series 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 trustees are responsible for overseeing all business activities. Funds
Distributor, Inc., as co-administrator, along with Morgan Guaranty, provides
fund officers. Morgan Guaranty, as co-administrator, provides certain financial
and administrative services and oversees the portfolio's other service
providers.
J.P. Morgan and Morgan Guaranty receive the following fees for investment
advisory and administrative services, respectively:
Advisory services 0.60% of the portfolio's average
daily net assets
Administrative services 0.60% of the portfolio's average
daily net assets*
* Morgan Guaranty is responsible for reimbursing the portfolio for certain
expenses usually incurred by the portfolio, including dividend disbursing
costs, custody fees, legal and accounting expenses and certain other
expenses described in the Statement of Additional Information. The portfolio
will pay these expenses directly and these amounts will be deducted from the
fees payable to Morgan Guaranty. If these amounts are more than the fees
payable to Morgan Guaranty, it will reimburse the portfolio for the excess.
5 | FUND DETAILS
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the
portfolio's financial performance for the past five fiscal years. Certain
information reflects financial results for a single portfolio share. The total
returns in the table represent the rate that an investor would have earned (or
lost) on an investment in the portfolio (assuming reinvestment of all dividends
and distributions). The financial highlights for the three years ended December
31, 1999 were audited by PricewaterhouseCoopers LLP, and the financial
highlights for the two years ended December 31, 1996 were audited by prior
independent accountants. The portfolio's financial statements, along with the
report of PricewaterhouseCoopers LLP, are included in the portfolio's annual
report, which is available upon request.
- --------------------------------------------------------------------------------
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
<TABLE>
<CAPTION>
Per-share data For fiscal years ended December 31
- ---------------------------------------------------------------------------------------------------------------------------
1995(1) 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of year ($) 10.00 10.86 11.73 10.60 10.52
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.15 0.20 0.15 0.14 0.11
Net realized and unrealized gain
on investments and foreign currency transactions($) 1.08 1.23 0.44 0.40 3.71
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 1.23 1.43 0.59 0.54 3.82
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.09) (0.09) (0.41) (0.16) (0.11)
Net realized gain ($) (0.18) (0.47) (1.31) -- (0.40)
In excess of net realized gain ($) -- -- -- (0.46) --
Return of capital ($) (0.10) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total distribution to shareholders ($) (0.37) (0.56) (1.72) (0.62) (0.51)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of year ($) 10.86 11.73 10.60 10.52 13.83
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 12.38(2) 13.12 5.43 4.73 36.66
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of year ($ thousands) 3,992 6,250 6,780 9,788 22,304
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.20(3) 1.20 1.20 1.20 1.20
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.06(3) 1.25 0.88 0.44 0.85
- ---------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 3.16(3) 3.18 4.25 3.26 1.98
- ---------------------------------------------------------------------------------------------------------------------------
Portfolio turnover (%) 68 71 149 127 66
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The portfolio commenced operations on 1/3/95.
(2) Not annualized.
(3) Annualized.
FUND DETAILS | 6
<PAGE>
FOR MORE INFORMATION
For investors who want more information on the portfolio, 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 portfolio performance for the portfolio's most recently completed fiscal
year or half-year.
Statement of Additional Information (SAI) Provides a fuller technical and legal
description of the portfolio's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.
Copies of the current versions of these documents, along with other information
about the portfolio, may be obtained by contacting:
J.P. Morgan Series Trust II
60 State Street
Boston, Massachusetts 02109
Telephone: 1-800-521-5411
Email: [email protected]
Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-202-942-8090) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
investment company and 1933 Act registration numbers are for J.P. Morgan Series
Trust II are 811-08212 and 33-72834.
J.P. MORGAN FUNDS AND THE
MORGAN TRADITION
The J.P. Morgan Family of Funds
combines 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 Family
of Funds offer a broad array of distinctive opportunities for 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
PART B
J.P. MORGAN SERIES TRUST II
60 State Street
Boston, Massachusetts 02109
1-800-221-7930
A SERIES TRUST WITH
J.P. MORGAN BOND PORTFOLIO
J.P. MORGAN U.S. DISIPLINED EQUITY PORTFOLIO
(formerly J.P. MORGAN EQUITY PORTFOLIO)
J.P. MORGAN SMALL COMPANY PORTFOLIO
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO
STATEMENT OF ADDITIONAL INFORMATION
APRIL 3, 2000
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT
CONTAINS ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE
PROSPECTUS OF THE TRUST DATED APRIL 3, 2000 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
TRUST DATED DECEMBER 31, 1999. THE PROSPECTUS AND THESE FINANCIAL STATEMENTS,
INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORTS ON THE ANNUAL FINANCIAL
STATEMENTS MAY BE OBTAINED, WITHOUT CHARGE UPON REQUEST, BY WRITING OR CALLING
THE TRUST AT THE ADDRESS OR TELEPHONE NUMBER ABOVE.
<PAGE>
TABLE OF CONTENTS
Page
BUSINESS HISTORY...........................................................B-1
INVESTMENT OBJECTIVES AND POLICIES.........................................B-1
J.P. Morgan Bond Portfolio.................................................B-1
J.P. Morgan U.S. Disciplined Equity Portfolio..............................B-1
J.P. Morgan Small Company Portfolio........................................B-2
J.P. Morgan International Opportunities Portfolio..........................B-2
MONEY MARKET INSTRUMENTS...................................................B-2
U.S. Treasury Securities...................................................B-2
Additional U.S. Government Obligations............ ........................B-2
Foreign Government Obligations.............................................B-3
Bank Obligations...........................................................B-3
Commercial Paper...........................................................B-3
Repurchase Agreements......................................................B-4
CORPORATE BONDS AND OTHER DEBT SECURITIES..................................B-4
High Yield/High Risk Bonds.................................................B-4
Asset-Backed Securities....................................................B-5
EQUITY INVESTMENTS.........................................................B-5
Equity Securities..........................................................B-5
Common Stock Warrants......................................................B-6
FOREIGN INVESTMENTS........................................................B-6
FOREIGN CURRENCY EXCHANGE TRANSACTIONS.....................................B-8
ADDITIONAL INVESTMENTS.....................................................B-8
Convertible Securities.....................................................B-8
When-Issued and Delayed Delivery Securities................................B-9
Investment Company Securities..............................................B-9
Reverse Repurchase Agreements..............................................B-9
Mortgage Dollar Roll Transactions.................. .....................B-10
Loans of Portfolio Securities..............................................B-10
Illiquid Investments.......................................................B-10
QUALITY AND DIVERSIFICATION REQUIREMENTS...................................B-11
J.P. Morgan Bond Portfolio.................................................B-11
J.P. Morgan U.S. Disciplined Equity, Small Company and International
Opportunities Portfolios.............. ....B-11
OPTIONS AND FUTURES TRANSACTIONS...........................................B-11
General....................................................................B-11
Purchasing Put and Call Options............................................B-12
Selling (Writing) Put and Call Options.....................................B-13
Options on Indices.........................................................B-13
Futures Contracts..........................................................B-14
Options on Futures Contracts...............................................B-15
Combined Positions.........................................................B-15
Correlation of Price Changes...............................................B-15
Liquidity of Options and Futures Contracts.................................B-16
Position Limits............................................................B-16
Asset Coverage for Futures Contracts and Options Positions.................B-16
RISK MANAGEMENT............................................................B-17
INVESTMENT RESTRICTIONS................................................ ...B-17
FUNDAMENTAL INVESTMENT RESTRICTIONS........................................B-17
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS................................. ..B-18
J.P. Morgan Bond, Small Company and International Opportunities Portfolios
.....................................B-18
J.P. Morgan U.S. Disciplined Equity Portfolio..............................B-19
TRUSTEES ..................................................................B-19
OFFICERS OF THE TRUST......................................................B-22
INVESTMENT ADVISORY AND OTHER SERVICES.....................................B-23
Investment Advisory Agreement..............................................B-23
Administrative Services Agreement..........................................B-24
Independent Accountants....................................................B-26
Distributor................................................................B-26
Co-Administrator...........................................................B-26
Custodian..................................................................B-27
Payment of Expenses........................................................B-27
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS...........................B-28
SHARES OF BENEFICIAL INTEREST..............................................B-29
CODE OF ETHICS............................................. ..... ........ B-30
OFFERING AND REDEMPTION OF SHARES..........................................B-31
DETERMINATION OF NET ASSET VALUE...........................................B-31
TAXES......................................................................B-32
PERFORMANCE AND YIELD INFORMATION..........................................B-34
Non-Money Market Portfolios................................................B-34
DELAWARE BUSINESS TRUST....................................................B-36
FINANCIAL STATEMENTS.......................................................B-36
ADDITIONAL INFORMATION.....................................................B-37
APPENDIX A.................................................................A-1
<PAGE>
B-21
BUSINESS HISTORY
J.P. Morgan Series Trust II (the "Trust"), a Delaware Business Trust,
is an open-end diversified management investment company established to provide
for the investment of assets of separate accounts of life insurance companies
("Participating Insurance Companies") and of qualified pension and retirement
plans outside of the separate account context ("Eligible Plans" or "Plans").
Separate accounts acquire such assets pursuant to the sale of variable annuity
contracts and variable life insurance policies (collectively, the "Policies").
The Trust is composed of five separate portfolios (each, a "Portfolio" and
collectively, the "Portfolios") which operate as distinct investment vehicles.
The Portfolios are J.P. Morgan Bond Portfolio, J.P. Morgan U.S. Disciplined
Equity Portfolio, J.P. Morgan Small Company Portfolio and J.P. Morgan
International Opportunities Portfolio. Each Portfolio is a diversified
investment company, which means that, with respect to 75% of its total assets, a
Portfolio will not invest more than 5% of its assets in the securities of any
single issuer nor hold more than 10% of the outstanding voting securities of
that issuer.
The Trust was organized in Delaware on October 28, 1993 and had no
business history prior to that date. Prior to January 1, 1997, the Trust's name
was The Chubb Series Trust and the names of the corresponding Portfolios were
The Resolute Treasury Money Market Portfolio, The Resolute Bond Portfolio, The
Resolute Equity Portfolio, The Resolute Small Company Portfolio and The Resolute
International Equity Portfolio. Effective January 1, 1998, the name of the Trust
was changed from "JPM Series Trust II" to "J.P. Morgan Series Trust II" and each
Portfolio's named changed accordingly. Effective January 1, 1998, the name of
the "J. P. Morgan International Opportunities Portfolio" was changed from "JPM
International Equity Portfolio". In the future, the Trust may add or terminate
portfolios.
Each Portfolio's investment adviser is J.P. Morgan Investment Management
Inc. ("Morgan" or the "Adviser").
INVESTMENT OBJECTIVES AND POLICIES
J.P. MORGAN BOND PORTFOLIO is designed to be a convenient means of
making substantial investments in a broad range of corporate and government debt
obligations and related investments, subject to certain quality and other
restrictions. J.P. Morgan Bond Portfolio'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 J.P. Morgan Bond Portfolio will
fluctuate, the Portfolio attempts to preserve the value of its investments to
the extent consistent with its objective.
The Portfolio attempts to achieve its investment objective by investing
primarily in corporate and government debt obligations and related securities
described in the Prospectus and this Statement of Additional Information. The
Portfolio may purchase or sell financial futures contracts and options in order
to attempt to reduce the volatility of its portfolio, manage market risk and
minimize fluctuations in net asset value. For a discussion of these investments,
see "OPTIONS AND FUTURES TRANSACTIONS."
J.P. MORGAN U.S. DISCIPLINED EQUITY PORTFOLIO is designed for investors who
want an actively managed portfolio of selected equity securities that seeks to
outperform the S&P 500 Index. J.P. Morgan U.S. Disciplined Equity Portfolio's
investment objective is to provide a high total return from a portfolio
comprised of selected equity securities.
The U.S. Disciplined Equity Portfolio invests primarily in a
diversified portfolio of common stocks and other equity securities. Under normal
circumstances, the Portfolio expects to invest at least 65% of its total assets
in such securities.
J.P. MORGAN SMALL COMPANY PORTFOLIO 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. J.P. Morgan Small Company Portfolio's investment
objective is to provide a high total return from a portfolio of equity
securities of small companies.
The Portfolio may invest in the same types of securities as permitted for
the J.P. Morgan U.S. Disciplined Equity Portfolio.
J.P. MORGAN INTERNATIONAL OPPORTUNITIES PORTFOLIO is designed for
investors with a long-term investment horizon who want to diversify their
portfolios by adding international equities and take advantage of investment
opportunities outside the U.S. J.P. Morgan International Opportunities
Portfolio's investment objective is to provide a high total return from a
portfolio of equity securities of foreign corporations.
The Portfolio seeks to achieve its investment objective by investing
primarily in the equity securities of foreign corporations, consisting of common
stock and other securities with equity characteristics, such as preferred stock,
warrants, rights and convertible securities. Under normal circumstances, the
Portfolio expects to invest at least 65% of its total assets in such securities.
The Portfolio does not intend to invest in U.S. securities (other than
short-term instruments), except temporarily when extraordinary circumstances
prevailing at the same time in a significant number of foreign countries render
investments in such countries inadvisable.
The following discussion supplements the information regarding the
investment objective of each Portfolio and the policies to be employed to
achieve its objective as set forth above and in the Prospectus.
MONEY MARKET INSTRUMENTS
J.P. Morgan Bond, U.S. Disciplined Equity, Small Company and
International Opportunities Portfolios are permitted to invest in money market
instruments, although each of these Portfolios intends to stay invested in
equity securities (or in the case of J.P. Morgan Bond Portfolio, long-term fixed
income securities), to the extent practical in light of its investment objective
and long-term investment perspective. These Portfolios may make money market
investments pending other investment or settlement, for liquidity or in adverse
market conditions. The money market investments permitted for these Portfolios
are the same as for J.P. Morgan Bond Portfolio and include obligations of the
U.S. Government and its agencies and instrumentalities, other debt securities,
commercial paper, bank obligations and repurchase agreements. J.P. Morgan
International Opportunities Portfolio also may invest in short-term obligations
of sovereign foreign governments, their agencies, instrumentalities and
political subdivisions. A description of the various types of money market
instruments that may be purchased by the Portfolios appears below. 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 U.S.
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 U.S. Government. In the case of securities not backed by the
full faith and credit of the U.S., 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 U.S. Government 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 U.S. Government 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 United States 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. Securities which
are backed by the full faith and credit of the U.S. Government include
obligations of the Government National Mortgage Association, the Farmers Home
Administration, and the Export-Import Bank.
FOREIGN GOVERNMENT OBLIGATIONS. Each of the Portfolios, subject to its
applicable investment policies, also may invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
U.S. dollars or in another currency. See "FOREIGN INVESTMENTS."
BANK OBLIGATIONS. Each of the Portfolios, except the J.P. Morgan
Treasury Money Market Portfolio, 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 (the "Asset Limitation")
and are organized under the laws of the U.S. 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
does not apply to the J.P. Morgan International Opportunities Portfolio. See
"FOREIGN INVESTMENTS." The Portfolios will not invest in bank obligations for
which the Adviser, or any of its affiliated persons, is the ultimate obligor or
accepting bank. Each of the Portfolios, other than, also may invest in
obligations of international banking institutions designated or supported by
national governments to promote economic reconstructions, development or trade
between nations (e.g., the European Investment Bank, the InterAmerican
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 the Adviser, acting as agent, for
no additional fee. The monies loaned to the borrower come from accounts
maintained with or managed by the Adviser or its affiliates, pursuant to
arrangements with such accounts. Interest and principal payments are credited to
such accounts. The Adviser, acting as a fiduciary on behalf of its clients, has
the right to increase or decrease the amount provided to the borrower under an
obligation. The borrower has the right to pay without penalty all or any part of
the principal amount then outstanding on an obligation together with interest to
the date of payment. Since these obligations typically provide that the interest
rate is tied to the Federal Reserve Commercial Paper Composite Rate, the rate on
master demand obligations is subject to change. Repayment of a master demand
obligation to participating accounts depends on the ability of the borrower to
pay the accrued interest and principal of the obligation on demand which is
continuously monitored by the Adviser. Since master demand obligations typically
are not rated by credit rating agencies, the Portfolios may invest in such
unrated obligations only if at the time of an investment the obligation is
determined by the Adviser to have a credit quality which satisfies the
particular 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.
REPURCHASE AGREEMENTS. Each of the Portfolios may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Trust's Board of Trustees (the "Board"). 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 also may 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 a Portfolio 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. 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 the collateral
by a Portfolio may be delayed or limited. See "INVESTMENT
RESTRICTIONS."
Each of the Portfolios may make investments in other debt securities
with remaining effective maturities of thirteen months or less, including,
without limitation, corporate bonds of foreign and domestic issuers,
asset-backed securities and other obligations described in the Prospectus or
this Statement of Additional Information.
CORPORATE BONDS AND OTHER DEBT SECURITIES
As discussed in the Prospectus, J.P. Morgan Bond Portfolio 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 in the Prospectus and below. See "QUALITY AND
DIVERSIFICATION REQUIREMENTS." For information on short-term investments in
these securities, see "MONEY MARKET INSTRUMENTS."
HIGH YIELD/HIGH RISK BONDS. Certain lower rated securities purchased by
the Bond Portfolio, 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 higher coupons or interest rates 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 Bond Portfolio invests in such lower
quality securities, the achievement of its investment objective may be more
dependent on the Adviser'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 Portfolio's
portfolio securities for purposes of determining the Portfolio's net asset
value. See Appendix A for more detailed information on these ratings.
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 also may 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.
EQUITY INVESTMENTS
As discussed in the Prospectus, J.P. Morgan U.S. Disciplined Equity,
Small Company and International Opportunities Portfolios invest primarily in
equity securities consisting of common stock and other securities with equity
characteristics. The securities in which these 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. A discussion of the various types of equity investments which may be
purchased by these Portfolios appears in the Prospectus and below. See "QUALITY
AND DIVERSIFICATION REQUIREMENTS."
EQUITY SECURITIES. The common stocks in which the Portfolios may invest
include the common stock of any class or series of a domestic or foreign
corporation or any similar equity interest, such as trust or partnership
interests. The Portfolios' equity investments also may include preferred stock,
warrants, rights and convertible securities. These investments 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 U.S. Disciplined Equity Portfolio 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 specified 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
J.P. Morgan International Opportunities Portfolio makes substantial
investments in foreign securities. The J.P. Morgan U.S. Disciplined Equity
Portfolio does not expect to invest more than 20% of its 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
redomiciling of companies for tax treatment purposes. It is not currently
expected to be used to increase direct non-U.S. exposure. J.P. Morgan Bond and
Small Company Portfolios may invest in certain foreign securities. J.P. Morgan
Small Company Portfolio does not expect to invest more than 30% of its total
assets at the time of purchase in securities of foreign issuers. J.P. Morgan
Bond Portfolio does not expect more than 20% of its foreign investments to be in
securities which are not U.S. dollar denominated. J.P. Small Company Portfolio
does not expect more than 10% of its foreign investments to be in securities
which are not listed on a national securities exchange or which are not U.S.
dollar-denominated. In the case of J.P. Morgan Bond Portfolio, any foreign
commercial paper must not be subject to foreign withholding tax at the time of
purchase.
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 these Portfolios by domestic
companies.
Investors should realize that the value of each Portfolio'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 U.S. or abroad could result in appreciation or depreciation of
portfolio securities and could favorably or unfavorably affect the Portfolio'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 also may 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 the 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 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 U.S. In
addition, there is generally less government supervision and regulation of
securities exchanges, brokers and issuers located in foreign countries than in
the U.S.
J.P. Morgan International Opportunities Portfolio may invest in
securities of issuers in "emerging markets." Emerging markets include any
country which in the opinion of the Adviser is generally considered to be an
emerging or developing country by the international financial community. These
countries generally include every country in the world except the U.S., Canada,
Japan, Australia, New Zealand, the United Kingdom, and most countries in Western
Europe. Investments in securities of emerging markets countries entail a high
degree of risk. Investments in securities of issuers in emerging markets carry
all of the risks of investing in securities of foreign issuers outlined in this
section to a heightened degree. These heightened risks include (i) greater risks
of expropriation, confiscatory taxation, nationalization, and less social,
political and economic stability; (ii) the small current size of the markets for
securities of emerging markets issuers and the currently low or non-existent
volume of trading, resulting in lack of liquidity and in price volatility; (iii)
certain national policies which may restrict the Portfolio's investment
opportunities including restrictions on investing in issuers or industries
deemed sensitive to relevant national interests; and (iv) the absence of
developed legal structures governing private or foreign investment and private
property.
Each of the Portfolios may invest in securities of foreign issuers
directly or in the form of ADRs, European Depositary Receipts ("EDRs") or other
similar securities of foreign issuers. These securities may not necessarily be
denominated in the same currency as the securities they represent. ADRs are
receipts typically issued by a U.S. bank or trust company evidencing ownership
of the underlying foreign securities. Certain such institutions issuing ADRs may
not be sponsored by the issuer of the underlying foreign securities. A
non-sponsored 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 securities. EDRs are receipts issued
by a European financial institution evidencing a similar arrangement. 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.
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 by
changes in currency rates and in exchange control regulations, including
currency blockage. See "Foreign Currency Exchange Transactions" below.
FOREIGN CURRENCY EXCHANGE TRANSACTIONS
Because J.P. Morgan Bond, U.S. Disciplined Equity, Small Company and
International Opportunities Portfolios buy and sell securities denominated in
currencies other than the U.S. dollar, and receive interest, dividends and sale
proceeds in currencies other than the U.S. dollar, J.P. Morgan Bond, U.S.
Disciplined Equity and Small Company Portfolios may, and J.P. Morgan
International Opportunities Portfolio will, from time to time enter 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 currency exchange transactions
will generally be 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
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 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 prevent loss if the prices of these securities should decline.
Each of these Portfolios may enter into foreign currency exchange
transactions for a variety of purposes, including: to fix in U.S. dollars,
between trade and settlement date, the value of a security the Portfolio has
agreed to buy or sell; to hedge the U.S. dollar value of securities the
Portfolio already owns, particularly if it expects a decrease in the value of
the currency in which the foreign security is denominated; or to gain or reduce
exposure to the foreign currency in an attempt to enhance return.
As a hedging strategy, 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 tend to 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 or
investment strategy is highly uncertain.
ADDITIONAL INVESTMENTS
CONVERTIBLE SECURITIES. J.P. Morgan Bond, U.S. Disciplined Equity,
Small Company and International Opportunities Portfolios may invest in
convertible securities of domestic and, subject to each Portfolio's
restrictions, foreign issuers. The convertible securities which the Portfolio
may invest include any debt securities 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 Portfolio may
purchase securities on a when-issued or delayed delivery basis. 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 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, 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 Portfolio
will maintain with the Trust's 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. See "INVESTMENT
ADVISORY AND OTHER SERVICES" for more information concerning the Trust's
custodian. 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.
INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by each Portfolio to the extent permitted under the 1940 Act.
These limits require that, as determined immediately after a purchase is made,
(i)not more than 5% of the value of the Portfolio's total assets will be
invested in the securities of any one investment company, (ii) not more than 10%
of the value of the Portfolio's 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
Portfolio, provided however, that the Portfolio may invest all of its investable
assets in an open-end investment company that has the same investment objective
as the Portfolio. As a shareholder of another investment company, a 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 Portfolio bears directly
in connection with its own operations.
REVERSE REPURCHASE AGREEMENTS. Each Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, a Portfolio sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price. Reverse repurchase agreements also may be viewed as the
borrowing of money by the Portfolio and, therefore, is a form of leverage. The
Portfolios will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, the Portfolios 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.
Investors should keep in mind that the counterparty to a contract could default
on its obligations. The Portfolios will not invest the proceeds of a reverse
repurchase agreement for a period which exceeds the duration of the reverse
repurchase agreement. A Portfolio may not enter into reverse repurchase
agreements exceeding in the aggregate one-third of the market value of its total
assets less liabilities other than the obligations created by reverse repurchase
agreements. Each Portfolio will establish and maintain with the Trust's
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.
MORTGAGE DOLLAR ROLL TRANSACTIONS. J.P. Morgan Bond Portfolio may
engage in mortgage dollar roll transactions with respect to mortgage-related
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 Portfolio sells a mortgage-related
security and simultaneously agrees to repurchase a substantially similar
security on a specified future date at an agreed upon price. During the roll
period, the Portfolio will not be entitled to receive any interest or principal
paid on the securities sold. The Portfolio 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 Portfolio also may be compensated by
receipt of a commitment fee. When the Portfolio enters into a mortgage dollar
roll transaction, liquid assets in an amount sufficient to pay for the future
repurchase are segregated with the Trust's custodian. Mortgage dollar roll
transactions are considered reverse repurchase agreements for purposes of the
Portfolio's investment restrictions.
LOANS OF PORTFOLIO SECURITIES. Each Portfolio may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolios in the normal
settlement time, currently five 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 shareholders. The Portfolio may pay reasonable finders' and custodial
fees in connection with a loan. In addition, the Portfolios will consider all
facts and circumstances before entering into such an agreement, including the
creditworthiness of the borrowing financial institution, and the Portfolios will
not make any loans in excess of one year. The Portfolios will not lend their
securities to any officer, Trustee, Director, employee, or affiliate of the
Portfolios, the Adviser or the Trust's distributor, unless otherwise permitted
by applicable law.
ILLIQUID INVESTMENTS. Subject to the limitations described below, each
of the Portfolios may acquire investments that are illiquid or have limited
liquidity, such as 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 U.S. without first being registered under the 1933 Act. An illiquid
investment in 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.
Each of the Portfolios also may purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Adviser and approved by the Trustees. The Trustees will
monitor the Adviser's implementation of these guidelines on a periodic basis.
QUALITY AND DIVERSIFICATION REQUIREMENTS
As a diversified investment company, each Portfolio is subject to the
following fundamental limitations with respect to 75% of its assets: (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 a
Portfolio's assets not subject to the limitations 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
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.
J.P. MORGAN BOND PORTFOLIO. J.P. Morgan Bond Portfolio invests
principally in a diversified portfolio of "high quality" and "investment grade"
securities as described in Appendix A. Investment grade debt is rated, on the
date of investment, within the four highest rating categories of Moody's
Investors Service, Inc. ("Moody's"), currently Aaa, Aa, A and Baa, or of
Standard & Poor's Ratings Group ("Standard & Poor's"), currently AAA, AA, A and
BBB, while high grade debt is rated on the date of the investment within the
three highest of such categories. The Portfolio also may invest up to 25% of its
total assets in securities which are "below investment grade." The Portfolio may
invest in debt securities which are not rated or other debt securities to which
these ratings are not applicable if, in the Adviser's opinion, such securities
are of comparable quality to the rated securities discussed above. In addition,
at the time the Portfolio invests in any commercial paper, bank obligation or
repurchase agreement, the issuer must have received a short term rating of
investment grade or better (currently Prime-3) or higher by Moody's or A-3 or
higher by Standard & Poor's, the issuer's parent corporation, if any, must have
outstanding commercial paper rated above BBB.
J.P. MORGAN U.S. DISCIPLINED EQUITY, SMALL COMPANY AND INTERNATIONAL
OPPORTUNITIES PORTFOLIOS. J.P. Morgan U.S. Disciplined Equity, Small Company and
International Opportunities Portfolios may invest in convertible debt
securities, for which there are no specific quality requirements. In addition,
at the time the 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-l 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 Adviser's opinion. At the time the 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 Adviser's opinion.
In determining the suitability of investment in a particular unrated
security, the Adviser 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
GENERAL. J.P. Morgan Bond Portfolio may (a) purchase and sell exchange
traded and OTC put and call options on fixed income securities and indices of
fixed income securities, (b) purchase and sell futures contracts on fixed income
securities and indices of fixed income securities and (c) purchase and sell put
and call options on futures contracts on fixed income securities and indices of
fixed income securities.
J.P. Morgan U.S. Disciplined Equity, Small Company and International
Opportunities Portfolios may (a) purchase and sell exchange traded and OTC put
and call options on equity securities and indices of equity securities, (b)
purchase and sell futures contracts on indices of equity securities, and (c)
purchase and sell put and call options on futures contracts on indices of equity
securities.
Each of these Portfolios may use futures contracts and options for
hedging and risk management purposes. See "RISK MANAGEMENT." None of the
Portfolios may use futures contracts and options for speculation.
Each of these Portfolios 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 Portfolio'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 Portfolio's overall strategy in a manner
deemed appropriate to the Adviser and consistent with a Portfolio'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 Portfolio's return. While the use of these instruments
by a Portfolio may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Adviser applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower a Portfolio's
return. Certain strategies limit a Portfolio's possibilities to realize gains as
well as limiting its exposure to losses. The Portfolio 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 Portfolio 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 Portfolio's turnover rate.
No Portfolio may 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 assets of such Portfolio.
PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, a
Portfolio 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
Portfolio pays the current market price for the option (known as the option
premium). Options have various types of underlying instruments, including
specific securities, indexes of securities, indexes of securities prices, and
futures contracts. The Portfolio may terminate its position in a put option it
has purchased by allowing it to expire or by exercising the option. The
Portfolio may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed to
expire, the Portfolio will lose the entire premium it paid. If the Portfolio
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price. If the Portfolio 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 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 Portfolio writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Portfolio assumes the
obligation to pay the strike price for the instrument underlying the option if
the other party to the option chooses to exercise it. The Portfolio 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. However, if the market
is not liquid for a put option the Portfolio has written, the Portfolio 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. However, this loss should be less than the loss from
purchasing and holding the underlying instrument directly, because the premium
received for writing the option should offset a portion of the decline.
Writing a call option obligates a Portfolio 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 INDICES. Each Portfolio that is permitted to enter into
options transactions may purchase and sell (write) put and call options on any
securities index based on securities in which the Portfolio may invest. Options
on securities indices 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
Portfolio, 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 Portfolio'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
Portfolio may not be able to close out an option position that it has previously
entered into. When a Portfolio purchases an OTC option, it will be relying on
its counterparty to perform its obligations, and a Portfolio may incur
additional losses if the counterparty is unable to perform.
FUTURES CONTRACTS. When a Portfolio 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 Portfolio 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 Portfolio 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 Portfolio wishes to close out
a particular position.
When a Portfolio 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 a Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When a Portfolio 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 has 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 Portfolio 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 Portfolio 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
Portfolio to close out its futures positions. Until it closes out a futures
position, a Portfolio will be obligated to continue to pay variation margin.
Initial and variation margin payments do not constitute purchasing on margin for
purposes of the Portfolio's investment restrictions. In the event of the
bankruptcy of an FCM that holds margin on behalf of a Portfolio, the Portfolio
may be entitled to return of margin owed to it only in proportion to the amount
received by FCM's other customers, potentially resulting in losses to the
Portfolio.
Each Portfolio will segregate liquid assets in connection with its use
of options and futures 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 Portfolio's assets could impede portfolio management
or the Portfolio's ability to meet redemption requests or other current
obligations.
OPTIONS ON FUTURES CONTRACTS. The Portfolios may purchase put and call
options and sell (i.e., write) covered put and call options on futures
contracts.
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 FCM, 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 also may result from differing levels of demand in the options and
futures markets and the securities markets, structural differences in how
options and futures and securities are traded, or 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 options 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 on 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 also could be impaired.
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 Adviser 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
none of the Portfolio will be a commodity pool, certain derivatives subject the
Portfolios to the rules of the Commodity Futures Trading Commission which limit
the extent to which a Portfolio can invest in such derivatives. Each Portfolio
may invest in futures contracts and options with respect thereto for hedging
purposes without limit. However, a 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 to initial margin
deposits and option premiums. In addition, the Portfolios will comply with
guidelines established by the SEC with respect to coverage of options and
futures contracts by mutual funds, and if the guidelines so require, will set
aside appropriate liquid assets in a segregated custodial account in the amount
prescribed. Securities held in a segregated account cannot be sold while the
futures contract or option is outstanding, unless they are replaced with other
suitable assets. As a result, there is a possibility that segregation of a large
percentage of a Portfolio's assets could impede portfolio management or the
Portfolio's ability to meet redemption requests or other current obligations.
RISK MANAGEMENT
The Portfolios may employ non-hedging risk management techniques.
Examples of such strategies include synthetically altering the duration of a
portfolio or the mix of securities in a portfolio. For example, if the Adviser
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 Portfolio to
purchase futures contracts on long-term debt securities. Similarly, if the
Adviser wishes to decrease fixed income securities or purchase equities, it
could cause the Portfolio to sell futures contracts on debt securities and
purchase future 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.
INVESTMENT RESTRICTIONS
FUNDAMENTAL INVESTMENT RESTRICTIONS
Each Portfolio's investment objective is a "fundamental" policy, which
cannot be changed without approval by the holders of a majority of the
outstanding voting securities of the Portfolio. In addition, the investment
restrictions below have been adopted by the Trust with respect to each
Portfolio. Except where otherwise noted, these investment restrictions are
"fundamental" policies. A "majority of the outstanding voting securities" is
defined in the 1940 Act as the lesser of (a) 67% or more of the shares present
at a shareholders meeting if the holders of more than 50% of the outstanding
shares are present and represented by proxy, or (b) more than 50% of the
outstanding shares. The percentage limitations contained in the restrictions
below apply at the time of the purchase of securities.
Unless Sections 8(b)(1) and 13(a) of the 1940 Act or any SEC or SEC Staff
interpretations thereof are amended or modified, no Portfolio may:
1. Purchase any security if, as a result, more than 25% of the value of
the Portfolio's total assets would be invested in securities of issuers
having their principal business activities in the same industry. This
limitation shall not apply to obligations issued or guaranteed by the
U.S. Government, its agencies or instrumentalities;
2. Borrow money, except that the Portfolio may (i) borrow money from banks
for temporary or emergency purposes (not for leveraging purposes) and
(ii) enter into reverse repurchase agreements for any purpose; provided
that (i) and (ii) in total do not exceed 33-1/3% of the value of the
Portfolio's total assets (including the amount borrowed) less
liabilities (other than borrowings). If at any time any borrowings come
to exceed 33-1/3% of the value of the Portfolio's total assets, the
Portfolio will reduce its borrowings within three business days to the
extent necessary to comply with the 33-1/3% limitation;
3. With respect to 75% of its total assets, purchase any security if, as a
result, (a) more than 5% of the value of the Portfolio's total assets
would be invested in securities or other obligations of any one issuer
or (b) the Portfolio would hold more than 10% of the outstanding voting
securities of that issuer. This limitation shall not apply to U.S.
Government securities (as defined in the 1940 Act);
4. Make loans to other persons, except through the purchase of debt
obligations (including privately placed securities), loans of portfolio
securities, and participation in repurchase agreements;
5. Purchase or sell physical commodities or contracts thereon, unless
acquired as a result of the ownership of securities or instruments, but
the Portfolio may purchase or sell futures contracts or options
(including options on futures contracts, but excluding options or
futures contracts on physical commodities) and may enter into foreign
currency forward contracts;
6. Purchase or sell real estate, but the Portfolio may purchase or sell
securities that are secured by real estate or issued by companies
(including real estate investment trusts) that invest or deal in real
estate;
7. Underwrite securities of other issuers, except to the extent the
Portfolio, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the Securities Act of 1933, as
amended; or
8. Issue senior securities, except as permitted under the 1940 Act or any
rule, order or interpretation thereunder.
NON-FUNDAMENTAL INVESTMENT RESTRICTIONS
The investment restrictions that follow are not fundamental policies of
the respective Portfolios and may be changed by the Board.
J.P. MORGAN BOND, SMALL COMPANY AND INTERNATIONAL OPPORTUNITIES PORTFOLIOS
may not: (i) Acquire securities of other investment companies, except as
permitted by the 1940 Act or any rule, order or interpretation thereunder, or in
connection with a merger, consolidation, reorganization, acquisition of assets
or an offer of exchange;
(ii) Invest in warrants (other than warrants acquired by the Portfolio
as part of a unit or attached to securities at the time of purchase)if,
as a result, the investments (valued at the lower of cost or market)
would exceed 5% of the value of the Portfolio's net assets or if, as a
result, more than 2% of the Portfolio's net assets would be invested in
warrants not listed on a recognized U.S. or foreign stock exchange, to
the extent permitted by applicable state securities laws;
(iii) Acquire any illiquid securities if, as a result thereof, more
than 15% of the market value of the Portfolio's total assets would be
in investments that are illiquid;
(iv) Purchase any security if, as a result, the Portfolio would then
have more than 5% of its total assets invested in securities of
companies (including predecessors) that have been in continuous
operation for fewer than three years;
(v) Sell any security short, unless it owns or has the right to obtain
securities equivalent in kind and amount to the securities sold or
unless it covers such short sales as required by the current rules or
positions of the SEC or its Staff. Transactions in futures contracts
and options shall not constitute selling securities short;
(vi) Purchase securities on margin, but the Portfolio may obtain such
short-term credits as may be necessary for the clearance of
transactions;
(vii) Purchase securities of any issuer if, to the knowledge of the
Trust, any of the Trust's officers or Trustees or any officer of the
Adviser, would after the Portfolio's purchase of the securities of such
issuer, individually own more than 1/2 of 1% of the issuer's
outstanding securities and such persons owning more than 1/2 of 1% of
such securities together beneficially would own more than 5% of such
securities, all taken at market; or
(viii) Invest in real estate limited partnerships or purchase interests
in oil, gas or mineral exploration or development programs or leases.
J.P. MORGAN U.S. DISCIPLINED EQUITY may not:
(i) Acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration
of over seven calendar days, if as a result thereof, more than 15% of
the market value of a Fund's net assets would be in investments which
are illiquid;
(ii) Purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued or
delayed delivery securities, or to short sales that are covered in
accordance with SEC rules; and
(iii) Acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
TRUSTEES
The Trustees of the Trust are responsible for the management and
supervision of each Portfolio. The Trustees approve all significant agreements
with those companies that furnish services to the Portfolios. These companies
are as follows:
J.P. Morgan Investment Management Inc................ Investment Adviser
Funds Distributor, Inc...................Distributor and Co-Administrator
Morgan Guaranty Trust Company of New York.............. Co-Administrator
Bank of New York............................................ Custodian
The Trustees of the Trust, their business addresses, dates of birth and
their principal occupations during the past five years are set forth below.
<PAGE>
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Name, Address and
Date of Birth Principal Occupations
During Past
Position with Trust Five Years
- ---------------------------------------- --------------------------------------
- -
John N. Bell Trustee Retired; Assistant
462 Lenox Avenue Treasurer, Consolidated
Date of Birth 06/09/31 Edison South Orange,
NJ 07079 Company of New
York, Inc.(prior to
1993); Board member of
other funds
managed by Morgan and/or
its affiliates
(since June, 1997)
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
John R. Rettberg Trustee Retired; Corporate Vice
1770 W. Balboa Blvd President and Treasurer
Newport Beach, CA 92663 Northrop Grumman
Corporation "Northrop"
(prior to Date of Birth:
09/01/37 January, 1995);
Consultant, Northrop
(since January, 1995);
Director, Independent
Colleges of Southern
California (prior to
1994); Director, Junior
Achievement prior to
1993);Director, Ppperdine
University (since March,
1997); Director Vari-Lite
International Corporation
(since April, 1996);
Board member of other
funds managed by
Morgan and/or its
affiliates (since June,
1997)------- ------------
- ---------------------------------------- --------------------------------------
John F. Ruffle Trustee Retired; Director
Pleasantville Road and Vice Chairman,
New Vernon, NJ 07976 J.P. Morgan & Co.
Date of Birth: 03/28/37 Incorporated (prior to
June, 1993); Trustee,
The Johns Hopkins
University (since April,
1990); Director,
Bethlehem Steel
Corp.
(since September,1990);
Director, Wackenhut
Corrections Corp.
(since January, 1997);
Director, Wackenhut
Corporation
since April, 1998);
Director, Trident Corp.
(since November,
1993); Director,
American
Shared Hospital Services
(since May, 1995);
Board member of other
funds managed by Morgan
and/or its affiliates
(since June, 1997)
- ---------------------------------------- --------------------------------------
- ---------------------------------------- --------------------------------------
Kenneth Whipple, Jr. Trustee Retired, Executive Vice
555 Hupp Cross Rd. President, Ford Motor
Bloomfield Hills, MI 48301 Company, President,
Ford Financial Services
Date of Birth: 09/28/34 Group, and Chairman,
Ford Motor Credit
Company (prior
to 1992);
Director,
CMS
Energy
Corporation
and
Consumers
Energy
Company
(since
January,
1993);
Director,
Detroit
Country
Day
School
(since
January,
1993);
Chairman
and
Director,
WTVS-TV
(prior
to
1992);
Director,
Galileo
International
(since
October,
1997);
Director,
Associates
First
Capital
Corp.
(since
January
1999),
Board
member
of
other
funds
managed
by
Morgan
and/or
its
affiliates
(since
June,
1997)
- ---------------------------------------- --------------------------------------
The Trust currently pays each Trustee an annual retainer of $20,000 and
reimburses them for their related expenses. The aggregate amount of
compensation paid to each Trustee by the Trust for the fiscal year
ended December 31, 1999 was as follows:
Total Compensation from
Compensation Registrant and Fund
Name of Trustee From Trust Complex Paid to Trustees
John N. Bell $20,000 $20,000
John R. Rettberg $20,000 $20,000
John F. Ruffle $20,000 $20,000
Kenneth Whipple, Jr. $20,000 $20,000
OFFICERS OF THE TRUST
The Trust's executive officers (listed below), other than the officers who
are employees of the Adviser and/or its affiliates, 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.
The officers of the Trust, their principal occupations during the past
five years and dates of birth are set forth below. The business
address of each of the officers unless otherwise noted is Funds
Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109.
MARIEE. CONNOLLY; Vice President and Assistant Treasurer. President, Chief
Executive Officer, Chief Compliance Officer and Director of FDI,
Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier
Mutual") and an officer of certain investment companies distributed or
administered by FDI. Her date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies
distributed or administered by FDI. Prior to April 1997, Mr. Conroy
was Supervisor of Treasury Services and Administration of FDI. From
April 1993 to January 1995, Mr. Conroy was a Senior Fund Accountant
for Investors Bank & Trust Company. His date of birth is March 31,
1969.
JOHN P. COVINO - Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of
FDI. Prior to November 1998, Mr. Covino was employed by Fidelity
Investments where he held multiple positions in its 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.
KARENJACOPPO-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.
MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier
Mutual and an officer of certain investment companies distributed or
administered by FDI. Prior to August 1994, Ms. Nelson was an Assistant
Vice President and Client Manager for The Boston Company, Inc. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York. Ms. Pace serves in the Funds Administration group
as a Manager for the Budgeting and Expense Processing Group. Prior to
September 1995, Ms. Pace served as a Fund Administrator for Morgan
Guaranty Trust Company of New York. Her address is 60 Wall Street, New
York, New York 10260. Her date of birth is March 13, 1966.
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 ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
The Trust has entered into an Investment Advisory Agreement with Morgan
with respect to each of the Portfolios. Morgan is a wholly-owned
subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
The Investment Advisory Agreement provides that Morgan, subject to control
and review by the Board, is responsible for the overall management and
supervision of each Portfolio. Morgan makes each Portfolio's
day-to-day investment decisions to buy, sell or hold any particular
security or other instrument.
Morgan and its affiliates provide investment advice to other clients,
including, but not limited to, mutual funds, individuals, pension
funds and other institutional investors. Some of the advisory accounts
of Morgan and its affiliates may have investment objectives and
investment programs similar to those of the Portfolios. Accordingly,
occasions may arise when securities that are held by other advisory
accounts, or that are currently being purchased or sold for other
advisory accounts, are also being selected for purchase or sale for a
Portfolio. It is the practice of Morgan and its affiliates to allocate
such purchases or sales insofar as feasible among their several
clients in a manner they deem equitable, to all accounts involved.
While in some cases this procedure may adversely affect the price or
number of shares involved in the Trust's transaction, it is believed
that the equitable allocation of purchases and sales generally
contributes to better overall execution of the Trust's portfolio
transactions. It also is the policy of Morgan and its affiliates not
to favor any one account over the other.
As compensation for Morgan's services under the Investment Advisory
Agreement, the Trust has agreed to pay Morgan a monthly fee at the
annual rate set forth below as a percentage of the average daily net
assets of the relevant Portfolio:
J.P. Morgan Bond Portfolio........................................ 0.30%
J.P. Morgan U.S. Disciplined Equity Portfolio..................... 0.35%
J.P. Morgan Small Company Portfolio................................. 0.60%
J.P. Morgan International Opportunities Portfolio................... 0.60%
The table below sets forth for each Portfolio listed the advisory fees
paid to the Advisor for the fiscal period indicated. See the Trust's
financial statements which are incorporated herein by reference.
J.P. Morgan Bond Portfolio: For the fiscal years ended December 31, 1997,
1998 and 1999: $66,165 and $132,584 respectively.
J.P. Morgan U.S. Disciplined Equity Portfolio: For the fiscal years ended
December 31, 1997, 1998 and 1999: $30,661, $50,702 and $104,133
respectively.#
J.P. Morgan Small Company Portfolio: For the fiscal years ended December
31, 1997, 1998 and 1999: $28,951 $34,337 and 55,018 respectively.
J.P. Morgan International Opportunities Portfolio: For the fiscal years
ended December 31, 1997, 1998 and 1999: $40,707 $50,778 and $83,195
respectively.
The Investment Advisory Agreement was last approved by the Board on
December 1, 1999 and by shareholders on December 12, 1996. Unless
earlier terminated, the Agreement will remain in effect as to the
applicable Portfolio until December 31, 2000 and thereafter from year
to year with respect to each such Portfolio, if approved annually (1)
by the Board or by a majority of the outstanding shares of the
Portfolio, and (2) by a majority of members of the Board who are not
interested persons, within the meaning of the 1940 Act, of any party
to such Agreement. The Agreement is not assignable and may be
terminated without penalty, with respect to any Portfolio, by vote of
a majority of the Trust's Trustees or by the requisite vote of the
shareholders of that Portfolio on 60 days' written notice to Morgan,
or by Morgan on 90 days' written notice to the Trust. See "SHARES OF
BENEFICIAL INTEREST." .........
ADMINISTRATIVE SERVICES AGREEMENT
The Trust has entered into an Administrative Services Agreement with
Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), an
affiliate of Morgan, effective January 1, 1997. Pursuant to the
Administrative Services Agreement, Morgan Guaranty provides or
arranges for the provision of certain financial and administrative
services and oversees fund accounting for the Trust. The services to
be provided by Morgan Guaranty under the Administrative Services
Agreement include, but are not limited to, services related to taxes,
financial statements, calculation of Portfolio performance data,
oversight of service providers, certain regulatory and Board of
Trustees matters, and shareholder services. In addition, Morgan
Guaranty is responsible for reimbursing the Trust for certain usual
and customary expenses incurred by the Trust including, without
limitation, transfer, registrar and dividend disbursing costs, custody
fees, legal and accounting expenses, fees of the Trust's
co-administrator, insurance premiums, compensation and expenses of the
Trust's Trustees, expenses of preparing, printing and mailing
prospectuses reports, notices and proxies to shareholders,
registration fees under federal securities laws and filing fees under
state securities laws.
------------------------ # Prior to July 1, 1999, the rate was 0.40%. These
fees were computed at the prior fee rate of 0.40% rather than the
current rate of 0.35%.
<PAGE>
For providing its services under the Administrative Services Agreement,
Morgan Guaranty receives monthly compensation from the Trust at annual
rates computed as described under "MANAGEMENT AND ADMINISTRATION" in
the Prospectus. However, the Administrative Services Agreement, as
amended on December 1, 1999, also provides that, as to each Portfolio,
until December 31, 2000, the aggregate fees, expressed in dollars,
payable by such Portfolio under the Administrative Services Agreement
and the Investment Advisory Agreement will not exceed the expenses
(excluding extraordinary expenses) that would have been payable by
such Portfolio assuming (i) the Prior Management Agreement described
in the next paragraph remained in effect in accordance with its terms,
(ii) the asset levels were the same during the relevant periods, (iii)
no effect was given to the voluntary expense reimbursement
arrangements or other limitation on expenses under such prior
agreement and (iv) the expenses the Portfolio would have been charged
were adjusted to render comparable the extent and level of services
provided under the Prior Management Agreement, on the one hand, and
the Administrative Services Agreement and Investment Advisory
Agreement, on the other.
From January 3, 1995 (commencement of operations) to December 31, 1996,
Chubb Investment Advisory Corporation ("Chubb Investment")served as
each Portfolio's investment manager (the "Prior Management
Agreement"),and Morgan Guaranty served as sub-investment adviser. The
compensation to Morgan Guaranty, as sub-investment adviser, was paid
directly from the investment management fees paid by the Trust to
Chubb Investment Advisory. For the fiscal year ended December 31,
1996, all investment management fee rates payable to Chubb Investment
pursuant to the Prior Management Agreement totaled 0.50%, 0.60%, 0.80%
and 0.80% of average daily net assets for J.P. Morgan Bond Portfolio,
J.P. Morgan U.S. Disciplined Equity Portfolio, J.P. Morgan Small
Company Portfolio and J.P. Morgan International Opportunities
Portfolio, respectively. Pursuant to the Prior management Agreement,
certain fees and expenses were reimbursed, the ratio of operating
expenses to average net assets for the fiscal year ended December 31,
1996 was 0.75%, 0.90%, 1.15% and 1.20% for J.P. Morgan Bond Portfolio,
J.P. Morgan U.S. Disciplined Equity Portfolio, J.P. Morgan Small
Company Portfolio and J.P. Morgan International Opportunities
Portfolio, respectively.
Pursuant to the Administrative Services Agreement, as amended, for the
fiscal years ended December 31, 1997, 1998 and 1999, Morgan Guaranty
reimbursed the Portfolios for expenses under this agreement as
follows:
J.P. Morgan Bond Portfolio: $76,095, $59,295 and $0 respectively.
J.P. Morgan U.S. Disciplined Equity Portfolio: $107,757, $72,953 and $0
respectively.
J.P. Morgan Small Company Portfolio: $128,287, $130,582 and $129,795
respectively.
J.P. Morgan International Opportunities Portfolio: $206,693, $173,976
and $108,143 respectively.
The Administrative Services Agreement may be amended only by mutual
written consent.
The Administrative Services Agreement was last approved by the Board on
December 1, 1999. The Agreement may be terminated as to any Portfolio
at any time, without the payment of any penalty, by the Board or by
Morgan Guaranty on not more than 60 days' nor less than 30 days'
written notice to the other party.
INDEPENDENT ACCOUNTANTS
.........The independent accountants of the Trust 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 Portfolios. Prior to fiscal year
1997, Ernst & Young LLP had served as the independent accountants of
the Trust.
DISTRIBUTOR
FundsDistributor, Inc. ("FDI") serves as the Trust's Distributor and holds
itself available to receive purchase orders for each of the
Portfolio'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 Portfolio'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 Portfolios 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 Trust'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") . 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 (i) 67% or more of the Trust's shares or the Portfolios'
outstanding voting securities present at a meeting, if the holders of
more than 50% of the Trust's outstanding shares or the Portfolios'
outstanding voting securities are present or represented by proxy, or
(ii) more than 50% of the Trust's outstanding shares or the
Portfolios' outstanding voting securities, whichever is less and 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
Underthe Co-Administration Agreement with the Trust dated January 1, 1997,
FDI also serves as the Trust's Co-Administrator. The Co-Administration
Agreement may be renewed or amended by the Trustees without a
shareholder vote. The Co-Administration Agreement is terminable at any
time without penalty by a vote of a majority of the Trustees of the
Trust 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 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.
For its services under the Co-Administration Agreement, each 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 Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust and certain other
registered investment companies subject to similar agreements with
FDI. Under the terms of the Administrative Services Agreement with
Morgan Guaranty, Morgan Guaranty is responsible for the payment of the
fees and expenses of FDI as Co-Administrator.
For the fiscal years ended December 31, 1997, 1998 and 1999, the fee for
these services amounted to the following:
J.P. Morgan Bond Portfolio: $116, $281 and $373 respectively.
J.P. Morgan U.S. Disciplined Equity Portfolio: $137, $148 and $238
respectively.
J.P. Morgan Small Company Portfolio: $87, $75 and $77 respectively.
J.P. Morgan International Opportunities Portfolio: $123, $110 and $117
respectively.
CUSTODIAN
The Bank of New York ("BONY"), One Wall Street, New York, New York 10286,
serves as the Trust's and each of the Portfolios' custodian and fund
accounting agent. Pursuant to the Custodian Contract, BONY is
responsible for maintaining the books of account and records of
portfolio transactions and holding portfolio securities and cash. In
the case of foreign assets held outside the United States, the
custodian employs various subcustodians who were approved by the
Trustees of the Trust in accordance with the regulations of the SEC.
The custodian maintains portfolio transaction records.
StateStreet 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.
The Trust has also appointed, with the approval of the Board,
sub-custodians, qualified under Rule 17f-5 of the 1940 Act, with
respect to certain foreign securities. Securities owned by the Trust
subject to repurchase agreements may be held in the custody of other
U.S. banks.
PAYMENT OF EXPENSES
Morgan Guaranty is obligated to assume the cost of certain administrative
expenses for the Trust, as described herein and in the Prospectus
under the heading "MANAGEMENT AND ADMINISTRATION." The Trust is
responsible for Morgan's fees as investment adviser pursuant to the
Investment Advisory Agreement and for Morgan Guaranty's fees for its
services pursuant to the Administrative Services Agreement. In
addition, the Trust pays all extraordinary expenses not incurred in
the ordinary course of the Trust's business including, but not limited
to, litigation and indemnification expenses; interest charges;
material increases in Trust expenses due to occurrences such as
significant increases in the fee schedules of the Custodian or the
Transfer Agent or a significant decrease in the Trust's asset level
due to changes in tax or other laws or regulations; or other such
extraordinary occurrences outside of the ordinary course of the
Trust's business. See "OFFERING AND REDEMPTION OF SHARES" below.
<PAGE>
PORTFOLIO TRANSACTIONS AND BROKERAGE ALLOCATIONS
Underthe Investment Advisory Agreement, Morgan has ultimate authority to
select broker-dealers through which securities are to be purchased and
sold, subject to the general control of the Board.
Moneymarket instruments usually will be purchased on a principal basis
directly from issuers, underwriters or dealers. Accordingly, minimal
brokerage charges are expected to be paid on such transactions.
Purchases from an underwriter generally include a commission or
concession paid by the issuer, and transactions with a dealer usually
include the dealer's mark-up.
Insofar as known to management, no trustee, director or officer of the
Trust, Morgan or any person affiliated with any of them has any
material direct or indirect interest in any broker-dealer employed by
or on behalf of the Trust.
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.
For the years ended December 31, 1997, 1998 and 1999, the Trust paid in
the aggregate $53,473, $69,751 and $92,186 respectively, as brokerage
commissions. No commissions were allocated for research.
Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of
the Advisor to effect any portfolio transactions for a Portfolio, the
commissions, fees or other remuneration received by such affiliates
must be reasonable and fair compared to the commissions, fees, or
other remuneration paid to other brokers in connection with comparable
transactions involving similar securities being purchased or sold on a
securities exchange during a comparable period of time. Furthermore,
the Trustees of each Portfolio, including a majority of the Trustees
who are not "interested persons," have adopted procedures which are
reasonably designed to provide that any commissions, fees, or other
remuneration paid to such affiliates are consistent with the foregoing
standard.
Portfolio securities will not be purchased from or through or sold to or
through the Co-Administrator, the Distributor or the Advisor or any
other "affiliated person" (as defined in the 1940 Act) of the
Co-Administrator, Distributor or Advisor when such entities are acting
as principals, except to the extent permitted by law. In addition, the
Portfolios will not purchase securities during the existence of any
underwriting group relating thereto of which the Advisor or an
affiliate of the Advisor is a member, except to the extent permitted
by law.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other
customers including other Portfolios, the Advisor to the extent
permitted by applicable laws and regulations, may, but is not
obligated to, aggregate the securities to be sold or purchased for a
Portfolio with those to be sold or purchased for other customers in
order to obtain best execution, including lower brokerage commissions
if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction
will be made by the Advisor in the manner it considers to be most
equitable and consistent with its fiduciary obligations to a
Portfolio. In some instances, this procedure might adversely affect a
Portfolio.
If a Portfolio that writes options effects a closing purchase transaction
with respect to an option written by it, normally such transaction
will be executed by the same broker-dealer who executed the sale of
the option. The writing of options by a Portfolio will be subject to
limitations established by each of the exchanges governing the maximum
number of options in each class which may be written by a single
investor or group of investors acting in concert, regardless of
whether the options are written on the same or different exchanges or
are held or written in one or more accounts or through one or more
brokers. The number of options which a Portfolio may write may be
affected by options written by the Advisor for other investment
advisory clients. An exchange may order the liquidation of positions
found to be in excess of these limits, and it may impose certain other
sanctions.
SHARES OF BENEFICIAL INTEREST
The Trust consists of an unlimited number of outstanding shares of
beneficial interest which are divided into five series: J.P. Morgan
Bond Portfolio, J.P. Morgan U.S. Disciplined Equity Portfolio, J.P.
Morgan Small Company Portfolio and J.P. Morgan International
Opportunities Portfolio. The Trust has the right to issue additional
shares without the consent of shareholders, and may allocate its
additional shares to new series or to one or more of the five existing
series.
The assets received by the Trust for the issuance or sale of shares of
each Portfolio and all income, earnings, profits and proceeds thereof
are specifically allocated to each Portfolio. They constitute the
underlying assets of each Portfolio, are required to be segregated on
the books of accounts and are to be charged with the expenses of such
Portfolio. Any assets which are not clearly allocable to a particular
Portfolio or Portfolios are allocated in a manner determined by the
Board. Accrued liabilities which are not clearly allocable to one or
more Portfolios would generally be allocated among the Portfolios in
proportion to their relative net assets before adjustment for such
unallocated liabilities. Each issued and outstanding share in a
Portfolio is entitled to participate equally in dividends and
distributions declared with respect to such Portfolio and in the net
assets of such Portfolio upon liquidation or dissolution remaining
after satisfaction of outstanding liabilities.
The shares of each Portfolio are fully paid and non-assessable, will have
no preference, preemptive, conversion, exchange or similar rights, and
will be freely transferable. Shares do not have cumulative voting
rights.
CODE OF ETHICS
The Trust and the Adviser have adopted codes of ethics pursuant to Rule
17j-1 under the 1940 Act. Each of these codes permits personnel subject to such
code to invest in securities, including securities that may be purchased or held
by the Portfolios. Such purchases, however, are subject to preclearance and
other procedures reasonably necessary to prevent a fraud or deceit on the Trust.
As of February 29, 2000, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the
outstanding shares of:
J.P. Morgan Bond Portfolio: General American Separate 7 (44.18%) Integrity
Life Insurance Company (24.58%); Chubb Separate Account C (9.22%%);
Hartford Life Insurance Company (10.18%); National Integrity Life
Insurance Company (7.07%).
J.P. Morgan U.S. Disciplined Equity Portfolio: Chubb Separate Account C
(34.66%); Sun Life Assurance Company of Canada (US)- VA (42.61%); ICMG
Registered Variable Life (15.20%).
J.P. Morgan Small Company Portfolio: Chubb Separate Account C (31.57%);
ICMG Registered Variable Life Separate Account (7.82%); Ohio National
Life Ins Company (13.11%); Sun Life Assurance Company of Canada (US) -
VA (19.02%) Kemper Life Insurance Company (5.58%).
J.P. Morgan International Opportunities Portfolio: Chubb Separate Account C
(42.03%); ICMG Registered Variable Life (11.11%); Integrity Life
Insurance Company Regular Account (18.63%); Sun Life Assurance Company
of Canada (US)- VA (16.66%); National Integrity Life Insurance
(7.49%).
ChubbLife's ownership of more than 25% of the shares of each of the
Trust's Portfolios may result in Chubb Life being deemed to be a
controlling entity of each Portfolio.
In accordance with current law, the Trust anticipates that Portfolio
shares held in a separate account which are attributable to Policies
will be voted by the Participating Insurance Company in accordance
with instructions received from the owners of Policies. The Trust also
anticipates that the shares held by the Participating Insurance
Company, including shares for which no voting instructions have been
received, shares held in the separate account representing charges
imposed by the Participating Insurance Company against the separate
account and shares held by the Participating Insurance Company that
are not otherwise attributable to Policies, also will be voted by the
Participating Insurance Company in proportion to instructions received
from the owners of Policies. For further information on voting rights,
Policy owners should consult the applicable prospectus of the separate
account of the Participating Insurance Company. Under current law,
Eligible Plans are not required to provide Plan participants with the
right to give voting instructions. For information on voting rights,
Plan participants should consult their Plan's administrator or
trustee.
The officers and Trustees cannot directly own shares of the Trust without
purchasing a Policy or investing as a participant in an Eligible Plan.
As of February 29, 2000, the amount of shares owned by the officers
and Trustees as a group was less than 1% of each Portfolio.
OFFERING AND REDEMPTION OF SHARES
The Trust offers shares of each Portfolio only for purchase by separate
accounts established by Participating Insurance Companies or by
Eligible Plans. It thus will serve as an investment medium for the
Policies offered by Participating Insurance Companies and for
participants in Eligible Plans. The offering is without a sales charge
and is made at each Portfolio's net asset value per share, which is
determined in the manner set forth below under "DETERMINATION OF NET
ASSET VALUE."
The Trust redeems all full and fractional shares of the Trust at the net
asset value per share applicable to each Portfolio. See "DETERMINATION
OF NET ASSET VALUE" below.
Redemptions ordinarily are made in cash, but the Trust has authority, at
its discretion, to make full or partial payment by assignment to the
separate account of Portfolio securities at their value used in
determining the redemption price. The Trust, nevertheless, pursuant to
Rule 18f-1 under the 1940 Act, has filed a notification of election on
Form N-18f-1, by which the Trust has committed itself to pay to the
separate account in cash, all such separate account's requests for
redemption made during any 90-day period, up to the lesser of $250,000
or 1% of the applicable Portfolio's net asset value at the beginning
of such period. The securities, if any, to be paid in-kind to the
separate account will be selected in such manner as the Board deems
fair and equitable. In such cases, the separate account or Eligible
Plan might incur brokerage costs should it wish to liquidate these
portfolio securities.
The right to redeem shares or to receive payment with respect to any
redemption of shares of any Portfolio may only be suspended (1) for
any period during which trading on the New York Stock Exchange is
restricted or such Exchange is closed, other than customary weekend
and holiday closings, (2) for any period during which an emergency
exists as a result of which disposal of securities or determination of
the net asset value of that Portfolio is not reasonably practicable,
or (3) for such other periods as the SEC may by order permit for the
protection of shareholders of the Portfolio.
DETERMINATION OF NET ASSET VALUE
Each of the Portfolios computes its net asset value every business day as
of the close of trading on the New York Stock Exchange (normally 4:00
p.m. eastern time). The net asset value will not be computed on the
day the following legal holidays observed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Thanksgiving Day, and
Christmas Day. 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 Portfolios' business days.
The net asset value per share of each Portfolio is computed by dividing
the sum of the value of the securities held by that Portfolio, plus
any cash or other assets and minus all liabilities by the total number
of outstanding shares of the Portfolio at such time. Any expenses
borne by the Trust, including the investment advisory fee payable to
the Adviser, are accrued daily except for extraordinary or
non-recurring expenses. See "INVESTMENT ADVISORY AND OTHER SERVICES"
above.
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 prices 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 exchanges and OTC markets is normally
completed before the close of trading of the New York Stock Exchange
(normally 4:00 p.m.) and may also take place on days on which the New
York Stock Exchange is closed. If events materially affecting the
value of securities occur between the time when the exchange on which
they are traded closes and the time when a Portfolio's net asset value
is calculated, such securities will be valued at fair value in
accordance with procedures established by and under the general
supervision of the Trustees.
TAXES
In order for each Portfolio of the Trust to qualify for federal income
tax treatment as a regulated investment company, at least 90% of its
gross income for a taxable year must be derived from qualifying
income, i.e., dividends, interest, income derived from loans of
securities, and gains from the sale of securities. It is the Trust's
policy to comply with the provisions of the Internal Revenue Code of
1986, as amended (the "Code"), regarding distribution of investment
income and capital gains so that each Portfolio will not be subject to
federal income tax on amounts distributed and undistributed or an
excise tax on certain undistributed income or capital gains. For these
purposes, if a regulated investment company declares a dividend in
December to shareholders of record in December and pays such dividends
before the end of January they will be treated as paid in the
preceding calendar year and to have been received by such shareholder
in December. All dividends and distributions will be automatically
reinvested in additional shares of the Portfolio with respect to which
dividends have been declared, at net asset value, as of the
ex-dividend date of such dividends.
Federal Tax Matters. Under current law, a Policy owner's interest in
earnings on assets held in a separate account and invested in the
Trust are generally not includable in the Policy owner's gross income,
assuming the Policies presently qualify as life insurance contracts
for federal income tax purposes. Policy owners should consult the
applicable prospectus of the separate account of the Participating
Insurance Company, and Eligible Plan participants should consult the
Plan's administrator or trustee, in order to determine the Federal
income tax consequences to such holders of an investment in the
Portfolios.
The Trust intends that each Portfolio comply with Section 817(h) of the
Code and the regulations thereunder. Pursuant to that Section, the
only shareholders of the Trust and its Portfolios will be separate
accounts funding variable annuities and variable life insurance
policies established by one or more insurance companies and, pursuant
to Treasury Regulation (delta)1.817-5(f)(3)(iii), qualified pension
and retirement plans.
The Internal Revenue Service provides a list of arrangements that qualify
as a "qualified pension or retirement plan" for the purposes of such
Regulation (delta)1.817-5(f)(3)(iii). It provides in pertinent part,
that the term "qualified pension or retirement plan", for purposes of
such Regulation, includes the following arrangements (all sections
references are to the Code):
1. A plan described in Section 401(a) that includes a trust exempt from
tax under Section 501(a);
2. An annuity plan described in Section 403(a);
3. An annuity contract described in Section 403(b), including a custodial
account described in Section 403(b)(7);
4. An individual retirement account described in Section 408(a);
5. An individual retirement annuity described in Section 408(b);
6. A governmental plan within the meaning of Section 414(d) or an
eligible deferred compensation plan within the meaning of
Section 457(b);
7. A simplified employee pension of an employer that satisfies the
requirements of Section 408(k);
8. A plan described in Section 501(c)(18); and
9. Any other trust, plan, account, contract or annuity that the
Internal Revenue Service has determined in a letter ruling to
be within the scope of such Regulation.
In addition, Section 817(h) of the Code and the regulations thereunder
impose diversification requirements on the separate accounts and on
the Portfolios. These diversification requirements are in addition to
the diversification requirements applicable to the Portfolios under
Subchapter M and the 1940 Act, and may affect the composition of a
Portfolio's investments. Since the shares of the Trust are currently
sold to segregated asset accounts underlying such Policies, the Trust
intends to comply with the diversification requirements as set forth
in the regulations. Failure to meet the requirements of Section 817(h)
could result in taxation to the Participating Insurance Companies and
the immediate taxation of the owners of the Policies funded by the
Trust.
PERFORMANCE AND YIELD INFORMATION
NON-MONEY MARKET PORTFOLIOS
This yield figure represents the net annualized yield based on a specified
30-day (or one month) period assuming semi-annual reinvestment and
compounding of income. Yield is calculated by dividing the average
daily net investment income per share earned during the specified
period by the maximum offering price, which is net asset value per
share, on the last day of the period, and annualizing the result
according to the following formula:
Yield = 2 [(A-B + 1)6 - 1]
CD
whereA equals dividends and interest earned during the period, B equals
expenses accrued for the period (net of waiver and reimbursements), C
equals the average daily number of shares outstanding during the
period that were entitled to receive dividends, and D equals the
maximum offering price per share on the last day of the period.
The average annual total return figures represent the average annual
compounded rate of return for the stated period. Average annual total
return quotations reflect the percentage change between the beginning
value of a static account in the Portfolio and the ending value of
that account measured by the then current net asset value of that
Portfolio assuming that all dividends and capital gains distributions
during the stated period were reinvested in shares of the Portfolio
when paid. Total return is calculated by finding the average annual
compounded rates of return of a hypothetical investment that would
compare the initial amount to the ending redeemable value of such
investment according to the following formula:
P (1 + T)n = ERV
whereT equals average annual total return, where ERV, the ending
redeemable value, is the value, at the end of the applicable period,
of a hypothetical $10,000 payment made at the beginning of the
applicable period, where P equals a hypothetical initial payment of
$10,000, and where N equals the number of years.
From time to time, in reports and sales literature: (1) each Portfolio's
performance or P/E ratio may be compared to, as applicable: (i) the
S&P 500 Index and Dow Jones Industrial Average so that, as applicable,
an investor may compare that Portfolio's results with those of a group
of unmanaged securities widely regarded by investors as representative
of the U.S. stock market in general; (ii) other groups of mutual funds
tracked by: (A) Lipper Analytical Services, a widely-used independent
research firm which ranks mutual funds by overall performance,
investment objectives, and asset size; (B) Forbes Magazine's Annual
Mutual Funds Survey and Mutual Fund Honor Roll; or (C) other financial
or business publications, such as the Wall Street Journal, Business
Week, Money Magazine, and Barron's, which provide similar information;
(iii) indexes of stocks comparable to those in which the particular
Portfolio invests; (2) the Consumer Price Index; (3) other U.S.
government statistics such as GNP, and net import and export figures
derived from governmental publications, e.g., The Survey of Current
Business, may be used to illustrate investment attributes of each
Portfolio or the general economic, business, investment, or financial
environment in which each Portfolio operates; and (4) the effect of
tax-deferred compounding on the particular Portfolio's investment
returns, or on returns in general, may be illustrated by graphs,
charts, etc. where such graphs or charts would compare, at various
points in time, the return from an investment in the particular
Portfolio (or returns in general) on a tax-deferred basis (assuming
reinvestment of capital gains and dividends and assuming one or more
tax rates) with the return on a taxable basis. Each Portfolio's
performance may also be compared to the performance of other mutual
funds by Morningstar, Inc. which ranks mutual funds on the basis of
historical risk and total return. Morningstar rankings are calculated
using the mutual fund's performance relative to three-month Treasury
bill monthly returns. Morningstar's rankings range from five stars
(highest) to one star (lowest) and represent Morningstar's assessment
of the historical risk level and total return of a mutual fund as a
weighted average for 1, 3, 5, and 10-year periods. In each category,
Morningstar limits its five star rankings to 10% of the funds it
follows and its four star rankings to 22.5% of the funds it follows.
Rankings are not absolute or necessarily predictive of future
performance.
The performance of the Portfolios may be compared, for example, to the
record of the Salomon Investment Grade Bond Index, S&P 500 Index, the
Russell 2000(r), the Morgan Stanley Capital International Europe,
Australasia, Far East (EAFE) Index, the Morgan Stanley Capital
International (MSCI) All Country World ex-U.S. Index. The S&P 500
Index is a well known measure of the price performance of 500 leading
larger domestic stocks which represent approximately 80% of the market
capitalization of the U.S. Equity market. The Russell 2000(r) Small
Stock Index is designed to be a comprehensive representation of the
U.S. small cap equity market. It is composed of 2,000 issues of
smaller domestic stocks which represent nearly 7% of U.S. market
capitalization. In general, the securities comprising the Russell
2000(r) are more growth oriented and have a somewhat higher volatility
than those in the S&P 500 Index. The EAFE Index is an unmanaged index
used to track the average performance of over 900 securities listed on
the stock exchanges of countries in Europe Australasia and the Far
East. The MSCI All Country World ex-U.S. Index which is an unmanaged
index that measures developed and emerging foreign stock market
performance is the new benchmark for the J.P. Morgan International
Opportunities Portfolio.
The total returns of all of these indices will show the changes in prices
for the stocks in each index. All indices include the reinvestment of
all capital gains distributions and dividends paid by the stocks in
each data base. Tax consequences will not be included in such
illustration, nor will brokerage or other fees or expenses of
investing be reflected in the NASDAQ Composite, S&P 500, EAFE Index
and Russell 2000(r).
Belowis set forth historical return information for each of the Portfolios
for the periods ended December 31, 1999:
J.P. Morgan Bond Portfolio: Average annual total return, 1 year: -1.13%;
average annual total return, 5 years (life of the Portfolio) 6.86%;
aggregate total return, 1 year: -1.13%; and aggregate total return, 5
years(life of the Portfolio) 39.48%.
J.P. Morgan U.S. Disciplined Equity Portfolio: Average annual total return,
1 year: 18.54%; average annual total return, 5 years (life of the
Portfolio) 24.76%; aggregate total return, 1 year: 18.54%; and
aggregate total return, 5 years (life of the Portfolio) 202.30%.
J.P. Morgan Small Company Portfolio: Average annual total return, 1 year:
44.39; average annual total return, 5 years (life of the Portfolio)
22.01%; aggregate total return, 1 year: 44.39; and aggregate total
return, 5 years (life of the Portfolio)170.43.
J.P. Morgan International Opportunities Portfolio: Average annual total
return, 1 year: 36.66%; average annual total return, 5 years (life of
the Portfolio) 13.92%; aggregate total return, 1 year: 36.66%; and
aggregate total return, 5 years: 91.87 (life of the Portfolio) 91.87%.
DELAWARE BUSINESS TRUST
The Trust is a business organization of the type commonly known as a
"Delaware Business Trust" of which each Portfolio is a series. The
Trust has filed a certificate of trust with the office of the
Secretary of State of Delaware. Except to the extent otherwise
provided in the governing instrument of the business trust, the
beneficial owners shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit
organized under the general corporation law of the State of Delaware.
The Trust provides for the establishment of designated series of
beneficial interests (the Portfolios) having separate rights, powers
or duties with respect to specified property or obligations of the
Trust or profits and losses associated with specified property or
obligations, and, to the extent provided in the Declaration of Trust,
any such series may have a separate business purpose or investment
objective.
As a Delaware Business Trust, the Trust is not required to hold regular
annual shareholder meetings and, in the normal course, does not expect
to hold such meetings. The Trust is, however, required to hold
shareholder meetings for such purposes as, for example: (i) approving
certain agreements as required by the 1940 Act; (ii) changing
fundamental investment objectives and restrictions of the Portfolios;
and (iii) filling vacancies on the Board in the event that less than a
majority of the Trustees were elected by shareholders. The Trust
expects that there will be no meetings of shareholders for the purpose
of electing trustees unless and until such time as less than a
majority of the trustees holding office have been elected by
shareholders. At such time, the trustees then in office will call a
shareholder meeting for the election of trustees. In addition, holders
of record of not less than two-thirds of the outstanding shares of the
Trust may remove a Trustee from office by a vote cast in person or by
proxy at a shareholder meeting called for that purpose at the request
of holders of 10% or more of the outstanding shares of the Trust. The
Trust has the obligation to assist in any such shareholder
communications. Except as set forth above, Trustees will continue in
office and may appoint successor Trustees.
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.
FINANCIAL STATEMENTS
The financial statements and the reports thereon of PricewaterhouseCoopers
LLP are incorporated herein by reference to their respective December
31, 1999 annual report filings made with the SEC pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder on March 1, 2000,
J.P. Morgan Bond Portfolio (Accession Number 0000912057-00-009286) and
on March 2, 2000, J.P. Morgan Small Company Portfolio (Accession
Number 0000912057-00-009427), J.P. Morgan US Disciplined Equity
Portfolio (Accession Number 0000912057-00-009426) and J.P. Morgan
International Opportunities Portfolio (Accession Number
0000912057-00-009428). Any of the financial reports are available
without charge upon request by calling J.P. Morgan Funds Services at
(800)221-7930.
ADDITIONAL INFORMATION
The Annual Report containing financial statements of the Trust will be
sent to all Trust shareholders.
<PAGE>
A-3 APPENDIX A
DESCRIPTION OF SECURITY RATINGS
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA Debt rated AAA has 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 debts
in higher rated categories.
BBB Debt rated BBB is 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 debts in this category than for debts
in higher rated categories.
BB Debt rated BB is regarded as having less near-term vulnerability to
default than other speculative issues. However, it faces 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 Debt rated B is regarded as having a greater vulnerability to default
but presently as having the capacity to meet interest payments and
principal repayments. Adverse business, financial or economic
conditions would likely impair capacity or willingness to pay interest
and repay principal.
CCC Debt rated CCC is regarded as having a current identifiable
vulnerability to default, and is dependent upon favorable business,
financial and economic conditions to meet timely payments of
principal. In the event of adverse business, financial or economic
conditions, it is not likely to have the capacity to pay interest and
repay principal.
CC The rating CC is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC rating.
C The rating C is typically applied to debt subordinated to senior debt
which is assigned an actual or implied CCC- debt rating.
D Bonds rated D are in default, and payment of interest and/or repayment
of principal are in arrears.
Plus (+) or minus (-): The ratings from AA to CCC may be modified by the
addition of a plus or minus sign to show relative standing within the
major ratings categories.
Commercial Paper
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
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.
MOODY'S
Corporate and Municipal Bonds
Aaa Bonds which are rated Aaa are judged to be 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 present 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.
Moody's applies the numerical modifiers 1, 2 and 3 to show relative
standing within the major rating categories, except in the Aaa
category and in categories below B. The modifier 1 indicates a ranking
for the security in the higher end of a rating category; the modifier
2 indicates a mid-range ranking; and the modifier 3 indicates a
ranking in the lower end of a rating category.
Commercial Paper
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.
PART C
OTHER INFORMATION
Item 23. Exhibits
(a)(1) Agreement and Declaration of Trust. Incorporated by reference
post-effective amendment number 1 to the Registration Statement filed with the
Securities and Exchange Commission (the "Commission") on December 10, 1993.
(a)(2) Amendment to Agreement and Declaration of Trust. Incorporated by
reference to post-effective number 7 to the Registration Statement filed with
the Commission on April 22, 1998 (Accession No. 0001042058-98-000060).
(d) Investment Advisory Agreement between JPM Series Trust II and J.P.
Morgan Investment Management Inc. ("Morgan"). Incorporated by reference to
post-effective number 6 to the Registration Statement filed with the Commission
on April 30, 1997 (Accession No. 0001016964-97-000061).
(e) Distribution Agreement between JPM Series Trust II and Funds
Distributor, Inc. ("FDI"). Incorporated by reference to post-effective number 6
to the Registration Statement filed with the Commission on April 30, 1997
(Accession No. 0001016964-97-000061).
(g)(1) Custodian Contract between JPM Series Trust II and State Street Bank
and Trust Company ("State Street"). Incorporated by reference to post-effective
number 6 to the Registration Statement filed with the Commission on April 30,
1997 (Accession No.
0001016964-97-000061).
(g) (2) Custodian Contract between JPM Series Trust II and Bank of New
York ("BONY").*
(h)(1) Transfer Agency and Service Agreement between JPM Series Trust II
and State Street. Incorporated by reference to post-effective number 6 to the
Registration Statement filed with the Commission on April 30, 1997 (Accession
No. 0001016964-97-000061).
(h)(2) Administrative Services Agreement between JPM Series Trust II and
Morgan Guaranty Trust Company of New York. Incorporated by reference to
post-effective number 6 to the Registration Statement filed with the Commission
on April 30, 1997 (Accession No. 0001016964-97-000061).
(h)(3) Co-Administration Agreement between JPM Series Trust II and FDI.
Incorporated by reference to post-effective number 6 to the Registration
Statement filed with the Commission on April 30, 1997 (Accession No.
0001016964-97-000061).
(h)(4) Form of Fund Participation Agreement. Incorporated by reference to
post-effective number 6 to the Registration Statement filed with the Commission
on April 30, 1997 (Accession No. 0001016964-97-000061).
(j)Consent of independent public accountants. *
(l) Share Subscription Agreement between The Chubb Series Trust and Chubb
Life Insurance Company of America. Incorporated by reference post-effective
amendement number 1 to the Registration Statement filed with the Securities and
Exchange Commission (the "Commission") on December 10, 1993.
(n)N/A
(p) Code of Ethics.*
Other Exhibits ------------------
(a)Powers of attorney. Incorporated by
reference to post-effective number 7 to the Registration Statement filed with
the Commission on April 22, 1998 (Accession No. 0001042058-98-000060).
--------------------------------
* Filed herewith.
Item 24. Persons Controlled by or under Common Control with Registrant
Initially, shares of the Registrant were offered and sold only to Chubb Life
Insurance Company of America ("Chubb Life"), a stock life insurance company
organized under the laws of New Hampshire. The purchasers of variable life
insurance contracts issued in connection with separate accounts established by
Chubb Life or its affiliated insurance companies have the right to instruct
Chubb Life or its affiliated insurance companies with respect to the voting of
the Registrant's shares held by such separate accounts on behalf of
policyowners. The shares held by Chubb Life or its affiliated insurance
companies, including shares for which no voting instructions have been received,
shares held in the separate account representing charges imposed by Chubb Life
or its affiliated insurance companies against the separate accounts and shares
held by Chubb Life or its affiliated insurance companies that are not otherwise
attributable to Policies, also will be voted by Chubb Life or its affiliated
insurance companies in proportion to instructions received from owners of
Policies. Chubb Life or its affiliated insurance companies reserves the right to
vote any or all such shares at its discretion to the extent consistent with the
then current interpretations of the Investment Company Act of 1940 and rules
thereunder. Subject to such voting instruction rights, Chubb Life or its
affiliated insurance companies currently directly control the Registrant.
Subsequently, shares of the Registrant were offered and sold to other
separate accounts formed by Chubb Life, its successors or assigns, and by other
insurance companies which, along with Chubb Life, are subsidiaries of The Chubb
Corporation, a New Jersey corporation, or subsidiaries of such subsidiaries.
Shares of the Registrant are currently also offered and sold to Separate
Accounts formed by other insurance companies which are not affiliated with Chubb
Life and The Chubb Corporation.
Item 25. Indemnification
Reference is made to the Registrant's By-Laws (Article VI) previously filed
as Exhibit 2 to the Registrant's Registration Statement filed with the
Securities and Exchange Commission.
The Trustees and officers of the Registrant and the personnel of the
Registrant's co-administrator are insured under an errors and omissions
liability insurance policy. The Registrant and its officers are also insured
under the fidelity bond required by Rule 17g-1 under the Investment Company Act
of 1940, as amended.
Item 26. Business and Other Connections of Investment Adviser Morgan, a
registered investment adviser, is a wholly-owned subsidiary of J.P. Morgan & Co.
Incorporated. Morgan manages employee benefit plans for corporations and unions.
Morgan also provides investment management services for a broad spectrum of
other institutional investors, including foundations, endowments, sovereign
governments, and insurance companies.
To the knowledge of the Registrant, none of the directors or executive
officers of Morgan is or has been during the past two fiscal years engaged in
any other business, profession, vocation or employment of a substantial nature,
except that certain officers and directors of Morgan also hold various positions
with, and engage in business for, J.P. Morgan & Co. Incorporated or Morgan
Guaranty, a New York trust company which is also a wholly-owned subsidiary of
J.P. Morgan & Co. Incorporated.
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
Director, Senior Vice President, Treasurer and
Chief Financial Officer: Joseph F. Tower, III
Senior Vice President, General Counsel, Chief
Compliance Officer, Secretary and Clerk Margaret M. Chambers
Senior Vice President: Paula R. David
Senior Vice President: Judith K. Benson
Senior Vice President: Gary S. MacDonald
Director, Chairman of the Board, Executive
Vice President William J. Nutt
(c) Not applicable
ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Registrant are located, in whole or in
part, at the office of the Registrant and the following locations: J.P. Morgan
Investment Management Inc., 522 Fifth Avenue, New York, NY 10036 (records
relating to its functions as investment adviser).
Morgan Guaranty Trust Company of New York, 60 Wall Street, New York, New
York 10260-0060 or 522 Fifth Avenue, New York, NY 10035 (records relating to its
functions as administrative services agent).
The Bank of New York ("BONY"), One Wall Street, New York, New York 110286,
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 maintaining
the books of account and records of portfolio transactions and holding portfolio
securities and cash. In case of foreign assets held outside the United States,
the custodian employs various subcustodians who were approved by the Trustee of
the Portfolios in accordance with the regulations of the SEC. The custodian
maintains portfolio transaction records.
State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02110 (records relating to its functions as transfer and dividend
disbursing agent).
Funds Distributor, Inc., 60 State Street, Boston, Massachusetts 02109
(records relating to its functions as co-administrator and distributor).
ITEM 29. MANAGEMENT SERVICES.
Not applicable.
ITEM 30. UNDERTAKINGS.
None
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement under rule
485(b) under the Securities Act and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Boston, and the State of Massachusetts on the
3rd day of April, 2000.
J.P. MORGAN SERIES TRUST II
By: /s/ Stephanie Pierce
--------------------------
Stephanie Pierce
Vice President and Assistant
Secretary
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration Statement has been signed below by the following persons in
the capacities indicated on the 3rd day of April, 2000.
By: /s/ Stephanie Pierce
--------------------------
Stephanie Pierce
Vice President and Assistant
Secretary
Signature Title Date
JOHN N. BELL* Trustee 04/03/2000
John N. Bell
JOHN R. RETTBERG* Trustee 04/03/2000
John R. Rettberg
JOHN F. RUFFLE* Trustee 04/03/2000
John F. Ruffle
KENNETH WHIPPLE, JR.* Trustee 04/03/2000
Kenneth Whipple, Jr.
*By: /s/ Stephanie Pierce
--------------------------
Stephanie Pierce
Vice President and Assistant
Secretary
* As attorney-in-fact pursuant to powers of attorney.
INDEX OF EXHIBITS
Ex-99.B8 Custody Agreement
Ex-99.11 Consent of PriceWaterhouseCoopers LLP Independent Accountants
Ex-99.Ethics Code of Ethics
CUSTODIAN AND FUND ACCOUNTING AGREEMENT
Between
J.P. MORGAN SERIES TRUST II
and
THE BANK OF NEW YORK
<PAGE>
<TABLE>
<S> <C> <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
Outside of the United States
3.1 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 SERIES TRUST II
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 Series Trust II
J.P. Morgan Disciplined Equity Portfolio ..............2/18/00
J.P. Morgan International Opportunities Portfolio ..............2/18/00
J.P. Morgan Small Company Portfolio ..............2/18/00
J.P. Morgan Bond Portfolio. ..............2/18/00
<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 toan 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.
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in this Post-Effective
Amendment No.11 to the registration statement on Form N-1A ("Registration
Statement") of our reports dated February 16, 2000, relating to the financial
statements and financial highlights which appear in the December 31, 1999 Annual
Reports to Shareholders of J.P. Morgan Bond Portfolio, J.P. Morgan U.S.
Disciplined Equity Portfolio, J.P. Morgan Small Company Portfolio and J.P.
Morgan International Opportunities Portfolio (constituting J.P. Morgan Series
Trust II) 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
New York, New York
March 31, 2000
CODE OF ETHICS
1. Purposes
This Code of Ethics (the "Code") has been adopted by the Trustees of
J.P. Morgan Series Trust II (the "Trust"), in accordance with
Rule 17j-1(c) promulgated under the Investment Company Act of
1940, as amended (the "Act"). Rule 17j-1 under the Act generally
proscribes fraudulent or manipulative practices with respect to
purchases or sales of Securities held or to be acquired by
investment companies, if effected by associated persons of such
companies. The purpose of this Code is to provide regulations and
procedures consistent with the Act and Rule 17j-1 designed to
give effect to the general prohibitions set forth in Rule
17j-1(b) as follows: (b) It is unlawful for any affiliated person
of or principal underwriter for a fund, or any affiliated person
of an investment adviser of or principal underwriter for a fund,
in connection with the purchase or sale, directly or indirectly,
by the person of a security held or to be acquired, as defined in
Rule 17j-1(a), by such fund --
(i) To employ any device, scheme or artifice to defraud the fund;
(ii) To make to any untrue statement of a material fact to the fund
or omit to state a material fact necessary in order to make
the statements made to the fund, in light of the circumstances
under which they are made, not misleading;
(iii) To engage in any act, practice, or course of business that
operates or would operate as a fraud or deceit on the fund; or
(iv) To engage in any manipulative practice with respect to the fund.
2. Definitions
(a) "Access Person" means any Trustee, officer or advisory person of the
Trust.
(b) "Advisory person" of a Trust means: (i) any employee of the Trust (or
any company in a control relationship to the Trust) who, in connection
with his or her regular functions or duties, makes, participates in,
or obtains information regarding the purchase or sale of Covered
Securities by the Trust, or whose functions relate to the making of
any recommendations with respect to such purchases or sales; and (ii)
any natural person in a control relationship to the Trust who obtains
information concerning recommendations made to the Trust with regard
to the purchase or sale of Covered Securities by the Trust.
(c) "Beneficial ownership" shall be interpreted in the same manner as it
would be under Exchange Act Rule 16a-1(a)(2)in determining whether a
person is subject to the provisions of Section 16 of the Securities
Exchange Act of 1934 and the rules and regulations thereunder.
(d) "Covered Security" shall have the meaning set forth in Section
2(a)(36) of the Act, except that it shall not include shares of
open-end funds, direct obligations of the United States Government,
bankers' acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase
agreements.
(e) "Control" has the same meaning as in Section 2(a)(9) of the Act.
(f) "Disinterested Trustee" means a Trustee of the Trust who is not an
"interested person" of the Trust within the meaning of Section
2(a)(19) of the Act.
(g) "Initial Public Offering" means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately
before the registration, was not subject to the reporting requirements
of Sections 13 or 15(d) of the Securities Exchange Act.
(h) "Investment Personnel" means (i) any employee of the Trust (or of any
company in a control relationship to the Trust) who, in connection
with his or her regular functions or duties, makes or participates in
making recommendations regarding the purchase or sale of securities by
the Trust; and (ii) any natural person who controls the Trust and who
obtains information concerning recommendations made to the Trust
regarding the purchase or sale of securities by the Trust.
(i) "Limited Offering" means an offering that is exempt from registration
under the Securities Act pursuant to Section 4(2) or Section 4(6) or
pursuant to Rule 504, Rule 505, or Rule 506 under the Securities Act.
(j) "Purchase or sale of a Covered Security" includes, inter alia, the
writing of an option to purchase or sell a Covered Security.
(k) "Security held or to be acquired" by the Trust means: (i) any Covered
Security which, within the most recent 15 days, is or has been held by
the Trust or is being or has been considered by the Trust or its
adviser for purchase by the Trust; and (ii) any option to purchase or
sell, and any security convertible into or exchangeable for, a Covered
Security.
3. Prohibited Purchases and Sales
(a) No Access Person shall purchase or sell directly or indirectly any
Covered Security in which he or she has, or by reason of such
transaction acquires, any direct or indirect beneficial ownership and
which to his or her actual knowledge at the time of such purchase or
sale:
(i) is being considered for purchase or sale by the Trust; or
(ii) is being purchased or sold by the Trust.
(b) No Access Person shall reveal to any other person (except in the
normal course of his or her duties on behalf of the Trust) any
information regarding Covered Securities transactions by the Trust or
consideration by the Trust or the Adviser of any such Covered
Securities transactions.
(c) No Access Person shall recommend any Covered Securities transaction by
the Trust without having disclosed his or her interest, if any, in
such Covered Securities or the issuer thereof, including without
limitation (i) his or her direct or indirect beneficial ownership of
any Covered Securities of such issuer, (ii) any contemplated
transaction by such person in such Covered Securities (iii) any
position with such issuer or its affiliates and (iv) any present or
proposed business relationship between such issuer or its affiliates,
on the one hand, and such person or any party in which such person has
a significant interest, on the other; provided, however, that in the
event the interest of such Access Person in such Covered Securities or
issuer is not material to his or her personal net worth and any
contemplated transaction by such person in such Covered Securities
cannot reasonably be expected to have a material adverse effect on any
such transaction by the Trust or on the market for the Covered
Securities, generally, such Access Person shall not be required to
disclose his or her interest in the Covered Securities or issuer
thereof in connection with any such recommendation.
(d) No Investment Personnel shall purchase any Covered Security which is
part of an Initial Public Offering or a Limited Offering.
4. Exempted Transactions
The prohibitions of Section 3 of this Code shall not apply to:
(a) Purchases or sales effected in any account over which the Access
Person has no direct or indirect influence or control.
(b) Purchases or sales of Covered Securities which are not eligible for
purchase or sale by the Trust.
(c) Purchases or sales which are non-volitional on the part of either the
Access Person or the Trust.
(d) Purchases which are part of an automatic dividend reinvestment plan.
(e) Purchases effected upon the exercise of rights issued by an issuer pro
rata to all holders of a class of its Covered Securities, to the
extent such rights were acquired from such issuer, and sales of such
rights so acquired.
(f) Purchases or sales which are only remotely potentially harmful to the
Trust because they would be very unlikely to affect a highly
institutional market, or because they clearly are not related
economically to the Covered Securities to be purchased, sold or held
by the Trust.
5. Reporting Requirements
(a) Every Access Person must report to the Trust or its Adviser:
(i)Initial Holding Reports. No later than 10 days after the
person becomes an Access Person, the following information:
(A) the title, number of shares and principal amount of each
Covered Security in which the Access Person had any direct or
indirect beneficial ownership when the person became an Access
Person; (B) the name of any broker, dealer or bank with whom
the Access Person maintained an account in which any Covered
Securities were held for the direct or indirect benefit of the
Access Person as of the date the person became an Access
Person; and (C) the date that the report is submitted by the
Access Person.
(ii)Quarterly Transaction Reports. No later than 10 days after
the end of a calendar quarter, with respect to any transaction
during the quarter in a Covered Security in which the Access
Person had any direct or indirect beneficial ownership: (A)
the date of the transaction, the title, the interest rate and
maturity date (if applicable), the number of shares and
principal amount of each Covered Security involved; (B) the
nature of the transaction; (C) the price of the Covered
Security at which the transaction was effected; (D) the name
of the broker, dealer or bank with or through which the
transaction was effected; and (E) the date that the report is
submitted by the Access Person.
(iii)New Account Report. With respect to any account
established by the Access Person in which any Covered
Securities were held during the quarter for the direct or
indirect benefit of the Access Person: (A) the name of the
broker, dealer or bank with whom the Access Person established
the account; (B) the date the account was established; and (C)
the date that the report is submitted by the Access Person.
(iv)Annual Holding Report. Annually, the following information
(which information must be current as of a date no more than
30 days before the report is submitted): (A) the title, number
of shares and principal amount of each Covered Security in
which the Access Person had any direct or indirect beneficial
ownership; (B) the name of any broker, dealer or bank with
whom the Access Person maintains an account in which any
Covered Securities are held for the direct or indirect benefit
of the Access Person: and (C) the date that the report is
submitted by the Access Person.
(b) Exceptions from the Reporting Requirements.
(i) Notwithstanding the provisions of Section 5(a), no Access Person shall
be required to make:
A. a report with respect to transactions effected for any account
over which such person does not have any direct or indirect
influence or control;
B. to make a Quarterly Transaction Report under
Section 5(a)(ii) if the report would duplicate
information contained in broker trade confirmations
or account statements received by the Adviser or its
adviser with respect to the Access Person no later
than 10 days after the quarter end, if all of the
information required by Section 5(a)(ii) is contained
in the broker trade confirmations or account
statements, or in the records of the Adviser.
(ii) a Disinterested Trustee who would be required to make a report
solely by reason of being a Trustee need not make:
A. an initial holdings report and annual holdings reports; and
B. quarterly reports, since the Trustees generally
have no involvement in the security selection
process. Such reports need to be filed only if a
Trustee, at the time of that transaction, knew, or in
the ordinary course of fulfilling his or her official
duties as a Trustee of the Trust, should have known,
that during the 15-day period immediately before or
after the date of the Trustee's transaction in a
Covered Security, such Covered Security is or was
purchased or sold by the Trust or was being
considered for purchase or sale by the Trust or its
Adviser.
(c) Each Access Person shall promptly report any transaction which
is, or might appear to be, in violation of this Code. Such report
shall contain the information required in quarterly reports filed
pursuant to Section 5(a)(ii).
(d) All reports prepared pursuant to this Section 5 shall be filed
with the person designated by the Trust's adviser to review these
materials.
(e) The Trust will identify all Access Persons who are required to
file reports pursuant to this Section 5 and will inform them of
their reporting obligation.
6. Recordkeeping Requirements
The Trust must at its principal place of business maintain records in
the manner and extent set out in this Section of the Code and must make
available to the Securities and Exchange Commission (SEC) at any time
and from time to time for reasonable, periodic, special or other
examination:
(a) A copy of each code of ethics of the Adviser, Distributor and the
Trust that is in effect, or at any time within the past five
years was in effect, must be maintained in an easily accessible
place; (b) A record of any violation of the code of ethics, and
of any action taken as a result of the violation, must be
maintained in an easily accessible place for at least five years
after the end of the fiscal year in which the violation occurs;
(c) A copy of each report made by an Access Person as required by
Section 5(a) including any information provided in lieu of a
quarterly transaction report, must be maintained for at least
five years after the end of the fiscal year in which the report
is made or the information is provided, the first two years in an
easily accessible place. (d) A record of all persons, currently
or within the past five years, who are or were required to make
reports as Access Persons or who are or were responsible for
reviewing these reports, must be maintained in an easily
accessible place. (e) A copy of each report defined in Section
7(b) must be maintained for at least five years after the end of
the fiscal year in which it is made, the first two years in an
easily accessible place.
7. Fiduciary Duties of The Trust's Board of Trustees
a. The Trustees, including a majority of Disinterested Trustees,
must approve the Code of Ethics of the Trust, its adviser and
distributor and any material change to these Codes. The Board
must base its approval of a code and any material changes to the
code on a determination that the code contains provisions
reasonably necessary to prevent Access Persons from engaging in
any conduct prohibited by Rule 17j-1(b) of the Act as described
in Section 1. Before approving the Code of the adviser,
distributor and the Trust, the Board must receive certification
from the adviser, distributor and the Trust that each has adopted
procedures reasonably necessary to prevent Access Persons from
violating its Code of Ethics. The Trust's Board must approve the
Code of the adviser, distributor, and the Trust before initially
retaining the services of the adviser or distributor. The Trust's
Board must approve a material change to the Code not later than
six months after adoption of the material change. The adviser,
distributor and the Trust must each use reasonable diligence and
institute procedures reasonable necessary to prevent violations
of its Code of Ethics.
b. No less frequently than annually, the adviser, distributor, and
the Trust must furnish to the Trust's Board a written report
that:
1. Describes any issues arising under the Code of Ethics since the
last report to the Board, including, but not limited to,
information about material violations of the Code or procedures
and sanctions imposed in response to the material violations; and
2. Certifies that the adviser, and the Trust have adopted
procedures reasonable necessary to prevent Access Persons from
violating the Code.
8. Sanctions
Upon discovering a violation of this Code, the Trustees of the Trust
may impose such sanctions as they deem appropriate, including,
inter alia, a letter of censure or suspension or termination of
the employment of the violator.
Schedule A
Portfolio Adoption Date J.P. Morgan Series Trust II Bond Portfolio
1/27/00 U.S. Disciplined Equity Portfolio 1/27/00 Small Company
1/27/00 International Opportunities Portfolio 1/27/00
EXHIBIT A
SECURITIES TRANSACTION REPORT
FOR THE CALENDAR QUARTER ENDED
(mo./day/yr/)
During the quarter referred to above, the following transactions were
effected in Securities of which I had, or by reason of such
transaction acquired, direct or indirect beneficial ownership,
and which are required to be reported pursuant to the Trust's
Code of Ethics:
Security Date of Number of Shares Nature of Transaction Broker/Dealer
Transaction Principal Dolalr (Purchase,Sale, Other) Price or Bank
Through Whom Effected
This report (i) excludes transactions with respect to which I had no
direct or indirect influence or control, (ii) transactions not
required to be reported and (iii) is not an admission that I have
or had any direct or indirect beneficial ownership in the
Securities listed above.
Date: Name (Print):
Signature:
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