J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF ADDITIONAL INFORMATION
MARCH 1, 2001
THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 2001 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS RELATING
TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 2000 (FOR THE TREASURY MONEY MARKET
FUND AND THE FEDERAL MONEY MARKET FUND) AND NOVEMBER 30, 2000 (FOR THE PRIME
MONEY MARKET FUND). THE PROSPECTUS AND THESE FINANCIAL STATEMENTS FOR THE FUNDS
LISTED ABOVE, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORTS THEREON, ARE
AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION:
J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.
Table of Contents
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GENERAL........................................................................1
INVESTMENT OBJECTIVES AND POLICIES.............................................1
INVESTMENT RESTRICTIONS........................................................7
TRUSTEES, MEMBERS OF THE ADVISORY BOARD AND OFFICERS..........................10
CODES OF ETHICS...............................................................14
INVESTMENT ADVISOR............................................................14
DISTRIBUTOR...................................................................15
CO-ADMINISTRATOR..............................................................16
SERVICES AGENT................................................................17
CUSTODIAN AND TRANSFER AGENT..................................................17
SHAREHOLDER SERVICING.........................................................18
FINANCIAL PROFESSIONALS.......................................................18
INDEPENDENT ACCOUNTANTS.......................................................19
EXPENSES......................................................................19
PURCHASE OF SHARES............................................................20
REDEMPTION OF SHARES..........................................................20
EXCHANGE OF SHARES............................................................21
DIVIDENDS AND DISTRIBUTIONS...................................................21
NET ASSET VALUE...............................................................21
PERFORMANCE DATA..............................................................22
PORTFOLIO TRANSACTIONS........................................................23
MASSACHUSETTS TRUST...........................................................24
DESCRIPTION OF SHARES.........................................................25
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE...........................26
TAXES.........................................................................27
ADDITIONAL INFORMATION........................................................30
FINANCIAL STATEMENTS..........................................................30
APPENDIX A...................................................................A-1
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Prime Money Market Fund, the J.P. Morgan Institutional
Treasury Money Market Fund and the J.P. Morgan Institutional Federal Money
Market Fund (each, a "Fund" and collectively, the "Funds"). Each Fund is a
series of shares of beneficial interest of the J.P. Morgan Institutional Funds,
an open-end management investment company formed as a Massachusetts business
trust (the "Trust"). In addition to the Funds, the Trust consists of other
series representing separate investment funds (each a "J.P. Morgan Institutional
Fund"). The other J.P. Morgan Institutional Funds are covered by separate
Statements of Additional Information.
This Statement of Additional Information describes the financial
history, investment objective and policies, management and operation of each of
the Funds and provides additional information with respect to the Funds and
should be read in conjunction with the relevant Fund's current Prospectus (the
"Prospectus"). Capitalized terms not otherwise defined herein have the meanings
accorded to them in the Prospectus. The Funds' executive offices are located at
60 State Street, Suite 1300, Boston, Massachusetts 02109.
Unlike other mutual funds which directly acquire and manage their
own portfolio of securities, each Fund seeks to achieve its investment objective
by investing all of its investable assets in a corresponding Master Portfolio
(the "Portfolio"), a corresponding open-end management investment company having
the same investment objective as the Fund. Each Fund invests in a Portfolio
through a two-tier master-feeder investment fund structure. See "Special
Information Concerning Investment Structure."
Each Portfolio is advised by J.P. Morgan Investment Management Inc.
("JPMIM" or the "Advisor").
Investments in a Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor or any other bank. Shares of a Fund are
not federally insured by the Federal Deposit Insurance Corporation, the Federal
Reserve Board, or any other governmental agency. An investment in a Fund is
subject to risk that may cause the value of the investment to fluctuate, and
when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.
INVESTMENT OBJECTIVES AND POLICIES
The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve the
objective by each Portfolio as set forth in the applicable Prospectus. The
investment objectives of each Fund and the investment objectives of its
corresponding Portfolio are identical. Accordingly, references below to a
Portfolio also include the corresponding Fund; similarly, references to a Fund
also include the corresponding Portfolio unless the context requires otherwise.
J.P. Morgan Institutional Prime Money Market Fund (the "Prime Money
Market Fund") is designed for investors who seek high current income consistent
with the preservation of capital and same-day liquidity from a portfolio of high
quality money market instruments. The Prime Money Market Fund's investment
objective is to maximize current income consistent with the preservation of
capital and same day liquidity. The Prime Money Market Fund attempts to achieve
this objective by investing all of its investable assets in The Prime Money
Market Portfolio (the " Prime Money Market Portfolio"), a diversified open-end
management investment company having the same investment objective as the Prime
Money Market Fund.
The Prime Money Market Portfolio seeks to achieve its investment
objective by maintaining a dollar-weighted average portfolio maturity of not
more than 90 days and by investing in U.S. dollar denominated securities
described in this Statement of Additional Information that meet certain rating
criteria, present minimal credit risk and have effective maturities of not more
than thirteen months. The Portfolio's ability to achieve maximum current income
is affected by its high quality standards. See "Quality and Diversification
Requirements."
J.P. Morgan Institutional Treasury Money Market Fund (the "Treasury
Money Market Fund") is designed for investors who seek high current income
consistent with the preservation of capital and same-day liquidity from a
portfolio of high quality money market instruments. The Treasury Money Market
Fund's investment
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objective is to provide current income, consistent with the preservation of
capital and same-day liquidity. The Treasury Money Market Fund attempts to
accomplish this objective by investing all of its investable assets in The
Treasury Money Market Portfolio (the "Treasury Money Market Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Treasury Money Market Fund.
The Treasury Money Market Portfolio attempts to achieve its
investment objective by maintaining a dollar-weighted average portfolio maturity
of not more than 90 days and by investing in U.S. Treasury securities and
related repurchase agreement transactions as described in this Statement of
Additional Information that have effective maturities of not more than thirteen
months. See "Quality and Diversification Requirements."
J.P. Morgan Institutional Federal Money Market Fund (the "Federal
Money Market Fund") is designed for investors who seek high current income
consistent with the preservation of capital and same-day liquidity from a
portfolio of high quality money market instruments. The Federal Money Market
Fund's investment objective is to provide current income, consistent with the
preservation of capital and same-day liquidity. The Federal Money Market Fund
attempts to accomplish this objective by investing all of its investable assets
in The Federal Money Market Portfolio (the "Federal Money Market Portfolio" and,
together with the Prime Money Market Portfolio and Treasury Money Market
Portfolio, the "Portfolios"), a diversified open-end management investment
company having the same investment objective as the Federal Money Market Fund.
The Federal Money Market Portfolio attempts to achieve its
investment objective by maintaining a dollar-weighted average portfolio maturity
of not more than 90 days and by investing in U.S. Treasury securities and in
obligations of certain U.S. Government agencies, as described in this Statement
of Additional Information that have effective maturities of not more than
thirteen months. See "Quality and Diversification Requirements."
Money Market Instruments
A description of the various types of money market instruments that
may be purchased by the Funds appears below. Also see "Quality and
Diversification Requirements."
U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all
of which are backed as to principal and interest payments by the full faith and
credit of the United States.
Additional U.S. Government Obligations. Each of the Funds (other
than the Treasury Money Market Fund) may invest in obligations issued or
guaranteed by U.S. Government agencies or instrumentality's. These obligations
may or may not be backed by the "full faith and credit" of the United States.
Securities which are backed by the full faith and credit of the United States
include obligations of the Government National Mortgage Association, the Farmers
Home Administration, and the Export-Import Bank. In the case of securities not
backed by the full faith and credit of the United States, each Fund must look
principally to the federal agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which each Fund may invest that are not backed by the
full faith and credit of the United States include, but are not limited to: (i)
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation, the Federal Home Loan Banks and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its obligations;
(ii) securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and (iii) obligations of the Federal Farm Credit System
and the Student Loan Marketing Association, each of whose obligations may be
satisfied only by the individual credits of the issuing agency.
Foreign Government Obligations. The Prime Money Market Fund, subject
to its applicable investment policies, may also invest in short-term obligations
of foreign sovereign governments or of their agencies, instrumentality's,
authorities or political subdivisions. See "Foreign Investments." These
securities must be denominated in the U.S. dollar.
Bank Obligations. The Prime Money Market Fund, unless otherwise
noted in the Prospectus or below, may invest in negotiable certificates of
deposit, time deposits and bankers' acceptances of (i) banks, savings and loan
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associations and savings banks which have more than $2 billion in total assets
and are organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). See "Foreign
Investments." The Prime Money Market Fund will not invest in obligations for
which the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. The Prime Money Market Fund, may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).
Commercial Paper. The Prime Money Market Fund may invest in
commercial paper, including master demand obligations. Master demand obligations
are obligations that provide for a periodic adjustment in the interest rate paid
and permit daily changes in the amount borrowed. Master demand obligations are
governed by agreements between the issuer and Morgan acting as agent, for no
additional fee. The monies loaned to the borrower come from accounts managed by
Morgan or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. Morgan, an affiliate of
the Advisor, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Since these obligations typically
provide that the interest rate is tied to the Federal Reserve commercial paper
composite rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by Morgan. Since master
demand obligations typically are not rated by credit rating agencies, the Prime
Money Market Fund may invest in such unrated obligations only if at the time of
an investment the obligation is determined by the Advisor to have a credit
quality which satisfies the Prime Money Market Fund's quality restrictions. See
"Quality and Diversification Requirements." Although there is no secondary
market for master demand obligations, such obligations are considered by the
Prime Money Market Fund to be liquid because they are payable upon demand. The
Prime Money Market Fund does not have any specific percentage limitation on
investments in master demand obligations. It is possible that the issuer of a
master demand obligation could be a client of Morgan to whom Morgan, in its
capacity as a commercial bank, has made a loan.
Asset-backed Securities. The Prime Money Market Fund may also invest
in securities generally referred to as asset-backed securities, which directly
or indirectly represent a participation interest in, or are secured by and
payable from, a stream of payments generated by particular assets, such as motor
vehicle or credit card receivables or other asset-backed securities
collateralized by such assets. Asset-backed securities provide periodic payments
that generally consist of both interest and principal payments. Consequently,
the life of an asset-backed security varies with the prepayment experience of
the underlying obligations. Payments of principal and interest may be guaranteed
up to certain amounts and for a certain time period by a letter of credit issued
by a financial institution unaffiliated with the entities issuing the
securities. The asset-backed securities in which a Fund may invest are subject
to the Fund's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the Advisor's credit
guidelines approved. In a repurchase agreement, a Fund buys a security from a
seller that has agreed to repurchase the same security at a mutually agreed upon
date and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for the
period of time a Fund is invested in the agreement and is not related to the
coupon rate on the underlying security. A repurchase agreement may also be
viewed as a fully collateralized loan of money by a Fund to the seller. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will any Fund invest in repurchase agreements for more
than thirteen months. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of thirteen months from the effective
date of the repurchase
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agreement. The Treasury Money Market Fund will only enter into repurchase
agreements involving U.S. Treasury securities. The Federal Money Market Fund may
only enter into repurchase agreements involving U.S. Treasury securities and
Permitted Agency Securities. The Funds will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Funds in
each agreement plus accrued interest, and the Funds will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the Custodian. Each Fund will be fully collateralized within
the meaning of paragraph (a)(4) of Rule 2a-7 under the Investment Company Act of
1940, as amended (the "1940 Act"). If the seller defaults, a Fund might incur a
loss if the value of the collateral securing the repurchase agreement declines
and might incur disposition costs in connection with liquidating the collateral.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, realization upon disposal of the collateral by a Fund may be
delayed or limited.
The Prime Money Market Fund may make investments in other debt
securities with remaining effective maturities of not more than thirteen months,
including, without limitation, corporate and foreign bonds, asset-backed
securities and other obligations described in the Prospectus or this Statement
of Additional Information.
Foreign Investments
The Prime Money Market Fund may invest in certain foreign
securities. All investments must be U.S. dollar-denominated. Investment in
securities of foreign issuers and in obligations of foreign branches of domestic
banks involves somewhat different investment risks from those affecting
securities of U.S. domestic issuers. There may be limited publicly available
information with respect to foreign issuers, and foreign issuers are not
generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to domestic companies. Any foreign
commercial paper must not be subject to foreign withholding tax at the time of
purchase.
Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
Additional Investments
Municipal Bonds. The Prime Money Market Fund may invest in municipal
bonds issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their political subdivisions,
agencies, authorities and instrumentality's. The Prime Money Market Fund may
also invest in municipal notes of various types, including notes issued in
anticipation of receipt of taxes, the proceeds of the sale of bonds, other
revenues or grant proceeds, as well as municipal commercial paper and municipal
demand obligations such as variable rate demand notes and master demand
obligations. These municipal bonds and notes will be taxable securities; income
generated from these investments will be subject to federal, state and local
taxes.
When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities, no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average
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maturity from that date. At the time of settlement a when-issued security may be
valued at less than the purchase price. To facilitate such acquisitions, each
Fund will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate securities,
in an amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transaction defaults.
Investment Company Securities. Securities of other investment
companies may be acquired by each of the Funds and their corresponding
Portfolios to the extent permitted under the 1940 Act or any order pursuant
thereto. These limits currently require that, as determined immediately after a
purchase is made, (i) not more than 5% of the value of a Fund's total assets
will be invested in the securities of any one investment company, (ii) not more
than 10% of the value of its total assets will be invested in the aggregate in
securities of investment companies as a group, and (iii) not more than 3% of the
outstanding voting stock of any one investment company will be owned by a Fund,
provided however, that a Fund may invest all of its investable assets in an
open-end investment company that has the same investment objective as the Fund
(its corresponding Portfolio). As a shareholder of another investment company, a
Fund or Portfolio would bear, along with other shareholders, its pro rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the advisory and other expenses that a
Fund or Portfolio bears directly in connection with its own operations.
Reverse Repurchase Agreements. Each of the Funds may enter into
reverse repurchase agreements. In a reverse repurchase agreement, a Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for a Fund to be magnified. The
Funds will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, except for liquidity purposes, a Fund will enter into a
reverse repurchase agreement only when the expected return from the investment
of the proceeds is greater than the expense of the transaction. A Fund will not
invest the proceeds of a reverse repurchase agreement for a period which exceeds
the duration of the reverse repurchase agreement. Each Fund will establish and
maintain with the custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. All forms of borrowing (including reverse
repurchase agreement and securities lending) are limited in the aggregate and
may not exceed 33 1/3% of the Funds' total assets.
Loans of Portfolio Securities. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. Loans of
portfolio securities may be considered extensions of credit by the Funds. The
risks to each Fund with respect to borrowers of its portfolio securities are
similar to the risks to each Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". The Funds will not lend
their securities to any officer, Trustee, Member of the Advisory Board,
Director, employee or other affiliate of the Funds, the Advisor or the
Distributor, unless otherwise permitted by applicable law. All forms of
borrowing (including reverse repurchase agreement and securities lending) are
limited in the aggregate and may not exceed 33 1/3% of the Funds' total assets.
Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Prime Money Market Fund may invest in privately placed,
restricted, Rule 144A or other unregistered securities. No Fund may acquire any
illiquid holdings if, as a result thereof, more than 10% of a Fund's net assets
would be in illiquid investments. Subject to this non-fundamental policy
limitation, the Funds may acquire investments that are illiquid or have limited
liquidity, such as the Prime Money Market Fund's investments in private
placements or investments that are not
5
registered under the Securities Act of 1933, as amended (the "1933 Act") and
cannot be offered for public sale in the United States without first being
registered under the 1933 Act. An illiquid investment is any investment that
cannot be disposed of within seven days in the normal course of business at
approximately the amount at which it is valued by the Funds. The price the Funds
pay for illiquid securities or receives upon resale may be lower than the price
paid or received for similar securities with a more liquid market. Accordingly
the valuation of these securities will reflect any limitations on their
liquidity.
The Prime Money Market Fund may also purchase Rule 144A securities
sold to institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.
As to illiquid investments, a Fund is subject to a risk that should
the Fund decide to sell them when a ready buyer is not available at a price the
Fund deems representative of their value, the value of the Fund's net assets
could be adversely affected. Where an illiquid security must be registered under
the 1933 Act, before it may be sold, a Fund may be obligated to pay all or part
of the registration expenses, and a considerable period may elapse between the
time of the decision to sell and the time the Fund may be permitted to sell a
security under an effective registration statement. If, during such a period,
adverse market conditions were to develop, a Fund might obtain a less favorable
price than prevailed when it decided to sell.
Synthetic Instruments. The Prime Money Market Fund may invest in
certain synthetic instruments. Such instruments generally involve the deposit of
asset-backed securities in a trust arrangement and the issuance of certificates
evidencing interests in the trust. The certificates are generally sold in
private placements in reliance on Rule 144A. The Advisor will review the
structure of synthetic instruments to identify credit and liquidity risks and
will monitor those risks. See "Illiquid Investments, Privately Placed and
Certain Unregistered Securities".
Quality and Diversification Requirements
Each of the Funds intends to meet the diversification requirements
of the 1940 Act. Current 1940 Act diversification requirements require that with
respect to 75% of the assets of each Fund: (1) the Fund may not invest more than
5% of its total assets in the securities of any one issuer, except obligations
of the U.S. Government, its agencies and instrumentality's, and (2) the Fund may
not own more than 10% of the outstanding voting securities of any one issuer. As
for the other 25% of the Fund's assets not subject to the limitation described
above, there is no limitation on investment of these assets under the 1940 Act,
so that all of such assets may be invested in securities of any one issuer.
Investments not subject to the limitations described above could involve an
increased risk to a Fund should an issuer, or a state or its related entities,
be unable to make interest or principal payments or should the market value of
such securities decline.
At the time any of the Funds invests in any taxable commercial
paper, master demand obligation, bank obligation or repurchase agreement, the
issuer must have outstanding debt rated A or higher by Moody's or Standard &
Poor's, the issuer's parent corporation, if any, must have outstanding
commercial paper rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no
such ratings are available, the investment must be of comparable quality in
Morgan's opinion.
Prime Money Market Fund. In order to achieve its investment
objective and maintain a stable net asset value, the Prime Money Market Fund
will (i) limit its investment in the securities (other than U.S. Government
securities) of any one issuer to no more than 5% of its assets, measured at the
time of purchase, except for investments held for not more than three business
days and (ii) limit investments to securities that present minimal credit risks
and securities (other than U.S. Government securities) that are rated within the
highest short-term rating category by at least two nationally recognized
statistical rating organizations ("NRSROs") or by the only NRSRO that has rated
the security. Securities which originally had a maturity of over one year are
subject to more complicated, but generally similar rating requirements. A
description of illustrative credit ratings is set forth in "Appendix A." The
Fund may also purchase unrated securities that are of comparable quality to the
rated securities described above. Additionally, if the issuer of a particular
security has issued other securities of comparable priority and security and
which have been rated in accordance with (ii) above, that security will be
deemed to have the same rating as such other rated securities.
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In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are unrated; (ii)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than 397 days; and (iii) require the Fund, in the event of certain
downgradings of or defaults on portfolio holdings, to dispose of the holding,
subject in certain circumstances to a finding by the Trustees that disposing of
the holding would not be in the Fund's best interest.
Treasury Money Market Fund. In order to maintain a stable net asset
value, the Treasury Money Market Fund will limit its investments to direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, and
related repurchase agreement transactions, each having a remaining maturity of
not more than thirteen months at the time of purchase and will maintain a
dollar-weighted average portfolio maturity of not more than 90 days.
Federal Money Market Fund. In order to achieve its investment
objective and maintain a stable net asset value, the Federal Money Market Fund
will limit its investments to direct obligations of the U.S. Treasury, including
Treasury bills, notes and bonds, and certain U.S. Government agency securities
with remaining maturities of not more than thirteen months at the time of
purchase and will maintain a dollar-weighted average portfolio maturity of not
more than 90 days.
INVESTMENT RESTRICTIONS
The investment restrictions of each Fund and its corresponding
Portfolio are identical, unless otherwise specified. Accordingly, references
below to a Fund also include the Fund's corresponding Portfolio unless the
context requires otherwise; similarly, references to a Portfolio also include
its corresponding Fund unless the context requires otherwise.
The investment restrictions below have been adopted by the Trust
with respect to each Fund and by each corresponding Portfolio. Except where
otherwise noted, these investment restrictions are "fundamental" policies which,
under the 1940 Act, may not be changed without the vote of a majority of the
outstanding voting securities of the Fund or Portfolio, as the case may be. A
"majority of the outstanding voting securities" is defined in the 1940 Act as
the lesser of (a) 67% or more of the voting securities present at a meeting if
the holders of more than 50% of the outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the outstanding voting securities.
The percentage limitations contained in the restrictions below apply at the time
of the purchase of securities. Whenever a Fund is requested to vote on a change
in the fundamental investment restrictions of its corresponding Portfolio, the
Trust will hold a meeting of Fund shareholders and will cast its votes as
instructed by the Fund's shareholders.
The Prime Money Market Fund and the Federal Money Market Fund and
their corresponding Portfolios:
1. May not make any investment inconsistent with the Fund's classification as
a diversified investment company under the Investment Company Act of 1940.
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC. In the case of Prime
Money Market Fund, this restriction does not apply to instruments
considered to be domestic bank money market instruments.
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
5. May not underwrite securities of other issuers, except to the extent that
the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
7
6. May not purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may (a) invest in securities or other
instruments directly or indirectly secured by real estate, and (b) invest
in securities or other instruments issued by issuers that invest in real
estate;
7. May not purchase or sell commodities or commodity contracts unless
acquired as a result of ownership of securities or other instruments
issued by persons that purchase or sell commodities or commodities
contracts; but this shall not prevent the Fund from purchasing, selling
and entering into financial futures contracts (including futures contracts
on indices of securities, interest rates and currencies), options on
financial futures contracts (including futures contracts on indices of
securities, interest rates and currencies), warrants, swaps, forward
contracts, foreign currency spot and forward contracts or other derivative
instruments that are not related to physical commodities; and
8. May make loans to other persons, in accordance with the Fund's investment
objective and policies and to the extent permitted by applicable law.
The Treasury Money Market Fund may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceed in the aggregate one-third of the market value of the Fund's or
the Portfolio's total assets, less liabilities other than the obligations
created by reverse repurchase agreements;
2. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) less liabilities (other than borrowings)
(i) from banks for temporary or short-term purposes or for the clearance of
transactions, (ii) in connection with the redemption of Fund shares or to
finance failed settlements of portfolio trades without immediately liquidating
portfolio securities or other assets, (iii) in order to fulfill commitments or
plans to purchase additional securities pending the anticipated sale of other
portfolio securities or assets and (iv) pursuant to reverse repurchase
agreements entered into by the Fund.(1)
3. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's or the
Portfolio's total assets would be invested in securities or other obligations of
any one such issuer; provided, however, that the Fund may invest all or part of
its investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund. This limitation also shall
not apply to issues of the U.S. Government and repurchase agreements related
thereto;
4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's or the Portfolio's total assets; provided, however, that the
Fund may invest all or part of its assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities and repurchase agreements
related thereto;
5. Make loans, except through purchasing or holding debt obligations, repurchase
agreements, or loans of portfolio securities in accordance with the Fund's or
the Portfolio's investment objective and policies (see "Investment Objectives
and Policies");
6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs;
7. 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 securities or of securities
for delivery at a future date;
- ----------
(1) Although the Fund is permitted to fulfill plans to purchase additional
securities pending the anticipated sale of other portfolio securities or assets,
the Fund has no current intention of engaging in this form of leverage.
8
8. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund;
9. Act as an underwriter of securities; or
10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule, order or
interpretation thereunder.
The Treasury Money Market Fund's Portfolio has adopted substantially
similar fundamental investment restrictions, except investment restrictions
numbered 7 and 8 above are non-fundamental at the Portfolio level. Any
differences are not expected to materially impact portfolio management.
Non-Fundamental Investment Restrictions - Prime Money Market Fund
and Federal Money Market Fund. The investment restrictions described below are
not fundamental policies of the Funds and their corresponding Portfolios and may
be changed by their Trustees. These non-fundamental investment policies require
that the Funds and their corresponding Portfolios:
(i) May not acquire any illiquid securities, such as repurchase agreements
with more than seven days to maturity or fixed time deposits with a
duration of over seven calendar days, if as a result thereof, more than
10% of the market value of the Fund's total assets would be in investments
which are illiquid;
(ii) May not purchase securities on margin, make short sales of securities, or
maintain a short position, provided that this restriction shall not be
deemed to be applicable to the purchase or sale of when-issued or delayed
delivery securities.
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
(iv) The Prime Money Market Fund may not borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts not to exceed
10% of the value of the Fund's total assets, taken at cost, at the time of
such borrowing. Mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts not to exceed 10% of the
value of the Fund's net assets at the time of such borrowing. The Fund
will not purchase securities while borrowings exceed 5% of the Fund's
total assets; provided, however, that the Fund may increase its interest
in an open-end management investment company with the same investment
objective and restrictions as the Fund while such borrowings are
outstanding. This borrowing provision is included to facilitate the
orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes
and shall not apply to reverse repurchase agreements.
(v) The Federal Money Market Fund may not borrow money (not including reverse
repurchase agreements), except from banks for temporary or extraordinary
or emergency purposes and then only in amounts up to 10% of the value of
the Fund's or the Portfolio's total assets, taken at cost at the time of
such borrowing (and provided that such borrowings and reverse repurchase
agreements do not exceed in the aggregate one-third of the market value of
the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). Mortgage, pledge, or hypothecate any assets except in
connection with any such borrowing and in amounts up to 10% of the value
of the Fund's or the Portfolio's net assets at the time of such borrowing.
The Fund or the Portfolio will not purchase securities while borrowings
exceed 5% of the Fund's or the Portfolio's total assets, respectively;
provided, however, that the Fund may increase its interest in an open-end
management investment company with the same investment objective and
restrictions as the Fund while such borrowings are outstanding. This
borrowing provision is included to facilitate the orderly sale of
portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes.
9
Non-Fundamental Investment Restrictions - Treasury Money Market
Fund. The investment restriction described below is not a fundamental policy of
the Fund or the Portfolio and may be changed by their respective Trustees. This
non-fundamental investment policy requires that Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 10% of the Fund's net assets
would be in investments that are illiquid.
There will be no violation of any investment restriction if that
restriction is complied with at the time the relevant action is taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.
For purposes of fundamental investment restrictions regarding
industry concentration, the Advisor may classify issuers by industry in
accordance with classifications set forth in the Directory of Companies Filing
Annual Reports With The Securities and Exchange Commission or other sources. In
the absence of such classification or if the Advisor determines in good faith
based on its own information that the economic characteristics affecting a
particular issuer make it more appropriately considered to be engaged in a
different industry, the Advisor may classify accordingly. For instance, personal
credit finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.
TRUSTEES, MEMBERS OF THE ADVISORY BOARD AND OFFICERS
Trustees
The mailing address of the Trustees of the Trust, who are also the
Trustees of each of the Portfolios and the other Master Portfolios, as defined
below, is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017.
Their names, principal occupations during the past five years and dates of birth
are set forth below:
Frederick S. Addy -- Trustee; Retired; Former Executive Vice
President and Chief Financial Officer, Amoco Corporation. His date of birth is
January 1, 1932.
William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His date of birth is November 2, 1932.
Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice
President, Morgan Guaranty Trust Company of New York. His date of birth is May
23, 1934.
Matthew Healey* -- Trustee; Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc. ("Pierpont Group") since prior to 1996. His date
of birth is August 23, 1937.
Michael P. Mallardi -- Trustee; Retired; Prior to April 1996, Senior
Vice President, Capital Cities/ABC, Inc. and President, Broadcast Group. His
date of birth is March 17, 1934.
A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Institutional Funds up to and including
creating a separate board of trustees.
Each Trustee is currently paid an annual fee of $75,000 for serving
as Trustee of the Trust, each of the Master Portfolios (as defined below), the
J.P. Morgan Institutional Funds and J.P. Morgan Series Trust and is reimbursed
for expenses incurred in connection with service as a Trustee. The Trustees may
hold various other directorships unrelated to these funds.
- ----------
* Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust.
10
Trustee compensation expenses paid by the Trust for the calendar
year ended December 31, 2000 are set forth below.
AGGREGATE TRUSTEE TOTAL TRUSTEE COMPENSATION ACCRUED BY THE
COMPENSATION MASTER PORTFOLIOS(1), J.P. MORGAN FUNDS,
PAID BY THE TRUST DURING J.P. MORGAN SERIES TRUST AND THE TRUST
NAME OF TRUSTEE 2000 DURING 2000(2)
- --------------- ------------------------ -----------------------------------------
Frederick S. Addy, Trustee $23,538 $75,000
William G. Burns, Trustee $23,538 $75,000
Arthur C. Eschenlauer, Trustee $23,538 $75,000
Matthew Healey, Trustee (3)
Chairman and Chief Executive
Officer $23,538 $75,000
Michael P. Mallardi, Trustee $23,538 $75,000
(1) Includes the Portfolios and 16 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment advisor.
(2) No investment company within the fund complex has a pension or
retirement plan. Currently there are 22 investment companies (composed of
19 investment companies comprising the Master Portfolios, the J.P. Morgan
Funds, the Trust and J.P. Morgan Series Trust) in the fund complex.
(3) During 2000, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $200,000,
contributed $25,500 to a defined contribution plan on his behalf and paid
$18,400 in insurance premiums for his benefit.
The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for The J.P. Morgan
Family of Funds (formerly The Pierpont Family of Funds), and the Trustees are
the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolios have agreed to pay Pierpont Group, Inc. a fee that is equal to the
Trust's and Portfolio's allocated share of Pierpont Group, Inc.'s reasonable
costs in performing these services to the Trust, the Portfolios and certain
other registered investment companies subject to similar agreements with
Pierpont Group, Inc. These costs are periodically reviewed by the Trustees. The
principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New
York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal periods are set forth below:
Prime Money Market Fund -- For the fiscal years ended November 30, 1998, 1999
and 2000: $65,619, $93,287 and $132,772, respectively.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1998, 1999 and 2000: $173,032, $228,328 and $268,198, respectively.
Treasury Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $5,064, $5,894 and $4,579, respectively.
The Treasury Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $15,548 $17,351 and $16,550, respectively.
11
Federal Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $15,457, $21,464 and $25,843, respectively.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $25,893, $36,961 and $46,373, respectively.
Members of the Advisory Board
The Trustees determined as of January 26, 2000 to establish an
advisory board and appoint four members ("Members of the Advisory Board")
thereto. Each member serves at the pleasure of the Trustees. The advisory board
is distinct from the Trustees and provides advice to the Trustees as to
investment, management and operations of the Trust; but has no power to vote
upon any matter put to a vote of the Trustees. The advisory board and the
members thereof also serve each of the Trusts and the Master Portfolios. The
creation of the Advisory Board and the appointment of the members thereof was
designed (i) so that the Board of Trustees will continuously consist of persons
able to assume the duties of Trustees and be fully familiar with the business
and affairs of each of the Trusts and the Master Portfolios, in anticipation of
the current Trustees reaching the mandatory retirement age of seventy and (ii)
with the intention that the Members of the Advisory Board held be proposed for
election as Trustees at a shareholder meeting to be held prior to the
retirement. Each member of the Advisory Board is paid an annual fee of $75,000
for serving in this capacity for the Trust, each of the Master Portfolios, the
J.P. Morgan Funds and the J.P. Morgan Series Trust and is reimbursed for
expenses incurred in connection for such service. The members of the Advisory
Board may hold various other directorships unrelated to these funds. The mailing
address of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461
Fifth Avenue, New York, New York 10017. Their names, principal occupations
during the past five years and dates of birth are set forth below:
Ann Maynard Gray - Former President, Diversified Publishing Group
and Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22,
1945.
John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.
Gerard P. Lynch** -- Retired; Former Managing Director, Morgan
Stanley Group and President and Chief Operating Officer, Morgan Stanley
Services, Inc. His date of birth is October 5, 1936.
James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.
Officers
The Trust's and Portfolios' executive officers (listed below), other
than the Chief Executive Officer, are provided and compensated by Funds
Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
- ----------
** Mr. Lynch may be deemed an "interest person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with an affiliate.
12
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1996. His address is c/o Pierpont Group, Inc., 461 Fifth Avenue,
New York, New York 10017. His date of birth is August 23, 1937.
MARGARET W. CHAMBERS; Vice President and Secretary. Executive Vice
President and General Counsel of FDI since April of 1998. From August 1996 to
March 1998, Ms. Chambers was Vice President and Assistant General Counsel for
Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an
associate with the law firm of Ropes & Gray. Her date of birth is October 12,
1959.
MARIE E. CONNOLLY; Vice President and Assistant Treasurer.
President, Chief Executive Officer and Director of FDI, and an officer of
certain investment companies advised or administered by FDI since prior to 1996.
Her date of birth is August 1, 1957.
DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Vice
President, New Business Development of FDI and an officer of certain investment
companies distributed or administered by FDI. Prior to 1999, Mr. Conroy was a
Manager of Treasury Services and Administration of FDI. His date of birth is
March 31, 1969.
KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice
President and Senior Counsel of FDI and an officer of certain investment
companies distributed or administered by FDI. From June 1994 to January 1996,
Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark,
Inc. Her date of birth is December 29, 1966.
CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. His date of birth is December 24, 1964.
KATHLEEN K. MORRISEY; Vice President and Assistant Secretary. Vice
President of FDI. Manager of Treasury Services Administration and an officer of
certain investment companies advised or administered by Montgomery Asset
Management, L.P. and Dresdner RCM Global Investors, Inc., and their respective
affiliates. Her date of birth is July 5, 1972.
MARY A. NELSON; Vice President and Assistant Treasurer. Senior Vice
President and Director of Financial Services at FDI, since August 1994, and an
officer of certain investment companies distributed or administered by FDI. Her
date of birth is April 22, 1964.
MARY JO PACE; Assistant Treasurer; Vice President, Morgan Guaranty
Trust Company of New York. Ms. Pace serves in the Funds Administration group as
a Manager for the Budgeting and Expense Processing Group. Her address is 60 Wall
Street, New York, New York 10260. Her date of birth is March 13, 1966.
GEORGE A. RIO; President and Treasurer; Executive Vice President and
Client Service Director of FDI since April 1998. From June 1995 to March 1998,
Mr. Rio was Senior Vice President and Senior Key Account Manager for Putnam
Mutual Funds. His date of birth is January 2, 1955.
CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan
Guaranty Trust Company of New York. Ms. Rotundo serves as Manager of the Funds
Infrastructure group and is responsible for the management of special projects.
Prior to January 2000, she served as Manager of the Tax Group in the Funds
Administration group and was responsible for U.S. mutual fund tax matters. Her
address is 60 Wall Street, New York, New York 10260. Her date of birth is
September 26, 1965.
13
ELBA VASQUEZ; Vice President and Assistant Secretary. Vice President
of FDI since February 1999. Ms. Vasquez served as National Sales Associate for
FDI from May 1996. Prior to that she served in various mutual fund sales and
marketing positions for U.S. Trust Company of New York. Her date of birth is
December 14, 1961.
As of the date of this Statement of Additional Information, the
officers, Trustees and Members of the Advisory Board as a group owned less then
1% of the shares of each Fund.
CODES OF ETHICS
The Trust, FDI and the Advisor 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 Funds. Such purchases, however, are subject to preclearance and
other procedures reasonably necessary to prevent access persons (as defined
therein) from engaging in any unlawful conduct set forth in Rule 17j-1.
INVESTMENT ADVISOR
The Funds have retained JPMIM as Investment Advisor to provide
investment advice and portfolio management services to Portfolios, pursuant to
an Investment Advisory Agreement dated as of October 1, 1998. Subject to the
supervision of the Portfolios' Trustees, the Advisor makes the Portfolios'
day-to-day investment decisions, arranges for the execution of portfolio
transactions and generally manages the Portfolios' investments.
The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved
thereafter annually in the same manner as the Distribution Agreement. See
"Distributor" below. The Investment Advisory Agreement will terminate
automatically if assigned and is terminable at any time without penalty by a
vote of a majority of the Trustees, or by a vote of the holders of a majority of
the Fund's outstanding voting securities, on 60 days' written notice to the
Advisor and by the Advisor on 90 days' written notice to the Trust. See
"Additional Information."
The Advisor, a wholly owned subsidiary of J.P. Morgan Chase & Co.
("J.P. Morgan Chase") and a corporation organized under the laws of the State of
Delaware, is a registered investment adviser under the Investment Advisers Act
of 1940, as amended. The Advisor is located at 522 Fifth Avenue, New York, New
York 10036.
J.P. Morgan Chase, a bank holding company organized under the laws
of the State of Delaware, was formed from the merger of J.P. Morgan & Co.
Incorporated with and into The Chase Manhattan Corporation. J.P. Morgan Chase,
together with its predecessors, has been in the banking and investment advisory
business for over 100 years and today, through JPMIM and its other subsidiaries,
offers a wide range of banking and investment management services to
governmental, institutional, corporate and individual clients.
The investment advisory services the Advisor provides to the
Portfolios are not exclusive under the terms of the Investment Advisory
Agreement. The Advisor is free to and does render similar investment advisory
services to others. The Advisor also manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee. The accounts,
which are managed or advised by the Advisor, have varying investment objectives
and the Advisor invests assets of such accounts in investments substantially
similar to, or the same as, those which are expected to constitute the principal
investments of the Portfolios. Such accounts are supervised by officers and
employees of the Advisor who may also be acting in similar capacities for the
Portfolios. See "Portfolio Transactions."
The Portfolios are managed by employees of the Advisor who, in
acting for their customers, including the Fund, do not discuss their investment
decisions with any personnel of J.P. Morgan Chase or any personnel of other
divisions of the Advisor or with any of its affiliated persons, with the
exception of certain other investment management affiliates of J.P. Morgan Chase
that execute transactions on behalf of the Portfolios.
14
As compensation for the services rendered and related expenses such
as salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's average daily net assets up to $1
billion and 0.10% of each Portfolio's average daily net assets in excess of $1
billion.
The table below sets forth for each Portfolio listed the advisory
fees paid to Morgan and JPMIM, as applicable, for the fiscal periods indicated.
See the Prospectus and below for applicable expense limitations.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1998, 1999 and 2000: $7,199,733, $13,226,942 and $19,059,292, respectively.
The Treasury Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $1,080,743, $1,715,668 and $2,000,272, respectively.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $1,736,610, $2,858,791 and $4,031,308, respectively.
Morgan, an affiliate of the Advisor and a wholly owned subsidiary of
J.P. Morgan Chase, is a New York trust company that conducts a general banking
and trust business. Morgan is subject to regulation by the New York State
Banking Department and is a member of the Federal Reserve System. Through
offices in New York City and abroad, Morgan offers a wide range of services
primarily to governmental, institutional, corporate and high net worth
individual customers in the United States and throughout the world. Under
separate agreements, Morgan also provides certain financial, fund accounting and
administrative services to the Trust and the Fund and shareholder services for
the Trust. Morgan is located at 60 Wall Street, New York, New York 10260. See
"Services Agent" and "Shareholder Servicing" below.
DISTRIBUTOR
FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for each of the Fund's shares. In that
capacity, FDI has been granted the right, as agent of the Trust, to solicit and
accept orders for the purchase of each of the Fund's shares in accordance with
the terms of the Distribution Agreement between the Trust and FDI. Under the
terms of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustee, Members of the Advisory Board and Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information," in any
case without payment of any penalty on 60 days' written notice to the other
party. The principal offices of FDI are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not
15
more than 60 days' written notice nor less than 30 days' written notice to the
other party. The Co-Administrator may subcontract for the performance of its
obligations, provided, however, that unless the Trust or the Portfolios, as
applicable, expressly agrees in writing, the Co-Administrator shall be fully
responsible for the acts and omissions of any subcontractor as it would for its
own acts or omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees,
Members of the Advisory Board and investors; and (vi) maintains related books
and records.
For its services under the Co-Administration Agreements, each Fund
and Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to each Fund or Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust, the Master Portfolios and
certain other investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund listed and its
corresponding Portfolio the administrative fees paid to FDI for the fiscal
periods indicated. See the Prospectus and below for applicable expense
limitations.
Prime Money Market Fund --For the fiscal years ended November 30, 1998, 1999 and
2000: $51,507, $73,606, and $91,185, respectively.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1998, 1999 and 2000: $115,137, $147,749 and $122,295, respectively.
Treasury Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $3,897, $4,376 and $3,284, respectively.
The Treasury Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $7,258, $7,923, and $6,803, respectively.
Federal Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $11,206, $16,222 and $19,041, respectively.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $12,377, $16,872 and $19,778, respectively.
SERVICES AGENT
The Trust, on behalf of each Fund, and the Portfolios have entered
into Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.
Under the Services Agreements, each of the Funds and the Portfolios
has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate net
assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% of the first $7 billion of their aggregate
average daily net assets and 0.04% of their aggregate average daily net assets
in excess of $7 billion, less the complex-wide fees payable to FDI. The portion
of this charge payable by each Fund and Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, the Master Portfolios, the other investors in the Master Portfolios for
which Morgan provides similar services and J.P. Morgan Series Trust.
The table below sets forth for each Fund listed and its
corresponding Portfolio the fees paid to Morgan as Services Agent. See the
Prospectus and below for applicable expense limitations.
16
Prime Money Market Fund --For the fiscal years ended November 30, 1998, 1999 and
2000: $696,768, $1,307,329 and $2,004,433, respectively.
The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1998, 1999 and 2000: $1,788,454, $3,127,566 and $4,197,163, respectively.
Treasury Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $51,775, $76,155 and $70,813, respectively.
The Treasury Money Market Portfolio -- For the fiscal years October 31, 1998,
1999 and 2000: $155,752, $226,699 and $251,048, respectively.
Federal Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $151,777, $280,889 and $413,001.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $264,799, $480,385 and $735,431.
CUSTODIAN AND TRANSFER AGENT
The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's custodian and fund accounting agent. Pursuant to
the Custodian Contract and Fund Accounting Agreement with the Trust, BONY is
responsible for holding portfolio securities and cash and maintaining the books
of account and records of the Fund's portfolio transactions. In the case of
foreign assets held outside the United States, the custodian employs various
subcustodians in accordance with the regulations of the SEC.
State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's transfer and dividend
disbursing agent. As transfer agent and dividend disbursing agent, State Street
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.
SHAREHOLDER SERVICING
The Trust on behalf of each of the Funds has entered into a
Shareholder Servicing Agreement with Morgan pursuant to which Morgan acts as
shareholder servicing agent for its customers and for other Fund investors who
are customers of a Financial Professional. Under this agreement, Morgan is
responsible for performing shareholder account, administrative and servicing
functions, which include but are not limited to, answering inquiries regarding
account status and history, the manner in which purchases and redemptions of
Fund shares may be effected, and certain other matters pertaining to a Fund;
assisting customers in designating and changing dividend options, account
designations and addresses; providing necessary personnel and facilities to
coordinate the establishment and maintenance of shareholder accounts and records
with the Funds' transfer agent; transmitting purchase and redemption orders to
the Funds' transfer agent and arranging for the wiring or other transfer of
funds to and from customer accounts in connection with orders to purchase or
redeem Fund shares; verifying purchase and redemption orders, transfers among
and changes in accounts; informing the Distributor of the gross amount of
purchase orders for Fund shares; monitoring the activities of the Funds'
transfer agent; and providing other related services.
Effective August 1, 1998, under the Shareholder Servicing Agreement,
each Fund has agreed to pay Morgan for these services a fee at the annual rate
of 0.10% (expressed as a percentage of the average daily net asset values of
Fund shares owned by or for shareholders for whom Morgan is acting as
shareholder servicing agent). Morgan acts as shareholder servicing agent for all
shareholders.
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated. See
the Prospectus and below for applicable expense limitations.
17
Prime Money Market Fund -- For the fiscal years ended November 30, 1998, 1999
and 2000: $1,682,644, $5,106,775 and $8,991,567, respectively.
Treasury Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $116,683, $292,811 and $290,402, respectively.
Federal Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $370,516, $1,086,537, and $1,702,406, respectively.
The Funds may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Funds. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Funds as an investment alternative may also be paid a fee.
FINANCIAL PROFESSIONALS
The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.
Although there is no sales charge levied directly by the Funds,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Funds or J.P. Morgan.
INDEPENDENT ACCOUNTANTS
The independent accountants of the Trust and the Portfolios are
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York
10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of each of the Funds and the Portfolios, assists in the preparation
and/or review of each of the Fund's and the Portfolio's federal and state income
tax returns and consults with the Funds and the Portfolios as to matters of
accounting and federal and state income taxation.
EXPENSES
In addition to the fees payable to Pierpont Group, Inc., JPMIM,
Morgan and FDI under various agreements discussed under "Trustees, Members of
the Advisory Board and Officers," "Investment Advisor," "Co-Administrator,
"Distributor," "Services Agent" and "Shareholder Servicing" above, the Funds and
the Portfolios are responsible for usual and customary expenses associated with
their respective operations. Such expenses include organization expenses, legal
fees, accounting and audit expenses, insurance costs, the compensation and
expenses of the Trustees and Members of the Advisory Board, costs associated
with their registration fees under federal securities laws, and extraordinary
expenses applicable to the Funds or the Portfolios. For the Funds, such expenses
also include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolios, such expenses
also include custodian fees. For additional information regarding waivers or
expense subsidies, see the Prospectus.
J.P. Morgan has agreed that it will reimburse the Funds noted below
until February 28, 2002 to the extent necessary to maintain each of the Fund's
total operating expenses (excluding interest, taxes and extraordinary expenses
of the
18
Fund and its corresponding Portfolio) at the following annual rates of the
Fund's average daily net assets.
Prime Money Market Fund: 0.20%
Treasury Money Market Fund: 0.20%
Federal Money Market Fund: 0.20%
The table below sets forth for each Fund listed the fees and other
expenses J.P. Morgan reimbursed under the expense reimbursement arrangements
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.
Prime Money Market Fund --For the fiscal years ended November 30, 1998, 1999 and
2000: $2,571,638, $4,725,802 and $8,040,416, respectively.
The Prime Money Market Portfolio --For the fiscal years ended November 30, 1998,
1999 and 2000: N/A, N/A and N/A, respectively.
Treasury Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $581,382, $596,259 and $559,750, respectively.
The Treasury Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $828,462, $403,222 and $394,705, respectively.
Federal Money Market Fund -- For the fiscal years ended October 31, 1998, 1999
and 2000: $1,111,407, $1,543,425 and $2,011,356.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $415,825, $63,027 and N/A.
PURCHASE OF SHARES
Additional Minimum Balance Information. If your account balance
falls below the minimum for 30 days as a result of selling shares (and not
because of performance), each Fund reserves the right to request that you buy
more shares or close your account. If your account balance is still below the
minimum 60 days after notification, the Fund reserves the right to close out
your account and send the proceeds to the address of record.
Method of Purchase. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for
19
resale to the Fund's corresponding Portfolio); and (iii) be liquid securities
which are not restricted as to transfer either by law or liquidity of market.
Each Fund reserves the right to accept or reject at its own option any and all
securities offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.
REDEMPTION OF SHARES
Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Funds should be aware that the Funds
attempt to maintain a stable net asset value of $1.00 per share; however, there
can be no assurance that they will be able to continue to do so, and in that
case the net asset value of the Fund's shares might deviate from $1.00 per
share. Accordingly, a redemption request might result in payment of a dollar
amount which differs from the number of shares redeemed. See "Net Asset Value"
below.
If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of the Treasury Money Market and Federal Money
Market Funds and their corresponding Portfolios have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which such Funds and their
corresponding Portfolios are obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net asset value of such Fund during any
90-day period for any one shareholder. The Trust will redeem Fund shares in kind
only if it has received a redemption in kind from the corresponding Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolios have advised the Trust that
the Portfolios will not redeem in kind except in circumstances in which a Fund
is permitted to redeem in kind.
Further Redemption Information. Investors should be aware that
redemptions from a Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.
EXCHANGE OF SHARES
An investor may exchange shares from any Fund into shares of any
other J.P. Morgan Institutional Fund or J.P. Morgan mutual fund, without charge.
An exchange may be made so long as after the exchange the investor has shares,
in each fund in which he or she remains an investor, with a value of at least
that fund's minimum investment amount. Shareholders should read the prospectus
of the fund into which they are exchanging and may only exchange between fund
accounts that are registered in the same name, address and taxpayer
identification number. Shares are exchanged on the basis of relative net asset
value per share. Exchanges are in effect redemptions from one fund and purchases
of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. Each Fund generally intends to pay
redemption proceeds in cash, however, since it reserves the right at its sole
discretion to pay redemptions over $250,000 in-kind as a portfolio of
representative securities rather than in cash, the Fund reserves the right to
deny an exchange request in excess of that amount. See "Redemption of Shares".
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. Shares of the Fund to be acquired are purchased for
20
settlement when the proceeds from redemption become available. The Trust
reserves the right to discontinue, alter or limit the exchange privilege at any
time.
DIVIDENDS AND DISTRIBUTIONS
Each Fund declares and pays dividends and distributions as described
in the Prospectus.
If a shareholder has elected to receive dividends and/or capital
gain distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.
NET ASSET VALUE
Each of the Funds computes its net asset value once daily on Monday
through Friday as described in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, and
Christmas Day. In the event that trading in the money markets is scheduled to
end earlier than the close of the New York Stock Exchange in observance of these
holidays, the Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios may also close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. On any business day when the Bond Market
Association ("BMA") recommends that the securities market close early, the Funds
reserve the right to cease accepting purchase and redemption orders for same
business day credit at the time BMA recommends that the securities market close.
On days the Funds close early, purchase and redemption orders received after the
Funds close will be credited the next business day. The days on which net asset
value is determined are the Funds' business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
The Portfolios' portfolio securities are valued by the amortized
cost method. The purpose of this method of calculation is to attempt to maintain
a constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing a Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of
yield, actual distributions, total return or capital appreciation in reports,
sales literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See the Prospectus.
Yield Quotations. As required by regulations of the SEC, current
yield for the Funds is computed by determining the net change exclusive of
capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day calendar period, dividing
the net change in account value of the account at the beginning of the period,
and multiplying the return over the seven-day period by 365/7. For purposes
21
of the calculation, net change in account value reflects the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares, but does not reflect
realized gains or losses or unrealized appreciation or depreciation. Effective
yield for each Fund is computed by annualizing the seven-day return with all
dividends reinvested in additional Fund shares.
Below is set forth historical yield information for the periods
indicated:
Prime Money Market Fund (11/30/00): 7-day current yield: 6.50%; 7-day effective
yield: 6.72%.
Treasury Money Market Fund (10/31/00): 7-day current yield: 6.38%; 7-day
effective yield: 6.59%.
Federal Money Market Fund (10/31/00): 7-day current yield: 6.36%; 7-day
effective yield: 6.57%.
Total Return Quotations. Historical performance information for the
Prime Money Market Fund will be that of its corresponding predecessor J.P.
Morgan Fund and will be presented in accordance with applicable SEC staff
interpretations. The applicable financial information in the registration
statement for the J.P. Morgan Funds (Registration Nos. 033-54632 and 811-07340)
is incorporated herein by reference.
Below is set forth historical return information for each Fund for
the periods indicated:
Prime Money Market Fund (11/30/00): Average annual total return, 1 year: 6.36%;
average annual total return, 5 years: 5.63%; average annual total return, 10
years: 5.10%; aggregate total return, 1 year: 6.36%; aggregate total return, 5
years: 31.52%; aggregate total return, 10 years: 64.41%.
Treasury Money Market Fund (10/31/00): Average annual total return, 1 year:
5.97%; average annual total return, 5 years: N/A%; average annual total return,
commencement of operations (July 7, 1997) to period end: 5.47%; aggregate total
return, 1 year: 5.97%; aggregate total return, 5 years: N/A%; aggregate total
return, commencement of operations (July 7, 1997) to period end: 19.35%.
Federal Money Market Fund (10/31/00): Average annual total return, 1 year:
6.10%; average annual total return, 5 years: 5.44%; average annual total return,
10 years: N/A%; average annual total return, commencement of operations (January
4, 1993) to period end: 4.94%; aggregate total return, 1 year: 6.10%; aggregate
total return, 5 years: 30.30%; aggregate total return, 10 years: N/A; aggregate
total return, commencement of operations (January 4, 1993) to period end:
45.87%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.
General. A Fund's performance will vary from time to time depending
upon market conditions, the composition of its corresponding Portfolio, and its
operating expenses. Consequently, any given performance quotation should not be
considered representative of a Fund's performance for any specified period in
the future. In addition, because performance will fluctuate, it may not provide
a basis for comparing an investment in a Fund with certain bank deposits or
other investments that pay a fixed yield or return for a stated period of time.
Comparative performance information may be used from time to time in
advertising the Funds' shares, including appropriate market indices or data from
Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates,
Morningstar Inc., the Dow Jones Industrial Average and other industry
publications.
From time to time, the Funds may, in addition to any other
permissible information, include the following types of information in
advertisements, supplemental sales literature and reports to shareholders: (1)
discussions of general economic or financial principles (such as the effects of
compounding and the benefits of dollar-cost averaging); (2) discussions of
general economic trends; (3) presentations of statistical data to supplement
such discussions; (4) descriptions of past or anticipated portfolio holdings for
one or more of the Funds; (5) descriptions of investment strategies for one or
more of the Funds; (6) descriptions or comparisons of various savings and
investment products (including, but not limited to, qualified retirement plans
and individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant
22
markets or industry indices or other appropriate benchmarks; (8) discussions of
Fund rankings or ratings by recognized rating organizations; and (9) discussions
of various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and
sales of portfolio securities, enters into repurchase agreements, and may enter
into reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Portfolio transactions for the Portfolios will be undertaken
principally to accomplish a Portfolio's objective in relation to expected
movements in the general level of interest rates. The Portfolios may engage in
short-term trading consistent with their objectives. See "Investment Objectives
and Policies."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
The Portfolios have a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.
Subject to the overriding objective of obtaining best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. Under the 1940 Act, persons
affiliated with the Portfolio and persons who are affiliated with such persons
are prohibited from dealing with the Portfolio as principal in the purchase and
sale of securities unless a permissive order allowing such transactions is
obtained from the SEC. However, affiliated persons of the Portfolio may serve as
its broker in listed or over-the-counter transactions conducted on an agency
basis provided that, among other things, the fee or commission received by such
affiliated broker is reasonable and fair compared to the fee or commission
received by non-affiliated brokers in connection with comparable transactions.
In addition, the Portfolio may not purchase securities during the existence of
any underwriting syndicate for such securities of which Morgan or an affiliate
is a member or in a private placement in which Morgan or an affiliate serves as
placement agent except pursuant to procedures adopted by the Board of Trustees
of the Portfolio that either comply with rules adopted by the SEC or with
interpretations of the SEC's staff.
On those occasions when the Advisor deems the purchase or sale of a
security to be in the best interests of a Portfolio as well as other customers
including other Portfolios, the Advisor to the extent permitted by applicable
laws and regulations, may, but is not obligated to, aggregate the securities to
be sold or purchased for a Portfolio with those to be sold or purchased for
other customers in order to obtain best execution, including lower brokerage
commissions if appropriate. In such event, allocation of the securities so
purchased or sold as well as any expenses incurred in the transaction will be
made by the Advisor in the manner it considers to be most equitable and
consistent with its fiduciary obligations to a Portfolio. In some instances,
this procedure might adversely affect a Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are
23
designed to make the Trust similar in most respects to a Massachusetts business
corporation. The principal distinction between the two forms concerns
shareholder liability described below.
Effective January 9, 1997, the name of The Treasury Money Market
Portfolio was changed to The Federal Money Market Portfolio. Effective May 12,
1997, the name of The Money Market Portfolio was changed to The Prime Money
Market Portfolio. Effective January 1, 1998, the name of the Trust was changed
from "The JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and
each Fund's name changed accordingly.
Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of any Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of any
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.
No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by a Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of a Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Funds.
The Trust's Declaration of Trust further provides that the name of
the Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, Member of the Advisory Board, officer, employee or
agent of a Fund is liable to a Fund or to a shareholder, and that no Trustee,
Member of the Advisory Board, officer, employee, or agent is liable to any third
persons in connection with the affairs of a Fund, except as such liability may
arise from his or its own bad faith, willful misfeasance, gross negligence or
reckless disregard of his or its duties to such third persons. It also provides
that all third persons shall look solely to Fund property for satisfaction of
claims arising in connection with the affairs of a Fund. With the exceptions
stated, the Trust's Declaration of Trust provides that a Trustee, Member of the
Advisory Board, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of a Fund.
The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.
DESCRIPTION OF SHARES
The Trust is an open-end management investment company organized as
a Massachusetts business trust in which each Fund represents a separate series
of shares of beneficial interest. See "Massachusetts Trust."
The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in a Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in a Fund with each other
share. Upon liquidation of a Fund, holders are entitled to share pro rata in the
net assets of a Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.
The shareholders of the Trust are entitled to one vote for each
dollar of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of
24
shareholders are not cumulative so that holders of more than 50% of the shares
voting can, if they choose, elect all Trustees being selected while the
shareholders of the remaining shares would be unable to elect any Trustees. It
is the intention of the Trust not to hold meetings of shareholders annually. The
Trustees may call meetings of shareholders for action by shareholder vote as may
be required by either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 34 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.
For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.
As of January 31, 2001, no one owned of record or was known by the
fund to own beneficially more than 5% of the outstanding shares of the Funds.
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE
25
Unlike other mutual funds which directly acquire and manage their
own portfolio of securities, each Fund is an open-end management investment
company which seeks to achieve its investment objective by investing all of its
investable assets in the corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a Master Portfolio seeks a vote to change a fundamental
investment restriction, its feeder fund(s) will hold a shareholder meeting and
cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to a Fund, a Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in each Fund's prospectus.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may
become less diversified, resulting in potentially increased portfolio risk
(however, these possibilities also exist for traditionally structured funds
which have large or institutional investors who may withdraw from a fund). Also,
funds with a greater pro rata ownership in the Portfolio could have effective
voting control of the operations of the Portfolio. Whenever the Fund is
requested to vote on matters pertaining to the Portfolio (other than a vote by
the Fund to continue the operation of the Portfolio upon the withdrawal of
another investor in the Portfolio), the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes proportionately as
instructed by the Fund's shareholders. The Trust will vote the shares held by
Fund shareholders who do not give voting instructions in the same proportion as
the shares of Fund shareholders who do give voting instructions. Shareholders of
the Fund who do not vote will have no affect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S.
federal tax laws in effect on the date of this Statement of Additional
Information. These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
26
options, futures, and forward contracts) derived with respect to its business of
investing in such securities or foreign currency; and (b) diversify its holdings
so that, at the end of each quarter of its taxable year, (i) at least 50% of the
value of the Fund's total assets is represented by cash, cash items, U.S.
Government securities, investments in other regulated investment companies, and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's total assets, and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. Each
Fund intends to make distributions in a timely manner and accordingly does not
expect to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year generally will be treated as if
they were paid on December 31 of the year declared. Therefore, such dividends
will be taxable to a shareholder in the year declared rather than the year paid.
For federal income tax purposes, the following funds had capital
loss carryforwards for the periods indicated:
Prime Money Market Fund: For the fiscal year ended November 30, 2000, $266,207,
of which $34,205 will expire in the year 2005, $18,981 will expire in 2006 and
$213,021 will expire in the year 2007.
Federal Money Market Fund: For the fiscal year ended October 31, 2000, $49,657,
all of which will expire in the year 2007.
Treasury Money Market Fund: For the fiscal year ended October 31, 2000,
$101,733, of which $7,292 will expire in the year 2006, $14,745 will expire in
2007 and $79, 696 will expire in the year 2008.
To the extent that this capital loss is used to offset future
capital gains, it is probable that gains so offset will not be distributed to
shareholders.
Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital losses are generally taxable to
shareholders of the Funds as ordinary income whether such distributions are
taken in cash or reinvested in additional shares. Distributions to corporate
shareholders of the Funds are not eligible for the dividends received deduction.
Distributions of net long-term capital gains (i.e., net long-term capital gain
in excess of net short-term capital loss) are taxable to shareholders of a Fund
as long-term capital gains, regardless of whether such distributions are taken
in cash or reinvested in additional shares and regardless of how long a
shareholder has held shares in the Fund. In general, long-term capital gain of
an individual shareholder will be subject to a 20% rate of tax.
To maintain a constant $1.00 per share net asset value, the Trustees
of the Trust may direct that the number of outstanding shares be reduced pro
rata. If this adjustment is made, it will reflect the lower market value of
portfolio securities and not realized losses. The adjustment may result in a
shareholder having more dividend income than net income in his account for a
period. When the number of outstanding shares of a Fund is reduced, the
shareholder's basis in the shares of the Fund may be adjusted to reflect the
difference between taxable income and net dividends actually distributed. This
difference may be realized as a capital loss when the shares are liquidated.
Subject to certain limited exceptions, capital losses cannot be used to offset
ordinary income. See "Net Asset Value."
27
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put option is acquired
or a call option is written thereon or straddle rules are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.
Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should thus consider the consequences
of purchasing shares in a Fund shortly before the Fund declares a sizable
dividend distribution.
Any gain or loss realized on the redemption or exchange of Fund
shares by a shareholder who is not a dealer in securities will be treated as
long-term capital gain or loss if the shares have been held for more than one
year, and otherwise as short-term capital gain or loss. Long-term capital gain
of an individual holder generally is subject to a maximum tax rate of 20%.
However, if Fund shares are acquired after December 31, 2000 and held for more
than five years, the maximum long-term capital gain tax rate will be reduced to
18%. Any loss realized by a shareholder upon the redemption or exchange of
shares in the Fund held for six months or less will be treated as a long-term
capital loss to the extent of any long-term capital gain distributions received
by the shareholder with respect to such shares. Additionally, any loss realized
on a redemption or exchange of shares of a Fund will be disallowed to the extent
the shares disposed of are replaced within a period of 61 days beginning 30 days
before such disposition, such as pursuant to reinvestment of a dividend in
shares of the Fund. Investors are urged to consult their tax advisors concerning
the limitations on the deductibility of capital losses.
If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.
Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Generally, a foreign
shareholder must satisfy certain certification requirements in order to claim
the benefit of a lower treaty rate. In addition, in the case of Fund shares held
by a foreign partnership, the certification requirement generally will also
apply to the partners of the partnership and the partnership must provide
certain information. A foreign shareholder that is eligible for a reduced rate
of United States withholding tax under tax treaty may obtain a refund of any
amounts withheld in excess of that rate by filing a refund claim with the United
States Internal Revenue Service.
Distributions treated as long-term capital gains to foreign
shareholders will not be subject to U.S. tax unless the distributions are
effectively connected with the shareholder's trade or business in the United
States or, in the case of a shareholder who is a nonresident alien individual,
the shareholder was present in the United States for more than 182 days during
the taxable year and certain other conditions are met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity and that is a beneficial owner the Fund shares, a
Fund may be required to withhold U.S. federal income tax as "backup withholding"
at the rate of 31% from any distributions including distributions treated as
long-term capital gains and from the proceeds of redemptions, exchanges or other
dispositions of Fund shares unless such foreign shareholder
28
provides an IRS Form W-8BEN certifying that it is a non-U.S. person for U.S.
federal income tax purposes, or otherwise established an exemption. Transfers by
gift of shares of a Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.
State and Local Taxes. Each Fund may be subject to state or local
taxes in jurisdictions in which the Fund is deemed to be doing business. In
addition, the treatment of a Fund and its shareholders in those states which
have income tax laws might differ from treatment under the federal income tax
laws. Shareholders should consult their own tax advisors with respect to any
state or local taxes.
Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor any Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that each
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolios are organized as New York trusts. The Portfolios are
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by a Fund
in its corresponding Portfolio does not cause the Fund to be liable for any
income or franchise tax in the State of New York.
ADDITIONAL INFORMATION
As used in this Statement of Additional Information and the
Prospectus, the term "majority of the outstanding voting securities" means the
vote of (i) 67% or more of the Fund's shares or the Portfolio's outstanding
voting securities present at a meeting, if the holders of more than 50% of the
Fund's outstanding shares or the Portfolio's outstanding voting securities are
present or represented by proxy, or (ii) more than 50% of the Fund's outstanding
shares or the Portfolio's outstanding voting securities, whichever is less.
Telephone calls to the Funds, J.P. Morgan or Financial Professionals
as shareholder servicing agent may be tape recorded. With respect to the
securities offered hereby, this Statement of Additional Information and the
Prospectus do not contain all the information included in the Trust's
Registration Statement filed with the SEC under the 1933 Act and the 1940 Act
the Portfolios' Registration Statements filed under the 1940 Act. Pursuant to
the rules and regulations of the SEC, certain portions have been omitted. The
Registration Statements including the exhibits filed therewith may be examined
at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give
any information or to make any representations, other than those contained in
the Prospectus and this Statement of Additional Information, in connection with
the offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of
PricewaterhouseCoopers LLP of each Fund are incorporated herein by reference
from their respective annual report filings made with the SEC pursuant to
Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following
financial reports are available without charge upon request by calling JP Morgan
Funds Services at (800) 766-7722. Each Fund's financial statements include the
financial statements of the Fund's corresponding Portfolio.
29
- --------------------------------------------------------------------------------------------------------------
Name of Fund Date of Annual Report; Date Annual Report Filed; and
Accession Number
- --------------------------------------------------------------------------------------------------------------
J.P. Morgan Institutional Prime Money Market Fund 11/30/00
01/30/01
0000894088-01-000007
- --------------------------------------------------------------------------------------------------------------
J.P. Morgan Institutional Treasury Money Market Fund 10/31/00
01/02/01
0000894088-01-000002
- --------------------------------------------------------------------------------------------------------------
J.P. Morgan Institutional Federal Money Market Fund 10/31/00
01/02/01
0000894088-01-000002
- --------------------------------------------------------------------------------------------------------------
30
A-3
APPENDIX A
Description of Security Ratings
STANDARD & POOR'S
Corporate and Municipal Bonds
AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's
to a debt obligation. Capacity to pay interest and repay principal is
extremely strong.
AA - Debt rated AA have a very strong capacity to pay interest and repay
principal and differ from the highest rated issues only in a small
degree.
A - Debt rated A have a strong capacity to pay interest and repay
principal although they are somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than debt
in higher rated categories.
BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas they normally exhibit adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than for debt
in higher rated categories.
Commercial Paper, including Tax Exempt
A - Issues assigned this highest rating are regarded as having the
greatest capacity for timely payment. Issues in this category are
further refined with the designations 1, 2, and 3 to indicate the
relative degree of safety.
A-1 - This designation indicates that the degree of safety regarding timely
payment is very strong.
Short-Term Tax-Exempt Notes
SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity
to pay principal and interest. Those issues determined to possess
overwhelming safety characteristics are given a "plus" (+)
designation.
SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory
capacity to pay principal and interest.
A-1
MOODY'S
Corporate and Municipal Bonds
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally
referred to as "gilt edge." Interest payments are protected by a large
or by an exceptionally stable margin and principal is secure. While
the various protective elements are likely to change, such changes as
can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are
generally known as high grade bonds. They are rated lower than the
best bonds because margins of protection may not be as large as in Aaa
securities or fluctuation of protective elements may be of greater
amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper medium grade obligations. Factors
giving security to principal and interest are considered adequate but
elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium grade obligations,
i.e., they are neither highly protected nor poorly secured. Interest
payments and principal security appear adequate for the present but
certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
bonds lack outstanding investment characteristics and in fact have
speculative characteristics as well.
Commercial Paper, including Tax Exempt
Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a
superior capacity for repayment of short-term promissory obligations.
Prime-1 repayment capacity will normally be evidenced by the following
characteristics:
- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt
and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.
A-2
Short-Term Tax Exempt Notes
MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating
assigned by Moody's for notes judged to be the best quality. Notes
with this rating enjoy strong protection from established cash flows
of funds for their servicing or from established and broad-based
access to the market for refinancing, or both.
MIG-2 - MIG-2 rated notes are of high quality but with margins of protection
not as large as MIG-1.
A-3