J.P. MORGAN INSTITUTIONAL FUNDS
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL SERVICE 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 FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION
INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER
REPORTS RELATING TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 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 SERVICE FUNDS (800)
221-7930.
Table of Contents
Page
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GENERAL........................................................................1
INVESTMENT OBJECTIVES AND POLICIES.............................................1
INVESTMENT RESTRICTIONS........................................................7
TRUSTEES, MEMBERS OF THE ADVISORY BOARD AND OFFICERS..........................11
CODES OF ETHICS...............................................................15
INVESTMENT ADVISOR............................................................16
DISTRIBUTOR...................................................................17
CO-ADMINISTRATOR..............................................................17
SERVICES AGENT................................................................18
CUSTODIAN AND TRANSFER AGENT..................................................19
SHAREHOLDER SERVICING.........................................................19
SERVICE ORGANIZATION..........................................................20
INDEPENDENT ACCOUNTANTS.......................................................21
EXPENSES......................................................................21
PURCHASE OF SHARES............................................................22
REDEMPTION OF SHARES..........................................................23
EXCHANGE OF SHARES............................................................24
DIVIDENDS AND DISTRIBUTIONS...................................................24
NET ASSET VALUE...............................................................24
PERFORMANCE DATA..............................................................25
PORTFOLIO TRANSACTIONS........................................................26
MASSACHUSETTS TRUST...........................................................27
DESCRIPTION OF SHARES.........................................................28
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE...........................30
TAXES.........................................................................30
ADDITIONAL INFORMATION........................................................33
FINANCIAL STATEMENTS..........................................................34
APPENDIX A...................................................................A-1
GENERAL
This Statement of Additional Information relates only to the J.P.
Morgan Institutional Service Prime Money Market Fund, the J.P. Morgan
Institutional Service Treasury Money Market Fund and the J.P. Morgan
Institutional Service 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 Service 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."
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J.P. Morgan Institutional Service 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 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 Service 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 the 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 instrumentalities. These obligations
may or may not be backed by the "full faith and credit" of the United States.
Securities which are backed by the full faith and credit of the United States
include obligations of the Government National Mortgage Association, the Farmers
Home Administration, and the Export-Import Bank. In the case of securities not
backed by the full faith and credit of the United States, each Fund must look
principally to the federal agency issuing or guaranteeing the obligation for
ultimate repayment and may not be able to assert a claim against the United
States itself in the event the agency or instrumentality does not meet its
commitments. Securities in which each Fund may invest that are not backed by the
full faith and credit of the United States include, but are not limited to: (i)
obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage
Corporation, the Federal Home Loan Banks and the U.S. Postal Service, each of
which has the right to borrow from the U.S. Treasury to meet its obligations;
(ii) securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase the
agency's obligations; and (iii) obligations of the Federal Farm Credit System
and the Student Loan Marketing Association, each of whose obligations may be
satisfied only by the individual credits of the issuing agency.
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Foreign Government Obligations. The Prime Money Market Fund, subject
to its applicable investment policies, may also invest in short-term obligations
of foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. See "Foreign Investments." These
securities must be denominated in the U.S. dollar.
Bank Obligations. The Prime Money Market Fund, unless otherwise
noted in the Prospectus or below, may invest in negotiable certificates of
deposit, time deposits and bankers' acceptances of (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total assets
and are organized under the laws of the United States or any state, (ii) foreign
branches of these banks or of foreign banks of equivalent size (Euros) and (iii)
U.S. branches of foreign banks of equivalent size (Yankees). The Prime Money
Market Fund will not invest in obligations for which the Advisor, or any of its
affiliated persons, is the ultimate obligor or accepting bank. The Prime Money
Market Fund may also invest in obligations of international banking institutions
designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).
Commercial Paper. The Prime Money Market Fund may invest in
commercial paper, including master demand obligations. Master demand obligations
are obligations that provide for a periodic adjustment in the interest rate paid
and permit daily changes in the amount borrowed. Master demand obligations are
governed by agreements between the issuer and Morgan acting as agent, for no
additional fee. The monies loaned to the borrower come from accounts managed by
Morgan or its affiliates, pursuant to arrangements with such accounts. Interest
and principal payments are credited to such accounts. Morgan, an affiliate of
the Advisor, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without penalty
all or any part of the principal amount then outstanding on an obligation
together with interest to the date of payment. Since these obligations typically
provide that the interest rate is tied to the Federal Reserve commercial paper
composite rate, the rate on master demand obligations is subject to change.
Repayment of a master demand obligation to participating accounts depends on the
ability of the borrower to pay the accrued interest and principal of the
obligation on demand which is continuously monitored by Morgan. Since master
demand obligations typically are not rated by credit rating agencies, the Prime
Money Market Fund may invest in such unrated obligations only if at the time of
an investment the obligation is determined by the Advisor to have a credit
quality which satisfies the Prime Money Market Fund's quality restrictions. See
"Quality and Diversification Requirements." Although there is no secondary
market for master demand obligations, such obligations are considered by the
Prime Money Market Fund to be liquid because they are payable upon demand. The
Prime Money Market Fund does not have any specific percentage limitation on
investments in master demand obligations. It is possible that the issuer of a
master demand obligation could be a client of Morgan to whom Morgan, in its
capacity as a commercial bank, has made a loan.
Asset-backed Securities. The Prime Money Market Fund may also invest
in securities generally referred to as asset-backed securities, which directly
or indirectly represent a participation interest in, or are secured by and
payable from, a stream of payments generated by particular assets, such as motor
vehicle or credit card receivables or other asset-backed securities
collateralized by such assets. Asset-backed securities provide periodic payments
that generally consist of both interest and principle payments. Consequently,
the life of an asset-backed security varies with the prepayment experience of
the underlying obligations. Payments of principal and interest may be guaranteed
up to certain amounts and for a certain time period by a letter of credit issued
by a financial institution unaffiliated with the entities issuing the
securities. The asset-backed securities in which a Fund may invest are subject
to the Fund's overall credit requirements. However, asset-backed securities, in
general, are subject to certain risks. Most of these risks are related to
limited interests in applicable collateral. For example, credit card debt
receivables are generally unsecured and the debtors are entitled to the
protection of a number of state and federal consumer credit laws, many of which
give such debtors the right to set off certain amounts on credit card debt
thereby reducing the balance due. Additionally, if the letter of credit is
exhausted, holders of asset-backed securities may also experience delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized. Because asset-backed securities are relatively new, the market
experience in these securities is limited and the market's ability to sustain
liquidity through all phases of the market cycle has not been tested.
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Repurchase Agreements. Each of the Funds may enter into repurchase
agreements with brokers, dealers or banks that meet the Advisor's credit
guidelines. In a repurchase agreement, a Fund buys a security from a seller that
has agreed to repurchase the same security at a mutually agreed upon date and
price. The resale price normally is in excess of the purchase price, reflecting
an agreed upon interest rate. This interest rate is effective for the period of
time the Fund is invested in the agreement and is not related to the coupon rate
on the underlying security. A repurchase agreement may also be viewed as a fully
collateralized loan of money by a Fund to the seller. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will any Fund invest in repurchase agreements for more than thirteen
months. The securities which are subject to repurchase agreements, however, may
have maturity dates in excess of thirteen months from the effective date of the
repurchase agreement. The 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 and other obligations
described in the Prospectus or this Statement of Additional Information.
Foreign Investments
The Prime Money Market Fund may invest in certain foreign
securities. All investments must be U.S. dollar-denominated. Investment in
securities of foreign issuers and in obligations of foreign branches of domestic
banks involves somewhat different investment risks from those affecting
securities of U.S. domestic issuers. There may be limited publicly available
information with respect to foreign issuers, and foreign issuers are not
generally subject to uniform accounting, auditing and financial standards and
requirements comparable to those applicable to domestic companies. Any foreign
commercial paper must not be subject to foreign withholding tax at the time of
purchase.
Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.
Additional Investments
Municipal Bonds. The Prime Money Market Fund may invest in municipal
bonds issued by or on behalf of states, territories and possessions of the
United States and the District of Columbia and their Political subdivisions,
agencies, authorities and instrumentalities. The Prime Money Market Fund may
also invest in
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municipal notes of various types, including notes issued in anticipation of
receipt of taxes, the proceeds of the sale of bonds, other revenues or grant
proceeds, as well as municipal commercial paper and municipal demand obligations
such as variable rate demand notes and master demand obligations. These
municipal bonds and notes will be taxable securities; income generated from
these investments will be subject to federal, state and local taxes.
When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities, no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, if
applicable, calculate the maturity for the purposes of average maturity from
that date. At the time of settlement a when-issued security may be valued at
less than the purchase price. To facilitate such acquisitions, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transactions 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.
Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Funds, except the Treasury 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 Funds' net assets would be in illiquid investments. Subject to this
fundamental policy limitation (Prime Money Market Fund only), the Portfolios may
acquire investments that are illiquid or have limited liquidity, such as private
placements or investments that are not registered under the Securities Act of
1933, as amended (the "1933 Act") and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Portfolios. The price the Portfolios pay for illiquid securities or receives
upon resale may be lower than the price paid or received for similar securities
with a more liquid market. Accordingly the valuation of these securities will
reflect any limitations on their liquidity.
The Funds may 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.
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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 requirements require that with respect to 75%
of the assets of each Fund are subject to the following fundamental limitations:
(1) the Fund may not invest more than 5% of its total assets in the securities
of any one issuer, except obligations of the U.S. Government, its agencies and
instrumentalities, and (2) the Fund may not own more than 10% of the outstanding
voting securities of any one issuer. As for the other 25% of the Fund's assets
not subject to the limitation described above, there is no limitation on
investment of these assets under the 1940 Act, so that all of such assets may be
invested in securities of any one issuer. Investments not subject to the
limitations described above could involve an increased risk to 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 invest in any taxable commercial paper,
master demand obligation, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's or Standard & Poor's,
the issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are
available, the investment must be of comparable quality in Morgan's opinion.
Prime Money Market Fund. In order to achieve its investment
objective and maintain a stable net asset value, the Prime Money Market Fund
will (i) limit its investment in the securities (other than U.S. Government
securities) of any one issuer to no more than 5% of its assets, measured at the
time of purchase, except for investments held for not more than three business
days; and (ii) limit investments to securities that present minimal credit risks
and securities (other than U.S. Government securities) that are rated within the
highest short-term rating category by at least two nationally recognized
statistical rating organizations ("NRSROs") or by the only NRSRO that has rated
the security. Securities which originally had a maturity of over one year are
subject to more complicated, but generally similar rating requirements. A
description of illustrative credit ratings is set forth in "Appendix A." The
Fund may also purchase unrated securities that are of comparable quality to the
rated securities described above. Additionally, if the issuer of a particular
security has issued other securities of comparable priority and security and
which have been rated in accordance with (ii) above, that security will be
deemed to have the same rating as such other rated securities.
In addition, the Board of Trustees has adopted procedures which (i)
require the Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are unrated; (ii)
require the Fund to maintain a dollar-weighted average portfolio maturity of not
more than 90 days and to invest only in securities with a remaining maturity of
not more than thirteen months; 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.
-6-
Treasury Money Market Fund. In order to achieve its investment
objective and 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, except as noted, 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 may not:
1. 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 which are illiquid;
2. Enter into reverse repurchase agreements exceeding in the aggregate
one-third of the market value of the Fund's total assets, less liabilities
other than obligations created by reverse repurchase agreements;
3. 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;
4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's
total assets would be invested in securities or other obligations of any
one such issuer; provided, however, that the Fund may invest all or part
of its investable assets in an open-end management
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investment company with the same investment objective and restrictions as
the Fund. This limitation shall not apply to issues of the U.S.
Government, its agencies or instrumentalities and to permitted investments
of up to 25% of the Fund's total assets;
5. 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 total assets; provided, however, that the
Fund may invest all or part of its investable assets in an open-end
management investment company with the same investment objective and
restrictions as the Fund. For purposes of industry concentration, there is
no percentage limitation with respect to investments in U.S. Government
securities, negotiable certificates of deposit, time deposits, and
bankers' acceptances of U.S. branches of U.S. banks;
6. Make loans, except through purchasing or holding debt obligations, or
entering into repurchase agreements, or loans of portfolio securities in
accordance with the Fund's investment objective and policies (see
"Investment Objectives and Policies");
7. 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. However, the
Fund may purchase bonds or commercial paper issued by companies which
invest in real estate or interests therein including real estate
investment trusts;
8. 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;
9. Acquire securities of other investment companies, except as permitted by
the 1940 Act;
10. Act as an underwriter of securities; or
11. 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 Prime Money Market Portfolio, except as noted below, has adopted
substantially similar fundamental investment restrictions. Investment
restrictions numbered 8 and 9 above are non-fundamental for the Portfolio. The
Portfolio's fundamental borrowing restriction allows the Portfolio to borrow to
the extent permitted by law, currently 33-1/3% of total assets. The Portfolio,
however, has adopted a non-fundamental investment restriction limiting its
borrowing ability to 10% of total assets. These differences are not expected to
materially affect the management of the Portfolio.
The Treasury Money Market Fund and its corresponding portfolio:
1. May not make any investment inconsistent with the Fund's classification as
a diversified investment company under the Investment Company Act of 1940
2. May not purchase any security which would cause the Fund to concentrate
its investments in the securities of issuers primarily engaged in any
particular industry except as permitted by the SEC;
3. May not issue senior securities, except as permitted under the Investment
Company Act of 1940 or any rule, order or interpretation thereunder;
4. May not borrow money, except to the extent permitted by applicable law;
-8-
5. May not underwrite securities of other issuers, except to the extent that
the Fund, in disposing of portfolio securities, may be deemed an
underwriter within the meaning of the 1933 Act;
6. May not purchase or sell real estate, except that, to the extent permitted
by applicable law, the Fund may (a) invest in securities or other
instruments directly or indirectly secured by real estate, (b) invest in
securities or other instruments issued by issuers that invest in real
estate;
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 Federal Money Market Fund may not:
1. Enter into reverse repurchase agreements which together with any other
borrowing exceeds 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 (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;
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;
-9-
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;
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 Federal Money Market Portfolio, except as noted below, has
adopted substantially similar fundamental investment restrictions. Investment
restrictions numbered 7 and 8 above are non-fundamental for the Portfolio. The
Portfolio's fundamental borrowing restriction allows the Portfolio to borrow to
the extent permitted by law, currently 33-1/3% of total assets. The Portfolio,
however, has adopted a non-fundamental investment restriction limiting its
borrowing ability to 10% of total assets. These differences are note expected to
materially affect the management of the portfolio.
Non-Fundamental Investment Restrictions - Treasury Money Market
Fund. The investment restrictions described below are not fundamental policies
of the Fund and its Portfolio and may be changed by their Trustees. These
non-fundamental investment policies require that the Fund and its corresponding
Portfolio:
(i) May not acquire any illiquid securities, such as repurchase
agreements with more than seven days to maturity or fixed time
deposits with a duration of over seven calendar days, if as a result
thereof, more than 10% of the market value of the Fund's total
assets would be in investments which are illiquid;
(ii) May not purchase securities on margin, make short sales of
securities, or maintain a short position, provided that this
restriction shall not be deemed to be applicable to the purchase or
sale of when-issued or delayed delivery securities
(iii) May not acquire securities of other investment companies, except as
permitted by the 1940 Act or any order pursuant thereto.
Non-Fundamental Investment Restrictions - Prime Money Market Fund.
The investment restriction described below is not a fundamental policy of the
Prime Money Market Fund or its corresponding Portfolio and may be changed by
their respective Trustees. This non-fundamental investment policy requires that
the Prime Money Market Fund and its corresponding Portfolio may not:
(i) enter into reverse repurchase agreements or borrow money, except
from banks for extraordinary or emergency purposes, if such
obligations exceed in the aggregate one-third of the market value of
the Fund's total assets, less liabilities other than obligations
created by reverse repurchase agreements and borrowings.
-10-
Non-Fundamental Investment Restrictions - Federal Money Market. The
investment restriction described below is not a fundamental policy of the Fund
or the Portfolio and may be changed by their respective Trustees. This
non-fundamental investment policy requires that the Fund may not:
(i) acquire any illiquid securities, such as repurchase agreements with more
than seven days to maturity or fixed time deposits with a duration of over seven
calendar days, if as a result thereof, more than 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 Trustees of the Trust, who are also the Trustees of each of the
Portfolios and the other Master Portfolios, as defined below, their names,
principal occupations during the past five years and dates of birth are set
forth below. The mailing address is c/o Pierpont Group, Inc., 461 Fifth Avenue,
New York, New York 10017.
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
- ----------
* Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust.
-11-
reimbursed for expenses incurred in connection with service as a Trustee. The
Trustees may hold various other directorships unrelated to these funds.
Trustee compensation expenses paid by the Trust for the calendar
year ended December 31, 2000 are set forth below.
TOTAL TRUSTEE COMPENSATION ACCRUED BY THE MASTER
AGGREGATE TRUSTEE COMPENSATION PORTFOLIOS(1), J.P. MORGAN FUNDS, J.P. MORGAN
PAID BY THE SERIES TRUST AND THE TRUST DURING
NAME OF TRUSTEE TRUST DURING 2000 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 adviser.
(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 Pierpont
Family of Funds (now the J.P. Morgan Family of Funds), and the Trustees are the
equal and sole shareholders of Pierpont Group, Inc. The Trust and the Portfolios
have agreed to pay Pierpont Group, Inc. a fee 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:
Institutional Service Prime Money Market Fund -- For the fiscal years ended
November 30, 1998, 1999 and 2000: $8,475, $25,409 and $26,527, 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.
-12-
Institutional Service Treasury Money Market Fund -- For the fiscal years ended
October 31, 1998, 1999 and 2000: $10,469, $10,799 and $8,467, 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.
Institutional Service Federal Money Market Fund -- For the period November 5,
1997 (commencement of operations) through October 31, 1998 and for the fiscal
years ended October 31, 1999 and 2000: $264, $564 and $1,054, 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
- ----------
** 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.
-13-
Institutional Group, Inc. The officers conduct and supervise the business
operations of the Trust and the Portfolios. The Trust and the Portfolios have no
employees.
The officers of the Trust and the Portfolios, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and each Portfolio. The business address of each of the officers unless
otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.
MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 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.
-14-
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.
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 than
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 the 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.
-15-
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 Funds, 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.
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
-16-
orders for the purchase of each of the Fund's shares in accordance with the
terms of the Distribution Agreement between the Trust and FDI. Under the terms
of the Distribution Agreement between FDI and the Trust, FDI receives no
compensation in its capacity as the Trust's distributor. FDI is a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as
exclusive placement agent for the Portfolio. FDI currently provides
administration and distribution services for a number of other investment
companies.
The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees, Members of the Advisory Board and Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto and
is terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority of
the Fund's outstanding shares as defined under "Additional Information," in any
case without payment of any penalty on 60 days' written notice to the other
party. The principal offices of FDI are located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109.
CO-ADMINISTRATOR
Under Co-Administration Agreements with the Trust and the Portfolios
dated August 1, 1996, FDI also serves as the Trust's and the Portfolios'
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolios, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolios, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.
FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees,
Members of the Advisory Board and investors; and (vi) maintains related books
and records.
For its services under the Co-Administration Agreements, each Fund
and Portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to each Fund or Portfolio is based on the ratio of its net
assets to the aggregate net assets of the Trust, the Master Portfolios and
certain other investment companies subject to similar agreements with FDI.
The table below sets forth for each Fund listed and its
corresponding Portfolio the administrative fees paid to FDI for the fiscal
periods indicated.
Institutional Service Prime Money Market Fund -- For the fiscal years ended
November 30, 1998, 1999 and 2000: $6,691, $19,197 and $19,833, 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.
Institutional Service Treasury Money Market Fund -- For the fiscal years ended
October 31, 1998, 1999 and 2000: $7,650, $7,975 and $5,790, respectively.
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The Treasury Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $7,258, $7,923 and $6,803, respectively.
Institutional Service Federal Money Market Fund -- For the period November 5,
1997 (commencement of operations) through October 31, 1998 and for the fiscal
year ended October 31, 1999 and 2000: $227, $418 and $792, 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.
Institutional Service Prime Money Market Fund -- For the fiscal years ended
November 30, 1998, 1999 and 2000: $93,367, $342,270 and $436,377, 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.
Institutional Service Treasury Money Market Fund -- For the fiscal years ended
October 31, 1998, 1999 and 2000: $103,623, $138,933 and $123,631, respectively.
The Treasury Money Market Portfolio -- For the fiscal years ended October 31,
1998 and 1999: $155,752, $226,699 and $251,048, respectively.
Institutional Service Federal Money Market Fund -- For the period November 5,
1997 (commencement of operations) through October 31, 1998 and for the fiscal
years ended October 31, 1999 and 2000: $3,189, $7,328 and $17,743, respectively.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $264,799, $480,385 and $735,431, respectively.
CUSTODIAN AND TRANSFER AGENT
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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
sub-custodians 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 Service Organization. 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.
Under the Shareholder Servicing Agreement, each Fund has agreed to
pay Morgan for these services a fee at the annual rate (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) of 0.05%.
Morgan acts as shareholder servicing agent for all shareholders.
The table below sets forth for each Fund the shareholder servicing
fees paid by each Fund to Morgan for the fiscal periods indicated. See the
Prospectus and below for applicable expense limitations.
Institutional Service Prime Money Market Fund - For the fiscal years ended
November 30, 1998, 1999 and 2000: $164,079, $671,191 and $907,994, respectively.
Institutional Service Treasury Money Market Fund -- For the fiscal years ended
October 31, 1998, 1999 and 2000: $180,336, $269,054 and $251,586, respectively.
Institutional Service Federal Money Market Fund -- For the period November 5,
1997 (commencement of operations) through October 31, 1998 and for the fiscal
year ended October 31, 1999 and 2000: $5,626, $14,368 and $37,054, respectively.
SERVICE ORGANIZATION
The Trust, on behalf of each Fund, has adopted a service plan (the
"Plan") with respect to the shares which authorizes the Funds to compensate
Service Organizations for providing certain account administration and other
services to their customers who are beneficial owners of such shares. Pursuant
to the Plan, the Trust, on behalf of each Fund, enters into agreements with
Service Organizations which purchase shares on behalf of their customers
("Service Agreements"). Under such Service Agreements, the Service Organizations
may: (a) act, directly or through an agent, as the sole shareholder of record
and nominee for all customers, (b) maintain or assist in maintaining account
records for each customer who beneficially owns shares, and (c) process or
assist in processing
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customer orders to purchase, redeem and exchange shares, and handle or assist in
handling the transmission of funds representing the customers' purchase price or
redemption proceeds. As compensation for such services, the Trust on behalf of
each Fund pays each Service Organization a service fee in an amount up to 0.25%
(on an annualized basis) of the average daily net assets of the shares of each
Fund attributable to or held in the name of such Service Organization for its
customers (0.20% where J.P. Morgan acts as a service organization).
The service fees paid by the Funds to the Service Organizations
during the indicated periods are set forth below:
Institutional Service Prime Money Market Fund -- For the fiscal years ended
November 30, 1998, 1999 and 2000: $820,398, $3,335,957 and $4,539,972,
respectively.
Institutional Service Treasury Money Market Fund -- For the fiscal years ended
October 31, 1998, 1999 and 2000: N/A, $1,345,270 and $1,257,931, respectively.
Institutional Service Federal Money Market Fund -- For the period November 5,
1997 (commencement of operations) through October 31, 1998 and for the fiscal
year ended October 1999 and 2000: $71,839 and $185,262, respectively.
Conflicts of interest restrictions (including the Employee
Retirement Income Security Act of 1974) may apply to a Service Organization's
receipt of compensation paid by the Trust in connection with the investment of
fiduciary funds in shares. Service Organizations, including banks regulated by
the Comptroller of the Currency, the Federal Reserve Board or the Federal
Deposit Insurance Corporation, and investment advisers and other money managers
subject to the jurisdiction of the Securities and Exchange Commission, the
Department of Labor or state securities commissions, are urged to consult legal
advisers before investing fiduciary assets in shares. In addition, under some
state securities laws, banks and other financial institutions purchasing shares
on behalf of their customers may be required to register as dealers.
The Trustees of the Trust, including a majority of Trustees who are
not interested persons of the Trust and who have no direct or indirect financial
interest in the operation of such Plan or the related Service Agreements,
initially voted to approve the Plan and Service Agreements at a meeting called
for the purpose of voting on such Plan and Service Agreements on April 9, 1997.
The Plan was approved by the initial shareholders of each Fund on June 3, 1997,
remained in effect until July 10, 1998 and will continue in effect thereafter
only if such continuance is specifically approved annually by a vote of the
Trustees in the manner described above. The Plan may not be amended to increase
materially the amount to be spent for the services described therein without
approval of the shareholders of the affected Fund, and all material amendments
of the Plan must also be approved by the Trustees in the manner described above.
The Plan may be terminated at any time by a majority of the Trustees as
described above or by vote of a majority of the outstanding shares of the
affected Fund. The Service Agreements may be terminated at any time, without
payment of any penalty, by vote of a majority of the disinterested Trustees as
described above or by a vote of a majority of the outstanding shares of the
affected Fund on not more than 60 days' written notice to any other party to the
Service Agreements. The Service Agreements shall terminate automatically if
assigned. So long as the Plans are in effect, the selection and nomination of
those Trustees who are not interested persons shall be determined by the
non-interested members of the Board of Trustees. The Trustees have determined
that, in their judgment, there is a reasonable likelihood that the Plan will
benefit the Funds and Fund shareholders. In the Trustees' quarterly review of
the Plan and Service Agreements, they will consider their continued
appropriateness and the level of compensation provided therein.
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
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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, FDI and Service Organizations 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 the Fund's total
operating expenses (excluding interest, taxes and extraordinary expenses of the
Fund and its corresponding Portfolio) at the following annual rates of the
Fund's average daily net assets.
Institutional Service Prime Money Market Fund: 0.45%
Institutional Service Treasury Money Market Fund: 0.45%
Institutional Service Federal Money Market Fund: 0.45%
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.
Institutional Service Prime Money Market Fund -- For the fiscal years ended
November 30, 1998, 1999 and 2000: $375,568, $782,695 and $719,000, respectively.
The Prime Money Market Porfolio - For the fiscal years ended November 30, 1998,
1999 and 2000; N/A, N/A and N/A, respectively.
Institutional Service Treasury Money Market Fund -- For the fiscal years ended
October 31, 1998, 1999 and 2000: $1,048,472, $758,897 and $759,228,
respectively.
The Treasury Money Market Portfolio -- For the fiscal years October 31, 1998,
1999 and 2000: $828,462, $403,222 and $394,705, respectively.
Institutional Service Federal Money Market Fund -- For the period November 5,
1997 (commencement of operations) through October 31, 1998 and for the fiscal
year ended October 31, 1999 and 2000: $97,681, $94,578 and $112,238,
respectively.
The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1998, 1999 and 2000: $415,825, $63,027, and $0, respectively.
PURCHASE OF SHARES
Additional Minimum Balance Information. If your account balance
falls below the minimum for 30 days as a result of selling shares (and not
because of performance), each Fund reserves the right to request that you
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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 Service Organization include customers
of their affiliates and references to transactions by customers with Morgan or a
Service Organization 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.
Shares may be purchased for accounts held in the name of a Service
Organization that provides certain account administration and other services to
its customers, including acting directly or through an agent as the sole
shareholder of record, maintenance or assistance in maintaining account records
and processing orders to purchase, redeem and exchange shares. Shares of each
Fund bear the cost of service fees at the annual rate of up to 0.25% of 1% of
the average daily net assets of such shares.
It is possible that an institution or its affiliate may offer shares
of different funds which invest in the same Portfolio to its customers and thus
receive different compensation with respect to different funds. Certain aspects
of the shares may be altered, after advance notice to shareholders, if it is
deemed necessary in order to satisfy certain tax regulatory requirements.
Each Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by
the applicable Fund for investment and not for resale (other than for resale to
the Fund's corresponding Portfolio); and (iii) be liquid securities which are
not restricted as to transfer either by law or liquidity of market. Each Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.
Prospective investors may purchase shares with the assistance of a
Service Organization, and the Service Organization 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
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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 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 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
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Each of the Funds computes its net asset value once daily on Monday
through Friday as described in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Columbus Day, Veteran's Day, Thanksgiving Day, and
Christmas Day. In the event that trading in the money markets is scheduled to
end earlier than the close of the New York Stock Exchange in observance of these
holidays, the Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios may also close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. On any business day when the Bond Market
Association ("BMA") recommends that the securities market close early, the Funds
reserve the right to cease accepting purchase and redemption orders for same
business day credit at the time BMA recommends that the securities market close.
On days the Funds close early, purchase and redemption orders received after the
Funds close will be credited the next business day. The days on which net asset
value is determined are the Funds' business days.
The net asset value of each Fund is equal to the value of the Fund's
investment in its corresponding Portfolio (which is equal to the Fund's pro rata
share of the total investment of the Fund and of any other investors in the
Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less
the Fund's liabilities. The following is a discussion of the procedures used by
the Portfolios corresponding to each Fund in valuing their assets.
The Portfolios' portfolio securities are valued by the amortized
cost method. The purpose of this method of calculation is to attempt to maintain
a constant net asset value per share of the Fund of $1.00. No assurances can be
given that this goal can be attained. The amortized cost method of valuation
values a security at its cost at the time of purchase and thereafter assumes a
constant amortization to maturity of any discount or premium, regardless of the
impact of fluctuating interest rates on the market value of the instrument. If a
difference of more than 1/2 of 1% occurs between valuation based on the
amortized cost method and valuation based on market value, the Trustees will
take steps necessary to reduce such deviation, such as changing a Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to a
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Funds. See "Taxes."
PERFORMANCE DATA
From time to time, the Funds may quote performance in terms of
yield, actual distributions, total return or capital appreciation in reports,
sales literature and advertisements published by the Trust. Current performance
information for the Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See "Additional
Information" in the Prospectus.
Yield Quotations. As required by regulations of the SEC, current
yield for the Funds is computed by determining the net change exclusive of
capital changes in the value of a hypothetical pre-existing account having a
balance of one share at the beginning of a seven-day calendar period, dividing
the net change in account value of the account at the beginning of the period,
and multiplying the return over the seven-day period by 365/7. For purposes of
the calculation, net change in account value reflects the value of additional
shares purchased with dividends from the original share and dividends declared
on both the original share and any such additional shares, but does not reflect
realized gains or losses or unrealized appreciation or depreciation. Effective
yield for each Fund is computed by annualizing the seven-day return with all
dividends reinvested in additional Fund shares.
Below is set forth historical yield information for the periods
indicated:
Institutional Service Prime Money Market Fund (11/30/00): 7-day current yield:
6.26%; 7-day effective yield: 6.45%.
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Institutional Service Treasury Money Market Fund (10/31/00): 7-day current
yield: 6.13%; 7-day effective yield: 6.32%.
Institutional Service Federal Money Market Fund (10/31/00): 7-day current yield:
6.10%; 7-day effective yield: 6.31%.
Total Return Quotations. Historical performance information for
periods prior to the establishment of the J.P. Morgan Institutional Service
Prime Money Market and J.P. Morgan Institutional Service Federal Money Market
Funds will be that of the respective related series of the J.P. Morgan Funds 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.
The historical performance information shown below for the
Institutional Service Prime Money Market and Institutional Service Federal Money
Market Funds may reflect operating expenses which were lower than those of the
Funds. These returns may be higher than would have occurred if an investment had
been made during the periods indicated in the J.P. Morgan Institutional Service
Prime Money Market or J.P. Morgan Institutional Service Federal Money Market
Funds.
Below is set forth historical return information for each Fund or
its related series of the J.P. Morgan Funds for the periods indicated:
Institutional Service Prime Money Market Fund (11/30/00): Average annual total
return, 1 year: 6.10%; average annual total return, 5 years: 5.40%; average
annual total return, 10 years: 4.94%; aggregate total return, 1 year: 6.10%;
aggregate total return, 5 years: 30.08%; aggregate total return, 10 years:
61.95%.
Institutional Service Treasury Money Market Fund (10/31/00): Average annual
total return, 1 year: 5.71%; average annual total return, 5 years: N/A; average
annual total return, commencement of operations (July 7, 1997) to period end:
5.09%; aggregate total return, 1 year: 5.71%; aggregate total return, 5 years:
N/A; aggregate total return, commencement of operations (July 7, 1997) to period
end: 17.89 %.
Institutional Service Federal Money Market Fund (10/31/00): Average annual total
return, 1 year: 5.84%; average annual total return, 5 years: 5.21%; average
annual total return, 10 years: N/A; average annual total return, commencement of
operations (November 5, 1997) to period end: 5.28%; aggregate total return, 1
year: 5.84%; aggregate total return, 5 years: 28.90%; aggregate total return, 10
years: N/A; aggregate total return, commencement of operations (November 5,
1997) to period end: 16.62%.
Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated. General.
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
-25-
discussions; (4) descriptions of past or anticipated portfolio holdings for one
or more of the Funds; (5) descriptions of investment strategies for one or more
of the Funds; (6) descriptions or comparisons of various savings and investment
products (including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Funds; (7)
comparisons of investment products (including the Funds) with relevant markets
or industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Funds
may also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of any of the Funds.
PORTFOLIO TRANSACTIONS
The Advisor places orders for all Portfolios for all purchases and
sales of portfolio securities, enters into repurchase agreements, and may enter
into reverse repurchase agreements and execute loans of portfolio securities on
behalf of all the Portfolios. See "Investment Objectives and Policies."
Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid.
Portfolio transactions for the Portfolios will be undertaken
principally to accomplish a Portfolio's objective in relation to expected
movements in the general level of interest rates. The Portfolios may engage in
short-term trading consistent with their objectives. See "Investment Objectives
and Policies -- Portfolio Turnover."
In connection with portfolio transactions for the Portfolios, the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.
The Portfolios have a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.
Subject to the overriding objective of obtaining best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. 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
-26-
incurred in the transaction will be made by the Advisor in the manner it
considers to be most equitable and consistent with its fiduciary obligations to
a Portfolio. In some instances, this procedure might adversely affect a
Portfolio.
MASSACHUSETTS TRUST
The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which each Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.
Effective 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
-27-
liquidation of a Fund, holders are entitled to share pro rata in the net assets
of a Fund available for distribution to such shareholders. See "Massachusetts
Trust." Shares of a Fund have no preemptive or conversion rights and are fully
paid and nonassessable. The rights of redemption and exchange are described in
the Prospectus and elsewhere in this Statement of Additional Information.
The shareholders of the Trust are entitled to one vote for each
dollar of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.
Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.
The Trustees have authorized the issuance and sale to the public of
shares of 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
-28-
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
Unlike other mutual funds which directly acquire and manage their
own portfolio of securities, each Fund is an open-end management investment
company which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a Master Portfolio seeks a vote to change a fundamental
investment restriction, its feeder fund(s) will hold a shareholder meeting and
cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.
In addition to selling a beneficial interest to a Fund, a Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 521-5411.
The Trust may withdraw the investment of a Fund from a Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in each Fund's Prospectus.
Certain changes in a Portfolio's fundamental investment policies or
restrictions, or a failure by a Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.
Smaller funds investing in a Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.
Additionally, because a Portfolio would become smaller, it may
become less diversified, resulting in potentially increased portfolio risk
(however, these possibilities also exist for traditionally structured funds
which have large or institutional investors who may withdraw from a fund). Also,
funds with a greater pro rata ownership in the Portfolio could have effective
voting control of the operations of the Portfolio. Whenever the Fund is
-29-
requested to vote on matters pertaining to the Portfolio (other than a vote by
the Fund to continue the operation of the Portfolio upon the withdrawal of
another investor in the Portfolio), the Trust will hold a meeting of
shareholders of the Fund and will cast all of its votes proportionately as
instructed by the Fund's shareholders. The Trust will vote the shares held by
Fund shareholders who do not give voting instructions in the same proportion as
the shares of Fund shareholders who do give voting instructions. Shareholders of
the Fund who do not vote will have no affect on the outcome of such matters.
TAXES
The following discussion of tax consequences is based on U.S.
federal tax laws in effect on the date of this Statement of Additional
Information. These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.
Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments of other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies).
As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.
Under the Code, a Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. Each
Fund intends to make distributions in a timely manner and accordingly does not
expect to be subject to the excise tax.
For federal income tax purposes, dividends that are declared by a
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends generally,
will be taxable to a shareholder in the year declared rather than the year paid.
For federal income tax purposes, the following funds have capital
loss carry-forwards for the periods indicated:
Institutional Service Prime Money Market Fund: For the fiscal year ended
November 30, 2000, $58,295, of which $6 will expire in the year 2005, $5,275
will expire in 2006, and $53,014 will expire in 2007.
Institutional Service Treasury Money Market Fund: For the fiscal year ended
October 31, 2000, $172,502, of which $4,308 will expire in the year 2006,
$26,680 will expire in 2007 and $141,514, will expire in the year 2008
Institutional Service Federal Money Market Fund: For the fiscal year ended
October 31, 2000, $4,351all of which will expire in 2007.
To the extent that this capital loss is used to offset future
capital gains, it is probable that gains so offset will not be distributed to
shareholders.
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Distributions of net investment income and realized net short-term
capital gains in excess of net long-term capital loss are generally taxable to
shareholders of the Funds as ordinary income whether such distributions are
taken in cash or reinvested in additional shares. 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 gains
in excess of net short-term capital loss) are taxable to shareholders of a Fund
as long-term capital gain, regardless of whether such distributions are taken in
cash or reinvested in additional shares and regardless of how long a shareholder
has held shares in the Fund. In general, long-term capital gain of an individual
shareholder will be subject to a 20% rate of tax.
To maintain a constant $1.00 per share net asset value, the Trustees
of the Trust may direct that the number of outstanding shares be reduced pro
rata. If this adjustment is made, it will reflect the lower market value of
portfolio securities and not realized losses. The adjustment may result in a
shareholder having more dividend income than net income in his account for a
period. When the number of outstanding shares of a Fund is reduced, the
shareholder's basis in the shares of the Fund may be adjusted to reflect the
difference between taxable income and net dividends actually distributed. This
difference may be realized as a capital loss when the shares are liquidated.
Subject to certain limited exceptions, capital losses cannot be used to offset
ordinary income. See "Net Asset Value."
Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable a put option is acquired
or a call option is written thereon or straddle rules are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
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 by an individual after December 31, 2000
and held for more than five years, the maximum long-term capital gain tax to
rate generally 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 withold 31% of
certain payments made or distributions declared to non-corporate shareholders.
-31-
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 of 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 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 Service Organizations
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
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the 1933 Act and the 1940 Act and the Portfolios' registration statements filed
under the 1940 Act. Pursuant to the rules and regulations of the SEC, certain
portions have been omitted. The registration statements including the exhibits
filed therewith may be examined at the office of the SEC in Washington, D.C.
Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements. Each such statement is qualified in all respects by
such reference.
No dealer, salesman or any other person has been authorized to give
any information or to make any representations, other than those contained in
the Prospectus and this Statement of Additional Information, in connection with
the offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Funds or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by any Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.
FINANCIAL STATEMENTS
The following financial statements and the report thereon of
PricewaterhouseCoopers LLP of each Fund (except the Federal Money Market 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.
- ---------------------------------------------------------------------------------------------------------
Date of Annual Report; Date Annual Report Filed; and
Name of Fund/Portfolio Accession Number
- ---------------------------------------------------------------------------------------------------------
J.P. Morgan Institutional Service Prime Money 11/30/00
Market Fund 12/26/00
0000894088-00-000085
- ---------------------------------------------------------------------------------------------------------
J.P. Morgan Institutional Service Treasury Money 10/31/00
Market Fund 12/28/00
0000894088-00-000032
- ---------------------------------------------------------------------------------------------------------
J.P. Morgan Institutional Service Federal Money 10/31/00
Market Fund 12/27/00
0000894089-00-000028
- ---------------------------------------------------------------------------------------------------------
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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