PROSPECTUS AUGUST __, 2001
SUBJECT TO COMPLETION, DATED MAY 9, 2001
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JPMORGAN FUNDS
THIS PROSPECTUS OFFERS: ULTRA SHARES OF THE BOND FUND AND INSTITUTIONAL
SHARES OF THE INTERMEDIATE TAX FREE INCOME FUND, NEW YORK INTERMEDIATE TAX
FREE INCOME FUND AND FLEMING EUROPEAN FUND
BOND FUND
INTERMEDIATE TAX FREE INCOME FUND
NEW YORK INTERMEDIATE TAX FREE INCOME FUND
FLEMING EUROPEAN FUND
THE SECURITIES AND EXCHANGE COMMISSION HAS NOT APPROVED OR DISAPPROVED OF THESE
SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
[LOGO]
JPMORGAN FLEMING
Asset Management
[SIDENOTE]
The information in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with
the Securities and Exchange Commission is effective. This prospectus is not an
offer to sell nor does it seek an offer to buy these securities in any
state where the offer or sale is not permitted.
Bond Fund ................................................ 1
Intermediate Tax Free Income Fund ........................ 7
New York Intermediate Tax Free Income Fund .............. 12
Fleming European Fund ................................... 17
Who May Want to Invest .................................. 23
The Funds' Management and Administration ................ 24
How Your Account Works .................................. 26
Buying Fund Shares ...................................... 26
Selling Fund Shares ..................................... 26
Other Information Concerning the Funds .................. 27
Distributions and Taxes ................................. 28
Risk and Reward Elements for Fixed Income Funds ......... 30
Risk and Reward Elements for Fleming European
Fund ................................................. 32
What the Terms Mean ..................................... 34
How To Reach Us ................................. Back cover
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JPMORGAN BOND FUND
THE FUND'S OBJECTIVE
The Fund's seeks to provide high total return consistent with moderate risk of
capital and maintenance of liquidity.
THE FUND'S MAIN
INVESTMENT STRATEGY
The Fund invests primarily in fixed income securities, including U.S. government
and agency securities, corporate bonds, private placements, asset-backed and
mortgage-backed securities, that it believes have the potential to provide a
high total return over time. These securities may be of any maturity, but under
normal market conditions the management team will keep the Fund's duration
within one year of that of the Salomon Smith Barney Broad Investment Grade Bond
Index (currently about five years).
Up to 25% of assets may be invested in foreign securities, including 20% in debt
securities denominated in foreign currencies of developed countries. The Fund
typically hedges its non-dollar investments back to the U.S. dollar. At least
75% of assets must be invested in securities that, at the time of purchase, are
rated investment-grade (BBB/Baa or better) or are the unrated equivalent,
including at least 65% A or better. No more than 25% of assets may be invested
in securities rated B or BB.
In managing the Fund, the adviser, J.P. Morgan Investment Management Inc.,
employs a three-step process that combines sector allocation, fundamental
research for identifying portfolio securities, and duration management.
The sector allocation team meets monthly, analyzing the fundamentals of a broad
range of sectors in which the Fund may invest. The team seeks to enhance
performance and manage risk by underweighting or overweighting sectors.
Relying on the insights of different specialists, including credit analysts,
quantitative researchers, and dedicated fixed income traders, the portfolio
managers make buy and sell decisions according to the Fund's goal and strategy.
Forecasting teams use fundamental economic factors to develop strategic
forecasts of the direction of interest rates. Based on these forecasts,
strategists establish the Fund's target duration, a common measurement of a
security's sensitivity to interest rate movements. The Fund's target dura-tion
typically remains relatively close to the duration of the market as a whole, as
represented by the Fund's benchmark. The strategists closely monitor the Fund
and make tactical adjustments as necessary.
The Fund may invest in mortgage-related securities issued by governmental
entities and private issuers. These may include investments in collateralized
mortgage obligations and principal-only and interest-only stripped
mortgage-backed securities.
The Fund may enter into "dollar rolls," in which the Fund sells mortgage-
[SIDENOTE:]
BEFORE YOU INVEST
INVESTORS CONSIDERING THE FUND SHOULD UNDERSTAND THAT:
- - THERE IS NO ASSURANCE THAT THE FUND WILL MEET ITS INVESTMENT OBJECTIVE.
- - THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM.
FREQUENCY OF TRADING
HOW FREQUENTLY THE FUND BUYS AND SELLS SECURITIES WILL VARY FROM YEAR TO YEAR,
DEPENDING ON MARKET CONDITIONS.
1
JPMORGAN BOND FUND
- --------------------------------------------------------------------------------
backed securities and at the same time contracts to buy back very similar
securities on a future date. It may also buy asset-backed securities. These
receive a stream of income from a particular asset, such as credit card
receivables.
The Fund may purchase participations in loans arranged through private
negotiations between a borrower and one or more banks or other financial
institutions. These loans can have fixed, floating or variable interest rates.
The Fund may also invest in collateralized bond obligations.
The Fund may invest in floating rate securities, whose interest rate adjusts
automatically whenever a specified interest rate changes.
The Fund may also invest in high-quality, short-term money market instruments,
repurchase agreements and derivatives, which are investments that have a value
based on another investment, exchange rate or index. The Fund may use
derivatives to hedge various investments and for risk management.
The Fund may change any of these investment policies (including its investment
objective) without shareholder approval.
THE FUND'S MAIN
INVESTMENT RISKS
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Fund.
The Fund may not achieve its objective if the adviser's expectations regarding
particular securities or markets are not met.
The value of debt securities tends to fall when prevailing interest rates rise.
Such a drop in value could be worse if the Fund invests a larger portion of its
assets in debt securities with longer maturities. Long-term debt securities are
more sensitive to interest rate changes than other fixed-income securities. Note
that conversely the value of fixed-income investments tends to increase when
prevailing interest rates fall.
High-yield debt securities may carry greater risks than securities which have
higher credit ratings, including a high risk of default. The yields of
lower-rated securities will move up and down over time. The credit rating of a
high-yield security evaluates the ability of the issuer to make principal and
interest or dividend payments; it does not necessarily address its market value
risk. Ratings and market value may change, positively or negatively, from time
to time to reflect new developments regarding the issuer.
Companies which issue high-yield securities are often young and growing and have
a lot of debt. High-yield securities are considered speculative, meaning there
is a significant risk that the issuer may not be able to repay principal or pay
interest or dividends on time. In addition, the issuer's other creditors may
have the right to be paid before holders of the high-yield security.
During an economic downturn, a period of rising interest rates or a
recession, issuers of high-yield securities that have a lot of debt may
experience financial problems. They may not have enough cash to make their
payments. An economic downturn could also hurt
2
JPMORGAN BOND FUND
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the market for lower-rated securities and the Fund.
The market for high-yield securities is not as liquid as the markets for higher
rated securities. This means that it may be harder to sell high-yield
securities, especially on short notice. The market could also be hurt by legal
or tax changes.
The costs of investing in the high-yield market are usually higher than
investing in investment grade securities. The Fund has to spend more money for
investment research and commissions.
Securities which are rated Baa by Moody's or BBB by S&P may have fewer
protective provisions and are generally more risky than higher rated securities.
The issuer may have trouble making principal and interest payments when
difficult economic conditions exist.
Since the Fund may invest a portion of its assets in securities issued,
denominated and traded in foreign currencies, the value of the Fund's foreign
holdings can be affected by currency exchange rates and exchange control
regulations. Investments in foreign securities may be affected by political,
social and economic instability. Some securities may be harder to trade
without incurring a loss and may be difficult to convert into cash. There may
be less public information available, differing settlement procedures, or
regulations and standards that do not match U.S. standards. Some countries
may nationalize or expropriate assets or impose exchange controls. These
risks increase when investing in issuers located in emerging markets.
When the Fund invests in mortgage-related securities, the value of the Fund
could change more often and to a greater degree than if it did not buy
mortgage-backed securities. The prepayment features on some mortgage-related
securities make them more sensitive to interest rate changes.
Mortgage-related securities are subject to scheduled and unscheduled principal
payments as property owners pay down or prepay their mortgages. As these
payments are received, they must be reinvested when interest rates may be lower
than on the original mortgage security. When interest rates are rising, the
value of fixed-income securities with prepayment features are likely to decrease
as much or more than securities without prepayment features. In addition, the
value of mortgage-related securities with prepayment features may not increase
as much as other fixed-income securities when interest rates fall.
Collateral mortgage obligations are issued in multiple classes, and each
class may have its own interest rate and/or final payment date. A class with
an earlier final payment date may have certain preferences in receiving
principal payments or earning interest. As a result, the value of some
classes in which the Fund invests may be more volatile and may be subject to
higher risk of nonpayment.
[SIDENOTE:]
INVESTMENTS IN THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
3
JPMORGAN BOND FUND
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The value of interest-only and principal-only mortgage backed securities is more
volatile than other types of mortgage-related securities. They are very
sensitive not only to changes in interest rates, but also to the rate of
prepayments. A rapid or unexpected increase in prepayments can significantly
depress the price of interest-only securities, while a rapid or unexpected
decrease could have the same effect on principal-only securities. In addition,
these instruments may be illiquid.
The market for loan participations may not be highly liquid and the Fund may
have difficulty selling them. When it buys them, the Fund typically is entitled
to receive payment from the lender only, and not the underlying borrower. These
investments expose the Fund to the risk of investing in both the financial
institution and the underlying borrower.
Collateralized bond obligations typically are separated into different classes.
Each class represents a different degree of credit quality, with lower classes
having greater risk but higher interest rates. The bottom class usually does not
have a stated interest rate. Instead, it receives whatever is left after all the
higher classes have been paid. As a result, the value of some classes in which
the Fund invests may be more volatile.
Certain securities which the Fund may hold, such as stripped obligations
and zero coupon securities, are more sensitive to changes in interest rates than
ordinary interest-paying securities. As a result, they may be more volatile than
other types of investments.
Some asset-backed securities may have additional risk because they may receive
little or no collateral protection from the underlying assets.
If the interest rate on floating rate securities falls, the Fund's yield may
decline and it may lose the opportunity for capital appreciation.
Dollar rolls, forward commitments, repurchase agreements and reverse repurchase
agreements involve some risk to the Fund if the other party does not fulfill its
part of the agreement.
Derivatives may be riskier than other types of investments because they may be
more sensitive to changes in economic conditions than other types of
investments.
If the Fund departs from its investment policies during temporary defensive
periods, it may not achieve its investment objective.
4
JPMORGAN BOND FUND
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THE FUND'S PAST PERFORMANCE (UNAUDITED)
This section shows the Fund's performance record with respect to the Fund's
Institutional Class Shares. Prior to the date of this prospectus, the Fund had
only one class of shares, and operated in a master-feeder structure. As of the
date of this prospectus, the Fund's existing share class will be re-named
"Institutional" and Ultra Class Shares will be introduced. The bar chart shows
how the performance of the Fund's shares has varied from calendar year to
calendar year over the life of the Fund. This provides some indication of the
risks of investing in the Fund. The table shows the average annual total returns
for the past one year, five years and ten years (or if less than such periods,
the life of the Fund). It compares that performance to the Salomon Smith Barney
Broad Investment Grade Bond Index, a widely recognized market benchmark.
Past performance does not predict how any class of the Fund will perform in the
future.
The calculations assume that all dividends and distributions are reinvested in
the Fund. Some of the companies that provide services to the Fund have in the
past agreed not to collect some expenses and to reimburse others. Without these
agreements, the performance figures would be lower than those shown.
[BAR CHART]
YEAR-BY-YEAR RETURNS(1,2)
1991 13.45%
1992 6.53%
1993 9.98%
1994 -2.68%
1995 18.42%
1996 3.30%
1997 9.29%
1998 7.54%
1999 -0.55%
2000 10.93%
- -------------------------------
BEST QUARTER 6.30%
- -------------------------------
2nd quarter, 1995
- -------------------------------
WORST QUARTER -2.38%
- -------------------------------
1st quarter, 1994
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/01 WAS 2.87%
AVERAGE ANNUAL TOTAL RETURN (%)
Shows performance over time, for periods ended December 31, 2000(1)
PAST 1 YR. PAST 5 YRS. PAST 10 YRS.
- --------------------------------------------------------------------------------
BOND FUND
(AFTER EXPENSES) 10.93 6.02 7.45
- --------------------------------------------------------------------------------
SALOMON SMITH BARNEY BROAD
INVESTMENT GRADE BOND INDEX
(NO EXPENSES) 11.59 6.45 8.00
- --------------------------------------------------------------------------------
(1) THE FUND COMMENCED OPERATIONS ON 7/26/93. RETURNS FOR THE PERIOD 1/1/90
THROUGH 7/31/93 REFLECT PERFORMANCE OF THE PIERPONT BOND FUND, THE FUND'S
PREDECESSOR.
(2) THE FUND'S FISCAL YEAR END IS 10/31.
5
JPMORGAN BOND FUND
- --------------------------------------------------------------------------------
ESTIMATED INVESTOR EXPENSES FOR ULTRA CLASS SHARES
The estimated expenses of the Ultra Class before and after reimbursement are
shown below. The Ultra Class has no sales, redemption or account fees and
generally no exchange fees, although some institutions may charge you a fee for
shares you buy through them.
ESTIMATED ANNUAL OPERATING EXPENSES (%) (EXPENSES THAT ARE DEDUCTED FROM ULTRA
CLASS ASSETS)
SHARE-
DISTRIBUTION HOLDER TOTAL FEE WAIVER
MANAGEMENT (RULE 12B-1) SERVICE OTHER OPERATING AND EXPENSE NET
FEES FEES FEES EXPENSES(3) EXPENSES REIMBURSEMENT(4) EXPENSES(4)
- ---------------------------------------------------------------------------------------------------------
ULTRA CLASS
SHARES 0.30% NONE 0.05% 0.18% 0.53% 0.13% 0.40%
- ---------------------------------------------------------------------------------------------------------
EXPENSE EXAMPLE(4) The example below is intended to help you compare the cost of
investing in the Ultra Class with the cost of investing in other mutual funds.
The example assumes:
- - $10,000 initial investment
- - 5% return each year
- - net expenses for three years and total operating expenses thereafter, and
- - all shares sold at the end of each time period.
The example is for comparison only; the actual return of the Ultra Class and
your actual costs may be higher or lower.
1 YR. 3 YRS.
- --------------------------------------------------------------------------------
YOUR COST ($) 41 128
- --------------------------------------------------------------------------------
(3) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
(4) REFLECTS A WRITTEN AGREEMENT PURSUANT TO WHICH JPMORGAN CHASE AGREES THAT IT
OR ONE OF ITS AFFILIATES WILL REIMBURSE THE FUND TO THE EXTENT TOTAL
OPERATING EXPENSES OF THE ULTRA CLASS (EXCLUDING INTEREST, TAXES,
EXTRAORDINARY EXPENSES AND EXPENSES RELATED TO THE DEFERRED COMPENSATION
PLAN) EXCEED 0.40% OF ITS AVERAGE DAILY NET ASSETS FOR
THREE YEARS.
6
- ------------------------------------------------------------------------------
JPMORGAN INTERMEDIATE TAX FREE INCOME FUND
THE FUND'S OBJECTIVE
The Fund seeks to provide monthly dividends, which are excluded from gross
income, and to protect the value of your investment by investing primarily in
municipal obligations.
THE FUND'S MAIN
INVESTMENT STRATEGY
As a fundamental policy, the Fund normally invests at least 80% of its total
assets in municipal obligations whose interest payments are:
- - excluded from gross income
- - excluded from the federal alternative minimum tax on individuals
The Fund invests in securities that are rated as investment grade by Moody's
Investors Service, Inc., Standard & Poor's Corporation or Fitch Investors
Service Inc. It may also invest in unrated securities of comparable quality.
The Fund may also invest in derivatives, inverse floaters and interest rate
caps, zero coupon securities and forward commitments. These instruments may be
used to increase the Fund's income or gain. Derivatives, which are financial
instruments whose value is based on another security, index or exchange rate,
might also be used to hedge various market risks.
The Fund seeks to develop an appropriate portfolio by comparing, among other
factors, credit quality, yields and call provisions of different municipal
issuers, and examining structural changes along the yield curve in an attempt to
maximize investment returns while minimizing risk.
Under normal market conditions, the Fund reserves the right to invest up to
20% of its total assets in securities that pay interest subject to federal
income tax or the federal alternative minimum tax on individuals. To
temporarily defend the value of its assets during unusual market conditions,
the Fund may exceed this limit.
No more than 25% of total assets may be invested in any one industry, other
than governments and public authorities.
The Fund may invest in money market funds so that it can easily convert
investments into cash without losing a significant amount of money in the
process.
The Fund may also invest in municipal lease obligations. These allow the Fund
to participate in municipal lease agreements and installment purchase
contracts.
The Fund may invest up to 25% of its total assets in municipal lease obligations
backed by letters of credit or guarantees from U.S. and foreign banks and other
foreign institutions.
There may be times when there are not enough securities available to meet the
Fund's needs. On these occasions, the Fund may invest in repurchase agreements
or Treasury securities that may be subject to federal income tax.
The Fund may change any of its non-fundamental investment policies (including
its investment objective) without shareholder approval.
7
JPMORGAN INTERMEDIATE TAX FREE INCOME FUND
- ------------------------------------------------------------------------------
THE FUND'S MAIN
INVESTMENT RISKS
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Fund.
The principal value of fixed income investments tends to fall when prevailing
interest rates rise.
A municipality that gets into financial trouble could find it difficult to make
interest and principal payments, which would hurt the Fund's returns and its
ability to preserve capital and liquidity. A number of issuers have a recent
history of significant financial difficulties. More than 5% of the Fund's total
assets may be invested in any one municipality, which could increase this risk.
Under some circumstances, municipal lease obligations might not pay interest
unless the state or municipal legislature authorizes money for that purpose.
Some securities, including municipal lease obligations, carry additional risks.
For example, they may be difficult to trade or interest payments may be tied
only to a specific stream of revenue.
Normally, the Fund may invest up to 20% of its total assets in securities whose
interest is subject to the federal alternative minimum tax. Consult your tax
professional for more information.
Since some municipal obligations may be secured or guaranteed by banks and other
institutions, the risk to the Fund could increase if the banking or financial
sector suffers an economic downturn.
The Fund may invest in municipal obligations backed by foreign institutions.
This could carry more risk than securities backed by U.S. institutions, because
of political or economic instability, the imposition of government controls, or
regulations that don't match U.S. standards.
The value of zero coupon securities, inverse floaters and interest rate caps
tends to fluctuate according to interest rate changes significantly more than
the value of ordinary interest-paying debt securities. The price of a security
with an interest rate cap will change more often and to a greater degree than a
municipal security without one.
A forward commitment could lose value if the underlying security falls in value
before the settlement date or if the other party fails to meet its obligation to
complete the transaction.
Derivatives may be more risky than other types of investments because they
[SIDENOTE]
BEFORE YOU INVEST
INVESTORS CONSIDERING THE FUND SHOULD UNDERSTAND THAT:
- THERE IS NO ASSURANCE THAT THE FUND WILL MEET ITS INVESTMENT OBJECTIVE.
- THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM.
FREQUENCY OF TRADING
HOW FREQUENTLY THE FUND BUYS AND SELLS SECURITIES WILL VARY FROM YEAR TO YEAR,
DEPENDING ON MARKET CONDITIONS.
[SIDENOTE]
INVESTMENTS IN THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY
8
JPMORGAN INTERMEDIATE TAX FREE INCOME FUND
- ------------------------------------------------------------------------------
may respond more to changes in economic conditions than other types of
investments. If they are used for non-hedging purposes, they could cause
losses that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets
in a particular issuer or group of issuers than a diversified fund would.
That makes the value of its shares more sensitive to economic problems among
those issuing the securities. In addition, more than 25% of the Fund's total
assets may be invested in securities that rely on similar projects for their
income stream. As a result, the Fund could be more susceptible to
developments that affect those projects.
9
JPMORGAN INTERMEDIATE TAX FREE INCOME FUND
- ------------------------------------------------------------------------------
THE FUND'S PAST PERFORMANCE (UNAUDITED)
This section shows the Fund's performance record with respect to the Fund's
former Institutional Class Shares which will be re-named "Select Class" as
of the date of this prospectus, and a new Institutional Class will be
introduced. The bar chart shows how the performance of the Fund's shares has
varied from calendar year to calendar year over the life of the Fund. This
provides some indication of the risks of investing in the Fund. The table
shows the average annual total returns for the past one year, five years and
ten years (or if less than such periods, the life of the Fund). It compares
that performance to the Lehman Municipal Bond 3-10 Year Blended Index and the
Lipper Intermediate Municipal Debt Funds Index, widely recognized market
benchmarks.
Past performance does not predict how any class of the Fund will perform in the
future.
The calculations assume that all dividends and distributions are reinvested in
the Fund. Some of the companies that provide services to the Fund have in the
past agreed not to collect some expenses and to reimburse others. Without these
agreements, the performance figures would be lower than those shown.
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/01 WAS 2.34%
[BAR CHART]
YEAR-BY-YEAR RETURNS(1),(2)
1991 12.20%
1992 8.71%
1993 11.78%
1994 -3.96%
1995 14.39%
1996 3.76%
1997 8.21%
1998 6.56%
1999 -0.55%
2000 8.56%
- ----------------------------------
BEST QUARTER 5.92%
- ----------------------------------
1st quarter, 1995
- ----------------------------------
WORST QUARTER -3.52%
- ----------------------------------
1st quarter, 1994
AVERAGE ANNUAL TOTAL RETURNS (%)
Shows performance over time, for periods ended December 31, 2000(1)
PAST 1 YR. PAST 5 YRS. PAST 10 YRS.
- ------------------------------------------------------------------------------
INTERMEDIATE TAX FREE INCOME FUND
(AFTER EXPENSES) 8.56 5.26 6.82
- ------------------------------------------------------------------------------
LEHMAN MUNICIPAL BOND 3-10
YEAR BLENDED INDEX (NO EXPENSES) 8.61 5.32 6.53
- ------------------------------------------------------------------------------
LIPPER INTERMEDIATE MUNICIPAL
DEBT FUNDS INDEX (NO EXPENSES) 8.67 4.80 6.09
- ------------------------------------------------------------------------------
(1) SELECT CLASS SHARES COMMENCED OPERATIONS ON 1/1/97. THE PERFORMANCE OF THE
FUND PRIOR TO 1/1/97 IS BASED ON THE HISTORICAL PERFORMANCE OF A PREDECESSOR
COMMON TRUST FUND.
(2) THE FUND'S FISCAL YEAR END IS 8/31.
10
JPMORGAN INTERMEDIATE TAX FREE INCOME FUND
- ------------------------------------------------------------------------------
ESTIMATED INVESTOR EXPENSES FOR INSTITUTIONAL CLASS SHARES
The estimated expenses of the Institutional Class before and after
reimbursement are shown below. The Institutional Class has no sales,
redemption or account fees and generally no exchange fees, although some
institutions may charge you a fee for shares you buy through them.
ESTIMATED ANNUAL OPERATING EXPENSES (%) (EXPENSES THAT ARE
DEDUCTED FROM INSTITUTIONAL CLASS ASSETS)
SHARE-
DISTRIBUTION HOLDER TOTAL FEE WAIVER
MANAGEMENT (RULE 12B-1) SERVICE OTHER OPERATING AND EXPENSE NET
FEES FEES FEES EXPENSES(3) EXPENSES REIMBURSEMENT(4) EXPENSES(4)
- ---------------------------------------------------------------------------------------------------------
INSTITUTIONAL
CLASS SHARES 0.30% NONE 0.10% 0.19% 0.59% 0.09% 0.50%
- ---------------------------------------------------------------------------------------------------------
EXPENSE EXAMPLE(4) The example below is intended to help you compare the cost of
investing in the Institutional Class with the cost of investing in other mutual
funds. The example assumes:
- - $10,000 initial investment
- - 5% return each year
- - net expenses for three years and total operating expenses thereafter, and
- - all shares sold at the end of each time period.
The example is for comparison only; the actual return of the Institutional Class
and your actual costs may be higher or lower.
1 YR. 3 YRS.
- -------------------------------------------------------------------------
YOUR COST ($) 51 160
- -------------------------------------------------------------------------
(3) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
(4) REFLECTS A WRITTEN AGREEMENT PURSUANT TO WHICH JPMORGAN CHASE AGREES THAT IT
OR ONE OF ITS AFFILIATES WILL REIMBURSE THE FUND TO THE EXTENT TOTAL
OPERATING EXPENSES OF THE INSTITUTIONAL CLASS (EXCLUDING INTEREST, TAXES,
EXTRAORDINARY EXPENSES AND EXPENSES RELATED TO THE DEFERRED COMPENSATION
PLAN) EXCEED 0.50% OF ITS AVERAGE DAILY NET ASSETS FOR
THREE YEARS.
11
- ------------------------------------------------------------------------------
JPMORGAN NEW YORK INTERMEDIATE TAX FREE INCOME FUND
THE FUND'S OBJECTIVE
The Fund seeks to provide monthly dividends that are excluded from gross income
and are exempt from New York State and New York City personal income taxes. It
also seeks to protect the value of your investment.
THE FUND'S MAIN
INVESTMENT STRATEGY
As a fundamental policy, the Fund normally invests at least 80% of its total
assets in New York municipal obligations whose interest payments are:
- - excluded from gross income and exempt from New York State and New York City
income taxes, and
- - excluded from the federal alternative minimum tax on individuals.
New York municipal obligations are those issued by New York State, its political
subsidiaries, as well as Puerto Rico, other U.S. territories and their political
subdivisions.
The Fund invests in securities that are rated as investment grade by Moody's
Investors Service, Inc., Standard & Poor's Corporation or Fitch Investors
Service Inc. It may also invest in unrated securities of comparable quality.
The Fund may also invest in derivatives, inverse floaters and interest rate
caps, zero coupon securities and forward commitments. These instruments may be
used to increase the Fund's income or gain. Derivatives, which are financial
instruments whose value is based on another security, index or exchange rate,
might also be used to hedge various market risks.
The Fund seeks to develop an appropriate portfolio by comparing, among other
factors, credit quality, yields and call provisions of different municipal
issuers, and examining structural changes along the yield curve in an attempt to
maximize investment returns while minimizing risk.
Under normal market conditions, the Fund reserves the right to invest up to 20%
of its total assets in securities that pay interest subject to federal income
tax, the federal alternative minimum tax on individuals or New York State and
New York City personal income taxes. To temporarily defend the value of its
assets during unusual market conditions, the Fund may exceed this limit.
No more than 25% of total assets may be invested in any one industry, other than
governments and public authorities.
The Fund may invest in money market funds so that it can easily convert
investments into cash without losing a significant amount of money in the
process.
The Fund may also invest in municipal lease obligations. These allow the Fund to
participate in municipal lease agreements and installment purchase contracts.
The Fund may invest up to 25% of its total assets in municipal lease obligations
backed by letters of credit or guarantees from U.S. and foreign banks and other
foreign institutions.
12
JPMORGAN NEW YORK INTERMEDIATE TAX FREE INCOME FUND
- ------------------------------------------------------------------------------
There may be times when there are not enough securities available to meet the
Fund's needs. On these occasions, the Fund may invest in repurchase agreements
or Treasury securities that may be subject to federal income tax.
The Fund may change any of its non-fundamental investment policies (including
its investment objective) without shareholder approval.
THE FUND'S MAIN
INVESTMENT RISKS
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. Here are some specific risks of investing in the Fund.
The principal value of fixed-income investments tends to fall when prevailing
interest rates rise.
The Fund invests primarily in New York State and its municipalities and public
authorities. A number of municipal issuers, including the State of New York and
New York City, have a history of financial problems. If the state, or any of the
local government bodies, gets into financial trouble, it could have trouble
paying interest and principal. This would hurt the Fund's returns and its
ability to preserve capital and liquidity. If more than 5% of the Fund's total
assets are invested in any one municipality, this risk could increase.
Under some circumstances, municipal lease obligations might not pay interest
unless the state or municipal legislature authorizes money for that purpose.
Some securities, including municipal lease obligations, carry additional risks.
For example, they may be difficult to trade or interest payments may be tied
only to a specific stream of revenue.
Normally, the Fund may invest up to 20% of its total assets in securities whose
interest is subject to the federal alternative minimum tax. Consult your tax
professional for more information.
Since some municipal obligations may be secured or guaranteed by banks and other
institutions, the risk to the Fund could increase if the banking or financial
sector suffers an economic downturn.
The Fund may invest in municipal obligations backed by foreign institutions.
This could carry more risk than securities backed by U.S. institutions, because
of political or economic instability, the imposition of government controls, or
regulations that don't match U.S. standards.
The value of zero coupon securities, inverse floaters and interest rate caps
tends to fluctuate according to interest rate changes significantly more than
the value of ordinary interest-paying debt securities. The price of a security
with an interest rate cap will change more often and to a greater degree than a
municipal security without one.
[SIDENOTE]
BEFORE YOU INVEST
INVESTORS CONSIDERING THE FUND SHOULD UNDERSTAND THAT:
- THERE IS NO ASSURANCE THAT THE FUND WILL MEET ITS INVESTMENT OBJECTIVE.
- THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM.
FREQUENCY OF TRADING
HOW FREQUENTLY THE FUND BUYS AND SELLS SECURITIES WILL VARY FROM YEAR TO YEAR,
DEPENDING ON MARKET CONDITIONS.
13
JPMORGAN NEW YORK INTERMEDIATE TAX FREE INCOME FUND
- -------------------------------------------------------------------------------
A forward commitment could lose value if the underlying security falls in value
before the settlement date or if the other party fails to meet its obligation to
complete the transaction.
Derivatives may be more risky than other types of investments because they may
respond more to changes in economic conditions than other types of investments.
If they are used for non-hedging purposes, they could cause losses that exceed
the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities. In addition, more than 25% of the Fund's total assets
may be invested in securities that rely on similar projects for their income
stream. As a result, the Fund could be more susceptible to developments that
affect those projects.
[SIDENOTE]
INVESTMENTS IN THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR
GUARANTEED OR ENDORSED BY ANY BANK AND ARE NOT INSURED, OR GUARANTEED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER
GOVERNMENT AGENCY.
14
JPMORGAN NEW YORK INTERMEDIATE TAX FREE INCOME FUND
- -------------------------------------------------------------------------------
THE FUND'S PAST PERFORMANCE (unaudited)
This section shows the Fund's performance record with respect to the Fund's
former Institutional Class Shares which will be re-named "Select Class" as of
the date of this prospectus, and a new Institutional Class will be introduced.
The bar chart shows how the performance of the Fund's shares has varied from
calendar year to calendar year over the life of the Fund. This provides some
indication of the risks of investing in the Fund. The table shows the average
annual total returns for the past one year, five years and ten years (or if
less than such periods, the life of the Fund). It compares that performance
to the Lehman Municipal Bond Index, Lehman New York Municipal Bond Index and
Lipper New York Municipal Debt Funds Index, widely recognized market
benchmarks.
Past performance does not predict how any class of the Fund will perform in the
future.
The calculations assume that all dividends and distributions are reinvested in
the Fund. Some of the companies that provide services to the Fund have in the
past agreed not to collect some expenses and to reimburse others. Without these
agreements, the performance figures would be lower than those shown.
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/01 WAS 2.15%
[BAR CHART]
YEAR-BY-YEAR RETURNS(1),(2)
1991 11.82%
1992 9.08%
1993 11.28%
1994 -5.81%
1995 15.42%
1996 3.06%
1997 8.46%
1998 6.45%
1999 -1.41%
2000 9.93%
- ----------------------------------
BEST QUARTER 5.82%
- ----------------------------------
1st quarter, 1995
- ----------------------------------
WORST QUARTER -4.27%
- ----------------------------------
1st quarter, 1994
AVERAGE ANNUAL TOTAL RETURNS (%)
Shows performance over time, for periods ended December 31, 2000(1)
PAST 1 YR. PAST 5 YRS. PAST 10 YRS.
- -----------------------------------------------------------------------------
NEW YORK INTERMEDIATE TAX FREE
INCOME FUND (AFTER EXPENSES) 9.93 5.23 6.64
- -----------------------------------------------------------------------------
LEHMAN MUNICIPAL BOND INDEX
(NO EXPENSES) 11.68 5.84 7.32
- -----------------------------------------------------------------------------
LEHMAN NEW YORK
MUNICIPAL BOND INDEX (NO EXPENSES) 12.01 6.17 7.96@
- -----------------------------------------------------------------------------
LIPPER NEW YORK MUNICIPAL
DEBT FUNDS INDEX (NO EXPENSES) 12.16 4.88 6.82
- -----------------------------------------------------------------------------
@ REFLECTS THE AVERAGE ANNUAL RETURN SINCE INCEPTION (JUNE 30, 1993). THE
INDEX LACKS A COMPLETE TEN YEARS OF HISTORY.
(1) SELECT CLASS SHARES COMMENCED OPERATIONS ON 1/1/97. THE PERFORMANCE OF THE
FUND PRIOR TO 1/1/97 IS BASED ON THE HISTORICAL PERFORMANCE OF A
PREDECESSOR COMMON TRUST FUND.
(2) THE FUND'S FISCAL YEAR END IS 8/31.
15
JPMORGAN NEW YORK INTERMEDIATE TAX FREE INCOME FUND
- ------------------------------------------------------------------------------
ESTIMATED INVESTOR EXPENSES FOR INSTITUTIONAL CLASS SHARES
The estimated expenses of the Institutional Class before and after
reimbursement are shown below. The Institutional Class has no sales,
redemption or account fees and generally no exchange fees, although some
institutions may charge you a fee for shares you buy through them.
ESTIMATED ANNUAL OPERATING EXPENSES (%) (EXPENSES THAT ARE DEDUCTED FROM
INSTITUTIONAL CLASS ASSETS)
SHARE-
DISTRIBUTION HOLDER TOTAL FEE WAIVER
MANAGEMENT (RULE 12B-1) SERVICE OTHER OPERATING AND EXPENSE NET
FEES FEES FEES EXPENSES(3) EXPENSES REIMBURSEMENT(4) EXPENSES(4)
- --------------------------------------------------------------------------------------------------------
INSTITUTIONAL
CLASS SHARES 0.30% NONE 0.10% 0.22% 0.62% 0.12% 0.50%
- --------------------------------------------------------------------------------------------------------
EXPENSE EXAMPLE(4) The example below is intended to help you compare the cost of
investing in the Institutional Class with the cost of investing in other mutual
funds. The example assumes:
- - $10,000 initial investment
- - 5% return each year
- - net expenses for three years and total operating expenses thereafter, and
- - all shares sold at the end of each time period.
The example is for comparison only; the actual return of the Institutional Class
and your actual costs may be higher or lower.
1 YR. 3 YRS.
- -------------------------------------------------------------------------
YOUR COST ($) 51 160
- -------------------------------------------------------------------------
(3) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL YEAR.
(4) REFLECTS A WRITTEN AGREEMENT PURSUANT TO WHICH JPMORGAN CHASE AGREES THAT IT
OR ONE OF ITS AFFILIATES WILL REIMBURSE THE FUND TO THE EXTENT TOTAL
OPERATING EXPENSES OF THE INSTITUTIONAL CLASS (EXCLUDING INTEREST, TAXES,
EXTRAORDINARY EXPENSES AND EXPENSES RELATED TO THE DEFERRED COMPENSATION
PLAN) EXCEED 0.50% OF ITS AVERAGE DAILY NET ASSETS FOR THREE YEARS.
16
- --------------------------------------------------------------------------------
JPMORGAN FLEMING EUROPEAN FUND
THE FUND'S OBJECTIVE
The Fund seeks total return from long-term capital growth. Total return consists
of capital growth and current income.
THE FUND'S MAIN INVESTMENT STRATEGY
The Fund will invest primarily in equity securities issued by companies with
principal business activities in Western Europe. Under normal market conditions,
the Fund invests at least 65% of its total assets in equity securities of
European issuers. These investments may take the form of depositary receipts.
Equity securities include common stocks, preferred stocks, securities that are
convertible into common stocks and warrants to buy common stocks.
The Fund's adviser seeks to identify those Western European countries and
industries where political and economic factors, including currency changes, are
likely to produce above-average growth rates. Then the adviser tries to identify
companies within those countries and industries that are poised to take
advantage of those political and economic conditions. The Fund will continually
review economic and political events in the countries in which it invests.
The Fund may invest in Austria, Belgium, Denmark, Germany, Finland, France,
Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain,
Sweden, Switzerland, and the United Kingdom, as well as other Western European
countries which the advisers think are appropriate. In addition, the Fund may
invest up to 8% of its total assets in equity securities of emerging market
European issuers. These countries may include Poland, the Czech Republic,
Hungary and other similar countries which the adviser thinks are appropriate.
The Fund may invest in securities denominated in U.S. dollars, major reserve
currencies and currencies of other countries in which it can invest. The adviser
may adjust the Fund's exposure to each currency based on its view of the markets
and issuers. The adviser will decide how much to invest in the securities of a
particular currency or country by evaluating the yield and potential growth of
an investment, as well as the relationship between the currency and the U.S.
dollar. The adviser may increase or decrease the emphasis on a type of security,
industry, country or currency, based on its analysis of a variety of economic
factors, including fundamental economic strength, earnings growth, quality of
management, industry growth, credit quality and interest rate trends. The Fund
may purchase securities where the issuer is located in one country but the
security is denominated in the currency of another.
While the Fund's assets will usually be invested in a number of different
Western European countries, the Fund's adviser may at times invest most or all
of the assets in a limited number of these countries. The Fund will, however,
try to choose a wide range of industries and companies of varying sizes.
While the Fund invests primarily in equities, it may also invest in
investment-grade debt securities. Investment grade means a rating of Baa or
higher by
17
JPMORGAN FLEMING EUROPEAN FUND
- --------------------------------------------------------------------------------
Moody's Investor Service, Inc., BBB or higher by Standard & Poor's Corporation
or the equivalent by another national rating organization or unrated securities
of comparable quality. No more than 25% of the Fund's total assets will be
invested in debt securities denominated in a currency other than the U.S.
dollar. No more than 25% of the Fund's total assets will be invested in debt
securities issued by a single foreign government or international organization,
such as the World Bank.
While the Fund intends to invest primarily in stocks and investment-grade debt
securities, under normal market conditions it is permitted to invest up to 35%
of its total assets in high-quality money market instruments and repurchase
agreements. To temporarily defend its assets, the Fund may invest any amount of
its assets in these instruments and in debt securities issued by supranational
organizations and companies and governments of countries in which the Fund can
invest and short-term debt instruments issued or guaranteed by the government of
any member of the Organization for Economic Cooperation and Development. These
debt securities may be in various currencies. During unusual market conditions,
the Fund may invest up to 20% of its total assets in U.S. government debt
securities.
Where the capital markets in certain countries are either less developed or not
easy to access, the Fund may invest in these countries by investing in
closed-end investment companies that are authorized to invest in those
countries.
The Fund may invest in derivatives, which are financial instruments the value of
which is based on another security, index or exchange rate. The Fund may use
derivatives to hedge various market risks or to increase the Fund's income or
gain.
The Fund may change any of these investment policies (but not its investment
objective) without shareholder approval. Shareholders of the Fund are currently
considering a proposal that would allow the Fund to change its investment
objective without shareholder approval.
THE FUND'S MAIN
INVESTMENT RISKS
All mutual funds carry a certain amount of risk. You may lose money on your
investment in the Fund. This section describes some of the specific risks of
investing in the Fund.
The Fund may not achieve its objective if the adviser's expectations regarding
particular securities or markets are not met.
The value of shares of the Fund will be influenced by conditions in stock
markets as well as the performance of the companies selected for the Fund's
portfolio.
[SIDENOTE]
BEFORE YOU INVEST
INVESTORS CONSIDERING THE FUND SHOULD UNDERSTAND THAT:
- - THERE IS NO ASSURANCE THAT THE FUND WILL MEET ITS INVESTMENT OBJECTIVE.
- - THE FUND DOES NOT REPRESENT A COMPLETE INVESTMENT PROGRAM.
FREQUENCY OF TRADING
THE FUND MAY TRADE SECURITIES ACTIVELY, WHICH COULD INCREASE TRANSACTION COSTS
(AND LOWER PERFORMANCE) AND INCREASE YOUR TAXABLE DIVIDENDS.
18
JPMORGAN FLEMING EUROPEAN FUND
- --------------------------------------------------------------------------------
Because the Fund invests primarily in securities of issuers outside the United
States, an investment in the Fund is riskier than an investment in a U.S. equity
fund. Because foreign securities are usually denominated in foreign currencies,
the value of the Fund's portfolio may be influenced by currency exchange rates
and exchange control regulations. Foreign securities may be affected by
political, social and economic instability. Some securities may be harder to
trade without incurring a loss and may be difficult to convert into cash. There
may be less public information available, differing settlement procedures, or
regulations and standards that do not match U.S. standards. Some countries may
nationalize or expropriate assets or impose exchange controls. These risks
increase when investing in issuers located in emerging markets.
The Fund's investments may take the form of depositary receipts, including
unsponsored depositary receipts. Unsponsored depositary receipts may not provide
as much information about the underlying issuer and may not carry the same
voting privileges as sponsored depositary receipts.
The Fund's investments in emerging markets could lead to more volatility in the
value of the Fund's shares. As mentioned above, the normal risks of investing in
foreign countries are heightened when investing in emerging markets. In
addition, the small size of securities markets and the low trading volume may
lead to a lack of liquidity, which leads to increased volatility. Also, emerging
markets may not provide adequate legal protection for private or foreign
investment or private property.
The Fund's performance will be affected by political, social and economic
conditions in Europe, such as growth of the economic output (the Gross National
Product), the rate of inflation, the rate at which capital is reinvested into
European economies, the resource self-sufficiency of European countries and
interest and monetary exchange rates between European countries.
In early 1999, the European Monetary Union implemented a new currency called the
"euro," which is expected to replace existing national currencies by July 1,
2002. Full implementation of the euro may be delayed and difficulties with the
conversion may significantly impact European capital markets. It is possible
that the euro could increase volatility in financial markets, which could have a
negative effect on the strength and value of the U.S. dollar and, as a result,
the value of shares of the Fund.
Because the Fund may invest in small companies, the value of your investment may
fluctuate more dramatically than an investment in a fund which does not invest
in small companies. That's because small companies trade less frequently and in
smaller volumes, which may lead to more volatility in the
[SIDENOTE]
INVESTMENTS IN THE FUND ARE NOT BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED
OR ENDORSED BY ANY BANK AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER GOVERNMENT AGENCY.
19
JPMORGAN FLEMING EUROPEAN FUND
- --------------------------------------------------------------------------------
prices of their securities. They may have limited product lines, markets or
financial resources, and they may depend on a small management group.
The market value of convertible securities and other debt securities tends to
fall when prevailing interest rates rise. The value of convertible securities
also tends to change whenever the market value of the underlying common or
preferred stock fluctuates. Securities which are rated Baa by Moody's or BBB by
S&P may have fewer protective provisions than higher rated securities. The
issuer may have trouble making principal and interest payments when difficult
economic conditions exist.
If the Fund invests in closed-end investment companies, it may incur added
expenses such as additional management fees and trading costs.
Investing a substantial portion of its assets in money market instruments,
repurchase agreements and debt securities, including situations in which the
Fund is investing for temporary defensive purposes, could reduce the Fund's
potential return.
Derivatives may be riskier than other types of investments because they may be
more sensitive to changes in economic conditions than other types of
investments. If they are used for non-hedging purposes, they could cause losses
that exceed the Fund's original investment.
The Fund is not diversified. It may invest a greater percentage of its assets in
a particular issuer or group of issuers than a diversified fund would. That
makes the value of its shares more sensitive to economic problems among those
issuing the securities.
20
JPMORGAN FLEMING EUROPEAN FUND
- --------------------------------------------------------------------------------
THE FUND'S PAST PERFORMANCE (UNAUDITED)
This section shows the Fund's performance record with respect to the Fund's
Class A Shares. Institutional Class Shares are being introduced as of the
date of this prospectus. The bar chart shows how the performance of the
Fund's shares has varied from calendar year to calendar year over the life of
the Fund. This provides some indication of the risks of investing in the
Fund. The table shows the average annual total returns for the past one year,
five years and ten years (or if less than such periods, the life of the
Fund). It compares that performance to the MSCI Europe Index and the Lipper
European Funds Index, widely recognized market benchmarks.
Past performance does not predict how any class of the Fund will perform in the
future.
The calculations assume that all dividends and distributions are reinvested in
the Fund. Some of the companies that provide services to the Fund have in the
past agreed not to collect some expenses and to reimburse others. Without these
agreements, the performance figures would be lower than those shown.
THE FUND'S YEAR-TO-DATE TOTAL RETURN AS OF 3/31/01 WAS -14.81%
YEAR-BY-YEAR RETURNS(1),(2)
[BAR CHART]
1996 28.10%
1997 21.38%
1998 28.17%
1999 36.06%
2000 -14.73%
- ---------------------------------
BEST QUARTER 33.36%
- ---------------------------------
4th quarter, 1999
- ---------------------------------
WORST QUARTER -16.97%
- ---------------------------------
3rd quarter, 1998
AVERAGE ANNUAL TOTAL RETURNS (%)
Shows performance over time, for periods ended December 31, 2000(1)
PAST 1 YR. PAST 5 YRS. LIFE OF FUND
- --------------------------------------------------------------------------------
FLEMING EUROPEAN FUND (AFTER EXPENSES) -19.64 16.86 16.69
- --------------------------------------------------------------------------------
MSCI EUROPE INDEX (NO EXPENSES) -8.14 15.75 15.05
- --------------------------------------------------------------------------------
LIPPER EUROPEAN FUNDS INDEX
(NO EXPENSES) -2.58 17.87 17.46
- --------------------------------------------------------------------------------
THE PERFORMANCE IN THE TABLE FOR THE CLASS A SHARES REFLECTS THE DEDUCTION OF
THE MAXIMUM FRONT END SALES LOAD. INSTITUTIONAL CLASS SHARES DO NOT PAY A SALES
LOAD.
(1) CLASS A SHARES COMMENCED OPERATIONS ON 11/3/95.
(2) THE FUND'S FISCAL YEAR END IS 10/31.
21
JPMORGAN FLEMING EUROPEAN FUND
- --------------------------------------------------------------------------------
ESTIMATED INVESTOR EXPENSES FOR INSTITUTIONAL CLASS SHARES
The estimated expenses of the Institutional Class before and after reimbursement
are shown below. The Institutional Class has no sales, redemption or account
fees and generally no exchange fees, although some institutions may charge you a
fee for shares you buy through them.
ESTIMATED ANNUAL OPERATING EXPENSES (%) (EXPENSES THAT ARE DEDUCTED FROM
INSTITUTIONAL CLASS ASSETS)
SHARE-
DISTRIBUTION HOLDER TOTAL FEE WAIVER
MANAGEMENT (RULE 12B-1) SERVICE OTHER OPERATING AND EXPENSE NET
FEES FEES FEES EXPENSES(3) EXPENSES REIMBURSEMENT(4) EXPENSES(4)
- ---------------------------------------------------------------------------------------------------------
INSTITUTIONAL
CLASS SHARES 0.65% NONE 0.10% 0.85% 1.60% 0.60% 1.00%
- ---------------------------------------------------------------------------------------------------------
EXPENSE EXAMPLE(4) The example below is intended to help you compare the cost of
investing in the Institutional Class with the cost of investing in other mutual
funds. The example assumes:
- - $10,000 initial investment
- - 5% return each year
- - net expenses for three years and total operating expenses thereafter, and
- - all shares sold at the end of each time period.
The example is for comparison only; the actual return of the Institutional Class
and your actual costs may be higher or lower.
1 YR. 3 YRS.
- --------------------------------------------------------------------------------
YOUR COST ($) 102 318
- --------------------------------------------------------------------------------
(3) "OTHER EXPENSES" ARE BASED ON ESTIMATED AMOUNTS FOR THE CURRENT FISCAL
YEAR.
(4) REFLECTS A WRITTEN AGREEMENT PURSUANT TO WHICH JPMORGAN CHASE AGREES THAT
IT OR ONE OF ITS AFFILIATES WILL REIMBURSE THE FUND TO THE EXTENT TOTAL
OPERATING EXPENSES OF THE INSTITUTIONAL CLASS (EXCLUDING INTEREST, TAXES,
EXTRAORDINARY EXPENSES AND EXPENSES RELATED TO THE DEFERRED COMPENSATION
PLAN) EXCEED 1.00% OF ITS AVERAGE DAILY NET ASSETS FOR THREE YEARS.
22
- --------------------------------------------------------------------------------
WHO MAY WANT TO INVEST
THE BOND FUND, INTERMEDIATE TAX FREE INCOME FUND AND THE NEW YORK INTERMEDIATE
TAX FREE INCOME FUND (THE FIXED INCOME FUNDS) ARE DESIGNED FOR INVESTORS WHO:
- - want to add an income investment to further diversify a portfolio
- - want an investment whose risk/return potential is higher than that of money
market funds but generally less than that of stock funds
- - want an investment that pays monthly dividends
- - with regard to the Intermediate Tax Free Income Fund, are seeking income that
is exempt from federal personal income tax
- - with regard to the New York Intermediate Tax Free Income Fund, are seeking
income that is exempt from federal, state, and local (if applicable) personal
income taxes in New York
THESE FUNDS ARE NOT DESIGNED FOR INVESTORS WHO:
- - are investing for aggressive long-term growth
- - require stability of principal
- - with regard to the Intermediate Tax Free Income and New York Intermediate Tax
Free Income Funds, are investing through a tax-deferred account such as an IRA
THE FLEMING EUROPEAN FUND IS DESIGNED FOR INVESTORS WHO:
- - are pursuing a long-term goal
- - want to add a non-U.S. investment with growth potential to further diversify
a portfolio
- - want a Fund that seeks to consistently outperform the markets in which it
invests
THESE FUNDS ARE NOT DESIGNED FOR INVESTORS WHO:
- - are uncomfortable with the risks of international investing
- - are looking for a less aggressive stock investment
- - require regular income or stability of principal
- - are pursuing a short-term goal or investing emergency reserves
23
- --------------------------------------------------------------------------------
THE FUNDS' MANAGEMENT AND ADMINISTRATION
The Bond Fund is a series of J.P. Morgan Institutional Funds, a Massachusetts
business trust. The Intermediate Tax Free Income Fund and New York
Intermediate Tax Free Income Fund are series of Mutual Fund Select Trust, and
the Fleming European Fund is a series of Mutual Fund Group, both of which are
Massachusetts business trusts. The trustees of each trust are responsible for
overseeing all business activities.
THE FUNDS' ADMINISTRATOR
Either Morgan Guaranty Trust Company of New York or The Chase Manhattan Bank (an
"Administrator") provides administrative services, oversees each Fund's other
service providers and provides Fund officers. The Administrator receives the
following annual fee on behalf of each Fund for administrative services:
0.15% of each Fund's pro-rata portion of the first $25 billion of average net
assets of all non-money market funds in the JPMorgan Funds complex plus 0.10% of
average net assets over $25 billion.
THE FUNDS' INVESTMENT ADVISERS
J.P. Morgan Investment Management Inc. ("JPMIM") is the investment adviser and
makes the day-to-day investment decisions for the Bond Fund. JPMIM is located at
522 5th Avenue, New York, NY 10036.
J.P. Morgan Fleming Asset Management (USA) Inc. (JPMFAM (USA)) is the
investment adviser for the Intermediate Tax Free Income Fund, the New York
Intermediate Tax Free Income Fund and the Fleming European Fund and makes the
day-to-day investment decisions for each of the Intermediate Tax Free Income
Fund and New York Intermediate Tax Free Income Fund. Prior to February 28,
2001 the adviser to these three Funds was The Chase Manhattan Bank (Chase)
and JPMFAM (USA) was the sub-adviser for the Intermediate Tax Free Income
Fund and the New York Intermediate Tax Free Income Fund. JPMFAM (USA) is
located at 522 5th Avenue, New York, NY 10036.
Chase Fleming Asset Management (London) Limited (CFAM London) is the sub-adviser
to the Fleming European Fund and makes the day-to-day investment decisions for
that Fund. JPMFAM (USA) pays CFAM London a sub-advisory fee for its services.
CFAM London is located at Colvile House, 32 Curzon Street, London W1Y8AL.
JPMIM, JPMFAM (USA) and CFAM London are wholly owned subsidiaries of J.P. Morgan
Chase & Co. (JPMorgan Chase), a bank holding company.
During the most recent fiscal year, each adviser (as applicable) was paid
management fees (net of waivers) as a percentage of average net assets as
follows:
FISCAL
FUND YEAR END %
- -------------------------------------------------
BOND FUND 10/31 0.30%
- -------------------------------------------------
INTERMEDIATE TAX FREE INCOME
FUND 8/31 0.24%
- -------------------------------------------------
NEW YORK INTERMEDIATE TAX
FREE INCOME FUND 8/31 0.24%
- -------------------------------------------------
FLEMING EUROPEAN FUND 10/31 0.80%
- -------------------------------------------------
PORTFOLIO MANAGERS
BOND FUND, INTERMEDIATE TAX FREE INCOME FUND, NEWYORK INTERMEDIATE TAX FREE
INCOME FUND
The Fixed Income Funds are managed by a team of individuals at JPMIM or
JPMFAM (USA), as applicable.
24
- --------------------------------------------------------------------------------
FLEMING EUROPEAN FUND
James Elliot and Ajay Gambhir are both assistant directors of the European
Equity Group. Mr Elliot joined CFAM London in June of 1995 as an executive in
the European Investment Banking group. He was appointed a portfolio manager in
1998 and Assistant Director in 1999. Mr. Gambhir joined CFAM London in December
of 1997 as a Fund manager in the European Equity Group. Prior to that he worked
as a Fund manager at NM Rothschild & Sons Limited. Mr. Gambhir was appointed
Assistant Director in April of 2000. Both have managed the Fund since August of
2000.
25
- --------------------------------------------------------------------------------
HOW YOUR ACCOUNT WORKS
BUYING FUND SHARES
You don't pay any sales charge (sometimes called a load) when you buy
Institutional or Ultra Class Shares in these Funds. The price you pay for your
shares is the net asset value per share (NAV). NAV is the value of everything
the particular Fund owns, minus everything it owes, divided by the number of
shares held by investors. Each Fund generally values its assets at their market
value but may use fair value if market prices are unavailable or do not
represent a security's value at the time of pricing.
The NAV of each class of shares is calculated once each day at the close of
regular trading on the New York Stock Exchange, each day the Funds receive
orders. You'll pay the next NAV calculated after the JPMorgan Institutional
Funds Service Center receives your order in proper form. An order is in
proper form only after funds are converted into federal funds.
The Fleming European Fund invests in securities that are primarily listed on
foreign exchanges and these exchanges may trade on Saturdays or other U.S.
holidays on which the Fund does not price. As a result, the Fund's portfolio
will trade and its NAV may fluctuate significantly on days when you have no
access to the Fund.
You can buy Institutional or Ultra Class Shares through financial service
firms, such as broker-dealers and banks that have an agreement with the
Funds. Shares are available on any business day the New York Stock Exchange
is open. If we receive your order by the close of regular trading on the New
York Stock Exchange, we'll process your order at that day's price. If you buy
through an agent and not directly from the JPMorgan Institutional Funds
Service Center, the agent could set an earlier deadline.
All purchases of Institutional or Ultra Class Shares must be paid for by 4:00
p.m. Eastern time on the settlement date or the order will be canceled. Any
funds received in connection with late orders will be invested on the
following business day. You must provide a Taxpayer Identification Number
when you open an account. The Funds have the right to reject any purchase
order or to cease offering shares at any time.
To open an account, buy or sell shares or get fund information, call the
JPMorgan Institutional Funds Service Center at 1-800-766-7722.
MINIMUM INVESTMENTS
Investors must buy a minimum $3,000,000 worth of Institutional Class Shares and
$20,000,000 worth of Ultra Class Shares in a Fund to open an account. There are
no minimum levels for subsequent purchases. An investor can combine purchases of
Institutional or Ultra Class Shares of other JPMorgan Funds (except for money
market funds) in order to meet the minimum. Each Fund may waive this minimum at
its discretion.
SELLING FUND SHARES When you sell your shares you'll receive the next NAV
calculated after the JPMorgan Institutional Funds Service Center accepts your
order in proper form. In order for you to receive that day's NAV, the
JPMorgan Institutional Funds Service Center must
26
HOW YOUR ACCOUNT WORKS
- --------------------------------------------------------------------------------
receive your request before the close of regular trading on the New York Stock
Exchange.
We will need the names of the registered shareholders and your account number
before we can sell your shares. We generally will wire the proceeds from the
sale to your bank account on the day after we receive your request in proper
form. Federal law allows the Funds to suspend a sale or postpone payment for
more than seven business days under unusual circumstances.
You may sell your shares in two ways:
THROUGH YOUR FINANCIAL SERVICE FIRMS
Tell your firm which Funds you want to sell. They'll send all necessary
documents to the JPMorgan Institutional Funds Service Center.
THROUGH THE JPMORGAN FUNDS SERVICE CENTER
Call 1-800-766-7722. We'll send the proceeds by wire only to the bank account on
our records.
REDEMPTIONS-IN-KIND
Each Fund reserves the right to make redemptions of over $250,000 in securities
rather than in cash.
EXCHANGING SHARES
You can exchange your Institutional or Ultra Class Shares for shares of the same
class in certain other JPMorgan Funds. For tax purposes, an exchange is treated
as a sale of Fund shares. Carefully read the prospectus of the Fund you want to
buy before making an exchange. Call 1-800-766-7722 for details.
You should not exchange shares as a means of short-term trading as this could
increase management costs and affect all shareholders. We reserve the right to
limit the number of exchanges or to refuse an exchange. We may also terminate
this privilege. We charge an administration fee of $5 for each exchange if you
make more than 10 exchanges in a year or three in a quarter. See the Statement
of Additional Information to find out more about the exchange privilege.
EXCHANGING BY PHONE
You may also use our Telephone Exchange Privilege. You can get information by
contacting the JPMorgan Institutional Funds Service Center or your investment
representative.
OTHER INFORMATION
CONCERNING THE FUNDS
We may close your account if the aggregate balance in all JPMorgan Funds (except
money market funds) falls below the minimum investment noted above for 30 days
as a result of selling shares. We'll give you 60 days' notice before closing
your account.
Unless you indicate otherwise on your account application, we are authorized to
act on redemption and transfer instructions received by phone. If someone trades
on your account by phone, we'll ask that person to confirm your account
registration and address to make sure they match those you provided us. If they
give us the correct information, we are generally authorized to follow that
person's instructions. We'll take all reasonable precautions to confirm that the
instructions are genuine. Investors agree that they will not hold the Funds
liable for any loss or expenses from any sales request,
27
HOW YOUR ACCOUNT WORKS
- --------------------------------------------------------------------------------
if the Funds take reasonable precautions. The Funds will be liable for any
losses to you from an unauthorized sale or fraud against you if we do not follow
reasonable procedures.
You may not always reach the JPMorgan Institutional Funds Service Center by
telephone. This may be true at time of unusual market changes and shareholder
activity. You can mail us your instructions or contact your investment
representative or agent. We may modify or cancel the sale of shares by phone
without notice.
JPMorgan Fund Distributors, Inc. (JPF) is the distributor for the Funds. It is a
subsidiary of The BISYS Group, Inc. and is not affiliated with JPMorgan Chase.
The Funds have agreements with certain shareholder servicing agents (including
Morgan Guaranty Trust Company of New York and The Chase Manhattan Bank) under
which the shareholder servicing agents have agreed to provide certain support
services to their customers. For performing these services, each shareholder
servicing agent receives an annual fee of up to 0.10% of the average daily net
assets of the Institutional Class Shares (0.05% with respect to Ultra Class
Shares) of each Fund held by investors serviced by the shareholder servicing
agent.
The advisers and/or JPF may, at their own expense, make additional payments to
certain selected dealers or other shareholder servicing agents for performing
administrative services for their customers.
Each Fund may issue multiple classes of shares. This prospectus relates only to
Institutional Class Shares of the Intermediate Tax Free Income, the New York
Intermediate Tax Free Income and the Fleming European Funds and Ultra Class
Shares of the Bond Fund. Each class may have different requirements for who may
invest, and may have different sales charges and expense levels. A person who
gets compensated for selling Fund shares may receive a different amount for each
class.
DISTRIBUTIONS AND TAXES
The Funds can earn income and they can realize capital gain. The Funds deduct
any expenses then pay out these earnings to shareholders as distributions.
The Bond Fund, Intermediate Tax Free Income Fund and New York Intermediate Tax
Free Income Fund generally pay dividends monthly. The Fleming European Fund
generally distributes any net investment income at least annually. Net capital
gain is distributed annually. You have three options for your distributions. You
may:
- - reinvest all of them in additional Fund shares;
- - take distributions of net investment income in cash or as a deposit in a
pre-assigned bank account and reinvest distributions of net capital gain in
additional shares; or
- - take all distributions in cash or as a deposit in a pre-assigned bank account.
If you do not select an option when you open your account, we'll reinvest all
distributions. If your distributions are reinvested, they will be in the form of
shares of the same class. The taxation of dividends won't be affected by
28
HOW YOUR ACCOUNT WORKS
- --------------------------------------------------------------------------------
the form in which you receive them.
Dividends of net investment income are usually taxable as ordinary income at the
federal, state and local levels. Dividends of tax-exempt interest income are not
subject to federal income taxes, but will generally be subject to state and
local taxes. However, for the New York Intermediate Tax Free Income Fund, New
York residents will not have to pay New York State or New York City personal
income taxes on tax-exempt income from New York municipal obligations. The state
or municipality where you live may not charge you state or local taxes on
tax-exempt interest earned on certain bonds. Dividends earned on bonds issued by
the U.S. government and its agencies may also be exempt from some types of state
and local taxes.
If you receive distributions of net capital gain, the tax rate will be based on
how long a Fund held a particular asset, not on how long you have owned your
shares. If you buy shares just before a distribution, you will pay tax on the
entire amount of the taxable distribution you receive, even though the NAV will
be higher on that date because it includes the distribution amount.
The Fleming European Fund expects that its distributions will consist primarily
of capital gains.
Investment income received by the Fleming European Fund from sources in foreign
jurisdictions may have taxes withheld at the source. Since it is anticipated
that more than 50% of the Fund's assets at the close of its taxable year will be
in securities of foreign corporations, the Fund may elect to "pass through" to
its shareholders the foreign taxes that it paid.
Early in each calendar year, each Fund will send you a notice showing the amount
of distributions you received in the preceding year and the tax status of those
distributions.
Any investor for whom a Fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.
The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.
The above is a general summary of tax implications of investing in the Funds.
Please consult your tax advisor to see how investing in a Fund will affect your
own tax situation.
29
RISK AND REWARD ELEMENTS FOR FIXED INCOME FUNDS
This table discusses the main elements that make up each Fixed Income Fund's
overall risk and reward characteristics. It also outlines each Fund's
policies toward various investments, including those that are designed to
help certain Funds manage risk.
- ------------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
- ------------------------------------------------------------------------------------------------------------------------------------
MARKET CONDITIONS
- - Each Fund's share price, - Bonds have generally - Under normal circumstances the
yield, and total return will outperformed money market Funds plan to remain fully
fluctuate in response to bond investments over the long term, invested in bonds and other fixed
market movements with less risk than stocks income securities.
- - The value of most bonds will - Most bonds will rise in value - The Funds seek to limit risk and
fall when interest rates rise; when interest rates fall enhance total return or yields
the longer a bond's maturity through careful management,
and the lower its credit - Mortgage-backed and asset-backed sector allocation, individual
quality, the more its value securities and direct mortgages securities selection, and
typically falls can offer attractive returns duration management
- - Adverse market conditions may - During severe market downturns,
from time to time cause a Fund the funds have the option of
to take temporary defensive investing up to 100% of assets in
positions that are investment-grade short-term
inconsistent with its securities
principal investment
strategies and may hinder a - Each adviser monitors interest
fund from achieving its rate trends, as well as
investment objective geographic and demographic
information related to
- - Mortgage-backed and mortgage-backed securities and
asset-backed securities mortgage prepayments
(securities representing an
interest in, or secured by, a
pool of mortgages or other
assets such as receivables)
and direct mortgages could
generate capital losses or
periods of low yields if they
are paid off substantially
earlier or later than
anticipated
- ------------------------------------------------------------------------------------------------------------------------------------
CREDIT QUALITY
- - The default of an issuer would - Investment-grade bonds have a - Each Fund maintains its own
leave a Fund with unpaid interest lower risk of default policies for balancing credit
or principal quality against potential
- Junk bonds offer higher yields yields and gains in light of
- - Junk bonds (those and higher potential gains its investment goals
rated BB/Ba or lower) have a
higher risk of default, tend - Each adviser develops its own
to be less liquid, and may ratings of unrated securities
be more difficult to value and makes a credit quality
determination for unrated
securities
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN INVESTMENTS
- - A Fund could lose money because - Foreign bonds, which represent - Foreign bonds may be a
of foreign government actions, a major portion of the world's significant investment for the
political instability, or lack fixed income securities, offer Bond Fund.
of adequate and accurate attractive potential
information performance and opportunities - To the extent that a
for diversification Fund invests in foreign bonds,
- - Currency exchange rate it may manage the currency
movements could reduce gains or - Favorable exchange rate exposure of its foreign
create losses movements could generate gains or investments relative to its
reduce losses benchmark, and may hedge a
- - Currency and investment risks portion of its foreign currency
tend to be higher in emerging - Emerging markets can offer exposure into the U.S. dollar
markets higher returns from time to time (see also
"Derivatives"); these currency
management techniques may not be
available for certain emerging
markets investments
- ------------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY
SECURITIES
- - When a Fund buys securities - A Fund can take advantage of - Each Fund uses segregated
before issue or for delayed attractive transaction accounts to offset leverage
delivery, it could be exposed opportunities risk
to leverage risk if it does not
use segregated accounts
- ------------------------------------------------------------------------------------------------------------------------------------
30
- ------------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - A Fund could underperform its - A Fund could outperform its - Each adviser focuses its active
benchmark due to its sector, benchmark due to these same management on those areas where
securities or duration choices choices it believes its commitment to
research can most enhance
returns and manage risks in a
consistent way
- ------------------------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- - Derivatives such as futures, - Hedges that correlate well with - The Funds use derivatives, such
options, swaps and forward underlying positions can reduce as futures, options, swaps and
foreign currency contracts(1) or eliminate losses at low cost forward foreign currency
that are used for hedging the contracts for hedging and for
portfolio or specific - A Fund could make money and risk management (i.e., to
securities may not fully offset protect against losses if adjust duration or yield curve
the underlying positions and management's analysis proves exposure, or to establish or
this could result in losses to correct adjust exposure to particular
the Fund that would not have securities, markets, or
otherwise occurred - Derivatives that involve currencies); risk management
leverage could generate may include management of a
- - Derivatives used for risk substantial gains at low cost Fund's exposure relative to its
management may not have the benchmark
intended effects and may result
in losses or missed opportunities - The Funds only establish hedges
that they expect will be highly
- - The counterparty to a correlated with underlying
derivatives contract could positions
default
- The Intermediate Tax
- - Certain types of derivatives Free Income Fund and the New York
involve costs to the Funds which Intermediate Tax Free Income Fund
can reduce returns may use derivatives to increase
income or gain
- - Derivatives that involve
leverage could magnify losses - While the Funds may use
derivatives that incidentally
- - Derivatives used for non-hedging involve leverage, they do not
purposes could cause losses that use them for the specific
exceed the original investment. purpose of leveraging their
portfolios
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES LENDING
- - When a Fund lends a security, - A Fund may enhance income - Each adviser maintains a list
there is a risk that the loaned through the investment of the of approved borrowers
securities may not be returned if collateral received from the
the borrower defaults borrower - The Funds receive collateral
equal to at least 100% of the
- - The collateral will be subject to current value of securities
the risks of the securities in loaned
which it is invested
- The lending agents indemnify a
fund against borrower default
- Each adviser's collateral
investment guidelines limit the
quality and duration of
collateral investment to minimize
losses
- Upon recall, the borrower must
return the securities loaned
within the normal settlement
period
- ------------------------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - A Fund could have difficulty - These holdings may offer more - No Fund may invest more than
valuing these holdings precisely attractive yields or potential 15% of net assets in illiquid
growth than comparable widely holdings
- - A Fund could be unable to sell traded securities
these holdings at the time or - To maintain adequate liquidity to
price desired meet redemptions, each Fund may
hold investment-grade short-term
securities (including repurchase
agreements and reverse repurchase
agreements) and, for temporary or
extraordinary purposes, may
borrow from banks up to 33 1/3%
of the value of its total assets
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading would raise - A Fund could realize gains in - The Funds may use short-term trading
a Fund's transaction costs a short period of time to take advantage of attractive or
unexpected opportunities or to meet
- - Increased short-term capital - A Fund could protect against demands generated by shareholder
gains distributions would raise losses if a bond is overvalued and activity.
shareholders' income tax its value later falls
liability
- ------------------------------------------------------------------------------------------------------------------------------------
(1)A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on changes in the value of a securities index. An option is the right
to buy or sell a set quantity of an underlying instrument at a predetermined
price. A swap is a privately negotiated agreement to exchange one stream of
payments for another. A forward foreign currency contract is an obligation to
buy or sell a given currency on a future date and at a set price.
31
RISK AND REWARD ELEMENTS FOR FLEMING EUROPEAN FUND
This table identifies the main elements that make up the Fund's overall risk and
reward characteristics. It also outlines the Fund's policies toward various
investments, including those that are designed to help it manage risk.
- ------------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN AND OTHER MARKET CONDITIONS
- - The Fund's share price and - Stocks have generally - Under normal circumstances the
performance will fluctuate in outperformed more stable Fund plans to remain fully
response to stock and bond market investments (such as bonds and invested, with at least 65% in
movements cash equivalents) over the long stocks; stock investments may
term include convertible securities,
- - The value of most bonds will preferred stocks, depository
fall when interest rates rise; - Foreign investments, which receipts (such as ADRs and
the longer a bond's maturity and represent a major portion of the EDRs), trust or partnership
the lower its credit quality, world's securities, offer interests, warrants, rights,
the more its value typically attractive potential performance and investment company
falls and opportunities for securities
diversification
- - The Fund could lose money - The Fund seeks to limit risk
because of foreign government - Most bonds will rise in value and enhance performance through
actions, political instability, when interest rates fall active management, country
or lack of adequate and/or allocation and diversification
accurate information - Foreign bonds, which represent
a major portion of the world's - During severe market downturns,
- - Investment risks tend to be fixed income securities, offer the Fund has the option of
higher in emerging markets. These attractive potential investing up to 100% of assets in
markets also present higher performance and opportunities investment-grade short-term
liquidity and valuation risks for diversification securities
- - Adverse market conditions may - Emerging markets can offer higher
from time to time cause the fund returns
to take temporary defensive
positions that are inconsistent
with its principal investment
strategies and may hinder the
fund from achieving its
investment objective
- ------------------------------------------------------------------------------------------------------------------------------------
MANAGEMENT CHOICES
- - The Fund could underperform its - The Fund could outperform its - The adviser focuses its active
benchmark due to its securities benchmark due to these same management on securities
choices and other management choices selection, the area where it
decisions believes its commitment to
research can most enhance
returns
- ------------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCIES
- - Currency exchange rate movements - Favorable exchange rate movements - Except as noted earlier in this
could reduce gains or create could generate gains or reduce prospectus, the Fund manages
losses losses the currency exposure of its
foreign investments relative to
- - Currency risks tend to its benchmark and may hedge a
be higher in emerging markets; portion of its foreign currency
these markets also present higher exposure into the U.S. dollar
liquidity and valuation risks from time to time (see also
"Derivatives")
- ------------------------------------------------------------------------------------------------------------------------------------
WHEN-ISSUED AND DELAYED DELIVERY
SECURITIES
- - When the Fund buys securities - The Fund can take advantage of - The Fund uses segregated accounts
before issue or for delayed attractive transaction to offset leverage risk
delivery, it could be exposed to opportunities
leverage risk if it does
not use segregated accounts
- ------------------------------------------------------------------------------------------------------------------------------------
32
- ------------------------------------------------------------------------------------------------------------------------------------
POTENTIAL RISKS POTENTIAL REWARDS POLICIES TO BALANCE RISK AND REWARD
- ------------------------------------------------------------------------------------------------------------------------------------
DERIVATIVES
- - Derivatives such as futures, - Hedges that correlate well with - The Fund uses derivatives, such
options, swaps, and forward underlying positions can reduce as futures, options, swaps, and
foreign currency contracts(1) or eliminate losses at low cost forward foreign currency
that are used for hedging the contracts, for hedging and for
portfolio or specific - The Fund could make money and risk management (i.e., to
securities may not fully offset protect against losses if the establish or adjust exposure to
the underlying positions and investment analysis proves particular securities, markets
this could result in losses to correct or currencies); risk management
the Fund that would not have may include management of the
otherwise occurred - Derivatives that Fund's exposure relative to its
involve leverage could generate benchmark
- - Derivatives used for risk substantial gains at low cost
management may not have the - The Fund only establishes
intended effects and may result hedges that it expects will be
in losses or missed highly correlated with underlying
opportunities positions
- - The counterparty to a derivatives - The Fund may use derivatives
contract could default to increase income or gain.
- - Derivatives that involve leverage
could magnify losses - While the Fund may use derivatives
that incidentally involve leverage,
- - Certain types of derivatives involve it does not use them for the
costs to the Fund which can reduce specific purpose of leveraging
returns its portfolio
- - Derivatives used for non-hedging
purposes could cause losses that
exceed the original investment.
- ------------------------------------------------------------------------------------------------------------------------------------
SECURITIES LENDING
- - When the Fund lends a security, - The Fund may enhance income - The adviser maintains a list of
there is a risk that the loaned through the investment of the approved borrowers
securities may not be returned if collateral received from the
the borrower defaults borrower - The Fund receives collateral
equal to at least 100% of the
- - The collateral will be subject to current value of securities
the risks of the securities in loaned
which it is invested
- The lending agents indemnify the
Fund against borrower default
- The adviser's collateral investment
guidelines limit the quality and
duration of collateral investment
to minimize losses
- Upon recall, the borrower must
return the securities loaned within
the normal settlement period
- ------------------------------------------------------------------------------------------------------------------------------------
ILLIQUID HOLDINGS
- - The Fund could have difficulty - These holdings may offer more - The Fund may not invest more
valuing these holdings precisely attractive yields or potential than 15% of net assets in
growth than comparable widely illiquid holdings
- - The Fund could be unable to traded securities
sell these holdings at the time - To maintain adequate liquidity,
or price it desired the Fund may hold investment-grade
short-term securities (including
repurchase agreements and reverse
repurchase agreements) and, for
temporary or extraordinary
purposes, may borrow from banks
up to 33 1/3% of the value of
its total assets
- ------------------------------------------------------------------------------------------------------------------------------------
SHORT-TERM TRADING
- - Increased trading could raise - The Fund could realize gains in - The Fund generally avoids
the fund's brokerage and a short period of time short-term trading, except to
related costs take advantage of attractive or
- The Fund could protect against unexpected opportunities or to
- - Increased short-term capital losses if a stock is overvalued and meet demands generated by
gains distributions could raise its value later falls shareholder activity.
shareholders' income tax
liability
- ------------------------------------------------------------------------------------------------------------------------------------
(1)A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on changes in the value of a securities index. An option is the right
to buy or sell a set quantity of an underlying instrument at a predetermined
price. A swap is a privately negotiated agreement to exchange one stream of
payments for another. A forward foreign currency contract is an obligation to
buy or sell a given currency on a future date and at a set price.
33
- --------------------------------------------------------------------------------
WHAT THE TERMS MEAN
ASSET-BACKED SECURITIES: interests in a stream of payments from specific assets,
such as auto or credit card receivables.
BANK OBLIGATIONS: negotiable certificates of deposit, time deposits and bankers'
acceptances of domestic and foreign issuers.
COLLATERALIZED MORTGAGE OBLIGATIONS: debt securities that are collateralized by
a portfolio of mortgages or mortgage-backed securities.
COMMERCIAL PAPER: unsecured short term debt issued by domestic and foreign banks
or corporations. These securities are usually discounted and are rated by S&P or
Moody's.
CONVERTIBLE SECURITIES: domestic and foreign debt securities that can be
converted into equity securities at a future time and price.
DEBT SECURITIES: securities used by issuers, such as governmental entities and
corporations, to borrow money. The issuer usually pays a fixed, variable or
floating rate of interest and repays the amount borrowed at the maturity date of
the security. However, if a borrower issues a zero coupon debt security, it does
not make regular interest payments.
DEPOSITARY RECEIPTS: instruments which are typically issued by financial
institutions and which represent ownership of securities of foreign
corporations. Depositary receipts are usually designed for use on U.S. and
European securities exchanges.
DISTRIBUTION FEE: a fee that covers the cost of the distribution system used to
sell shares to the public.
DURATION: a mathematical calculation of the average life of a bond that serves
as a useful measure of its price risk. Each year of duration represents an
expected 1% change in interest rates. For example, if a bond has an average
duration of 4 years, its price will move 4% when interest rates move 1%.
MANAGEMENT FEE: a fee paid to the investment adviser to manage the Fund and make
decisions about buying and selling the Fund's investments.
MORTGAGE DOLLAR ROLLS: the purchase of domestic or foreign mortgage-backed
securities with the promise to purchase similar securities upon the maturity of
the original security. Segregated accounts are used to offset leverage risk.
MORTGAGE-RELATED SECURITIES: securities that directly or indirectly represent an
interest in, or are secured by and paid from, mortgage loans secured by real
property.
OTHER EXPENSES: miscellaneous items, including transfer agency,
administration, custody and registration fees.
PARTICIPATION INTERESTS: interests that represent a share of domestic or foreign
bank debt or similar securities or obligations.
34
- --------------------------------------------------------------------------------
REPURCHASE AGREEMENTS: a type of short-term investment in which a dealer sells
securities to the Fund and agrees to buy them back later at a set price. In
effect, the dealer is borrowing the Fund's money for a short time, using the
securities as collateral.
REVERSE REPURCHASE AGREEMENTS: contracts whereby a Fund sells a security and
agrees to repurchase it from the buyer on a particular date and at a specific
price. Considered a form of borrowing.
SHAREHOLDER SERVICE FEE: a fee to cover the cost of paying shareholder servicing
agents to provide certain support services for your account.
SOVEREIGN DEBT, BRADY BONDS, AND DEBT OF SUPRANATIONAL ORGANIZATIONS: dollar- or
non-dollar-denominated securities issued by foreign governments or supranational
organizations. Brady bonds are issued in connection with debt restructurings.
STRIPPED OBLIGATIONS: debt securities which are separately traded interest-only
or principal-only components of an underlying obligation.
TAX EXEMPT MUNICIPAL SECURITIES: securities, generally issued as general
obligation and revenue bonds, whose interest is exempt from federal taxation and
state and/or local taxes in the state where the securities were issued.
U.S. GOVERNMENT SECURITIES: debt instruments (Treasury bills, notes, and bonds)
guaranteed by the U.S. government for the timely payment of principal and
interest.
ZERO COUPON, PAY-IN-KIND, AND DEFERRED PAYMENT SECURITIES: domestic and foreign
securities offering non-cash or delayed-cash payment. Their prices are typically
more volatile than those of some other debt instruments and involve certain
special tax considerations.
35
- --------------------------------------------------------------------------------
HOW TO REACH US
MORE INFORMATION
You'll find more information about the Funds in the following documents:
ANNUAL AND SEMI-ANNUAL REPORTS
Our annual and semi-annual reports contain more information about each Fund's
investments and performance.
STATEMENT OF ADDITIONAL INFORMATION (SAI)
The SAI contains more detailed information about the Funds and their policies.
It is incorporated by reference into this prospectus. This means, by law, it's
considered to be part of this prospectus.
You can get a free copy of these documents and other information, or ask us any
questions, by calling us at 1-800-766-7722 or writing to:
JPMORGAN INSTITUTIONAL FUNDS SERVICE CENTER
500 stanton Christiana Road
Newark, Delaware 19713
1-800-766-7722
If you buy your shares through an institution, please contact that institution
directly for more information.
You can also find information online at www.JPMorganfunds.com on the internet.
You can write or e-mail the SEC's Public Reference Room and ask them to mail you
information about the Funds, including the SAI. They'll charge you a copying fee
for this service. You can also visit the Public Reference Section and copy the
documents while you're there.
PUBLIC REFERENCE SECTION OF THE SEC
WASHINGTON, DC 20549-0102
1-202-942-8090
EMAIL: publicinfo@sec.gov
Reports, a copy of the SAI and other information about the Funds is also
available on the SEC's website at http://www.sec.gov.
The Funds' Investment Company Act File Nos. are 811-07342 (for the Bond Fund),
811-07841 (for the Intermediate Tax Free Income and New York Intermediate Tax
Free Income Funds) and 811-05151 (for the Fleming European Fund).
JPMorgan Funds Fulfillment Center
393 Manley Street
West Bridgewater, MA 02379-1039
-C- 2001 JPMorgan Chase & Co. All Rights Reserved. March 2001
1-501 X