-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, JoZwWcwfk2BDfVg1CFK/Ppc16ccOkT3W6khGyraEKK133qJGRsJdTRCfQGGVTdHE MNDZ2Nj5aNMSKXGlSxSiZQ== 0000912057-01-508823.txt : 20010417 0000912057-01-508823.hdr.sgml : 20010417 ACCESSION NUMBER: 0000912057-01-508823 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MUTUAL FUND SELECT TRUST CENTRAL INDEX KEY: 0001023772 STANDARD INDUSTRIAL CLASSIFICATION: [] FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: N-14 SEC ACT: SEC FILE NUMBER: 333-58986 FILM NUMBER: 1602765 BUSINESS ADDRESS: STREET 1: 1 CHASE MANHATTAN PLAZA STREET 2: 3RD FLOOR CITY: NEW YORK STATE: NY ZIP: 10081 BUSINESS PHONE: 7162584449 MAIL ADDRESS: STREET 1: VISTA ADMINISTRATION STREET 2: 1 CHASE SQ 7TH FL CITY: ROCHESTER STATE: NY ZIP: 14643 N-14 1 a2044362zn-14.txt N-14 As filed with the Securities and Exchange Commission on April 16, 2001 Registration No. 333-___/811-5151 ================================================================================ U.S. Securities and Exchange Commission Washington, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ___ Post-Effective Amendment No.___ (Check appropriate box or boxes) Exact Name of Registrant as Specified in Charter: MUTUAL FUND SELECT TRUST Area Code and Telephone Number: (212) 492-1600 Address of Principal Executive Offices: 1211 Avenue of the Americas, 41st Floor New York, New York 10036 Name and Address of Agent for Service: Lisa Hurley c/o BISYS Fund Services, Inc. 3435 Stelzer Road Columbus, Ohio 43219 Copies to: JOSEPH J. BERTINI, ESQ. PETER B. ELDRIDGE, ESQ. SARAH E. COGAN, ESQ. JOHN E. BAUMGARDNER, JR., ESQ. J.P. Morgan Fleming Asset Simpson Thacher & Bartlett Sullivan & Cromwell Management (USA) Inc. 425 Lexington Avenue 125 Broad Street 522 Fifth Avenue New York, NY 10017-3954 New York, NY 10004 New York, NY 10036
================================================================================ Approximate Date of Proposed Public Offering: As soon as practicable after the Registration Statement becomes effective under the Securities Act of 1933. It is proposed that this filing will become effective on May 16, 2001 pursuant to Rule 488 under the Securities Act of 1933. Calculation of Registration Fee under the Securities Act of 1933: No filing fee is required because an indefinite number of shares have previously been registered on Form N-1A (Registration No. 333-13319/811-7841) pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. The Registrant's lForm 24f-2 for the fiscal year ended August 31, 2000 was filed on November 27, 2000. Pursuant to Rule 429, this Registration Statement relates to the aforesaid Registration Statement on Form N-1A. J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND A SERIES OF J.P. MORGAN INSTITUTIONAL FUNDS 60 STATE STREET, SUITE 1300 BOSTON, MASSACHUSETTS 02109 May 16, 2001 Dear Shareholder: A special meeting of the shareholders of J.P. Morgan Institutional Tax Exempt Bond Fund (the "Merging Fund"), a series of J.P. Morgan Institutional Funds ("JPMIF"), will be held on July 3, 2001 at 9:00 a.m., Eastern time. Formal notice of the meeting appears after this letter, followed by materials regarding the meeting. As you may be aware, J.P. Morgan & Co. Incorporated, the former corporate parent of the investment adviser of the Merging Fund's assets, recently completed a merger with The Chase Manhattan Corporation to form J.P. Morgan Chase & Co. ("JPMC"). As a result of this merger, JPMC is seeking to reorganize parts of its investment management business in order to provide better service for shareholders of funds advised by its subsidiaries. At the special meeting (the "Meeting"), shareholders will be asked to consider and vote upon the proposed reorganization of the Merging Fund into JPMorgan Intermediate Tax Free Income Fund (formerly, Chase Vista Intermediate Tax Free Income Fund) (the "Surviving Fund"), a series of Mutual Fund Select Trust ("MFST") (the "Reorganization"). After the Reorganization, shareholders of the Merging Fund would hold shares of the Surviving Fund. The investment objective and policies of the Surviving Fund generally are similar to those of the Merging Fund. In connection with the Reorganization, the Surviving Fund will be renamed "JPMorgan Tax Exempt Bond Fund." After the proposed Reorganization, your investment will be in a larger combined fund with similar investment policies. The Surviving Fund has also entered into an agreement and plan of reorganization with J.P. Morgan Tax Exempt Bond Fund, a fund whose assets are managed by J.P. Morgan Investment Management Inc. ("JPMIM") and which has identical investment objectives and policies to the Merging Fund (the "Concurrent Reorganization"). If the Concurrent Reorganization is approved by the shareholders of J.P. Morgan Tax Exempt Bond Fund and certain other conditions are met, this other fund will be reorganized into the Surviving Fund. The consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. At the Meeting, you will also be asked to consider and vote upon the election of Trustees of JPMIF. The investment adviser for the assets of the Merging Fund is JPMIM. The investment adviser for the Surviving Fund is J.P. Morgan Fleming Asset Management (USA) Inc. ("JPMFAM"). After the Reorganization, JPMFAM, the same investment adviser that currently is responsible for the Surviving Fund, will make the day-to-day investment decisions for your portfolio. Please see the enclosed Combined Prospectus/Proxy Statement for detailed information regarding the proposed Reorganization, the Concurrent Reorganization and a comparison of the Merging Fund and JPMIF to the Surviving Fund and MFST. The cost and expenses associated with the Reorganization, including costs of soliciting proxies, will be borne by JPMC and not by the Merging Fund, JPMIF, the Surviving Fund, MFST or their shareholders. If approval of the Reorganization is obtained, you will automatically receive shares of the Surviving Fund. The Proposals have been carefully reviewed by the Board of Trustees of JPMIF, which has approved the Proposals. THE BOARD OF TRUSTEES OF JPMIF UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE PROPOSALS. Following this letter is a list of commonly asked questions. If you have any additional questions on voting of proxies and/or the meeting agenda, please call us at 1-800-766-7722. A proxy card is enclosed for your use in the shareholder meeting. This card represents shares you held as of the record date, __________, 2001. IT IS IMPORTANT THAT YOU COMPLETE, SIGN, AND RETURN YOUR PROXY CARD IN THE ENVELOPE PROVIDED OR CALL _________ AS SOON AS POSSIBLE. This will ensure that your shares will be represented at the Meeting to be held on July 3, 2001. Please read the enclosed materials carefully. You may, of course, attend the meeting in person if you wish, in which case the proxy can be revoked by you at the Meeting. Sincerely, Matthew Healey Chairman SPECIAL NOTE: Certain shareholders may receive a telephone call from our proxy solicitor, D.F. King & Co., Inc., or us to answer any questions you may have or to provide assistance in voting. Remember, your vote is important! Please sign, date and promptly mail your proxy card(s) in the return envelope provided or call _________ in order to vote. -2- WHY IS THE REORGANIZATION BEING PROPOSED? The Reorganization is being proposed because each Fund's board believes it is in the best interests of shareholders to combine funds that have similar investment objectives and policies and each board believes that the Reorganization should result in a more diversified fund and in better service for shareholders, including a wider variety of investment options. IF THE REORGANIZATION IS APPROVED, WHAT WILL HAPPEN? In connection with the Reorganization, the Merging Fund will transfer all of its assets and liabilities to the Surviving Fund and will receive, in exchange, shares of the Surviving Fund. The Merging Fund will then be liquidated and those shares of the Surviving Fund will be distributed pro rata to shareholders such as you. After the Reorganization, you will own shares of the Surviving Fund rather than shares of the Merging Fund. The Surviving Fund invests directly in portfolio securities rather than in a master portfolio. WHAT WILL BE THE EFFECT ON THE INVESTMENT STRATEGIES ASSOCIATED WITH MY INVESTMENT IF THE PROPOSED CHANGES ARE APPROVED? The Surviving Fund generally has similar investment objectives and policies to those of the Merging Fund. The principal differences are as follows:
SURVIVING FUND MERGING FUND -------------- ------------ - Investment objective is to seek to - Investment objective is to provide a provide monthly dividends, which high level of current income that is are excluded from gross income, exempt from federal income tax and to protect the value of your consistent with moderate risk of investment by investing primarily in capital. municipal obligations. - Invests in securities rated - May invest up to 10% of its assets investment grade or unrated in non-investment grade securities securities of comparable quality. (sometimes called "junk bonds") rated B or BB/Ba. - The Surviving Fund is not - The Merging Fund is diversified diversified under the 1940 Act. under the 1940 Act.
The Reorganization is not intended to have any immediate significant impact on the investment strategy implemented in respect of your investment. However, please note that while the Merging Fund invests all of its assets in the Tax Exempt Bond Portfolio (the "Master Portfolio") (which in turn invests in portfolio securities), the Surviving Fund invests directly in portfolio securities. -3- HOW WILL THE FEES AND EXPENSES ASSOCIATED WITH MY INVESTMENT BE AFFECTED? As a result of the Reorganization, the contractual (or pre-waiver) total expense ratios are expected to be higher for your shares in the Surviving Fund than they are for your shares in the Merging Fund. However, the actual (or post-waiver) total expense ratios are expected to be the same or less for your shares in the Surviving Fund than they are for your shares in the Merging Fund. This is because The Chase Manhattan Bank has contractually agreed to waive fees payable to it and reimburse expenses so that the total expense ratio will remain the same for at least THREE YEARS after the Reorganization. WILL THERE BE ANY CHANGE IN WHO MANAGES MY INVESTMENT? Yes. JPMFAM, the investment adviser that currently manages the day-to-day investment activities of the Surviving Fund, will continue to manage that fund after the Reorganization. WHO WILL PAY FOR THE REORGANIZATION? The cost and expenses associated with the Reorganization, including costs of soliciting proxies, will be borne by JPMC and not by either the Merging Fund or the Surviving Fund (or shareholders of either fund). WHAT IF I DO NOT VOTE OR VOTE AGAINST THE REORGANIZATION, YET APPROVAL OF THE REORGANIZATION IS OBTAINED? You will automatically receive shares of the Surviving Fund. HOW WILL THE PROPOSED CONCURRENT REORGANIZATION AFFECT MY INVESTMENT IF IT IS APPROVED BY THE SHAREHOLDERS OF THE OTHER FUND? If the Concurrent Reorganization is approved and certain other conditions are met, the assets and liabilities of the other merging fund will become the assets and liabilities of the Surviving Fund. The consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. WHY AM I BEING ASKED TO VOTE ON THE ELECTION OF TRUSTEES FOR JPMIF IF AFTER THE REORGANIZATION I WILL OWN SHARES IN THE SURVIVING FUND, A SERIES OF MFST? Even if the Reorganization is approved, other mutual funds that are series of JPMIF will continue to exist and operate. All shareholders of any series of JPMIF as of the record date (April 6, 2001) are required to be given a vote on proposals regarding Trustees. Because as of the record date you are still a shareholder in JPMIF, you are entitled to vote on this proposal. Shareholders of MFST are being asked to approve the same Trustees that are proposed for JPMIF. AS A HOLDER OF SHARES OF THE MERGING FUND, WHAT DO I NEED TO DO? Please read the enclosed Combined Prospectus/Proxy Statement and vote. Your vote is important! Accordingly, please sign, date and mail the proxy card(s) promptly in the enclosed -4- return envelope as soon as possible after reviewing the enclosed Combined Prospectus/Proxy Statement. MAY I ATTEND THE MEETING IN PERSON? Yes, you may attend the Meeting in person. If you complete a proxy card and subsequently attend the Meeting, your proxy can be revoked. Therefore, to ensure that your vote is counted, we strongly urge you to mail us your signed, dated and completed proxy card(s) even if you plan to attend the Meeting. -5- J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND, A SERIES OF J.P. MORGAN INSTITUTIONAL FUNDS 60 STATE STREET, SUITE 1300 BOSTON, MASSACHUSETTS 02109 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 3, 2001 To the Shareholders of J.P. Morgan Tax Exempt Bond Fund: NOTICE IS HEREBY GIVEN THAT a Special Meeting of the shareholders ("Shareholders") of J.P. Morgan Institutional Tax Exempt Bond Fund (the "Merging Fund"), a series of J.P. Morgan Institutional Funds ("JPMIF"), will be held at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st floor, New York, NY, on July 3, 2001 at 9:00 a.m., (Eastern time) for the following purposes: ITEM 1. To consider and act upon a proposal to approve an Agreement and Plan of Reorganization (the "Reorganization Plan") by and among JPMIF, on behalf of the Merging Fund, Mutual Fund Select Trust ("MFST"), on behalf of JPMorgan Intermediate Tax Free Income Fund (formerly, Chase Vista Intermediate Tax Free Income Fund) (the "Surviving Fund"), and J.P. Morgan Chase & Co., and the transactions contemplated thereby, including (a) the transfer of all of the assets and liabilities of the Merging Fund to the Surviving Fund in exchange for Institutional Class shares of the Surviving Fund (the "Surviving Fund Shares"); and (b) the distribution of such Surviving Fund Shares to the Shareholders of the Merging Fund in connection with the liquidation of the Merging Fund. ITEM 2. To elect __ Trustees to serve as members of the Board of Trustees of JPMIF. ITEM 3. To transact such other business as may properly come before the Special Meeting or any adjournment(s) thereof. YOUR FUND TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF ITEMS 1 AND 2. Each proposal is described in the accompanying Combined Prospectus/Proxy Statement. Attached as Appendix A to the Combined Prospectus/Proxy Statement is a copy of the Reorganization Plan. Shareholders of record as of the close of business on April 6, 2001 are entitled to notice of, and to vote at, the Special Meeting or any adjournment(s) thereof. SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF TRUSTEES OF JPMIF. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO THE MERGING FUND A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON. Margaret W. Chambers Secretary May 16, 2001 -2- COMBINED PROSPECTUS/PROXY STATEMENT DATED MAY 16, 2001 ACQUISITION OF THE ASSETS AND LIABILITIES OF J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND, A SERIES OF J.P. MORGAN INSTITUTIONAL FUNDS 60 STATE STREET, SUITE 1300 BOSTON, MASSACHUSETTS 02109 (617) 557-0700 BY AND IN EXCHANGE FOR SHARES OF JPMORGAN INTERMEDIATE TAX FREE INCOME FUND (FORMERLY, CHASE VISTA INTERMEDIATE TAX FREE INCOME FUND), A SERIES OF MUTUAL FUND SELECT TRUST 1211 AVENUE OF THE AMERICAS, 41ST FLOOR NEW YORK, NEW YORK 10036 (800) 766-7722 This Combined Prospectus/Proxy Statement relates to the proposed Reorganization of J.P. Morgan Institutional Tax Exempt Bond Fund (the "Merging Fund"), a series of J.P. Morgan Institutional Funds ("JPMIF"), into JPMorgan Intermediate Tax Free Income Fund (formerly, Chase Vista Intermediate Tax Free Income Fund) (the "Surviving Fund"), a series of Mutual Fund Select Trust ("MFST"). If approved by shareholders of the Merging Fund, the proposed Reorganization will be effected by transferring all of the assets and liabilities of the Merging Fund to the Surviving Fund, which has generally similar investment objectives and policies to those of the Merging Fund, in exchange for shares of the Surviving Fund (the "Reorganization"). Therefore, as a result of the proposed Reorganization, current shareholders of the Merging Fund (the "Merging Fund Shareholders") will become shareholders of the Surviving Fund ("Surviving Fund Shareholders"). JPMIF and MFST are both open-end management investment companies offering shares in several portfolios. In connection with the Reorganization, the Surviving Fund will be renamed "JPMorgan Tax Exempt Bond Fund." If the proposed Reorganization is approved by Merging Fund Shareholders, each Merging Fund Shareholder will receive Institutional Class shares (the "Surviving Fund Shares") of the Surviving Fund with a value equal to such Merging Fund Shareholder's holdings in the Merging Fund. The Surviving Fund currently offers Institutional Class shares. In connection with the Reorganization, this class will be renamed "Select Class" and the Surviving Fund will introduce a new Institutional Class of shares. At the Meeting, you also will be asked to consider and vote upon the election of Trustees of JPMF. The terms and conditions of these transactions are more fully described in this Combined Prospectus/Proxy Statement and in the Agreement and Plan of Reorganization (the -1- "Reorganization Plan") among JPMIF, on behalf of the Merging Fund, MFST, on behalf of the Surviving Fund, and J.P. Morgan Chase & Co. attached to this Combined Prospectus/Proxy Statement as Appendix A. The Board of Trustees for JPMIF is soliciting proxies in connection with a Special Meeting (the "Meeting") of Shareholders to be held on July 3, 2001 at 9:00 a.m., Eastern time, at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st floor, New York, NY, at which meeting shareholders in the Merging Fund will be asked to consider and approve the proposed Reorganization Plan, certain transactions contemplated by the Reorganization Plan and certain other proposals. This Combined Prospectus/Proxy Statement constitutes the proxy statement of the Merging Fund for the meeting of its Shareholders and also constitutes MFST's prospectus for Surviving Fund Shares that have been registered with the Securities and Exchange Commission (the "Commission") and are to be issued in connection with the Reorganization. This Combined Prospectus/Proxy Statement, which should be retained for future reference, sets forth concisely the information about MFT and JPMIF that an investor should know before voting on the proposals. The current Prospectuses, Statements of Additional Information and Annual Reports of Shareholders for the Merging Fund and the Surviving Fund (including the Annual Report of the Master Portfolio) and the Semi-Annual Report of the Surviving Fund (including the Semi-Annual Report of the Master Portfolio) are incorporated herein by reference, and the current Prospectus, Annual Report (including the Annual Report of The Tax Exempt Bond Portfolio) and the Semi-Annual Report (including the Semi-Annual Report of the Portfolio) to Shareholders for the Surviving Fund are enclosed with this Combined Prospectus/Proxy Statement. A Statement of Additional Information relating to this Combined Prospectus/Proxy Statement dated May 16, 2001 containing additional information about MFT and JPMIF has been filed with the Commission and is incorporated by reference into this Combined Prospectus/Proxy Statement. A copy of the Statement of Additional Information as well as the Prospectus, Statement of Additional Information, Annual Report and Semi-Annual Report of the Merging Fund (including the Annual Report and Semi-Annual Report of The Tax Exempt Bond Portfolio") may be obtained without charge by writing to MFT at its address noted above or by calling 1-800-766-7722. This Combined Prospectus/Proxy Statement is expected to first be sent to shareholders on or about May 16, 2001. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR -2- MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MFST OR JPMIF. INVESTMENTS IN THE SURVIVING FUND ARE SUBJECT TO RISK--INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NO SHARES IN THE SURVIVING FUND ARE BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY, OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. -3- TABLE OF CONTENTS
PAGE ---- INTRODUCTION......................................................................................................1 PROPOSAL 1: REORGANIZATION PLAN..................................................................................1 SUMMARY...........................................................................................................1 COMPARATIVE FEE AND EXPENSE TABLES................................................................................5 RISK FACTORS......................................................................................................8 INFORMATION RELATING TO THE PROPOSED REORGANIZATION...............................................................9 INVESTMENT POLICIES..............................................................................................14 PURCHASES, REDEMPTIONS AND EXCHANGES.............................................................................19 DISTRIBUTIONS AND TAXES..........................................................................................23 COMPARISON OF THE MERGING FUND'S AND THE SURVIVING FUND'S ORGANIZATION STRUCTURE................................................................................24 INFORMATION RELATING TO THE ADVISORY CONTRACTS AND OTHER SERVICES...............................................................................................26 PROPOSAL 2: ELECTION OF TRUSTEES.................................................................................29 VOTE REQUIRED....................................................................................................30 INFORMATION RELATING TO VOTING MATTERS...........................................................................34 ADDITIONAL INFORMATION ABOUT MFST................................................................................36 ADDITIONAL INFORMATION ABOUT JPMIF...............................................................................37 FINANCIAL STATEMENTS AND EXPERTS.................................................................................37 OTHER BUSINESS...................................................................................................37 LITIGATION.......................................................................................................38 SHAREHOLDER INQUIRIES............................................................................................38 APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION................................................................A-1
-i- INTRODUCTION GENERAL This Combined Prospectus/Proxy Statement is being furnished to the shareholders of the Merging Fund, an open-end management investment company, in connection with the solicitation by the Board of Trustees of JPMIF of proxies to be used at a Special Meeting of Shareholders of the Merging Fund to be held on July 3, 2001 at 9:00 a.m., Eastern time, at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st floor, New York, NY (together with any adjournments thereof, the "Meeting"). It is expected that the mailing of this Combined Prospectus/Proxy Statement will be made on or about May 16, 2001. PROPOSAL 1: REORGANIZATION PLAN At the Meeting, Merging Fund Shareholders will consider and vote upon the Agreement and Plan of Reorganization (the "Reorganization Plan") dated _______, 2001 among JPMIF, on behalf of the Merging Fund, MFST, on behalf of the Surviving Fund (the Merging Fund and the Surviving Fund are collectively defined as the "Funds"), and J.P. Morgan Chase & Co. ("JPMC"), pursuant to which all of the assets and liabilities of the Merging Fund will be transferred to the Surviving Fund in exchange for Surviving Fund Shares. As a result of the Reorganization, Merging Fund Shareholders will become shareholders of the Surviving Fund and will receive Surviving Fund Shares equal in value to their holdings in the Merging Fund on the date of the Reorganization. In connection with the Reorganization, the Surviving Fund will be renamed "JPMorgan Tax Free Bond Fund." Further information relating to the Surviving Fund is set forth herein, and the Surviving Fund's Prospectus and Annual Report is enclosed with this Combined Prospectus/Proxy Statement. THE JPMIF BOARD HAS UNANIMOUSLY RECOMMENDED THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 1. VOTE REQUIRED Approval of the Reorganization Plan by the Merging Fund requires the affirmative vote of the lesser of (i) 67% or more of the shares of the Merging Fund present at the Meeting if the holders of more than 50% of the outstanding shares of the Merging Fund are present or represented by proxy and (ii) more than 50% of all outstanding shares of the Merging Fund. If the Reorganization Plan is not approved by the Merging Fund Shareholders, the JPMIF Board will consider other appropriate courses of action. SUMMARY The following is a summary of certain information relating to the proposed Reorganization, the parties thereto and the transactions contemplated thereby, and is qualified by reference to the more complete information contained elsewhere in this Combined Prospectus/Proxy Statement, the Prospectus, Statement of Additional Information and Annual Report in respect of each of the Surviving Fund and the Merging Fund (including the Annual Report of The Tax Exempt Bond Portfolio), the Semi-Annual Report in respect of the Merging Fund (including the Semi-Annual Report of The Tax Exempt Bond Portfolio) and the Reorganization Plan attached to this Combined Prospectus/Proxy Statement as Appendix A. PROPOSED REORGANIZATION Pursuant to the proposed Reorganization, the Merging Fund will transfer all of its assets and liabilities to the Surviving Fund in exchange for shares of the Surviving Fund. Under the proposed Reorganization, each Merging Fund Shareholder will receive a number of Institutional Class shares of the Surviving Fund with an aggregate net asset value equal on the date of the exchange to the aggregate net asset value of such shareholder's Merging Fund Shares on such date. Therefore, following the proposed Reorganization, Merging Fund Shareholders will be Surviving Fund Shareholders. Merging Fund Shareholders will not pay a sales charge in connection with the Reorganization. See "Information Relating to the Proposed Reorganization." The Surviving Fund has investment objectives, policies and restrictions generally similar to the Merging Fund. Based upon their evaluation of the relevant information presented to them, including an analysis of the operation of the Surviving Fund both before and after the Reorganization, the terms of the Reorganization Plan, the opportunity to combine the two Funds with generally similar investment objectives and policies, and the fact that the Reorganization will be tax-free, and in light of their fiduciary duties under federal and state law, the MFST Board and the JPMIF Board, including a majority of each Board's members who are not "interested persons" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"), have each determined that the proposed Reorganization is in the best interests of each Fund and its respective shareholders and that the interests of such shareholders will not be diluted as a result of such Reorganization. REASONS FOR THE REORGANIZATION The Reorganization is being proposed because each Fund's board believes it is in the best interests of shareholders to combined funds that have [similar/identical] investment objectives and policies and each board believes that the Reorganization should result in a more diversified fund and in better service for shareholders, including a wider variety of investment options. CONCURRENT REORGANIZATION The Merging Fund currently invests all of its investable assets in The Tax Exempt Bond Portfolio (the "Master Portfolio"), which has identical investment objectives and policies as the Merging Fund and which is advised by J.P. Morgan Investment Management Inc. ("JPMIM"). J.P. Morgan Tax Exempt Bond Fund, a series of J.P. Morgan Funds with identical investment objectives and policies as the Merging Fund (the "Feeder Portfolio") also currently invests all of its investable assets in the Master Portfolio. The Surviving Fund has entered into a substantially similar agreement and plan of reorganization with the Feeder Portfolio (the "Concurrent Reorganization"). If each of the -2- Reorganization and the Concurrent Reorganization is approved by the shareholders of the Merging Fund and the Feeder Portfolio, respectively, and certain other conditions are met, the Merging Fund and the Feeder Portfolio will be reorganized into the Surviving Fund and those funds will no longer invest their assets in the Master Portfolio. The consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. FEDERAL INCOME TAX CONSEQUENCES Simpson Thacher & Bartlett will issue an opinion (based on certain assumptions) as of the effective time of the Reorganization to the effect that the transaction will not give rise to the recognition of income, gain or loss for federal income tax purposes to the Merging Fund, the Surviving Fund or the shareholders of the Merging Fund. A shareholder's holding period and tax basis of Surviving Fund Shares received by a Shareholder of a Merging Fund will be the same as the holding period and tax basis of such shareholder's shares of the Merging Fund. In addition, the holding period and tax basis of those assets owned by the Merging Fund and transferred to the Surviving Fund will be identical for the Surviving Fund. See "Information Relating to the Proposed Reorganization - Federal Income Tax Consequences." INVESTMENT ADVISERS The investment adviser for the Master Portfolio (and therefore the assets of the Merging Fund and the Feeder Portfolio) is JPMIM. The investment adviser for the Surviving Fund is J.P. Morgan Fleming Asset Management (USA) Inc. ("JPMFAM"). JPMFAM and JPMIM are each wholly-owned subsidiaries of JPMC. JPMFAM will continue to serve as investment adviser for the Surviving Fund following the Reorganization. INVESTMENT OBJECTIVES AND POLICIES The investment objective of the Surviving Fund is to seek 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 investment objective of the Merging Fund is to provide a high level of current income that is exempt from federal income tax consistent with moderate risk of capital. See "Risk Factors" and "Investment Policies." The investment policies of the Surviving Fund generally are similar to those of the Merging Fund. However, there are certain important differences. The Surviving Fund invests its assets directly in portfolio securities, while the Merging Fund invests its assets in the Master Portfolio, which in turn invests in portfolio securities. As a fundamental policy, the Surviving Fund normally invests at least 80% of its total assets in municipal obligations whose interest payments are (i) excluded from gross income and (ii) excluded from the federal alternative minimum tax on individuals. The Surviving Fund invests in securities that are rated as investment grade (BBB/Baa or above) by Standard & Poor's, Moody's or Fitch. It may also invest in -3- unrated securities of comparable quality. THE MERGING FUND MAY INVEST UP TO 10% OF ITS ASSETS IN NON-INVESTMENT GRADE SECURITIES (SOMETIMES CALLED "JUNK BONDS") RATED B OR BB/Ba OR THE UNRATED EQUIVALENT. The Surviving Fund is not diversified under the 1940 Act, which means it can invest a greater percentage of its assets in a particular issuer or group of issuers than a diversified fund would. THE MERGING FUND IS DIVERSIFIED. The average dollar-weighted maturity of the Surviving Fund's portfolio will be between three and 10 years. THE MERGING FUND'S SECURITIES MAY BE OF ANY MATURITY. PRINCIPAL RISKS OF INVESTING IN THE SURVIVING FUND The principal risk factors associated with an investment in the Surviving Fund are those typically associated with investing in a managed portfolio of fixed income securities. In particular, the value of shares of the Surviving Fund will be influenced by the performance of the securities selected for its portfolio. 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 Surviving 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 Surviving Fund's total assets may be invested in any one municipality, which could increase this risk. Normally, the Surviving Fund may invest up to 20% of its total assets in securities whose interest is subject to the federal alternative minimum tax. The Surviving 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. See "Risk Factors." CERTAIN ARRANGEMENTS WITH SERVICE PROVIDERS ADVISORY SERVICES The investment adviser for the Surviving Fund is JPMFAM. JPMFAM oversees the asset management of the Surviving Fund. As compensation for its services, JPMFAM receives a management fee from the Surviving Fund at an annual rate of 0.30% of average daily net assets. The Merging Fund currently pays a management fee indirectly at an annual rate of 0.30% of average daily net assets. Following the Reorganization, JPMFAM will manage the Surviving Fund's assets and will receive a fee at an annual rate of 0.30% of average daily net assets. OTHER SERVICES J.P. Morgan Fund Distributors, Inc. (the "Distributor") is the distributor for the Surviving Fund. The Chase Manhattan Bank ("Chase") serves as shareholder servicing agent, administrator, fund accountant and custodian, the Distributor serves as sub-administrator and DST Systems, Inc. ("DST") serves as transfer agent and dividend -4- disbursing agent for the Surviving Fund. PricewaterhouseCoopers LLP serves as the Surviving Fund's independent accountants. ADMINISTRATOR As administrator, Chase receives a fee of 0.15% of average daily net assets. It is anticipated that, in connection with the Reorganization, the administration fee will be amended to reduce the fee to 0.075% for complex wide non-money market Fund assets in excess of $25 billion. ORGANIZATION Each of MFST and JPMIF is organized as a Massachusetts business trust. The Merging Fund is organized as a series of JPMIF and the Surviving Fund is organized as a series of MFST. PURCHASES, REDEMPTIONS AND EXCHANGES After the Reorganization, the procedures for making purchases, redemptions and exchanges of shares of the Surviving Fund will be as described in this Combined Prospectus/Proxy Statement and in the Surviving Fund's Prospectus and Statement of Additional Information. COMPARATIVE FEE AND EXPENSE TABLES The table below shows (i) information regarding the fees and expenses paid by each of the Merging Fund and the Surviving Fund that reflect current expense arrangements; and (ii) estimated fees and expenses on a pro forma basis for the Surviving Fund after giving effect to the proposed Reorganization and the Concurrent Reorganization. Under the proposed Reorganization, holders of shares of the Merging Fund will receive Institutional Class shares of the Surviving Fund. Please note that the Surviving Fund currently offers Institutional Class shares. In connection with the Reorganization and the Concurrent Reorganization, this class will be renamed "Select Class" and the Surviving Fund will introduce a new Institutional Class of shares. The table indicates that while contractual (pre-waiver) total expense ratios for current shareholders of the Merging Fund are anticipated to be higher following the Reorganization, actual (post-waiver) total expense ratios for current shareholders of the Merging Fund are anticipated to be less or stay the same following the Reorganization. This is because Chase has agreed to waive certain fees and/or reimburse certain expenses to ensure that actual total operating expenses do not increase for at least three years. -5-
THE MERGING FUND THE SURVIVING FUND -------------------- ---------------------- INSTITUTIONAL CLASS SHARES SHARES* -------------------- ---------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) -Maximum Sales Charge (Load) when you buy shares, shown as % of the offering price........... None None Maximum Deferred Sales Charge (Load) shown as lower of original purchase price or redemption proceeds........................... None None ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees............................................ 0.30% 0.30% Distribution (12b-1) Fees.................................. None None Other Expenses............................................. 0.21% 0.45% # Total Annual Fund Operating Expenses....................... 0.51% 0.75% #
* Based on the expenses incurred in the most recent fiscal year. # Restated from the most recent fiscal year to reflect current expense arrangements. -6-
THE SURVIVING FUND ------------------------ PRO FORMA WITH CONCURRENT REORGANIZATION ------------------------ Institutional Shares ------------------------ SHAREHOLDER FEES (fees paid directly from your investment)- Maximum Sales Charge (Load) when you buy shares, shown as % of the offering price.......................................................... None Maximum Deferred Sales Charge (Load) shown as lower of original purchase price or redemption proceeds None ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees 0.30% Distribution (12b-1) Fees None Other Expenses 0.29% Total Annual Fund Operating Expenses 0.59% Fee Waivers and Expense Reimbursements (A) (0.09)% Net Expenses 0.50%
(A) Reflects an agreement by Chase, an affiliate of JPMC, to reimburse the Fund to the extent operating expenses (which exclude interest, taxes and extraordinary expense) exceed 0.50% of average daily net assets with respect to Institutional Class Shares for three years after the Reorganization. EXAMPLE: This example helps investors compare the cost of investing in the Funds with the cost of investing in other mutual funds. The example assumes: - - you invest $10,000; - - you sell all of your shares at the end of each period; - - your investment has a 5% return each year; and -7- - - each Fund's operating expenses are waived for three years after the Reorganization remain the same as shown above. Although actual costs may be higher or lower, based upon these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS ---------- ---------- ---------- ---------- THE MERGING FUND........................................... $ 52 $ 164 $ 285 $ 640 THE SURVIVING FUND Institutional Class Shares.............................. $ 77 $ 240 $ 417 $ 930 PRO FORMA THE SURVIVING FUND WITH CONCURRENT REORGANIZATION Institutional Class Shares.............................. $ 51 $ 160 $ 301 $ 711
RISK FACTORS The following discussion highlights the principal risk factors associated with an investment in the Surviving Fund. The Surviving Fund generally has investment policies and investment restrictions generally similar to those of the Merging Fund. Therefore, there should be similarities between the risk factors associated with the Surviving Fund and the Merging Fund. This discussion is qualified in its entirety by the more extensive discussion of risk factors set forth in the Prospectus and Statement of Additional Information of the Surviving Fund, which are incorporated herein by reference. All mutual funds carry a certain amount of risk. You may lose money on your investment in the Surviving Fund. The Surviving Fund may not achieve its objective if JPMFAM's expectations regarding particular securities or markets are not met. Adverse market conditions may from time to time cause the Fund to take temporary defensive positions that are inconsistent with its principal investment strategies and may hinder the Fund from achieving its investment objective. 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 Surviving 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. The Surviving 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 Surviving Fund's total assets may be invested in securities that rely on similar projects for their income stream. As a result, the Surviving Fund could be more susceptible to developments that affect those projects. THE MERGING FUND IS DIVERSIFIED. -8- 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 Surviving 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 Surviving Fund could increase if the banking or financial sector suffers an economic downturn. The Surviving 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 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 Surviving Fund's original investment. Investments in the Surviving 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. INFORMATION RELATING TO THE PROPOSED REORGANIZATION GENERAL The terms and conditions under which the Reorganization may be consummated are set forth in the Reorganization Plan. Significant provisions of the Reorganization Plan are summarized below; however, this summary is qualified in its entirety by reference to the Reorganization Plan, a copy of which is attached as Appendix A to this Combined Prospectus/Proxy Statement and which is incorporated herein by reference. -9- DESCRIPTION OF THE REORGANIZATION PLAN In connection with the Reorganization and the Concurrent Reorganization, the Merging Fund will cease investing in the Merging Fund Master Portfolio. The Reorganization Plan provides that at the Effective Time (as defined in the Reorganization Plan) of the Reorganization, the assets and liabilities of the Merging Fund will be transferred to and assumed by the Surviving Fund. In exchange for the transfer of the assets and the assumption of the liabilities of the Merging Fund, MFST will issue at the Effective Time of the Reorganization full and fractional Institutional Class shares of the Surviving Fund equal in aggregate dollar value to the aggregate net asset value of full and fractional outstanding shares of the Merging Fund as determined at the valuation time specified in the Reorganization Plan. The Reorganization Plan provides that the Merging Fund will declare a dividend or dividends prior to the Effective Time of the Reorganization which, together with all previous dividends, will have the effect of distributing to Merging Fund Shareholders all undistributed net investment income earned and net capital gain realized up to and including the Effective Time of the Reorganization. Following the transfer of assets to, and the assumption of the liabilities of the Merging Fund by, the Surviving Fund, the Merging Fund will distribute Institutional Class Shares received by it to the Merging Fund Shareholders in liquidation of the Merging Fund. Each Merging Fund Shareholder at the Effective Time of the Reorganization will receive an amount of Institutional Class shares with a total net asset value equal to the net asset value of their Merging Fund Shares plus the right to receive any dividends or distributions which were declared before the Effective Time of the Reorganization but that remained unpaid at that time with respect to the shares of the Merging Fund. The Surviving Fund expects to maintain most of the portfolio investments of the Merging Fund in light of the similar investment policies of the Merging Fund and the Surviving Fund. After the Reorganization, all of the issued and outstanding shares of the Merging Fund shall be canceled on the books of the Merging Fund and the stock transfer books of the Merging Fund will be permanently closed. The Reorganization is subject to a number of conditions, including without limitation: approval of the Reorganization Plan and the transactions contemplated thereby described in this Combined Prospectus/Proxy Statement by the Merging Fund Shareholders; the receipt of a legal opinion from Simpson Thacher & Bartlett with respect to certain tax issues, as more fully described in "Federal Income Tax Consequences" below; and the parties' performance in all material respects of their respective agreements and undertakings in the Reorganization Plan. Assuming satisfaction of the conditions in the Reorganization Plan, the Effective Time of the Reorganization will be on August 11, 2001 or such other date as is agreed to by the parties. In addition, the consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. -10- The expenses of the Funds in connection with the Reorganization will be borne by JPMC. The Reorganization Plan and the Reorganization described herein may be abandoned at any time prior to the Effective Time of the Reorganization by either party if a material condition to the performance of such party under the Reorganization Plan or a material covenant of the other party is not fulfilled by the date specified in the Reorganization Plan or if there is a material default or material breach of the Reorganization Plan by the other party. In addition, either party may terminate the Reorganization Plan if its trustees determine that proceeding with the Reorganization Plan is not in the best interests of their Fund's shareholders. BOARD CONSIDERATIONS The JPMF Board met on March 26 and 27, 2001 and the MFST Board met on April 3, 2001, and each considered and discussed the proposed Reorganization. The Trustees of each Board discussed the advantages of reorganizing the Merging Fund into the Surviving Fund. The Board of each trust has determined that it is in the best interests of the Fund's shareholders to combine the Merging Fund with the Surviving Fund. This Reorganization is part of the general integration of the J.P. Morgan and former Chase Vista funds into a single mutual fund complex. In reaching the conclusion that the Reorganization is in the best interests of Fund shareholders, each Board considered a number of factors including, among others: The terms of the Reorganization Plan; a comparison of each Fund's historical and projected expense ratios; the comparative investment performance of the Merging Fund and the Surviving Fund; the anticipated effect of such Reorganization on the relevant Fund and its shareholders; the investment advisory services supplied by the Surviving Fund's investment adviser; the management and other fees payable by the Surviving Fund; the similarities and differences in the investment objectives and policies of the Merging Fund and the Surviving Fund; and the recommendations of the relevant Fund's current investment adviser with respect to the proposed Reorganization. Each Board determined that the Funds have generally similar investment objectives and policies. They noted that the Reorganization could permit the shareholders of the Merging Fund to pursue similar investment goals in a larger fund that has generally had better historical performance. A larger fund should enhance the ability of the investment adviser to effect portfolio transactions on more favorable terms and provide greater flexibility and the ability to select a larger number of portfolio securities. This could result in increased diversification for shareholders. In addition, the larger aggregate asset base could, over time, result in lower overall expense ratios for shareholders through the spreading of both fixed and variable costs of operations over a larger asset base. As a general rule, economies of scale may be realized with respect to fixed expenses, such as costs of printing and fees for professional services, although expenses that are based on the -11- value of assets or the number of shareholder accounts, such as custody fees, would be largely unaffected by the Reorganization. Each Board also considered benefits expected to arise as a result of the Reorganization. Among these benefits, the Board noted that Surviving Fund Shareholders would be able to exchange into a larger number and greater variety of funds and the Surviving Fund would also benefit from the administrator's overall intent to enhance its ability effectively to monitor and oversee the quality of all service providers to the fund, including the investment adviser. Finally, the Board considered the expenses related to the Reorganization. The Board noted the administrator's undertaking to waive fees or reimburse the Surviving Fund's expenses so that the total expense ratio of each share class of the Merging Fund does not increase during the period specified in the expense table. Additional important factors were that all costs and expenses of the Reorganization would be borne by JPMC and the fact that the Board was advised that Reorganization would constitute a tax-free reorganization. After considering the foregoing factors, together with such information as it believed to be relevant, and in light of its fiduciary duties under federal and state law, each Board determined that the proposed Reorganization is in the best interests of the applicable Fund and its shareholders, determined the interests of the shareholders would not be diluted as a result of the Reorganization, approved the Reorganization Plan and directed that the Reorganization Plan be submitted to the Merging Fund Shareholders for approval. THE JPMIF BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL. The JPMIF Board has not determined what action the Merging Fund will take in the event shareholders do not approve the Reorganization Plan or for any reason the Reorganization is not consummated. In either such event, the Board will consider other appropriate courses of action. INFORMATION RELATING TO CONCURRENT REORGANIZATION The terms and conditions under which the Concurrent Reorganization may be consummated are set forth in a reorganization plan which is substantially similar to the Reorganization Plan you are considering. Concurrently with the Reorganization and the Concurrent Reorganization, the Merging Fund and the Feeder Portfolio will no longer invest their assets in the Master Portfolio. The consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. FEDERAL INCOME TAX CONSEQUENCES Consummation of the Reorganization is subject to the condition that JPMIF receive an opinion from Simpson Thacher & Bartlett to the effect that for federal income tax -12- purposes: (i) the transfer of all of the assets and liabilities of the Merging Fund to the Surviving Fund in exchange for the Surviving Fund Shares and the liquidating distributions to shareholders of the Surviving Fund Shares so received, as described in the Reorganization Plan, will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and with respect to the Reorganization, the Merging Fund and the Surviving Fund will each be considered "a party to a reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized by the Merging Fund as a result of such transaction; (iii) no gain or loss will be recognized by the Surviving Fund as a result of such transaction; (iv) no gain or loss will be recognized by the Merging Fund Shareholders on the distribution to the Merging Fund Shareholders of the Surviving Fund Shares solely in exchange for their Merging Fund Shares; (v) the aggregate basis of shares of the Surviving Fund received by a shareholder of the Merging Fund will be the same as the aggregate basis of such Merging Fund Shareholder's Merging Fund Shares immediately prior to the Reorganization; (vi) the basis of the Surviving Fund in the assets of the Merging Fund received pursuant to such transaction will be the same as the basis of such assets in the hands of the Merging Fund immediately before such transaction; (vii) a Merging Fund Shareholder's holding period for the Surviving Fund Shares will be determined by including the period for which such Merging Fund Shareholder held the Merging Fund Shares exchanged therefor, provided that the Merging Fund Shareholder held such Merging Fund Shares as a capital asset; and (viii) the Surviving Fund's holding period with respect to the assets received in the Reorganization will include the period for which such assets were held by the Merging Fund. JPMIF has not sought a tax ruling from the Internal Revenue Service (the "IRS"), but is acting in reliance upon the opinion of counsel discussed in the previous paragraph. That opinion is not binding on the IRS and does not preclude the IRS from adopting a contrary position. Shareholders should consult their own advisers concerning the potential tax consequences to them, including state and local income taxes. CAPITALIZATION Because the Merging Fund will be combined with the Surviving Fund in the Reorganization as well as another fund as a result of the Concurrent Reorganization, the total capitalization of the Surviving Fund after the Reorganization and the Concurrent Reorganization is expected to be greater than the current capitalization of the Merging Fund. The following table sets forth as of February 28, 2001: (i) the capitalization of the Merging Fund; (ii) the capitalization of the Surviving Fund; and (iii) the pro forma capitalization of the Surviving Fund as adjusted to give effect to the Reorganization and the Concurrent Reorganization. There is, of course, no assurance that the Reorganization and the Concurrent Reorganization will be consummated. Moreover, if consummated, the capitalizations of the Surviving Fund and the Merging Fund are likely to be different at the Effective Time of the Reorganization as a result of fluctuations in the value of portfolio securities of each Fund and daily share purchase and redemption activity in each Fund. The Surviving Fund currently offers Institutional Class shares. In connection with the Reorganization and the Concurrent Reorganization, this class will be renamed "Select Class" and the Surviving Fund will introduce a new Institutional Class of shares. -13- CAPITALIZATION PRO FORMA WITH CONCURRENT REORGANIZATION (AMOUNTS IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
BENEFICIAL SHARES NET ASSETS NET ASSET INTEREST OUTSTANDING VALUE PER OUTSTANDING SHARE J.P. MORGAN FUNDS Tax Exempt Bond 29,761 - $354,798 $11.92 Intitutional Tax Exempt Bond (The Merging Fund) 52,586 - $541,218 $10.29 Surviving Fund Institutional Shares - 65,766 705,863 $10.73 PRO FORMA COMBINED WITH CONCURRENT REORGANIZATION Select Shares - 98,823 $1,060,661 $10.73 Institutional Shares - 50,426 $541,218 $10.73
INVESTMENT POLICIES The following discussion summarizes some of the investment policies of the Surviving Fund. Except as noted below, the Merging Fund generally has similar investment policies to those of the Surviving Fund. This section is qualified in its entirety by the discussion in the Prospectus and Statement of Additional Information of the Surviving Fund, which are incorporated herein by reference. OBJECTIVE The investment objective of the Surviving Fund is to seek 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 INVESTMENT OBJECTIVE OF THE MERGING FUND IS TO PROVIDE A HIGH LEVEL OF CURRENT INCOME THAT IS EXEMPT FROM FEDERAL INCOME TAX CONSISTENT WITH MODERATE RISK OF CAPITAL. Both Funds may change their objective without shareholder approval. MAIN INVESTMENT STRATEGIES The Surviving Fund invests its assets directly in portfolio securities. THE MERGING FUND INVESTS ITS ASSETS IN THE MASTER PORTFOLIO, WHICH IN TURN INVESTS IN PORTFOLIO SECURITIES. As a fundamental policy, the Surviving Fund normally invests at least 80% of its total assets in municipal obligations whose interest payments are: o excluded from gross income, and o excluded from the federal alternative minimum tax on individuals. Municipal obligations are those issued by states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities. The Surviving 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 MERGING FUND MAY INVEST UP TO 10% OF ITS ASSETS IN NON-INVESTMENT GRADE SECURITIES (SOMETIMES CALLED "JUNK BONDS") RATED B OR BB/BA OR THE UNRATED EQUIVALENT. -14- The Surviving 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 Surviving 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. The average dollar-weighted maturity of the Surviving Fund's portfolio will be between three and 10 years. THE MERGING FUND'S SECURITIES MAY BE OF ANY MATURITY, BUT IT'S DURATION GENERALLY WILL RANGE BETWEEN FOUR AND SEVEN YEARS. Under normal market conditions, the Surviving 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 Surviving 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 Surviving Fund may also invest in municipal lease obligations. These allow the Fund to participate in municipal lease agreements and installment purchase contracts. The Surviving 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 Surviving 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 Surviving Fund may change any of its non-fundamental investment policies (including its investment objective) without shareholder approval. How frequently the Surviving Fund buys and sells securities will vary from year to year, depending on market conditions. INVESTMENT RESTRICTIONS The Surviving Fund and the Merging Fund have each adopted the following investment restrictions which may not be changed without approval by a "majority of the outstanding shares" of a Fund, which means the vote of the lesser of (i) 67% or more of the shares of a Fund present at a meeting, if the holders of more than 50% of the -15- outstanding shares of a Fund are present or represented by proxy, and (ii) more than 50% of the outstanding shares of a Fund.
- -------------------------------------------------------- ----------------------------------------------- SURVIVING FUND MERGING FUND ----------------- --------------- - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund is non-diversified The Merging Fund may not make any under the 1940 Act. investment inconsistent with the Fund's classification as a diversified investment company under the 1940 Act. - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not purchase the The Merging Fund may not purchase any securities of any issuer (other than securities security which would cause it to concentrate issued or guaranteed by the U.S. its investments in the securities of issuers government or any of its agencies or primarily engaged in any particular industry instrumentalities, or repurchase agreements except as permitted by the Commission. secured thereby) if, as a result, more than 25% of the Surviving Fund's total assets would be invested in the securities of companies whose principal business activities are in the same industry. Notwithstanding the foregoing, with respect to the Surviving Fund's permissible futures and options transactions in U.S. Government securities, positions in such options and futures shall not be subject to this restriction. This restriction is not applicable to investments in the municipal obligations where the issuer is regarded as a state, city, municipality or other public authority since such entities are not members of any "industry." - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not borrow The Merging Fund may not borrow money, money, except for temporary or emergency except to the extent permitted by applicable purposes, or by engaging in reverse law. repurchase transactions, in an amount not exceeding 33-1/3% of the value of its total assets at the time when the loan is made and may pledge, mortgage or hypothecate no more than 1/3 of its net assets to secure such borrowings. Any borrowings representing more than 5% of the Surviving Fund's total assets must be repaid before the Surviving Fund may make additional investments. - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not purchase or The Merging Fund may not purchase or sell - -------------------------------------------------------- ----------------------------------------------- -16- sell physical commodities unless acquired commodities or commodity contracts unless as a result of ownership of securities or acquired as a result of ownership of other instruments but this shall not prevent securities or other instruments issued by the Fund from (i) purchasing or selling persons that purchase or sell commodities options and futures contracts or from or commodities contracts; but this shall not investing in securities or other instruments prevent the Merging Fund from purchasing, backed by physical commodities or (ii) selling and entering into financial futures engaging in forward purchases or sales of contracts (including futures contracts on foreign currencies or securities. indices of securities, interest rates and currencies), options on financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), warrants, swaps, forward contracts, foreign currency spot and forward contracts or other derivative instruments that are not related to physical commodities. - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not make loans, The Merging Fund may make loans to other except that the Surviving Fund may: (i) persons, in accordance with the Fund's purchase and hold debt instruments investment objective and policies and to the (including without limitation, bonds, notes, extent permitted by applicable law. debentures or other obligations and certificates of deposit, bankers' acceptances and fixed time deposits) in accordance with its investment objectives and policies; (ii) enter into repurchase agreements with respect to portfolio securities; and (iii) lend portfolio securities with a value not in excess of one-third of the value of its total assets. SHAREHOLDERS OF THE SURVIVING FUND CURRENTLY ARE CONSIDERING A PROPOSAL THAT, IF PASSED AT A SHAREHOLDER MEETING TO BE HELD THE SAME DAY AS THE MEETING OF THE MERGING FUND, WOULD ADOPT A FUNDAMENTAL INVESTMENT RESTRICTION REGARDING LOANS TO THE MERGING FUND'S RESTRICTION. - -------------------------------------------------------- -----------------------------------------------
Neither Fund may issue senior securities, except as permitted under the 1940 Act or any rule, order or interpretation thereunder. Neither Fund may underwrite securities of other issuers, except to the extent that the Fund, in disposing of portfolio securities, may be deemed an underwriter within the meaning of the Securities Act of 1933, as amended. -17- Neither Fund may purchase or sell real estate (including, for the Surviving Fund, real estate limited partnerships), except that, to the extent permitted by applicable law, each Fund may (a) invest in securities or other instruments directly or indirectly secured by real estate, (b) invest in securities or other instruments issued by issuers that invest in real estate and (c) make direct investments in mortgages. Notwithstanding any other investment policy or restriction, the Surviving Fund may seek to achieve its investment objective by investing all of its investable assets in another investment company having substantially the same investment objective and policies as the Surviving Fund. The Merging Fund currently invests all of its investable assets in the Master Portfolio. Following the Reorganizations, the Merging Fund will invest directly in portfolio securities. NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions described below are not fundamental policies of the Surviving Fund and/or the Merging Fund and may be changed by their respective Trustees.
- -------------------------------------------------------- ----------------------------------------------- SURVIVING FUND MERGING FUND ---------------- -------------- - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not invest more The Merging Fund may not acquire any than 15% of its net assets in illiquid illiquid securities, such as repurchase securities. agreements with more than seven days to maturity or fixed time deposits with a duration of over seven calendar days, if as a result thereof, more than 15% of the market value of the Merging Fund's net assets would be in investments which are illiquid. - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not make short The Merging Fund may not purchase sales of securities, other than short sales securities on margin, make short sales of "against the box," or purchase securities on securities, or maintain a short position, margin except for short-term credits provided that this restriction shall not be necessary for clearance of portfolio deemed to be applicable to the purchase or transactions, provided that this restriction sale of when-issued or delayed delivery will not be applied to limit the use of securities, or to short sales that are covered options, futures contracts and related in accordance with Commission rules. options, in the manner otherwise permitted by the investment restrictions, policies and investment program of the Fund. The Surviving Fund does not have the current intention of making short sales against the box. - -------------------------------------------------------- ----------------------------------------------- -18- The Surviving Fund may invest up to 5% of The Merging Fund may not acquire its total assets in the securities of any one securities of other investment companies, investment company, but may not own except as permitted by the 1940 Act or any more than 3% of the securities of any one order pursuant thereto. investment company or invest more than 10% of its total assets in the securities of other investment companies. - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not purchase or The Merging Fund is not subject to a sell interests in oil, gas or mineral leases. similar non-fundamental restriction. - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not write, The Merging Fund is not subject to a purchase or sell any put or call option or similar non-fundamental restriction. any combination thereof, provided that this shall not prevent (i) the writing, purchasing or selling of puts, calls or combinations thereof with respect to portfolio securities or (ii) with respect to the Surviving Fund's permissible futures and options transactions, the writing, purchasing, ownership, holding or selling of futures and options positions or of puts, calls or combinations thereof with respect to futures. - -------------------------------------------------------- ----------------------------------------------- The Surviving Fund may not, with respect The Merging Fund is not subject to a to 50% of its assets, hold more than 10% of similar non-fundamental restriction. the outstanding voting securities of any issuer. - -------------------------------------------------------- -----------------------------------------------
There will be no violation of any investment restriction if that restriction is complied with at the time the relevant action is taken notwithstanding a later change in market value of an investment, in net or total assets, in the securities rating of the investment, or any other later change. PURCHASES, REDEMPTIONS AND EXCHANGES Following the Reorganization, the procedures for purchases, redemptions and exchanges of shares will be those of the Surviving Fund, which are generally similar to those of the Merging Fund. Please note that the Surviving Fund currently offers Institutional Class shares. In connection with the Reorganization and the Concurrent Reorganization, this class will be renamed "Select Class" and the Surviving Fund will introduce a new Institutional Class of shares. The following discussion applies to Institutional Class shares. This section is qualified in its entirety by the discussion in the -19- Prospectus and Statement of Additional Information of the Surviving Fund, which are incorporated herein by reference. SALES CHARGES There is no sales charge to buy or sell Institutional Class shares. 12b-1 FEES There is no Rule 12b-1 distribution plan for Institutional Class shares. BUYING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO PURCHASES OF INSTITUTIONAL CLASS SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION. The price shareholders pay for their shares is the net asset value per share (NAV). NAV is the value of everything the Surviving Fund owns, minus everything it owes, divided by the number of shares held by investors. The Surviving Fund generally values its assets at fair market values but may use fair value if market prices are unavailable. The NAV of each class of the Surviving Fund's shares is generally calculated once each day at the close of regular trading on the New York Stock Exchange. A shareholder will pay the next NAV calculated after the JPMorgan Funds Service Center (the "Center") receives that shareholder's order in proper form. An order is in proper form only after payment is converted into federal funds. The Center accepts purchase orders on any business day that the New York Stock Exchange is open. If an order is received in proper form by the close of regular trading on the New York Stock Exchange, it will be processed at that day's price and the purchaser will be entitled to all dividends declared on that day. If an order is received after the close of regular trading on the New York Stock Exchange, it will generally be processed at the next day's price. If a purchaser pays by check for Surviving Fund shares before the close of regular trading on the New York Stock Exchange, it will generally be processed the next day the Surviving Fund is open for business. If a shareholder buys through an agent and not directly from the Center, the agent could set earlier cut-off times. Each shareholder must provide a Social Security Number or Taxpayer Identification Number when opening an account. The Surviving Fund has the right to reject any purchase order for any reason. All purchases of Institutional Class shares of the Surviving Fund must be paid for by federal funds wire. They generally may be purchased only through financial service firms, such as broker-dealers and banks that have an agreement with the Surviving Fund or the Fund's distributor. -20- For Institutional Class shares, checks should be made out to JPMorgan Funds in U.S. dollars. Credit cards, cash, or checks from a third party will not be accepted. Shares bought by check may not be sold for 15 calendar days. Shares bought through an automated clearing house cannot be sold until the payment clears. This could take more than seven business days. Purchase orders will be canceled if a check does not clear and the investor will be responsible for any expenses and losses to the Surviving Fund. Orders by wire will be canceled if the Center does not receive payment by 4:00 p.m., Eastern time, on the day the shareholder buys. Shareholders seeking to buy Institutional Class shares through an investment representative should instruct their representative to contact the Surviving Fund. Such representatives may charge investors a fee and may offer additional services, such as special purchase and redemption programs, "sweep" programs, cash advances and redemption checks. Such representative may set different minimum investments and earlier cut-off times. A systematic investment plan is available for Institutional Class shares. SELLING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO SALES OF THE INSTITUTIONAL CLASS SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION. Shares of the Surviving Fund may be sold on any day the Center is open for trading, either directly to the Fund or through an investment representative. Shareholders of the Surviving Fund will receive the next NAV calculated after the Center accepts his or her sale order. Under normal circumstances, if a request is received before the close of regular trading on the New York Stock Exchange, the Surviving Fund will send the proceeds the next business day. An order to sell shares will not be accepted if the Surviving Fund has not collected payment for the shares. The Surviving Fund may stop accepting orders to sell and may postpone payments for more than seven days, as federal securities laws permit. Generally, proceeds are sent by check, electronic transfer or wire for Institutional Class shares. If a shareholder's address of record has changed within the 30 days prior to the sale request or if more than $25,000 of shares is sold by phone, proceeds will be sent only to the bank account on the Surviving Fund's records. For Institutional Class shares, a shareholder will need to have his or her signature guaranteed if he or she wants payment to be sent to an address other than the one in the Surviving Fund's records. Additional documents or a letter from a surviving joint owner may also be needed. A shareholder who purchased through an investment representative or through a financial service firm, should contact that representative, who will send the necessary documents to the Center. The representative might charge a fee for this service. -21- Shareholders may also sell their shares by contacting the Center directly by calling _______. A systematic withdrawal plan is available for Institutional Class shares. EXCHANGING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO EXCHANGES OF INSTITUTIONAL CLASS SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION. Institutional Class shares of the Surviving Fund may be exchanged for Institutional Class shares in certain other JPMorgan Funds. For tax purposes, an exchange is treated as a sale of those shares. Shareholders should carefully read the prospectus of the fund into which they want to exchange. Shareholders who exchange must meet any minimum investment requirements and may have to pay a sales commission. The exchange privilege is not a means of short-term trading as this could increase management cost and affect all shareholders of the Surviving Fund. The Surviving Fund reserves the right to limit the number of exchanges or refuse an exchange. Each exchange privilege may also be terminated. The Surviving Fund charges an administration fee of $5 for each exchange if an investor makes more than 10 exchanges in a year or three in a quarter. OTHER INFORMATION CONCERNING THE SURVIVING FUND For Institutional Class shares, the Surviving Fund may close an account if the balance falls below $1,000,000. The Surviving Fund may also close the account if an investor is in the systematic investment plan and fails to meet investment minimums over a 12-month period. At least 60 days' notice will be given before closing the account. Unless a shareholder indicates otherwise on his or her account application, the Surviving Fund is authorized to act on redemption and transfer instructions received by phone. If someone trades on an account by phone, the Surviving Fund will ask that person to confirm the account registration and address to make sure they match those in the Surviving Fund records. If they do correspond, the Surviving Fund is generally authorized to follow that person's instructions. The Surviving Fund will take all reasonable precautions to confirm that the instructions are genuine. Investors agree that they will not hold the Surviving Fund liable for any loss or expenses from any sales request, if the Surviving Fund takes reasonable precautions. The Surviving Fund will be liable for any losses to a shareholder from an unauthorized sale or fraud against such shareholder if the Surviving Fund does not follow reasonable procedures. It may not always be possible to reach the Center by telephone. This may be true at times of unusual market changes and shareholder activity. In that event, shareholders can mail instructions to the Surviving Fund or contact their investment representative or -22- agent. The Surviving Fund may modify or cancel the sale of shares by phone without notice. MFST, on behalf of the Surviving Fund, has entered into agreements with certain shareholder servicing agents (including Chase) under which the shareholder servicing agents agree to provide certain support services to their customers. For performing these services, each shareholder servicing agent will receive an annual fee of up to 0.10% of the average daily net assets of the Institutional Class shares held by investors serviced by the shareholder servicing agent. JPMFAM and/or the Distributor may, at their own expense, make additional payments to certain selected dealers or other shareholder servicing agents for performing administrative services for their customers. The Surviving Fund will issue multiple classes of shares. 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 Surviving Fund shares may receive a different amount for each class. DISTRIBUTIONS AND TAXES The Surviving Fund can earn income and realize capital gain. The Surviving Fund will deduct from these earnings any expenses and then pay to shareholders the distributions. The Surviving Fund distributes any net investment income at least monthly. Net capital gain is distributed annually. You have three options for your Surviving Fund distributions. You may: - reinvest all of them in additional Surviving Fund shares without a sales charge; - 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 don't notify us otherwise, 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 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. The state or municipality where you live may not charge you state and 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. -23- If you receive distributions of net capital gain, the tax rate will be based on how long the Surviving 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. Early in each calendar year, the Surviving Fund will send its shareholders a notice showing the amount of distributions received in the preceding year and the tax status of those distributions. The above is only a general summary of tax implications of investing in the Surviving Fund. Shareholders should consult their tax advisors to see how investing in the Surviving Fund will affect their own tax situation. COMPARISON OF THE MERGING FUND'S AND THE SURVIVING FUND'S ORGANIZATION STRUCTURE There are no material differences in the organizational structure of the Merging Fund and the Surviving Fund. Set forth below are descriptions of the structure, voting rights, shareholder liability and the liability of Trustees. STRUCTURE OF THE MERGING FUND The Merging Fund is organized as a series of JPMIF, which is organized under the law of the Commonwealth of Massachusetts. As a Massachusetts business trust, JPMIF's operations are governed by JPMIF's Declaration of Trust and By-Laws and applicable Massachusetts law. The operations of the Merging Fund are also subject to the provisions of the 1940 Act and the rules and regulations thereunder. STRUCTURE OF THE SURVIVING FUND The Surviving Fund is organized as a series of MFST, which is organized under the law of the Commonwealth of Massachusetts. As a Massachusetts business trust, MFST's operations are governed by MFST's Declaration of Trust and By-Laws and applicable Massachusetts law. The operations of the Surviving Fund are also subject to the provisions of the 1940 Act and the rules and regulations thereunder. TRUSTEES AND OFFICERS Subject to the provisions of its trust documents, the business of the Merging Fund is managed by JPMIF's Trustees and the business of the Surviving Fund is managed by MFST's Trustees, who serve indefinite terms and have all powers necessary or convenient to carry out their responsibilities. Information concerning the current Trustees and officers of MFST and JPMIF is set forth in the Funds' respective Statements of Additional Information, which are incorporated herein by reference. -24- SHARES OF FUNDS Each of MFST and JPMIF is a trust with an unlimited number of authorized shares of beneficial interest which may be divided into series or classes thereof. Each Fund is one series of a trust and may issue multiple classes of shares. Each share of a series or class of a trust represents an equal proportionate interest in that series or class with each other share of that series or class. The shares of each series or class of either MFST or JPMIF participate equally in the earnings, dividends and assets of the particular series or class. Fractional shares have proportionate rights to full shares. Expenses of MFST or JPMIF that are not attributable to a specific series or class will be allocated to all the series of that trust in a manner believed by its board to be fair and equitable. Generally, shares of each series will be voted separately, for example, to approve an investment advisory agreement. Likewise, shares of each class of each series will be voted separately, for example, to approve a distribution plan, but shares of all series and classes vote together, to the extent required by the 1940 Act, including for the election of Trustees. Neither MFST nor JPMIF is required to hold regular annual meetings of shareholders, but may hold special meetings from time to time. There are no conversion or preemptive rights in connection with shares of either MFST or JPMIF. SHAREHOLDER VOTING RIGHTS A vacancy in the Board of either MFST or JPMIF resulting from the resignation of a Trustee or otherwise may be filled similarly by a vote of a majority of the remaining Trustees then in office, subject to the 1940 Act. In addition, Trustees may be removed from office by a vote of holders of shares representing two-thirds of the outstanding shares of each portfolio of that trust. A meeting of shareholders shall be held upon the written request of the holders of shares representing not less than 10% of the outstanding shares entitled to vote on the matters specified in the written request. Except as set forth above, the Trustees may continue to hold office and may appoint successor Trustees. SHAREHOLDER LIABILITY Under Massachusetts law, shareholders of either MFST or JPMIF could, under certain circumstances, be held personally liable as partners for the obligations of that trust. However, the Declaration of Trust of each of MFST and JPMIF disclaims shareholder liability for acts or obligations of that trust and provides for indemnification and reimbursement of expenses out of trust property for any shareholder held personally liable for the obligations of that trust. Each of MFST and JPMIF may maintain appropriate insurance (for example, fidelity bonding and errors and omissions insurance) for the protection of that trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability generally is limited to circumstances in which both inadequate insurance existed and the trust itself was unable to meet its obligations. -25- LIABILITY OF DIRECTORS AND TRUSTEES Under the Declaration of Trust of each of MFST and JPMIF, the Trustees of that trust are personally liable only for bad faith, willful misfeasance, gross negligence or reckless disregard of their duties as Trustees. Under the Declaration of Trust of each of MFST and JPMIF, a Trustee or officer will generally be indemnified against all liability and against all expenses reasonably incurred or paid by such person in connection with any claim, action, suit or proceeding in which such person becomes involved as a party or otherwise by virtue of such person being or having been a Trustee or officer and against amounts paid or incurred by such person in the settlement thereof. The foregoing is only a summary of certain organizational and governing documents and Massachusetts business trust law. It is not a complete description. Shareholders should refer to the provisions of these documents and state law directly for a more thorough comparison. Copies of the Declaration of Trust and By-Laws of each of MFST and JPMIF are available without charge upon written request to that trust. INFORMATION RELATING TO THE ADVISORY CONTRACTS AND OTHER SERVICES GENERAL INFORMATION As noted above, the investment adviser of the Master Portfolio (and therefore the Merging Fund's assets) is JPMIM. Pursuant to an Advisory Agreement, the investment adviser of the Surviving Fund is JPMFAM. JPMFAM is responsible for the day-to-day management of the Surviving Fund. DESCRIPTION OF JPMFAM JPMFAM is an indirect wholly-owned subsidiary of JPMC incorporated under the laws of Delaware. JPMFAM's principal executive offices are located at 522 Fifth Avenue, New York, New York 10036. As of _______ __, 2001, JPMFAM and certain of its affiliates (including JPMIM) provided investment management services with respect to assets of approximately $___ billion. Under the Advisory Agreement, JPMFAM is responsible for making decisions with respect to, and placing orders for, all purchases and sales of the portfolio securities of the Surviving Fund. JPMFAM's responsibilities under the Advisory Agreement include supervising the Surviving Fund's investments and maintaining a continuous investment program, placing purchase and sale orders and paying costs of certain clerical and administrative services involved in managing and servicing the Surviving Fund's investments and complying with regulatory reporting requirements. Under the Advisory Agreement, JPMFAM is obligated to furnish employees, office space and facilities required for the operation of the Surviving Fund. The services provided to the Surviving Fund by JPMFAM are substantially similar to the services currently provided to the Master Portfolio and, therefore, indirectly to the Merging Fund by JPMIM. -26- EXPENSES AND MANAGEMENT FEES. The Advisory Agreement provides that the Surviving Fund will pay JPMFAM a monthly management fee based upon the net assets of the Surviving Fund. The annual rate of this management fee is 0.30%. The Master Portfolio and, therefore, indirectly the Merging Fund also currently pay 0.30% of average net assets with respect to its assets in the Master Portfolio to JPMIM for its advisory services. JPMFAM may waive fees from time to time. Under the Advisory Agreement, except as indicated above, the Surviving Fund is responsible for its operating expenses including, but not limited to, taxes; interest; fees (including fees paid to its Trustees who are not affiliated with JPMFAM or any of its affiliates); fees payable to the Commission; state securities qualification fees; association membership dues; costs of preparing and printing prospectuses for regulatory purposes and for distribution to existing shareholders; advisory and administrative fees; charges of the custodian and transfer agent; insurance premiums; auditing and legal expenses; costs of shareholders' reports and shareholder meetings; any extraordinary expenses; and brokerage fees and commissions, if any, in connection with the purchase or sale of portfolio securities. SUBCONTRACTING. JPMFAM is authorized by the Advisory Agreement to employ or associate with such other persons or entities as it believes to be appropriate to assist it in the performance of its duties. Any such person is required to be compensated by JPMFAM, not by the Surviving Fund, and to be approved by the shareholders of that Fund as required by the 1940 Act. LIMITATION ON LIABILITY. The Advisory Agreement provides that JPMFAM will not be liable for any error of judgment or mistake of law or for any act or omission or loss suffered by MFST or the Surviving Fund in connection with the performance of the Advisory Agreement except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or from willful misfeasance, bad faith, or gross negligence in the performance of its duties or reckless disregard of its obligations and duties under the Advisory Agreement. DURATION AND TERMINATION. The Advisory Agreement will continue in effect from year to year with respect to the Surviving Fund, only so long as such continuation is approved at least annually by (i) the Board of Trustees of MFST or the majority vote of the outstanding voting securities of the Surviving Fund, and (ii) a majority of those Trustees who are neither parties to the Advisory Agreement nor "interested persons," as defined in the 1940 Act, of any such party, acting in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its "assignment," as defined in the 1940 Act. In addition, the Advisory Agreement is terminable at any time as to the Surviving Fund without penalty by the MFST Board or by vote of the majority of the Surviving Fund's outstanding voting securities upon 60 days' written notice to JPMFAM, and by JPMFAM on 60 days' written notice to MFST. -27- PORTFOLIO MANAGER Pamela Hunter, Carolyn J. Gill , Benjamin Thompson, Robert W. Meiselas, and Kingsly Wood, Jr. form the combined management team that is responsible for the day-to-day management of the Surviving Fund. Ms. Hunter is a Managing Director at JPMFAM and heads the team providing tax exempt strategy, research and portfolio management. She has been employed at JPMFAM and its predecessors since 1980. Ms. Gill is a Vice President and Senior Portfolio Manager at JPMFAM. She has been employed at JPMFAM and its predecessors since 1986. Mr. Thompson was a Vice President of JPMIM since June 1999, and a former Senior Fixed Income Portfolio Manager at Goldman Sachs. Mr. Meiselas was made a Vice President of JPMIM in 1997 and he has worked at J.P. Morgan & Co. since 1987. Mr. Wood became a Vice President of JPMIM in January 2000, prior to that he was a Senior Fixed Income Portfolio Manager at Mercantile Bank and Trust and an Institutional Tax-Exempt Trader at ABN-AMRO and Kemper Securities. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS JPMFAM, as the investment adviser to the Surviving Fund, has responsibilities with respect to the Fund's portfolio transactions and brokerage arrangements pursuant to the Fund's policies, subject to the overall authority of the MFST Board. Under the Advisory Agreement, JPMFAM, subject to the general supervision of the Board, is responsible for the placement of orders for the purchase and sale of portfolio securities for the Surviving Fund with brokers and dealers selected by JPMFAM. These brokers and dealers may include brokers or dealers affiliated with JPMFAM to the extent permitted by the 1940 Act and MFST's policies and procedures applicable to the Fund. JPMFAM shall use its best efforts to seek to execute portfolio transactions at prices which, under the circumstances, result in total costs or proceeds being the most favorable to such Fund. In assessing the best overall terms available for any transaction, JPMFAM shall consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, research services provided to JPMFAM, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In no event shall JPMFAM be under any duty to obtain the lowest commission or the best net price for the Fund on any particular transaction, nor shall JPMFAM be under any duty to execute any order in a fashion either preferential to such Fund relative to other accounts managed by JPMFAM or otherwise materially adverse to such other accounts. In selecting brokers or dealers qualified to execute a particular transaction, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to JPMFAM, the Fund and/or the other accounts over which JPMFAM exercises investment discretion. JPMFAM is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if JPMFAM determines in good faith that the total commission is reasonable in relation to the value of the brokerage and research services provided by such -28- broker or dealer, viewed in terms of either that particular transaction or the overall responsibilities of JPMFAM with respect to accounts over which it exercises investment discretion. JPMFAM shall report to the Board regarding overall commissions paid by the Fund and their reasonableness in relation to the benefits to such Fund. In executing portfolio transactions for the Fund, JPMFAM may, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be sold or purchased with those of other funds or its other clients if, in JPMFAM's reasonable judgment, such aggregation (i) will result in an overall economic benefit to such fund, taking into consideration the advantageous selling or purchase price, brokerage commission and other expenses, and trading requirements, and (ii) is not inconsistent with the policies set forth in MFST's registration statement, as the case may be, and the Fund's Prospectus and Statement of Additional Information. In such event, JPMFAM will allocate the securities so purchased or sold, and the expenses incurred in the transaction, in an equitable manner, consistent with its fiduciary obligations to such Fund and such other clients. It is possible that certain of the brokerage and research services received will primarily benefit one or more other investment companies or other accounts for which JPMFAM exercises investment discretion. Conversely, MFST or any of its portfolios may be the primary beneficiary of the brokerage or research services received as a result of portfolio transactions effected for such other accounts or investment companies. OTHER SERVICES The Distributor, a wholly owned, indirect subsidiary of BISYS Fund Services, Inc., which currently serves as the Merging Fund's distributor and sub-administrator, is the distributor and sub-administrator for the Surviving Fund. The Distributor is unaffiliated with JPMC or any of its subsidiaries. Chase serves as administrator, shareholder servicing agent, fund accountant and custodian, and DST serves as transfer agent and dividend disbursing agent, for the Surviving Fund. The services provided by Chase include day-to-day maintenance of certain books and records, calculation of the offering price of the shares and preparation of reports. In its role as custodian, Chase is responsible for the daily safekeeping of securities and cash held by the Surviving Fund. ADMINISTRATOR As administrator, Chase receives a fee of 0.15% of average daily net assets. It is anticipated that, in connection with the Reorganization, the administration fee will be amended to reduce the fee to 0.075% for complex wide non-money market Fund assets in excess of $26 billion. PROPOSAL 2: ELECTION OF TRUSTEES It is proposed that shareholders of the Merging Fund consider the election of the individuals listed below (the "Nominees") to the Board of Trustees of JPMIF, which is currently organized as a Massachusetts business trust. Even if the Reorganization described in Proposal 1 is approved, other mutual funds that are series of JPMIF will continue to exist and operate. All shareholders of any series of JPMIF as of the record date (April 6, 2001) are required to be given a vote on the proposal regarding Trustees. Because as of the record date you are still a shareholder in JPMIF, you are entitled to vote -29- on this proposal. Shareholders of MFST are being asked to approve the same Trustees as are being proposed for JPMIF. In connection with the merger of J.P. Morgan & Co. Incorporated and The Chase Manhattan Corporation, it has been proposed, subject to shareholder approval, that the Boards of Trustees of the investment companies managed by JPMFAM, JPMIM and their affiliates be rationalized in order to obtain additional operating efficiencies by having the same Board of Trustees for all of the funds. Therefore, the Nominees include certain current Trustees of MFST and certain current Trustees of JPMIF. Each Nominee has consented to being named in this Proxy Statement and has agreed to serve as a Trustee if elected. Shareholders of MFST are concurrently considering the election of the same individuals to the Board of Trustees of MFST. Biographical information about the Nominees and other relevant information is set forth below. More information regarding the current Trustees of MFST and JPMIF is contained in the Funds' Statements of Additional Information, which are incorporated herein by reference. The persons named in the accompanying form of proxy intend to vote each such proxy "FOR" the election of the Nominees, unless shareholders specifically indicate on their proxies the desire to withhold authority to vote for elections to office. It is not contemplated that any Nominee will be unable to serve as a Board member for any reason, but if that should occur prior to the Meeting, the proxy holders reserve the right to substitute another person or persons of their choice as nominee or nominees. THE JPMIF BOARD HAS UNANIMOUSLY RECOMMENDED THAT SHAREHOLDERS VOTE "FOR" EACH OF THE NOMINEES LISTED BELOW. VOTE REQUIRED The election of each of the Nominees listed below requires the affirmative vote of a majority of all the votes entitled to be cast at the Meeting by all shareholders of JPMIF. The following are the nominees: The Board of Trustees of JPMIF met ___ times during the fiscal year ended July 31, 2000, and each of the Trustees attended at least 75% of the meetings. The Board of Trustees of JPMIF presently has an Audit Committee. The members of the Audit Committee are Messrs. __________. The function of the Audit Committee is to recommend independent auditors and monitor accounting and financial matters. The Audit Committee met two times during the fiscal year ended July 31, 2000. A majority of the disinterested Trustees have adopted written procedures reasonably appropriate to deal with potential conflicts of interest arising from the fact that the same individuals are Trustees of JPMIF, the Master Portfolio and certain other investment companies in the Fund Complex, up to and including creating a separate board of trustees. -30- *Interested Trustee, as defined by the 1940 Act. REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS Each Trustee is currently paid an annual fee of $75,000 for serving as Trustee of the investment companies in the Fund Complex and is reimbursed for expenses incurred in connection with service as a Trustee. The Trustees may hold various other directorships unrelated to these funds. Trustee compensation expenses paid for the calendar year ended December 31, 2000 are set forth below.
Aggregate Trustee Compensation Paid by the Total Trustee Compensation Accrued Name of Trustee Trust During 2000 by Fund Complex(1) During 2000(2) - ------------------------------------------ ------------------------ ---------------------------------- Frederick S. Addy, Trustee $ 11,238 $ 75,000 William G. Burns, Trustee $ 11,238 $ 75,000 Arthur C. Eschenlauer, Trustee $ 11,238 $ 75,000 Matthew Healey, Trustee(3) Chairman and Chief Executive Officer $ 11,238 $ 75,000 Michael P. Mallardi, Trustee $ 11,238 $ 75,000 - -----------------
1 A Fund Complex means two or more investment companies that hold themselves out to investors as related companies for purposes of investment and investment services, or have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other investment companies. 2 No investment company within the Fund Complex has a pension or retirement plan. 3 During 2000, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman of Pierpont Group, Inc., compensation in the amount of $200,000, contributed $25,500 to a defined contribution plan on his behalf and paid $18,400 in insurance premiums for his benefit. The Trustees decide upon general policies and are responsible for overseeing JPMIF's business affairs. Each of JPMIF and the Master Portfolio has entered into a Fund Services Agreement with Pierpont Group, Inc. to assist the Trustees in exercising their overall supervisory responsibilities. Pierpont Group, Inc. was organized in July 1989 to provide services for the J.P. Morgan Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are the equal and sole shareholders of Pierpont Group, Inc. -31- JPMIF has agreed to pay Pierpont Group, Inc. a fee in an amount representing its reasonable costs in performing these services. These costs are periodically reviewed by the Trustees. The principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017. It is anticipated that the Merging Fund will terminate its agreement with Pierpont Group, Inc. in connection with the Reorganization. The aggregate fees paid to Pierpont Group, Inc. by the Merging Fund and the Master Portfolio during the indicated fiscal periods are set forth below: MERGING FUND-- For the fiscal year ended August 31, 1998: $13,354. For the eleven months ended July 31, 1999: $9,770. For the fiscal year ended July 31, 2000: $6,210. MASTER PORTFOLIO-- For the fiscal year ended August 31, 1998: $21,294. For the eleven months ended July 31, 1999: $17,915. For the fiscal year ended July 31, 2000: $12,760. ADVISORY BOARD The Trustees determined as of January 26, 2000 to establish an advisory board and appoint four members ("Members of the Advisory Board") thereto. Each member serves at the pleasure of the Trustees. The Advisory Board is distinct from the Trustees and provides advice to the Trustees as to investment, management and operations of JPMIF; but has no power to vote upon any matter put to a vote of the Trustees. The Advisory Board and the members thereof also serve each of the other trusts in the Fund Complex. The creation of the Advisory Board and the appointment of the members thereof was designed so that the Board of Trustees will continuously consist of persons able to assume the duties of Trustees and be fully familiar with the business and affairs of JPMIF, in anticipation of the current Trustees reaching the mandatory retirement age of seventy. Each Member of the Advisory Board is paid an annual fee of $75,000 for serving in this capacity for the Fund Complex and is reimbursed for expenses incurred in connection for such service. The Members of the Advisory Board may hold various other directorships unrelated to these funds. The mailing address of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal occupations during the past five years and dates of birth are set forth below: Ann Maynard Gray -- President, Diversified Publishing Group and Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945. John R. Laird-- Retired; Former Chief Executive Officer, Shearson Lehman Brothers and The Boston Company. His date of birth is June 21, 1942. Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley Group and President and Chief Operating Officer, Morgan Stanley Services, Inc. His date of birth is October 5, 1936. -32- James J. Schonbachler -- Retired; Prior to September, 1998, Managing Director, Bankers Trust Company and Chief Executive Officer and Director, Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January 26, 1943. PRINCIPAL EXECUTIVE OFFICERS: JPMIF's and the Master Portfolio's principal executive officers (listed below), other than the Chief Executive Officer and the officers who are employees of JPMIM, are provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group, Inc. The officers conduct and supervise the business operations of JPMIF and the Master Portfolio. JPMIF and the Master Portfolio have no employees. The business address of each of the officers unless otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts 02109. The principal executive officers of JPMIF are as follows:
NAME AND POSITION AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION - ---------------------------------------- --- ------------------------------------------------------- Matthew Healey 63 Chief Executive Officer; Chairman, Pierpont Group, since prior to 1993. His address is Pine Tree Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436. Margaret W. Chambers 41 Vice President and Secretary. Senior Vice President and General Counsel of FDI since April, 1998. From August 1996 to March 1998, Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an associate with the law firm of Ropes & Gray. George A. Rio 46 President and Treasurer. Executive Vice President and Client Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development for First Data Corporation.
ACCOUNTANTS PricewaterhouseCoopers LLP serves as the Merging Fund's, the Master Portfolio's and the Surviving Fund's independent accountants, auditing and reporting on the annual financial statements and reviewing certain regulatory reports and federal income tax returns. PricewaterhouseCoopers LLP also performs other professional accounting, auditing, tax and advisory services when MFST or JPMIF engages it to do so. AUDIT FEES. The aggregate fees paid to PricewaterhouseCoopers LLP in connection with the annual audit of the Merging Fund and the Master Portfolio for the last fiscal year was $37,500. -33- FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The aggregate fees billed for financial information systems design and implementation services rendered by PricewaterhouseCoopers LLP to the Merging Fund, the Master Portfolio, JPMIM and JPMIM's affiliates that provide services to the Fund for the calendar year ended December 31, 2000 was $0. ALL OTHER FEES. The aggregate fees billed for all other non-audit services, including fees for tax-related services, rendered by PricewaterhouseCoopers LLP to the Merging Fund, the Master Portfolio, JPMIM and JPMIM's affiliates that provide services to the Fund for the calendar year ended December 31, 2000 was $11,029,300. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the independence of Pricewaterhouse Coopers LLP. INFORMATION RELATING TO VOTING MATTERS GENERAL INFORMATION This Combined Prospectus/Proxy Statement is being furnished in connection with the solicitation of proxies by the JPMIF Board for use at the Meeting. It is expected that the solicitation of proxies will be primarily by mail. JPMIF's officers and service providers may also solicit proxies by telephone, facsimile machine, telegraph, the Internet or personal interview. In addition JPMIF may retain the services of professional solicitors to aid in the solicitation of proxies for a fee. It is anticipated that banks, brokerage houses and other custodians will be requested on behalf of JPMIF to forward solicitation materials to their principals to obtain authorizations for the execution of proxies. Any Merging Fund Shareholder giving a proxy may revoke it at any time before it is exercised by submitting to JPMIF a written notice of revocation or a subsequently executed proxy or by attending the Meeting and electing to vote in person. Only the Merging Fund Shareholders of record at the close of business on _________, 2001 will be entitled to vote at the Meeting. On that date, there were outstanding and entitled to be voted _____________ Merging Fund Shares. Each share or fraction thereof is entitled to one vote or fraction thereof. The presence in person or by proxy of shareholders that own one-third of the outstanding Merging Fund Shares will constitute a quorum for purposes of transacting all business at the Meeting. If a quorum is not present at the Meeting, sufficient votes in favor of the proposals are not received by the time scheduled for the Meeting, or the Merging Fund Shareholders determine to adjourn the Meeting for any other reason, the Merging Fund Shareholders present (in person or proxy) may adjourn the Meeting from time to time, without notice other than announcement at the Meeting. Any such adjournment will require the affirmative vote of the Merging Fund Shareholders holding a majority of the Merging Fund Shares present, in person or by proxy, at the Meeting. The persons named in the Proxy will vote in favor of such adjournment those Merging Fund Shares that they are entitled to vote if such adjournment is necessary to obtain a quorum or -34- if they determine such an adjournment is desirable for any other reason. Business may be conducted once a quorum is present and may continue until adjournment of the Meeting notwithstanding the withdrawal or temporary absence of sufficient Merging Fund Shares to reduce the number present to less than a quorum. If the accompanying proxy is executed and returned in time for the Meeting, the shares covered thereby will be voted in accordance with the proxy on all matters that may properly come before the meeting (or any adjournment thereof). PROXIES All Merging Fund Shares represented by each properly signed proxy received prior to the Meeting will be voted at the Meeting. If a Merging Fund Shareholder specifies how the proxy is to be voted on any of the business to come before the Meeting, it will be voted in accordance with such specifications. If a Merging Fund Shareholder returns its proxy but no direction is made on the proxy, the proxy will be voted FOR each Proposal described in this Combined Prospectus/Proxy Statement. The Merging Fund Shareholders voting to ABSTAIN on the Proposals will be treated as present for purposes of achieving a quorum and in determining the votes cast on the Proposals, but not as having voted FOR the Proposals. A properly signed proxy on which a broker has indicated that it has no authority to vote on the Proposals on behalf of the beneficial owner (a "broker non-vote") will be treated as present for purposes of achieving a quorum but will not be counted in determining the votes cast on the Proposals. A proxy granted by any Merging Fund Shareholder may be revoked by such Merging Fund Shareholder at any time prior to its use by written notice to JPMIF, by submission of a later dated Proxy or by voting in person at the Meeting. If any other matters come before the Meeting, proxies will be voted by the persons named as proxies in accordance with their best judgment. EXPENSES OF PROXY SOLICITATION JPMC, and not the Merging Fund or the Surviving Fund (or shareholders of either Fund), will bear the cost of solicitation of proxies, including the cost of printing, preparing, assembling and mailing the Notice of Meeting, Combined Prospectus/Proxy Statement and form of proxy. In addition to solicitations by mail, proxies may also be solicited by officers and regular employees of JPMIF by personal interview, by telephone or by telegraph without additional remuneration thereof. Professional solicitors may also be retained. ABSTENTIONS AND BROKER NON-VOTES In tallying the Merging Fund Shareholder votes, abstentions and broker non-votes (i.e., proxies sent in by brokers and other nominees that cannot be voted on a proposal because instructions have not been received from the beneficial owners) will be counted for purposes of determining whether or not a quorum is present for purposes of convening the Meeting. Abstentions and broker non-votes will be considered to be a vote against each proposal. -35- INTERESTED PARTIES On the record date, the Trustees and officers of JPMIF as a group owned less than 1% of the outstanding shares of the Merging Fund. On the record date, the name, address and percentage ownership of the persons who owned beneficially more than 5% of the shares of the Merging Fund or any class thereof and the percentage of shares of the Surviving Fund or any class thereof that would be owned by such persons upon consummation of the Reorganization and the Concurrent Reorganization based upon their holdings at _______, 2001 are as follows:
Percentage of Percentage of Amount of Merging Fund Surviving Fund Shares Owned on Record Owned Upon Name and Address Owned Date Consummation - ----------------------------- --------- --------------- ---------------
On the record date, the Trustees and officers of MFST as a group owned less than 1% of the outstanding shares of the Surviving Fund. On the record date, the name, address and percentage ownership of the persons who owned beneficially more than 5% of the shares of the Surviving Fund or any class thereof and the percentage of shares of the Surviving Fund or any class thereof that would be owned by such persons upon consummation of the Reorganization and the Concurrent Reorganization based upon their holdings at _______, 2001 are as follows:
Percentage of Amount of Surviving Fund Percentage of Surviving Shares Owned on Record Fund Owned Upon Name and Address Owned Date Consummation - ------------------------------------ --------- ---------------- ------------------------
ADDITIONAL INFORMATION ABOUT JPMIF Information about the Merging Fund is included in its Prospectus, which is incorporated by reference herein. Additional information about the Merging Fund is also included in JPMIF's Statement of Additional Information which has been filed with the Commission and which is incorporated herein by reference. Copies of the Statement of Additional information may be obtained without charge by calling 1-800-766-7722. JPMIF is subject to the requirements of the 1940 Act and, in accordance with such requirements, files reports and other information with the Commission. These materials can be inspected and copied at the Public Reference Facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, NY 10048 and 500 -36- West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates, and are also available on the Commission's web site at http://www.sec.gov. ADDITIONAL INFORMATION ABOUT MFST Information about the Surviving Fund is included in its Prospectus, which is incorporated by reference and enclosed herein. Additional information about the Surviving Fund is also included in MFST's Statement of Additional Information, which has been filed with the Commission and which is incorporated herein by reference. Copies of the Statement of Additional information may be obtained without charge by calling 1-800-348-4782. MFST is subject to the requirements of the 1940 Act and, in accordance with such requirements, files reports and other information with the Commission. These materials can be inspected and copied at the Public Reference Facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, NY 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates, and are also available on the Commission's web site at http://www.sec.gov. FINANCIAL STATEMENTS AND EXPERTS The audited financial highlights, financial statements and notes thereto of the Merging Fund for the fiscal year ended July 31, 2000 and the Surviving Fund for the fiscal year ended August 31, 2000 and the audited financial statements, notes thereto and supplementary data of the Master Portfolio for the fiscal year ended July 31, 2000 are incorporated by reference herein and into the Statement of Additional Information related to this Combined Prospectus/Proxy Statement. The audited financial highlights, financial statements, notes thereto and supplementary data, as applicable, of the Merging Fund, the Surviving Fund and the Master Portfolio have been incorporated herein by reference in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on their authority as experts in auditing and accounting. The unaudited financial highlights, financial statements and notes thereto of the Merging Fund for the fiscal period ended January 31, 2001 and the unaudited financial statements, notes thereto and supplementary data of the Master Portfolio for the fiscal period ended January 31, 2001 are incorporated by reference herein and into the Statement of Additional Information related to this Combined Prospectus/Proxy Statement. OTHER BUSINESS The JPMIF Board knows of no other business to be brought before the Meeting. However, if any other matters come before the Meeting, it is the intention of the JPMIF -37- Board that proxies that do not contain specific restrictions to the contrary will be voted on such matters in accordance with the judgment of the persons named in the enclosed form of proxy. LITIGATION Neither MFST nor JPMIF is involved in any litigation that would have any material adverse effect upon either the Merging Fund or the Surviving Fund. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to JPMIF in writing at the address on the cover page of this Combined Prospectus/Proxy Statement or by telephoning 1-800-766-7722. * * * SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. -38- APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan") made this ____ day of ______, 2001 by and among J.P. Morgan Institutional Funds (the "Transferor Trust"), a Massachusetts business trust, on behalf of the J.P. Morgan Institutional Tax Exempt Bond Fund (the "Transferor Portfolio"), Mutual Fund Select Trust (the "Acquiring Trust"), a Massachusetts business trust, on behalf of JPMorgan Intermediate Tax Free Income Fund (formerly, Chase Vista Intermediate Tax Free Income Fund) (the "Acquiring Portfolio") and J.P. Morgan Chase & Co. WHEREAS, the Board of Trustees of each of the Transferor Trust and the Acquiring Trust has determined that the transfer of all of the assets and liabilities of the Transferor Portfolio to the Acquiring Portfolio is in the best interests of the Transferor Portfolio and the Acquiring Portfolio, as well as the best interests of shareholders of the Transferor Portfolio and the Acquiring Portfolio, and that the interests of existing shareholders would not be diluted as a result of this transaction; WHEREAS, each of the Transferor Trust and the Acquiring Trust intends to provide for the reorganization of the Transferor Portfolio (the "Reorganization") through the acquisition by the Acquiring Portfolio of all of the assets, subject to all of the liabilities, of the Transferor Portfolio in exchange for shares of beneficial interest of the Acquiring Portfolio (the "Acquiring Portfolio Shares"), the liquidation of the Transferor Portfolio and the distribution to Transferor Portfolio shareholders of such Acquiring Portfolio Shares, all pursuant to the provisions of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"); NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereto agree as follows: 1. TRANSFER OF ASSETS OF THE TRANSFEROR PORTFOLIO IN EXCHANGE FOR THE ACQUIRING PORTFOLIO SHARES AND LIQUIDATION AND TERMINATION OF THE TRANSFEROR PORTFOLIO (a) PLAN OF REORGANIZATION. (i) The Transferor Trust on behalf of the Transferor Portfolio listed above, will convey, transfer and deliver to the Acquiring Portfolio all of the then existing assets of the Transferor Portfolio (consisting, without limitation, of portfolio securities and instruments, dividend and interest receivables, cash and other assets). In consideration thereof, the Acquiring Trust on behalf of the Acquiring Portfolio will (A) assume and pay, to the extent that they exist on or after the Effective Time of the Reorganization (as defined in Section 1(b)(i) hereof), all of the obligations and liabilities of the Transferor Portfolio and (B) issue and deliver to the Transferor Portfolio full and fractional shares of beneficial interest of the Acquiring Portfolio, with respect to the Acquiring Portfolio equal to that number of full and fractional Acquiring Portfolio Shares as determined in Section 1(c) hereof. The Acquiring Portfolio Shares issued and delivered to the Transferor Portfolio shall be of the Institutional Class share class in A-1 exchange for shares of the Transferor Portfolio, with the amounts of shares of each share class to be determined by the parties. Any shares of beneficial interest (if any) of the Transferor Portfolio ("Transferor Portfolio Shares") held in the treasury of the Transferor Trust at the Effective Time of the Reorganization shall thereupon be retired. Such transactions shall take place on the date provided for in Section 1(b) hereof (the "Exchange Date"). All computations for the Transferor Portfolio and the Acquiring Portfolio shall be performed by The Chase Manhattan Bank (the "Custodian"), as custodian and pricing agent for the Transferor Portfolio and the Acquiring Portfolio. The determination of said Custodian shall be conclusive and binding on all parties in interest. (ii) As of the Effective Time of the Reorganization, the Transferor Trust will liquidate and distribute pro rata to its shareholders of record ("Transferor Portfolio Shareholders") as of the Effective Time of the Reorganization the Acquiring Portfolio Shares received by such Transferor Portfolio pursuant to Section 1(a)(i) in actual or constructive exchange for the shares of the Transferor Portfolio held by the Transferor Portfolio shareholders. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Portfolio Shares then credited to the account of the Transferor Portfolio on the books of the Acquiring Portfolio, to open accounts on the share records of the Acquiring Portfolio in the names of the Transferor Portfolio Shareholders and representing the respective pro rata number of the Acquiring Portfolio Shares due such shareholders. The Acquiring Portfolio will not issue certificates representing the Acquiring Portfolio Shares in connection with such exchange. (iii) As soon as practicable after the Effective Time of the Reorganization, the Transferor Trust shall take all the necessary steps under Massachusetts law, the Transferor Trust's Declaration of Trust and any other applicable law to effect a complete termination of the Transferor Portfolio. (b) EXCHANGE DATE AND EFFECTIVE TIME OF THE REORGANIZATION. (i) Subject to the satisfaction of the conditions to the Reorganization specified in this Plan, the Reorganization shall occur as of the close of regularly scheduled trading on the New York Stock Exchange (the "Effective Time of the Reorganization") on August 11, 2001, or such later date as may be agreed upon by the parties (the "Exchange Date"). (ii) All acts taking place on the Exchange Date shall be deemed to take place simultaneously as of the Effective Time of the Reorganization unless otherwise provided. (iii) In the event that on the proposed Exchange Date (A) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted, or (B) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate valuation of the net assets of the Acquiring Portfolio or the Transferor Portfolio is impracticable, the Exchange Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. (iv) On the Exchange Date, portfolio securities of the Transferor Portfolio shall be transferred by the Custodian to the accounts of the Acquiring Portfolio duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the A-2 custom of brokers, and shall be accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. (c) VALUATION. (i) The net asset value of the shares of the Acquiring Portfolio and the net value of the assets of the Transferor Portfolio to be transferred in exchange therefore shall be determined as of the Effective Time of the Reorganization. The net asset value of the Acquiring Portfolio Shares shall be computed by the Custodian in the manner set forth in the Acquiring Trust's Declaration of Trust or By-laws and then current prospectus and statement of additional information and shall be computed to not less than two decimal places. The net value of the assets of the Transferor Portfolio to be transferred shall be computed by the Custodian by calculating the value of the assets transferred by the Transferor Portfolio and by subtracting therefrom the amount of the liabilities assigned and transferred to the Acquiring Portfolio, said assets and liabilities to be valued in the manner set forth in the Transferor Trust's Declaration of Trust or By-laws and then current prospectus and statement of additional information. (ii) The number of Institutional Class shares of the Acquiring Portfolio to be issued (including fractional shares, if any) by the Acquiring Portfolio in exchange for the Transferor Portfolio's assets attributable to the Transferor Portfolio's shares shall be determined by an exchange ratio computed by dividing the net value of the Transferor Portfolio's assets attributable to its shares by the net asset value per share of the Institutional Class shares of the Acquiring Portfolio, both as determined in accordance with Section 1(c)(i). (iii) All computations of value shall be made by the Custodian in accordance with its regular practice as pricing agent for the Acquiring Portfolio and the Transferor Portfolio. 2. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING TRUST The Acquiring Trust represents and warrants as follows: (a) ORGANIZATION, EXISTENCE, ETC. The Acquiring Trust is a business trust that is duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to carry on its business as it is now being conducted. The Acquiring Portfolio is a validly existing series of shares of such business trust representing interests therein under the laws of Massachusetts. Each of the Acquiring Portfolio and the Acquiring Trust have all necessary federal, state and local authorization to own all of its properties and assets and to carry on its business as now being conducted. (b) REGISTRATION AS INVESTMENT COMPANY. The Acquiring Trust is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end investment company of the management type; such registration has not been revoked or rescinded and is in full force and effect. (c) CURRENT OFFERING DOCUMENTS. The current prospectus and statement of additional information of the Acquiring Trust, as amended, included in the Acquiring Trust's registration statement on Form N-1A filed with the Securities and Exchange Commission, comply in all A-3 material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act") and the Act and do not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) CAPITALIZATION. The Acquiring Trust has an unlimited number of authorized shares of beneficial interest, of which as of February 28, 2001 there were outstanding 65,776 shares of the Acquiring Portfolio, and no shares of such Portfolio were held in the treasury of the Acquiring Trust. All of the outstanding shares of the Acquiring Trust have been duly authorized and are validly issued, fully paid and nonassessable (except as disclosed in the Acquiring Trust's prospectus and recognizing that under Massachusetts law, shareholders of an Acquiring Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such Acquiring Trust portfolio). Because the Acquiring Trust is an open-end investment company engaged in the continuous offering and redemption of its shares, the number of outstanding shares may change prior to the Effective Time of the Reorganization. All of the issued and outstanding shares of the Acquiring Portfolio have been offered and sold in compliance in all material respects with applicable registration requirements of the Securities Act and applicable state securities laws. (e) FINANCIAL STATEMENTS. The financial statements of the Acquiring Trust with respect to the Acquiring Portfolio for the fiscal year ended August 31, 2000, which have been audited by PricewaterhouseCoopers LLP, fairly present the financial position of the Acquiring Portfolio as of the dates thereof and the respective results of operations and changes in net assets for each of the periods indicated in accordance with generally accepted accounting principles ("GAAP"). (f) SHARES TO BE ISSUED UPON REORGANIZATION. The Acquiring Portfolio Shares to be issued in connection with the Reorganization will be duly authorized and upon consummation of the Reorganization will be validly issued, fully paid and nonassessable (except as disclosed in the Trust's prospectus and recognizing that under Massachusetts law, shareholders of an Acquiring Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such portfolio). (g) AUTHORITY RELATIVE TO THIS PLAN. The Acquiring Trust, on behalf of the Acquiring Portfolio, has the power to enter into this Plan and to carry out its obligations hereunder. The execution and delivery of this Plan and the consummation of the transactions contemplated hereby have been duly authorized by the Acquiring Trust's Board of Trustees and no other proceedings by the Acquiring Trust other than those contemplated under this Plan are necessary to authorize its officers to effectuate this Plan and the transactions contemplated hereby. The Acquiring Trust is not a party to or obligated under any provision of its Declaration of Trust or By-laws, or under any indenture or contract provision or any other commitment or obligation, or subject to any order or decree, which would be violated by or which would prevent its execution and performance of this Plan in accordance with its terms. (h) LIABILITIES. There are no liabilities of the Acquiring Portfolio, whether actual or contingent and whether or not determined or determinable, other than liabilities disclosed or provided for in the Acquiring Trust's financial statements with respect to the Acquiring Portfolio and liabilities incurred in the ordinary course of business subsequent to August 31, 2000 or A-4 otherwise previously disclosed to the Acquiring Trust with respect to the Acquiring Portfolio, none of which has been materially adverse to the business, assets or results of operations of the Acquiring Portfolio. (i) NO MATERIAL ADVERSE CHANGE. Since August 31, 2000, there has been no material adverse change in the financial condition, results of operations, business, properties or assets of the Acquiring Portfolio, other than those occurring in the ordinary course of business (for these purposes, a decline in net asset value and a decline in net assets due to redemptions do not constitute a material adverse change). (j) LITIGATION. There are no claims, actions, suits or proceedings pending or, to the knowledge of the Acquiring Trust, threatened which would adversely affect the Acquiring Trust or the Acquiring Portfolio's assets or business or which would prevent or hinder consummation of the transactions contemplated hereby, there are no facts which would form the basis for the institution of administrative proceedings against the Acquiring Trust or the Acquiring Portfolio and, to the knowledge of the Acquiring Trust, there are no regulatory investigations of the Acquiring Trust or the Acquiring Portfolio, pending or threatened, other than routine inspections and audits. (k) CONTRACTS. No default exists under any material contract or other commitment to which the Acquiring Trust, on behalf of the Acquiring Portfolio, is subject. (l) TAXES. The federal income tax returns of the Acquiring Trust with respect to the Acquiring Portfolio, and all other income tax returns required to be filed by the Acquiring Trust with respect to the Acquiring Portfolio, have been filed, and all taxes payable pursuant to such returns have been paid. To the knowledge of the Acquiring Trust, no such return is under audit and no assessment has been asserted in respect of any such return. All federal and other taxes owed by the Acquiring Trust with respect to the Acquiring Portfolio have been paid so far as due. The Acquiring Portfolio has elected to qualify and has qualified as a "regulated investment company" under Subchapter M of the Code as of and since its first taxable year and intends to continue to so qualify. (m) NO APPROVALS REQUIRED. Except for the Registration Statement (as defined in Section 4(a) hereof) and the approval of the Transferor Portfolio's shareholders (referred to in Section 6(a) hereof), no consents, approvals, authorizations, registrations or exemptions under federal or state laws are necessary for the consummation by the Acquiring Trust of the Reorganization, except such as have been obtained as of the date hereof. 3. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR TRUST The Transferor Trust represents and warrants as follows: (a) ORGANIZATION, EXISTENCE, ETC. The Transferor Trust is a business trust that is duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to carry on its business as it is now being conducted. The Transferor Portfolio is a validly existing series of shares of such business trust representing interests therein under the laws of Massachusetts. Each of Transferor Portfolio and the A-5 Transferor Trust has all necessary federal, state and local authorization to own all of its properties and assets and to carry on its business as now being conducted. (b) REGISTRATION AS INVESTMENT COMPANY. The Transferor Trust is registered under the Act as an open-end investment company of the management type; such registration has not been revoked or rescinded and is in full force and effect. (c) CURRENT OFFERING DOCUMENTS. The current prospectus and statement of additional information of the Transferor Trust, as amended, included in the Transferor Trust's registration statement on Form N-1A filed with the Commission, comply in all material respects with the requirements of the Securities Act and the Act and do not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) CAPITALIZATION. The Transferor Trust has an unlimited number of authorized shares of beneficial interest, of which as of February 28, 2001 there were outstanding 52,586 shares of the Transferor Portfolio, and no shares of such Portfolio were held in the treasury of the Transferor Trust. All of the outstanding shares of the Transferor Trust have been duly authorized and are validly issued, fully paid and nonassessable (except as disclosed in the Transferor Trust's prospectus and recognizing that under Massachusetts law, shareholders of a Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such Trust portfolio). Because the Transferor Trust is an open-end investment company engaged in the continuous offering and redemption of its shares, the number of outstanding shares may change prior to the Effective Time of the Reorganization. All such shares will, at the Exchange Date, be held by the shareholders of record of the Transferor Portfolio as set forth on the books and records of the Transferor Trust in the amounts set forth therein, and as set forth in any list of shareholders of record provided to the Acquiring Portfolio for purposes of the Reorganization, and no such shareholders of record will have any preemptive rights to purchase any Transferor Portfolio shares, and the Transferor Portfolio does not have outstanding any options, warrants or other rights to subscribe for or purchase any Transferor Portfolio shares (other than any existing dividend reinvestment plans of the Transferor Portfolio or as set forth in this Plan), nor are there outstanding any securities convertible into any shares of the Transferor Portfolio (except pursuant to any existing exchange privileges described in the current prospectus and statement of additional information of the Transferor Trust). All of the Transferor Portfolio's issued and outstanding shares have been offered and sold in compliance in all material respects with applicable registration requirements of the Securities Act and applicable state securities laws. (e) FINANCIAL STATEMENTS. The financial statements for the Transferor Trust with respect to the Transferor Portfolio and The Tax Exempt Bond Portfolio for the fiscal year ended July 31, 2000 which have been audited by PricewaterhouseCoopers LLP fairly present the financial position of the Transferor Portfolio and the Tax Exempt Bond Portfolio as of the dates thereof and the respective results of operations and changes in net assets for each of the periods indicated in accordance with GAAP. The unaudited financial statements for the Transferor Trust with respect to the Transferor Portfolio and The Tax Exempt Bond Portfolio for the fiscal period ended January 31, 2001 fairly present the financial position of the Transferor Portfolio and the Tax Exempt Bond Portfolio as of the dates thereof and the respective results of operations and changes in net assets for each of the periods indicated in accordance with GAAP. A-6 (f) AUTHORITY RELATIVE TO THIS PLAN. The Transferor Trust, on behalf of the Transferor Portfolio, has the power to enter into this Plan and to carry out its obligations hereunder. The execution and delivery of this Plan and the consummation of the transactions contemplated hereby have been duly authorized by the Transferor Trust's Board of Trustees and no other proceedings by the Transferor Trust other than those contemplated under this Plan are necessary to authorize its officers to effectuate this Plan and the transactions contemplated hereby. The Transferor Trust is not a party to or obligated under any provision of its Declaration of Trust or By-laws, or under any indenture or contract provision or any other commitment or obligation, or subject to any order or decree, which would be violated by or which would prevent its execution and performance of this Plan in accordance with its terms. (g) LIABILITIES. There are no liabilities of the Transferor Portfolio, whether actual or contingent and whether or not determined or determinable, other than liabilities disclosed or provided for in the Transferor Trust's Financial Statements with respect to the Transferor Portfolio and liabilities incurred in the ordinary course of business subsequent to January 31, 2001 or otherwise previously disclosed to the Transferor Trust with respect to the Transferor Portfolio, none of which has been materially adverse to the business, assets or results of operations of the Transferor Portfolio. (h) NO MATERIAL ADVERSE CHANGE. Since January 31, 2001, there has been no material adverse change in the financial condition, results of operations, business, properties or assets of the Transferor Portfolio, other than those occurring in the ordinary course of business (for these purposes, a decline in net asset value and a decline in net assets due to redemptions do not constitute a material adverse change). (i) LITIGATION. There are no claims, actions, suits or proceedings pending or, to the knowledge of the Transferor Trust, threatened which would adversely affect the Transferor Trust or the Transferor Portfolio's assets or business or which would prevent or hinder consummation of the transactions contemplated hereby, there are no facts which would form the basis for the institution of administrative proceedings against the Transferor Trust or the Transferor Portfolio and, to the knowledge of the Transferor Trust, there are no regulatory investigations of the Transferor Trust or the Transferor Portfolio, pending or threatened, other than routine inspections and audits. (j) CONTRACTS. The Transferor Trust, on behalf of the Transferor Portfolio, is not subject to any contracts or other commitments (other than this Plan) which will not be terminated with respect to the Transferor Portfolio without liability to the Transferor Trust or the Transferor Portfolio as of or prior to the Effective Time of the Reorganization. (k) TAXES. The federal income tax returns of the Transferor Trust with respect to the Transferor Portfolio, and all other income tax returns required to be filed by the Transferor Trust with respect to the Transferor Portfolio, have been filed and all taxes payable pursuant to such returns have been paid. To the knowledge of the Transferor Trust, no such return is under audit and no assessment has been asserted in respect of any such return. All federal and other taxes owed by the Transferor Trust with respect to the Transferor Portfolio have been paid so far as due. The Transferor Portfolio has elected to qualify as a "regulated investment company" under A-7 Subchapter M of the Code, as of and since its first taxable year, and shall continue to so qualify until the Effective Time of the Reorganization. (l) NO APPROVALS REQUIRED. Except for the Registration Statement (as defined in Section 4(a) hereof) and the approval of the Transferor Portfolio's shareholders referred to in Section 6(a) hereof, no consents, approvals, authorizations, registrations or exemptions under federal or state laws are necessary for the consummation by the Transferor Trust of the Reorganization, except such as have been obtained as of the date hereof. 4. COVENANTS OF THE ACQUIRING TRUST The Acquiring Trust covenants to the following: (a) REGISTRATION STATEMENT. On behalf of the Acquiring Portfolio, the Acquiring Trust shall file with the Commission a Registration Statement on Form N-14 (the "Registration Statement") under the Securities Act relating to the Acquiring Portfolio Shares issuable hereunder and the proxy statement of the Transferor Portfolio relating to the meeting of the Transferor Portfolio's shareholders referred to in Section 5(a) herein. At the time the Registration Statement becomes effective, the Registration Statement (i) will comply in all material respects with the provisions of the Securities Act and the rules and regulations of the Commission thereunder (the "Regulations") and (ii) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at the time the Registration Statement becomes effective, at the time of the Transferor Portfolio shareholders' meeting referred to in Section 5(a) hereof, and at the Effective Time of the Reorganization, the prospectus/proxy statement (the "Prospectus") and statement of additional information (the "Statement of Additional Information") included therein, as amended or supplemented by any amendments or supplements filed by the Trust, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) COOPERATION IN EFFECTING REORGANIZATION. The Acquiring Trust agrees to use all reasonable efforts to effectuate the Reorganization, to continue in operation thereafter, and to obtain any necessary regulatory approvals for the Reorganization. The Acquiring Trust shall furnish such data and information relating to the Acquiring Trust as shall be reasonably requested for inclusion in the information to be furnished to the Transferor Portfolio shareholders in connection with the meeting of the Transferor Portfolio's shareholders for the purpose of acting upon this Plan and the transactions contemplated herein. (c) OPERATIONS IN THE ORDINARY COURSE. Except as otherwise contemplated by this Plan, the Acquiring Trust shall conduct the business of the Acquiring Portfolio in the ordinary course until the consummation of the Reorganization, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions. 5. COVENANTS OF THE TRANSFEROR TRUST The Transferor Trust covenants to the following: A-8 (a) MEETING OF THE TRANSFEROR PORTFOLIO'S SHAREHOLDERS. The Transferor Trust shall call and hold a meeting of the shareholders of the Transferor Portfolio for the purpose of acting upon this Plan and the transactions contemplated herein. (b) PORTFOLIO SECURITIES. With respect to the assets to be transferred in accordance with Section 1(a), the Transferor Portfolio's assets shall consist of all property and assets of any nature whatsoever, including, without limitation, all cash, cash equivalents, securities, claims and receivables (including dividend and interest receivables) owned, and any deferred or prepaid expenses shown as an asset on the Transferor Trust's books maintained on behalf of the Transferor Portfolio. At least five (5) business days prior to the Exchange Date, the Transferor Portfolio will provide the Acquiring Trust, for the benefit of the Acquiring Portfolio, with a list of its assets and a list of its stated liabilities. The Transferor Portfolio shall have the right to sell any of the securities or other assets shown on the list of assets prior to the Exchange Date but will not, without the prior approval of the Acquiring Trust, on behalf of the Acquiring Portfolio, acquire any additional securities other than securities which the Acquiring Portfolio is permitted to purchase, pursuant to its investment objective and policies or otherwise (taking into consideration its own portfolio composition as of such date). In the event that the Transferor Portfolio holds any investments that the Acquiring Portfolio would not be permitted to hold, the Transferor Portfolio will dispose of such securities prior to the Exchange Date to the extent practicable, to the extent permitted by its investment objective and policies and to the extent that its shareholders would not be materially affected in an adverse manner by such a disposition. In addition, the Transferor Trust will prepare and deliver immediately prior to the Effective Time of the Reorganization, a Statement of Assets and Liabilities of the Transferor Portfolio, prepared in accordance with GAAP (each, a "Schedule"). All securities to be listed in the Schedule for the Transferor Portfolio as of the Effective Time of the Reorganization will be owned by the Transferor Portfolio free and clear of any liens, claims, charges, options and encumbrances, except as indicated in such Schedule, and, except as so indicated, none of such securities is or, after the Reorganization as contemplated hereby, will be subject to any restrictions, legal or contractual, on the disposition thereof (including restrictions as to the public offering or sale thereof under the Securities Act) and, except as so indicated, all such securities are or will be readily marketable. (c) REGISTRATION STATEMENT. In connection with the preparation of the Registration Statement, the Transferor Trust will cooperate with the Acquiring Trust and will furnish to the Acquiring Trust the information relating to the Transferor Portfolio required by the Securities Act and the Regulations to be set forth in the Registration Statement (including the Prospectus and Statement of Additional Information). At the time the Registration Statement becomes effective, the Registration Statement, insofar as it relates to the Transferor Portfolio, (i) will comply in all material respects with the provisions of the Securities Act and the Regulations and (ii) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at the time the Registration Statement becomes effective, at the time of the Transferor Portfolio's shareholders' meeting referred to in Section 5(a) and at the Effective Time of the Reorganization, the Prospectus and Statement of Additional Information, as amended or supplemented by any amendments or supplements filed by the Transferor Trust, insofar as they relate to the Transferor Portfolio, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances A-9 under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall apply only to statements in or omissions from the Registration Statement, Prospectus or Statement of Additional Information made in reliance upon and in conformity with information furnished by the Transferor Portfolio for use in the registration statement, prospectus or statement of additional information as provided in this Section 5(c). (d) COOPERATION IN EFFECTING REORGANIZATION. The Transferor Trust agrees to use all reasonable efforts to effectuate the Reorganization and to obtain any necessary regulatory approvals for the Reorganization. (e) OPERATIONS IN THE ORDINARY COURSE. Except as otherwise contemplated by this Plan, the Transferor Trust shall conduct the business of the Transferor Portfolio in the ordinary course until the consummation of the Reorganization, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions. (f) STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in any case within 60 days after the Exchange Date, the Transferor Trust on behalf of the Transferor Portfolio, shall prepare a statement of the earnings and profits of the Transferor Portfolio for federal income tax purposes, and of any capital loss carryovers and other items that the Acquiring Portfolio will succeed to and take into account as a result of Section 381 of the Code. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRANSFEROR TRUST The obligations of the Transferor Trust with respect to the consummation of the Reorganization are subject to the satisfaction of the following conditions: (a) APPROVAL BY THE TRANSFEROR PORTFOLIO'S SHAREHOLDERS. This Plan and the transactions contemplated by the Reorganization shall have been approved by the requisite vote of the shares of the Transferor Portfolio entitled to vote on the matter ("Transferor Shareholder Approval"). (b) COVENANTS, WARRANTIES AND REPRESENTATIONS. The Acquiring Trust shall have complied with each of its covenants contained herein, each of the representations and warranties contained herein shall be true in all material respects as of the Effective Time of the Reorganization (except as otherwise contemplated herein), and there shall have been no material adverse change (as described in Section 2(i)) in the financial condition, results of operations, business, properties or assets of the Acquiring Portfolio since August 31, 2000. (c) REGULATORY APPROVAL. The Registration Statement shall have been declared effective by the Commission and no stop orders under the Securities Act pertaining thereto shall have been issued, and all other approvals, registrations, and exemptions under federal and state laws considered to be necessary shall have been obtained (collectively, the "Regulatory Approvals"). (d) TAX OPINION. The Transferor Trust shall have received the opinion of Simpson Thacher & Bartlett, dated on or before the Exchange Date, addressed to and in form and substance satisfactory to the Transferor Trust, as to certain of the federal income tax consequences under the Code of the Reorganization, insofar as it relates to the Transferor A-10 Portfolio and the Acquiring Portfolio, and to shareholders of each Transferor Portfolio (the "Tax Opinion"). For purposes of rendering the Tax Opinion, Simpson Thacher & Bartlett may rely exclusively and without independent verification, as to factual matters, upon the statements made in this Plan, the Prospectus and Statement of Additional Information, and upon such other written representations as the President or Treasurer of the Transferor Trust will have verified as of the Effective Time of the Reorganization. The Tax Opinion will be to the effect that, based on the facts and assumptions stated therein, for federal income tax purposes: (i) the Reorganization will constitute a reorganization within the meaning of section 368(a)(1) of the Code with respect to the Transferor Portfolio and the Acquiring Portfolio; (ii) no gain or loss will be recognized by any of the Transferor Portfolio or the Acquiring Portfolio upon the transfer of all the assets and liabilities, if any, of the Transferor Portfolio to the Acquiring Portfolio solely in exchange for shares of the Acquiring Portfolio or upon the distribution of the shares of the Acquiring Portfolio to the holders of the shares of the Transferor Portfolio solely in exchange for all of the shares of the Transferor Portfolio; (iii) no gain or loss will be recognized by shareholders of the Transferor Portfolio upon the exchange of shares of such Transferor Portfolio solely for shares of the Acquiring Portfolio; (iv) the holding period and tax basis of the shares of the Acquiring Portfolio received by each holder of shares of the Transferor Portfolio pursuant to the Reorganization will be the same as the holding period and tax basis of shares of the Transferor Portfolio held by such holder immediately prior to the Reorganization (provided the shares of the Transferor Portfolio were held as a capital asset on the date of the Reorganization); and (v) the holding period and tax basis of the assets of the Transferor Portfolio acquired by the Acquiring Portfolio will be the same as the holding period and tax basis of those assets to the Transferor Portfolio immediately prior to the Reorganization. (e) CONCURRENT REORGANIZATION. The reorganization of J.P. Morgan Tax Exempt Bond Fund, a series of J.P. Morgan Funds, into the Acquiring Portfolio shall have been consummated. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING TRUST. The obligations of the Acquiring Trust with respect to the consummation of the Reorganization are subject to the satisfaction of the following conditions: (a) APPROVAL BY THE TRANSFEROR PORTFOLIO'S SHAREHOLDERS. The Transferor Shareholder Approval shall have been obtained. (b) COVENANTS, WARRANTIES AND REPRESENTATIONS. The Transferor Trust shall have complied with each of its covenants contained herein, each of the representations and warranties contained herein shall be true in all material respects as of the Effective Time of the Reorganization (except as otherwise contemplated herein), and there shall have been no material adverse change (as described in Section 3(h)) in the financial condition, results of operations, business, properties or assets of the Transferor Portfolio since January 31, 2001. (c) PORTFOLIO SECURITIES. All securities to be acquired by the Acquiring Portfolio in the Reorganization shall have been approved for acquisition by J.P. Morgan Fleming Asset Management (USA) Inc. ("JPMFAM"), in its capacity as investment adviser to the Acquiring Portfolio, as consistent with the investment policies of the Acquiring Portfolio. A-11 (d) REGULATORY APPROVAL. The Regulatory Approvals shall have been obtained. (e) DISTRIBUTION OF INCOME AND GAINS. The Transferor Trust on behalf of the Transferor Portfolio shall have distributed to the shareholders of the Transferor Portfolio all of the Transferor Portfolio's investment company taxable income (determined without regard to the deduction for dividends paid) as defined in Section 852(b)(2) of the Code for its taxable year ending on the Exchange Date and all of its net capital gain as such term is used in Section 852(b)(3) of the Code, after reduction by any capital loss carry forward, for its taxable year ending on the Exchange Date. (f) TAX OPINION. The Acquiring Trust shall have received the Tax Opinion. (g) CONCURRENT REORGANIZATION. The reorganization of J.P. Morgan Tax Exempt Bond Fund, a series of J.P. Morgan Funds, into the Acquiring Portfolio shall have been consummated. 8. AMENDMENTS; TERMINATIONS; NO SURVIVAL OF COVENANTS, WARRANTIES AND REPRESENTATIONS. (a) AMENDMENTS. The parties hereto may, by agreement in writing authorized by their respective Boards of Trustees amend this Plan at any time before or after approval hereof by the shareholders of the Transferor Portfolio, but after such approval, no amendment shall be made which substantially changes the terms hereof. (b) WAIVERS. At any time prior to the Effective Time of the Reorganization, either the Transferor Trust or the Acquiring Trust may by written instrument signed by it (i) waive any inaccuracies in the representations and warranties made to it contained herein and (ii) waive compliance with any of the covenants or conditions made for its benefit contained herein, except that conditions set forth in Sections 6(c) and 7(d) may not be waived. (c) TERMINATION BY THE TRANSFEROR TRUST. The Transferor Trust, on behalf of the Transferor Portfolio, may terminate this Plan with respect to the Transferor Portfolio at any time prior to the Effective Time of the Reorganization by notice to the Acquiring Trust and JPMFAM if (i) a material condition to the performance of the Transferor Trust hereunder or a material covenant of the Acquiring Trust contained herein shall not be fulfilled on or before the date specified for the fulfillment thereof or (ii) a material default or material breach of this Plan shall be made by the Acquiring Trust. In addition, this Plan may be terminated by the Transferor Trust at any time prior to the Effective Time of the Reorganization, whether before or after approval of this Plan by the shareholders of the Transferor Portfolio, without liability on the part of any party hereto, its Trustees, officers or shareholders or J.P. Morgan Investment Management Inc. ("JPMIM") on notice to the other parties in the event that the Board of Trustees determines that proceeding with this Plan is not in the best interests of the shareholders of the Transferor Portfolio. (d) TERMINATION BY THE ACQUIRING TRUST. The Acquiring Trust, on behalf of the Acquiring Portfolio, may terminate this Plan with respect to the Acquiring Portfolio at any time prior to the Effective Time of the Reorganization by notice to the Transferor Trust and JPMIM if (i) a material condition to the performance of the Acquiring Trust hereunder or a material covenant of A-12 the Transferor Trust contained herein shall not be fulfilled on or before the date specified for the fulfillment thereof or (ii) a material default or material breach of this Plan shall be made by the Transferor Trust. In addition, this Plan may be terminated by the Acquiring Trust at any time prior to the Effective Time of the Reorganization, whether before or after approval of this Plan by the shareholders of the Transferor Portfolio, without liability on the part of any party hereto, its Trustees, officers or shareholders or JPMIM on notice to the other parties in the event that the Board of Trustees determines that proceeding with this Plan is not in the best interests of the shareholders of the Acquiring Portfolio. (e) SURVIVAL. No representations, warranties or covenants in or pursuant to this Plan, except for the provisions of Section 5(f) and Section 9 of this Plan, shall survive the Reorganization. 9. EXPENSES. The expenses of the Reorganization will be borne by J.P. Morgan Chase & Co. ("JPMC"). Such expenses include, without limitation, (i) expenses incurred in connection with the entering into and the carrying out of the provisions of this Plan; (ii) expenses associated with the preparation and filing of the Registration Statement; (iii) fees and expenses of preparing and filing such forms as are necessary under any applicable state securities laws in connection with the Reorganization; (iv) postage; (v) printing; (vi) accounting fees; (vii) legal fees and (viii) solicitation costs relating to the Reorganization. In addition, JPMC or an affiliate will waive fees payable to it or reimburse expenses to the extent necessary such that the actual (post-waiver) total expense ratios of the Acquiring Portfolio are not higher than those set forth in the Registration Statement for a period of three years after the Exchange Date. 10. NOTICES. Any notice, report, statement or demand required or permitted by any provision of this Plan shall be in writing and shall be given by hand, certified mail or by facsimile transmission, shall be deemed given when received and shall be addressed to the parties hereto at their respective addresses listed below or to such other persons or addresses as the relevant party shall designate as to itself from time to time in writing delivered in like manner: if to the Acquiring Trust (for itself or on behalf of the Acquiring Portfolio): 1211 Avenue of the Americas, 41st Floor New York, New York 10036 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Sarah E. Cogan, Esq. if to the Transferor Trust (for itself or on behalf of the Transferor Portfolio): A-13 60 State Street Suite 1300 Boston, Massachusetts 02109 with a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: John E. Baumgardner, Jr., Esq. 11. RELIANCE. All covenants and agreements made under this Plan shall be deemed to have been material and relied upon by the Transferor Trust and the Acquiring Trust notwithstanding any investigation made by such party or on its behalf. 12. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT. (a) The section and paragraph headings contained in this Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of this Plan. (b) This Plan may be executed in any number of counterparts, each of which shall be deemed an original. (c) This Plan shall be governed by and construed in accordance with the laws of The State of New York. (d) This Plan shall bind and inure to the benefit of the Transferor Trust, the Transferor Portfolio, the Acquiring Trust and the Acquiring Portfolio and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Plan. (e) The name "J.P. Morgan Funds" is the designation of its Trustees under a Declaration of Trust dated November 4, 1992, as amended, and all persons dealing with the Transferor Trust must look solely to the Transferor Trust's property for the enforcement of any claims against the Transferor Trust, as none of the Transferor Trustees, officers, agents or shareholders assumes any personal liability for obligations entered into on behalf of the Transferor Trust. No series of the Transferor Trust shall be liable for claims against any other series of the Transferor Trust. (f) The name "Mutual Fund Select Trust" is the designation of its Trustees under a Declaration of Trust dated October 1, 1996, as amended, and all persons dealing with the Acquiring Trust must look solely to the Acquiring Trust's property for the enforcement of any claims against the Acquiring Trust, as none of the Acquiring Trustees, officers, agents or A-14 shareholders assumes any personal liability for obligations entered into on behalf of the Acquiring Trust. No series of the Acquiring Trust shall be liable for claims against any other series of the Acquiring Trust. A-15 IN WITNESS WHEREOF, the undersigned have executed this Plan as of the date first above written. J.P. MORGAN INSTITUTIONAL FUNDS on behalf of J.P. Morgan Institutional Tax Exempt Bond Fund By: -------------------------------------------------- Name: Title: MUTUAL FUND SELECT TRUST on behalf of JPMorgan Intermediate Tax Free Income Fund By: -------------------------------------------------- Name: Title: Agreed and acknowledged with respect to Section 9: J.P. MORGAN CHASE & CO. By: -------------------------------------------------- Name: Title: A-16 STATEMENT OF ADDITIONAL INFORMATION (SPECIAL MEETING OF SHAREHOLDERS OF J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND, A SERIES OF J.P. MORGAN FUNDS) This Statement of Additional Information is not a prospectus but should be read in conjunction with the Combined Prospectus/Proxy Statement dated May 16, 2001 for the Special Meeting of Shareholders of J.P. Morgan Institutional Tax Exempt Bond Fund (the "Merging Fund"), a series of J.P. Morgan Institutional Funds ("JPMIF"), to be held on July 3, 2001. Copies of the Combined Prospectus/Proxy Statement may be obtained at no charge by calling the Merging Fund at 1-800-766-7722. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Combined Prospectus/Proxy Statement. Further information about the Surviving Fund and the Merging Fund is contained in each of MFST's and JPMIF's Statements of Additional Information, which are incorporated herein by reference. The date of this Statement of Additional Information is May 16, 2001. GENERAL INFORMATION The Shareholders of the Merging Fund are being asked to consider and vote on two proposals. With respect to an Agreement and Plan of Reorganization (the "Reorganization Plan") dated as of __________, 2001 by and among JPMIF, on behalf of the Merging Fund, MFST, on behalf of the Surviving Fund, and JPMC, and the transactions contemplated thereby, the Reorganization Plan contemplates the transfer of all of the assets and liabilities of the Merging Fund to the Surviving Fund in exchange for shares issued by MFST in the Surviving Fund that will have an aggregate net asset value equal to the aggregate net asset value of the shares of the Merging Fund that are outstanding immediately before the Effective Time of the Reorganization. Following the exchange, the Merging Fund will make a liquidating distribution of the Surviving Fund shares to its Shareholders, so that a holder of shares in the Merging Fund will receive Institutional Class shares of the Surviving Fund of equal value, plus the right to receive any unpaid dividends and distributions that were declared before the Effective Time of the Reorganization. At the Meeting, shareholders will also be asked to consider and vote upon the election of Trustees of JPMIF. A Special Meeting of Shareholders of the Merging Fund to consider the proposals and the related transaction will be held at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st floor, New York, NY, on July 3, 2001 at 9:00 a.m., Eastern time. For further information about the transaction, see the Combined Prospectus/Proxy Statement. -2- FINANCIAL STATEMENTS The audited financial highlights, financial statements and notes thereto of the Merging Fund and the audited financial statements, notes thereto and supplementary data of the Master Portfolio contained in their respective Annual Reports, each dated July 31, 2000, are incorporated by reference into this Statement of Additional Information related to this Combined Prospectus/Proxy Statement. The audited financial highlights, financial statements and notes thereto of the Surviving Fund contained in its Annual Report dated August 31, 2000 of Surviving Fund are incorporated by reference into this Statement of Additional Information of the Surviving Fund related to this Combined Prospectus/Proxy Statement. The unaudited financial highlights, financial statements and notes thereto of the Merging Fund and the unaudited financial statements, notes thereto and supplementary data of the Master Portfolio contained in their respective Semi-Annual Reports, each dated January 31, 2001, are incorporated by reference into this Statement of Additional Information related to this Combined Prospectus/Proxy Statement. The audited financial highlights, financial statements, notes thereto and supplementary data, as applicable, which appear in each of the Merging Fund's, the Master Portfolio's and the Surviving Fund's Annual Report have been audited by PricewaterhouseCoopers LLP, whose reports thereon also appear in such Annual Reports and are also incorporated herein by reference. The financial highlights, financial statements, notes thereto and supplementary data, as applicable, for the Merging Fund and the Master Portfolio for the fiscal year ended July 31, 2000 and for the Surviving Fund for the fiscal year ended August 31, 2000 have been incorporated herein by reference in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on their authority as experts in auditing and accounting. -3- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ------------ --------- --------- ------------ --------- --------- MUNICIPALS 98.29% GENERAL OBLIGATIONS & HOUSE AUTHORITY 58.76% ALABAMA 0.80% Alabama State, Public School & College Authority, Capital Improvement, Ser. D, Rev., 8,485 8,485 5.25%, 8/1/2005 $ 8,975 $ - $ 8,975 2,650 2,650 Alabama State, Ser. A, GO, 5.50%, 10/1/2002 2,732 2,732 Shelby County, Alabama, Board of Education, 1,000 1,000 Capital Outlay School Warrants, 5.70%, 2/1/2009 1,070 1,070 12,777 - 12,777 CALIFORNIA 0.34% Los Angeles County, California, Public Works Financing Authority, Regional Park & Open Space District, Ser. A, Rev., ^, 6.00%, 5,000 5,000 10/1/2004 5,513 5,513 COLORADO 0.21% Eagle, Garfield & Routt Counties, Colorado, School District No. Re 50J, GO, ^, 6.13%, 3,000 3,000 12/1/2004 3,312 3,312 CONNECTICUT 1.25% 7,240 7,240 Connecticut, Series 1997 B, 5.88%, 6/15/17 7,858 7,858 6,655 6,655 Connecticut, Series 2000 C, 5.25%, 12/15/11 7,142 7,142 Connecticut State, Special Tax Obligation, Transportation Infrastructure, Ser. A, Rev., 4,735 4,735 5.40%, 6/1/2009 5,003 5,003 5,003 15,000 20,003 DELAWARE 0.20% Delaware Transportation Authority, 3,000 3,000 Transportation System, Rev., 6.00%, 7/1/2005 3,252 3,252 FLORIDA 0.56% Dade County, Florida, Aviation, Ser. B, Rev., 2,000 2,000 6.40%, 10/1/2006 2,205 2,205 Florida State Board Education Capital Outlay, 465 465 7.00%, 6/1/01 466 466 Florida State, Board of Education, Capital Outlay, Public Education, Ser. B, GO, 5.25%, 1,495 1,495 6/1/2012 1,600 1,600 Florida State, Department of Corrections, 2,000 2,000 Okeechobee Correctional, COP, 6.00%, 3/1/2008 2,173 2,173 Miami-Dade County, Florida, Aviation, Ser. A, 2,350 2,350 Rev., 5.25%, 10/1/2007 2,487 2,487 8,465 466 8,931 GEORGIA 2.83% Forsyth County, Georgia, School District, GO, 1,720 1,720 5.00%, 7/1/2012 1,800 1,800 2,630 2,630 Fulton County School District, 6.38%, 5/1/14 3,072 3,072 Georgia Municipal Electric Authority, Ser. DD, 5,000 5,000 Rev., 7.00%, 1/1/2008 5,822 5,822 5,000 5,000 Georgia State, Ser. B, GO, 6.25%, 4/1/2004 5,372 5,372 2,000 2,000 Georgia State, Ser. D, GO, 6.00%, 10/1/2004 2,156 2,156 11,000 11,000 Georgia, Series 1991 D, 3.00%, 11/1/11 9,713 9,713 3,000 3,000 Georgia, Series 1992 B, 6.30%, 3/1/10 3,450 3,450 6,000 6,000 Georgia, Series 1995 B, 7.20%, 3/1/07 6,996 6,996
-4- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- ---------- --------- ------------ ----------- --------- Gwinnett County School District, Series 1992 2,500 2,500 B, 6.40%, 2/1/08 2,836 2,836 Metropolitan Atlanta Rapid Transit Authority, Georgia, Sales Tax, Second Indenture, Ser. A, 3,700 3,700 Rev., ^, 6.90%, 7/1/2004 4,140 4,140 19,290 26,067 45,357 HAWAI 0.44% 4,405 4,405 Hawaii State, Ser CK, GO, ^, 5.25%, 9/1/2005 4,675 4,675 Honolulu, Hawaii, City & County, Ser. A, GO, 2,000 2,000 7.35%, 7/1/2006 2,313 2,313 6,988 - 6,988 ILLINOIS 5.18% Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, Capital Improvement Bonds, GO, ^, 7.00%, 1,500 1,500 1/1/2008 1,746 1,746 Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, Capital 10,000 10,000 Improvement, GO, 5.50%, 12/1/2012 10,895 10,895 Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, GO, 5,000 5,000 5.50%, 12/1/2008 5,437 5,437 Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, GO, 10,025 10,025 5.50%, 12/1/2009 10,917 10,917 Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, GO, 7,200 7,200 5.95%, 12/1/2007 7,987 7,987 Chicago, Illinois, O'Hare International Airport, General Airport, Second Lien, Ser. 3,000 3,000 A, Rev., 6.75%, 1/1/2006 3,347 3,347 Chicago, Illinois, O'Hare International Airport, Passenger Facilities Charge, Ser. 6,055 6,055 A, Rev., 5.38%, 1/1/2007 6,440 6,440 Chicago, Illinois, Park District, Harbor 1,245 1,245 Facilities, Rev., 5.38%, 1/1/2006 1,315 1,315 Cook, Kane, Lake & McHenry Counties Community College District No. 512, Series 2001 A, (William Rainey Harper College), 5.50%, 4,520 4,520 12/1/17 4,672 4,672 Illinois Regional Transportation Authority, 1,000 1,000 Ser. B, Rev., 6.40%, 6/1/2012 1,165 1,165 1,810 1,810 Illinois State, 1st Ser., GO, 5.25%, 8/1/2005 1,908 1,908 2,565 2,565 Illinois State, 1st Ser., GO, 5.50%, 8/1/2006 2,751 2,751 4,000 4,000 Illinois State, 1st Ser., GO, 5.50%, 8/1/2007 4,313 4,313 5,485 5,485 Illinois State, GO, 5.25%, 4/1/2004 5,713 5,713 2,000 2,000 Illinois State, GO, 5.25%, 6/1/2010 2,125 2,125 1,320 1,320 Illinois State, GO, 5.50%, 8/1/2006 1,405 1,405 10,000 10,000 Illinois State, GO, 5.50%, 4/1/2010 10,762 10,762 78,226 4,672 82,898 INDIANA 1.42% Indiana Municipal Power Agency, Power Supply 2,600 2,600 Systems, Ser. B, Rev., 5.63%, 1/1/2005 2,757 2,757 Indiana Municipal Power Agency, Power Supply 5,500 5,500 Systems, Ser. B, Rev.,5.80%, 1/1/2008 6,015 6,015 Indiana State, Office Building Commission 2,485 2,485 Facilities, Ser. A, Rev., 5.00%, 7/1/2004 2,576 2,576 Indianapolis, Indiana, Gas Utility, Distribution Systems, Ser. A, Rev., 5.75%, 7,315 7,315 8/15/2008 8,030 8,030
-5- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- ---------- ---------- ------------ ---------- --------- Indianapolis, Indiana, Local Public Improvement, Bond Bank, Ser. A, Rev., 6.50%, 3,000 3,000 1/1/2008 3,397 3,397 22,775 - 22,775 KANSAS 0.14% Kansas State, Department of Transportation, 2,175 2,175 Highway, Rev., 5.00%, 9/1/2003 2,245 2,245 KENTUCKY 0.02% Owensboro, Kentucky, Electric Light & Power, 275 275 Rev., ^, 10.50%, 1/1/2004 298 298 LOUISIANA 0.22% Lake Charles, Louisiana, Harbor & Terminal District, Reynolds Metals Co. Project, Rev., 3,500 3,500 5.50%, 5/1/2006 3,571 3,571 MARYLAND 3.38% 3,000 3,000 Maryland, Series 1991-3, 6.40%, 7/15/03 3,045 3,045 Maryland State GO, Series 2000-1, (State & 5,000 5,000 Local Facilities Loan), 5.13%, 8/1/05 5,275 5,275 Maryland State, Stadium Authority, Rev., 3,335 3,335 5.75%, 12/15/2008 3,587 3,587 Maryland State, Stadium Authority, Rev., 3,535 3,535 5.80%, 12/15/2009 3,796 3,796 Maryland State, State & Local Facilities Loan, 15,640 15,640 Third Ser., GO, 5.80%, 10/15/2008 16,768 16,768 Maryland State, Transportation Authority, Transportation Facilities Project, Rev., 6,500 6,500 5.80%, 7/1/2006 7,103 7,103 Montgomery County, (Consumer Public 7,000 7,000 Improvement), 4.75%, 2/1/04 7,220 7,220 Montgomery County, (Consumer Public 7,000 7,000 Improvement), 5.00%, 2/1/10 7,403 7,403 31,254 22,943 54,197 MASSACHUSETTS 2.82% Chelsea, Massachusetts, School Project Loan 5,000 5,000 Act of 1948, GO, ^, 5.90%, 6/15/2004 5,438 5,438 Massachusetts Bay, Transportation Authority, General Transportation Systems, Ser. A, Rev., 2,045 2,045 5.50%, 3/1/2014 2,222 2,222 Massachusetts State GO, Series 2000 B, 5.75%, 14,035 14,035 6/1/12 15,319 15,319 Massachusetts State, Housing Finance Agency, Residential Development, Ser. C, Rev., 6.45%, 3,000 3,000 5/15/2004 3,146 3,146 Massachusetts State, Turnpike Authority, Ser. 10,000 10,000 A, Rev., ^, 5.00%, 1/1/2013 10,445 10,445 Massachusetts State, Water Resources 3,000 3,000 Authority, Ser. C, Rev., 5.25%, 12/1/2015 3,177 3,177 Massachusetts State, Water Resources 2,000 2,000 Authority, Ser. A, Rev., 5.50%, 8/1/2013 2,185 2,185 Southeastern, Massachusetts, University Building Authority Project, Ser. A, Rev., 1,980 1,980 5.90%, 5/1/2009 2,138 2,138 Southeastern, Massachusetts, University Building Authority Project, Ser. A, Rev., 1,000 1,000 5.90%, 5/1/2010 1,076 1,076 29,827 15,319 45,146
-6- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- --------- --------- ------------ --------- --------- MICHIGAN 2.26% Michigan State, Environmental Protection 2,030 2,030 Program, GO, 5.50%, 11/1/2004 2,157 2,157 Michigan State, Trunk Line, Ser. A, Rev., 10,750 10,750 5.25%, 11/1/2013 11,457 11,457 Michigan State, Trunk Line, Ser. A, Rev., 4,000 4,000 5.25%, 11/1/2015 4,218 4,218 Michigan State, Underground Storage Tank, Financial Assurance Authority, Ser. I, Rev., 3,565 3,565 5.75%, 5/1/2010 3,824 3,824 Wayne Charter County, Michigan, Airport, Ser. 10,000 10,000 A, Rev., 5.25%, 12/1/2006 10,537 10,537 Wayne Charter County, Michigan, Airport, Ser. 3,780 3,780 A, Rev., 5.50%, 12/1/2007 4,046 4,046 36,239 - 36,239 MINNESOTA 0.84% 9,330 9,330 Minnesota State, 5.50%, 6/1/10 10,201 10,201 University of Minnesota, Ser. A, Rev., 5.75%, 3,000 3,000 7/1/2015 3,316 3,316 3,316 10,201 13,517 MISSISSIPPI 1.18% 11,150 11,150 Mississippi State, 6.20%, 2/1/08 12,405 12,405 Mississippi State, Capital Improvements Issue, 4,000 4,000 Ser. I, GO, 5.50%, 11/1/2006 4,312 4,312 2,000 2,000 Mississippi State, GO, 5.75%, 12/1/2012 2,228 2,228 6,540 12,405 18,945 MISSOURI 0.08% Missouri State, Environmental Improvement & Energy Resources Authority, Water Pollution Control & Drinking Water, State Revolving 1,105 1,105 Funds Program, Ser. B, Rev., 5.50%, 7/1/2012 1,209 1,209 NEBRASKA 0.16% American Public Energy Agency, Nebraska, Gas Supply, Public Gas Agency Project, Ser. A, 2,635 2,635 Rev., 5.25%, 6/1/2011 2,637 2,637 NEVADA 1.17% Henderson, Nevada, Water & Sewer, Ser. A, GO, 2,415 2,415 5.50%, 9/1/2008 2,614 2,614 1,000 1,000 Nevada State, GO, 6.75%, 7/1/2003 1,010 1,010 Nevada State, Municipal Bond Bank, GO, ^, 1,000 1,000 7.20%, 11/1/2004 1,023 1,023 Nevada State, Municipal Bond Bank, Project No. 1,000 1,000 20-23A, GO, ^, 7.20%, 7/1/2002 1,008 1,008 5,390 5,390 Nevada State, Ser. A, GO, 5.00%, 7/1/2010 5,629 5,629 5,000 5,000 Nevada State, Ser. A, GO, 5.60%, 7/15/2006 5,299 5,299 2,000 2,000 Nevada State, Ser. C, GO, 6.50%, 5/1/2005 2,197 2,197 18,780 - 18,780 NEW JERSEY 4.86% 3,245 3,245 Elizabeth, New Jersey, GO, 6.25, 8/15/2008 3,576 3,576 4,180 4,180 Jersey City, Series 1996 A, 6.25%, 10/1/11 4,815 4,815
-7- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- ---------- --------- ------------- ----------- ---------- New Jersey Building Authority, State Building, 10,000 10,000 Rev., 5.75%, 6/15/2009 11,015 11,015 New Jersey Economic Development Authority, Market Transition Facility, Senior Lien, Ser. 955 955 A, Rev., 5.80%, 7/1/2008 1,029 1,029 New Jersey Economic Development Authority, Market Transition Facility, Senior Lien, Ser. 8,800 8,800 A, Rev., 5.80%, 7/1/2009 9,482 9,482 10,000 10,000 New Jersey State, 5.50%, 5/1/07 10,815 10,815 New Jersey State, Transportation Trust Fund 7,000 7,000 Authority, Ser. B, Rev., 5.50%, 6/15/2009 7,485 7,485 New Jersey State, Transportation Trust Fund Authority, Transportation Systems, Ser. A, 3,660 3,660 Rev., 5.75%, 6/15/2015 4,069 4,069 New Jersey State, Turnpike Authority, Rev., 4,190 4,190 ^, 5.70%, 5/1/2013 4,536 4,536 New Jersey State, Turnpike Authority, Rev., 400 400 ^, 10.38%, 1/1/2003 436 436 New Jersey State, Turnpike Authority, Ser. G, 3,895 3,895 Rev., ^, 5.75%, 1/1/2009 4,214 4,214 New Jersey Wastewater Treatment Trust, Ser. A, 2,545 2,545 Rev., 7.00%, 5/15/2006 2,910 2,910 New Jersey Wastewater Treatment Trust, Ser. A, 2,910 2,910 Rev., 7.00%, 5/15/2008 3,428 3,428 New Jersey Wastewater Treatment Trust, Ser. A, 3,120 3,120 Rev., 7.00%, 5/15/2009 3,724 3,724 New Jersey Wastewater Treatment Trust, Ser. C, 5,520 5,520 Rev., 6.88%, 6/15/2007 6,382 6,382 62,286 15,630 77,916 NEW MEXICO 0.14% Gallup, New Mexico, PCR, Plains Electric 2,075 2,075 Generation, Rev., 6.40%, 8/15/2005 2,181 2,181 NEW YORK 5.16% Long Island Power Authority, New York, Electric Systems, Ser. A, Rev., 5.50%, 1,500 1,500 12/1/2013 1,647 1,647 50 50 New York, Series 1994 A, 5.75%, 8/1/02 52 52 11,615 11,615 New York, Series 2001 F, 5.00%, 8/1/10 12,096 12,096 New York State, Dorm Authority, Pooled Capital 155 155 Program, Rev., ^, 7.80%, 12/1/2005 158 158 New York State, Dorm Authority, St. John's 770 770 University, Rev., 6.70%, 7/1/2004 793 793 New York State, Dorm Authority, State University Educational Facilities, Ser. A, 2,800 2,800 Rev., 5.50%, 5/15/2006 2,994 2,994 New York State, Dorm Authority, State University Educational Facilities, Ser. A, 1,500 1,500 Rev., 5.50%, 5/15/2013 1,643 1,643 New York State, Dorm Authority, State University Educational Facilities, Ser. A, 4,025 4,025 Rev., 5.50%, 5/15/2013 4,404 4,404 New York State, Environmental Facilities Corp., PCR, State Water Revolving Fund, Ser. 1,200 1,200 D, Rev., 6.55%, 3/15/2008 1,227 1,227 New York State, Housing Finance Agency, Housing Project Mortgage, Ser. A, Rev., 5.40%, 4,915 4,915 11/1/2005 5,201 5,201 New York State, Medical Care Facilities, 75 75 Finance Agency, Rev., 7.38%, 8/15/2003 75 75
-8- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- ---------- --------- ------------ ----------- -------- 6,000 6,000 New York State, Ser. B, GO, 5.60%, 8/15/2007 6,426 6,426 5,000 5,000 New York State, Ser. B, GO, 5.70%, 8/15/2010 5,314 5,314 New York State, Thruway Authority, Highway & Bridge Trust Fund, Ser. A, Rev., ^, 5.60%, 4,000 4,000 4/1/2004 4,301 4,301 New York State, Thruway Authority, Highway & Bridge Trust Fund, Ser. B, Rev., ^, 6.00%, 5,700 5,700 4/1/2004 6,195 6,195 New York State, Thruway Authority, Service Contract, Local Highway & Bridge, Rev., 5.10%, 5,000 5,000 4/1/2008 5,258 5,258 New York State, Thruway Authority, Service Contract, Local Highway & Bridge, Rev., 5.20%, 10,000 10,000 4/1/2009 10,574 10,574 New York State, Thruway Authority, Service Contract, Local Highway & Bridge, Rev., 5.25%, 7,500 7,500 4/1/2003 7,735 7,735 Port Authority of New York & New Jersey, Consolidated Bonds 112th Ser., Rev., 5.00%, 3,910 3,910 12/1/2005 4,072 4,072 Suffolk County, New York, IDA, IDR, Nissequogue Cogen Partners Facility, Rev., 1,500 1,500 4.88%, 1/1/2008 1,457 1,457 Westchester County, New York, IDA, Resource Recovery, Resco Co. Project, Ser. A, Rev., 990 990 5.60%, 7/1/2007 1,045 1,045 70,519 12,148 82,667 NORTH CAROLINA 0.68% North Carolina GO, Series 2000 A, (Public 10,410 10,410 Improvements), 5.00%, 9/1/04 10,870 10,870 OHIO 4.63% Columbus GO, Series 2000-1, 5.25%, 11/15/03 to 17,385 17,385 11/15/05 18,289 18,289 Columbus GO, Series 2000-1, 5.50%, 11/15/06 to 12,245 12,245 11/15/11 13,328 13,328 Montgomery County, Ohio, Solid Waste, Rev., 4,000 4,000 5.50%, 11/1/2010 4,267 4,267 Ohio GO, Series 2000 E, (Highway Capital 10,000 10,000 Improvements), 5.25%, 5/1/04 10,472 10,472 Ohio, Series 2000 E, (Highway Capital 10,000 10,000 Improvements), 5.63%, 5/1/10 11,005 11,005 Ohio State, Building Authority, State Facilities, Administration Building Fund, Ser. 1,420 1,420 A, Rev., 6.00%, 10/1/2006 1,564 1,564 Ohio State, Building Authority, State Facilities, Adult Correctional, Ser. A, Rev., 3,360 3,360 5.75%, 10/1/2008 3,571 3,571 Ohio State, Infrastructure Improvement, Ser. 5,000 5,000 B, GO, 5.25%, 2/1/2014 5,309 5,309 Ohio State, Turnpike Commission, Ser. A, Rev., 6,000 6,000 5.40%, 2/15/2009 6,412 6,412 21,123 53,094 74,217 OREGON 0.57% Oregon State, State Board of Higher Education, 5,300 5,300 Ser. A, GO, ^, 6.00%, 8/1/2006 5,925 5,925 Washington County, Oregon, School District No. 3,000 3,000 3, Hillsboro, GO, ^, 6.00%, 11/1/2005 3,285 3,285
-9- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- --------- --------- ------------ ----------- --------- 9,210 - 9,210 PENNSYLVANIA 0.32% Carbon County, Pennsylvania, IDA, Panther 3,000 3,000 Creek Partners Project, Rev., 6.65%, 5/1/2010 3,074 3,074 Pennsylvania State, Second Ser., GO, 5.00%, 2,000 2,000 8/1/2009 2,108 2,108 5,182 - 5,182 PUERTO RICO 1.14% 10,000 10,000 Puerto Rico Commonwealth, GO, 5.50%, 7/1/2008 10,999 10,999 5,500 5,500 Puerto Rico Commonwealth, GO, 5.50%, 7/1/2009 6,072 6,072 Puerto Rico Industrial, Medical & Environmental PCFFA, Renasa Inc., Squibb Corp. 1,140 1,140 Project, Rev., 6.50%, 7/1/2004 1,143 1,143 18,214 - 18,214 SOUTH CAROLINA 0.87% South Carolina, Series 2001 A, (State School 13,305 13,305 Facilities), 5.00%, 1/1/05 - 13,877 13,877 TENNESSEE 0.86% 6,820 6,820 Knox County, 6.00%, 5/1/12 to 5/1/13 7,480 7,480 Tennergy Corp., Tennessee, Gas, Rev., 5.00%, 5,335 5,335 6/1/2009 5,250 5,250 1,000 1,000 Tennessee State, Ser. A, GO, 5.00%, 5/1/2013 1,044 1,044 6,294 7,480 13,774 TEXAS 6.61% Austin, Texas, Independent School District, Public Property Finance, Contractual 2,000 2,000 Obligation, GO, 5.25%, 2/1/2008 2,126 2,126 Austin, Texas, Utility Systems, Rev., 5.80%, 5,255 5,255 11/15/2006 5,736 5,736 Austin, Texas, Utility Systems, Rev., ^, 3,000 3,000 6.25%, 5/15/2004 3,235 3,235 Dallas, Texas, Civic Center, Improvement, 6,200 6,200 Rev., 5.25%, 8/15/2007 6,605 6,605 4,845 4,845 Dallas, Texas, GO, 5.00%, 2/15/2009 5,105 5,105 Fort Worth Independent School District, (Premium Capital Appreciation), 4.99%, 12,485 12,485 2/15/06(y) 9,750 9,750 6,220 6,220 Harris County, Texas, GO, 5.88%, 10/1/2007 6,856 6,856 4,940 4,940 Houston, Texas, Ser. A, GO, 5.50%, 3/1/2004 5,172 5,172 8,675 8,675 Houston, Texas, Ser. A, GO, 5.50%, 3/1/2008 9,337 9,337 Houston, Texas, Water & Sewer Systems, Ser. B, 4,975 4,975 Rev., 6.40%, 12/1/2009 5,297 5,297 Katy, Texas, Independent School District, Ser. 1,520 1,520 A, GO, 5.00%, 2/15/2011 1,585 1,585 North East Independent School District, Texas, 5,300 5,300 GO, 6.50%, 10/1/2009 6,126 6,126 Texas Series 1992 C, 5.50%, 4/1/20, 10,000 10,000 Prerefunded at 102% of Par 10,418 10,418 5,650 5,650 Texas State, Ser. A, GO, 6.00%, 10/1/2005 6,147 6,147 7,500 7,500 Texas State, Ser. A, GO, 6.00%, 10/1/2009 8,430 8,430 Texas Water Development Board, State Revolving 1,320 1,320 Fund, Senior Lien, Rev., 6.20%, 7/15/2005 1,385 1,385
-10- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- --------- --------- ------------- --------- --------- Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. A, Rev., 5.00%, 4,700 4,700 7/15/2007 4,946 4,946 Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. A, Rev., 5.25%, 3,000 3,000 7/15/2009 3,186 3,186 Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. A, Rev., 5.63%, 1,000 1,000 7/15/2011 1,084 1,084 Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. B, Rev., 5.25%, 3,175 3,175 7/15/2008 3,391 3,391 85,749 20,168 105,917 UTAH 0.73% Intermountain Power Agency, Utah, Power 3,800 3,800 Supply, Ser. B, Rev., 6.50%, 7/1/2010 4,402 4,402 2,850 2,850 Salt Lake City, Utah, GO, 5.50%, 6/15/2011 3,101 3,101 Utah State, Building Ownership Authority, State Facilities Master Lease Program, Ser. C, 3,915 3,915 Rev., 5.50%, 5/15/2008 4,226 4,226 11,729 - 11,729 VERMONT 0.78% Burlington, Vermont, Electric, Ser. A, Rev., 4,100 4,100 6.38%, 7/1/2009 4,702 4,702 3,510 3,510 Vermont State, Ser. A, GO, ^, 6.40%, 1/15/2005 3,897 3,897 3,510 3,510 Vermont State, Ser. A, GO, ^, 6.50%, 1/15/2005 3,909 3,909 12,508 - 12,508 VIRGIN ISLANDS 0.68% Virgin Islands Public Finance Authority, Gross Receipts, Taxes Lien Notes, Ser. A, Rev., 2,500 2,500 5.63%, 10/1/2010 2,633 2,633 Virgin Islands Public Finance Authority, Senior Lien, Fund Lien Notes, Ser. C, Rev., 5,000 5,000 5.50%, 10/1/2006 5,172 5,172 Virgin Islands Water & Power Authority, 3,070 3,070 Electric Systems, Rev., 5.25%, 7/1/2007 3,151 3,151 10,956 - 10,956 VIRGINIA 0.82% Chesapeake Bay Bridge & Tunnel Commission, Virginia, General Resolution, Rev., 5.75%, 5,515 5,515 7/1/2008 5,968 5,968 Loudoun County, Series 2000 B, (State Aid 3,650 3,650 Withholding), 5.13%, 1/1/04 3,792 3,792 Virginia Commonwealth, Transportation Board, Federal Highway Reimbursement Anticipation 3,135 3,135 Notes, Rev., 5.50%, 10/1/2006 3,388 3,388 9,356 3,792 13,148 WASHINGTON 1.02% Grant County, Washington, Public Utilities District No. 2, Electric, Ser. G, Rev., 5.25%, 4,340 4,340 1/1/2008 4,603 4,603 Washington State GO, Series 1991 R-92-A, 1,750 1,750 6.30%, 9/1/02 1,792 1,792 Washington State GO, Series 1992 B & AT-7, 4,000 4,000 6.40%, 6/1/17 4,705 4,705 5,000 5,000 Washington State, Ser. B, GO, 5.00%, 1/1/2007 5,237 5,237
-11- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- --------- --------- ------------ ------------ --------- 9,840 6,497 16,337 WISCONSIN 3.37% Milwaukee County, Wisconsin, Corporate 3,025 3,025 Purpose, Ser. A, GO, 5.38%, 9/1/2005 3,210 3,210 Milwaukee County, Wisconsin, Corporate 2,350 2,350 Purpose, Ser. A, GO, 5.63%, 9/1/2010 2,558 2,558 Wisconsin State, Clean Water, Ser. 2, Rev., 5,000 5,000 5.50%, 6/1/2011 5,437 5,437 Wisconsin State, Clean Water, Ser. 2, Rev., 6,545 6,545 5.50%, 6/1/2014 7,090 7,090 Wisconsin State, Clean Water, Ser. 2, Rev., 3,585 3,585 6.13%, 6/1/2006 3,941 3,941 6,000 6,000 Wisconsin State, GO, 6.20%, 5/1/2006 6,618 6,618 1,000 1,000 Wisconsin State, GO, 6.25%, 5/1/2012 1,154 1,154 2,775 2,775 Wisconsin State, Ser. 1, GO, 5.00%, 11/1/2007 2,928 2,928 6,275 6,275 Wisconsin State, Ser. 1, GO, 5.50%, 11/1/2011 6,852 6,852 5,000 5,000 Wisconsin State, Ser. 2, GO, 5.00%, 5/1/2004 5,184 5,184 4,450 4,450 Wisconsin State, Ser. 3, GO, 5.20%, 11/1/2009 4,750 4,750 Wisconsin State, Transportation, Ser. A, Rev., 4,040 4,040 5.00%, 7/1/2005 4,212 4,212 53,934 - 53,934 TOTAL GENERAL OBLIGATIONS & HOUSE AUTHORITY 58.76% 690,598 250,629 941,227 INSURED 17.47% ALASKA 0.13% Anchorage GO, 6.60%, 7/1/02, Prerefunded at 2,000 2,000 100% of Par (MBIA) - 2,021 2,021 CALIFORNIA 3.79% Bay Area Governments Association Lease Rev., Series 2001 A,(Bart SFO Extension-FTA Capital 35,000 35,000 Grant), 4.88%, 6/15/09 (AMBAC) 35,844 35,844 Bay Area Governments Association Lease Rev., Series 2001 A,(Bart SFO Extension-FTA Capital 2,140 2,140 Grant), 5.00%, 6/15/08 (AMBAC) 2,164 2,164 5,000 5,000 California, 5.00%, 12/1/09 (FGIC-TCRS) 5,378 5,378 3,000 3,000 California, 6.50%, 9/1/10 (FGIC-TCRS) 3,545 3,545 California, Series 1999, 5.50%, 2/1/10 10,000 10,000 (FGIC-TCRS) 10,997 10,997 Los Angeles County Public Works Financing Auth. Lease Rev., Series 1996 A, 6.00%, 9/1/06 2,500 2,500 (MBIA) 2,787 2,787 - 60,715 60,715 DISTRICT OF COLUMBIA 0.83% District of Columbia, Series 1992 B, 6.00%, 2,600 2,600 6/1/02, Escrowed to Maturity (MBIA) 2,678 2,678 District of Columbia, Series 1993 A, 6.00%, 6/1/07 to 6/1/07, Escrowed to 3,220 3,220 Maturity(MBIA-IBC) 3,552 3,552 District of Columbia, Series 1993 C, 5.25%, 6,795 6,795 12/1/03, Escrowed to Maturity (FGIC) 7,074 7,074 - 13,304 13,304 FLORIDA 0.13%
-12- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- ---------- --------- ------------ ----------- --------- Volusia County School District, 6.10%, 8/1/02 2,000 2,000 (FGIC) - 2,060 2,060 GEORGIA 0.36% Metropolitan Atlanta Rapid Transportation 5,000 5,000 Auth., Series 1992 P, 6.25%, 7/1/11(AMBAC) - 5,795 5,795 ILLINOIS 1.32% Cook County, Series 2001 A, 5.38%, 11/15/14 10,065 10,065 (FGIC) 10,522 10,522 Cook County, Series 2001 A, 5.50%, 11/15/13 6,760 6,760 (FGIC) 7,202 7,202 Regional Transportation Auth., Series 1994 D, 2,810 2,810 7.75%, 6/1/07 (FGIC) 3,349 3,349 - 21,073 21,073 LOUISIANA 0.16% New Orleans, (Capital Appreciation), 5.28%, 4,165 4,165 9/1/11(y) 2,559 2,559 MASSACHUSETTS 1.28% Massachusetts, Series 2000 A, (Grant 18,620 18,620 Anticipation Notes), 5.75%, 12/15/12 (FSA) 20,513 20,513 MICHIGAN 1.16% Grand Rapids Water Supply System Rev., 5.75%, 3,910 3,910 1/1/13 (FGIC) 4,267 4,267 Michigan State Hospital Finance Auth. Rev., Series 1999 A, (Ascension Health Credit), 13,050 13,050 6.25%, 11/15/15 (MBIA) 14,305 14,305 - 18,572 18,572 NEBRASKA 1.00% Nebhelp Inc, Series 1993 A-5B, 6.20%, 6/1/13 5,245 5,245 (MBIA) 5,517 5,517 Nebraska Public Power District, Series 1998 A, 10,000 10,000 5.25%, 1/1/05(MBIA) 10,464 10,464 - 15,981 15,981 NEVADA 0.64% Clark County School District, Series 1991 A, 8,200 8,200 7.00%, 6/1/11(MBIA) 9,901 9,901 Las Vegas-Clark County Library District, 280 280 Series 1991 B, 6.70%, 8/1/04(FGIC) 286 286 - 10,187 10,187 NEW JERSEY 1.14% New Jersey Economic Development Auth. Rev., Series A, Market Transition Facilities Rev., 7,000 7,000 Sr. Lien, 5.40%, 7/1/02 (MBIA) 7,174 7,174 New Jersey Economic Development Auth. Rev., Series A, Transition Project Sublease, 5.75%, 4,100 4,100 5/1/11 (FSA) 4,548 4,548 New Jersey State Transportation Trust Fund, Series 1995 B,Transportation System, 6.00%, 6,000 6,000 6/15/05(MBIA) 6,516 6,516
-13- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- --------- --------- ------------ ----------- --------- - 18,238 18,238 NEW YORK 0.68% 75 75 Monroe County, 6.00%, 6/1/10 (AMBAC) 85 85 New York State Thruway Auth., Series 2000 B-1, 10,000 10,000 5.50%,4/1/09 (FGIC) 10,834 10,834 - 10,919 10,919 OHIO 0.68% Ohio State Turnpike Commission, Series 1996 A, 5.50%, 2/15/26, Prerefunded at 102% of 10,000 10,000 Par(MBIA) - 10,902 10,902 PENNSYLVANIA 0.10% Pennsylvania, Series 1991 A2, 6.50%, 11/1/04, 1,500 1,500 Prerefunded at 101.5% of Par (MBIA) - 1,553 1,553 SOUTH CAROLINA - 3.1% 1.81% Piedmont Municipal Power Agency Electric Rev., 1,000 1,000 6.20%, 1/1/08 (MBIA) 1,124 1,124 Piedmont Municipal Power Agency Electric Rev., 15,000 15,000 6.75%, 1/1/20 (FGIC) 18,075 18,075 South Carolina GO, Series 2000 A, (State School Facilities), 4.25%, 1/1/15 (State Aid 10,310 10,310 Withholding) 9,728 9,728 - 28,927 28,927 TEXAS 2.01% Houston Independent School District, (Capital 11,135 11,135 Appreciation), 4.76%, 8/15/13 (PSFG) (y) 6,045 6,045 Humble Independent School District, Series 2000 C, (Humble Island), 3.95%, 2/15/16 to 10,880 10,880 2/15/17 (PSFG) (y) 4,840 4,840 Lewisville Independent School District, 5.50%, 4,105 4,105 8/15/16 (PSFG) 4,262 4,262 Lubbock Health Facilities Development Corp., (St. Joseph Health System), 5.00%, 7/1/07 2,100 2,100 (FSA-CR) 2,185 2,185 Texas Municipal Power Agency Rev., (Capital 12,500 12,500 Appreciation), 4.76%, 9/1/13 (MBIA) (y) 6,772 6,772 Texas Public Building Auth., (Capital 10,100 10,100 Appreciation), 4.21%, 8/1/06 (MBIA) (y) 8,068 8,068 - 32,172 32,172 WASHINGTON 0.27% Pierce County School District No. 320 Sumner, 6.60%, 12/1/02,Prerefunded at 100% of Par 1,000 1,000 (MBIA) 1,024 1,024 Snohomish County School District No. 2 1,250 1,250 Everett, Series 1991 A, 6.70%, 12/1/02 (MBIA) 1,259 1,259 Washington Public Power Supply System Rev., Series 1990 C, (Nuclear Project No. 2), 7.00%, 2,000 2,000 7/1/01 (FGIC) 2,022 2,022 - 4,305 4,305 TOTAL INSURED 17.47% - 279,796 279,796 PRE-REFUNDED/TAX EXEMPT 1.61% ALABAMA 0.06%
-14- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- ---------- --------- ------------ ----------- --------- Daphne Special Care Facilities Financing Auth. Rev., Series 1988 A, (Presbyterian Retirement), 7.30%, 8/15/18, Prerefunded at 1,000 1,000 100% of Par - 1,017 1,017 CONNECTICUT 0.19% Connecticut Special Tax Obligation Rev., Series 1999 A, (Transportation Infrastructure), 6.60%, 6/1/04, Prerefunded at 2,815 2,815 100% of Par - 2,994 2,994 MICHIGAN 0.66% Detroit Water Supply System Rev., 6.37%, 10,000 10,000 3/3/01, Prerefunded at 102% of Par (FGIC) - 10,570 10,570 MISSOURI 0.61% Missouri State Regional Convention & Sports Complex Auth., Series A, 6.90%, 8/15/21, 5,000 5,000 Prerefunded at 100% of Par 5,381 5,381 St. Louis County Regional Convention & Sports Complex Auth., Series 1991 B, 7.00%, 8/15/21, 4,000 4,000 Prerefunded at 100% of Par 4,314 4,314 - 9,695 9,695 TEXAS 0.10% Dallas County Flood Control District, 9.25%, 1,305 1,305 4/1/10, Prerefunded at 100% of Par 1,581 1,581 TOTAL PRE-REFUNDED/TAX EXEMPT 1.61% - 25,857 25,857 PRIVATE PLACEMENT 2.60% CALIFORNIA 0.09% 1,049 1,049 Kaweah Delta Hospital District, 5.25%, 6/1/14 1,047 1,047 353 353 Kawaeh Delta Hospital District, 6.40%, 6/1/14 376 376 - 1,423 1,423 FLORIDA 0.64% 10,250 10,250 Orlando Utility Commission, 4.48%, 9/1/03 - 10,299 10,299 ILLINOIS 0.19% 3,000 3,000 Illinois Development Bank, 4.90%, 8/1/28 - 3,063 3,063 NEW YORK 0.64% New York Convention Center Operating Corporation Certificates of Partnership, (Yale 10,000 10,000 Building Acquisition), 6.50%, 12/1/04 - 10,189 10,189 PENNSYLVANIA 0.27% Philadelphia Auth. for Industrial Development, 4,250 4,250 4.75%, 1/1/18 - 4,262 4,262 WISCONSIN 0.78% Wisconsin Health & Educational Facilities, 6,250 6,250 5.70%, 5/1/14 6,275 6,275 Wisconsin Health & Educational Facilities, 6,250 6,250 5.95%, 5/1/19 6,141 6,141 - 12,416 12,416 TOTAL PRIVATE PLACEMENT 2.60% - 41,652 41,652
-15- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- ---------- --------- ------------ ---------- --------- REVENUE BONDS 17.34% ARIZONA 0.21% Arizona Health Facilities Auth. Rev., Series 1999 A, (Catholic Healthcare West), 6.13%, 3,430 3,430 7/1/09 - 3,416 3,416 CALIFORNIA 1.03% California State Department of Water Resources Center Valley Project, Series 1992 J-1, (Water 2,520 2,520 systems), 7.00%, 12/1/12 3,120 3,120 California Statewide Community Development 13,070 13,070 Auth., 6.00%, 7/1/09 13,328 13,328 - 16,448 16,448 GEORGIA 0.09% Georgia Municipal Electric Auth., Series 1997 1,250 1,250 A, 6.50%, 1/1/12 - 1,443 1,443 ILLINOIS 0.47% Illinois Health Facilities Auth. Rev., 6.63%, 1,665 1,665 2/15/12 1,807 1,807 Illinois Health Facilities Auth. Rev., 6.75%, 3,770 3,770 11/15/10 4,087 4,087 Metropolitan Pier & Exposition Auth. Dedicated 1,380 1,380 State Tax Rev., Series 1992 A, 8.50%, 6/15/06 1,667 1,667 - 7,561 7,561 IOWA 0.46% 6,920 6,920 Iowa Finance Auth., 6.75%, 2/15/15 to 2/15/17 - 7,433 7,433 MARYLAND 0.36% Maryland State Health & Higher Educational Facilities Auth. Rev., (John Hopkins 5,435 5,435 University), 5.75%, 7/1/03 - 5,703 5,703 MASSACHUSETTS 2.31% Massachusetts Bay Transportation Auth., Series 1994 A, (General Transportation System), 5,650 5,650 7.00%, 3/1/08 6,596 6,596 Massachusetts Health & Educational Facilities Auth., Series 2000 A, (Harvard University), 6,750 6,750 5.00%, 1/15/07 7,120 7,120 Massachusetts State College Building Auth., 1,495 1,495 Series 1994 A, 7.50%, 5/1/11 1,864 1,864 Massachusetts State Water Pollution Abatement, 9,500 9,500 Series 1999 A, (MWRA Program), 6.00%, 8/1/15 10,513 10,513 Massachusetts State Water Resources Auth., 10,000 10,000 Series 2000 D, 5.50%, 8/1/09 10,885 10,885 - 36,978 36,978 MICHIGAN 1.64% Michigan State Hospital Finance Auth. Rev., Series 1997 T, (Mercy Health Services), 5.75%, 2,905 2,905 8/15/04 3,027 3,027 Michigan State Hospital Finance Auth. Rev., Series 1999 B, (Ascension Health Credit), 10,000 10,000 5.30%, 11/15/33 10,236 10,236 Michigan State Hospital Finance Auth. Rev., 3,755 3,755 Series 2000 A, (Trinity Health), 5.50%, 12/1/05 3,876 3,876
-16- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- ---------- --------- ------------ ----------- --------- Michigan State Hospital Finance Auth. Rev., Series 2000 A, (Trinity Health), 6.00%, 8,565 8,565 12/1/11 to 12/1/12 9,173 9,173 - 26,312 26,312 MINNESOTA 0.69% University of Minnesota, Series 1996 A, 5.75%, 10,000 10,000 7/1/10 to 7/1/15 - 11,101 11,101 MISSISSIPPI 0.16% Mississippi Higher Education Assistance Corp., 2,505 2,505 Series 1993 B, 5.60%, 9/1/04 - 2,595 2,595 NEBRASKA 0.27% University of Nebraska Facilities Corp., 4,190 4,190 (Deferred Maintenance Project), 5.00%, 7/15/04 - 4,356 4,356 NEW HAMPSHIRE 0.35% New Hampshire Higher Educational & Health Facilities Auth., (Dartmouth College), 6.75%, 4,900 4,900 6/1/07 - 5,628 5,628 NEW YORK 1.30% New York City Transitional Finance Auth., 10,000 10,000 Series 2001 B, 5.50%, 2/1/15 to 2/1/16 10,553 10,553 Triborough Bridge & Tunnel Authority, 6.63%, 8,700 8,700 1/1/12 10,250 10,250 - 20,803 20,803 NORTH CAROLINA 1.00% North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 1999 B, 6.13%, 8,900 8,900 1/1/06 9,351 9,351 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 1999 B, 6.25%, 6,275 6,275 1/1/07 6,659 6,659 - 16,010 16,010 NORTH DAKOTA 0.72% North Dakota State Housing Finance Agency Mortgage Rev., Series 2000 C, (Housing Finance 11,280 11,280 Program), 5.55%, 1/1/31 - 11,522 11,522 OHIO 0.20% Ohio State Water Development Auth., 9.38%, 2,585 2,585 12/1/10 - 3,153 3,153 PENNSYLVANIA 0.96% Clinton County Industrial Development Auth. Rev., Series 1992 A, (International Paper 10,000 10,000 Co.), VRN, 4.73%, 9/1/22 10,000 10,000 Pennsylvania State Higher Educational Facilities Auth. Rev., Series 1995 A, 1,310 1,310 (University of Pennsylvania), 6.50%, 9/1/02 1,365 1,365 Pennsylvania State Higher Educational Facilities Auth. Rev., Series 1996 A, (University of Pennsylvania Health Services), 3,800 3,800 6.00%, 1/1/06 3,958 3,958
-17- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- --------- --------- ------------ ------------ --------- - 15,323 15,323 SOUTH CAROLINA 0.54% South Carolina Jobs-Economic Development Auth. Hospital Facilities Rev., Series 2000 A, 5,500 5,500 (Palmetto Health Alliance), 7.00%, 12/15/10 5,662 5,662 South Carolina Jobs-Economic Development Auth. Hospital Facilities Rev., Series 2000 A, 3,000 3,000 (Palmetto Health Alliance), 7.13%, 12/15/15 2,985 2,985 - 8,647 8,647 TEXAS 1.83% Brazos River Auth. Rev., Series 1999 A, 10,000 10,000 (Utility Electric Company), 5.00%, 4/1/33 10,008 10,008 Dallas-Fort Worth International Airport Facility Improvement Corp. Rev., Series 2000 13,000 13,000 B, (American Airlines), 6.05%, 5/1/29 13,321 13,321 Lubbock Health Facilities Development Corp., 5,875 5,875 (St. Joseph Health Systems), 5.25%, 7/1/11 6,017 6,017 - 29,346 29,346 VIRGINIA 2.18% 5,000 5,000 Virginia College Building Auth., 5.75%, 2/1/03 5,195 5,195 Virginia Commonwealth Transportation Board, 27,415 27,415 (Federal Highway), 5.50%, 10/1/05 to 10/1/08 29,690 29,690 - 34,885 34,885 WASHINGTON 0.57% Washington Public Power Supply System, Series 2,000 2,000 1990 A, (Project II), 7.25%, 7/1/06 2,295 2,295 Washington Public Power Supply System, Series 1,500 1,500 1990 C, 7.50%, 7/1/02 1,534 1,534 Washington Public Power Supply System, Series 5,265 5,265 1991 A, 6.30%, 7/1/01 5,312 5,312 - 9,141 9,141 TOTAL REVENUE BONDS 17.34% - 277,804 277,804 TAX ANTICIPATION NOTES 0.51% CALIFORNIA 0.51% Tustin Unified School District Rev., 8,000 8,000 (Community Facilities 97-1), 6.10%, 9/1/02 - 8,121 8,121 TOTAL TAX ANTICIPATION NOTES 0.51% - 8,121 8,121 TOTAL MUNICIPALS 98.29% 690,598 883,859 1,574,457 SHORT-TERM INVESTMENTS 3.36% CALIFORNIA 0.06% California PCFA, Resource Recovery, OMS Equity 100 100 Stanislaus Project, Rev., FRDO, 1.50%, 3/1/2001 100 100 Irvine Ranch, California, Water District, Capital Improvement Project, COP, FRDO, 1.40%, 500 500 3/1/2001 500 500
-18- JPMORGAN TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND PORTFOLIO OF INVESTMENTS PROFORMA COMBINING SCHEDULE OF PORTFOLIO INVESTMENTS FEBRUARY 28, 2001 (AMOUNTS IN THOUSANDS)
MARKET SHARES VALUE PRO PRO FORMA FORMA COMBINED COMBINED JPMORGAN JPMORGAN JPMORGAN JPMORGAN INTERMEDIATE JPMORGAN INTERMEDIATE INTERMEDIATE JPMORGAN INTERMEDIATE TAX TAX TAX TAX TAX TAX FREE EXEMPT FREE FREE EXEMPT FREE INCOME BOND BOND INCOME BOND BOND FUND PORTFOLIO FUND FUND PORTFOLIO FUND - ----------- --------- --------- ------------ --------- --------- Irvine Ranch, California, Water District, District No. 105, 140, 240 & 250, GO, FRDO, 100 100 1.40%, 3/1/2001 100 100 Irvine Ranch, California, Water District, District No. 182, Ser. A, GO, FRDO, 1.40%, 100 100 3/1/2001 100 100 Los Angeles, California, Regional Airports Improvement Corp., Terminal Facility, Los Angeles International Airport, Rev., FRDO, 100 100 3.30%, 3/1/2001 100 100 900 - 900 INVESTMENT COMPANIES 3.29% J.P. Morgan Institutional Tax Exempt Money 45,221 45,221 Market Fund (a) 45,221 45,221 Provident Municipal Cash Money Market Fund, 3,654 3,654 3.41% 3,654 3,654 Provident Municipal Cash Money Market Fund, 3,876 3,876 3.48% 3,876 3,876 7,530 45,221 52,751 NEW YORK 0.01% Port Authority of New York & New Jersey, Special Obligation, Versatile Structure 100 100 Obligation, Ser. 6, Rev., FRDO, 3.00%, 3/1/2001 100 100 TOTAL SHORT-TERM INVESTMENTS 3.36% 8,530 45,221 53,751 TOTAL INVESTMENTS 101.64% $ 699,128 $ 929,080 $1,628,208 TOTAL COST $(667,091) $(898,224) $(1,565,315) TOTAL NET ASSETS $ 705,863 $ 899,327 $1,601,879
^ - Security is prerefunded or escrowed to maturity. The maturity date shown is the date of the prerefunded call AMBAC - AMBAC Assurance Corporation COP - Certificates of Participation CR- FGIC - Financial Guaranty Insurance Co. FRDO - Floating Rate Demand Obligation. The Maturity date shown is the next interest reset date. The interest rate shown is the rate in effect at February 28, 2001 FSA - Financial Securities Assurance GO - General Obligation IBC - IBC Financial Data, Inc. IDA - Industrial Development Authority IDR - Industrial Development Revenue MBIA - MBIA Insurance Corp. PCFFA - Pollution Control Facilities Financing Authority PCR - Pollution Control Revenue PSFG - Permanent School Fund Guarantee Rev. - Revenue Bond Ser. - Series TCRS - VRN - Variable Rate Note (a) Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc. (y) Yield to maturity The Accompanying Notes are an Integral Part of the Financial Statements. -19- J.P. MORGAN TAX EXEMPT BOND FUND / J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND / THE TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND Pro Forma Combining Statement of Assets and Liabilities As of February 28, 2001 (Unaudited) (Amounts in Thousands, Except Per Share Amounts)
J.P. MORGAN J.P. MORGAN TAX INSTITUTIONAL TAX EXEMPT BOND EXEMPT BOND THE TAX EXEMPT FUND FUND BOND PORTFOLIO ASSETS: Investment Securities, at Value $ - $ - $ 929,080 Investment in The Tax Exempt Bond Portfolio ("Portfolio"), at Value 356,116 543,211 - Prepaid Trustees' Fees and Expenses - - 1 Accrued Domestic Interest Income - - 67 Accrued Municipal Bond Interest - - 10,359 Other 1 1 1 Receivables: - - - Investment Securities Sold - - 45,754 Interest - - 679 Dividends - - 4 -------------------------------------------------------------- Total Assets 356,117 543,212 985,945 -------------------------------------------------------------- LIABILITIES: Payables: Investment Securities Purchased - - 72,216 Due To Custodian - - 13,851 Dividends 1,209 1,906 - Accrued Liabilities: Investment Advisory Fees - - 208 Shareholder Servicing Fees 68 42 - Administrative Service Fees 6 10 16 Custodian Fees - - 41 Administration Fees - 1 1 Other 36 35 285 -------------------------------------------------------------- Total Liabilities 1,319 1,994 86,618 -------------------------------------------------------------- NET ASSETS: Paid-in Capital 337,096 531,262 - Accumulated Undistributed (distributions in excess of) Net Investment Income (103) (135) - Accumulated Net Realized Loss on Investment Transactions 3,151 (6,111) - Net Unrealized appreciation on Investments and Futures Contracts 14,654 16,202 - -------------------------------------------------------------- Net Assets $ 354,798 $ 541,218 $ 899,327 ============================================================== Shares of Beneficial Interest Outstanding 29,761 52,586 - Shares Outstanding - - Net Asset Value Per Share $ 11.92 $ 10.29 - PRO FORMA WITH CONCURRENT REORGANIZATION JPMORGAN TAX EXEMPT BOND FUND SHARES OUTSTANDING - - - Select - - - Institutional NET ASSET VALUE PER SHARE Select - - - Institutional - - - -------------------------------------------------------------- Cost of Investments $ - $ - $ 898,224 ============================================================== PRO FORMA JPMORGAN COMBINED INTERMEDIATE TAX JPMORGAN FREE INCOME PRO FORMA TAX EXEMPT FUND ADJUSTMENT BOND FUND ASSETS: Investment Securities, at Value $ 699,128 $ - $ 1,628,208 Investment in The Tax Exempt Bond Portfolio ("Portfolio"), at Value - (899,327)(a) - Prepaid Trustees' Fees and Expenses - - 1 Accrued Domestic Interest Income - - 67 Accrued Municipal Bond Interest - - 10,359 Other 9 - 12 Receivables: - - - Investment Securities Sold - - 45,754 Interest 9,514 - 10,193 Dividends - - 4 ------------------------------------------------------------- Total Assets 708,651 (899,327) 1,694,598 ------------------------------------------------------------- LIABILITIES: Payables: Investment Securities Purchased - - 72,216 Due To Custodian - - 13,851 Dividends 2,216 - 5,331 Accrued Liabilities: Investment Advisory Fees 162 - 370 Shareholder Servicing Fees 135 - 245 Administrative Service Fees 81 - 113 Custodian Fees 27 - 68 Administration Fees - - 2 Other 167 - 523 ------------------------------------------------------------- Total Liabilities 2,788 92,719 ------------------------------------------------------------- NET ASSETS: Paid-in Capital 675,926 - 1,544,284 Accumulated Undistributed (distributions in excess of) Net Investment Income 40 - (198) Accumulated Net Realized Loss on Investment Transactions (2,140) - (5,100) Net Unrealized appreciation on Investments and Futures Contracts 32,037 - 62,893 ------------------------------------------------------------- Net Assets $ 705,863 $ (899,327) $ 1,601,879 ============================================================= Shares of Beneficial Interest Outstanding - (82,347)(c) - Shares Outstanding 65,766 (65,766)(d) - Net Asset Value Per Share $10.73 - - PRO FORMA WITH CONCURRENT REORGANIZATION JP MORGAN TAX EXEMPT BOND FUND SHARES OUTSTANDING - 98,823 (b) 98,823 Select - 50,426 (b) 50,426 Institutional NET ASSET VALUE PER SHARE Select - - $ 10.73 Institutional - - $ 10.73 ------------------------------------------------------------- Cost of Investments $ 667,091 $ - $ 1,565,315 =============================================================
(a) Reflects reallocation of investment from the feeder funds to master portfolio. (b) The difference in number of shares outstanding due to the Concurrent Reorganization. (c) Reallocation of feeder funds beneficial interest to Select and Institutional due to the Concurrent Reorganization. (d) Reallocation of Chase Vista Intermediate Tax Free Income Fund's shares outstanding to Select and Institutional shares due to the Concurrent Reorganization. See Notes to Pro Forma Financial Statements. -20- J.P. MORGAN TAX EXEMPT BOND FUND / J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND / THE TAX EXEMPT BOND PORTFOLIO / JPMORGAN INTERMEDIATE TAX FREE INCOME FUND Pro Forma Combining Statement of Operations For the Twelve Months Ended February 28, 2001 (Unaudited) (Amounts in Thousands)
J.P. MORGAN J.P. MORGAN TAX INSTITUTIONAL TAX EXEMPT BOND EXEMPT BOND THE TAX EXEMPT FUND FUND BOND PORTFOLIO INCOME: Interest Income $ - $ - $ 42,160 Allocated Investment Income from Portfolio 17,789 24,370 - Allocated Portfolio Expenses (1,205) (1,652) - -------------------------------------------------------------- Investment Income 16,584 22,718 42,160 -------------------------------------------------------------- EXPENSES: Investment Advisory Fees - - 2,437 Shareholder Servicing Fees 855 469 Administrative Service Fees 82 112 195 Custodian Fees - - 141 Professional Fees 16 16 44 Transfer Agent Fees 47 26 - Printing and Postage 16 12 10 Trustees' Fees 6 6 12 Registration Fees (2) 4 Fund Services Fees 5 7 12 Administration Fees 4 5 5 Insurance Expense 1 - 2 Financial and Fund Accounting Services Fee 35 34 - Other 27 22 - -------------------------------------------------------------- Total Expenses 1,092 713 2,858 -------------------------------------------------------------- Less: Amounts Waived - - - Less: Expense Reimbursements 13 23 26 Less: Earnings Credits - - - -------------------------------------------------------------- Net Expenses 1,079 690 2,832 -------------------------------------------------------------- -------------------------------------------------------------- Net Investment Income $ 15,505 $ 22,028 $ 39,328 -------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net Realized Gain on: Investments 3,228 4,880 8,108 Futures Transactions - - - Change in Net Unrealized Appreciation (Depreciation) of: Investments 7,045 21,977 29,022 Futures Contracts - - -------------------------------------------------------------- Net Realized and Unrealized Gain on Investments Allocated from Portfolio 10,273 26,857 37,130 -------------------------------------------------------------- -------------------------------------------------------------- Net Increase in Net Assets from Operations $ 25,778 $ 48,885 $ 76,458 ============================================================== PRO FORMA CHASE VISTA COMBINED INTERMEDIATE TAX JPMORGAN FREE INCOME PRO FORMA TAX EXEMPT FUND ADJUSTMENT BOND FUND INCOME: Interest Income $ 34,643 $ - $ 76,803 Allocated Investment Income from Portfolio - (42,159) (c) - Allocated Portfolio Expenses - 2,857 (b) - ------------------------------------------------------------ Investment Income 34,643 (39,302) 76,803 ------------------------------------------------------------ EXPENSES: Investment Advisory Fees 2,076 - 4,513 Shareholder Servicing Fees 1,731 - 3,055 Administrative Service Fees 1,039 831 (a) 2,259 Custodian Fees 116 (95) (f,g) 162 Professional Fees 45 (22) (g) 99 Transfer Agent Fees 22 - 95 Printing and Postage 28 (7) (g) 59 Trustees' Fees 34 - 58 Registration Fees 34 - 36 Fund Services Fees - - 24 Administration Fees - - 14 Insurance Expense - - 3 Financial and Fund Accounting Services Fee - (69) (f) - Other 35 - 84 ------------------------------------------------------------ Total Expenses 5,160 638 10,461 ------------------------------------------------------------ Less: Amounts Waived - 638 (a) 638 Less: Expense Reimbursements - 638 (a) 700 Less: Earnings Credits 3 - 3 ------------------------------------------------------------ Net Expenses 5,157 (638) 9,120 ------------------------------------------------------------ ------------------------------------------------------------ Net Investment Income $ 29,486 $ (38,664) $ 67,683 ------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net Realized Gain on: Investments 2,115 (8,108) (d) 10,223 Futures Transactions 235 - 235 Change in Net Unrealized Appreciation (Depreciation) of: Investments 34,954 (29,022) (d) 63,976 Futures Contracts 40 40 ------------------------------------------------------------ Net Realized and Unrealized Gain on Investments Allocated from Portfolio 37,344 (37,130) 74,474 ------------------------------------------------------------ ------------------------------------------------------------ Net Increase in Net Assets from Operations $ 66,830 $ (75,794) $ 142,157 ============================================================
(a) Reflects adjustments to administrative fees and shareholder servicing fees and/or related waivers based on the surviving Fund's revised fee schedule. (b) Reflects the elimination of master portfolio expenses which have been disclosed under feeder expenses. (c) Reallocation of investments income to feeder funds (d) Reallocation of realized and unrealized loss to feeder funds. (f) Reflects reclassification of fund accounting into revised combined custodian agreement. (g) Reduction reflects expected benefit of combined operations. See Notes to Pro Forma Financial Statements -21- PRO FORMA FINANCIAL STATEMENTS J.P. MORGAN TAX EXEMPT BOND FUND/ J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND/ THE TAX EXEMPT BOND PORTFOLIO/ JPMORGAN INTERMEDIATE TAX FREE INCOME FUND NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF COMBINATION: The Pro Forma Combining Statement of Assets and Liabilities, Statement of Operations and Schedule of Investments ("Pro Forma Statements") reflect the accounts of The Tax Exempt Bond Portfolio ("Master Portfolio"), J.P. Morgan Institutional Tax Exempt Bond Fund ("Institutional Fund"), J.P. Morgan Tax Exempt Bond Fund ("Tax Exempt Bond Fund"), (collectively the "feeder funds" of the Master Portfolio) and JPMorgan Intermediate Tax Free Income Fund ("JPMITFIF") as if the proposed Concurrent Reorganization occurred as of and for the twelve months ended February 28, 2001. Under the Concurrent Reorganization, the Pro Forma Statements give effect to the proposed transfer of all assets and liabilities of Master Portfolio, Tax Exempt Bond Fund, and Institutional Fund in exchange for shares in JPMITFIF. The Pro Forma Statements should be read in conjunction with the historical financial statements of each Fund, which have been incorporated by reference in their respective Statements of Additional Information. 2. SHARES OF BENEFICIAL INTEREST: Immediately prior to the Concurrent Reorganization, JPMITFIF would commence offering Select Class Shares. The net asset value per share for Select Class Shares at the commencement of offering would be identical to the closing net asset value per share for the JPMITFIF Institutional Class Shares prior to the Concurrent Reorganization. Under the proposed Concurrent Reorganization, each shareholder of Tax Exempt Bond Fund and Institutional Fund would receive shares of JPMITFIF with a value equal to their holding in their respective funds. Holders of the Tax Exempt Bond Fund will receive Select Class Shares, and Institutional Fund will receive Institutional Class shares. Holders of Institutional Class in JPMITFIF will receive Select Class Shares. Therefore, as a result of the proposed Concurrent Reorganization, current shareholders Tax Exempt Bond Fund and Institutional Fund will become shareholders of JPMITFIF. The Pro Forma net asset value per share assumes the issuance of additional shares of JPMITFIF, which would have been issued on February 28, 2001, in connection with the proposed Concurrent Reorganization. The amount of additional shares assumed to be issued under the Concurrent Reorganization was calculated based on February 28, 2001 net assets of Tax Exempt Bond Fund and Institutional Fund and net asset value per share of JPMITFIF - Institutional Class. -22- JPMORGAN INTERMEDIATE TAX FREE INCOME WITH CONCURRENT REORGANIZATION
Institutional Class Shares Increase in Shares Issued 50,426 Net Assets 2/28/01 $541,218 Pro Forma Net Asset Value 2/28/01 $10.73
3. PRO FORMA OPERATIONS: The Pro Forma Statement of Operations assumes similar rates of gross investment income for the investments of each Fund. Accordingly, the combined gross investment income is equal to the sum of each Fund's gross investment income. Certain expenses have been adjusted to reflect the expected expenses of the combined entity. The pro forma investment advisory, administration, shareholder servicing and distribution fees of the combined Fund and/or the related waivers are based on the fee schedule in effect for the Surviving Fund at the combined level of average net assets for the twelve months ended February 28, 2001. -23- FORM N-14 PART C - OTHER INFORMATION Item 15. Indemnification. --------------- Reference is hereby made to Article V of the Registrant's Declaration of Trust. The Trustees and officers of the Registrant and the personnel of the Registrant's investment adviser, administrator and distributor are insured under an errors and omissions liability insurance policy. The Registrant and its officers are also insured under the fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940. Under the terms of the Registrant's Declaration of Trust, the Registrant may indemnify any person who was or is a Trustee, officer or employee of the Registrant to the maximum extent permitted by law; provided, however, that any such indemnification (unless ordered by a court) shall be made by the Registrant only as authorized in the specific case upon a determination that indemnification of such persons is proper in the circumstances. Such determination shall be made (i) by the Trustees, by a majority vote of a quorum which consists of Trustees who are neither described in Section 2(a)(19) of the Investment Company Act of 1940 nor parties to the proceeding, or (ii) if the required quorum is not obtainable or, if a quorum of such Trustees so directs, by independent legal counsel in a written opinion. No indemnification will be provided by the Registrant to any Trustee or officer of the Registrant for any liability to the Registrant or shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of duty. Insofar as the conditional advancing of indemnification monies for actions based upon the Investment Company Act of 1940 may be concerned, such payments will be made only on the following conditions: (i) the advances must be limited to amounts used, or to be used, for the preparation or presentation of a defense to the action, including costs connected with the preparation of a settlement; (ii) advances may be made only upon receipt of a written promise by, or on behalf of, the recipient to repay that amount of the advance which exceeds that amount to which it is ultimately determined that he is entitled to receive from the Registrant by reason of indemnification; and (iii) (a) such promise must be secured by a surety bond, other suitable insurance or an equivalent form of security which assures that any repayments may be obtained by the Registrant without delay or litigation, which bond, insurance or other form of security must be provided by the recipient of the advance, or (b) a majority of a quorum of the Registrant's disinterested, non-party Trustees, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts, that the recipient of the advance ultimately will be found entitled to indemnification. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Part C-1 Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 16. Exhibits. --------------- Declaration of Trust. 1 Declaration of Trust (1) 2 By-laws (1) 3 None. 4 Agreement and Plan of Reorganization filed herewith as Appendix A to the Combined Prospectus/Proxy Statement. 5 None. 6 Form of Investment Advisory Agreement.(1) 7 Form of Distribution and Sub-Administration Agreement (1) 8(a) Form of Retirement Plan for Eligible Trustees.(2) 8(b) Form of Deferred Compensation Plan for Eligible Trustees.(2) 9 Form of Custodian Agreement. (1) 10(a) Rule 12b-1 Distribution Plan of Mutual Funds including Selected Dealer Agreement and Shareholder Service Agreement. (2) 10(b) Rule 12b-1 Distribution Plan - Class B Shares (including forms of Selected Dealer Agreement and Shareholder Servicing Agreement).(4) 10(c) Form of Rule 12b-1 Distribution Plan - Class C Shares (including forms of Shareholder Servicing Agreements).(5) 10(d) Form of Rule 18f-3 Multi-Class Plan.(4) Part C-2 11 Opinion and Consent of Nixon Peabody LLP as to the Legality of Shares to be filed by Amendment. 12 Opinion and Consent of Simpson Thacher & Bartlett as to Tax Consequences to be filed by Amendment. 13(a) Form of Transfer Agency Agreement. (1) 13(b) Form of Shareholder Servicing Agreement. (4) 13(c) Form of Administration Agreement.(1) 13(d) Form of Administration Agreement to be filed by Amendment. 13(e) Form of Sub-Administration Agreement to be filed by Amendment. 14 Consent of PricewaterhouseCoopers LLP. 15 None. 16 Powers of Attorney 17(a) Form of Proxy Card. 17(b) Prospectus for the Surviving Fund to be filed by Amendment. 17(c) Prospectus for the Merging Fund. 17(d) Statement of Additional Information for the Surviving Fund to be filed by Amendment. 17(e) Statement of Additional Information for the Merging Fund. 17(f) Annual Report of the Surviving Fund dated August 31, 2000. 17(g) Annual Report of the Merging Fund (including the Annual Report of the Master Portfolio) dated July 31, 2000. 17(h) Semi-Annual Report of the Merging Fund (including the Semi-Annual Report of the Master Portfolio) dated January 31, 2001. - -------------------- (1) Filed as an exhibit to the Registration Statement on Form N-1A of the Registrant (File No. 333-13319) as filed with the Securities and Exchange Commission on October 2, 1996. (2) Incorporated by reference to Amendment No. 6 to the Registration Statement on Form N-1A of Mutual Fund Group (File No. 33-14196) as filed with the Securities and Exchange Commission on March 23, 1990. Part C-3 (3) Filed as an exhibit to Pre-Effective Amendment No. 2 as filed with the Securities and Exchange Commission on December 19, 1996. (4) Filed as an Exhibit to Amendment No. 32 to the Registration Statement on Form N-1A of Mutual Fund Group (File No. 33-14196) on December 28, 1995. (5) Filed as an Exhibit to Amendment No. 45 to the Registration Statement on Form N-1A of Mutual Fund Group (File No. 33-14196) filed on October 28, 1997. - ---------------- Item 17. Undertakings. (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended (the "1933 Act"), the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. Part C-4 SIGNATURES As required by the Securities Act of 1933, this registration statement has been signed on behalf of the registrant, in the City of New York and the State of New York, on the 16th day of April, 2001. MUTUAL FUND SELECT TRUST Registrant By: /s/ H. Richard Vartabedian ----------------------------------------- H. Richard Vartabedian President Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 16, 2001. * Chairman and Trustee - ------------------------------- Fergus Reid, III /s/ H. Richard Vartabedian President - ------------------------------- and Trustee H. Richard Vartabedian * Trustee - ------------------------------- William J. Armstrong * Trustee - ------------------------------- John R.H. Blum * Trustee - ------------------------------- Stuart W. Cragin, Jr. * Trustee - ------------------------------- Roland R. Eppley, Jr. * Trustee - ------------------------------- Joseph J. Harkins * Trustee - ------------------------------- Sarah E. Jones * Trustee - ------------------------------- W.D. MacCallan * Trustee - ------------------------------- W. Perry Neff * Trustee - ------------------------------- Leonard M. Spalding, Jr. * Trustee - ------------------------------- Irv Thode * Trustee - ------------------------------- Richard E. Ten Haken /s/ Martin R. Dean Treasurer and - ------------------------------- Principal Financial Martin R. Dean Officer /s/ H. Richard Vartabedian Attorney in Fact - ------------------------------- H. Richard Vartabedian EXHIBITS ITEM DESCRIPTION - ---- ----------- (14) Consent of PricewaterhouseCoopers LLP. (16) Powers of Attorney. (17) (a) Form of Proxy Card. (c) Prospectus for J.P. Morgan Tax Exempt Bond Fund.+ (e) Statement of Additional Information for J.P. Morgan Tax Exempt Bond Fund. (f) Annual Report of JPMorgan Intermediate Tax Free Income Fund (formerly, Chase Vista Intermediate Tax Free Income Fund) dated August 31, 2000. (g) Annual Report of J.P. Morgan Tax Exempt Bond Fund (including the Annual Report of The Tax Exempt Bond Portfolio) dated July 31, 2000. (h) Semi-Annual Report of J.P. Morgan Tax Exempt Bond Fund (including the Semi-Annual Report of The Tax Exempt Bond Portfolio) dated January 31, 2001. EX-99.14 2 a2044362zex-99_14.txt EXHIBIT 99.14 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Prospectus/Proxy Statement and Statement of Additional Information constituting parts of this registration statement on Form N-14 (the "N-14 Registration Statement") of our report dated October 11, 2000, relating to the August 31, 2000 financial statements and financial highlights of JPMorgan Intermediate Tax Free Income Fund (formerly, Chase Vista Select Intermediate Tax Free Income Fund), which appear in the August 31, 2000 Annual Report to Shareholders, which are also incorporated by reference into the N-14 Registration Statement. We also consent to the references to us under the headings "Certain Arrangements with Service Providers- Other Services," "Accountants," "Financial Statements and Experts" and "Financial Statements" in such Registration Statement. We also consent to the references to us under the headings "Financial Highlights," "Independent Accountants" and "Financial Statements" in JPMorgan Intermediate Tax Free Income Fund's registration statement on Form N-1A, dated February 28, 2001, which is incorporated by reference into this N-14 Registration Statement. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 April 12, 2001 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Prospectus/Proxy Statement and Statement of Additional Information constituting parts of this registration statement on Form N-14 (the "N-14 Registration Statement") of our reports dated September 15, 2000, relating to the July 31, 2000 financial statements and financial highlights of J.P. Morgan Institutional Tax Exempt Bond Fund and the financial statements and supplemental data of The Tax Exempt Bond Portfolio, which appear in the July 31, 2000 Annual Reports to Shareholders, which are also incorporated by reference into the N-14 Registration Statement. We also consent to the references to us under the headings "Certain Arrangements with Service Providers- Other Services," "Accountants," "Financial Statements and Experts" and "Financial Statements" in such Registration Statement. We also consent to the references to us under the headings "Financial Highlights," "Independent Accountants" and "Financial Statements" in J.P. Morgan Institutional Tax Exempt Bond Fund's registration statement on Form N-1A, dated March 1, 2001, which is incorporated by reference into this N-14 Registration Statement. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 April 12, 2001 EX-99.16 3 a2044362zex-99_16.txt EXHIBIT 99.16 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Fergus Reid, III, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Fergus Reid III ------------------- Fergus Reid, III Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY William J. Armstrong, whose signature appears below, hereby constitutes and appoints Martin D. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ William J. Armstrong ------------------------ William J. Armstrong Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY John R. H. Blum, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ John R. H. Blum -------------------------- John R. H. Blum Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Stuart W. Cragin, Jr., whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Stuart W. Cragin, Jr. ------------------------- Stuart W. Cragin, Jr. Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Roland R. Eppley, Jr., whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabdian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Roland R. Eppley, Jr. ------------------------- Roland R. Eppley, Jr. Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Joseph J. Harkins, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Joseph J. Harkins --------------------- Joseph J. Harkins Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Sarah E. Jones, whose signature appears below, hereby constitutes and appoints Martin D. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, her true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Sarah E. Jones ------------------ Sarah E. Jones Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY W.D. MacCallan, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ W.D. MacCallan ------------------ W.D. MacCallan Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY W. Perry Neff, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ W. Perry Neff ----------------- W. Perry Neff Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Leonard M. Spalding, Jr., whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabdian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Leonard M. Spalding, Jr. ---------------------------- Leonard M. Spalding, Jr. Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Irving L.Thode, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Irving L. Thode ------------------- Irving L. Thode Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Richard E. Ten Haken, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabdian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Richard E. Ten Haken ------------------------ Richard E. Ten Haken Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY H. Richard Vartabedian, whose signature appears below, hereby constitutes and appoints Martin R. Dean and Peter B. Eldridge, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ H. Richard Vartabedian -------------------------- H. Richard Vartabedian Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY George E. McDavid, whose signature appears below, hereby constitutes and appoints Martin R. Dean and Peter B. Eldridge, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ George E. McDavid --------------------- George E. McDavid Date: April 3, 2001 EX-99.17(A) 4 a2044362zex-99_17a.txt EXHIBIT 99.17(A) FORM OF PROXY Preliminary Proxy Material J.P. MORGAN INSTITUTIONAL FUNDS J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND This proxy is solicited on behalf of the Board of Trustees of J.P. Morgan Funds for the Special Meeting of the Shareholders to be held on July 3, 2001. The undersigned hereby appoints ___, ___ AND ___, and each of them, attorneys and proxies for the undersigned, with full power of substitution, and revocation to represent the undersigned and to vote on behalf of the undersigned all shares of J.P. Morgan Institutional Tax Exempt Bond Fund which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held at J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st floor, New York, NY, on July 3, 2001, at 9:00 a.m., and at any adjournments thereof. The undersigned hereby acknowledges receipt of the Notice of the Special Meeting of Shareholders and hereby instructs said attorneys and proxies to vote said shares as indicated hereon. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Special Meeting of Shareholders in person or by substitute (or, if only one shall be so present, then that one) shall have and may exercise all of the power and authority of said proxies hereunder. The undersigned hereby revokes any proxy previously given. NOTE: Please sign exactly as your name appears on this proxy. If joint owners, EITHER may sign this proxy. When signing as attorney, executor, administrator, trustee, guardian or corporate officer, please give your full title. DATE __________ ___, _______ ____________________________ ____________________________ Signature(s), Title(s) (if applicable) PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE OR YOU CAN VOTE BY CALLING ______________. J.P. MORGAN INSTITUTIONAL FUNDS J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND PLEASE INDICATE YOUR VOTE BY AN "X" ON THE APPROPRIATE LINE BELOW. This proxy, if properly executed, will be voted in the manner directed by the shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL. Please refer to the Combined Prospectus/Proxy Statement for a discussion of each Proposal. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH FOLLOWING PROPOSAL. Proposal 1: To approve or disapprove of the Reorganization. For_____ Against_____ Abstain_____ Proposal 2: To approve or disapprove the election of each of the Nominees . For_____ Against_____ Abstain_____ To withhold authority to vote for any individual Nominee, write that Nominee's name here: _______________________________________________________________________________ EX-99.17(C) 5 a2044362zex-99_17c.txt EXHIBIT 99.17(C) - -------------------------------------------------------------------------------- MARCH 1, 2001 | PROSPECTUS - -------------------------------------------------------------------------------- J.P. MORGAN INSTITUTIONAL FIXED INCOME FUNDS Short Term Bond Fund Bond Fund Global Strategic Income Fund Tax Exempt Bond Fund New York Tax Exempt Bond Fund ------------------------------------ Seeking high total return or current income by investing primarily in fixed income securities. This prospectus contains essential information for anyone investing in these funds. Please read it carefully and keep it for reference. As with all mutual funds, the fact that these shares are registered with the Securities and Exchange Commission does not mean that the commission approves them or guarantees that the information in this prospectus is correct or adequate. It is a criminal offense to state or suggest otherwise. Distributed by Funds Distributor, Inc. JPMorgan CONTENTS - -------------------------------------------------------------------------------- 2 | J.P. MORGAN INSTITUTIONAL FIXED INCOME FUNDS Each fund's goal, principal strategies, principal risks, performance and expenses J.P. Morgan Institutional Short Term Bond Fund ......................2 J.P. Morgan Institutional Bond Fund .................................4 J.P. Morgan Institutional Global Strategic Income Fund ..............6 J.P. Morgan Institutional Tax Exempt Bond Fund ......................8 J.P. Morgan Institutional New York Tax Exempt Bond Fund ............10 12 | FIXED INCOME MANAGEMENT APPROACH Principles and techniques common to the funds in this prospectus J.P. Morgan ........................................................12 J.P. Morgan Institutional Fixed Income Funds .......................12 The spectrum of fixed income funds .................................12 Who may want to invest .............................................12 Fixed income investment process ....................................13 14 | YOUR INVESTMENT Investing in the J.P. Morgan Institutional Fixed Income Funds Investing through a financial professional .........................14 Investing through an employer-sponsored retirement plan ............14 Investing through an IRA or rollover IRA ...........................14 Investing directly .................................................14 Opening your account ...............................................14 Adding to your account .............................................14 Selling shares .....................................................15 Account and transaction policies ...................................15 Dividends and distributions ........................................16 Tax considerations .................................................16 17 | FUND DETAILS More about risk and the funds' business operations Business structure .................................................17 Management and administration ......................................17 Risk and reward elements ...........................................18 Investments ........................................................20 Financial highlights ...............................................22 FOR MORE INFORMATION .......................................back cover J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND | TICKER SYMBOL: JMSBX - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS (J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND) RISK/RETURN SUMMARY For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 18-21. [GRAPHIC] GOAL The fund's goal is to provide high total return, consistent with low volatility of principal. This goal can be changed without shareholder approval. [GRAPHIC] INVESTMENT APPROACH Principal Strategies The fund invests primarily in fixed income securities, including U.S. government and agency securities, domestic and foreign corporate bonds, private placements, asset-backed and mortgage-related securities, and money market instruments, that it believes have the potential to provide a high total return over time. These securities may be of any maturity, but under normal market conditions the fund's duration will range between one and three years, similar to that of the Merrill Lynch 1-3 Year Treasury Index. For a description of duration, please see "Fixed Income Investment Process" on page 13. Up to 25% of assets may be invested in foreign securities, including 20% in debt securities denominated in foreign currencies of developed countries. The fund typically hedges its non-dollar investments back to the U.S. dollar. At least 90% of assets must be invested in securities that, at the time of purchase, are rated investment-grade (BBB/Baa or better) or are the unrated equivalent, including at least 75% A or better. No more than 10% of assets may be invested in securities rated B or BB. Principal Risks The fund's share price and total return will vary in response to changes in interest rates. How well the fund's performance compares to that of similar duration fixed income funds will depend on the success of the investment process, which is described on page 13. Although any rise in interest rates is likely to cause a fall in the price of bonds, the fund's comparatively short duration is designed to help keep its share price within a relatively narrow range. Because it seeks to minimize risk, the fund will generally offer less income, and during periods of declining interest rates, may offer lower total returns than bond funds with longer durations. Because of the sensitivity of the fund's mortgage related securities to changes in interest rates, the performance and duration of the fund may be more volatile than if it did not hold these securities. The fund uses futures contracts and other derivatives to help manage duration, yield curve exposure, and credit and spread volatility. To the extent that the fund seeks higher returns by investing in non-investment-grade bonds, often called junk bonds, it takes on additional risks, since these bonds are more sensitive to economic news and their issuers have a less secure financial position. To the extent the fund invests in foreign securities, it could lose money because of foreign government actions, political instability, currency fluctuation or lack of adequate and accurate information. The fund may engage in active and frequent trading, leading to increased portfolio turnover and the possibility of increased capital gains. See page 16 for further discussion on the tax treatment of capital gains. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase currently manages more than $700 billion, including more than ___ billion using similar strategies as the fund. The portfolio management team is led by Connie J. Plaehn, managing director, who has been on the team since the fund's inception and has been at J.P. Morgan since 1984, John Donohue, vice president, who has been on the team since joining J.P. Morgan in June of 1997 from Goldman Sachs & Co., where he was an institutional money market portfolio manager, and Abigail J. Feder, vice president, who joined J.P. Morgan in April of 2000 from Morgan Stanley Dean Witter Investment Management, where she managed short term fixed income portfolios. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o The fund seeks to achieve its goal by investing its assets in a master portfolio, which is another fund with the same goal. o There is no assurance that the fund will meet its investment goal. o The fund does not represent a complete investment program. 2 | J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE (unaudited) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan Institutional Short Term Bond Fund. The bar chart indicates some of the risks by showing changes in the performance of the fund's shares from year to year for each of the last seven calendar years. The table indicates some of the risks by showing how the fund's average annual returns for the past one year, five years and life of the fund compared to those of the Merrill Lynch 1-3 Year Treasury Index. This is a widely recognized, unmanaged index of U.S. Treasury notes and bonds with maturities of 1-3 years used as a measure of overall short-term bond market performance. The fund's past performance does not necessarily indicate how the fund will perform in the future. [The following table was depicted as a bar chart in the printed material.] - ----------------------------- Year-by-year total return (%) Shows changes in returns by calendar year(1),(2) - -------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 0.36 10.80 5.10 6.40 7.04 3.21 7.23 o J.P. Morgan Institutional Short Term Bond Fund The fund's year-to-date total return as of 12/31/00 was 7.23%. For the period covered by this year-by-year total return chart, the fund's highest quarterly return was 3.36% (for the quarter ended 6/30/95); and the lowest quarterly return was -0.47% (for the quarter ended 3/31/94).
- ------------------------------- Average annual total return (%) Shows performance over time, for periods ended December 31, 2000(1) - --------------------------------------------------------------------------------------------------------------- Past 1 yr. Past 5 yrs. Life of fund J.P. Morgan Institutional Short Term Bond Fund (after expenses) 7.23 5.79 5.55 - --------------------------------------------------------------------------------------------------------------- Merrill Lynch 1-3 Year Treasury Index (no expenses) 8.00 5.92 5.76 - ---------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund before and after reimbursement are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses after reimbursement are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(3)(%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.25 Distribution (Rule 12b-1) fees none Other expenses 0.22 - -------------------------------------------------------------------------------- Total operating expenses 0.47 Fee waiver and expense reimbursement(4) 0.17 - -------------------------------------------------------------------------------- Net expenses(4) 0.30 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Expense example(4) - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, net expenses for the period 3/1/01 through 2/28/02 and total operating expenses thereafter, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 31 134 246 575 - -------------------------------------------------------------------------------- (1) The fund commenced operations on 9/13/93. For the period 7/31/93 through 9/30/93, life of fund returns reflect performance of the Pierpont Short Term Bond Fund, the fund's predecessor. (2) The fund's fiscal year end is 10/31. (3) The fund has a master/feeder structure as described on page 17. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year, expressed as a percentage of average net assets. (4) Reflects an agreement dated 3/1/01 by Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent total operating expenses (excluding interest, taxes and extraordinary expenses) exceed 0.30% of the fund's average daily net assets through 2/28/02. J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND | 3 J.P. MORGAN INSTITUTIONAL BOND FUND | TICKER SYMBOL: JMIBX - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS (J.P. MORGAN INSTITUTIONAL BOND FUND) RISK/RETURN SUMMARY For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 18-21. [GRAPHIC] GOAL The fund's goal is to provide high total return consistent with moderate risk of capital and maintenance of liquidity. This goal can be changed without shareholder approval. [GRAPHIC] INVESTMENT APPROACH Principal Strategies The fund invests primarily in fixed income securities, including U.S. government and agency securities, corporate bonds, private placements, asset-backed and mortgage-backed securities, that it believes have the potential to provide a high total return over time. These securities may be of any maturity, but under normal market conditions the management team will keep the fund's duration within one year of that of the Salomon Smith Barney Broad Investment Grade Bond Index (currently about five years). For a description of duration, please see "Fixed Income Investment Process" on page 13. Up to 25% of assets may be invested in foreign securities, including 20% in debt securities denominated in foreign currencies of developed countries. The fund typically hedges its non-dollar investments back to the U.S. dollar. At least 75% of assets must be invested in securities that, at the time of purchase, are rated investment-grade (BBB/Baa or better) or are the unrated equivalent, including at least 65% A or better. No more than 25% of assets may be invested in securities rated B or BB. Principal Risks The fund's share price and total return will vary in response to changes in interest rates. How well the fund's performance compares to that of similar fixed income funds will depend on the success of the investment process, which is described on page 13. To the extent that the fund seeks higher returns by investing in non-investment-grade bonds, often called junk bonds, it takes on additional risks, since these bonds are more sensitive to economic news and their issuers have a less secure financial position. The fund may use futures contracts and other derivatives to help manage duration, yield curve exposure, and credit and spread volatility. To the extent the fund invests in foreign securities, it could lose money because of foreign government actions, political instability, currency fluctuation or lack of adequate and accurate information. The fund's mortgage-backed investments involve risk of losses due to prepayments that occur earlier or later than expected, like any bond, due to default. The fund may engage in active and frequent trading, leading to increased portfolio turnover and the possibility of increased capital gains. See page 16 for further discussion on the tax treatment of capital gains. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase currently manages approximately more than $700 billion, including more than ___ billion using similar strategies as the fund. The portfolio management team is led by Connie Plaehn, managing director, who has been at J.P. Morgan since 1984, Paul Zemsky, managing director, who has been at J.P. Morgan since 1985 and Jay Gladieux, vice president, who has been at J.P. Morgan since 1997. Mr. Zemsky has been on the team since 1988 and Ms. Plaehn has been on the team since 1994. Mr. Gladieux joined the team in September of 2000. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o The fund seeks to achieve its goal by investing in a master portfolio, which is another fund with the same goal. o There is no assurance that the fund will meet its investment goal. o The fund does not represent a complete investment program. 4 | J.P. MORGAN INSTITUTIONAL BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE (unaudited) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan Institutional Bond Fund. The bar chart indicates some of the risks by showing changes in the performance of the fund's shares from year to year for each of the last ten calendar years. The table indicates some of the risks by showing how the fund's average annual returns for the past one, five and ten years compared to those of the Salomon Smith Barney Broad Investment Grade Bond Index. This is a widely recognized, unmanaged index of U.S. Treasury and agency securities and investment-grade mortgage and corporate bonds used as a measure of overall bond market performance. The fund's past performance does not necessarily indicate how the fund will perform in the future. [The following table was depicted as a bar chart in the printed material.] - ----------------------------- Year-by-year total return (%) shows changes in returns by calendar year(1),(2) - -------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 13.45 6.53 9.29 (2.68) 18.42 3.30 9.29 7.54 (0.55) 10.93 o J.P. Morgan Institutional Bond Fund For the period covered by this year-by-year total return chart, the fund's highest quarterly return was 6.30% (for the quarter ended 6/30/95); and the lowest quarterly return was -2.38% (for the quarter ended 3/31/94).
- ------------------------------- Average annual total return (%) Shows performance over time, for periods ended December 31, 2000(1) - ------------------------------------------------------------------------------------------------------------ Past 1 yr. Past 5 yrs. Past 10 yrs. J.P. Morgan Institutional 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 - ------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(3) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.30 Distribution (Rule 12b-1) fees none Other expenses 0.19 - -------------------------------------------------------------------------------- Total operating expenses 0.49 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Expense example(4) - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, total expenses remain unchanged, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 50 157 274 616 - -------------------------------------------------------------------------------- (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. (3) The fund has a master/feeder structure as described on page 17. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year, expressed as a percentage of average net assets. J.P. MORGAN INSTITUTIONAL BOND FUND | 5 J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND | TICKER SYMBOL: JPIGX - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS (J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND) RISK/RETURN SUMMARY For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 18-21. [GRAPHIC] GOAL The fund's goal is to provide high total return from a portfolio of fixed income securities of foreign and domestic issuers. This goal can be changed without shareholder approval. [GRAPHIC] INVESTMENT APPROACH Principal Strategies The fund invests in a wide range of debt securities from the U.S. and other markets, both developed and emerging. Issuers may include governments, corporations, financial institutions, and supranational organizations (such as the World Bank), that the fund believes have the potential to provide a high total return over time. The fund may invest directly in mortgages and in mortgage-backed securities. The fund's securities may be of any maturity, but under normal market conditions its duration will generally be similar to that of the Lehman Brothers Aggregate Bond Index (currently about four and a half years). For a description of duration, please see "Fixed Income Investment Process" on page 13. At least 40% of assets must be invested in securities that, at the time of purchase, are rated investment-grade (BBB/Baa or better) or are the unrated equivalent. The balance of assets must be invested in securities rated B or higher at the time of purchase (or the unrated equivalent), except that the fund's emerging market component has no minimum quality rating and may invest without limit in securities that are in the lowest rating categories (or are the unrated equivalent). The management team uses the process described on page 13, and also makes country allocations, based primarily on macro-economic factors. The team uses the model allocation shown at right as a basis for its sector allocation, although the actual allocations are adjusted periodically within the indicated ranges. Within each sector, a dedicated team handles securities selection. The fund typically hedges its non-dollar investments in developed countries back to the U.S. dollar. Principal Risks The fund's share price and total return vary in response to changes in global bond markets, interest rates, and currency exchange rates. How well the fund's performance compares to that of similar fixed income funds will depend on the success of the investment process. Because of credit and foreign and emerging markets investment risks, the fund's performance is likely to be more volatile than that of most fixed income funds. Foreign and emerging market investment risks include foreign government actions, political instability, currency fluctuations and lack of adequate and accurate information. To the extent that the fund seeks higher returns by investing in non-investment-grade bonds, often called junk bonds, it takes on additional risks, since these bonds are more sensitive to economic news and their issuers have a less secure financial position. The fund's mortgage-backed investments involve the risk of losses due to default or to prepayments that occur earlier or later than expected. Some investments, including directly owned mortgages, may be illiquid. The fund has the potential for long-term total returns that exceed those of more traditional bond funds, but investors should also be prepared for risks that exceed those of more traditional bond funds. The fund may engage in active and frequent trading, leading to increased portfolio turnover and the possibility of increased capital gains. See page 16 for further discussion on the tax treatment of capital gains. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. MODEL SECTOR ALLOCATION [The following table was depicted as a pie chart in the printed material.] international non-dollar (range 0-25%) 9% public/private mortgages (range 20-45%) 35% public/private corporates (range 5-25%) 13% emerging markets (range 0-25%) 16% high yield corporates (range 17-37%) 27% PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase currently manages approximately more than $700 billion, including more than ____ billion using similar strategies as the fund. The portfolio management team is led by Mark E. Smith, managing director, who joined J.P. Morgan in 1994 and has been on the team since the Fund's inception, and Robert J. Morena, vice president, who joined J.P. Morgan in 2000. Prior to joining J.P. Morgan, Mr. Morena served as a managing director at Forest Investment Management where he managed fixed income portfolios. Prior to that, he served as the Department Head of The Bank of New York's Institutional Fixed Income Division. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o The fund seeks to achieve its goal by investing in a master portfolio, which is another fund with the same goal. o There is no assurance that the fund will meet its investment goal. o The fund does not represent a complete investment program. 6 | J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND - -------------------------------------------------------------------------------- PERFORMANCE (unaudited) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan Institutional Global Strategic Income Fund. The bar chart indicates some of the risks by showing the performance of the fund's shares from year to year for each of the last three calendar years. The table indicates some of the risks by showing how the fund's average annual returns for the past one year and life of the fund compared to those of the Lehman Brothers Aggregate Bond Index. This is a widely recognized, unmanaged index used as a measure of overall bond market performance. The fund's past performance does not necessarily indicate how the fund will perform in the future. [The following table was depicted as a bar chart in the printed material.] - ---------------------------- Total return (%) Shows changes in returns by calendar year(1),(2) - -------------------------------------------------------------------------------- 1998 1999 2000 2.59 2.51 7.98 o J.P. Morgan Institutional Global Strategic Income Fund The fund's year-to-date total return as of 12/31/00 was 7.98%. For the period covered by this total return chart, the fund's highest quarterly return was 3.13% (for the quarter ended 3/31/98); and the lowest quarterly return was - -1.45% (for the quarter ended 9/30/98).
- ------------------------------- Average annual total return (%) Shows performance over time, for periods ended December 31, 2000(1)(1) - ----------------------------------------------------------------------------------------------------------- Past 1 yr. Life of fund J.P. Morgan Institutional Global Strategic Income Fund (after expenses) 7.98 6.05 - ----------------------------------------------------------------------------------------------------------- Lehman Brothers Aggregate Bond Index (no expenses) 11.63 7.84 - -----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund before and after reimbursement are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses after reimbursement are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(3) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.45 Distribution (Rule 12b-1) fees none Other expenses 0.35 - -------------------------------------------------------------------------------- Total operating expenses 0.80 Fee waiver and expense reimbursement(4) 0.15 - -------------------------------------------------------------------------------- Net expenses(4) 0.65 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Expense example(4) - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, net expenses for the period 3/1/01 through 2/28/02 and total operating expenses thereafter, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 66 240 429 976 - -------------------------------------------------------------------------------- (1) The fund commenced operations on 3/17/97 and performance is calculated as of 3/31/97. (2) The fund's fiscal year end is 10/31. (3) The fund has a master/feeder structure as described on page 17. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year, expressed as a percentage of average net assets. (4) Reflects an agreement dated 3/1/01 by Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent total operating expenses (excluding interest, taxes and extraordinary expenses) exceed 0.65% of the fund's average daily net assets through 2/28/02. J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND | 7 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND | TICKER SYMBOL: JITBX - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS (J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND) RISK/RETURN SUMMARY For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 18-21. [GRAPHIC] Goal The fund's goal is to provide a high level of current income that is exempt from federal income tax consistent with moderate risk of capital. This goal can be changed without shareholder approval. [GRAPHIC] INVESTMENT APPROACH Principal Strategies The fund invests primarily in high quality municipal securities that it believes have the potential to provide current income that is free from federal personal income tax. While the fund's goal is high tax-exempt income, the fund may invest to a limited extent in taxable securities, including U.S. government, government agency, corporate, or taxable municipal securities. The fund's securities may be of any maturity, but under normal market conditions the fund's duration will generally range between four and seven years, similar to that of the Lehman Brothers Intermediate Competitive Municipal Bond Index (1-17 Year Maturity) (currently 5.4 years). For a description of duration, please see "Fixed Income Investment Process" on page 13. At least 90% of assets must be invested in securities that, at the time of purchase, are rated investment-grade (BBB/Baa or better) or are the unrated equivalent. No more than 10% of assets may be invested in securities rated B or BB. Principal Risks The fund's share price and total return will vary in response to changes in interest rates. How well the fund's performance compares to that of similar tax-exempt funds will depend on the success of the investment process, which is described on page 13. Investors should be prepared for higher share price volatility than from a tax exempt fund of shorter duration. The fund's performance could also be affected by market reaction to proposed tax legislation. To the extent that the fund seeks higher returns by investing in non-investment-grade bonds, often called junk bonds, it takes on additional risks, since these bonds are more sensitive to economic news and their issuers have a less secure financial position. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase currently manages more than $700 billion, including more than ___ billion using similar strategies as the fund. The portfolio management team is led by Benjamin Thompson, vice president, who joined the team in June of 1999, Robert W. Meiselas, vice president, who joined the team in May 1997 and has been at J.P. Morgan since 1987, and Kingsley Wood, Jr., vice president, who has been with the team since January 2000. Prior to joining J.P. Morgan, Mr. Thompson was a senior fixed income portfolio manager at Goldman Sachs, and Mr. Wood was a senior fixed income portfolio manager at Mercantile Bank & Trust. Prior to joining Mercantile in July of 1998, Mr. Wood was an institutional tax-exempt trader at ABN-AMRO and Kemper Securities. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o The fund seeks to achieve its goal by investing in a master portfolio, which is another fund with the same goal. o There is no assurance that the fund will meet its investment goal. o The fund does not represent a complete investment program. 8 | J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND PERFORMANCE (unaudited) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan Institutional Tax Exempt Bond Fund. The bar chart indicates some of the risks by showing changes in the performance of the fund's shares from year to year for each of the fund's last ten calendar years. The table indicates some of the risks by showing how the fund's average annual returns for the past one, five and ten years compared to those of the Lehman Brothers 1-16 Year Municipal Bond Index and the Lehman Brothers Intermediate Competitive Municipal Bond Index (1-17 Year Maturity), the fund's current benchmark. Both are unmanaged indices that measure municipal bond market performance. The fund's past performance does not necessarily indicate how the fund will perform in the future. [The following table was depicted as a bar chart in the printed material.] - ----------------------------- Year-by-year total return (%) Shows changes in returns by calendar year(1),(2) - -------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 10.92 7.47 9.58 (2.53) 13.50 3.71 7.58 5.65 (0.75) 8.56 o J.P. Morgan Institutional Tax Exempt Bond Fund The fund's year-to-date total return as of 12/31/00 was 8.56%. For the period covered by this year-by-year total return chart, the fund's highest quarterly return was 5.16% (for the quarter ended 3/31/95); and the lowest quarterly return was -3.05% (for the quarter ended 3/31/94).
- ------------------------------- Average annual total return (%) Shows performance over time, for periods ended December 31, 2000(1) - ---------------------------------------------------------------------------------------------------------- Past 1 yr. Past 5 yrs. Past 10 yrs. J.P. Morgan Institutional Tax Exempt Bond Fund (after expenses) 8.56 4.89 6.26 - ---------------------------------------------------------------------------------------------------------- Lehman Brothers Intermediate Competitive Municipal Bond Index (1-17 Year Maturity)(3) (no expenses) 9.59 5.59 N/A - ---------------------------------------------------------------------------------------------------------- Lehman Brothers 1-16 Year Municipal Bond Index (no expenses) 9.32 5.53 N/A - ---------------------------------------------------------------------------------------------------------- Lehman Brothers/J.P. Morgan Hybrid Index(4) 9.48 4.73 N/A - ----------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(5) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.30 Distribution (Rule 12b-1) fees none Other expenses 0.21 - -------------------------------------------------------------------------------- Total operating expenses 0.51 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Expense example - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, total operating expenses remain unchanged, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 52 164 285 640 - -------------------------------------------------------------------------------- (1) The fund commenced operations on 7/12/93. For the period 1/1/90 through 7/31/93 returns reflect performance of The Pierpont Tax Exempt Bond Fund, the predecessor of the fund. (2) The fund's fiscal year end is 7/31. Prior to 1999, the fiscal year end was 8/31. (3) Previously the fund had used the Lehman Brothers 1-16 Year Municipal Bond Index as a comparative broad-based securities market index. The fund has chosen to use the Lehman Brothers Intermediate Competitive Municipal Bond Index (1-17 Year Maturity) because it is more widely disseminated. (4) The Lehman Brothers/J.P. Morgan Hybrid Index consists of Lehman Brothers 1-16 Year Municipal Bond Index from 9/30/93 to 9/1/00, then Lehman Brothers Intermediate Competitive Municipal Bond Index (1-17 Maturity), thereafter. (5) The fund has a master/feeder structure as described on page 17. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year, expressed as a percentage of average net assets. J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND | 9 J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND | TICKER SYMBOL: JPNTX - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS (J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND) [GRAPHIC] RISK/RETURN SUMMARY For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 18-21. [GRAPHIC] GOAL The fund's goal is to provide a high level of tax exempt income for New York residents consistent with moderate risk of capital. This goal can be changed without shareholder approval. [GRAPHIC] INVESTMENT APPROACH Principal Strategies The fund invests primarily in New York municipal securities that it believes have the potential to provide high current income which is free from federal, state, and New York City personal income taxes for New York residents. The fund may also invest to a limited extent in securities of other states or territories. To the extent that the fund invests in municipal securities of other states, the income from such securities would be free from federal personal income taxes for New York residents but would be subject to New York State and New York City personal income taxes. For non-New York residents, the income from New York municipal securities is free from federal personal income taxes only. The fund may also invest in taxable securities. The fund's securities may be of any maturity, but under normal market conditions the fund's duration will generally range between three and seven years, similar to that of the Lehman Brothers New York 1 to 17 Years Municipal Bond Index (currently 5.4 years). For a description of duration, please see "Fixed Income Investment Process" on page 13. At least 90% of assets must be invested in securities that, at the time of purchase, are rated investment-grade (BBB/Baa or better) or are the unrated equivalent. No more than 10% of assets may be invested in securities rated B or BB. Principal Risks The fund's share price and total return will vary in response to changes in interest rates. How well the fund's performance compares to that of similar fixed income funds will depend on the success of the investment process, which is described on page 13. Because most of the fund's investments will typically be from issuers in the State of New York, its performance will be affected by the fiscal and economic health of that state and its municipalities. The fund is non-diversified and may invest more than 5% of assets in a single issuer, which could further concentrate its risks. To the extent that the fund seeks higher returns by investing in non-investment-grade bonds, often called junk bonds, it takes on additional risks, since these bonds are more sensitive to economic news and their issuers have a less secure financial condition. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase currently manages more than $700 billion, including more than ____ billion using similar strategies as the fund. The portfolio management team is led by Benjamin Thompson, vice president, who joined the team in June of 1999, Robert W. Meiselas, vice president, who joined the team in May 1997 and has been at J.P. Morgan since 1987, and Kingsley Wood, Jr., vice president, who has been with the team since January of 2000. Prior to joining J.P. Morgan, Mr. Thompson was a senior fixed income portfolio manager at Goldman Sachs, and Mr. Wood was a senior fixed income portfolio manager at Mercantile Bank & Trust. Prior to joining Mercantile in July of 1998, Mr. Wood was an institutional tax-exempt trader at ABN-AMRO and Kemper Securities. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o The fund seeks to achieve its goal by investing in a master portfolio, which is another fund with the same goal. o There is no assurance that the fund will meet its investment goal. o The fund does not represent a complete investment program. 10 | J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND - -------------------------------------------------------------------------------- PERFORMANCE (unaudited) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan Institutional New York Tax Exempt Bond Fund. The bar chart indicates some of the risks by showing changes in the performance of the fund's shares from year to year for each of the last six calendar years. The table indicates some of the risks by showing how the fund's average annual returns for the past one and five years and the life of the fund compared to those of the Lehman Brothers 1-16 Year Municipal Bond Index and the Lehman Brothers New York 1 to 17 Years Municipal Bond Index, the fund's current benchmark. Both are widely recognized, unmanaged indices that measure municipal bond market performance. The fund's past performance does not necessarily indicate how the fund will perform in the future. [The following table was depicted as a bar chart in the printed material.] - ---------------------------- Year-by-year total return (%) Shows changes in returns by calendar year(1),(2) - -------------------------------------------------------------------------------- 1995 1996 1997 1998 1999 2000 13.28 4.21 7.68 5.61 (0.73) 9.26 o J.P. Morgan Institutional New York Tax Exempt Bond Fund The fund's year-to-date total return as of 12/31/00 was 9.26%. For the period covered by this year-by-year total return chart, the fund's highest quarterly return was 4.86% (for the quarter ended 3/31/95) and the lowest quarterly return was -1.78% (for the quarter ended 6/30/99).
- ------------------------------- Average annual total return (%) Shows performance over time, for periods ended December 31, 2000(1) - ------------------------------------------------------------------------------------------------------------------- Past 1 yr. Past 5 yrs. Life of fund J.P. Morgan Institutional New York Tax Exempt Bond Fund (after expenses) 9.26 5.15 5.85 - ------------------------------------------------------------------------------------------------------------------- Lehman Brothers New York 1 to 17 Years Municipal Bond Index3 (no expenses) 9.67 5.90 6.62 Lehman Brothers 1-16 Year Municipal Bond Index (no expenses) 9.32 5.53 6.30 - -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund before and after reimbursement are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses after reimbursement are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(4) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.30 Distribution (Rule 12b-1) fees none Other expenses 0.26 - -------------------------------------------------------------------------------- Total operating expenses 0.56 Fee waiver and expense reimbursement(5) 0.06 - -------------------------------------------------------------------------------- Net expenses(5) 0.50 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Expense example - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, net expenses for the period 12/1/00 through 11/30/01 and total operating expenses thereafter, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 51 173 307 696 - -------------------------------------------------------------------------------- (1) The fund commenced operations on 4/11/94, and returns reflect performance of the fund from 4/30/94. (2) The fund's fiscal year end is 7/31. Prior to 1999 the fiscal year end was 3/31. (3) Previously the fund had used the Lehman Brothers 1-16 Year Municipal Bond Index, which is composed of tax-exempt securities of various states and measures overall tax-exempt bond market performance, as a comparative broad-based securities market index. The fund has chosen the Lehman Brothers New York 1 to 17 Years Municipal Bond Index, because it measures New York tax-exempt bond market performance and reflects the universe of securities in which the fund invests. (4) The fund has a master/feeder structure as described on page 17. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year expressed as a percentage of average net assets. (5) Reflects an agreement dated 3/1/01 by Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent total operating expenses (excluding interest, taxes and extraordinary expenses) exceed 0.50% of the fund's average daily net assets through 11/30/01. J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND | 11 FIXED INCOME MANAGEMENT APPROACH J.P. MORGAN Known for its commitment to proprietary research and its disciplined investment strategies, J.P. Morgan Chase is the asset management choice for many of the world's most respected corporations, financial institutions, governments, and individuals. Today, J.P. Morgan Chase employs approximately ___ research analysts, capital market researchers, portfolio managers and traders around the world and has more than $700 billion in assets under management including assets managed by the funds' advisor, J.P. Morgan Investment Management Inc. J.P. MORGAN INSTITUTIONAL FIXED INCOME FUNDS These funds invest primarily in bonds and other fixed income securities, either directly or through a master portfolio (another fund with the same goal). The funds seek high total return or high current income. While each fund follows its own strategy, the funds as a group share a single investment philosophy. This philosophy, developed by the funds' advisor, emphasizes the potential for consistently enhancing performance while managing risk. THE SPECTRUM OF FIXED INCOME FUNDS The funds described in this prospectus pursue different goals and offer varying degrees of risk and potential reward. The table below shows degrees of the relative risk and return that these funds potentially offer. These and other distinguishing features of each fixed income fund were described on the preceding pages. Differences among these funds include: o the types of securities they hold o the tax status of the income they offer o the relative emphasis on current income versus total return - -------------------------------------------------------------------------------- Potential risk and return - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] The positions of the funds in this graph reflect long-term performance goals only, and are relative, not absolute. * Based on tax-equivalent returns for an investor in the highest income tax bracket. - -------------------------------------------------------------------------------- Who May Want to Invest The funds are designed for investors who: o want to add an income investment to further diversify a portfolio o want an investment whose risk/return potential is higher than that of money market funds but generally less than that of stock funds o want an investment that pays monthly dividends o with regard to the Tax Exempt Bond Fund, are seeking income that is exempt from federal personal income tax o with regard to the New York Tax Exempt Bond Fund, are seeking income that is exempt from federal, state, and local (if applicable) personal income taxes in New York The funds are not designed for investors who: o are investing for aggressive long-term growth o require stability of principal o with regard to the Global Strategic Income Fund, are not prepared to accept a higher degree of risk than most traditional bond funds o with regard to the federal or state tax-exempt funds, are investing through a tax-deferred account such as an IRA 12 | FIXED INCOME MANAGEMENT APPROACH - -------------------------------------------------------------------------------- FIXED INCOME INVESTMENT PROCESS J.P. Morgan seeks to generate an information advantage through the depth of its global fixed-income research and the sophistication of its analytical systems. Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad range of distinct areas and takes positions in many different areas, helping the funds to limit exposure to concentrated sources of risk. In managing the funds described in this prospectus, J.P. Morgan employs a three-step process that combines sector allocation, fundamental research for identifying portfolio securities, and duration management. [GRAPHIC] The funds invest across a range of different types of securities Sector allocation The sector allocation team meets monthly, analyzing the fundamentals of a broad range of sectors in which a fund may invest. The team seeks to enhance performance and manage risk by underweighting or overweighting sectors. [GRAPHIC] Each fund makes its portfolio decisions as described earlier in this prospectus Security selection Relying on the insights of different specialists, including credit analysts, quantitative researchers, and dedicated fixed income traders, the portfolio managers make buy and sell decisions according to each fund's goal and strategy. [GRAPHIC] J.P. Morgan uses a disciplined process to control each fund's sensitivity to interest rates Duration management Forecasting teams use fundamental economic factors to develop strategic forecasts of the direction of interest rates. Based on these forecasts, strategists establish each fund's target duration, a common measurement of a security's sensitivity to interest rate movements. For securities owned by a fund, duration measures the average time needed to receive the present value of all principal and interest payments by analyzing cash flows and interest rate movements. A fund's duration is generally shorter than a fund's average maturity because the maturity of a security only measures the time until final payment is due. Each fund's target duration typically remains relatively close to the duration of the market as a whole, as represented by the fund's benchmark. The strategists closely monitor the funds and make tactical adjustments as necessary. FIXED INCOME MANAGEMENT APPROACH | 13 YOUR INVESTMENT - -------------------------------------------------------------------------------- For your convenience, the J.P. Morgan Institutional Funds offer several ways to start and add to fund investments. INVESTING THROUGH A FINANCIAL PROFESSIONAL If you work with a financial professional, either at J.P. Morgan or elsewhere, he or she is prepared to handle your planning and transaction needs. Your financial professional will be able to assist you in establishing your fund account, executing transactions, and monitoring your investment. If your fund investment is not held in the name of your financial professional and you prefer to place a transaction order yourself, please use the instructions for investing directly. INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN Your fund investments are handled through your plan. Refer to your plan materials or contact your benefits office for information on buying, selling, or exchanging fund shares. INVESTING THROUGH AN IRA OR ROLLOVER IRA Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472 for information on J.P. Morgan's comprehensive IRA services, including lower minimum investments. INVESTING DIRECTLY Investors may establish accounts without the help of an intermediary by using the instructions below and at right: o Choose a fund (or funds) and determine the amount you are investing. The minimum amount for initial investments is $5,000,000 for the Short Term Bond, Bond, Tax Exempt Bond and New York Tax Exempt Bond funds and $1,000,000 for the Global Strategic Income Fund and for additional investments $25,000, although these minimums may be less for some investors. For more information on minimum investments, call 1-800-766-7722. o Complete the application, indicating how much of your investment you want to allocate to which fund(s). Please apply now for any account privileges you may want to use in the future, in order to avoid the delays associated with adding them later on. o Mail in your application, making your initial investment as shown at right. For answers to any questions, please speak with a J.P. Morgan Funds Services Representative at 1-800-766-7722. OPENING YOUR ACCOUNT By wire o Mail your completed application to the Shareholder Services Agent. o Call the Shareholder Services Agent to obtain an account number and to place a purchase order. Funds that are wired without a purchase order will be returned uninvested. o After placing your purchase order, instruct your bank to wire the amount of your investment to: Morgan Guaranty Trust Company of New York-Delaware Routing number: 031-100-238 Credit: J.P.M. Institutional Shareholder Services Account number: 001-57-689 FFC: your account number, name of registered owner(s) and fund name By check o Make out a check for the investment amount payable to J.P. Morgan Institutional Funds. o Mail the check with your completed application to the Shareholder Services Agent. By exchange o Call the Shareholder Services Agent to effect an exchange. ADDING TO YOUR ACCOUNT By wire o Call the Shareholder Services Agent to place a purchase order. Funds that are wired without a purchase order will be returned uninvested. o Once you have placed your purchase order, instruct your bank to wire the amount of your investment as described above. By check o Make out a check for the investment amount payable to J.P. Morgan Institutional Funds. o Mail the check with a completed investment slip to the Shareholder Services Agent. If you do not have an investment slip, attach a note indicating your account number and how much you wish to invest in which fund(s). By exchange o Call the Shareholder Services Agent to effect an exchange. 14 | YOUR INVESTMENT - -------------------------------------------------------------------------------- SELLING SHARES By phone -- wire payment o Call the Shareholder Services Agent to verify that the wire redemption privilege is in place on your account. If it is not, a representative can help you add it. o Place your wire request. If you are transferring money to a non-Morgan account, you will need to provide the representative with the personal identification number (PIN) that was provided to you when you opened your fund account. By phone -- check payment o Call the Shareholder Services Agent and place your request. Once your request has been verified, a check for the net amount, payable to the registered owner(s), will be mailed to the address of record. For checks payable to any other party or mailed to any other address, please make your request in writing (see below). In writing o Write a letter of instruction that includes the following information: The name of the registered owner(s) of the account; the account number; the fund name; the amount you want to sell; and the recipient's name and address or wire information, if different from those of the account registration. o Indicate whether you want the proceeds sent by check or by wire. o Make sure the letter is signed by an authorized party. The Shareholder Services Agent may require additional information, such as a signature guarantee. o Mail the letter to the Shareholder Services Agent. By exchange o Call the Shareholder Services Agent to effect an exchange. Redemption In Kind o Each fund reserves the right to make redemptions of over $250,000 in securities rather than in cash. ACCOUNT AND TRANSACTION POLICIES Telephone orders The funds accept telephone orders from all shareholders. The funds will tape record telephone orders or take other reasonable precautions. However, if a fund does take such steps to ensure the authenticity of an order, you may bear any loss if the order later proves fraudulent. Exchanges You may exchange shares in these funds for shares in any other J.P. Morgan Institutional or J.P. Morgan mutual fund at no charge (subject to the securities laws of your state). When making exchanges, it is important to observe any applicable minimums. Keep in mind that for tax purposes an exchange is considered a sale. A fund may alter, limit, or suspend its exchange policy at any time. Business hours and NAV calculations The funds' regular business days and hours are the same as those of the New York Stock Exchange (NYSE). Each fund calculates its net asset value per share (NAV) every business day as of the close of trading on the NYSE (normally 4:00 p.m. eastern time). Each fund's securities are typically priced using pricing services or market quotes. When these methods are not available or do not represent a security's value at the time of pricing (e.g., when an event occurs after the close of trading on a foreign exchange that would materially impact a security's value at the time each fund calculates its NAV), the security is valued in accordance with the fund's fair valuation procedures. Timing of orders Orders to buy or sell shares are executed at the next NAV calculated after the order has been accepted. Orders are accepted until the close of trading on the NYSE every business day and are executed the same day, at that day's NAV. A fund has the right to suspend redemption of shares as permitted by law and to postpone payment of proceeds for up to seven days. - -------------------------------------------------------------------------------- Shareholder Services Agent Morgan Christiana Center J.P. Morgan Funds Services - 2/OPS3 500 Stanton Christiana Road Newark, DE 19713 1-800-766-7722 Representatives are available 8:00 a.m. to 6:00 p.m. eastern time on fund business days. YOUR INVESTMENT | 15 - -------------------------------------------------------------------------------- Timing of settlements When you buy shares, you will become the owner of record when a fund receives your payment, generally the day following execution. When you sell shares, proceeds are generally available the day following execution and will be forwarded according to your instructions. When you sell shares that you recently purchased by check, your order will be executed at the next NAV but the proceeds will not be available until your check clears. This may take up to 15 days. Statements and reports The funds send monthly account statements as well as confirmations after each purchase or sale of shares (except reinvestments). Every six months each fund sends out an annual or semi-annual report containing information on its holdings and a discussion of recent and anticipated market conditions and fund performance. Accounts with below-minimum balances If your account balance falls below the minimum for 30 days as a result of selling shares (and not because of performance), each fund reserves the right to request that you buy more shares or close your account. If your account balance is still below the minimum 60 days after notification, each fund reserves the right to close out your account and send the proceeds to the address of record. DIVIDENDS AND DISTRIBUTIONS Income dividends are typically declared daily and paid monthly. If an investor's shares are redeemed during the month, accrued but unpaid dividends are paid with the redemption proceeds. Shares of a fund earn dividends on the business day the purchase is effective, but not on the business day the redemption is effective. Each fund distributes capital gains, if any, once a year. However, a fund may make more or fewer payments in a given year, depending on its investment results and its tax compliance situation. Each fund's dividends and distributions consist of most or all of its net investment income and net realized capital gains. Dividends and distributions are reinvested in additional fund shares. Alternatively, you may instruct your financial professional or J.P. Morgan Funds Services to have them sent to you by check, via fed wire, credited to a separate account, or invested in another J.P. Morgan Institutional Fund. TAX CONSIDERATIONS In general, selling shares, exchanging shares, and receiving distributions (whether reinvested or taken in cash) are all taxable events. These transactions typically create the following tax liabilities for taxable accounts: - -------------------------------------------------------------------------------- Transaction Tax status Income dividends from the Exempt from federal, state, New York Tax Exempt Bond and New York City personal Fund income taxes for New York residents only Income dividends from the Generally exempt from federal personal Tax Exempt Bond Fund income taxes Income dividends from Ordinary income all other funds Short-term capital gains Ordinary income distributions Long-term capital gains Capital gains distributions Sales or exchanges of Capital gains or shares owned for more losses than one year Sales or exchanges of Gains are treated as ordinary shares owned for one year income; losses are subject or less to special rules Because long-term capital gains distributions are taxable as capital gains regardless of how long you have owned your shares, you may want to avoid making a substantial investment when a fund is about to declare a long-term capital gains distribution. A portion of the Tax Exempt Bond and New York Tax Exempt Bond funds' returns may be subject to federal, state, or local tax, or the alternative minimum tax. Every January, each fund issues tax information on its distributions for the previous year. Any investor for whom a fund does not have a valid taxpayer identification number will be subject to backup withholding for taxes. The tax considerations described in this section do not apply to tax-deferred accounts or other non-taxable entities. Because each investor's tax circumstances are unique, please consult your tax professional about your fund investment. 16 | YOUR INVESTMENT FUND DETAILS - -------------------------------------------------------------------------------- BUSINESS STRUCTURE As noted earlier, each fund is a series of J.P. Morgan Institutional Funds, a Massachusetts business trust, and is a "feeder" fund that invests in a master portfolio. (Except where indicated, this prospectus uses the term "the fund" to mean the feeder fund and its master portfolio taken together.) Each master portfolio accepts investments from other feeder funds, and all the feeders of a given master portfolio bear the portfolio's expenses in proportion to their assets. However, each feeder can set its own transaction minimums, fund-specific expenses and other conditions. This means that one feeder could offer access to the same master portfolio on more attractive terms, or could experience better performance, than another feeder. Information about other feeders is available by calling 1-800-766-7722. Generally, when a master portfolio seeks a vote, each of its feeder funds will hold a shareholder meeting and cast its vote proportionately, as instructed by its shareholders. Fund shareholders are entitled to one full or fractional vote for each dollar or fraction of a dollar invested. Each feeder fund and its master portfolio expect to maintain consistent goals, but if they do not, the feeder fund will withdraw from the master portfolio, receiving its assets either in cash or securities. Each feeder fund's trustees would then consider whether it should hire its own investment adviser, invest in a different master portfolio, or take other action. MANAGEMENT AND ADMINISTRATION The feeder funds described in this prospectus, their corresponding master portfolios, and J.P. Morgan Series Trust are all governed by the same trustees. The trustees are responsible for overseeing all business activities. The trustees are assisted by Pierpont Group, Inc., which they own and operate on a cost basis; costs are shared by all funds governed by these trustees. Funds Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund officers. J.P. Morgan, as co-administrator, oversees each fund's other service providers. J.P. Morgan, subject to the expense reimbursements described earlier in this prospectus, receives the following fees for investment advisory and other services: Advisory services Percentage of the master portfolio's average net assets Short Term Bond 0.25% Bond 0.30% Global Strategic Income 0.45% Tax Exempt Bond 0.30% New York Tax Exempt Bond 0.30% Administrative services Master portfolio's and fund's (fee shared with Funds pro-rata portions of 0.09% of the Distributor, Inc.) first $7 billion in J.P. Morgan advised portfolios, plus 0.04% of average net assets over $7 billion Shareholder services 0.10% of each fund's average net assets J.P. Morgan may pay fees to certain firms and professionals for providing recordkeeping or other services in connection with investments in a fund. FUND DETAILS | 17 - -------------------------------------------------------------------------------- RISK AND REWARD ELEMENTS This table discusses the main elements that make up each fund's overall risk and reward characteristics. It also outlines each fund's policies toward various investments, including those that are designed to help certain funds manage risk.
- ------------------------------------------------------------------------------------------------------------------------------------ Potential risks Potential rewards Policies to balance risk and reward - ------------------------------------------------------------------------------------------------------------------------------------ Market conditions o Each fund's share price, o Bonds have generally o Under normal circumstances the funds plan to yield, and total return will outperformed money market remain fully invested in bonds and other fixed fluctuate in response to investments over the long income securities as noted in the table on pages bond market movements term, with less risk than 20-21 stocks o The value of most bonds will o The funds seek to limit risk and enhance total fall when interest rates o Most bonds will rise in return or yields through careful management, rise; the longer a bond's value when interest rates sector allocation, individual securities maturity and the lower its fall selection, and duration management credit quality, the more its value typically falls o Mortgage-backed and o During severe market downturns, the funds have asset-backed securities can the option of investing up to 100% of assets in o Adverse market conditions offer attractive returns investment-grade short-term securities may from time to time cause a fund to take temporary o J.P. Morgan monitors interest rate trends, as defensive positions that are well as geographic and demographic information inconsistent with its related to mortgage-backed securities and principal investment mortgage prepayments strategies and may hinder a fund from achieving its investment objective o Mortgage-backed and asset-backed securities (securities representing an interest in, or secured by, a pool of mortgages or other assets such as receivables) could generate capital losses or periods of low yields if they are paid off substantially earlier or later than anticipated Credit quality o The default of an issuer o Investment-grade bonds have o Each fund maintains its own policies for would leave a fund with a lower risk of default balancing credit quality against potential unpaid interest or principal yields and gains in light of its investment o Junk bonds offer higher goals o Junk bonds (those rated yields and higher potential BB/Ba or lower) have a gains o J.P. Morgan develops its own ratings of unrated higher risk of default, tend securities and makes a credit quality to be less liquid, and may determination for unrated securities be more difficult to value Foreign investments o A fund could lose money o Foreign bonds, which o Foreign bonds are a primary investment only for because of foreign represent a major portion of the Global Strategic Income fund and may be a government actions, the world's fixed income significant investment for the Short Term Bond political instability, or securities, offer attractive and Bond funds; the Tax Exempt Bond and New York lack of adequate and potential performance and Tax Exempt Bond funds are not permitted to accurate information opportunities for invest any assets in foreign bonds diversification o Currency exchange rate o To the extent that a fund invests in foreign movements could reduce gains o Favorable exchange rate bonds, it may manage the currency exposure of or create losses movements could generate its foreign investments relative to its gains or reduce losses benchmark, and may hedge a portion of its o Currency and investment risks tend foreign currency exposure into the U.S. dollar to be higher in emerging markets o Emerging markets can offer from time to time (see also "Derivatives"); higher returns these currency management techniques may not be available for certain emerging markets When-issued and delayed investments delivery securities o When a fund buys securities o A fund can take advantage of o Each fund uses segregated accounts to offset before issue or for delayed attractive transaction leverage risk delivery, it could be opportunities exposed to leverage risk if it does not use segregated accounts
18 | FUND DETAILS
- ---------------------------------------------------------------------------------------------------------------------------------- Potential risks Potential rewards Policies to balance risk and reward - ---------------------------------------------------------------------------------------------------------------------------------- Management choices o A fund could underperform o A fund could outperform its o J.P. Morgan focuses its active management on its benchmark due to its benchmark due to these same those areas where it believes its commitment to sector, securities or choices research can most enhance returns and manage duration choices risks in a consistent way Derivatives o The funds use derivatives, such as futures, options, swaps and forward foreign currency o Derivatives such as futures, o Hedges that correlate well contracts for hedging and for risk management options, swaps and forward with underlying positions (i.e., to adjust duration or yield curve foreign currency contracts can reduce or eliminate exposure, or to establish or adjust exposure to that are used for hedging losses at low cost particular securities, markets, or currencies); the portfolio or specific risk management may include management of a securities may not fully o A fund could make money and fund's exposure relative to its benchmark; the offset the underlying protect against losses if Tax Exempt Bond and New York Tax Exempt Bond positions1 and this could management's analysis proves funds are permitted to enter into futures, result in losses to the fund correct options, and swap transactions, however, these that would not have transactions result in taxable gains or losses otherwise occurred o Derivatives that involve so it is expected that these funds will utilize leverage could generate them infrequently; forward foreign currency o Derivatives used for risk substantial gains at low contracts are not permitted to be used by the management may not have the cost Tax Exempt Bond and New York Tax Exempt Bond intended effects and may funds result in losses or missed opportunities o The funds only establish hedges that they expect will be highly correlated with underlying o The counterparty to a positions derivatives contract could default o While the funds may use derivatives that incidentally involve leverage, they do not use o Certain types of derivatives them for the specific purpose of leveraging involve costs to the funds their portfolios which can reduce returns o Derivatives that involve leverage could magnify losses Securities lending o When a fund lends a o A fund may enhance income o J.P. Morgan maintains a list of approved security, there is a risk through the investment of borrowers that the loaned securities the collateral received from may not be returned if the the borrower o The fund receives collateral equal to at least borrower defaults 100% of the current value of securities loaned o The collateral will be o The lending agents indemnify a fund against subject to the risks of the borrower default securities in which it is invested o J.P. Morgan's collateral investment guidelines limit the quality and duration of collateral investment to minimize losses o Upon recall, the borrower must return the securities loaned within the normal settlement period Illiquid holdings o A fund could have difficulty o These holdings may offer o No fund may invest more than 15% of net assets valuing these holdings more attractive yields or in illiquid holdings precisely potential growth than comparable widely traded o To maintain adequate liquidity to meet o A fund could be unable to securities redemptions, each fund may hold investment-grade sell these holdings at the short-term securities (including repurchase time or price desired 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 o Increased trading would o A fund could realize gains o The funds may use short-term trading to take raise a fund's transaction in a short period of time advantage of attractive or unexpected costs opportunities or to meet demands generated by o A fund could protect against shareholder activity. The turnover rates for o Increased short-term capital losses if a bond is each portfolio for its most recent fiscal year gains distributions would overvalued and its value were: Short Term Bond (271%), Bond (531%), raise shareholders' income later falls Global Strategic Income (266%), Tax Exempt Bond tax liability (84%), and New York Tax Exempt Bond (86%)
(1) A futures contract is an agreement to buy or sell a set quantity of an underlying instrument at a future date, or to make or receive a cash payment based on changes in the value of a securities index. An option is the right to buy or sell a set quantity of an underlying instrument at a predetermined price. A swap is a privately negotiated agreement to exchange one stream of payments for another. A forward foreign currency contract is an obligation to buy or sell a given currency on a future date and at a set price. FUND DETAILS | 19 - -------------------------------------------------------------------------------- Investments - -------------------------------------------------------------------------------- This table discusses the customary types of investments which can be held by each fund. In each case the related types of risk are listed on the following page (see below for definitions).This table reads across two pages. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Corporate bonds Debt securities of domestic and foreign industrial, utility, banking, and other financial institutions. - -------------------------------------------------------------------------------- Mortgages (directly held) Domestic debt instrument which gives the lender a lien on property as security for the loan payment. - -------------------------------------------------------------------------------- Mortgage-backed securities Domestic and foreign securities (such as Ginnie Maes, Freddie Macs, Fannie Maes) which represent interests in pools of mortgages, whereby the principal and interest paid every month is passed through to the holder of the securities. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Participation interests Interests that represent a share of domestic or foreign bank debt or similar securities or obligations. - -------------------------------------------------------------------------------- Private placements Bonds or other investments that are sold directly to an institutional investor. - -------------------------------------------------------------------------------- REITs and other real-estate related instruments Securities of issuers that invest in real estate or are secured by real estate. - -------------------------------------------------------------------------------- Repurchase agreements Contracts whereby the fund agrees to purchase a security and resell it to the seller on a particular date and at a specific price. - -------------------------------------------------------------------------------- Reverse repurchase agreements Contracts whereby the 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. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Swaps Contractual agreement whereby a domestic or foreign party agrees to exchange periodic payments with a counterparty. Segregated accounts are used to offset leverage risk. - -------------------------------------------------------------------------------- Synthetic variable rate instruments Debt instruments whereby the issuer agrees to exchange one security for another in order to change the maturity or quality of a security in the fund. - -------------------------------------------------------------------------------- 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. - -------------------------------------------------------------------------------- Risk related to certain investments held by J.P. Morgan Institutional fixed income funds: Credit risk The risk a financial obligation will not be met by the issuer of a security or the counterparty to a contract, resulting in a loss to the purchaser. Currency risk The risk currency exchange rate fluctuations may reduce gains or increase losses on foreign investments. Environmental risk The risk that an owner or operator of real estate may be liable for the costs associated with hazardous or toxic substances located on the property. Extension risk The risk a rise in interest rates will extend the life of a mortgage-backed security to a date later than the anticipated prepayment date, causing the value of the investment to fall. Interest rate risk The risk a change in interest rates will adversely affect the value of an investment. The value of fixed income securities generally moves in the opposite direction of interest rates (decreases when interest rates rise and increases when interest rates fall). Leverage risk The risk of gains or losses disproportionately higher than the amount invested. 20 | FUND DETAILS o Permitted (and if applicable, percentage limitation) percentage of total assets - bold percentage of net assets - italic * Permitted, but not typically used + Permitted, but no current intention of use - -- Not permitted
Short Global Tax New York Term Strategic Exempt Exempt Related Types of Risk Bond Bond Income Bond Bond - ------------------------------------------------------------------------------------------------------------------------------------ credit, interest rate, market, prepayment o o o * * - ------------------------------------------------------------------------------------------------------------------------------------ Domestic Domestic Only Only credit, currency, liquidity, political o(1) o(1) o * * - ------------------------------------------------------------------------------------------------------------------------------------ credit, currency, interest rate, liquidity, market, political o(1) o(1) * o o - ------------------------------------------------------------------------------------------------------------------------------------ credit, currency, interest rate, liquidity, market, political, valuation o(1) o(1) * -- -- - ------------------------------------------------------------------------------------------------------------------------------------ credit, currency, interest rate, liquidity, market, political, valuation o(1) o(1) o -- -- - ------------------------------------------------------------------------------------------------------------------------------------ credit, environmental, extension, interest rate, liquidity, market, o o o + + natural event, political, prepayment, valuation - ------------------------------------------------------------------------------------------------------------------------------------ credit, currency, extension, interest rate, leverage, market, political, o(1) o(1) o -- -- prepayment - ------------------------------------------------------------------------------------------------------------------------------------ currency, extension, interest rate, leverage, liquidity, market, political, o(1),(3) o(1),(3) o(3) -- -- prepayment - ------------------------------------------------------------------------------------------------------------------------------------ credit, currency, extension, interest rate, liquidity, political, prepayment o(1) o(1) o -- -- - ------------------------------------------------------------------------------------------------------------------------------------ credit, interest rate, liquidity, market, valuation o o o o o - ------------------------------------------------------------------------------------------------------------------------------------ credit, interest rate, liquidity, market, natural event, prepayment, valuation o o o o -- -- - ------------------------------------------------------------------------------------------------------------------------------------ credit o o o * * - ------------------------------------------------------------------------------------------------------------------------------------ credit o(3) o(3) o(3) *(3) *(3) - ------------------------------------------------------------------------------------------------------------------------------------ credit, currency, interest rate, market, political o(1) o(1) o -- -- - ------------------------------------------------------------------------------------------------------------------------------------ credit, currency, interest rate, leverage, market, political o(1) o(1) o o o - ------------------------------------------------------------------------------------------------------------------------------------ credit, interest rate, leverage, liquidity, market -- -- -- o o - ------------------------------------------------------------------------------------------------------------------------------------ credit, interest rate, market, natural event, political * * -- o(2) o(2) - ------------------------------------------------------------------------------------------------------------------------------------ interest rate o o o o o - ------------------------------------------------------------------------------------------------------------------------------------ credit, currency, interest rate, liquidity, market, political, valuation o(1) o(1) o o o - ------------------------------------------------------------------------------------------------------------------------------------
Liquidity risk The risk the holder may not be able to sell the security at the time or price it desires. Market risk The risk that when the market as a whole declines, the value of a specific investment will decline proportionately. This systematic risk is common to all investments and the mutual funds that purchase them. Natural event risk The risk a natural disaster, such as a hurricane or similar event, will cause severe economic losses and default in payments by the issuer of the security. Political risk The risk governmental policies or other political actions will negatively impact the value of the investment. Prepayment risk The risk declining interest rates will result in unexpected prepayments, causing the value of the investment to fall. Valuation risk The risk the estimated value of a security does not match the actual amount that can be realized if the security is sold. (1) For each of the Short Term Bond and Bond funds, all foreign securities in the aggregate may not exceed 25% of such fund's assets. (2) At least 65% of the New York Tax Exempt Bond Fund's assets must be in New York municipal securities, and at least 80% of the New York Tax Exempt and Tax Exempt Bond Funds' assets must be in tax exempt securities. (3) All forms of borrowing (including securities lending, mortgage dollar rolls and reverse repurchase agreements) in the aggregate may not exceed 33 1/3% of the fund's total assets. FUND DETAILS | 21 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights tables are intended to help you understand each fund's financial performance for the past five fiscal years or periods, as applicable, or the life of the fund if shorter. Certain information reflects financial results for a single fund share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in a fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's financial statements, are included in fund's annual report, which are available upon request. ================================================================================ J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND
- ---------------------------- Per-share data For fiscal years ended - ---------------------------------------------------------------------------------------------------------------------------- 10/31/96 10/31/97 10/31/98 10/31/99 10/31/00 Net asset value, beginning of year ($) 9.83 9.85 9.84 9.96 9.67 - ---------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income ($) 0.55 0.61 0.59 0.58 0.60 Net realized and unrealized gain (loss) on investment ($) 0.02 (0.01) 0.12 (0.29) (0.08) - ---------------------------------------------------------------------------------------------------------------------------- Total from investment operations ($) 0.57 0.60 0.71 0.29 0.52 - ---------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income ($) (0.55) (0.61) (0.59) (0.54) (0.61) Net realized gain ($) -- -- -- (0.04) -- - ---------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders ($) (0.55) (0.61) (0.59) (0.58) (0.61) - ---------------------------------------------------------------------------------------------------------------------------- Net asset value, end of year ($) 9.85 9.84 9.96 9.67 9.58 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------------------------------------------- Total return (%) 6.01 6.27 7.40 3.03 5.49 - ---------------------------------------------------------------------------------------------------------------------------- Net assets, end of year ($ thousands) 17,810 27,375 232,986 354,267 415,417 - ---------------------------------------------------------------------------------------------------------------------------- Ratio to average net assets: Net expenses (%) 0.37 0.25 0.25 0.29 0.30 - ---------------------------------------------------------------------------------------------------------------------------- Net investment income (%) 5.69 6.19 5.84 5.51 6.30 - ---------------------------------------------------------------------------------------------------------------------------- Expenses without reimbursement (%) 1.37 0.96 0.62 0.51 0.47 - ---------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%)(1) 191 219 381 398 271 - ----------------------------------------------------------------------------------------------------------------------------
(1) Represents the turnover of The Short Term Bond Portfolio. 22 | FUND DETAILS - -------------------------------------------------------------------------------- ================================================================================ J.P. MORGAN INSTITUTIONAL BOND FUND
- ---------------------------- Per-share data For fiscal years ended - ------------------------------------------------------------------------------------------------------------------------------------ 10/31/96 10/31/97 10/31/98 10/31/99 10/31/00 Net asset value, beginning of year ($) 9.98 9.84 10.01 10.10 9.41 - ------------------------------------------------------------------------------------------------------------------------------------ Income from investment operations: Net investment income ($) 0.61 0.65 0.64 0.57 0.60 Net realized and unrealized gain (loss) on investment ($) (0.11) 0.18 0.15 (0.57) 0.02 - ------------------------------------------------------------------------------------------------------------------------------------ Total from investment operations ($) 0.50 0.83 0.79 -- 0.62 - ------------------------------------------------------------------------------------------------------------------------------------ Distributions to shareholders from: Net investment income ($) (0.61) (0.64) (0.63) (0.57) (0.60) In excess of net investment income -- -- -- -- (0.00)(1) Net realized gain ($) (0.03) (0.02) (0.07) (0.12) -- - ------------------------------------------------------------------------------------------------------------------------------------ Total distributions to shareholders ($) (0.64) (0.66) (0.70) (0.69) (0.60) - ------------------------------------------------------------------------------------------------------------------------------------ Net asset value, end of year ($) 9.84 10.01 10.10 9.41 9.43 - ---------------------------- Ratios and supplemental data - ------------------------------------------------------------------------------------------------------------------------------------ Total return (%) 5.21 8.78 8.18 0.03 6.83 - ------------------------------------------------------------------------------------------------------------------------------------ Net assets, end of year ($ thousands) 836,066 912,054 1,001,411 1,041,330 907,411 - ------------------------------------------------------------------------------------------------------------------------------------ Ratio to average net assets: Net expenses (%) 0.50 0.50 0.49 0.50 0.49 - ------------------------------------------------------------------------------------------------------------------------------------ Net investment income (%) 6.28 6.59 6.32 5.92 6.37 - ------------------------------------------------------------------------------------------------------------------------------------ Expenses without reimbursement (%) 0.53 0.50 0.50 0.51 0.49 - ------------------------------------------------------------------------------------------------------------------------------------ Portfolio turnover (%)(2) 186 93 115 465 531 - ------------------------------------------------------------------------------------------------------------------------------------
(1) Less than $0.005. (2) Represents the turnover of The U.S. Fixed Income Portfolio. ================================================================================ J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
- ---------------------------- Per-share data For fiscal periods ended - ----------------------------------------------------------------------------------------------------------------------- 10/31/97(1) 10/31/98 10/31/99 10/31/00 Net asset value, beginning of year ($) 10.00 10.16 9.72 9.35 - ----------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income ($) 0.46 0.75 0.62 0.88 Net realized and unrealized gain (loss) on investment ($) 0.15 (0.45) (0.37) (0.25) - ----------------------------------------------------------------------------------------------------------------------- Total from investment operations ($) 0.61 0.30 0.25 0.63 - ----------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income ($) (0.45) (0.70) (0.62) (0.69) Net realized gain ($) -- (0.02) -- -- Return of capital -- (0.02) -- -- - ----------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders ($) (0.45) (0.74) (0.62) (0.69) - ----------------------------------------------------------------------------------------------------------------------- Net asset value, end of year ($) 10.16 9.72 9.35 9.29 - ----------------------------------------------------------------------------------------------------------------------- - ---------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------------------------- Total return (%) 6.15(2) 2.91 2.62 6.93 - ----------------------------------------------------------------------------------------------------------------------- Net assets, end of year ($ thousands) 105,051 223,700 183,085 163,454 - ----------------------------------------------------------------------------------------------------------------------- Ratio to average net assets: Net expenses (%) 0.65(3) 0.65 0.65 0.65 - ----------------------------------------------------------------------------------------------------------------------- Net investment income (%) 7.12(3) 6.59 6.70 7.36 - ----------------------------------------------------------------------------------------------------------------------- Expenses without reimbursement (%) 1.18(3) 0.83 0.78 0.80 - ----------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%)(4) 212 368 318 266 - -----------------------------------------------------------------------------------------------------------------------
(1) The fund commenced operations on 3/17/97. (2) Not annualized. (3) Annualized. (4) Represents the turnover of The Global Strategic Income Portfolio. FUND DETAILS | 23 - -------------------------------------------------------------------------------- ================================================================================ J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
For the 11 - ---------------------------- months Per-share data For fiscal periods ended ended - -------------------------------------------------------------------------------------------------------------------------------- 8/31/95 8/31/96 8/31/97 8/31/98 7/31/99(1) 7/31/00 Net asset value, beginning of period ($) 9.75 10.01 9.92 10.12 10.38 10.07 - -------------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income ($) 0.49 0.48 0.48 0.47 0.41 0.46 Net realized and unrealized gain (loss) on investment ($) 0.26 (0.07) 0.20 0.26 (0.30) (0.08) - -------------------------------------------------------------------------------------------------------------------------------- Total from investment operations ($) 0.75 0.41 0.68 0.73 0.11 0.38 - -------------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income ($) (0.49) (0.48) (0.48) (0.47) (0.41) (0.46) Net realized gain ($) -- (0.02) (0.00)(2) -- (0.01) (0.01) In excess of net investment income -- -- -- -- -- (0.00)(2) - -------------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders ($) (0.49) (0.50) (0.48) (0.47) (0.42) (0.47) - -------------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period ($) 10.01 9.92 10.12 10.38 10.07 9.98 - -------------------------------------------------------------------------------------------------------------------------------- - ---------------------------- Ratios and supplemental data - -------------------------------------------------------------------------------------------------------------------------------- Total return (%) 8.00 4.13 7.06 7.37 1.01(3) 3.90 - -------------------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ thousands) 59,867 121,131 201,614 316,594 388,933 447,858 - -------------------------------------------------------------------------------------------------------------------------------- Ratio to average net assets: Net expenses (%) 0.50 0.50 0.50 0.50 0.50(4) 0.50 - -------------------------------------------------------------------------------------------------------------------------------- Net investment income (%) 5.09 4.82 4.83 4.58 4.37(4) 4.67 - -------------------------------------------------------------------------------------------------------------------------------- Expenses without reimbursement (%) 0.71 0.60 0.56 0.53 0.53(4) 0.51 - -------------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%)(5) 47 25 25 16 29(3) 84 - --------------------------------------------------------------------------------------------------------------------------------
(1) In 1999, the fund changed the fiscal year end from 8/31 to 7/31. (2) Less than $0.01 per share. (3) Not annualized. (4) Annualized. (5) Represents the turnover of the Tax Exempt Bond Portfolio. ================================================================================ J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND
For the four - ---------------------------- months Per-share data For fiscal periods ended ended - -------------------------------------------------------------------------------------------------------------------------- 3/31/96 3/31/97 3/31/98 3/31/99 7/31/99(1) 7/31/00 Net asset value, beginning of period ($) 10.11 10.34 10.31 10.67 10.72 10.42 - -------------------------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income ($) 0.49 0.48 0.48 0.45 0.14 0.45 Net realized and unrealized gain (loss) on investment ($) 0.25 (0.02) 0.40 0.13 (0.28) (0.02) - -------------------------------------------------------------------------------------------------------------------------- Total from investment operations ($) 0.74 0.46 0.88 0.58 (0.14) 0.43 - -------------------------------------------------------------------------------------------------------------------------- Distributions to shareholders from: Net investment income ($) (0.49) (0.48) (0.48) (0.45) (0.14) (0.45) Net realized gain ($) (0.02) (0.01) (0.04) (0.08) (0.02) -- In excess of net investment income -- -- -- -- -- (0.00)(4) - -------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders ($) (0.51) (0.49) (0.52) (0.53) (0.16) (0.45) - -------------------------------------------------------------------------------------------------------------------------- Net asset value, end of period ($) 10.34 10.31 10.67 10.72 10.42 10.40 - -------------------------------------------------------------------------------------------------------------------------- - ---------------------------- Ratios and supplemental data - -------------------------------------------------------------------------------------------------------------------------- Total return (%) 7.40 4.54 8.64 5.51 (1.25)(2) 4.32 - -------------------------------------------------------------------------------------------------------------------------- Net assets, end of period ($ thousands) 47,926 90,792 111,418 204,986 161,373 173,315 - -------------------------------------------------------------------------------------------------------------------------- Ratio to average net assets: Net expenses (%) 0.50 0.50 0.50 0.50 0.50(3) 0.50 - -------------------------------------------------------------------------------------------------------------------------- Net investment income (%) 4.67 4.70 4.54 4.15 4.01(3) 4.39 - -------------------------------------------------------------------------------------------------------------------------- Expenses without reimbursement (%) 0.67 0.64 0.59 0.57 0.59(3) 0.56 - -------------------------------------------------------------------------------------------------------------------------- Portfolio turnover (%)(5) 41 35 51 44 8(2) 86 - --------------------------------------------------------------------------------------------------------------------------
(1) In 1999, the fund changed the fiscal year end from 3/31 to 7/31. (2) Not annualized. (3) Annualized. (4) Less than $0.01 per share. (5) Represents the turnover of the New York Tax Exempt Bond Portfolio 24 | FUND DETAILS (THIS PAGE IS INTENTIONALLY LEFT BLANK) - -------------------------------------------------------------------------------- FOR MORE INFORMATION - -------------------------------------------------------------------------------- For investors who want more information on these funds, the following documents are available free upon request: Annual/Semi-annual Reports Contain financial statements, performance data, information on portfolio holdings, and a written analysis of market conditions and fund performance for a fund's most recently completed fiscal year or half-year. Statement of Additional Information (SAI) Provides a fuller technical and legal description of a fund's policies, investment restrictions, and business structure. This prospectus incorporates each fund's SAI by reference. Copies of the current versions of these documents, along with other information about the fund, may be obtained by contacting: J.P. Morgan Institutional Funds Morgan Christiana Center J.P. Morgan Funds Services - 2/OPS3 500 Stanton Christiana Road Newark, DE 19713 Telephone: 1-800-766-7722 Hearing impaired: 1-888-468-4015 Email: JPM_Mutual_Funds@JPMorgan.com Text-only versions of these documents and this prospectus are available, upon payment of a duplicating fee, from the Public Reference Room of the Securities and Exchange Commission in Washington, D.C. (1-202-942-8090) (publicinfo@sec.gov), or by writing the Public Reference Section of the SEC, Washington, DC 20549-0102 and may be viewed on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The funds' investment company and 1933 Act registration numbers are: J.P. Morgan Institutional Short Term Bond Fund .............811-07342 and 033-54642 J.P. Morgan Institutional Bond Fund ........................811-07342 and 033-54642 J.P. Morgan Institutional Global Strategic Income Fund .....811-07342 and 033-54642 J.P. Morgan Institutional Tax Exempt Bond Fund .............811-07342 and 033-54642 J.P. Morgan Institutional New York Tax Exempt Bond Fund ....811-07342 and 033-54642
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION The J.P. Morgan Institutional Funds combine a heritage of integrity and financial leadership with comprehensive, sophisticated analysis and management techniques. Drawing on J.P. Morgan's extensive experience and depth as an investment manager, the J.P. Morgan Institutional Funds offer a broad array of distinctive opportunities for mutual fund investors. JPMorgan - -------------------------------------------------------------------------------- J.P. Morgan Funds Advisor Distributor J.P. Morgan Investment Management Inc. Funds Distributor, Inc. 522 Fifth Avenue 60 State Street New York, NY 10036 Boston, MA 02109 1-800-766-7722 1-800-221-7930 EX-99.17(E) 6 a2044362zex-99_17e.txt EXHIBIT 99.17(E) J.P. MORGAN INSTITUTIONAL FUNDS J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND STATEMENT OF ADDITIONAL INFORMATION DECEMBER 1, 2000 THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S PROSPECTUS DATED DECEMBER 1, 2000, AS SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS RELATING TO THE FUND DATED JULY 31, 2000. THE PROSPECTUS AND THE FINANCIAL STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT THEREON, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930. TABLE OF CONTENTS PAGE ---- GENERAL........................................................................1 INVESTMENT OBJECTIVE AND POLICIES..............................................1 INVESTMENT RESTRICTIONS.......................................................18 TRUSTEES AND MEMBERS OF THE ADVISORY BOARD....................................19 OFFICERS......................................................................21 CODES OF ETHICS...............................................................23 INVESTMENT ADVISOR............................................................23 DISTRIBUTOR...................................................................24 CO-ADMINISTRATOR..............................................................25 SERVICES AGENT................................................................25 CUSTODIAN AND TRANSFER AGENT..................................................26 SHAREHOLDER SERVICING.........................................................26 FINANCIAL PROFESSIONALS.......................................................27 INDEPENDENT ACCOUNTANTS.......................................................27 EXPENSES......................................................................27 PURCHASE OF SHARES............................................................28 REDEMPTION OF SHARES..........................................................28 EXCHANGE OF SHARES............................................................29 DIVIDENDS AND DISTRIBUTIONS...................................................29 NET ASSET VALUE...............................................................30 PERFORMANCE DATA..............................................................30 PORTFOLIO TRANSACTIONS........................................................32 MASSACHUSETTS TRUST...........................................................33 DESCRIPTION OF SHARES.........................................................33 SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE...........................35 TAXES.........................................................................36 ADDITIONAL INFORMATION........................................................38 FINANCIAL STATEMENTS..........................................................38 APPENDIX A...................................................................A-1 GENERAL This Statement of Additional Information relates only to the J.P. Morgan Institutional Tax Exempt Bond Fund (the "Fund"). The Fund is a series of shares of beneficial interest of the J.P. Morgan Institutional Funds, an open-end management investment company formed as a Massachusetts business trust (the "Trust"). In addition to the Fund, the Trust consists of other series representing separate investment funds (each, a "J.P. Morgan Institutional Fund"). The other J.P. Morgan Institutional Funds are covered by separate Statements of Additional Information. This Statement of Additional Information describes the financial history, investment objective and policies, management and operation of the Fund and provides additional information with respect to the Fund and should be read in conjunction with the Fund's current Prospectus (the "Prospectus"). Capitalized terms not otherwise defined herein have the meanings accorded to them in the Prospectus. The Fund's executive offices are located at 60 State Street, Suite 1300, Boston, Massachusetts 02109. Unlike other mutual funds which directly acquire and manage their own portfolio of securities, the Fund seeks to achieve its investment objective by investing all of its investable assets in The Tax Exempt Bond Portfolio (the "Portfolio"), a corresponding open-end management investment company having the same investment objective as the Fund. The Fund invests in the Portfolio through a two-tier master-feeder investment fund structure. See "Special Information Concerning Investment Structure." The Portfolio is advised by J.P. Morgan Investment Management Inc. ("JPMIM" or the "Advisor"). Investments in the Fund are not deposits or obligations of, or guaranteed or endorsed by, Morgan Guaranty Trust Company of New York ("Morgan"), an affiliate of the Advisor, or any other bank. Shares of the Fund are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. An investment in the Fund is subject to risk that may cause the value of the investment to fluctuate, and when the investment is redeemed, the value may be higher or lower than the amount originally invested by the investor. INVESTMENT OBJECTIVE AND POLICIES The following discussion supplements the information regarding the Fund's investment objective and the policies to be employed to achieve this objective by the Portfolio as set forth above and in the Prospectus. Since the investment characteristics and expenses of the Fund correspond directly with those of the Portfolio, the discussion in the Statement of Additional Information focuses on the investments and investment policies of the Portfolio. Accordingly, references below to the Fund also include the Portfolio; similarly, references to the Portfolio also include the Fund unless the context requires otherwise. The Fund is designed for investors who seek tax exempt yields greater than those generally available from a portfolio of short term tax exempt obligations and who are willing to incur the greater price fluctuation of longer-term instruments. Additionally, the Fund is designed to be an economical and convenient means of making substantial investments in debt obligations that are exempt from federal income tax. The Fund's investment objective is to provide a high level of current income exempt from federal income tax consistent with moderate risk of capital. See "Taxes." The Fund attempts to achieve its investment objective by investing all of its investable assets in the Portfolio, a diversified open-end management investment company having the same investment objective as the Fund. The Portfolio attempts to achieve its investment objective by investing primarily in securities of states, territories and possessions of the United States and their political subdivisions, agencies and instrumentalities, the interest of which is exempt from federal income tax in the opinion of bond counsel for the issuer, but it may invest up to 20% of its total assets in taxable obligations. During normal market conditions, the Portfolio will invest at least 80% of its net assets in tax exempt obligations. Interest on these securities may be subject to state and local taxes. For more detailed information regarding tax matters, including the applicability of the alternative minimum tax, see "Taxes". The Portfolio attempts to invest its assets in tax exempt municipal securities; however, under certain circumstances the Portfolio is permitted to invest up to 20% of the value of its total assets in securities, the interest income on which may be subject to federal, state and local income taxes. The Portfolio will invest in taxable securities only if there are no tax exempt securities available for purchase or if the expected return from an investment in taxable securities exceeds the expected return on available tax exempt securities. In abnormal market conditions, if, in the judgment of the Advisor, tax exempt securities satisfying the Portfolio's investment objective may not be purchased, the Portfolio may, for defensive purposes only, temporarily invest more than 20% of its net assets in debt securities the interest on which is subject to federal, state and local income taxes. The taxable investments permitted for the Portfolio include obligations of the U.S. Government and its agencies and instrumentalities, bank obligations, commercial paper and repurchase agreements and other debt securities which meet the Portfolio's quality requirements. See "Taxes". The Portfolio seeks to maintain a current yield that is greater than that obtainable from a portfolio of short term tax exempt obligations, subject to certain quality restrictions. See "Quality and Diversification Requirements." The Advisor believes that based upon current market conditions, the Portfolio will consist of a portfolio of securities with a duration of four to seven years. In view of the duration of the Portfolio, under normal market conditions, the Portfolio's yield can be expected to be higher and its net asset value less stable than those of a money market fund. Duration is a measure of the weighted average maturity of the bonds held in the Portfolio and can be used as a measure of the sensitivity of the Portfolio's market value to changes in interest rates. The maturities of the individual securities in the Portfolio may vary widely, however, as the Advisor adjusts the Portfolio's holdings of long-term and short-term debt securities to reflect its assessment of prospective changes in interest rates, which may adversely affect current income. The value of the Portfolio's investments will generally fluctuate inversely with changes in prevailing interest rates. The value of the Portfolio's investments will also be affected by changes in the creditworthiness of issuers and other market factors. The quality criteria applied in the selection of portfolio securities are intended to minimize adverse price changes due to credit considerations. The value of the Portfolio's municipal securities can also be affected by market reaction to legislative consideration of various tax reform proposals. Although the net asset value of the Portfolio fluctuates, the Portfolio attempts to preserve the value of its investments to the extent consistent with its objective. TAX EXEMPT OBLIGATIONS The Portfolio may invest in bonds issued by or on behalf of states, territories and possessions of the United States and the District of Columbia and their political subdivisions, agencies, authorities and instrumentalities. These obligations may be general obligation bonds secured by the issuer's pledge of its full faith credit and taxing power for the payment of principal and interest, or they may be revenue bonds payable from specific revenue sources, but not generally backed by the issuer's taxing power. These include industrial development bonds where payment is the responsibility of the private industrial user of the facility financed by the bonds. The Portfolio may invest more than 25% of its assets in industrial development bonds, but may not invest more than 25% of its assets in industrial development bonds in projects of similar type or in the same state. The Portfolio will invest in tax exempt obligations. A description of the various types of tax exempt obligations which may be purchased by the Portfolio appears below. See "Quality and Diversification Requirements." MUNICIPAL BONDS. Municipal bonds are debt obligations issued by the states, territories and possessions of the United States and the District of Columbia, by their political subdivisions and by duly constituted authorities and corporations. For example, states, territories, possessions and municipalities may issue municipal bonds to raise funds for various public purposes such as airports, housing, hospitals, mass transportation, schools, water and sewer works. They may also issue municipal bonds to refund outstanding obligations and to meet general operating expenses. Public authorities issue municipal bonds to obtain funding for privately operated facilities, such as 2 housing and pollution control facilities, for industrial facilities or for water supply, gas, electricity or waste disposal facilities. Municipal bonds may be general obligation or revenue bonds. General obligation bonds are secured by the issuer's pledge of its full faith, credit and taxing power for the payment of principal and interest. Revenue bonds are payable from revenues derived from particular facilities, from the proceeds of a special excise tax or from other specific revenue sources. They are not generally payable from the general taxing power of a municipality. MUNICIPAL NOTES. The Portfolio may also invest in municipal notes of various types, including notes issued in anticipation of receipt of taxes, the proceeds of the sale of bonds, other revenues or grant proceeds, as well as municipal commercial paper and municipal demand obligations such as variable rate demand notes and master demand obligations. The interest rate on variable rate demand notes is adjustable at periodic intervals as specified in the notes. Master demand obligations permit the investment of fluctuating amounts at periodically adjusted interest rates. They are governed by agreements between the municipal issuer and Morgan acting as agent, for no additional fee. Although master demand obligations are not marketable to third parties, the Portfolio considers them to be liquid because they are payable on demand. There is no specific percentage limitation on these investments. Municipal notes are subdivided into three categories of short-term obligations: municipal notes, municipal commercial paper and municipal demand obligations. Municipal notes are short-term obligations with a maturity at the time of issuance ranging from six months to five years. The principal types of municipal notes include tax anticipation notes, bond anticipation notes, revenue anticipation notes, grant anticipation notes and project notes. Notes sold in anticipation of collection of taxes, a bond sale, or receipt of other revenues are usually general obligations of the issuing municipality or agency. Municipal commercial paper typically consists of very short-term unsecured negotiable promissory notes that are sold to meet seasonal working capital or interim construction financing needs of a municipality or agency. While these obligations are intended to be paid from general revenues or refinanced with long-term debt, they frequently are backed by letters of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks or institutions. Municipal demand obligations are subdivided into two types: variable rate demand notes and master demand obligations. Variable rate demand notes are tax exempt municipal obligations or participation interests that provide for a periodic adjustment in the interest rate paid on the notes. They permit the holder to demand payment of the notes, or to demand purchase of the notes at a purchase price equal to the unpaid principal balance, plus accrued interest either directly by the issuer or by drawing on a bank letter of credit or guaranty issued with respect to such note. The issuer of the municipal obligation may have a corresponding right to prepay at its discretion the outstanding principal of the note plus accrued interest upon notice comparable to that required for the holder to demand payment. The variable rate demand notes in which the Portfolio may invest are payable, or are subject to purchase, on demand usually on notice of seven calendar days or less. The terms of the notes provide that interest rates are adjustable at intervals ranging from daily to six months, and the adjustments are based upon the prime rate of a bank or other appropriate interest rate index specified in the respective notes. Variable rate demand notes are valued at amortized cost; no value is assigned to the right of the Portfolio to receive the par value of the obligation upon demand or notice. Master demand obligations are tax exempt municipal obligations that provide for a periodic adjustment in the interest rate paid and permit daily changes in the amount borrowed. The interest on such obligations is, in the opinion of counsel for the borrower, excluded from gross income for federal income tax purposes. Although there is no secondary market for master demand obligations, such obligations are considered by the Portfolio to be liquid because they are payable upon demand. The Portfolio has no specific percentage limitations on investments in master demand obligations. 3 PREMIUM SECURITIES. During a period of declining interest rates, many municipal securities in which the Portfolio invests likely will bear coupon rates higher than current market rates, regardless of whether the securities were initially purchased at a premium. In general, such securities have market values greater than the principal amounts payable on maturity, which would be reflected in the net asset value of the Portfolio's shares. The values of such "premium" securities tend to approach the principal amount as they near maturity. PUTS. The Portfolio may purchase without limit, municipal bonds or notes together with the right to resell the bonds or notes to the seller at an agreed price or yield within a specified period prior to the maturity date of the bonds or notes. Such a right to resell is commonly known as a "put." The aggregate price for bonds or notes with puts may be higher than the price for bonds or notes without puts. Consistent with the Portfolio's investment objective and subject to the supervision of the Trustees, the purpose of this practice is to permit the Portfolio to be fully invested in tax exempt securities while preserving the necessary liquidity to purchase securities on a when-issued basis, to meet unusually large redemptions, and to purchase at a later date securities other than those subject to the put. The principal risk of puts is that the writer of the put may default on its obligation to repurchase. The Advisor will monitor each writer's ability to meet its obligations under puts. Puts may be exercised prior to the expiration date in order to fund obligations to purchase other securities or to meet redemption requests. These obligations may arise during periods in which proceeds from sales of Fund shares and from recent sales of portfolio securities are insufficient to meet obligations or when the funds available are otherwise allocated for investment. In addition, puts may be exercised prior to the expiration date in order to take advantage of alternative investment opportunities or in the event the Advisor revises its evaluation of the creditworthiness of the issuer of the underlying security. In determining whether to exercise puts prior to their expiration date and in selecting which puts to exercise, the Advisor considers the amount of cash available to the Portfolio, the expiration dates of the available puts, any future commitments for securities purchases, alternative investment opportunities, the desirability of retaining the underlying securities in the Portfolio's portfolio and the yield, quality and maturity dates of the underlying securities. The Portfolio values any municipal bonds and notes subject to puts with remaining maturities of less than 60 days by the amortized cost method. If the Portfolio were to invest in municipal bonds and notes with maturities of 60 days or more that are subject to puts separate from the underlying securities, the puts and the underlying securities would be valued at fair value as determined in accordance with procedures established by the Board of Trustees. The Board of Trustees would, in connection with the determination of the value of a put, consider, among other factors, the creditworthiness of the writer of the put, the duration of the put, the dates on which or the periods during which the put may be exercised and the applicable rules and regulations of the SEC. Prior to investing in such securities, the Portfolio, if deemed necessary based upon the advice of counsel, will apply to the SEC for an exemptive order, which may not be granted, relating to the valuation of such securities. Since the value of the put is partly dependent on the ability of the put writer to meet its obligation to repurchase, the Portfolio's policy is to enter into put transactions only with municipal securities dealers who are approved by the Advisor. Each dealer will be approved on its own merits, and it is the Portfolio's general policy to enter into put transactions only with those dealers which are determined to present minimal credit risks. In connection with such determination, the Advisor reviews regularly the list of approved dealers, taking into consideration, among other things, the ratings, if available, of their equity and debt securities, their reputation in the municipal securities markets, their net worth, their efficiency in consummating transactions and any collateral arrangements, such as letters of credit, securing the puts written by them. Commercial bank dealers normally will be members of the Federal Reserve System, and other dealers will be members of the National Association of Securities Dealers, Inc. or members of a national securities exchange. Other put writers will have outstanding debt rated Aa or better by Moody's Investors Service, Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Group ("Standard & Poor's"), or will be of comparable quality in the Advisor's opinion or such put writers' obligations will be collateralized and of comparable quality in the Advisor's opinion. The Trustees have directed the Advisor not to enter into put transactions with any dealer which in the judgment of the Advisor becomes more than 4 a minimal credit risk. In the event that a dealer should default on its obligation to repurchase an underlying security, the Portfolio is unable to predict whether all or any portion of any loss sustained could subsequently be recovered from such dealer. Entering into a put with respect to a tax exempt security may be treated, depending upon the terms of the put, as a taxable sale of the tax exempt security by the Portfolio with the result that, while the put is outstanding, the Portfolio will no longer be treated as the owner of the security and the interest income derived with respect to the security will be treated as taxable income to the Portfolio. NON-MUNICIPAL SECURITIES The Portfolio may invest in bonds and other debt securities of domestic issuers to the extent consistent with its investment objective and policies. The Portfolio may invest in U.S. Government, bank and corporate debt obligations, as well as asset-backed securities and repurchase agreements. The Portfolio will purchase such securities only when the Advisor believes that they would enhance the after tax returns of a shareholder of the Fund in the highest federal income tax brackets. Under normal circumstances, the Portfolio's holdings of non-municipal securities will not exceed 20% of its total assets. A description of these investments appears below. See "Quality and Diversification Requirements." For information on short-term investments in these securities, see "Money Market Instruments." ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. Zero coupon securities are securities that are sold at a discount to par value and on which interest payments are not made during the life of the security. Upon maturity, the holder is entitled to receive the par value of the security. Pay-in-kind securities are securities that have interest payable by delivery of additional securities. Upon maturity, the holder is entitled to receive the aggregate par value of the securities. The Portfolio accrues income with respect to zero coupon and pay-in-kind securities prior to the receipt of cash payments. Deferred payment securities are securities that remain zero coupon securities until a predetermined date, at which time the stated coupon rate becomes effective and interest becomes payable at regular intervals. While interest payments are not made on such securities, holders of such securities are deemed to have received "phantom income." Because the Fund will distribute "phantom income" to shareholders, to the extent that shareholders elect to receive dividends in cash rather than reinvesting such dividends in additional shares, the Portfolio will have fewer assets with which to purchase income producing securities. Zero coupon, pay-in-kind and deferred payment securities may be subject to greater fluctuation in value and lesser liquidity in the event of adverse market conditions than comparably rated securities paying cash interest at regular interest payment periods. ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly represent a participation interest in, or are secured by and payable from, a stream of payments generated by particular assets such as motor vehicle or credit card receivables or other asset-backed securities collateralized by such assets. Payments of principal and interest may be guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution unaffiliated with the entities issuing the securities. The asset-backed securities in which the Portfolio may invest are subject to the Portfolio's overall credit requirements. However, asset-backed securities, in general, are subject to certain risks. Most of these risks are related to limited interests in applicable collateral. For example, credit card debt receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts on credit card debt thereby reducing the balance due. Additionally, if the letter of credit is exhausted, holders of asset-backed securities may also experience delays in payments or losses if the full amounts due on underlying sales contracts are not realized. Because asset-backed securities are relatively new, the market experience in these securities is limited and the market's ability to sustain liquidity through all phases of the market cycle has not been tested. MONEY MARKET INSTRUMENTS The Portfolio will invest in money market instruments, to the extent consistent with its investment 5 objective and policies, that meet the quality requirements described below. Under normal circumstances, the Portfolio will purchase these securities to invest temporary cash balances or to maintain liquidity to meet withdrawals. However, the Portfolio may also invest in money market instruments as a temporary defensive measure taken during, or in anticipation of, adverse market conditions. A description of the various types of money market instruments that may be purchased by the Portfolio appears below. Also see "Quality and Diversification Requirements." U.S. TREASURY SECURITIES. The Portfolio may invest in direct obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all of which are backed as to principal and interest payments by the full faith and credit of the United States. ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in obligations issued or guaranteed by U.S. Government agencies or instrumentalities. These obligations may or may not be backed by the "full faith and credit" of the United States. Securities which are backed by the full faith and credit of the United States include obligations of the Government National Mortgage Association, the Farmers Home Administration, and the Export-Import Bank. In the case of securities not backed by the full faith and credit of the United States, the Portfolio must look principally to the federal agency issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States itself in the event the agency or instrumentality does not meet its commitments. Securities in which the Portfolio may invest that are not backed by the full faith and credit of the United States include, but are not limited to: (i) obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Banks and the U.S. Postal Service, each of which has the right to borrow from the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal National Mortgage Association, which are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and (iii) obligations of the Federal Farm Credit System and the Student Loan Marketing Association, each of whose obligations may be satisfied only by the individual credits of the issuing agency. BANK OBLIGATIONS. The Portfolio may invest in negotiable certificates of deposit, time deposits and bankers' acceptances of (i) banks, savings and loan associations and savings banks which have more than $2 billion in total assets and are organized under the laws of the United States or any state, (ii) foreign branches of these banks and (iii) U.S. branches of foreign banks of equivalent size (Yankees). The Portfolio may not invest in obligations of foreign branches of foreign banks. The Portfolio will not invest in obligations for which the Advisor, or any of its affiliated persons, is the ultimate obligor or accepting bank. COMMERCIAL PAPER. The Portfolio may invest in commercial paper, including master demand obligations. For a description of master demand obligations see "Tax Exempt Obligations - Municipal Notes" above. Master demand obligations are obligations that provide for a periodic adjustment in the interest rate paid and permit daily changes in the amount borrowed. Master demand obligations are governed by agreements between the issuer and Morgan acting as agent for no additional fee. The monies loaned to the borrower come from accounts managed by Morgan or its affiliates, pursuant to arrangements with such accounts. Interest and principal payments are credited to such accounts. Morgan has the right to increase or decrease the amount provided to the borrower under an obligation. The borrower has the right to pay without penalty all or any part of the principal amount then outstanding on an obligation together with interest to the date of payment. Since these obligations typically provide that the interest rate is tied to the Federal Reserve commercial paper composite rate, the rate on master demand obligations is subject to change. Repayment of a master demand obligation to participating accounts depends on the ability of the borrower to pay the accrued interest and principal of the obligation on demand which is continuously monitored by Morgan. Since master demand obligations typically are not rated by credit rating agencies, the Portfolio may invest in such unrated obligations only if at the time of an investment the obligation is determined by the Advisor to have a credit quality which satisfies the Portfolio's quality restrictions. See "Quality and Diversification Requirements." Although there is no secondary market for master demand obligations, such obligations are considered by the Portfolio to be liquid because they are payable upon demand. It is possible that 6 the issuer of a master demand obligation could be a client of Morgan to whom Morgan, an affiliate of the Advisor, in its capacity as a commercial bank, has made a loan. REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase agreements with brokers, dealers or banks that meet the Advisor's credit guidelines. In a repurchase agreement, the Portfolio buys a security from a seller that has agreed to repurchase the same security at a mutually agreed upon date and price. The resale price normally is in excess of the purchase price, reflecting an agreed upon interest rate. This interest rate is effective for the period of time the Portfolio is invested in the agreement and is not related to the coupon rate on the underlying security. A repurchase agreement may also be viewed as a fully collateralized loan of money by the Portfolio to the seller. The period of these repurchase agreements will usually be short, from overnight to one week, and at no time will the Portfolio invest in repurchase agreements for more than thirteen months. The securities which are subject to repurchase agreements, however, may have maturity dates in excess of thirteen months from the effective date of the repurchase agreement. The Portfolio will always receive securities as collateral whose market value is, and during the entire term of the agreement remains, at least equal to 100% of the dollar amount invested by the Portfolio in each agreement plus accrued interest, and the Portfolio will make payment for such securities only upon physical delivery or upon evidence of book entry transfer to the account of the custodian. If the seller defaults, the Portfolio might incur a loss if the value of the collateral securing the repurchase agreement declines and might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon disposal of the collateral by the Portfolio may be delayed or limited. The Portfolio may make investments in other debt securities, including without limitation corporate bonds and other obligations described in this Statement of Additional Information. ADDITIONAL INVESTMENTS WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase securities on a when-issued or delayed delivery basis. For example, delivery of and payment for these securities can take place a month or more after the date of the purchase commitment. The purchase price and the interest rate payable, if any, on the securities are fixed on the purchase commitment date or at the time the settlement date is fixed. The value of such securities is subject to market fluctuation and for money market instruments and other fixed income securities no interest accrues to a Portfolio until settlement takes place. At the time the Portfolio makes the commitment to purchase securities on a when-issued or delayed delivery basis, it will record the transaction, reflect the value each day of such securities in determining its net asset value and, if applicable, calculate the maturity for the purposes of average maturity from that date. At the time of settlement a when-issued security may be valued at less than the purchase price. To facilitate such acquisitions, the Portfolio will maintain with the custodian a segregated account with liquid assets, consisting of cash, U.S. Government securities or other appropriate securities, in an amount at least equal to such commitments. On delivery dates for such transactions, the Portfolio will meet its obligations from maturities or sales of the securities held in the segregated account and/or from cash flow. If the Portfolio chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other Portfolio obligation, incur a gain or loss due to market fluctuation. Also, the Portfolio may be disadvantaged if the other party to the transaction defaults. INVESTMENT COMPANY SECURITIES. Securities of other investment companies may be acquired by the Portfolio to the extent permitted under the 1940 Act or any order pursuant thereto. These limits currently require that, as determined immediately after a purchase is made, (i) not more than 5% of the value of the Portfolio's total assets will be invested in the securities of any one investment company, (ii) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group, and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by the Portfolio, provided however, that the Fund may invest all of its investable assets in an open-end investment company that has the same investment objective as the Fund (the Portfolio). As a shareholder of another investment company, the Fund or Portfolio would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, 7 including advisory fees. These expenses would be in addition to the advisory and other expenses that the Fund or Portfolio bears directly in connection with its own operations. The Fund has applied for exemptive relief from the SEC to permit the Portfolio to invest in affiliated investment companies. If the requested relief is granted, the Portfolio would then be permitted to invest in affiliated Portfolios, subject to certain conditions specified in the applicable order. The Securities and Exchange Commission ("SEC") has granted the Portfolio an exemptive order permitting it to invest its uninvested cash in any of the following affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The order sets forth the following conditions: (1) the Portfolio may invest in one or more of the permitted money market funds up to an aggregate limit of 25% of its assets; and (2) the Advisor will waive and/or reimburse its advisory fee from the Portfolio in an amount sufficient to offset any doubling up of investment advisory, shareholder servicing and administrative fees. REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a security and agrees to repurchase the same security at a mutually agreed upon date and price reflecting the interest rate effective for the term of the agreement. For purposes of the 1940 Act a reverse repurchase agreement is also considered as the borrowing of money by the Portfolio and, therefore, a form of leverage. Leverage may cause any gains or losses for the Portfolio to be magnified. The Portfolio will invest the proceeds of borrowings under reverse repurchase agreements. In addition, except for liquidity purposes, the Portfolio will enter into a reverse repurchase agreement only when the expected return from the investment of the proceeds is greater than the expense of the transaction. The Portfolio will not invest the proceeds of a reverse repurchase agreement for a period which exceeds the duration of the reverse repurchase agreement. The Portfolio will establish and maintain with the custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. All forms of borrowing (including reverse repurchase agreements and securities lending) are limited in the aggregate and may not exceed 33-1/3% of the Fund's total assets. LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its securities if such loans are secured continuously by cash or equivalent collateral or by a letter of credit in favor of the Portfolio at least equal at all times to 100% of the market value of the securities loaned, plus accrued interest. While such securities are on loan, the borrower will pay the Portfolio any income accruing thereon. Loans will be subject to termination by the Portfolio in the normal settlement time, generally three business days after notice, or by the borrower on one day's notice. Borrowed securities must be returned when the loan is terminated. Any gain or loss in the market price of the borrowed securities which occurs during the term of the loan inures to the Portfolio and its respective investors. The Portfolio may pay reasonable finders' and custodial fees in connection with a loan. In addition, the Portfolio will consider all facts and circumstances including the creditworthiness of the borrowing financial institution, and the Portfolio will not make any loans in excess of one year. The Portfolio will not lend its securities to any officer, Trustee, Director, employee or other affiliate of the Portfolio, the Advisor, Member of the Advisory Board, or the Distributor, unless otherwise permitted by applicable law. All forms of borrowing (including reverse repurchase agreements and securities lending) are limited in the aggregate and may not exceed 33-1/3% of the Fund's total assets. ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED SECURITIES. The Portfolio may not acquire any illiquid securities if, as a result thereof, more than 15% of the Portfolio's net assets would be in illiquid investments. Subject to this non-fundamental policy limitation, the Portfolio may acquire investments that are illiquid or have limited liquidity, such as private placements or investments that are not registered under the Securities Act of 1933, as amended (the "1933 Act"), and cannot be offered for public sale in the United States without first being registered under the 1933 Act. An illiquid investment is any investment that cannot be disposed of within seven days in the normal course of business at approximately the amount at which it is valued by the Portfolio. The price the Portfolio pays for illiquid securities or receives upon resale may be lower than the price paid or received for similar securities with a more liquid market. Accordingly, the valuation of these securities will 8 reflect any limitations on their liquidity. The Portfolio may also purchase Rule 144A securities sold to institutional investors without registration under the 1933 Act. These securities may be determined to be liquid in accordance with guidelines established by the Advisor and approved by the Trustees. The Trustees will monitor the Advisor's implementation of these guidelines on a periodic basis. As to illiquid investments, the Portfolio is subject to a risk that should the Portfolio decide to sell them when a ready buyer is not available at a price the Portfolio deems representative of their value, the value of the Portfolio's net assets could be adversely affected. Where an illiquid security must be registered under the 1933 Act, before it may be sold, the Portfolio may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the time of the decision to sell and the time the Portfolio may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Portfolio might obtain a less favorable price than prevailed when it decided to sell. SYNTHETIC INSTRUMENTS. The Portfolio may invest in certain synthetic variable rate instruments. Such instruments generally involve the deposit of a long-term tax exempt bond in a custody or trust arrangement and the creation of a mechanism to adjust the long-term interest rate on the bond to a variable short-term rate and a right (subject to certain conditions) on the part of the purchaser to tender it periodically to a third party at par. Morgan will review the structure of synthetic variable rate instruments to identify credit and liquidity risks (including the conditions under which the right to tender the instrument would no longer be available) and will monitor those risks. In the event that the right to tender the instrument is no longer available, the risk to the Portfolio will be that of holding the long-term bond. In the case of some types of instruments credit enhancement is not provided, and if certain events, which may include (a) default in the payment of principal or interest on the underlying bond, (b) downgrading of the bond below investment grade or (c) a loss of the bond's tax exempt status, occur, then (i) the put will terminate and (ii) the risk to the Portfolio will be that of holding a long-term bond. QUALITY AND DIVERSIFICATION REQUIREMENTS The Portfolio intends to meet the diversification requirements of the 1940 Act. Current 1940 Act diversification requirements require that with respect to 75% of the assets of the Portfolio: (1) the Portfolio may not invest more than 5% of its total assets in the securities of any one issuer, except obligations of the U.S. Government, its agencies and instrumentalities, and (2) the Portfolio may not own more than 10% of the outstanding voting securities of any one issuer. As for the other 25% of the Portfolio's assets not subject to the limitation described above, there is no limitation on investment of these assets under the 1940 Act, so that all of such assets may be invested in securities of any one issuer. Investments not subject to the limitations described above could involve an increased risk to the Portfolio should an issuer, or a state or its related entities, be unable to make interest or principal payments or should the market value of such securities decline. The Portfolio will comply with the diversification requirements imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company. See "Taxes." For purposes of diversification and concentration under the 1940 Act, identification of the issuer of municipal bonds or notes depends on the terms and conditions of the obligation. If the assets and revenues of an agency, authority, instrumentality or other political subdivision are separate from those of the government creating the subdivision and the obligation is backed only by the assets and revenues of the subdivision, such subdivision is regarded as the sole issuer. Similarly, in the case of an industrial development revenue bond or pollution control revenue bond, if the bond is backed only by the assets and revenues of the nongovernmental user, the nongovernmental user is regarded as the sole issuer. If in either case the creating government or another entity guarantees an obligation, the guaranty is regarded as a separate security and treated as an issue of such guarantor. Since securities issued or guaranteed by states or municipalities are not voting securities, there is no limitation on the percentage of a single issuer's securities which the Portfolio may own so long as it does not invest more than 5% 9 of its total assets that are subject to the diversification limitation in the securities of such issuer, except obligations issued or guaranteed by the U.S. Government. Consequently, the Portfolio may invest in a greater percentage of the outstanding securities of a single issuer than would an investment company which invests in voting securities. See "Investment Restrictions." It is the current policy of the Portfolio that under normal circumstances at least 90% of total assets will consist of securities that at the time of purchase are rated Baa or better by Moody's or BBB or better by Standard & Poor's. The remaining 10% of total assets may be invested in securities that are rated B or better by Moody's or Standard & Poor's. See "Below Investment Grade Debt" below. In each case, the Portfolio may invest in securities which are unrated, if in the Advisor's opinion, such securities are of comparable quality. Securities rated Baa by Moody's or BBB by Standard & Poor's are considered investment grade, but have some speculative characteristics. Securities rated Ba or B by Moody's and BB or B by Standard & Poor's are below investment grade and considered to be speculative with regard to payment of interest and principal. These standards must be satisfied at the time an investment is made. If the quality of the investment later declines, the Portfolio may continue to hold the investment. The Portfolio invests principally in a diversified portfolio of "investment grade" tax exempt securities. On the date of investment, with respect to at least 90% of its total assets, (i) municipal bonds must be rated within the four highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of Standard & Poor's, currently AAA, AA, A and BBB, (ii) municipal notes must be rated MIG-1 by Moody's or SP-1 by Standard & Poor's (or, in the case of New York State municipal notes, MIG-1 or MIG-2 by Moody's or SP-1 or SP-2 by Standard & Poor's) and (iii) at the time the Portfolio invests in any commercial paper, bank obligation, repurchase agreement, or any other money market instruments, the investment must have received a short term rating of investment grade or better (currently Prime-3 or better by Moody's or A-3 or better by Standard & Poor's) or the investment must have been issued by an issuer that received a short term investment grade rating or better with respect to a class of investments or any investment within that class that is comparable in priority and security with the investment being purchased by the Portfolio. If no such ratings exists, the investment must be of comparable investment quality in the Advisor's opinion, but will not be eligible for purchase if the issuer or its parent has long term outstanding debt rated below BBB. With respect to the remaining 10% of its assets, any investment must be rated B or better by Moody's or Standard & Poor's, or of comparable quality. The Portfolio may invest in other tax exempt securities which are not rated if, in the opinion of the Advisor, such securities are of comparable quality to the rated securities discussed above. In addition, at the time the Portfolio invests in any commercial paper, bank obligation or repurchase agreement, the issuer must have outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's parent corporation, if any, must have outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the investment must be of comparable quality in the Advisor's opinion. BELOW INVESTMENT GRADE DEBT. Certain lower rated securities purchased by the Portfolio, such as those rated Ba or B by Moody's or BB or B by Standard & Poor's (commonly known as junk bonds), may be subject to certain risks with respect to the issuing entity's ability to make scheduled payments of principal and interest and to greater market fluctuations. While generally providing greater income than investments in higher quality securities, lower quality fixed income securities involve greater risk of loss of principal and income, including the possibility of default or bankruptcy of the issuers of such securities, and have greater price volatility, especially during periods of economic uncertainty or change. These lower quality fixed income securities tend to be affected by economic changes and short-term corporate and industry developments to a greater extent than higher quality securities, which react primarily to fluctuations in the general level of interest rates. To the extent that the Portfolio invests in such lower quality securities, the achievement of its investment objective may be more dependent on the Advisor's own credit analysis. Lower quality fixed income securities are affected by the market's perception of their credit quality, especially during times of adverse publicity, and the outlook for economic growth. Economic downturns or an increase in interest rates may cause a higher incidence of default by the issuers of these securities, especially issuers 10 that are highly leveraged. The market for these lower quality fixed income securities is generally less liquid than the market for investment grade fixed income securities. It may be more difficult to sell these lower rated securities to meet redemption requests, to respond to changes in the market, or to value accurately the Portfolio's portfolio securities for purposes of determining the Portfolio's net asset value. See Appendix A for more detailed information on these ratings. In determining suitability of investment in a particular unrated security, the Advisor takes into consideration asset and debt service coverage, the purpose of the financing, history of the issuer, existence of other rated securities of the issuer, and other relevant conditions, such as comparability to other issuers. OPTIONS AND FUTURES TRANSACTIONS The Portfolio may purchase and sell (a) exchange traded and over-the-counter (OTC) put and call options on fixed income securities, indexes of fixed income securities and futures contracts on fixed income securities and indexes of fixed income securities and (b) futures contracts on fixed income securities and indexes of fixed income securities. Each of these instruments is a derivative instrument as its value derives from the underlying asset or index. The Portfolio may use futures contracts and options for hedging and risk management purposes. The Portfolio may not use futures contracts and options for speculation. The Portfolio may utilize options and futures contracts to manage its exposure to changing interest rates and/or security prices. Some options and futures strategies, including selling futures contracts and buying puts, tend to hedge the Portfolio's investments against price fluctuations. Other strategies, including buying futures contracts, writing puts and calls and buying calls, tend to increase market exposure. Options and futures contracts may be combined with each other or with forward contracts in order to adjust the risk and return characteristics of the Portfolio's overall strategy in a manner deemed appropriate to the Advisor and consistent with the Portfolio's objective and policies. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. The use of options and futures is a highly specialized activity which involves investment strategies and risks different from those associated with ordinary portfolio securities transactions, and there can be no guarantee that their use will increase the Portfolio's return. While the use of these instruments by the Portfolio may reduce certain risks associated with owning its portfolio securities, these techniques themselves entail certain other risks. If the Advisor applies a strategy at an inappropriate time or judges market conditions or trends incorrectly, options and futures strategies may lower the Portfolio's return. Certain strategies limit the Portfolio's possibilities to realize gains as well as limiting its exposure to losses. The Portfolio could also experience losses if the prices of its options and futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. In addition, the Portfolio will incur transaction costs, including trading commissions and option premiums, in connection with its futures and options transactions and these transactions could significantly increase the Portfolio's turnover rate. The Portfolio may purchase put and call options on securities, indexes of securities and futures contracts, or purchase and sell futures contracts, only if such options are written by other persons and if (i) the aggregate premiums paid on all such options which are held at any time do not exceed 20% of the Portfolio's net assets, and (ii) the aggregate margin deposits required on all such futures or options thereon held at any time do not exceed 5% of the Portfolio's total assets. In addition, the Portfolio will not purchase or sell (write) futures contracts, options on futures contracts or commodity options for risk management purposes if, as a result, the aggregate initial margin and options premiums required to establish these positions exceed 5% of the net asset value of the Portfolio. OPTIONS 11 PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Portfolio obtains the right (but not the obligation) to sell the instrument underlying the option at a fixed strike price. In return for this right, the Portfolio pays the current market price for the option (known as the option premium). Options have various types of underlying instruments, including specific securities, indexes of securities, indexes of securities prices, and futures contracts. The Portfolio may terminate its position in a put option it has purchased by allowing it to expire or by exercising the option. The Portfolio may also close out a put option position by entering into an offsetting transaction, if a liquid market exits. If the option is allowed to expire, the Portfolio will lose the entire premium paid. If the Portfolio exercises a put option on a security, it will sell the instrument underlying the option at the strike price. If the Portfolio exercises an option on an index, settlement is in cash and does not involve the actual sale of securities. If an option is American style, it may be exercised on any day up to its expiration date. A European style option may be exercised only on its expiration date. The buyer of a typical put option can expect to realize a gain if the underlying instrument falls substantially. However, if the price of the instrument underlying the option does not fall enough to offset the cost of purchasing the option, a put buyer can expect to suffer a loss (limited to the amount of the premium paid, plus related transaction costs). The features of call options are essentially the same as those of put options, except that the purchaser of a call option obtains the right to purchase, rather than sell, the instrument underlying the option at the option's strike price. A call buyer typically attempts to participate in potential price increases of the instrument underlying the option with risk limited to the cost of the option if security prices fall. At the same time, the buyer can expect to suffer a loss if security prices do not rise sufficiently to offset the cost of the option. SELLING (WRITING) PUT AND CALL OPTIONS. When the Portfolio writes a put option, it takes the opposite side of the transaction from the option's purchaser. In return for the receipt of the premium, the Portfolio assumes the obligation to pay the strike price for the instrument underlying the option if the other party to the option chooses to exercise it. The Portfolio may seek to terminate its position in a put option it writes before exercise by purchasing an offsetting option in the market at its current price. If the market is not liquid for a put option the Portfolio has written, however, the Portfolio must continue to be prepared to pay the strike price while the option is outstanding, regardless of price changes, and must continue to post margin as discussed below. If the price of the underlying instrument rises, a put writer would generally expect to profit, although its gain would be limited to the amount of the premium it received. If security prices remain the same over time, it is likely that the writer will also profit, because it should be able to close out the option at a lower price. If security prices fall, the put writer would expect to suffer a loss. This loss should be less than the loss from purchasing and holding the underlying instrument directly, however, because the premium received for writing the option should offset a portion of the decline. Writing a call option obligates the Portfolio to sell or deliver the option's underlying instrument in return for the strike price upon exercise of the option. The characteristics of writing call options are similar to those of writing put options, except that writing calls generally is a profitable strategy if prices remain the same or fall. Through receipt of the option premium a call writer offsets part of the effect of a price decline. At the same time, because a call writer must be prepared to deliver the underlying instrument in return for the strike price, even if its current value is greater, a call writer gives up some ability to participate in security price increases. The writer of an exchange traded put or call option on a security, an index of securities or a futures contract is required to deposit cash or securities or a letter of credit as margin and to make mark to market payments of variation margin as the position becomes unprofitable. OPTIONS ON INDEXES. The Portfolio may purchase or sell put and call options on any securities index based on securities in which the Portfolio may invest. Options on securities indexes are similar to options on securities, except that the exercise of securities index options is settled by cash payment and does not involve the actual 12 purchase or sale of securities. In addition, these options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security. The Portfolio, in purchasing or selling index options, is subject to the risk that the value of its portfolio securities may not change as much as an index because the Portfolio's investments generally will not match the composition of an index. For a number of reasons, a liquid market may not exist and thus Portfolio may not be able to close out an option position that it has previously entered into. When the Portfolio purchases an OTC option, it will be relying on its counterparty to perform its obligations, and the Portfolio may incur additional losses if the counterparty is unable to perform. EXCHANGE TRADED AND OTC OPTIONS. All options purchased or sold by the Portfolio will be traded on a securities exchange or will be purchased or sold by securities dealers (OTC options) that meet creditworthiness standards approved by the Advisor. While exchange-traded options are obligations of the Options Clearing Corporation, in the case of OTC options, the Portfolio relies on the dealer from which it purchased the option to perform if the option is exercised. Thus, when the Portfolio purchases an OTC option, it relies on the dealer from which it purchased the option to make or take delivery of the underlying securities. Failure by the dealer to do so would result in the loss of the premium paid by the Portfolio as well as loss of the expected benefit of the transaction. Provided that the Portfolio has arrangements with certain qualified dealers who agree that the Portfolio may repurchase any option it writes for a maximum price to be calculated by a predetermined formula, the Portfolio may treat the underlying securities used to cover written OTC options as liquid. In these cases, the OTC option itself would only be considered illiquid to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option. FUTURES CONTRACTS The Portfolio may purchase and sell futures contracts. When the Portfolio purchases a futures contract, it agrees to purchase a specified quantity of an underlying instrument at a specified future date or to make a cash payment based on the value of a securities index. When the Portfolio sells a futures contract, it agrees to sell a specified quantity of the underlying instrument at a specified future date or to receive a cash payment based on the value of a securities index. The price at which the purchase and sale will take place is fixed when the Portfolio enters into the contract. Futures can be held until their delivery dates or the position can be (and normally is) closed out before then. There is no assurance, however, that a liquid market will exist when the Portfolio wishes to close out a particular position. When the Portfolio purchases a futures contract, the value of the futures contract tends to increase and decrease in tandem with the value of its underlying instrument. Therefore, purchasing futures contracts will tend to increase the Portfolio's exposure to positive and negative price fluctuations in the underlying instrument, much as if it had purchased the underlying instrument directly. When the Portfolio sells a futures contract, by contrast, the value of its futures position will tend to move in a direction contrary to the value of the underlying instrument. Selling futures contracts, therefore, will tend to offset both positive and negative market price changes, much as if the underlying instrument had been sold. The purchaser or seller of a futures contract is not required to deliver or pay for the underlying instrument unless the contract is held until the delivery date. However, when the Portfolio buys or sells a futures contract it will be required to deposit "initial margin" with its custodian in a segregated account in the name of its futures broker, known as a futures commission merchant (FCM). Initial margin deposits are typically equal to a small percentage of the contract's value. If the value of either party's position declines, that party will be required to make additional "variation margin" payments equal to the change in value on a daily basis. The party that has a gain may be entitled to receive all or a portion of this amount. The Portfolio may be obligated to make payments of variation margin at a time when it is disadvantageous to do so. Furthermore, it may not always be possible for the Portfolio 13 to close out its futures positions. Until it closes out a futures position, the Portfolio will be obligated to continue to pay variation margin. Initial and variation margin payments do not constitute purchasing on margin for purposes of the Portfolio's investment restrictions. In the event of the bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfolio may be entitled to return of margin owed to it only in proportion to the amount received by the FCM's other customers, potentially resulting in losses to the Portfolio. The Portfolio will segregate liquid assets in connection with its use of options and futures contracts to the extent required by the staff of the Securities and Exchange Commission. Securities held in a segregated account cannot be sold while the futures contract or option is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that segregation of a large percentage of the Portfolio's assets could impede portfolio management or the Portfolio's ability to meet redemption requests or other current obligations. OPTIONS ON FUTURES CONTRACTS. The Portfolio may purchase and sell (write) put and call options, including put and call options on futures contracts. Futures contracts obligate the buyer to take and the seller to make delivery at a future date of a specified quantity of a financial instrument or an amount of cash based on the value of a securities index. Currently, futures contracts are available on various types of fixed income securities, including, but not limited to, U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and on indexes of fixed income securities. Unlike a futures contract, which requires the parties to buy and sell a security or make a cash settlement payment based on changes in a financial instrument or securities index on an agreed date, an option on a futures contract entitles its holder to decide on or before a future date whether to enter into such a contract. If the holder decides not to exercise its option, the holder may close out the option position by entering into an offsetting transaction or may decide to let the option expire and forfeit the premium thereon. The purchaser of an option on a futures contract pays a premium for the option but makes no initial margin payments or daily payments of cash in the nature of "variation" margin payments to reflect the change in the value of the underlying contract as does a purchaser or seller of a futures contract. The seller of an option on a futures contract receives the premium paid by the purchaser and may be required to pay initial margin. Amounts equal to the initial margin and any additional collateral required on any options on futures contracts sold by the Portfolio are paid by the Portfolio into a segregated account, in the name of the FCM, as required by the 1940 Act and the SEC's interpretations thereunder. COMBINED POSITIONS. The Portfolio may purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, the Portfolio may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. CORRELATION OF PRICE CHANGES. Because there are a limited number of types of exchange-traded options and futures contracts, it is likely that the standardized options and futures contracts available will not match the Portfolio's current or anticipated investments exactly. The Portfolio may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of the Portfolio's other investments. Options and futures contracts prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match the Portfolio's investments well. Options and futures contracts prices are affected by such factors as current and anticipated short term interest rates, changes in volatility of the underlying 14 instrument, and the time remaining until expiration of the contract, which may not affect security prices the same way. Imperfect correlation may also result from differing levels of demand in the options and futures markets and the securities markets, from structural differences in how options and futures and securities are traded, or from imposition of daily price fluctuation limits or trading halts. The Portfolio may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in the Portfolio's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments. LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance that a liquid market will exist for any particular option or futures contract at any particular time even if the contract is traded on an exchange. In addition, exchanges may establish daily price fluctuation limits for options and futures contracts and may halt trading if a contract's price moves up or down more than the limit in a given day. On volatile trading days when the price fluctuation limit is reached or a trading halt is imposed, it may be impossible for the Portfolio to enter into new positions or close out existing positions. If the market for a contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and could potentially require the Portfolio to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, the Portfolio's access to other assets held to cover its options or futures positions could also be impaired. (See "Exchange Traded and OTC Options" above for a discussion of the liquidity of options not traded on an exchange.) POSITION LIMITS. Futures exchanges can limit the number of futures and options on futures contracts that can be held or controlled by an entity. If an adequate exemption cannot be obtained, the Portfolio or the Advisor may be required to reduce the size of its futures and options positions or may not be able to trade a certain futures or options contract in order to avoid exceeding such limits. ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. Although the Fund will not be a commodity pool, certain derivatives subject the Fund to the rules of the Commodity Futures Trading Commission which limit the extent to which the Fund can invest in such derivatives. The Fund may invest in futures contracts and options with respect thereto for hedging purposes without limit. However, the Fund may not invest in such contracts and options for other purposes if the sum of the amount of initial margin deposits and premiums paid for unexpired options with respect to such contracts, other than for bona fide hedging purposes, exceeds 5% of the liquidation value of the Fund's assets, after taking into account unrealized profits and unrealized losses on such contracts and options; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. In addition, the Fund will comply with guidelines established by the SEC with respect to coverage of options and futures contracts by mutual funds, and if the guidelines so require, will set aside appropriate liquid assets in a segregated custodial account in the amount prescribed. Securities held in a segregated account cannot be sold while the futures contract or option is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that segregation of a large percentage of the Fund's assets could impede portfolio management or a Fund's ability to meet redemption requests or other current obligations. SWAPS AND RELATED SWAP PRODUCTS. The Portfolio may engage in swap transactions, including, but not limited to, interest rate, currency, securities index, basket, specific security and commodity swaps, interest rate caps, floors and collars and options on interest rate swaps (collectively defined as "swap transactions"). The Portfolio may enter into swap transactions for any legal purpose consistent with its investment objective and policies, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than obtaining that return or spread through purchases and/or sales of instruments in cash markets, to protect against currency fluctuations, as a duration management technique, to protect against any increase in the price of securities the Portfolio anticipates purchasing at a later date, or to gain exposure to certain markets in the 15 most economical way possible. The Portfolio will not sell interest rate caps, floors or collars if it does not own securities with coupons which provide the interest that the Portfolio may be required to pay. Swap agreements are two-party contracts entered into primarily by institutional counterparties for periods ranging from a few weeks to several years. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) that would be earned or realized on specified notional investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated by reference to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency or commodity, or in a "basket" of securities representing a particular index. The purchaser of an interest rate cap or floor, upon payment of a fee, has the right to receive payments (and the seller of the cap is obligated to make payments) to the extent a specified interest rate exceeds (in the case of a cap) or is less than (in the case of a floor) a specified level over a specified period of time or at specified dates. The purchaser of an interest rate collar, upon payment of a fee, has the right to receive payments (and the seller of the collar is obligated to make payments) to the extent that a specified interest rate falls outside an agreed upon range over a specified period of time or at specified dates. The purchaser of an option on an interest rate swap, upon payment of a fee (either at the time of purchase or in the form of higher payments or lower receipts within an interest rate swap transaction) has the right, but not the obligation, to initiate a new swap transaction of a pre-specified notional amount with pre-specified terms with the seller of the option as the counterparty. The "notional amount" of a swap transaction is the agreed upon basis for calculating the payments that the parties have agreed to exchange. For example, one swap counterparty may agree to pay a floating rate of interest (e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a quarterly basis in exchange for receipt of payments calculated based on the same notional amount and a fixed rate of interest on a semi-annual basis. In the event the Portfolio is obligated to make payments more frequently than it receives payments from the other party, it will incur incremental credit exposure to that swap counterparty. This risk may be mitigated somewhat by the use of swap agreements which call for a net payment to be made by the party with the larger payment obligation when the obligations of the parties fall due on the same date. Under most swap agreements entered into by the Portfolio, payments by the parties will be exchanged on a "net basis", and the Portfolio will receive or pay, as the case may be, only the net amount of the two payments. The amount of the Portfolio's potential gain or loss on any swap transaction is not subject to any fixed limit. Nor is there any fixed limit on the Portfolio's potential loss if it sells a cap or collar. If the Portfolio buys a cap, floor or collar, however, the Portfolio's potential loss is limited to the amount of the fee that it has paid. When measured against the initial amount of cash required to initiate the transaction, which is typically zero in the case of most conventional swap transactions, swaps, caps, floors and collars tend to be more volatile than many other types of instruments. The use of swap transactions, caps, floors and collars involves investment techniques and risks which are different from those associated with portfolio security transactions. If the Advisor is incorrect in its forecasts of market values, interest rates, and other applicable factors, the investment performance of the Portfolio will be less favorable than if these techniques had not been used. These instruments are typically not traded on exchanges. Accordingly, there is a risk that the other party to certain of these instruments will not perform its obligations to the Portfolio or that the Portfolio may be unable to enter into offsetting positions to terminate its exposure or liquidate its position under certain of these instruments when it wishes to do so. Such occurrences could result in losses to the Portfolio. The Advisor will, however, consider such risks and will enter into swap and other derivatives transactions only when it believes that the risks are not unreasonable. The Portfolio will maintain cash or liquid assets in a segregated account with its custodian in an amount sufficient at all times to cover its current obligations under its swap transactions, caps, floors and collars. If the Portfolio enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the 16 excess, if any, of the Portfolio's accrued obligations under the swap agreement over the accrued amount the Portfolio is entitled to receive under the agreement. If the Portfolio enters into a swap agreement on other than a net basis, or sells a cap, floor or collar, it will segregate assets with a daily value at least equal to the full amount of the Portfolio's accrued obligations under the agreement. The Portfolio will not enter into any swap transaction, cap, floor, or collar, unless the counterparty to the transaction is deemed creditworthy by the Advisor. If a counterparty defaults, the Portfolio may have contractual remedies pursuant to the agreements related to the transaction. The swap markets in which many types of swap transactions are traded have grown substantially in recent years, with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the markets for certain types of swaps (e.g., interest rate swaps) have become relatively liquid. The markets for some types of caps, floors and collars are less liquid. The liquidity of swap transactions, caps, floors and collars will be as set forth in guidelines established by the Advisor and approved by the Trustees which are based on various factors, including (1) the availability of dealer quotations and the estimated transaction volume for the instrument, (2) the number of dealers and end users for the instrument in the marketplace, (3) the level of market making by dealers in the type of instrument, (4) the nature of the instrument (including any right of a party to terminate it on demand) and (5) the nature of the marketplace for trades (including the ability to assign or offset the Portfolio's rights and obligations relating to the instrument). Such determination will govern whether the instrument will be deemed within the 15% restriction on investments in securities that are not readily marketable. During the term of a swap, cap, floor or collar, changes in the value of the instrument are recognized as unrealized gains or losses by marking to market to reflect the market value of the instrument. When the instrument is terminated, the Portfolio will record a realized gain or loss equal to the difference, if any, between the proceeds from (or cost of) the closing transaction and the Portfolio's basis in the contract. The federal income tax treatment with respect to swap transactions, caps, floors, and collars may impose limitations on the extent to which the Portfolio may engage in such transactions. RISK MANAGEMENT The Portfolio may employ non-hedging risk management techniques. Examples of risk management strategies include synthetically altering the duration of a portfolio or the mix of securities in a portfolio. For example, if the Advisor wishes to extend maturities in a fixed income portfolio in order to take advantage of an anticipated decline in interest rates, but does not wish to purchase the underlying long term securities, it might cause the Portfolio to purchase futures contracts on long term debt securities. Such non-hedging risk management techniques are not speculative, but because they involve leverage include, as do all leveraged transactions, the possibility of losses as well as gains that are greater than if these techniques involved the purchase and sale of the securities themselves rather than their synthetic derivatives. PORTFOLIO TURNOVER The Portfolio's turnover rates for the fiscal year ended August 31, 1998, for the eleven months ended July 31, 1999 and year ended July 31, 2000: 16%, 29% (not annualized) and 84%, respectively. A rate of 100% indicates that the equivalent of all of the Portfolio's assets have been sold and reinvested in a year. High portfolio turnover may result in the realization of substantial net capital gains or losses. To the extent net short term capital gains are realized, any distributions resulting from such gains are considered ordinary income for federal income tax purposes. See "Taxes" below. 17 INVESTMENT RESTRICTIONS The investment restrictions of the Fund and Portfolio are identical, unless otherwise specified. Accordingly, references below to the Fund also include the Portfolio unless the context requires otherwise; similarly, references to the Portfolio also include the Fund unless the context requires otherwise. The investment restrictions below have been adopted by the Fund and the Portfolio. Except where otherwise noted, these investment restrictions are "fundamental" policies which, under the 1940 Act, may not be changed without the vote of a majority of the outstanding voting securities of the Fund or Portfolio, as the case may be. A "majority of the outstanding voting securities" is defined in the 1940 Act as the lesser of (a) 67% or more of the voting securities present at a meeting if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or (b) more than 50% of the outstanding voting securities. The percentage limitations contained in the restrictions below apply at the time of the purchase of securities. Whenever the Fund is requested to vote on a change in the fundamental investment restrictions of the Portfolio, the Trust will hold a meeting of Fund shareholders and will cast its votes as instructed by the Fund's shareholders. The Fund and its corresponding Portfolio: 1. May not make any investment inconsistent with the Portfolio's classification as a diversified investment company under the Investment Company Act of 1940. 2. May not purchase any security which would cause the Portfolio to concentrate its investments in the securities of issuers primarily engaged in any particular industry except as permitted by the SEC; 3. May not issue senior securities, except as permitted under the Investment Company Act of 1940 or any rule, order or interpretation thereunder; 4. May not borrow money, except to the extent permitted by applicable law; 5. May not underwrite securities of other issuers, except to the extent that the Portfolio, in disposing of portfolio securities, may be deemed an underwriter within the meaning of the 1933 Act; 6. May not purchase or sell real estate, except that, to the extent permitted by applicable law, the Portfolio may (a) invest in securities or other instruments directly or indirectly secured by real estate, (b) invest in securities or other instruments issued by issuers that invest in real estate and (c) make direct investments in mortgages; 7. May not purchase or sell commodities or commodity contracts unless acquired as a result of ownership of securities or other instruments issued by persons that purchase or sell commodities or commodities contracts; but this shall not prevent the Portfolio from purchasing, selling and entering into financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), options on financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), warrants, swaps, forward contracts, foreign currency spot and forward contracts or other derivative instruments that are not related to physical commodities; and 8. May make loans to other persons, in accordance with the Portfolio's investment objective and policies and to the extent permitted by applicable law. NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions described below are not fundamental policies of the Fund and Portfolio and may be changed by the Trustees. These non-fundamental investment policies require that the Fund and Portfolio: 18 (i) May not acquire any illiquid securities, such as repurchase agreements with more than seven days to maturity or fixed time deposits with a duration of over seven calendar days, if as a result thereof, more than 15% of the market value of the Portfolio's net assets would be in investments which are illiquid; (ii) May not purchase securities on margin, make short sales of securities, or maintain a short position, provided that this restriction shall not be deemed to be applicable to the purchase or sale of when-issued or delayed delivery securities, or to short sales that are covered in accordance with SEC rules; and (iii) May not acquire securities of other investment companies, except as permitted by the 1940 Act or any order pursuant thereto. There will be no violation of any investment restriction if that restriction is complied with at the time the relevant action is taken notwithstanding a later change in market value of an investment, in net or total assets, in the securities rating of the investment, or any other later change. For purposes of the fundamental investment restriction regarding industry concentration, JPMIM may classify issuers by industry in accordance with classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of such classification or if JPMIM determines in good faith based on its own information that the economic characteristics affecting a particular issuer make it more appropriately considered to be engaged in a different industry, JPMIM may classify an issuer accordingly. For instance, personal credit finance companies and business credit finance companies are deemed to be separate industries and wholly owned finance companies are considered to be in the industry of their parents if their activities are primarily related to financing the activities of their parents. TRUSTEES AND MEMBERS OF THE ADVISORY BOARD TRUSTEES The Trustees of the Trust, who are also the Trustees of the Portfolio and the other Master Portfolios as defined below, their principal occupations during the past five years and dates of birth are set forth below. The mailing address of the Trustees is c/o Pierpont Group Inc., 461 Fifth Avenue, New York, NY 10017 FREDERICK S. ADDY - Trustee, Retired, Former Executive Vice President and Chief Financial Officer Amoco Corporation. His date of birth is January 1, 1932. WILLIAM G. BURNS - Trustee, Retired, Former Vice Chairman and Chief Financial Officer, NYNEX. His date of birth is November 2, 1932. ARTHUR C. ESCHENLAUER - Trustee, Retired, Former Senior Vice President, Morgan Guaranty Trust Company of New York. His date of birth is May 23, 1934. MATTHEW HEALEY(1) - Trustee, Chairman and Chief Executive Officer, Chairman, Pierpont Group, Inc. ("Pierpont Group"), since prior to 1995. His date of birth is August 23, 1937. MICHAEL P. MALLARDI - Trustee, Retired, Prior to April 1996, Senior Vice President, Capital Cities/ABC, Inc. and President, Broadcast Group. His date of birth is March 17, 1934. The Trustees of the Trust are the same as the Trustees of the Portfolio. In accordance with applicable state requirements, a majority of the disinterested Trustees have adopted written procedures reasonably appropriate to deal with potential conflicts of interest arising from the fact that the same individuals are Trustees of the Trust, the - - ----------------------------- (1) Mr. Healey is an "interested person" (as defined in the 1940 Act) of the Trust. 19 Portfolio and the J.P. Morgan Funds, up to and including creating a separate board of trustees. Each Trustee is currently paid an annual fee of $75,000 for serving as Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P. Morgan Funds and J.P. Morgan Series Trust and is reimbursed for expenses incurred in connection with service as a Trustee. The Trustees may hold various other directorships unrelated to these funds. Trustee compensation expenses paid by the Trust for the calendar year ended December 31, 1999 are set forth below.
TOTAL TRUSTEE COMPENSATION ACCRUED BY THE MASTER AGGREGATE TRUSTEE PORTFOLIOS(*), J.P. MORGAN COMPENSATION FUNDS, J.P. MORGAN SERIES PAID BY THE TRUST AND THE TRUST NAME OF TRUSTEE TRUST DURING 1999 DURING 1999(**) - - --------------- ----------------- -------------------------- Frederick S. Addy, Trustee $22,488 $75,000 William G. Burns, Trustee $22,488 $75,000 Arthur C. Eschenlauer, Trustee $22,488 $75,000 Matthew Healey, Trustee(***), $22,488 $75,000 Chairman and Chief Executive Officer Michael P. Mallardi, Trustee $22,488 $75,000
(*) Includes the Portfolio, and 18 other portfolios (collectively, the "Master Portfolios") for which JPMIM acts as investment advisor. (**) No investment company within the fund complex has a pension or retirement plan. Currently there are 22 investment companies (comprised of 19 investment companies comprising the Master Portfolios, the J.P. Morgan Funds, the Trust and J.P. Morgan Series Trust) in the fund complex. (***) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman of Pierpont Group, Inc., compensation in the amount of $153,800, contributed $23,100 to a defined contribution plan on his behalf and paid $17,300 in insurance premiums for his benefit. The Trustees decide upon general policy and are responsible for overseeing the Trust's and Portfolio's business affairs. The Portfolio and the Trust have entered into a Fund Services Agreement with Pierpont Group to assist the Trustees in exercising their overall supervisory responsibilities over the affairs of the Portfolio and the Trust. Pierpont Group was organized in July 1989 to provide services for the J.P. Morgan Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are the equal and sole shareholders of Pierpont Group. The Trust and the Portfolio have agreed to pay Pierpont Group a fee in an amount representing its reasonable costs in performing these services. These costs are periodically reviewed by the Trustees. The principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, NY 10017. 20 The aggregate fees paid to Pierpont Group by the Fund and Portfolio during the indicated fiscal years are set forth below: FUND -- For the fiscal year ended August 31, 1998, for the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: $7,931, $8,137 and $6,545, respectively. PORTFOLIO -- For the fiscal year ended August 31, 1998, for the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: $21,294, $17,915 and $ 12,760, respectively. MEMBERS OF THE ADVISORY BOARD The Trustees determined as of January 26, 2000 to establish an advisory board and appoint four members ("Members of the Advisory Board") thereto. Each member serves at the pleasure of the Trustees. The advisory board is distinct from the Trustees and provides advice to the Trustees as to investment, management and operations of the Trust; but has no power to vote upon any matter put to a vote of the Trustees. The advisory board and the members thereof also serve each of the J.P. Morgan Funds, J.P. Morgan Series Trust and collectively, together with the Trust (the "Trusts) and the Master Portfolios. It is also the current intention of the Trustees that the Members of the Advisory Board will be proposed at the next shareholders' meeting, expected to be held within a year from the date hereof, for election as Trustees of the Trusts and the Master Portfolios. The creation of the Advisory Board and the appointment of the members thereof was designed so that the Board of Trustees will continuously consist of persons able to assume the duties of Trustees and be fully familiar with the business and affairs of each of the Trusts and the Master Portfolios, in anticipation of the current Trustees reaching the mandatory retirement age of seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for serving in this capacity for the Trust, each of the Master Portfolios, the J.P. Morgan Funds and the J.P. Morgan Series Trust and is reimbursed for expenses incurred in connection for such service. The members of the Advisory Board may hold various other directorships unrelated to these funds. The mailing address of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal occupations during the past five years and dates of birth are set forth below: Ann Maynard Gray -- Former President, Diversified Publishing Group and Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945. John R. Laird -- Retired; Former Chief Executive Officer, Shearson Lehman Brothers and The Boston Company. His date of birth is June 21, 1942. Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley Group and President and Chief Operating Officer, Morgan Stanley Services, Inc. His date of birth is October 5, 1936. James J. Schonbachler -- Retired; Prior to September, 1998, Managing Director, Bankers Trust Company and Chief Executive Officer and Director, Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January 26, 1943. OFFICERS The Trust's and Portfolio's executive officers (listed below), other than the Chief Executive Officer and the officers who are employees of the Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group, Inc. The officers conduct and supervise the business operations of the Trust and the Portfolio. The Trust and the Portfolio have no employees. The officers of the Trust and the Portfolio, their principal occupations during the past five years and dates of birth are set forth below. Unless otherwise specified, each officer holds the same position with the Trust and the Portfolio. The business address of each of the officers unless otherwise noted is Funds Distributor, Inc., 60 State 21 Street, Suite 1300, Boston, Massachusetts 02109. MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, since prior to 1995. His address is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017. His date of birth is August 23, 1937. MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President and General Counsel of FDI since April, 1998. From August 1996 to March 1998, Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an associate with the law firm of Ropes & Gray. Her date of birth is October 12, 1959. MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President, Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an officer of certain investment companies advised or administered by FDI since prior to 1995. Her date of birth is August 1, 1957. DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice President and Assistant Department Manager of Treasury Services and Administration of FDI and an officer of certain investment companies distributed or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of Treasury Services and Administration of FDI. His date of birth is March 31, 1969. KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President and Senior Counsel of FDI and an officer of certain investment companies distributed or administered by FDI. From June 1994 to January 1996, Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc. Her date of birth is December 29, 1966. CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice President and Senior Associate General Counsel of FDI and Premier Mutual and an officer of certain investment companies distributed or administered by FDI. From April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. His date of birth is December 24, 1964. KATHLEEN K. MORRISEY; Vice President and Assistant Secretary. Vice President and Assistant Secretary of FDI. Manager of Treasury Services Administration and an officer of certain investment companies advised or administered by Montgomery Asset Management, L.P. and Dresdner RCM Global Investors, Inc., and their respective affiliates. From July 1994 to November 1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company. Her date of birth is July 5, 1972. MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and Manager of Treasury Services and Administration of FDI and Premier Mutual and an officer of certain investment companies distributed or administered by FDI. Her date of birth is April 22, 1964. MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust Company of New York since 1990. Ms. Pace serves in the Funds Administration group as a Manager for the Budgeting and Expense Processing Group. Prior to September 1995, Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth is March 13, 1966. GEORGE A. RIO; President and Treasurer. Executive Vice President and Client Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for Putnam Mutual Funds. His date of birth is January 2, 1955. CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty Trust Company of New 22 York. Ms. Rotundo serves as Manager of the Funds Infrastructure group and is responsible for the management of special projects. Prior to January 2000, she served as Manager of the Tax Group in the Funds Administration group and was responsible for U.S. mutual fund tax matters. Her address is 60 Wall Street, New York, New York 10260. Her date of birth is September 26, 1965. ELBA VASQUEZ; Vice President and Assistant Secretary. Vice President of FDI since February 1999. Ms. Vasquez served as a Sales Associate for FDI from May 1996. Prior to that she served in various mutual fund sales and marketing positions for U.S. Trust Company of New York. Her date of birth is December 14, 1961. As of October 31, 2000, Trustees, Members of the Advisory Board and Officers as a group owned less than 1% of the outstanding shares of the Fund. CODES OF ETHICS The Trust, FDI and the Advisor have adopted codes of ethics pursuant to Rule 17j-1 under the 1940 Act. Each of these codes permits personnel subject to such code to invest in securities, including securities that may be purchased or held by the funds. Such purchases, however, are subject to procedures reasonably necessary to prevent access persons from engaging in any unlawful conduct set forth in Rule 17j-1. INVESTMENT ADVISOR The Fund has not retained the services of an investment advisor because it seeks to achieve its investment objective by investing all of its investable assets in the Portfolio. Subject to the supervision of the Portfolio's Trustees, the Advisor makes the Portfolio's day-to-day investment decisions, arranges for the execution of portfolio transactions and generally manages the Portfolio's investments. Prior to October 28, 1998, Morgan was the Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), is a registered investment advisor under the Investment Advisers Act of 1940, as amended, and manages employee benefit funds of corporations, labor unions and state and local governments and the accounts of other institutional investors, including investment companies. Certain of the assets of employee benefit accounts under its management are invested in commingled pension trust funds for which Morgan serves as trustee. J.P. Morgan, through the Advisor and other subsidiaries, acts as investment advisor to individuals, governments, corporations, employee benefit plans, mutual funds and other institutional investors with combined assets under management of approximately $373 billion. Morgan, whose principal offices are at 60 Wall Street, New York, New York 10260, is a New York trust company which conducts a general banking and trust business. Morgan is subject to regulation by the New York State Banking Department and is a member bank of the Federal Reserve System. Through offices in New York City and abroad, Morgan offers a wide range of services, primarily to governmental, institutional, corporate and high net worth individual customers in the United States and throughout the world. The firm, through its predecessor firms, has been in business for over a century and has been managing investments since 1913. Morgan, is also a wholly owned subsidiary of J.P. Morgan, a bank holding company organized under the laws of the State of Delaware. The basis of the Advisor's investment process is fundamental investment research as the firm believes that fundamentals should determine an asset's value over the long term. Morgan currently employs approximately 415 research analysts, capital market researchers, portfolio managers and traders and has one of the largest research staffs in the money management industry. The Advisor has investment management divisions located in New York, London, Tokyo, Frankfurt and Singapore to cover companies, industries and countries on site.. The Advisor's fixed income investment process is based on analysis of real rates, sector diversification, and quantitative and credit analysis. 23 The investment advisory services the Advisor provides to the Portfolio are not exclusive under the terms of the Advisory Agreement. The Advisor is free to and does render similar investment advisory services to others. The Advisor serves as investment advisor to personal investors and other investment companies and acts as fiduciary for trusts, estates and employee benefit plans. Certain of the assets of trusts and estates under management are invested in common trust funds for which the Advisor serves as trustee. The accounts which are managed or advised by the Advisor have varying investment objectives and the Advisor invests assets of such accounts in investments substantially similar to, or the same as, those which are expected to constitute the principal investments of the Portfolio. Such accounts are supervised by officers and employees of the Advisor who may also be acting in similar capacities for the Portfolio. See "Portfolio Transactions." Sector weightings are generally similar to a benchmark with the emphasis on security selection as the method to achieve investment performance superior to the benchmark. The benchmark for the fund is the Lehman Brothers Intermediate Competitive Municipal Bond Index (1-17 Year Maturity), an unmanaged index that measures municipal bond market performance. Previously the fund had used the Lehman Brothers 1-16 Year Municipal Bond Index as a comparative broad-based securities market index. The fund has chosen to use the Lehman Brothers Intermediate Competitive Municipal Bond Index (1-17 Year Maturity) because it is more widely disseminated. The Portfolio is managed by employees of the Advisor who, in acting for their customers, including the Portfolio, do not discuss their investment decisions with any personnel of J.P. with the exception of certain investment management affiliates of J.P. Morgan or broker affiliates of J.P. Morgan which execute transactions on behalf of the Fund. As compensation for the services rendered and related expenses such as salaries of advisory personnel borne by the Advisor under the Investment Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is computed daily and may be paid monthly, equal to the annual rate of 0.30% of the Portfolio's average daily net assets. For the fiscal year ended August 31, 1998, the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000, the advisory fees paid by the Portfolio were $2,017,415, $2,295,351, and 2,344,217, respectively. See "Expenses" below for applicable expense limitations. The Investment Advisory Agreement provides that it will continue in effect for a period of two years after execution only if specifically approved thereafter annually in the same manner as the Distribution Agreement. See "Distributor" below. The Investment Advisory Agreement will terminate automatically if assigned and is terminable at any time without penalty by a vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a majority of the Portfolio's outstanding voting securities, on 60 days' written notice to the Advisor and by the Advisor on 90 days' written notice to the Portfolio. See "Additional Information." Under separate agreements, Morgan provides certain financial, fund accounting and administrative services to the Trust and the Portfolio and shareholder services for the Trust. See "Services Agent" and "Shareholder Servicing" below. DISTRIBUTOR FDI serves as the Trust's exclusive Distributor and holds itself available to receive purchase orders for the Fund's shares. In that capacity, FDI has been granted the right, as agent of the Trust, to solicit and accept orders for the purchase of the Fund's shares in accordance with the terms of the Distribution Agreement between the Trust and FDI. Under the terms of the Distribution Agreement between FDI and the Trust, FDI receives no compensation in 24 its capacity as the Trust's distributor. The Distribution Agreement shall continue in effect for a period of two years after execution only if it is approved at least annually thereafter (i) by a vote of the holders of a majority of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a majority of the Trustees of the Trust who are not "interested persons" (as defined by the 1940 Act) of the parties to the Distribution Agreement, cast in person at a meeting called for the purpose of voting on such approval (see "Trustees and Members of the Advisory Board" and Officers"). The Distribution Agreement will terminate automatically if assigned by either party thereto and is terminable at any time without penalty by a vote of a majority of the Trustees of the Trust, a vote of a majority of the Trustees who are not "interested persons" of the Trust, or by a vote of the holders of a majority of the Fund's outstanding shares as defined under "Additional Information," in any case without payment of any penalty on 60 days' written notice to the other party. The principal offices of FDI are located at 60 State Street, Suite 1300, Boston, Massachusetts 02109. CO-ADMINISTRATOR Under Co-Administration Agreements with the Trust and the Portfolio dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's Co-Administrator. The Co-Administration Agreements may be renewed or amended by the respective Trustees without a shareholder vote. The Co-Administration Agreements are terminable at any time without penalty by a vote of a majority of the Trustees of the Trust or the Portfolio, as applicable, on not more than 60 days' written notice nor less than 30 days' written notice to the other party. The Co-Administrator may subcontract for the performance of its obligations; provided, however, that unless the Trust or the Portfolio, as applicable, expressly agrees in writing, the Co-Administrator shall be fully responsible for the acts and omissions of any subcontractor as it would for its own acts or omissions. See "Services Agent" below. FDI (i) provides office space, equipment and clerical personnel for maintaining the organization and books and records of the Trust and the Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii) prepares and files documents required for notification of state securities administrators; (iv) reviews and files marketing and sales literature; (v) files Portfolio regulatory documents and mails Portfolio communications to Trustees and investors; and (vi) maintains related books and records. For its services under the Co-Administration Agreements, the Fund and Portfolio each has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to the Fund or Portfolio is based on the ratio of its net assets to the aggregate net assets of the Trust, the Master Portfolios and certain other investment companies subject to similar agreements with FDI. The table below sets forth the administrative fees paid to FDI for the fiscal periods indicated. FUND -- For the fiscal year ended August 31, 1998, the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: $5,939, $5,627 and $4,950, respectively. PORTFOLIO -- For the fiscal year ended August 31, 1998, the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: $9,832, $7,665 and $5,677, respectively. SERVICES AGENT The Trust, on behalf of the Fund, and the Portfolio have entered into Administrative Services Agreements (the "Services Agreements") with Morgan, pursuant to which Morgan is responsible for certain administrative and related services provided to the Fund and the Portfolio, respectively. The Services Agreements may be terminated at any time, without penalty, by the Trustees or Morgan, in each case on not more than 60 days' nor less than 30 days' written notice to the other party. 25 Under the Services Agreements, Morgan provides certain administrative and related services to the Fund and the Portfolio, including services related to tax compliance, preparation of financial statements, calculation of performance data, oversight of service providers and certain regulatory and Board of Trustee matters. Under the Services Agreements, the Fund and the Portfolio each has agreed to pay Morgan fees equal to its allocable share of an annual complex-wide charge. This charge is calculated daily based on the aggregate net assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with the following annual schedule: 0.09% of the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion, less the complex-wide fees payable to FDI. The portion of this charge payable by the Fund and Portfolio is determined by the proportionate share that its net assets bear to the total net assets of the Trust, the Master Portfolios, the other investors in the Master Portfolios for which Morgan provides similar services and J.P. Morgan Series Trust. The table below sets forth the fees paid to Morgan as Services Agent. FUND -- For the fiscal year ended August 31, 1998, the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: $74,789, $92,862 and $100,841, respectively. PORTFOLIO -- For the fiscal year ended August 31, 1998, the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: $198,156, $203,283 and $194,913, respectively. CUSTODIAN AND TRANSFER AGENT The Bank of New York ("BONY"), One Wall Street, New York, New York 10286, serves as the Trust's custodian and fund accounting agent. Pursuant to the Custodian Contract and Fund Accounting Agreement with the Trust, BONY is responsible for holding portfolio securities and cash and maintaining the books of account and records of the Fund's portfolio transactions. State Street Bank and Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as the Trust's transfer and dividend disbursing agent. As transfer agent and dividend disbursing agent, State Street is responsible for maintaining account records detailing the ownership of Fund shares and for crediting income, capital gains and other changes in share ownership to shareholder accounts. SHAREHOLDER SERVICING The Trust, on behalf of the Fund, has entered into a Shareholder Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder servicing agent for its customers and for other Fund investors who are customers of a financial professional. Under this agreement, Morgan is responsible for performing shareholder account, administrative and servicing functions, which include, but are not limited to, answering inquiries regarding account status and history, the manner in which purchases and redemptions of Fund shares may be effected, and certain other matters pertaining to the Fund; assisting customers in designating and changing dividend options, account designations and addresses; providing necessary personnel and facilities to coordinate the establishment and maintenance of shareholder accounts and records with the Fund's transfer agent; transmitting purchase and redemption orders to the Fund's transfer agent and arranging for the wiring or other transfer of funds to and from customer accounts in connection with orders to purchase or redeem Fund shares; verifying purchase and redemption orders, transfers among and changes in accounts; informing the Distributor of the gross amount of purchase orders for Fund shares; monitoring the activities of the Fund's transfer agent; and providing other related services. Effective August 1, 1998, under the Shareholder Servicing Agreement, the Fund has agreed to pay Morgan for these services a fee at an annual rate of 0.10% (expressed as a percentage of the average daily net asset value of Fund shares owned by or for shareholders). 26 The table below sets forth the shareholder servicing fees paid by the Fund to Morgan for the fiscal periods indicated. See the Prospectus and below for applicable expense limitations. FUND -- For the fiscal year ended August 31, 1998, the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: $197,279, $349,831 and $408,411, respectively. If Morgan were prohibited from providing any of the services under the Shareholder Servicing Agreement and the Services Agreements, the Trustees would seek an alternative provider of such services. In such event, changes in the operation of the Fund or the Portfolio might occur and a shareholder might no longer be able to avail himself or herself of any services then being provided to shareholders by Morgan. The Fund may be sold to or through financial intermediaries who are customers of J.P. Morgan ("financial professionals"), including financial institutions and broker-dealers, that may be paid fees by J.P. Morgan or its affiliates for services provided to their clients that invest in the Fund. See "Financial Professionals" below. Organizations that provide record keeping or other services to certain employee benefit or retirement plans that include the Fund as an investment alternative may also be paid a fee. FINANCIAL PROFESSIONALS The services provided by financial professionals may include establishing and maintaining shareholder accounts, processing purchase and redemption transactions, arranging for bank wires, performing shareholder subaccounting, answering client inquiries regarding the Trust, assisting clients in changing dividend options, account designations and addresses, providing periodic statements showing the client's account balance and integrating these statements with those of other transactions and balances in the client's other accounts serviced by the financial professional, transmitting proxy statements, periodic reports, updated prospectuses and other communications to shareholders and, with respect to meetings of shareholders, collecting, tabulating and forwarding executed proxies and obtaining such other information and performing such other services as J.P. Morgan or the financial professional's clients may reasonably request and agree upon with the financial professional. Although there is no sales charge levied directly by the Fund, financial professionals may establish their own terms and conditions for providing their services and may charge investors a transaction-based or other fee for their services. Such charges may vary among financial professionals but in all cases will be retained by the financial professional and will not be remitted to the Fund or J.P. Morgan. The Fund has authorized one or more brokers to accept purchase and redemption orders on its behalf. Such brokers are authorized to designate other intermediaries to accept purchase and redemption orders on the Fund's behalf. The Fund will be deemed to have received a purchase or redemption order when an authorized broker or, if applicable, a broker's authorized designee, accepts the order. These orders will be priced at the Fund's net asset value next calculated after they are so accepted. INDEPENDENT ACCOUNTANTS The independent accountants of the Trust and the Portfolio are PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York 10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial statements of the Fund and the Portfolio, assists in the preparation and/or review of the Fund's and the Portfolio's federal and state income tax returns and consults with the Fund and the Portfolio as to matters of accounting and federal and state income taxation. EXPENSES In addition to the fees payable to Pierpont Group, JPMIM, Morgan and FDI under various agreements 27 discussed under "Trustees and Members of the Advisory Board" and "Officers," "Investment Advisor," "Co-Administrator", "Distributor," "Services Agent" and "Shareholder Servicing" above, the Fund and the Portfolio are responsible for usual and customary expenses associated with their respective operations. Such expenses include organization expenses, legal fees, accounting and audit expenses, insurance costs, the compensation and expenses of the Trustees, costs associated with the registration under federal securities laws, and extraordinary expenses applicable to the Fund or the Portfolio. For the Fund, such expenses also include transfer, registrar and dividend disbursing costs, the expenses of printing and mailing reports, notices and proxy statements to Fund shareholders, and filing fees under state securities laws. For the Portfolio, such expenses also include custodian fees and brokerage expenses. The table below sets forth the fees and other expenses Morgan reimbursed pursuant to prior expense reimbursement arrangements for the fiscal periods indicated. FUND -- For the fiscal year ended August 31, 1998, the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: $71,607, $102,510 and $41,479, respectively. PORTFOLIO -- For the fiscal year ended August 31, 1998, the eleven months ended July 31, 1999 and for the fiscal year ended July 31, 2000: no expenses of the Portfolio were reimbursed by Morgan. PURCHASE OF SHARES ADDITIONAL MINIMUM BALANCE INFORMATION. If your account balance falls below the minimum for 30 days as a result of selling shares (and not because of performance), the Fund reserves the right to request that you buy more shares or close your account. If your account balance is still below the minimum 60 days after notification, the Fund reserves the right to close out your account and send the proceeds to the address of record. METHOD OF PURCHASE. Investors may open Fund accounts and purchase shares as described in the Prospectus. References in the Prospectus and this Statement of Additional Information to customers of Morgan or a Financial Professional include customers of their affiliates and references to transactions by customers with Morgan or a Financial Professional include transactions with their affiliates. Only Fund investors who are using the services of a financial institution acting as shareholder servicing agent pursuant to an agreement with the Trust on behalf of the Fund may make transactions in shares of the Fund. All purchase orders must be accepted by the Distributor. The Fund may, at its own option, accept securities in payment for shares. The securities delivered in such a transaction are valued by the method described in "Net Asset Value" as of the day the Fund receives the securities. This is a taxable transaction to the shareholder. Securities may be accepted in payment for shares only if they are, in the judgment of the Advisor, appropriate investments for the Portfolio. In addition, securities accepted in payment for shares must: (i) meet the investment objective and policies of the Portfolio; (ii) be acquired by the Fund for investment and not for resale (other than for resale to the Portfolio); (iii) be liquid securities which are not restricted as to transfer either by law or liquidity of market; and (iv) if stock, have a value which is readily ascertainable as evidenced by a listing on a stock exchange, OTC market or by readily available market quotations from a dealer in such securities. The Fund reserves the right to accept or reject at its own option any and all securities offered in payment for its shares. Prospective investors may purchase shares with the assistance of a Financial Professional, and the Financial Professional may charge the investor a fee for this service and other services it provides to its customers. REDEMPTION OF SHARES Investors may redeem shares as described in the Prospectus. If the Trust, on behalf of the Fund, and the Portfolio determine that it would be detrimental to the best 28 interest of the remaining shareholders of the Fund to make payment wholly or partly in cash, payment of the redemption price may be made in whole or in part by a distribution in-kind of securities from the Fund, in lieu of cash, in conformity with the applicable rule of the SEC. If shares are redeemed in-kind, the redeeming shareholder might incur transaction costs in converting the assets into cash. The method of valuing portfolio securities is described under "Net Asset Value," and such valuation will be made as of the same time the redemption price is determined. The Trust, on behalf of the Fund, and the Portfolio have elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Fund and the Portfolio are obligated to redeem shares solely in cash up to the lesser of $250,000 or one percent of the net asset value of the Fund during any 90 day period for any one shareholder. The Trust will redeem Fund shares in kind only if it has received a redemption in kind from the Portfolio and therefore shareholders of the Fund that receive redemptions in-kind will receive securities of the Portfolio. The Portfolio has advised the Trust that it will not redeem in-kind except in circumstances in which the Fund is permitted to redeem in kind. FURTHER REDEMPTION INFORMATION. Investors should be aware that redemptions from the Fund may not be processed if a redemption request is not submitted in proper form. To be in proper form, the Fund must have received the shareholder's taxpayer identification number and address. In addition, if a shareholder sends a check for the purchase of Fund shares and shares are purchased before the check has cleared, the transmittal of redemption proceeds from the shares will occur upon clearance of the check which may take up to 15 days. The Trust, on behalf of the Fund, and the Portfolio reservesthe right to suspend the right of redemption and to postpone the date of payment upon redemption as follows: (i) for up to seven days, (ii) during periods when the New York Stock Exchange is closed for other than weekends and holidays or when trading on such Exchange is restricted as determined by the SEC by rule or regulation, (iii) during periods in which an emergency, as determined by the SEC, exists that causes disposal by the Portfolio of, or evaluation of the net asset value of, its portfolio securities to be unreasonable or impracticable, or (iv) for such other periods as the SEC may permit. For information regarding redemption orders placed through a financial professional, please see "Financial Professionals" above. EXCHANGE OF SHARES An investor may exchange shares of the Fund for shares of any other J.P. Morgan Institutional Fund, J.P. Morgan Fund or J.P. Morgan Series Trust Fund without charge. An exchange may be made so long as after the exchange the investor has shares, in each fund in which he or she remains an investor, with a value of at least that fund's minimum investment amount. Shareholders should read the prospectus of the fund into which they are exchanging and may only exchange between fund accounts that are registered in the same name, address and taxpayer identification number. Shares are exchanged on the basis of relative net asset value per share. Exchanges are in effect redemptions from one fund and purchases of another fund and the usual purchase and redemption procedures and requirements are applicable to exchanges. The Fund generally intends to pay redemption proceeds in cash, however, since it reserves the right at its sole discretion to pay redemptions over $250,000 in-kind as a portfolio of representative stocks rather than in cash, the Fund reserves the right to deny an exchange request in excess of that amount. See "Redemption of Shares". Shareholders subject to federal income tax who exchange shares in one fund for shares in another fund may recognize capital gain or loss for federal income tax purposes. Shares of the fund to be acquired are purchased for settlement when the proceeds from redemption become available. In the case of investors in certain states, state securities laws may restrict the availability of the exchange privilege. The Fund reserves the right to discontinue, alter or limit its exchange privilege at any time. DIVIDENDS AND DISTRIBUTIONS The Fund declares and pays dividends and distributions as described under "Dividends and Distributions" in the Prospectus. Dividends and capital gains distributions paid by the Fund are automatically reinvested in additional shares of the Fund unless the shareholder has elected to have them paid in cash. Dividends and distributions to be paid in cash are credited to the shareholder's account at Morgan or at his financial professional or, in the case of certain 29 Morgan customers, are mailed by check in accordance with the customer's instructions. The Fund reserves the right to discontinue, alter or limit the automatic reinvestment privilege at any time. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. NET ASSET VALUE The Fund computes its net asset value separately for each class of shares outstanding once daily as of the close of trading on the New York Stock Exchange (normally 4:00 p.m. eastern time) on each business day as described in the Prospectus. The net asset value will not be computed on the day the following legal holidays are observed: New Year's Day, Martin Luther King Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. On days when U.S. trading markets close early in observance of these holidays, the Fund will close for purchases and redemptions at the same time. The Fund and the Portfolio may also close for purchases and redemptions at such other times as may be determined by the Board of Trustees to the extent permitted by applicable law. The days on which net asset value is determined are the Fund's business days. The net asset value of the Fund is equal to the value of the Fund's investment in the Portfolio (which is equal to the Fund's pro rata share of the total investment of the Portfolio and of any other investors in the Portfolio less the Fund's pro rata share of the Portfolio's liabilities) less the Fund's liabilities. The following is a discussion of the procedures used by the Portfolio in valuing its assets. Listed options on debt securities traded on U.S. option exchanges shall be valued at their closing price on such exchanges. Futures on debt securities and related options traded on commodities exchanges shall be valued at their closing price as of the close of such commodities exchanges, which is currently 4:15p.m., New York time. Options and future traded on foreign exchanges shall be valued at the last sale or close price available prior to the calculation of the Funds' net asset value. Non-listed OTC options and swaps shall be valued at the closing price provided by a counterparty or third-party broker. Fixed income securities with a maturity of 60 days or more, are generally valued using bid quotations readily available from and supplied daily by pricing services or brokers. If such prices are the Fund's independent pricing services or brokers, such securities are priced in accordance with fair value procedures adopted by the Trustees. Such fair value procedures include the use of pricing services, which use prices based upon yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. Fixed income securities with a remaining maturity of less than 60 days are valued by the amortized cost method. PERFORMANCE DATA From time to time, the Fund may quote performance in terms of yield, tax equivalent yield, actual distributions, total returns or capital appreciation in reports, sales literature and advertisements published by the Trust. Current performance information for the Fund may be obtained by calling the number provided on the cover page of this Statement of Additional Information. Comparative performance information may be used from time to time in advertising the Fund's shares, including appropriate market indices including the benchmark indicated under "Investment Advisor" above or data from Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar Inc., the Dow Jones Industrial Average and other industry publications. 30 YIELD QUOTATIONS. As required by regulations of the SEC, the annualized yield for the Fund is computed by dividing the Fund's net investment income per share earned during a 30-day period by the net asset value on the last day of the period. The average daily number of shares outstanding during the period that are eligible to receive dividends is used in determining the net investment income per share. Income is computed by totaling the interest earned on all debt obligations during the period and subtracting from that amount the total of all recurring expenses incurred during the period. The 30-day yield is then annualized on a bond-equivalent basis assuming semi-annual reinvestment and compounding of net investment income. The historical yield information for the Fund at July 31, 2000: 30-day yield (net of expenses): 4.57%; 30-day tax equivalent yield at 39.6% tax rate: 7.57%. TOTAL RETURN QUOTATIONS. The Fund may advertise "total return" and non-standardized total return data. The total return shows what an investment in the Fund would have earned over a specified period of time (one, five or ten years or since commencement of operations, if less) assuming that all distributions and dividends by the Fund were reinvested on the reinvestment dates during the period and less all recurring fees. This method of calculating total return is required by regulations of the SEC. Total return data similarly calculated, unless otherwise indicated, over other specified periods of time may also be used. All performance figures are based on historical earnings and are not intended to indicate future performance. As required by regulations of the SEC, the annualized total return of the Fund for a period is computed by assuming a hypothetical initial payment of $1,000. It is then assumed that all of the dividends and distributions by the Fund over the period are reinvested. It is then assumed that at the end of the period, the entire amount is redeemed. The annualized total return is then calculated by determining the annual rate required for the initial payment to grow to the amount which would have been received upon redemption. Aggregate total returns, reflecting the cumulative percentage change over a measuring period, may also be calculated. Historical performance information for the period or portion thereof prior to the establishment of the Fund will be that of its corresponding predecessor, the J.P. Morgan Tax Exempt Bond Fund, as permitted by applicable SEC staff interpretations, since the J.P. Morgan Tax Exempt Bond Fund commenced operations before the Portfolio. The historical return information for the Fund at July 31, 2000: Average annual total return, 1 year: 3.90%; average annual total return, 5 years: 4.84%; average annual total return, 10 years: 6.10%; aggregate total return, 1 year: 3.90%; aggregate total return, 5 years: 26.65%; aggregate total return, 10 years: 80.80%. GENERAL. The Fund's performance will vary from time to time depending upon market conditions, the composition of the Portfolio, and its operating expenses. Consequently, any given performance quotation should not be considered representative of the Fund's performance for any specified period in the future. In addition, because performance will fluctuate, it may not provide a basis for comparing an investment in the Fund with certain bank deposits or other investments that pay a fixed yield or return for a stated period of time. From time to time, the Fund may, in addition to any other permissible information, include the following types of information in advertisements, supplemental sales literature and reports to shareholders: (1) discussions of general economic or financial principles (such as the effects of compounding and the benefits of dollar-cost averaging); (2) discussions of general economic trends; (3) presentations of statistical data to supplement such discussions; (4) descriptions of past or anticipated portfolio holdings; (5) descriptions of investment strategies; (6) descriptions or comparisons of various savings and investment products (including, but not limited to, qualified retirement plans and individual stocks and bonds), which may or may not include the Fund; (7) comparisons of investment products (including the Fund) with relevant markets or industry indices or other appropriate benchmarks; (8) discussions of Fund rankings or ratings by recognized rating organizations; and (9) discussions of 31 various statistical methods quantifying the Fund's volatility relative to its benchmark or to past performance, including risk adjusted measures. The Fund may also include calculations, such as hypothetical compounding examples, which describe hypothetical investment results in such communications. Such performance examples will be based on an express set of assumptions and are not indicative of the performance of the Fund. PORTFOLIO TRANSACTIONS The Advisor places orders for the Portfolio for all purchases and sales of portfolio securities, enters into repurchase agreements, and may enter into reverse repurchase agreements and execute loans of portfolio securities on behalf of the Portfolio. See "Investment Objective and Policies." Fixed income and debt securities and municipal bonds and notes are generally traded at a net price with dealers acting as principal for their own accounts without a stated commission. The price of the security usually includes profit to the dealers. In underwritten offerings, securities are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Portfolio transactions will be undertaken principally to accomplish the Portfolio's objective in relation to expected movements in the general level of interest rates. The Portfolio may engage in short-term trading consistent with its objective. See "Investment Objective and Policies -- Portfolio Turnover". In connection with portfolio transactions for the Portfolio, the Advisor intends to seek the best execution on a competitive basis for both purchases and sales of securities. Subject to the overriding objective of obtaining the best execution of orders, the Advisor may allocate a portion of the Portfolio's brokerage transactions to affiliates of the Advisor. In order for affiliates of the Advisor to effect any portfolio transactions for the Portfolio, the commissions, fees or other remuneration received by such affiliates must be reasonable and fair compared to the commissions, fees, or other remuneration paid to other brokers in connection with comparable transactions involving similar securities being purchased or sold on a securities exchange during a comparable period of time. Furthermore, the Trustees of the Portfolio, including a majority of the Trustees who are not "interested persons," have adopted procedures which are reasonably designed to provide that any commissions, fees, or other remuneration paid to such affiliates are consistent with the foregoing standard. Portfolio securities will not be purchased from or through or sold to or through the Co-Administrator, the Distributor or the Advisor or any other "affiliated person" (as defined in the 1940 Act) of the Co-Administrator, Distributor or Advisor when such entities are acting as principals, except to the extent permitted by law. In addition, the Portfolio will not purchase securities during the existence of any underwriting group relating thereto of which the Advisor or an affiliate of the Advisor is a member, except to the extent permitted by law. Investment decisions made by the Advisor are the product of many factors in addition to basic suitability for the particular portfolio or other client in question. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the same security. The Portfolio may only sell a security to other portfolios or accounts managed by the Advisor or its affiliates in accordance with procedures adopted by the Trustees. On those occasions when the Advisor deems the purchase or sale of a security to be in the best interests of the Portfolio, as well as other customers including other portfolios, the Advisor to the extent permitted by applicable laws and regulations, may, but is not obligated to, aggregate the securities to be sold or purchased for the Portfolio with those to be sold or purchased for other customers in order to obtain best execution, including lower brokerage 32 commissions if appropriate. In such event, allocation of the securities so purchased or sold as well as any expenses incurred in the transaction will be made by the Advisor in the manner it considers to be most equitable and consistent with its fiduciary obligations to the Portfolio. In some instances, this procedure might adversely affect the Portfolio. If the Portfolio writes options that effect a closing purchase transaction with respect to an option written by it, normally such transaction will be executed by the same broker-dealer who executed the sale of the option. The writing of options by the Portfolio will be subject to limitations established by each of the exchanges governing the maximum number of options in each class which may be written by a single investor or group of investors acting in concert, regardless of whether the options are written on the same or different exchanges or are held or written in one or more accounts or through one or more brokers. The number of options which the Portfolio may write may be affected by options written by the Advisor for other investment advisory clients. An exchange may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions. MASSACHUSETTS TRUST The Trust is a "Massachusetts business trust" of which the Fund is a separate and distinct series. A copy of the Declaration of Trust for the Trust is on file in the office of the Secretary of The Commonwealth of Massachusetts. Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for the obligations of the trust. However, the Trust's Declaration of Trust provides that the shareholders will not be subject to any personal liability for the acts or obligations of any Fund and that every written agreement, obligation, instrument or undertaking made on behalf of any Fund will contain a provision to the effect that the shareholders are not personally liable thereunder. Effective January 1, 1998, the name of the Trust was changed from "The JPM Institutional Funds" to "J.P. Morgan Institutional Funds", and the Fund's name changed accordingly. The Trust's Declaration of Trust further provides that the name of the Trust refers to the Trustees collectively as Trustees, not as individuals or personally, that no Trustee, officer, employee or agent of the Fund is liable to the Fund or to a shareholder, and that no Trustee, officer, employee, or agent is liable to any third persons in connection with the affairs of the Fund, except as such liability may arise from his or its own bad faith, willful misfeasance, gross negligence or reckless disregard of his or its duties to such third persons. It also provides that all third persons shall look solely to Fund property for satisfaction of claims arising in connection with the affairs of the Fund. With the exceptions stated, the Trust's Declaration of Trust provides that a Trustee, officer, employee, or agent is entitled to be indemnified against all liability in connection with the affairs of the Fund. The Trust shall continue without limitation of time subject to the provisions in the Declaration of Trust concerning termination by action of the shareholders or by action of the Trustees upon notice to the shareholders. DESCRIPTION OF SHARES The Trust is an open-end management investment company organized as a Massachusetts business trust in which the Fund represents a separate series of shares of beneficial interest. See "Massachusetts Trust." The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares ($0.001 par value) of one or more series and classes within any series and to divide or combine the shares (of any series, if applicable) without changing the proportionate beneficial interest of each shareholder in the Fund (or in the assets of other series, if applicable). Each share represents an equal proportional interest in the Fund with each other share. Upon liquidation of the Fund, holders are entitled to share pro rata in the net assets of the Fund available for distribution to such shareholders. See "Massachusetts Trust." Shares of the Fund have no preemptive or conversion rights and are fully paid and nonassessable. The rights of redemption and exchange are described in the Prospectus and elsewhere in this Statement of Additional Information. 33 The shareholders of the Trust are entitled to one vote for each dollar of net asset value (or a proportionate fractional vote in respect of a fractional dollar amount), on matters on which shares of the Fund shall be entitled to vote. Subject to the 1940 Act, the Trustees themselves have the power to alter the number and the terms of office of the Trustees, to lengthen their own terms, or to make their terms of unlimited duration subject to certain removal procedures, and appoint their own successors, PROVIDED, HOWEVER, that immediately after such appointment the requisite majority of the Trustees have been elected by the shareholders of the Trust. The voting rights of shareholders are not cumulative so that holders of more than 50% of the shares voting can, if they choose, elect all Trustees being selected while the shareholders of the remaining shares would be unable to elect any Trustees. It is the intention of the Trust not to hold meetings of shareholders annually. The Trustees may call meetings of shareholders for action by shareholder vote as may be required by either the 1940 Act or the Trust's Declaration of Trust. Shareholders of the Trust have the right, upon the declaration in writing or vote of more than two-thirds of its outstanding shares, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on removal of a Trustee upon the written request of the record holders of 10% of the Trust's shares. In addition, whenever ten or more shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least 1% of the Trust's outstanding shares, whichever is less, shall apply to the Trustees in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to request a meeting for the purpose of voting upon the question of removal of any Trustee or Trustees and accompanied by a form of communication and request which they wish to transmit, the Trustees shall within five business days after receipt of such application either: (1) afford to such applicants access to a list of the names and addresses of all shareholders as recorded on the books of the Trust; or (2) inform such applicants as to the approximate number of shareholders of record, and the approximate cost of mailing to them the proposed communication and form of request. If the Trustees elect to follow the latter course, the Trustees, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books, unless within five business days after such tender the Trustees shall mail to such applicants and file with the SEC, together with a copy of the material to be mailed, a written statement signed by at least a majority of the Trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. After opportunity for hearing upon the objections specified in the written statements filed, the SEC may, and if demanded by the Trustees or by such applicants shall, enter an order either sustaining one or more of such objections or refusing to sustain any of them. If the SEC shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the SEC shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Trustees shall mail copies of such material to all shareholders with reasonable promptness after the entry of such order and the renewal of such tender. The trustees have authorized the issuance and sale to the public of shares of 22 series of the Trust. The Trustees have no current intention to create any classes within the initial series or any subsequent series. The Trustees may, however, authorize the issuance of shares of additional series and the creation of classes of shares within any series with such preferences, privileges, limitations and voting and dividend rights as the Trustees may determine. The proceeds from the issuance of any additional series would be invested in separate, independently managed portfolios with distinct investment objectives, policies and restrictions, and share purchase, redemption and net asset valuation procedures. Any additional classes would be used to distinguish among the rights of different categories of shareholders, as might be required by future regulations or other unforeseen circumstances. All consideration received by the Trust for shares of any additional series or class, and all assets in which such consideration is invested, would belong to that series or class, subject only to the rights of creditors of the Trust and would be subject to the liabilities related thereto. Shareholders of any additional series or class will approve the adoption of any management contract or distribution plan relating to such series or class and of any changes in the 34 investment policies related thereto, to the extent required by the 1940 Act. As of October 31, 2000, there are none who owned of record or, to the knowledge of management, who are beneficial owners of more than 5% of the outstanding shares of the Fund. SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE Unlike other mutual funds which directly acquire and manage their own portfolio of securities, the Fund is a separate open-end management investment company which seeks to achieve its investment objective by investing all of its investable assets in the Master Portfolio, a separate registered investment company with the same investment objective and policies as the Fund. Fund shareholders are entitled to one vote for each dollar of net asset value (or a proportionate fractional vote in respect of a fractional dollar amount), on matter on which shares of the Fund shall be entitled to vote. In addition to selling a beneficial interest to the Fund, the Portfolio may sell beneficial interests to other mutual funds or institutional investors. Such investors will invest in the Portfolio on the same terms and conditions and will bear a proportionate share of the Portfolio's expenses. However, the other investors investing in the Portfolio may sell shares of their own fund using a different pricing structure than the Fund. Such different pricing structures may result in differences in returns experienced by investors in other funds that invest in the Portfolio. Such differences in returns are not uncommon and are present in other mutual fund structures. Information concerning other holders of interests in the Portfolio is available from Morgan at (800) 766-7722. The Trust may withdraw the investment of the Fund from the Portfolio at any time if the Board of Trustees of the Trust determines that it is in the best interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees would consider what action might be taken, including the investment of all the assets of the Fund in another pooled investment entity having the same investment objective and restrictions as the Fund or the retaining of an investment adviser to manage the Fund's assets in accordance with the investment policies with respect to the Portfolio described above and in the Fund's Prospectus described below. Certain changes in the Portfolio's fundamental investment policies or restrictions, or a failure by the Fund's shareholders to approve such change in the Portfolio's investment restrictions, may require withdrawal of the Fund's interest in the Portfolio. Any such withdrawal could result in a distribution in-kind of portfolio securities (as opposed to a cash distribution) from the Portfolio which may or may not be readily marketable. The distribution in-kind may result in the Fund having a less diversified portfolio of investments or adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax or other charges in converting the securities to cash. Notwithstanding the above, there are other means for meeting shareholder redemption requests, such as borrowing. Smaller funds investing in the Portfolio may be materially affected by the actions of larger funds investing in the Portfolio. For example, if a large fund withdraws from the Portfolio, the remaining funds may subsequently experience higher pro rata operating expenses, thereby producing lower returns. Additionally, because the Portfolio would become smaller, it may become less diversified, resulting in potentially increased portfolio risk (however, these possibilities also exist for traditionally structured funds which have large or institutional investors who may withdraw from a fund). Also, funds with a greater pro rata ownership in the Portfolio could have effective voting control of the operations of the Portfolio. Whenever the Fund is requested to vote on matters pertaining to the Portfolio (other than a vote by the Fund to continue the operation of the Portfolio upon the withdrawal of another investor in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and will cast all of its votes proportionately as instructed by the Fund's shareholders. The Trust will vote the shares held by Fund shareholders who do not give voting instructions in the same proportion as the shares of Fund shareholders who do give voting instructions. Shareholders of the Fund who do not vote will have no affect on the outcome of such matters. 35 TAXES The following discussion of tax consequences is based on U.S. federal tax laws in effect on the date of this Statement of Additional Information. These laws and regulations are subject to change by legislative or administrative action, possibly on a retroactive basis. The Fund intends to continue to qualify and remain qualified as a regulated investment company under Subchapter M of the Code. As a regulated investment company, the Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to loans of stock and securities, gains from the sale or other disposition of stock, securities or foreign currency and other income (including but not limited to gains from options, futures, and forward contracts) derived with respect to its business of investing in such stock, securities or foreign currency; and (b) diversify its holdings so that, at the end of each fiscal quarter of its taxable year, (i) at least 50% of the value of the Fund's total assets is represented by cash, cash items, U.S. Government securities, investments in other regulated investment companies, and other securities limited, in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets, and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or securities of other regulated investment companies). As a regulated investment company, the Fund (as opposed to its shareholders) will not be subject to federal income taxes on the net investment income and capital gains that it distributes to its shareholders, provided that at least 90% of its net investment income and realized net short-term capital gains in excess of net long-term capital losses for the taxable year is distributed in accordance with the Code's timing requirements. Under the Code, the Fund will be subject to a 4% excise tax on a portion of its undistributed taxable income and capital gains if it fails to meet certain distribution requirements by the end of the calendar year. The Fund intends to make distributions in a timely manner and accordingly does not expect to be subject to the excise tax. For federal income tax purposes, dividends that are declared by the Fund in October, November or December as of a record date in such month and actually paid in January of the following year will be treated as if they were paid on December 31 of the year declared. Therefore, such dividends generally will be taxable to a shareholder in the year declared rather than the year paid. The Fund intends to qualify to pay exempt-interest dividends to its shareholders by having, at the close of each quarter of its taxable year, at least 50% of the value of its total assets consist of tax exempt securities. An exempt-interest dividend is that part of dividend distributions made by the Fund which is properly designated as consisting of interest received by the Fund on tax exempt securities. Shareholders will not incur any federal income tax on the amount of exempt-interest dividends received by them from the Fund, other than the alternative minimum tax under certain circumstances. In view of the Fund's investment policies, it is expected that a substantial portion of all dividends will be exempt-interest dividends, although the Fund may from time to time realize and distribute net short-term capital gains and may invest limited amounts in taxable securities under certain circumstances. Distributions of net investment income (other than exempt-interest dividends) and realized net short-term capital gains in excess of net long-term capital losses are generally taxable to shareholders of the Fund as ordinary income whether such distributions are taken in cash or reinvested in additional shares. The Fund generally pays a monthly dividend. If dividend payments exceed income earned by the Fund, the over-distribution would be considered a return of capital rather than a dividend payment. The Fund intends to pay dividends in such a manner so as to minimize the possibility of a return of capital. Distributions of net long-term capital gains (i.e., net long-term capital gains in excess of net short-term capital losses) are taxable to shareholders of the Fund as long-term capital gains, regardless of whether such distributions are taken in cash or reinvested in additional shares and regardless of how long a shareholder has held shares in the Fund. In general, long-term capital gain of an individual shareholder will be subject to a 20% rate of tax. 36 Gains or losses on sales of portfolio securities will be treated as long-term capital gains or losses if the securities have been held for more than one year except in certain cases where, if applicable, a put option is acquired or a call option is written thereon or the straddle rules described below are otherwise applicable. Other gains or losses on the sale of securities will be short-term capital gains or losses. Gains and losses on the sale, lapse or other termination of options on securities will be treated as gains and losses from the sale of securities. If an option written by the Portfolio lapses or is terminated through a closing transaction, such as a repurchase by the Portfolio of the option from its holder, the Portfolio will realize a short-term capital gain or loss, depending on whether the premium income is greater or less than the amount paid by the Portfolio in the closing transaction. If securities are purchased by the Portfolio pursuant to the exercise of a put option written by it, the Portfolio will subtract the premium received from its cost basis in the securities purchased. Any distribution of net investment income or capital gains will have the effect of reducing the net asset value of Fund shares held by a shareholder by the same amount as the distribution. If the net asset value of the shares is reduced below a shareholder's cost as a result of such a distribution, the distribution, although constituting a return of capital to the shareholder, will be taxable as described above. Investors should consider the consequences of purchases shares in Fund shortly before the Fund declares a sizable dividend distribution. Any gain or loss realized on the redemption or exchange of Fund shares by a shareholder who is not a dealer in securities will be treated as long-term capital gain or loss if the shares have been held for more than one year, and otherwise as short-term capital gain or loss. Long-term capital gain of an individual holder generally is subject to a maximum tax rate of 20%. However, if Fund shares are acquired after December 31, 2000 and held for more than five years, the maximum long-term capital gain tax rate will be reduced to 18%. Any loss realized by a shareholder upon the redemption or exchange of shares in the Fund held for six months or less (i) will be treated as a long-term capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to such shares, and (ii) will be disallowed to the extent of any exempt-interest dividends received by the shareholder with respect to such shares. In addition, no loss will be allowed on the redemption or exchange of shares of the Fund, if within a period beginning 30 days before the date of such redemption or exchange and ending 30 days after such date, the shareholder acquires (such as through dividend reinvestment) securities that are substantially identical to shares of the Fund. Investors are urged to consult their tax advisors concerning the limitations on the deductibility of capital losses. Options and futures contracts entered into by the Portfolio may create "straddles" for U.S. federal income tax purposes and this may affect the character and timing of gains or losses realized by the Portfolio on options and futures contracts or on the underlying securities. Certain options and futures held by the Portfolio at the end of each taxable year will be required to be "marked to market" for federal income tax purposes -- i.e., treated as having been sold at market value. For options and futures contracts, 60% of any gain or loss recognized on these deemed sales and on actual dispositions will be treated as long-term capital gain or loss, and the remainder will be treated as short-term capital gain or loss regardless of how long the Portfolio has held such options or futures. If a correct and certified taxpayer identification number is not on file, the Fund is required, subject to certain exemptions, to withhold 31% of certain payments made or distributions declared to non-corporate shareholders. For federal income tax purposes, the fund had a capital loss carryforward at July 31, 2000 of $5,513,713, all of which expires in the year 2008. To the extent that this capital loss is used to offset future capital gains, it is probable that gains so offset will not be distrubuted to shareholders. STATE AND LOCAL TAXES. The Fund may be subject to state or local taxes in jurisdictions in which the Fund is deemed to be doing business. In addition, the treatment of the Fund and its shareholders in those states which have income tax laws might differ from treatment under the federal income tax laws. Shareholders should consult their own tax advisors with respect to any state or local taxes. OTHER TAXATION. The Trust is organized as a Massachusetts business trust and, under current law, neither the Trust nor the Fund is liable for any income or franchise tax in The Commonwealth of Massachusetts, provided that the Fund continues to qualify as a regulated investment company under Subchapter M of the Code. The Fund is 37 organized as a New York trust. The Portfolio is not subject to any federal income taxation or income or franchise tax in the State of New York or The Commonwealth of Massachusetts. The investment by the Fund in the Portfolio does not cause the Fund to be liable for any income or franchise tax in the State of New York. For federal income tax purposes, the fund had a capital loss carryforward at July 31, 2000 of $5,513,713, all of which expires in the year 2008. To the extent that this capital loss is used to offset future capital gains, it is probable that gains so offset will not be distrubuted to shareholders. ADDITIONAL INFORMATION Telephone calls to the Fund, J.P. Morgan or a Financial Professional as shareholder servicing agent may be tape recorded. With respect to the securities offered hereby, this Statement of Additional Information and the Prospectus do not contain all the information included in the Trust's registration statement filed with the SEC under the 1933 Act and the 1940 Act and the Portfolio's registration statements filed under the 1940 Act. Pursuant to the rules and regulations of the SEC, certain portions have been omitted. The registration statements including the exhibits filed therewith may be examined at the office of the SEC in Washington, D.C. Statements contained in this Statement of Additional Information and the Prospectus concerning the contents of any contract or other document are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the applicable Registration Statements. Each such statement is qualified in all respects by such reference. No dealer, salesman or any other person has been authorized to give any information or to make any representations, other than those contained in the Prospectus and this Statement of Additional Information, in connection with the offer contained therein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the Trust, the Fund or the Distributor. The Prospectus and this Statement of Additional Information do not constitute an offer by the Fund or by the Distributor to sell or solicit any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful for the Portfolio or the Distributor to make such offer in such jurisdictions. FINANCIAL STATEMENTS The following financial statements and the report thereon of PricewaterhouseCoopers LLP are incorporated herein by reference to the Fund's July 31, 2000 annual report filing made with the SEC on September 29, 2000 (Accession Number 0000894088-00-000014) made pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. The financial reports are available without charge upon request by calling J.P. Morgan Funds Services at (800) 521-5411. The Fund's financial statements include the financial statements of the Portfolio. 38 APPENDIX A DESCRIPTION OF SECURITY RATINGS STANDARD & POOR'S CORPORATE AND MUNICIPAL BONDS AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA - Debt rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in a small degree. A - Debt rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB - Debt rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher rated categories. BB - Debt rated BB are regarded as having less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. B - An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC - An obligation rated CC is currently highly vulnerable to nonpayment. A-1 C - The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. COMMERCIAL PAPER, INCLUDING TAX EXEMPT A - Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree of safety. A-1 - This designation indicates that the degree of safety regarding timely payment is very strong. A-2 - This designation indicates that the degree of safety regarding timely payment is satisfactory. A-3 - This designation indicates that the degree of safety regarding timely payment is adequate. SHORT-TERM TAX-EXEMPT NOTES SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating assigned by Standard & Poor's and has a very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are given a "plus" (+) designation. SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity to pay principal and interest. MOODY'S CORPORATE AND MUNICIPAL BONDS Aaa - Bonds which are rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds which are rated Aa are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of A-2 time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds which are rated B generally lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds which are rated Caa are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds which are rated Ca represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. COMMERCIAL PAPER, INCLUDING TAX EXEMPT Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: - Leading market positions in well established industries. - High rates of return on Portfolios employed. - Conservative capitalization structures with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well established access to a range of financial markets and assured sources of alternate liquidity. Prime-2 Issuers rated Prime-2 (or supporting institutions) have a strong ability for repayment of senior short-term debt obligations. This will normally be evidenced by many of the characteristics cited above but to a lesser degree. Earnings trends and coverage ratios, while sound, may be more subject to variation. Capitalization characteristics, while still appropriate, may be more affected by external conditions. Ample alternate liquidity is maintained. Prime-3 Issuers rated Prime-3 (or supporting institutions) have an acceptable ability for repayment of senior short-term obligations. The effect of industry characteristics and market compositions may be more pronounced. Variability in earnings and profitability may result in changes in the level of debt protection measurements and may require relatively high financial leverage. Adequate alternate liquidity is maintained. SHORT-TERM TAX EXEMPT NOTES A-3 MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating assigned by Moody's for notes judged to be the best quality. Notes with this rating enjoy strong protection from established cash flows of Portfolios for their servicing or from established and broad-based access to the market for refinancing, or both. MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not as large as MIG-1. A-4 EX-99.17(F) 7 a2044362zex-99_17f.txt EXHIBIT 99.17(F) - -------------------------------------------------------------------------------- AUGUST 31, 2000 - -------------------------------------------------------------------------------- Chase Vista Select Tax Free Funds ANNUAL REPORT SELECT TAX FREE INCOME FUND SELECT INTERMEDIATE TAX FREE INCOME FUND SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND SELECT NEW JERSEY TAX FREE INCOME FUND [CHASE LOGO] ANSTF-2-1000 Contents Chairman's Letter 1 Chase Vista Select Tax Free Income Fund 2 Fund Commentary Chase Vista Select Intermediate Tax Free Income Fund 4 Fund Commentary Chase Vista Select New York Intermediate Tax Free Income Fund 6 Fund Commentary Chase Vista Select New Jersey Tax Free Income Fund 8 Fund Commentary Portfolio of Investments 10 Financial Statements 38 Notes to Financial Statements 42 Highlights o The yield on the average AAA-rated municipal bond rose from 5.70% on September 1, 1999 to 5.90% on February 29, 2000. A rally during the final months of the reporting year pushed the yield down to 5.50% on August 31, 2000. o Other than a bulge in new supply at the end of October 1999, there was very little new issuance during the reporting year. o With the U.S. economy slowing at the same time municipal yields became most attractive relative to other fixed income securities, cross-over buyers such as institutions and insurance companies entered the markets and led the rally at the end of the reporting year. NOT FDIC INSURED May lose value / No bank guarantee Chase Vista Select Funds are distributed by Vista Fund Distributors, Inc. - -------------------------------------------------------------------------------- CHASE VISTA SELECT TAX FREE FUNDS - -------------------------------------------------------------------------------- Chairman's Letter October 2, 2000 Dear Shareholder: We are pleased to present this annual report for Chase Vista Select Tax Free Funds for the year ended August 31, 2000. Inside, you will find information on the performance of each Fund along with a report from the portfolio management team. After Extended Burst of Growth, U.S. Economy Appears to Slow For the great majority of the reporting year, the United States economy continued to expand at a rapid pace, with GDP growth soaring well in excess of the 3.5% that many analysts consider to be the Federal Reserve Board's maximum non-inflationary trend rate. In response, the Fed continued its policy of short-term interest rate increases, creating a generally negative backdrop for the fixed-income markets. The exception was the long-term U.S. Treasury market, which benefited from the February announcement and subsequent implementation of a plan by the United States Treasury department to use proceeds of the budget surplus to "buy back" longer-term Treasuries. In June, with shifting economic data showing a slowing economy, investors decided that the six Fed rate increases over the previous year had begun to take effect. As evidence of a slowdown continued to arrive, the bullish view has been that the Fed would achieve another "soft landing" in which growth moderated but did not disappear. However, with several potentially troubling issues on the horizon--including the price of crude oil rising to all-time highs--investors are eagerly awaiting the upcoming third quarter GDP figures to understand the full extent of the economy's slowdown. Municipal Bonds Rally at End of Reporting Year Beyond the general issues facing the fixed-income markets, municipal bond performance was driven by a variety of factors, especially supply and demand. Specifically, there was a supply bulge at the end of October, followed by a dearth of new supply at the end of 1999 and into 2000. Despite the lack of supply, municipals generally underperformed Treasuries due to the dislocation caused by the Treasury buyback program. However, as yields on municipals became ever-more attractive, non-traditional and crossover buyers joined retail investors in the market, with the resulting demand combining with the low new supply to lead to four months of strong performance relative to other fixed- income securities at the end of the reporting period. In this environment, your portfolio managers did an excellent job, maintaining good relative performance while taking advantage of market tightness to upgrade quality and call protection, moves which were continuing to pay off as the reporting period ended. All of us at Chase thank you for your continued investment and look forward to helping you reach your financial goals for many years to come. Sincerely yours, /s/ Fergus Reid - --------------- Fergus Reid Chairman 1 - -------------------------------------------------------------------------------- CHASE VISTA SELECT TAX FREE INCOME FUND As of August 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- How the Fund Performed Chase Vista Select Tax Free Income Fund, which seeks to provide tax-exempt income through a portfolio of higher-quality municipal bonds of varying maturities, had a total return of 6.11% for the year ended August 31, 2000. This compares to the 6.77% return from the Lehman Municipal Bond Index. How the Fund Was Managed As the reporting year began, the management team allowed the Fund's duration (a measure of interest-rate sensitivity) to shorten relative to its peer group, and this proved beneficial in the rising interest-rate environment of late 1999. As supply began to shrink dramatically in early 2000, the Fund performed well as the management team had built a portfolio overweight in better-structured, non-callable bonds which were attractive to corporate purchasers looking for longer-dated maturities in the wake of the U.S. Treasury's buyback program. With the ongoing dearth of new supply causing the yield differential between higher and lower quality municipal securities to compress--meaning that investors were being paid very little in terms of extra yield for taking on higher credit risk--the management team maintained its policy of focusing on high quality securities and improving security structure. Despite the low supply, some of the Fund's municipals underperformed due to the dislocation caused by the Treasury buyback program. As the reporting year progressed, the Fund's focus on high-quality, well- structured and non-callable bonds began to pay off. For instance, the Fund was able to take profits on its Puerto Rico holdings as these bonds, which enjoy special tax-free status in all 50 states, began to trade in line with California bonds given the extreme lack of California supply. At the end of the year, the Fund's strategy involved buying what little new issuance there was and selling to the retail market in specialty states which had the narrowest supply. The Fund also benefited in the final months of the reporting year by having a longer-than-benchmark duration as rates headed down. Where the Fund May Be Headed In the management team's view, the slowdown in the U.S. economy is real and this, combined with a technical downturn in Treasuries as the buyback program takes a breather until February, may create an opportunity in lower-quality, lower coupon bonds. The management team is therefore extending duration (and interest-rate sensitivity) a bit as new supply comes on the market and waiting for the moment when spreads decompress sufficiently to make it worthwhile on a yield basis to reverse the strategy that was so successful in the past reporting year. 2 CHASE VISTA SELECT TAX FREE INCOME FUND As of August 31, 2000 (Unaudited) Average Annual Total Returns
1 Year 5 Years 10 Years 6.11% 5.54% 6.90%
10-Year Performance [Begin plot points]
Chase Vista Select Lehman Muni Lipper General Muni Tax Free Income Fund Bond Index Debt Funds Avg. "8/90" 10000 10000 10000 "8/91" 11136.1 11179.7 11173.8 "8/92" 12374.8 12429.9 12477.5 "8/93" 13784.7 13902.9 13989.5 "8/94" 13847 13923.2 13824.5 "8/95" 14873.2 15158.1 14836.3 "8/96" 15643.8 15950.5 15532.5 "8/97" 16952.1 17428.3 16906.2 "8/98" 18475.6 18936.1 18291.3 "8/99" 18358.4 19030.4 17989.6 "8/00" 19480 20316 18892
[End plot points] Source: Lipper Analytical Services. Past performance is not indicative of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Returns include performance of a predecessor account for the period dating back to 8/31/90, prior to the Fund's commencement of operations on 1/1/97. Returns are adjusted to reflect historical expenses at the levels indicated (absent reimbursements) in the Expense Summary as disclosed in the prospectus at the Fund's commencement of operations. The account was not registered with the Securities and Exchange Commission and, therefore, was not subject to the investment restrictions imposed by law on registered mutual funds. If it had been registered, the performance may have been adversely affected. The Fund is currently waiving fees. The waiver may be terminated, which would reduce performance. The graph illustrates comparative performance of $10,000 and assumes reinvestment of all distributions. Performance of the unmanaged average and index does not include sales charges, but includes reinvestment of all distributions. The Lehman Municipal Bond Index is a broad-based index that replicates the long-term, investment grade tax-exempt bond market. The Lipper Average consists of funds that invest in municipal bonds. Investors cannot invest directly in an index. Capital gains are subject to federal income tax, a portion of the Fund's income may be subject to the Alternative Minimum Tax and some investors may be subject to certain state and local taxes. 3 - -------------------------------------------------------------------------------- CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND As of August 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- How the Fund Performed Chase Vista Select Intermediate Tax Free Income Fund, which seeks to provide monthly dividends that are excluded from federal income tax through a portfolio of higher-quality, intermediate-term municipal bonds, had a total return of 5.54% for the year ended August 31, 2000. This compares to returns of 6.36% from the Lehman Municipal Intermediate Mutual Fund Index and 5.99% from the Lehman Municipal Bond 3-10 Year Blend Index. How the Fund Was Managed The management team took advantage of rising rates in December to lock in higher yields and effectively extend duration closer to its benchmark. This was achieved by selling securities with one- to two-year maturities and purchasing those in the six- to seven-year range. As supply began to shrink dramatically in early 2000, the Fund was underweight in bonds in the 10- to 15-year part of the curve that proved to be attractive to insurance company buyers. However, as the low supply caused the yield differential between higher- and lower-quality municipals to compress, the management team maintained its discipline, selling high yield (and hence lower quality) issues into the strong market and focusing on the value in securities with maturities in 2004-2006. Moving into the second half of the reporting year, the Fund benefited from an overweight position in New York given the low New York supply as well as an absence of BBB bonds as significant yield compression took place in bonds rated A-AAA. Taking advantage of the compression, the management team traded into General Obligation bonds with premium structures. At the end of the year, the Fund's strategy involved buying what little new issuance there was and selling to the retail market in specialty states which had the narrowest supply. The Fund also benefited in the final months of the reporting year by having a longer-than-benchmark duration as rates headed down. Where the Fund May Be Headed In the management team's view, the slowdown in the U.S. economy is real and this, combined with a technical downturn in Treasuries as the buyback program takes a breather until February, may create an opportunity in lower quality, lower coupon bonds. The management team is therefore extending duration (and interest-rate sensitivity) a bit as new supply comes on the market and waiting for the moment when spreads decompress sufficiently to make it worthwhile on a yield basis to reverse the strategy that was so successful in the past reporting year. 4 CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND As of August 31, 2000 (Unaudited) Average Annual Total Returns
1 Year 5 Years 10 Years 5.54% 5.35% 6.99%
10-Year Performance [Begin plot points]
Chase Vista Select Lehman 10 Year Lehman Muni Bond Lipper Intermediate Intermediate Muni Bond 3-10 Year Bond Muni Debt Tax Free Income Fund Index Index Funds Avg. "8/90" 10000 10000 10000 10000 "8/91" 11210.1 11194.2 11045.7 10998.4 "8/92" 12473.5 12418.2 12139.2 12072.5 "8/93" 14163.8 14188.2 13321.3 13497 "8/94" 14018.6 14118.6 13509.5 13476.4 "8/95" 15136.2 15473.5 14661.8 14419.4 "8/96" 15782.7 16159.3 15256.7 14983.8 "8/97" 17030.9 17652.7 16417.1 16029.1 "8/98" 18407 19166.9 17609.7 17150 "8/99" 18618.6 19239.8 17994.2 17193 "8/00" 19650 20634 19004 18055
[End plot points] Source: Lipper Analytical Services. Past performance is not indicative of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Returns include performance of a predecessor account for the period dating back to 8/31/90, prior to the Fund's commencement of operations on 1/1/97. Returns are adjusted to reflect historical expenses at the levels indicated (absent reimbursements) in the Expense Summary as disclosed in the prospectus at the Fund's commencement of operations. The account was not registered with the Securities and Exchange Commission and, therefore, was not subject to the investment restrictions imposed by law on registered mutual funds. If it had been registered, the performance may have been adversely affected. The Fund is currently waiving fees. The waiver may be terminated, which would reduce performance. The graph illustrates comparative performance of $10,000 and assumes reinvestment of all distributions. Performance of the unmanaged average and indices does not include sales charges, but includes reinvestment of all distributions. Comparison of Fund performance to the Lehman Municipal Intermediate Mutual Funds Index is not presented as the Index lacks 10 years of history. The Lehman Municipal Bond 3-10 year Blend Index replicates the 3, 5, 7 and 10 year term investment grade tax-exempt bond market. The Lehman 10-Year Municipal Bond Index replicates the intermediate-term, investment grade tax-exempt bond market. The Lipper Average consists of funds that invest in intermediate tax-exempt municipal bonds. Investors cannot invest directly in an index. Capital gains are subject to federal income tax, a portion of the Fund's income may be subject to the Alternative Minimum Tax and some investors may be subject to certain state and local taxes. 5 - -------------------------------------------------------------------------------- CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND As of August 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- How the Fund Performed Chase Vista Select New York Intermediate Tax Free Income Fund, which seeks to provide triple tax-exempt income through a portfolio of higher-quality, longer-term municipal bonds, had a total return of 6.13% for the year ended August 31, 2000. This is roughly in line with the 6.50% return from the Lehman Intermediate New York Municipal Bond Index and the 6.77% return from the Lehman Municipal Bond Index. How the Fund Was Managed The management team allowed the Fund's duration--and therefore its interest-rate sensitivity--to shorten relative to its peer group in the final months of 1999 by actively trading in the secondary market, and this proved to have a positive impact on performance in a rising-rate environment. Further, the Fund added to its high yield positions as quality spreads widened in late 1999 and also raised cash to be in a position to take advantage of values in early 2000. As 2000 began, the Fund had already begun lengthening duration as the management team took advantage of market illiquidity in advance of Y2K to purchase securities in the 10- to 15-year maturity range. The Fund benefited when bonds in this portion of the yield curve subsequently became the focus of attention for non-traditional insurance buyers. As the supply drought began to take hold, the management team began to sell small pieces into the retail market, taking advantage of the strong retail bid. The high yield positions which had been purchased earlier in the reporting year, and which had benefited from yield compression, were the targets of the sales. The Fund subsequently took profits on its Puerto Rico holdings as these bonds, which enjoy special tax-free status in all 50 states, began to trade in line with California bonds given the extreme lack of California supply. With yields on bonds rated A and higher compressing dramatically, the management team took the opportunity to upgrade to AAA where possible without giving up much yield. At the end of the reporting year, the Fund's strategy involved buying what little new issuance there was and selling into the retail market where demand was highest. In one specific transaction in June, the Fund purchased a significant amount of insured school bonds at attractive levels, selling off generic lower quality bonds in the process. The Fund also benefited in the final months of the reporting year by having a longer-than-benchmark duration as rates headed down. Where the Fund May Be Headed In the management team's view, the slowdown in the U.S. economy is real and this, combined with a technical downturn in Treasuries as the buyback program takes a breather until February, may create an opportunity in lower quality, lower coupon bonds. The management team is therefore extending duration (and interest-rate sensitivity) a bit as new supply comes on the market and waiting for the moment when quality spreads decompress sufficiently to make it worthwhile on a yield basis to reverse the strategy that was so successful in the past reporting year. 6 CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND As of August 31, 2000 (Unaudited) Average Annual Total Returns
1 Year 5 Years 10 Years 6.13% 5.42% 6.77%
10-Year Performance [Begin plot points]
Chase Vista Select Lipper New York New York Intermediate Lehman Muni Intermediate Muni Tax Free Income Fund Bond Index Debt Funds Avg. "8/90" 10000 10000 10000 "8/91" 11214.7 11179.7 10973.7 "8/92" 12532.6 12429.9 12023.9 "8/93" 13948 13902.9 13224.5 "8/94" 13865.6 13923.2 13337.9 "8/95" 14801.9 15158.1 14257.9 "8/96" 15526.4 15950.5 14767.2 "8/97" 16695 17428.3 15840.4 "8/98" 18092.3 18936.1 16933.8 "8/99" 18161.6 19030.4 16999.8 "8/00" 19259 20316 17965
[End plot points] Source: Lipper Analytical Services. Past performance is not indicative of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Returns include performance of a predecessor account for the period dating back to 8/31/90, prior to the Fund's commencement of operations on 1/1/97. Returns are adjusted to reflect historical expenses at the levels indicated (absent reimbursements) in the Expense Summary as disclosed in the prospectus at the Fund's commencement of operations. The account was not registered with the Securities and Exchange Commission and, therefore, was not subject to the investment restrictions imposed by law on registered mutual funds. If it had been registered, the performance may have been adversely affected. The Fund is currently waiving fees. The waiver may be terminated, which would reduce performance. The graph illustrates comparative performance of $10,000 and assumes reinvestment of all distributions. Performance of the unmanaged average and index does not include sales charges, but includes reinvestment of all distributions. Comparison of Fund performance to the Lehman Intermediate New York Municipal Bond Index is not presented as the Index lacks ten years of history. The Lehman Municipal Bond Index is a broad-based index that replicates the long-term, investment grade tax-exempt bond market. The Lipper Average consists of funds that invest in New York intermediate tax-exempt municipal bonds. Investors cannot invest directly in an index. Capital gains are subject to federal income tax, a portion of the Fund's income may be subject to the Alternative Minimum Tax and some investors may be subject to certain state and local taxes. 7 - -------------------------------------------------------------------------------- CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND As of August 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- How the Fund Performed Chase Vista Select New Jersey Tax Free Income Fund, which seeks to provide monthly dividends excluded from gross income for federal tax purposes and exempt from New Jersey personal income tax, had a total return of 6.08% for the year ended August 31, 2000. This compares to the 5.98% return from the Lehman Quality Intermediate Index and 6.77% return from the Lehman Municipal Bond Index. How the Fund Was Managed As the reporting year began, the management team allowed the Fund's duration (a measure of interest-rate sensitivity) to shorten relative to its peer group, and this proved beneficial in the rising interest rate environment of late 1999. Further, the Fund added to its high yield positions as quality spreads widened in late 1999 and also raised cash to be in a position to take advantage of values in early 2000. With cash on hand, the management team was able to make purchases when the market was illiquid in late 1999, and this subsequently proved beneficial when the market rallied in early 2000. As the supply drought began to take hold of the market, the management team began to sell small pieces into the retail market, specifically targeting high yield issues which had benefited from the sharp compression in credit-quality spreads. In the spring, the team lengthened the Fund's duration relative to its peer group, a positive performance factor, and also took profits on its Puerto Rico holdings as these bonds, which enjoy special tax-free status in all 50 states, began to trade in line with California bonds given the extreme lack of California supply. Also, in an effort to increase yield, par bonds were sold into the retail market in favor of premium structured new issues. As the year came to an end, there was hardly any new New Jersey supply, so the Fund focused on upgrading quality and increasing coupon, swapping out of the retail range (inside of 10 years) and buying securities in the 12- to 15-year range. Where the Fund May Be Headed In the management team's view, the slowdown in the U.S. economy is real and this, combined with a technical downturn in Treasuries as the buyback program takes a breather until February, may create an opportunity in lower quality, lower coupon bonds. The management team is therefore extending duration (and interest-rate sensitivity) a bit as new supply comes on the market and waiting for the moment when quality spreads decompress sufficiently to make it worthwhile on a yield basis to reverse the strategy that was so successful in the past reporting year. 8 CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND As of August 31, 2000 (Unaudited) Average Annual Total Returns
1 Year 5 Years 10 Years 6.08% 4.84% 6.04%
10-Year Performance [Begin plot points]
Chase Vista Select Lehman Lehman Lipper New Jersey New Jersy Muni Bond 7 Year Muni Bond Muni Debt Tax Free Income Fund Index Index Funds Avg. "8/90" 10000 10000 10000 10000 "8/91" 10945 11179.7 11087.9 11270.5 "8/92" 11990.9 12429.9 12423.3 12500.9 "8/93" 13026.1 13902.9 13543.2 14075.2 "8/94" 13215.9 13923.2 13734.4 13874.7 "8/95" 14200.3 15158.1 14942.5 14850.4 "8/96" 14764.1 15950.5 15524.6 15537.1 "8/97" 15663.8 17428.3 16733.8 16809.9 "8/98" 16888.6 18936.1 18010.8 18155.1 "8/99" 16951.7 19030.4 18280.2 17942.1 "8/00" 17981 20316 19412 18801
[End plot points] Source: Lipper Analytical Services. Past performance is not indicative of future results. Investment return and principal value will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Returns include performance of a predecessor account for the period dating back to 8/31/90, prior to the Fund's commencement of operations on 1/1/97. Returns are adjusted to reflect historical expenses at the levels indicated (absent reimbursements) in the Expense Summary as disclosed in the prospectus at the Fund's commencement of operations. The account was not registered with the Securities and Exchange Commission and, therefore, was not subject to the investment restrictions imposed by law on registered mutual funds. If it had been registered, the performance may have been adversely affected. The Fund is currently waiving fees. The waiver may be terminated, which would reduce performance. The graph illustrates comparative performance of $10,000 and assumes reinvestment of all distributions. Performance of the unmanaged average and indices does not include sales charges, but includes reinvestment of all distributions. Comparison of Fund performance to the Lehman Quality Intermediate Index is not presented as the Index lacks ten years of history. The Lehman Municipal Bond Index is a broad-based index that replicates the long-term, investment grade tax-exempt bond market. The Lehman 7-Year Municipal Bond Index replicates the intermediate-term, investment grade tax-exempt bond market. The Lipper Average consists of funds that invest in New Jersey tax-exempt municipal bonds. Investors cannot invest directly in an index. Capital gains are subject to federal income tax, a portion of the Fund's income may be subject to the Alternative Minimum Tax and some investors may be subject to certain state and local taxes. 9 - -------------------------------------------------------------------------------- CHASE VISTA SELECT TAX FREE INCOME FUND Portfolio of Investments - -------------------------------------------------------------------------------- As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ------------------------------------------------------------------------------------- Long-Term Municipal Securities -- 98.3% - ------------------------------------------------------------------------------------- Alabama -- 0.5% $ 4,000 Jefferson County, Alabama, Sewer, Ser. D, Warrants, Rev., 5.75%, 02/01/22 $ 4,043 Arizona -- 0.9% 5,300 Pima County, Arizona, Unified School District No. 1, Tucson, GO, 7.50%, 07/01/10 6,455 Arkansas -- 1.4% 10,000 Arkansas State, Federal Highway Grant Anticipation, Ser. A, GO, 5.25%, 08/01/05 10,376 California -- 8.2% 5,000 California State, GO, 5.75%, 05/01/30 5,152 2,000 California State, GO, 6.50%, 11/01/09 2,334 1,000 California State, Ser. B, GO, 10.00%, 08/01/02 1,108 1,000 California State, Veterans Bonds, Ser. AM, GO, 9.00%, 10/01/05 1,214 21,000 California Statewide Communities Development Authority, Sherman Oaks Project, Ser. A, Rev., 5.00%, 08/01/22 19,978 7,000 Corona, California, Public Financing Authority, Water Utility Improvements, Rev., 4.75%, 09/01/28 6,273 4,000 Los Angeles, California, Harbor Department, Rev., -, 7.60%, 10/01/18 5,021 1,235 Metropolitan Water District of Southern California, Ser. A, GO, 5.25%, 03/01/14 1,283 5,000 Metropolitan Water District of Southern California, Ser. A, Rev., 5.00%, 07/01/26 4,723 3,000 Modesto, California, Irrigation District Financing Authority, Ser. A, Rev., 6.00%, 10/01/15 3,238 9,930 Pomona, California, Unified School District, Ser. A, GO, 6.15%, 08/01/15 11,178 -------- 61,502 Colorado -- 4.8% 1,190 Adams County, Colorado, School District No. 12, GO, 6.20%, 12/15/10 1,245 1,145 Colorado Water Resources & Power Development Authority, Drinking Water, Ser. A, Rev., 5.25%, 09/01/11 1,188 1,560 Colorado Water Resources & Power Development Authority, Drinking Water, Ser. A, Rev., 5.25%, 09/01/13 1,590 14,580 Denver, Colorado, City & County Airport, Ser. A, Rev., 6.00%, 11/15/16 15,245 1,000 Douglas County, Colorado, Sales & Use Tax, Open Space, Rev., 5.35%, 10/15/14 1,014 6,000 Garfield, Pitkin & Eagle Counties, Colorado, School District No. Re 1 Roarge, GO, -, 6.60%, 06/15/04 6,502 3,050 Platte River Power Authority, Colorado, Ser. DD, Rev., 6.00%, 06/01/05 3,238 4,400 Platte River Power Authority, Colorado, Ser. DD, Rev., 6.00%, 06/01/06 4,715 1,620 Platte River Power Authority, Colorado, Ser. DD, Rev., 6.00%, 06/01/07 1,748 -------- 36,485
See notes to financial statements. 10 CHASE VISTA SELECT TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - -------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - -------------------------------------------------------------------------------------- Connecticut -- 0.6% $ 4,455 Connecticut State, Housing Finance Authority, Housing Mortgage Finance Program, Ser. C1, Rev., 6.60%, 11/15/23 $ 4,616 Delaware -- 0.8% 5,000 Delaware State, Economic Development Authority, Osteopathic Hospital Association of Delaware, Ser. A, Rev., -, 6.90%, 01/01/18 5,774 5 Sussex County, Delaware, Single Family Mortgage, Residential, Rev., 9.38%, 02/01/17 5 -------- 5,779 Florida -- 5.5% 3,985 Broward County, Florida, Resource Recovery, SES Broward Co. LP South Project, Rev., 7.95%, 12/01/08 4,113 2,200 Dade County, Florida, Special Obligation, Miami Beach Convention Center Project, Special Tax, -, 8.63%, 12/01/07 2,626 5,000 Daytona Beach, Florida, Water & Sewer, Ser. 1978, Rev., -, 6.75%, 11/15/07 5,285 5,000 Florida State, Board of Education, Lottery, Ser. C, Rev., 4.50%, 07/01/18 4,379 3,000 Florida State, Division of Bond Finance Dept., General Services, Department of Environmental Protection, Preservation 2000, Ser. A, Rev., 5.38%, 07/01/11 3,134 3,670 Greater Orlando Aviation Authority, Orlando, Florida, Airport Facilities, Ser. A, Rev., 6.50%, 10/01/12 3,865 3,205 Hillsborough County, Florida, Aviation Authority, Tampa International Airport, Ser. B, Rev., 6.00%, 10/01/18 3,464 3,800 Lakeland, Florida, Electric & Water, First Lien, Ser. B, Rev., 6.05%, 10/01/14 4,167 1,295 Orange County, Florida, Health Facilities Authority, Ser. A, Rev., 6.25%, 10/01/12 1,447 3,130 Orange County, Florida, Health Facilities Authority, Ser. A, Rev., -, 6.25%, 10/01/12 3,506 680 Orange County, Florida, Health Facilities Authority, Ser. C, Rev., 6.25%, 10/01/12 760 1,630 Orange County, Florida, Health Facilities Authority, Ser. C, Rev., -, 6.25%, 10/01/12 1,826 3,000 Orange County, Florida, Tourist Development, Ser. A, Rev., 6.50%, 10/01/10 3,171 -------- 41,743 Georgia -- 6.9% 5,000 Burke County, Georgia, Development Authority PCR, Oglethorpe Power Co., Rev., -, 8.00%, 01/01/03 5,534 10,000 Dalton, Georgia, Development Authority, Rev., 5.50%, 08/15/26 10,013 7,645 De Kalb County, Georgia, Housing Authority, Apartment Development, Fox Hollow Apartments, Rev., -, 7.00%, 05/15/07 8,641 7,000 Georgia Municipal Electric Authority, Power, Ser. Z, Rev., 5.50%, 01/01/20 7,128 15 Georgia State, Residential Finance Authority, Single Family Mortgage, Ser. A, Rev., 8.40%, 12/01/18 15
See notes to financial statements. 11 CHASE VISTA SELECT TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ---------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ---------------------------------------------------------------------------------------- Georgia -- Continued $ 5,000 Metropolitan Atlanta Rapid Transit Authority, Georgia, Sales Tax, Second Indenture, Ser. A, Rev., -, 6.90%, 07/01/04 $ 5,518 10,485 Metropolitan Atlanta Rapid Transit Authority, Georgia, Sales Tax, Ser. P, Rev., 6.25%, 07/01/20 11,602 3,110 Savannah, Georgia, Economic Development Authority, College of Art & Design Inc. Project, Rev., 6.60%, 10/01/15 3,207 -------- 51,658 Hawaii -- 0.8% 5,000 Honolulu, Hawaii, City & County, Ser. A, GO, 7.35%, 07/01/08 5,831 Illinois -- 1.4% 3,990 Cook County, Illinois, Community High School District No. 219, Niles Township, GO, 8.00%, 12/01/15 5,136 862 Illinois Health Facilities Authority, Ser. A, Rev., -, 7.90%, 08/15/03 921 1,363 Illinois Health Facilities Authority, Ser. A, Rev., 7.90%, 08/15/03 1,367 3,250 Illinois Housing Development Authority, Multi-Family Housing, Ser. 1991-A, Rev., 8.25%, 07/01/16 3,390 -------- 10,814 Indiana -- 1.2% 9,615 Indianapolis, Indiana, Airport Authority, Special Facilities, United Airlines Project, Ser. A, Rev., 6.50%, 11/15/31 9,206 Kentucky -- 1.2% 8,000 Louisville & Jefferson County, Kentucky, Metropolitan Sewer District, Sewer & Drain System, Ser. A, Rev., -, 6.50%, 11/15/04 8,768 Louisiana -- 1.3% 2,000 Orleans Parish, Louisiana, School Board, Defeased, Rev., -, 8.85%, 02/01/06 2,410 2,000 Orleans Parish, Louisiana, School Board, Defeased, Rev., -, 8.90%, 02/01/07 2,473 4,000 Orleans Parish, Louisiana, School Board, GO, -, 7.50%, 09/01/05 4,534 -------- 9,417 Massachusetts -- 3.7% 3,500 Chelsea, Massachusetts, School Project Loan Act of 1948, GO, -, 6.50%, 06/15/04 3,817 2,750 Haverhill, Massachusetts, Unlimited Tax, Ser. A, GO, -, 7.00%, 06/15/02 2,927 10,000 Massachusetts State, Consolidated Loan, Ser. C, GO, 5.25%, 08/01/17 9,977 9,000 Massachusetts State, Port Authority, Ser. B, Rev., 5.50%, 07/01/13 9,136 2,015 South Essex, Massachusetts, Sewer District, Ser. B, GO, -, 6.75%, 06/01/04 2,213 -------- 28,070
See notes to financial statements. 12 CHASE VISTA SELECT TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ----------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ----------------------------------------------------------------------------------- Montana --0.9% $ 2,320 Montana State, Long-Range Building Program, Ser. B, GO, 4.50%, 08/01/15 $ 2,121 2,435 Montana State, Long-Range Building Program, Ser. B, GO, 4.50%, 08/01/16 2,200 2,555 Montana State, Long-Range Building Program, Ser. B, GO, 4.50%, 08/01/17 2,286 ------ 6,607 New Jersey --3.5% 4,200 Freehold, New Jersey, Regional High School, GO, 5.60%, 03/01/16 4,345 5,215 New Jersey Economic Development Authority, Educational Testing Service, Ser. B, Rev., -, 6.25%, 05/15/05 5,692 1,500 New Jersey Sports & Exposition Authority, Rev., -, 8.30%, 01/01/03 1,629 565 New Jersey Sports & Exposition Authority, Ser. A, Rev., -, 6.50%, 03/01/02 593 2,905 New Jersey Sports & Exposition Authority, Ser. A, Rev., 6.50%, 03/01/19 3,034 5,000 New Jersey State, Highway Authority, Garden State Parkway, Rev., 6.20%, 01/01/10 5,557 5,000 New Jersey State, Transportation Trust Fund Authority, Transportation Systems, Ser. B, Rev., 6.50%, 06/15/10 5,703 ------ 26,553 New York -- 28.3% 5,000 Long Island Power Authority, New York, Electric Systems, Ser. A, Rev., 5.50%, 12/01/29 4,872 6,000 Municipal Assistance Corp. for New York City, Ser. G, Rev., 6.00%, 07/01/05 6,397 3,000 Nassau County, New York, IDA, Civic Facility, Hofstra University Project, Rev., -, 6.75%, 08/01/01 3,125 3,500 New York City, New York, IDA, IDR, Brooklyn Navy Yard Cogen Partners Project, Rev., 6.20%, 10/01/22 3,507 5,000 New York City, New York, IDA, Special Facilities, British Airways PLC Project, Rev., 5.25%, 12/01/32 4,300 8,250 New York City, New York, Municipal Water Finance Authority, Water & Sewer Systems, Ser. A, Rev., 5.50%, 06/15/23 8,165 5,000 New York City, New York, Municipal Water Finance Authority, Water & Sewer Systems, Ser. B, Rev., 6.00%, 06/15/33 5,193 2,000 New York City, New York, Ser. A, GO, 5.38%, 08/01/15 2,001 12,000 New York City, New York, Ser. A, GO, 6.25%, 08/01/08 13,055 4,000 New York City, New York, Ser. B, GO, 6.50%, 08/15/10 4,550 10,000 New York City, New York, Ser. F, GO, 5.38%, 08/01/09 10,487 8,000 New York City, New York, Transitional Finance Authority, Future Tax Secured, Ser. C, Rev., 5.50%, 11/01/24 7,904 9,000 New York City, New York, Transitional Finance Authority, Future Tax Secured, Ser. C, Rev., 5.50%, 11/01/29 8,833 2,160 New York State, Dorm Authority, City University System, 3rd General Reserve, Ser. 2, Rev., 5.00%, 07/01/18 2,059 5,000 New York State, Dorm Authority, City University System, Ser. A, Rev., 5.75%, 07/01/13 5,362
See notes to financial statements. 13 CHASE VISTA SELECT TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - -------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - -------------------------------------------------------------------------------------- New York -- Continued $ 2,000 New York State, Dorm Authority, Pratt Institute, Rev., 6.00%, 07/01/28 $ 2,054 4,500 New York State, Dorm Authority, University of Rochester, Ser. A, Rev., 6.40%, 07/01/13 4,809 6,000 New York State, Energy Research & Development Authority, PCR, Niagara Mohawk Power Corp., Ser. A, Rev., 7.20%, 07/01/29 6,558 2,000 New York State, Environmental Facilities Corp., PCR, Ser. B, Rev., 7.10%, 09/15/11 2,044 2,650 New York State, Environmental Facilities Corp., PCR, Ser. D, Rev., 6.85%, 11/15/11 2,907 4,100 New York State, GO, -, 6.30%, 09/15/02 4,336 3,000 New York State, GO, Ser. B, 6.25%, 08/15/05 3,231 16,000 New York State, GO, Ser. F, 5.25%, 09/15/10 16,567 475 New York State, Housing Finance Agency, Health Facilities, Monroe County, Ser. A, Rev., 7.63%, 05/01/05 487 4,000 New York State, Housing Finance Agency, State University Construction, Ser. A, Rev., -, 7.90%, 11/01/06 4,465 5,500 New York State, Local Government Assistance Corp., Ser. C, Rev., -, 7.00%, 04/01/01 5,695 2,780 New York State, Medical Care Facilities Finance Agency, Hospital and Nursing Home, Ser. C, Rev., -, 6.25%, 08/15/02 2,969 2,000 New York State, Medical Care Facilities Finance Agency, Special Obligation, Mental Health Services Improvement Facilities, Ser. A, Rev., -, 8.30%, 05/01/04 2,243 10,155 New York State, Mortgage Agency, Homeowner Mortgage, Ser. 85, Rev., 5.70%, 10/01/17 10,265 5,500 New York State, Thruway Authority, Ser. C, Rev., -, 6.00%, 01/01/05 5,934 2,500 New York State, Urban Development Corp., Correctional Capital Facilities, Rev., 5.70%, 01/01/27 2,520 6,270 Port Authority of New York & New Jersey, Consolidated Bonds 78th Ser., Rev., 6.50%, 04/15/11 6,509 16,000 Port Authority of New York & New Jersey, Consolidated Bonds 93rd Ser., Rev., 6.13%, 06/01/94 17,292 4,000 Port Authority of New York & New Jersey, Consolidated Bonds 109th Ser., Rev., 5.38%, 01/15/32 3,896 10,000 Port Authority of New York & New Jersey, Consolidated Bonds 114th Ser., Rev., 4.75%, 08/01/33 8,701 9,000 Triborough Bridge & Tunnel Authority, New York, Convention Center Project, Ser. E, Rev., @, 7.25%, 01/01/10 10,183 ------- 213,475 North Dakota -- 0.8% 5,000 Mercer County, North Dakota, PCR, Antelope Valley Station, Rev., 7.20%, 06/30/13 5,932 Ohio -- 2.5% 7,000 Cleveland, Ohio, Public Power System, First Mortgage, Ser. A, Rev., -, 7.00%, 11/15/04 7,805 2,000 Dublin, Ohio, Refunding & Public Improvement, Ser. A, GO, 5.25%, 12/01/14 2,022 4,000 Ohio State, Higher Education Facilities, Ser. A, GO, 5.25%, 02/01/12 4,098
See notes to financial statements. 14 CHASE VISTA SELECT TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - --------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - --------------------------------------------------------------------------------------- Ohio -- Continued $ 4,850 Ohio State, Public Facilities Commission, Higher Education Capital Facilities, Ser. II-C, Rev., 4.38%, 06/01/11 $ 4,563 -------- 18,488 Oklahoma -- 1.7% 7,500 Oklahoma State, Turnpike Authority, Second Ser., Ser. A, Rev., 5.25%, 01/01/13 7,621 5,000 Tulsa, Oklahoma, Metropolitan Utility Authority, Rev., 5.75%, 09/01/19 5,078 -------- 12,699 Oregon -- 3.9% 5,780 Oregon State, Higher Education Building, Ser. A, GO, -, 6.45%, 08/01/04 6,253 2,300 Portland, Oregon, Sewer Systems, Ser. A, Rev., 5.00%, 06/01/14 2,275 11,565 Portland, Oregon, Sewer Systems, Ser. A, Rev., 5.00%, 06/01/15 11,363 4,000 Salem, Oregon, Hospital Facilities Authority, Salem Hospital, Rev., 5.25%, 08/15/14 3,953 5,000 Washington County, Oregon, Sewer Agency, Senior Lien, Ser. A, Rev., 5.75%, 10/01/10 5,405 -------- 29,249 Pennsylvania -- 3.6% 2,255 Allegheny County, Pennsylvania, Hospital Development Authority, South Hills Health, Ser. B, Rev., 6.75%, 05/01/25 2,326 1,000 Allegheny County, Pennsylvania, IDA, Health Care Facilities, Presbyterian Senior Care, Rev., 5.75%, 01/01/23 816 3,190 Carbon County, Pennsylvania, IDA, Panther Creek Partners Project, Rev., 6.65%, 05/01/10 3,232 20,500 Delaware Valley, Pennsylvania, Regional Finance Authority, Local Government, Ser. A, Rev., 5.50%, 08/01/28 20,423 -------- 26,797 Puerto Rico -- 5.8% 5,655 Puerto Rico Commonwealth, GO, 6.00%, 07/01/16 6,222 4,000 Puerto Rico Commonwealth, Highway & Transportation Authority, Ser. B, Rev., 6.00%, 07/01/39 4,210 1,500 Puerto Rico Commonwealth, Highway & Transportation Authority, Ser. T, Rev., -, 6.63%, 07/01/02 1,589 8,000 Puerto Rico Electric Power Authority, Ser. HH, Rev., 5.25%, 07/01/29 7,791 5,000 Puerto Rico Electric Power Authority, Ser. Y, Rev., 7.00%, 07/01/07 5,788 14,500 Puerto Rico Municipal Finance Agency, Ser. A, GO, 5.00%, 08/01/01 14,602 3,000 Puerto Rico Public Buildings Authority, Government Facilities, Ser. A, Rev., 6.25%, 07/01/11 3,399 -------- 43,601 South Carolina -- 1.4% 6,000 Richland County, South Carolina, School District No. 1, GO, 4.63%, 03/01/22 5,227
See notes to financial statements. 15 CHASE VISTA SELECT TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ------------------------------------------------------------------------------------- South Carolina -- Continued $ 5,000 South Carolina State, Public Service Authority, Ser. A, Rev., 6.25%, 01/01/22 $ 5,273 -------- 10,500 South Dakota -- 0.5% 3,000 Heartland Consumers Power District, Rev., -, 7.00%, 01/01/16 3,445 365 South Dakota State, Building Authority, Rev., -, 10.50%, 09/01/00 365 -------- 3,810 Tennessee -- 0.7% 3,000 Knox County, Tennessee, Health, Educational & Housing Facilities Board, University Health Systems Inc., Rev., 5.63%, 04/01/29 2,545 3,000 Metropolitan Government of Nashville & Davidson Counties, Tennessee, Water & Sewer, Rev., 5.20%, 01/01/13 3,046 -------- 5,591 Texas -- 5.4% 6,500 Austin, Texas, Utility System, Rev., 6.00%, 11/15/13 7,083 2,000 Austin, Texas, Utility System, Ser. A, Rev., -, 8.00%, 05/15/01 2,051 7,000 Dallas-Fort Worth, Texas, International Airport Facilities Improvement Corp., American Airlines Inc., Rev., 6.38%, 05/01/35 6,843 2,115 Dallas-Fort Worth, Texas, Regional Airport, Ser. A, 7.38%, 11/01/08 2,348 2,945 Dallas-Fort Worth, Texas, Regional Airport, Ser. A, 7.38%, 11/01/09 3,270 2,000 Dallas-Fort Worth, Texas, Regional Airport, Ser. A, 7.38%, 11/01/11 2,210 2,500 Houston, Texas, Water Conveyance System, Ser. F, COP, 7.20%, 12/15/05 2,788 2,000 Houston, Texas, Water Conveyance System, Ser. F, COP, 7.20%, 12/15/06 2,264 1,000 Klein, Texas, Independent School District, Ser. A, GO, 5.00%, 08/01/16 968 2,400 Klein, Texas, Independent School District, Ser. A, GO, 5.00%, 08/01/17 2,299 8,500 Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. B, Rev., 5.13%, 07/15/18 8,186 -------- 40,310 Utah -- 0.1% 1,000 Sevier County, Utah, Sevier School District, GO, -, 9.20%, 05/01/03 1,120 - ------------------------------------------------------------------------------------- Total Long-Term Municipal Securities 739,495 (Cost $721,973) Short-Term Investments -- 0.6% - ------------------------------------------------------------------------------------- Municipal Securities -- 0.6% ---------------------------- California -- 0.2% 200 California PCFA, Resource Recovery, OMS Equity Stanislaus Project, Rev., FRDO, 3.45%, 09/01/00 200
See notes to financial statements. 16 CHASE VISTA SELECT TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ----------------------------------------------------------------------------------------- Short-Term Investments -- Continued - ----------------------------------------------------------------------------------------- California -- Continued $ 300 Chula Vista, California, IDR, San Diego Gas, Ser. A, Rev., FRDO, 3.35%, 09/01/00 $ 300 800 Irvine Ranch, California, Water District, Capital Improvement Project, COP, FRDO, 3.35%, 09/01/00 800 100 Irvine Ranch, California, Water District, Consolidated Bonds, Rev., FRDO, 3.60%, 09/01/00 100 100 Irvine Ranch, California, Water District, District No. 105, 140, 240 & 250, GO, FRDO, 3.35%, 09/01/00 100 100 Irvine Ranch, California, Water District, District No. 182, Ser. A, GO, FRDO, 3.35%, 09/01/00 100 -------- 1,600 New York -- 0.4% 700 New York City, New York, Ser. B, Sub. Ser. B-7, GO, FRDO, 4.15%, 09/01/00 700 600 Port Authority of New York & New Jersey, Special Obligation, Versatile Structure Obligation, Ser. 2, Rev., FRDO, 4.05%, 09/01/00 600 1,950 Port Authority of New York & New Jersey, Special Obligation, Versatile Structure Obligation, Ser. 6, Rev., FRDO, 4.15%, 09/01/00 1,950 -------- 3,250 - ----------------------------------------------------------------------------------------- Total Municipal Securities 4,850 (Cost $4,850) ----------------------------------------------------------------------- Shares Money Market Funds -- 0.0% -------------------------- 168 Provident Municipal Cash Money Market Fund 168 54 Provident Municipal Money Market Fund 54 ----------------------------------------------------------------------- Total Money Market Funds 222 (Cost $222) - ----------------------------------------------------------------------------------------- Total Short-Term Investments 5,072 (Cost $5,072) - ----------------------------------------------------------------------------------------- Total Investments -- 98.9% $744,567 (Cost $727,045) - -----------------------------------------------------------------------------------------
Notional Number Original Value at Unrealized of Expiration Notional 08/31/00 Appreciation Contracts Description Date Value (USD) (USD) (USD) - ----------------------------------------------------------------------------------------- Long Futures Outstanding - -------------------------- December, 350 U.S. Treasury Bonds 2000 $34,877 $35,153 $276
See notes to financial statements. 17 - -------------------------------------------------------------------------------- CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments - -------------------------------------------------------------------------------- As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ------------------------------------------------------------------------------------- Long-Term Municipal Securities -- 99.6% - ------------------------------------------------------------------------------------- Alabama -- 1.3% $ 7,650 Alabama State, Ser. A, GO, 5.50%, 10/01/02 $ 7,815 1,000 Shelby County, Alabama, Board of Education, Capital Outlay School Warrants, 5.70%, 02/01/09 1,054 -------- 8,869 Arizona -- 0.9% 2,300 Maricopa County, Arizona, School District No. 4, Mesa, Ser. E, GO, -, 5.40%, 07/01/02 2,386 3,675 Maricopa County, Arizona, Unified High School District No. 210, Phoenix, Project of 1995, Ser. B, GO, -, 5.50%, 07/01/06 3,892 -------- 6,278 California -- 0.8% 5,000 Los Angeles County, California, Public Works Financing Authority, Regional Park & Open Space District, Ser. A, Rev., -, @, 6.00%, 10/01/04 5,448 Colorado -- 1.3% 4,370 Colorado Department of Transportation, Rev., RAN, 6.00%, 06/15/08 4,746 4,000 Eagle, Garfield & Routt Counties, Colorado, School District No. Re 50J, GO, -, 6.13%, 12/01/04 4,328 -------- 9,074 Connecticut -- 0.7% 4,735 Connecticut State, Special Tax Obligation, Transportation Infrastructure, Ser. A, Rev., 5.40%, 06/01/09 4,929 Delaware -- 0.5% 3,000 Delaware Transportation Authority, Transportation System, Rev., 6.00%, 07/01/05 3,188 Florida -- 1.9% 2,000 Dade County, Florida, Aviation, Ser. B, Rev., 6.40%, 10/01/06 2,165 1,725 Florida State, Board of Education, Capital Outlay, Public Education, Ser. A, GO, +, 5.00%, 06/01/06 1,768 2,000 Florida State, Board of Education, Capital Outlay, Public Education, Ser. A, GO, 5.00%, 06/01/07 2,051 2,675 Florida State, Broward County Expressway Authority, Ser. A, GO, 6.50%, 07/01/03 2,679 2,000 Florida State, Department of Corrections, Okeechobee Correctional, COP, 6.00%, 03/01/08 2,140 2,350 Miami-Dade County, Florida, Aviation, Ser. A, Rev., 5.25%, 10/01/07 2,417 -------- 13,220 Georgia -- 1.9% 5,000 Georgia Municipal Electric Authority, Ser. DD, Rev., *, 7.00%, 01/01/08 5,683 3,300 Henry County, Georgia, School District, GO, 5.75%, 08/01/06 3,510 3,700 Metropolitan Atlanta Rapid Transit Authority, Georgia, Sales Tax, Second Indenture, Ser. A, Rev., -, 6.90%, 07/01/04 4,083 -------- 13,276
See notes to financial statements. 18 CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - -------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - -------------------------------------------------------------------------------------- Hawaii -- 1.0% $ 4,405 Hawaii State, Ser. CK, GO, -, 5.25%, 09/01/05 $ 4,557 2,000 Honolulu, Hawaii, City & County, Ser. A, GO, 7.35%, 07/01/06 2,272 -------- 6,829 Illinois -- 9.1% 1,500 Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, Capital Improvement Bonds, GO, -, 7.00%, 01/01/08 1,711 5,000 Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, GO, 5.50%, 12/01/08 5,278 10,025 Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, GO, 5.50%, 12/01/09 10,597 7,200 Chicago, Illinois, Metropolitan Water Reclamation District, Greater Chicago, GO, 5.95%, 12/01/07 7,781 3,000 Chicago, Illinois, O'Hare International Airport, General Airport, Second Lien, Ser. A, Rev., 6.75%, 01/01/06 3,294 6,055 Chicago, Illinois, O'Hare International Airport, Passenger Facilities Charge, Ser. A, Rev., 5.38%, 01/01/07 6,283 1,810 Illinois State, 1st Ser., GO, 5.25%, 08/01/05 1,864 2,565 Illinois State, 1st Ser., GO, 5.50%, 08/01/06 2,683 4,000 Illinois State, 1st Ser., GO, 5.50%, 08/01/07 4,199 5,485 Illinois State, GO, 5.25%, 04/01/04 5,618 2,000 Illinois State, GO, 5.25%, 06/01/10 2,069 1,320 Illinois State, GO, 5.50%, 08/01/06 1,380 10,000 Illinois State, GO, 5.50%, 04/01/10 10,510 -------- 63,267 Indiana -- 3.2% 2,600 Indiana Municipal Power Agency, Power Supply Systems, Ser. B, Rev., 5.63%, 01/01/05 2,704 5,500 Indiana Municipal Power Agency, Power Supply Systems, Ser. B, Rev., 5.80%, 01/01/08 5,854 2,485 Indiana State, Office Building Commission Facilities, Ser. A, Rev., 5.00%, 07/01/04 2,524 7,315 Indianapolis, Indiana, Gas Utility, Distribution Systems, Ser. A, Rev., 5.75%, 08/15/08 7,805 3,000 Indianapolis, Indiana, Local Public Improvements Bond Bank, Ser. A, Rev., 6.50%, 01/01/08 3,320 -------- 22,207 Kansas -- 0.3% 2,175 Kansas State, Department of Transportation, Highway, Rev., 5.00%, 09/01/03 2,212 Kentucky -- 0.1% 440 Owensboro, Kentucky, Electric Light & Power, Rev., -, 10.50%, 01/01/04 470 Louisiana -- 0.5% 3,500 Lake Charles, Louisiana, Harbor & Terminal District, Reynolds Metals Co. Project, Rev., 5.50%, 05/01/06 3,523 Maryland -- 4.4% 3,335 Maryland State, Stadium Authority, Rev., 5.75%, 12/15/08 3,529 3,535 Maryland State, Stadium Authority, Rev., 5.80%, 12/15/09 3,741
See notes to financial statements. 19 CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - -------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - -------------------------------------------------------------------------------------- Maryland -- Continued $15,640 Maryland State, State & Local Facilities Loan, Third Ser., GO, 5.80%, 10/15/08 $16,560 6,500 Maryland State, Transportation Authority, Transportation Facilities Project, Rev., 5.80%, 07/01/06 6,915 ------- 30,745 Massachusetts -- 3.9% 5,000 Chelsea, Massachusetts, School Project Loan Act of 1948, GO, -, 5.90%, 06/15/04 5,349 5,000 Massachusetts State, Consolidated Loan, Ser. A, GO, 5.75%, 02/01/08 5,358 3,000 Massachusetts State, Housing Finance Agency, Residential Development, Ser. C, Rev., 6.45%, 05/15/04 3,128 10,000 Massachusetts State, Turnpike Authority, Ser. A, Rev., -, 5.00%, 01/01/13 10,027 1,980 Southeastern Massachusetts University Building Authority Project, Ser. A, Rev., 5.90%, 05/01/09 2,109 1,000 Southeastern Massachusetts University, Building Authority Project, Ser. A, Rev., 5.90%, 05/01/10 1,062 ------- 27,033 Michigan -- 3.2% 4,000 Michigan State, Trunk Line, Ser. A, Rev., 5.25%, 11/01/15 4,025 3,565 Michigan State, Underground Storage Tank Financial Assurance Authority, Ser. I, Rev., 5.75%, 05/01/10 3,746 10,000 Wayne Charter County, Michigan, Airport, Ser. A, Rev., 5.25%, 12/01/06 10,272 3,780 Wayne Charter County, Michigan, Airport, Ser. A, Rev., 5.50%, 12/01/07 3,933 ------- 21,976 Minnesota -- 0.7% 5,000 Minnesota State, GO, -, 6.00%, 08/01/02 5,151 Mississippi -- 0.6% 4,000 Mississippi State, Capital Improvements Issue, Ser. I, GO, 5.50%, 11/01/06 4,195 Nebraska -- 2.0% 2,635 American Public Energy Agency, Nebraska, Gas Supply, Public Gas Agency Project, Ser. A, Rev., 5.25%, 06/01/11 2,460 11,000 Omaha Public Power District, Nebraska, Electric, Ser. C, Rev., *, 5.40%, 02/01/08 11,490 ------- 13,950 Nevada -- 2.7% 2,415 Henderson, Nevada, Water & Sewer, Ser. A, GO, 5.50%, 09/01/08 2,538 1,000 Nevada State, GO, 6.75%, 07/01/03 1,012 5,390 Nevada State, GO, Ser. A, 5.00%, 07/01/10 5,447 5,000 Nevada State, GO, Ser. A, 5.60%, 07/15/06 5,211 2,000 Nevada State, GO, Ser. C, 6.50%, 05/01/05 2,159 1,000 Nevada State, Municipal Bond Bank, GO, -, 7.20%, 11/01/04 1,025 1,000 Nevada State, Municipal Bond Bank, Project No. 20-23A, GO, -, 7.20%, 07/01/02 1,007 ------- 18,399
See notes to financial statements. 20 CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - --------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - --------------------------------------------------------------------------------- New Jersey -- 12.8% $ 3,245 Elizabeth, New Jersey, GO, 6.25%, 08/15/08 $ 3,526 10,000 New Jersey Building Authority, State Building, Rev., 5.75%, 06/15/09 10,762 955 New Jersey Economic Development Authority, Market Transition Facility, Senior Lien, Ser. A, Rev., 5.80%, 07/01/08 1,010 8,800 New Jersey Economic Development Authority, Market Transition Facility, Senior Lien, Ser. A, Rev., 5.80%, 07/01/09 9,289 7,000 New Jersey State, Transportation Trust Fund Authority, Ser. B, Rev., 5.50%, 06/15/09 7,338 3,660 New Jersey State, Transportation Trust Fund Authority, Transportation Systems, Ser. A, Rev., 5.75%, 06/15/15 3,885 4,190 New Jersey State, Turnpike Authority, Rev., -, 5.70%, 05/01/13 4,391 575 New Jersey State, Turnpike Authority, Rev., -, 10.38%, 01/01/03 620 10,215 New Jersey State, Turnpike Authority, Ser. A, Rev., 5.50%, 01/01/08 10,788 10,000 New Jersey State, Turnpike Authority, Ser. A, Rev., 5.75%, 01/01/10 10,792 4,175 New Jersey State, Turnpike Authority, Ser. G, Rev., -, 5.75%, 01/01/09 4,367 2,545 New Jersey Wastewater Treatment Trust, Ser. A, Rev., 7.00%, 05/15/06 2,859 2,910 New Jersey Wastewater Treatment Trust, Ser. A, Rev., 7.00%, 05/15/08 3,357 3,120 New Jersey Wastewater Treatment Trust, Ser. A, Rev., 7.00%, 05/15/09 3,642 4,995 New Jersey Wastewater Treatment Trust, Ser. C, Rev., 6.25%, 05/15/05 5,366 5,520 New Jersey Wastewater Treatment Trust, Ser. C, Rev., 6.88%, 06/15/07 6,241 -------- 88,233 New Mexico -- 0.3% 2,075 Gallup, New Mexico, PCR, Plains Electric Generation, Rev., 6.40%, 08/15/05 2,176 New York -- 11.9% 4,000 Long Island Power Authority, New York, Electric Systems, Ser. A, Rev., 5.50%, 12/01/08 4,222 500 Long Island Power Authority, New York, Electric Systems, Ser. A, Rev., 5.50%, 12/01/13 524 2,500 Long Island Power Authority, New York, Electric Systems, Ser. A, Rev., 6.00%, 12/01/07 2,710 2,000 New York City, New York, IDA, Special Facilities, Terminal One Group Association Project, Rev., 5.50%, 01/01/02 2,022 155 New York State, Dorm Authority, Pooled Capital Program, Rev., -, 7.80%, 12/01/05 158 770 New York State, Dorm Authority, St. John's University, Rev., 6.70%, 07/01/04 799 5,500 New York State, Dorm Authority, State University Educational Facilities, Rev., 5.50%, 05/15/06 5,731
See notes to financial statements. 21 CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ---------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ---------------------------------------------------------------------------------- New York -- Continued $ 2,800 New York State, Dorm Authority, State University Educational Facilities, Ser. A, Rev., 5.50%, 05/15/06 $ 2,918 5,525 New York State, Dorm Authority, State University Educational Facilities, Ser. A, Rev., 5.50%, 05/15/13 5,794 1,200 New York State, Environmental Facilities Corp., PCR, State Water Revolving Fund, Ser. D, Rev., 6.55%, 03/15/08 1,237 4,915 New York State, Housing Finance Agency, Housing Project Mortgage, Ser. A, Rev., 5.40%, 11/01/05 5,025 165 New York State, Medical Care Facilities Finance Agency, Rev., 7.38%, 08/15/03 167 6,000 New York State, Ser. B, GO, 5.60%, 08/15/07 6,308 5,000 New York State, Ser. B, GO, 5.70%, 08/15/10 5,238 4,000 New York State, Thruway Authority, Highway & Bridge Trust Fund, Ser. A, Rev., -, 5.60%, 04/01/04 4,231 5,700 New York State, Thruway Authority, Highway & Bridge Trust Fund, Ser. B, Rev., -, 6.00%, 04/01/04 6,104 5,000 New York State, Thruway Authority, Service Contract, Local Highway & Bridge, Rev., 5.10%, 04/01/08 5,088 10,000 New York State, Thruway Authority, Service Contract, Local Highway & Bridge, Rev., 5.20%, 04/01/09 10,222 7,500 New York State, Thruway Authority, Service Contract, Local Highway & Bridge, Rev., 5.25%, 04/01/03 7,625 3,910 Port Authority of New York & New Jersey, Consolidated Bonds 112th Ser., Rev., 5.00%, 12/01/05 3,962 1,500 Suffolk County, New York, IDA, IDR, Nissequogue Cogen Partners Facility, Rev., 4.88%, 01/01/08 1,433 990 Westchester County, New York, IDA, Resource Recovery, Resco Co. Project, Ser. A, Rev., 5.60%, 07/01/07 1,032 -------- 82,550 North Carolina -- 0.7% 4,505 North Carolina State, Public Improvement, Ser. A, +, 5.00%, 09/01/05 4,621 Ohio -- 3.6% 4,000 Montgomery County, Ohio, Solid Waste, Rev., 5.50%, 11/01/10 4,178 1,420 Ohio State, Building Authority, State Facilities, Administration Building Fund, Ser. A, Rev., 6.00%, 10/01/06 1,528 3,360 Ohio State, Building Authority, State Facilities, Adult Correctional, Ser. A, Rev., 5.75%, 10/01/08 3,524 5,000 Ohio State, Infrastructure Improvement, Ser. B, GO, 5.25%, 02/01/14 5,092 6,000 Ohio State, Turnpike Commission, Ser. A, Rev., 5.40%, 02/15/09 6,261 4,275 Ohio State, Turnpike Commission, Ser. A, Rev., 6.00%, 02/15/07 4,603 -------- 25,186 Oregon -- 1.4% 5,300 Oregon State, State Board of Higher Education, Ser. A, GO, -, 6.00%, 08/01/06 5,790
See notes to financial statements. 22 CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ----------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ----------------------------------------------------------------------------------- Oregon -- Continued $ 3,500 Washington County, Oregon, School District No. 3, Hillsboro, GO, -, 6.00%, 11/01/05 $ 3,751 -------- 9,541 Pennsylvania -- 0.4% 3,000 Carbon County, Pennsylvania, IDA, Panther Creek Partners Project, Rev., 6.65%, 05/01/10 3,040 Puerto Rico -- 2.6% 10,000 Puerto Rico Commonwealth, GO, *, 5.50%, 07/01/08 10,777 5,500 Puerto Rico Commonwealth, GO, 5.50%, 07/01/09 5,947 1,140 Puerto Rico Industrial, Medical & Environmental PCFFA, Renasa Inc., Squibb Corp Project, Rev., 6.50%, 07/01/04 1,150 -------- 17,874 Tennessee -- 1.1% 2,765 Metropolitan Government of Nashville & Davidson Counties, Tennessee, Water & Sewer, Ser. B, Rev., 5.00%, 01/01/06 2,821 5,335 Tennergy Corp., Tennessee, Gas, Rev., 5.00%, 06/01/09 4,969 -------- 7,790 Texas -- 11.2% 5,255 Austin, Texas, Utility Systems, Rev., 5.80%, 11/15/06 5,589 6,200 Dallas, Texas, Civic Center, Improvement, Rev., 5.25%, 08/15/07 6,415 6,220 Harris County, Texas, GO, 5.88%, 10/01/07 6,687 4,940 Houston, Texas, Ser. A, GO, 5.50%, 03/01/04 5,100 8,675 Houston, Texas, Ser. A, GO, 5.50%, 03/01/08 9,121 4,975 Houston, Texas, Water & Sewer Systems, Ser. B, Rev., 6.40%, 12/01/09 5,259 5,300 North East Independent School District, Texas, GO, 6.50%, 10/01/09 5,982 5,000 Texas Municipal Power Agency, Rev., -, 6.10%, 09/01/09 5,524 5,650 Texas State, Ser. A, GO, 6.00%, 10/01/05 6,015 7,500 Texas State, Ser. A, GO, *, 6.00%, 10/01/09 8,185 1,320 Texas Water Development Board, State Revolving Fund, Senior Lien, Rev., 6.20%, 07/15/05 1,383 4,700 Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. A, Rev., 5.00%, 07/15/07 4,798 3,000 Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. A, Rev., 5.25%, 07/15/09 3,097 1,000 Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. A, Rev., 5.63%, 07/15/11 1,052 3,175 Texas Water Development Board, State Revolving Fund, Senior Lien, Ser. B, Rev., 5.25%, 07/15/08 3,291 -------- 77,498 Utah -- 1.6% 3,800 Intermountain Power Agency, Utah, Power Supply, Ser. B, Rev., 6.50%, 07/01/10 4,295 2,850 Salt Lake City, Utah, GO, 5.50%, 06/15/11 2,993 3,915 Utah State, Building Ownership Authority, State Facilities Master Lease Program, Ser. C, Rev., 5.50%, 05/15/08 4,113 -------- 11,401
See notes to financial statements. 23 CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ---------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ---------------------------------------------------------------------------------------- Vermont -- 1.8% $ 4,100 Burlington, Vermont, Electric, Ser. A, Rev., 6.38%, 07/01/09 $ 4,580 3,510 Vermont State, Ser. A, GO, -, 6.40%, 01/15/05 3,831 3,510 Vermont State, Ser. A, GO, -, 6.50%, 01/15/05 3,845 -------- 12,256 Virgin Islands -- 1.5% 2,500 Virgin Islands Public Finance Authority, Gross Receipts, Taxes Lien Notes, Ser. A, Rev., 5.63%, 10/01/10 2,556 5,000 Virgin Islands Public Finance Authority, Senior Lien, Fund Lien Notes, Ser. C, Rev., 5.50%, 10/01/06 5,101 3,070 Virgin Islands Water & Power Authority, Electric Systems, Rev., 5.25%, 07/01/07 3,094 -------- 10,751 Virginia -- 0.8% 5,515 Chesapeake Bay Bridge & Tunnel Commission, Virginia, General Resolution, Rev., 5.75%, 07/01/08 5,870 Washington -- 1.8% 4,340 Grant County, Washington, Public Utilities District No. 2, Electric, Ser. G, Rev., 5.25%, 01/01/08 4,481 5,000 Washington State, Ser. B, GO, 5.00%, 01/01/07 5,100 3,000 Washington State, Ser. S-4, GO, 5.00%, 01/01/07 3,060 -------- 12,641 Wisconsin -- 5.1% 3,025 Milwaukee County, Wisconsin, Corporate Purpose, Ser. A, GO, 5.38%, 09/01/05 3,136 2,350 Milwaukee County, Wisconsin, Corporate Purpose, Ser. A, GO, 5.63%, 09/01/10 2,487 5,000 Wisconsin State, Clean Water, Ser. 2, Rev., 5.50%, 06/01/11 5,261 3,585 Wisconsin State, Clean Water, Ser. 2, Rev., 6.13%, 06/01/06 3,858 6,000 Wisconsin State, GO, 6.20%, 05/01/06 6,480 2,775 Wisconsin State, GO, Ser. 1, 5.00%, 11/01/07 2,839 6,275 Wisconsin State, GO, Ser. 1, 5.50%, 11/01/11 6,617 4,450 Wisconsin State, GO, Ser. 3, 5.20%, 11/01/09 4,607 -------- 35,285 - ---------------------------------------------------------------------------------------- Total Long-Term Municipal Securities 690,952 (Cost $674,980) - ---------------------------------------------------------------------------------------- Short-Term Investments -- 0.5% - ---------------------------------------------------------------------------------------- Municipal Security -- 0.4% -------------------------- New York -- 0.4% 3,000 Port Authority of New York & New Jersey, Special Obligation, Versatile Structure Obligation, Ser. 2, Rev., FRDO, 4.05%, 05/01/19 3,000 (Cost $3,000)
See notes to financial statements. 24 CHASE VISTA SELECT INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Shares Issuer Value - --------------------------------------------------------------------- Short-Term Investments -- Continued - --------------------------------------------------------------------- Money Market Funds -- 0.1% -------------------------- 189 Provident Municipal Cash Money Market Fund $ 189 418 Provident Municipal Money Market Fund 418 ------------------------------------------------------- Total Money Market Funds 607 (Cost $607) - --------------------------------------------------------------------- Total Short-Term Investments 3,607 (Cost $3,607) - --------------------------------------------------------------------- Total Investments -- 100.1% $694,559 (Cost $678,587) - ---------------------------------------------------------------------
Notional Number Original Value at Unrealized of Expiration Notional 08/31/00 Appreciation Contracts Description Date Value(USD) (USD) (USD) - -------------------------------------------------------------------------------------- Long Futures Outstanding - ------------------------- December, 50 U.S. Treasury Bonds 2000 $4,982 $5,022 $40
See notes to financial statements. 25 - -------------------------------------------------------------------------------- CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments - -------------------------------------------------------------------------------- As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ----------------------------------------------------------------------------------- Long-Term Municipal Securities -- 97.9% - ----------------------------------------------------------------------------------- New York -- 86.8% $2,000 Albany County, New York, Airport Authority, Rev., 5.30%, 12/15/15 $ 1,979 1,120 Allegany County, New York, IDA, Civic Facility, Alfred University, Rev., 5.25%, 08/01/11 1,154 1,290 Amherst, New York, IDA, Civic Facility, Faculty Student Housing, Ser. B, Rev., 5.75%, 08/01/15 1,361 250 Arkport, New York, Central School District, GO, 5.20%, 06/15/09 259 350 Arkport, New York, Central School District, GO, 5.20%, 06/15/10 361 645 Barker, New York, Central School District, GO, 5.13%, 06/01/04 660 1,000 Barker, New York, Central School District, GO, 5.15%, 06/01/06 1,031 2,000 Battery Park City Authority, New York, Ser. A, Rev., 5.50%, 11/01/26 1,970 1,040 Beacon, New York, City School District, GO, 5.50%, 07/15/11 1,100 250 Brentwood, New York, Union Free School District, GO, 5.63%, 06/15/11 266 100 Brentwood, New York, Union Free School District, GO, 5.63%, 06/15/12 106 650 Brentwood, New York, Union Free School District, GO, 5.63%, 06/15/13 684 590 Burnt Hills-Ballston Lake, New York, Central School District, GO, 5.40%, 07/15/16 598 305 Burnt Hills-Ballston Lake, New York, Central School District, GO, 5.50%, 07/15/17 310 375 Burnt Hills-Ballston Lake, New York, Central School District, GO, 5.50%, 07/15/18 380 250 Chenango Forks, New York, Central School District, GO, 5.63%, 06/15/11 266 850 Chenango Forks, New York, Central School District, GO, 5.70%, 06/15/12 904 1,655 Cleveland Hill, New York, Union Free School District, Cheektowaga, GO, 5.50%, 10/15/13 1,724 1,730 Cleveland Hill, New York, Union Free School District, Cheektowaga, GO, 5.50%, 10/15/14 1,790 175 Colonie, New York, Public Improvement, Ser. B, GO, 5.20%, 04/01/04 179 375 Colonie, New York, Public Improvement, Ser. B, GO, 5.20%, 04/01/05 386 225 East Meadow, New York, Fire District, GO, 5.30%, 04/01/04 231 250 East Meadow, New York, Fire District, GO, 5.30%, 04/01/05 258 250 East Meadow, New York, Fire District, GO, 5.30%, 04/01/06 259 885 Erie County, New York, Public Improvement, GO, 6.00%, 01/15/05 920 855 Erie County, New York, Ser. B, GO, 6.00%, 03/15/06 890 1,845 Erie County, New York, Water Authority, Improvement & Extension, Rev., 5.75%, 12/01/08 1,926
See notes to financial statements. 26 CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands) Principal Amount Issuer Value - ------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ------------------------------------------------------------------------------------- New York -- Continued $ 1,070 Lindenhurst, New York, Union Free School District, GO, 5.25%, 07/15/12 $ 1,099 1,295 Lindenhurst, New York, Union Free School District, GO, 5.25%, 07/15/16 1,302 1,460 Lindenhurst, New York, Union Free School District, GO, 5.25%, 07/15/17 1,460 5,000 Long Island Power Authority, New York, Electric Systems, Ser. A, Rev., 5.50%, 12/01/11 5,283 405 Longwood Central School District at Middle Island, New York, GO, 4.80%, 06/15/11 404 1,315 Longwood Central School District at Middle Island, New York, GO, 4.80%, 06/15/13 1,283 525 Mahopac, New York, Central School District, Ser. B, GO, 5.60%, 06/15/14 551 815 Mahopac, New York, Central School District, Ser. B, GO, 5.60%, 06/15/15 850 1,090 Massapequa, New York, Union Free School District, Ser. A, GO, 5.38%, 06/15/09 1,145 2,180 Massapequa, New York, Union Free School District, Ser. A, GO, 5.38%, 06/15/12 2,268 2,485 Massapequa, New York, Union Free School District, Ser. A, GO, 5.40%, 06/15/13 2,570 3,135 Massapequa, New York, Union Free School District, Ser. A, GO, 5.70%, 06/15/16 3,268 500 Metropolitan Transportation Authority, New York, Commuter Facilities, Ser. B, Rev., 6.10%, 07/01/09 548 2,000 Metropolitan Transportation Authority, New York, Dedicated Tax Fund, Ser. A, Rev., 5.50%, 04/01/16 2,031 250 Metropolitan Transportation Authority, New York, Transportation Facilities, Ser. C, Rev., 4.75%, 07/01/16 233 510 Metropolitan Transportation Authority, New York, Transportation Facilities, Ser. C, Rev., 5.25%, 07/01/10 529 2,150 Monroe County, New York, Public Improvement, GO, 4.50%, 06/01/09 2,122 1,150 Monroe County, New York, Public Improvement, GO, 4.50%, 06/01/10 1,127 100 Monroe County, New York, Public Improvement, GO, 6.00%, 03/01/01 101 1,230 Monroe County, New York, Public Improvement, GO, 6.00%, 03/01/12 1,351 1,000 Monroe County, New York, Public Improvement, GO, 6.00%, 03/01/14 1,090 1,000 Monroe County, New York, Public Improvement, GO, 6.00%, 03/01/18 1,084 1,000 Monroe County, New York, Public Improvement, GO, 6.00%, 03/01/19 1,084 1,020 Monticello, New York, Central School District, GO, 5.63%, 06/15/06 1,078 2,400 Municipal Assistance Corp. for New York City, Ser. E, Rev., 6.00%, 07/01/05 2,559 6,740 Municipal Assistance Corp. for New York City, Ser. E, Rev., 6.00%, 07/01/06 7,246
See notes to financial statements. 27 CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ----------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ----------------------------------------------------------------------------------- New York -- Continued $ 6,500 Municipal Assistance Corp. for New York City, Ser. G, Rev., 6.00%, 07/01/08 $ 7,070 2,000 Nassau County, New York, General Improvement, Ser. Q, GO, 5.20%, 08/01/12 2,037 1,800 Nassau County, New York, General Improvement, Ser. R, GO, 5.13%, 11/01/03 1,838 2,010 Nassau County, New York, IDA, Civic Facilities, Hofstra University Project, Rev., 5.00%, 07/01/03 2,044 1,705 Nassau County, New York, IDA, Civic Facilities, Hofstra University Project, Rev., 5.00%, 07/01/06 1,748 4,740 Nassau County, New York, IDA, Civic Facilities, Hofstra University Project, Rev., 5.25%, 07/01/09 4,926 1,000 New York City, New York, IDA, Civic Facility, New School for Social Research, Ser. A, Rev., 5.75%, 09/01/15 1,033 3,625 New York City, New York, Municipal Water Finance Authority, Water & Sewer Systems, Ser. A, Rev., -, 6.00%, 06/15/05 3,904 595 New York City, New York, Municipal Water Finance Authority, Water & Sewer Systems, Ser. A, Rev., -, 7.00%, 06/15/01 613 405 New York City, New York, Municipal Water Finance Authority, Water & Sewer Systems, Ser. A, Rev., 7.00%, 06/15/09 417 2,000 New York City, New York, Municipal Water Finance Authority, Water & Sewer Systems, Ser. B, Rev., 5.50%, 06/15/27 1,968 2,000 New York City, New York, Ser. A, GO, 5.88%, 08/01/03 2,073 500 New York City, New York, Ser. A, GO, 6.10%, 08/01/02 515 1,000 New York City, New York, Ser. A, GO, 6.25%, 08/01/03 1,045 475 New York City, New York, Ser. A, GO, -, 6.38%, 08/01/02 500 1,025 New York City, New York, Ser. A, GO, 6.38%, 08/01/05 1,071 1,000 New York City, New York, Ser. A, GO, -, 7.75%, 08/15/01 1,047 30 New York City, New York, Ser. D, GO, -, 7.65%, 02/01/02 32 30 New York City, New York, Ser. D, GO, 7.65%, 02/01/06 32 2,500 New York City, New York, Ser. E, GO, 6.00%, 08/01/07 2,708 1,000 New York City, New York, Ser. F, GO, -, 8.25%, 11/15/01 1,061 240 New York City, New York, Ser. F, GO, 8.25%, 11/15/02 254 2,000 New York City, New York, Ser. G, GO, 5.75%, 11/15/15 2,074 75 New York City, New York, Ser. H, GO, 6.88%, 02/01/02 77 925 New York City, New York, Ser. H, GO, -, 6.88%, 02/01/02 958 40 New York City, New York, Ser. H, GO, -, 7.00%,02/01/02 42 460 New York City, New York, Ser. H, GO, 7.00%, 02/01/06 484 25 New York City, New York, Ser. H, GO, -, 7.10%, 02/01/02 26 975 New York City, New York, Ser. H, GO, 7.10%, 02/01/12 1,026 4,580 New York City, New York, Ser. H, Sub. Ser. H-1, GO, 5.50%, 08/01/01 4,628 1,000 New York City, New York, Transit Authority, Metropolitan Transportation Authority, Triborough, Ser. A, COP, 5.63%, 01/01/12 1,058 1,650 New York City, New York, Trust Cultural Resources, Museum of Modern Art, Ser. A, Rev., 5.40%, 01/01/12 1,677 1,000 New York State, Dorm Authority, City University System, 3rd General Reserve, Ser. 1, Rev., 5.25%, 07/01/08 1,033
See notes to financial statements. 28 CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ------------------------------------------------------------------------------------ Long-Term Municipal Securities -- Continued - ------------------------------------------------------------------------------------ New York -- Continued $ 2,500 New York State, Dorm Authority, City University System, 3rd General Reserve, Ser. 2, Rev., 5.38%, 07/01/13 $ 2,566 1,545 New York State, Dorm Authority, City University System, Ser. D, Rev., 5.75%, 07/01/06 1,639 2,000 New York State, Dorm Authority, City University System, Ser. B, Rev., 5.75%, 07/01/07 2,131 5,590 New York State, Dorm Authority, City University System, Ser. D, Rev., 7.00%, 07/01/09 6,245 470 New York State, Dorm Authority, Long Island University, Rev., 5.00%, 09/01/12 470 1,020 New York State, Dorm Authority, Long Island University, Rev., 5.13%, 09/01/10 1,045 1,000 New York State, Dorm Authority, Long Island University, Rev., 5.25%, 09/01/11 1,028 1,000 New York State, Dorm Authority, Memorial Sloan Kettering Cancer Center, Ser. C, Rev., 5.50%, 07/01/09 1,053 1,215 New York State, Dorm Authority, Mental Health Services, Facilities Improvement, Ser. B, Rev., 5.50%, 02/15/12 1,268 1,665 New York State, Dorm Authority, Mental Health Services, Facilities Improvement, Ser. B, Rev., 5.60%, 08/15/13 1,739 2,750 New York State, Dorm Authority, New York University, Rev., 6.38%, 07/01/07 2,846 2,000 New York State, Dorm Authority, New York University, Ser. A, Rev., 5.75%, 07/01/09 2,149 1,000 New York State, Dorm Authority, New York University, Ser. A, Rev., 5.75%, 07/01/15 1,059 2,015 New York State, Dorm Authority, Rockefeller University, Rev., 5.00%, 07/01/12 2,041 1,400 New York State, Dorm Authority, Rockefeller University, Rev., 5.00%, 07/01/28 1,298 1,305 New York State, Dorm Authority, Special Act, School Districts Program, Rev., 5.30%, 07/01/11 1,353 2,065 New York State, Dorm Authority, State Service Contract, Albany County, Rev., 5.25%, 04/01/12 2,074 840 New York State, Dorm Authority, State Service Contract, Albany County, Rev., 5.50%, 04/01/08 872 1,000 New York State, Dorm Authority, State University Educational Facilities, Ser. A, Rev., 5.25%, 05/15/11 1,029 2,380 New York State, Dorm Authority, State University Educational Facilities, Ser. A, Rev., 5.50%, 05/15/06 2,497 6,500 New York State, Dorm Authority, State University Educational Facilities, Ser. A, Rev., 5.50%, 05/15/13 6,815 5,000 New York State, Dorm Authority, State University Educational Facilities, Ser. A, Rev., -, 6.00%, 05/15/05 5,422 2,000 New York State, Dorm Authority, State University Educational Facilities, Ser. C, Rev., 7.38%, 05/15/10 2,305 5,000 New York State, Energy Research & Development Authority, PCR, New York State Electric and Gas Corp., Ser. E, Rev., 5.90%, 12/01/06 5,376 7,000 New York State, Environmental Facilities Corp., PCR, State Water Revolving Fund, New York City Municipal Water, Rev., 5.75%, 06/15/12 7,521
See notes to financial statements. 29 CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands) Principal Amount Issuer Value - ----------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ----------------------------------------------------------------------------------- New York -- Continued $ 720 New York State, Environmental Facilities Corp., PCR, State Water Revolving Fund, Ser. A, Rev., 7.25%, 06/15/10 $ 749 5,415 New York State, Environmental Facilities Corp., PCR, State Water Revolving Fund, Ser. E, Rev., 6.00%, 06/15/12 5,958 1,000 New York State, GO, 2.75%, 07/01/04 941 995 New York State, GO, 5.25%, 03/01/09 1,029 600 New York State, GO, 7.50%, 11/15/00 604 1,395 New York State, Housing Finance Agency, Health Facilities, Monroe County, Ser. A, Rev., 7.63%, 05/01/05 1,429 835 New York State, Housing Finance Agency, Rev., -, 8.00%, 11/01/00 857 130 New York State, Housing Finance Agency, Rev., 8.00%, 11/01/08 133 650 New York State, Housing Finance Agency, Service Contract Obligation, Ser. A, Rev., -, 7.38%, 03/15/02 692 1,550 New York State, Housing Finance Agency, State University Construction, Ser. A, Rev., -, 8.00%, 05/01/1 1,909 360 New York State, Medical Care Facilities Finance Agency, Mortgage Project, Ser. A, Rev., 5.40%, 08/15/04 372 165 New York State, Medical Care Facilities Finance Agency, Rev., 7.70%, 08/15/03 169 3,365 New York State, Mortgage Agency, Ser. 19, Rev., Mandatory Tender, 4.45%, 10/01/01 3,350 120 New York State, Thruway Authority, Highway & Bridge Trust Fund, Ser. B, Rev., 5.00%, 04/01/08 123 3,000 New York State, Thruway Authority, Ser. D, Rev., 5.25%, 01/01/21 2,891 3,315 New York State, Thruway Authority, Service Contract, Local Highway & Bridge, 6.00%, 04/01/11 3,542 250 New York State, Urban Development Corp., Ser. B, Rev., 5.60%, 04/01/11 261 95 New York State, Urban Development Corp., Ser. B, Rev., 5.88%, 04/01/14 100 1,045 Oneida County, New York, GO, 5.50%, 03/15/11 1,101 275 Randolph, New York, Central School District, GO, 5.00%, 06/15/06 283 2,180 Rochester, New York, Ser. A, GO, 5.70%, 08/15/04 2,285 1,905 Rome, New York, City School District, GO, 5.50%, 06/15/13 1,984 1,050 Scotia Glenville, New York, Central School District, GO, 5.40%, 06/15/12 1,095 1,050 Scotia Glenville, New York, Central School District, GO, 5.50%, 06/15/13 1,096 1,025 Scotia Glenville, New York, Central School District, GO, 5.50%, 06/15/14 1,062 275 Shenendehowa Central School District, Clifton Park, New York, GO, 5.25%, 07/15/11 291 500 Stillwater, New York, Central School District, GO, 5.20%, 06/15/11 515 1,000 Suffolk County, New York, IDA, IDR, Nissequogue Cogen Partners Facility, Rev., 5.30%, 01/01/13 903 1,910 Suffolk County, New York, Public Improvement, Ser. C, GO, 5.10%, 11/01/02 1,941
See notes to financial statements. 30 CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - ------------------------------------------------------------------------------------- New York -- Continued $ 5,000 Suffolk County, New York, Southwest Sewer District, GO, 6.00%, 02/01/05 $ 5,305 1,065 Sullivan County, New York, Public Improvement, GO, 5.00%, 03/15/08 1,082 7,125 Triborough Bridge & Tunnel Authority, New York, General Purpose, Ser. Y, Rev., 6.00%, 01/01/12 7,793 440 Utica, New York, Public Improvement, GO, 6.00%, 01/15/03 450 465 Utica, New York, Public Improvement, GO, 6.00%, 01/15/04 479 565 Warwick Valley, Central School District, New York, GO, 5.50%, 01/15/14 585 600 Watertown, New York, City School District, GO, 5.63%, 06/15/16 619 1,365 Watertown, New York, City School District, GO, 5.63%, 06/15/17 1,400 1,245 Watertown, New York, City School District, GO, 5.63%, 06/15/18 1,270 1,000 Windsor, New York, Central School District, GO, 5.50%, 06/15/13 1,049 1,170 Windsor, New York, Central School District, GO, 5.50%, 06/15/14 1,219 650 Windsor, New York, Central School District, GO, 5.50%, 06/15/15 672 -------- 240,066 Northern Mariana Islands -- 0.2% 500 Northern Mariana Islands, Public School System Project, Ser. A, GO, 3.70%, 10/01/03 485 Puerto Rico -- 7.4% 1,565 Puerto Rico Electric Power Authority, Ser. AA, Rev., 4.80%, 07/01/01 1,573 4,390 Puerto Rico Electric Power Authority, Ser. AA, Rev., 5.40%, 07/01/13 4,588 1,300 Puerto Rico Electric Power Authority, Ser. AA, Rev., 6.25%, 07/01/10 1,485 3,225 Puerto Rico Electric Power Authority, Ser. HH, Rev., 5.25%, 07/01/09 3,428 1,300 Puerto Rico Electric Power Authority, Ser. HH, Rev., 5.50%, 07/01/10 1,408 1,800 Puerto Rico Electric Power Authority, Ser. X, Rev., 6.00%, 07/01/11 1,932 5,000 Puerto Rico Municipal Finance Agency, Ser. A, GO, 5.00%, 08/01/01 5,035 1,000 Puerto Rico Municipal Finance Agency, Ser. A, GO, 5.00%, 08/01/02 1,013 -------- 20,462 Virgin Islands -- 3.5% 1,390 Virgin Islands Public Finance Authority, Gross Receipts, Taxes Lien Notes, Ser. A, Rev., 5.00%, 10/01/03 1,400 1,090 Virgin Islands Public Finance Authority, Gross Receipts, Taxes Lien Notes, Ser. A, Rev., 5.25%, 10/01/01 1,098 1,000 Virgin Islands Public Finance Authority, Gross Receipts, Taxes Lien Notes, Ser. A, Rev., 5.50%, 10/01/02 1,017 1,000 Virgin Islands Public Finance Authority, Senior Lien, Fund Lien Notes, Ser. C, Rev., 5.00%, 10/01/00 1,001
See notes to financial statements. 31 CHASE VISTA SELECT NEW YORK INTERMEDIATE TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - --------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - --------------------------------------------------------------------------------------- Virgin Islands -- Continued $ 2,000 Virgin Islands Public Finance Authority, Senior Lien, Fund Lien Notes, Ser. C, Rev., 5.00%, 10/01/01 $ 2,006 3,075 Virgin Islands Public Finance Authority, Senior Lien, Fund Lien Notes, Ser. C, Rev., 5.00%, 10/01/02 3,088 -------- 9,610 - --------------------------------------------------------------------------------------- Total Long-Term Municipal Securities 270,623 (Cost $264,380) - --------------------------------------------------------------------------------------- Short-Term Investments -- 1.3% - --------------------------------------------------------------------------------------- Municipal Securities -- 1.2% ---------------------------- New York -- 1.2% 600 New York City, New York, Municipal Water Finance Authority, Water & Sewer Systems, Ser. C, Rev., FRDO, 4.15%, 09/01/00 600 300 New York City, New York, Ser. B, Sub. Ser. B-4, GO, FRDO, 4.15%, 09/01/00 300 785 New York State, Job Development Authority, Special Purpose, Ser. A-1 through A-13, Rev., FRDO, 4.40%, 09/01/00 785 320 New York State, Job Development Authority, Special Purpose, Ser. A-1 through A-25, Rev., FRDO, 4.40% 09/01/00 320 605 New York State, Job Development Authority, Special Purpose, Ser. B-1 Through B-9, Rev., FRDO, 4.40%, 09/01/00 605 800 Port Authority of New York & New Jersey, Special Obligation, Versatile Structure Obligation, Ser. 2, Rev., FRDO, 4.05%, 09/01/00 800 --------------------------------------------------------------------- Total Municipal Securities 3,410 (Cost $3,410) --------------------------------------------------------------------- Shares Money Market Fund -- 0.1% ------------------------- 383 Provident New York Money Market Fund 383 (Cost $383) - --------------------------------------------------------------------------------------- Total Short-Term Investments 3,793 (Cost $3,793) - --------------------------------------------------------------------------------------- Total Investments -- 99.2% $274,416 (Cost $268,173) - ---------------------------------------------------------------------------------------
See notes to financial statements. 32 CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND Portfolio of Investments As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - ----------------------------------------------------------------------------------------- Long-Term Municipal Securities -- 98.1% - ----------------------------------------------------------------------------------------- New Jersey -- 87.0% $ 105 Asbury Park, New Jersey, Board of Education, GO, 5.50%, 08/01/11 $ 111 495 Bayshore Regional Sewer Authority, New Jersey, Rev., 5.50%, 04/01/12 514 1,000 Bergen County, New Jersey, Utilities Authority, Water Pollution Control, Ser. B, Rev., 5.75%, 12/15/05 1,061 935 Bloomfield Township, New Jersey, GO, 5.20%, 06/15/11 967 510 Bloomfield Township, New Jersey, GO, 5.20%, 06/15/12 523 270 Brick Township, New Jersey, Improvement, GO, 5.40%, 05/01/07 284 570 Brick Township, New Jersey, Improvement, GO, 5.40%, 05/01/09 603 250 Camden County, New Jersey, IAR, Health Systems, Catholic Health East, Ser. B, Rev., 5.25%, 11/15/12 255 345 Cinnaminson Township, New Jersey, School District, GO, 5.20%, 08/01/10 358 900 Delaware River & Bay Authority, New Jersey, Rev., 5.20%, 01/01/10 927 555 Delaware River & Bay Authority, New Jersey, Ser. A, Rev., 5.50%, 01/01/16 570 500 Delaware River & Bay Authority, New Jersey, Ser. A, Rev., 5.70%, 01/01/20 516 1,700 Delaware River Port Authority of Pennsylvania & New Jersey, Port District Project, Ser. B, Rev., 5.70%, 01/01/1 1,741 370 East Orange, New Jersey, Capital Improvement, GO, 5.50%, 07/15/10 393 570 Edison Township, New Jersey, School District, GO, 6.50%, 06/01/04 610 215 Gloucester County, New Jersey, Improvement Authority, County Guaranteed, Ser. A, Rev., 5.35%, 08/01/09 226 220 Gloucester County, New Jersey, Improvement Authority, County Guaranteed, Ser. A, Rev., 5.55%, 08/01/12 232 225 Gloucester County, New Jersey, Improvement Authority, County Guaranteed, Ser. A, Rev., 5.70%, 08/01/15 236 1,140 Hamilton Township, Atlantic County, New Jersey, School District, GO, 5.88%, 12/15/07 1,194 500 Hunterdon, New Jersey, Central Regional High School District, GO, 5.40%, 05/01/09 522 360 Jersey City, New Jersey, General Improvement, Ser. A, GO, 6.00%, 10/01/05 384 175 Long Hill Township, New Jersey, GO, 5.15%, 08/15/05 180 175 Long Hill Township, New Jersey, GO, 5.15%, 08/15/06 181 275 Long Hill Township, New Jersey, GO, 5.15%, 08/15/07 285 275 Long Hill Township, New Jersey, GO, 5.15%, 08/15/08 285 380 Lopatcong Township, New Jersey, Board of Education, GO, 5.63%, 07/15/13 401 400 Lopatcong Township, New Jersey, Board of Education, GO, 5.70%, 07/15/16 418 500 Lopatcong Township, New Jersey, Board of Education, GO, 5.70%, 07/15/23 512 100 Mainland, New Jersey, Regional High School District, GO, 5.20%, 11/15/06 104
See notes to financial statements. 33 CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands) Principal Amount Issuer Value - ------------------------------------------------------------------------------------ Long-Term Municipal Securities -- Continued - ------------------------------------------------------------------------------------ New Jersey -- Continued $ 105 Mainland, New Jersey, Regional High School District, GO, 5.20%, 11/15/07 $ 109 110 Mainland, New Jersey, Regional High School District, GO, 5.25%, 11/15/08 115 110 Mainland, New Jersey, Regional High School District, GO, 5.25%, 11/15/09 115 115 Mainland, New Jersey, Regional High School District, GO, 5.25%, 11/15/10 119 120 Mainland, New Jersey, Regional High School District, GO, 5.25%, 11/15/11 123 125 Mainland, New Jersey, Regional High School District, GO, 5.25%, 11/15/12 128 1,330 Marlboro Township, New Jersey, Board of Education, GO, 4.90%, 07/15/05 1,358 1,460 Marlboro Township, New Jersey, Board of Education, GO, 5.00%, 07/15/06 1,500 200 Medford Township, New Jersey, GO, 5.30%, 07/15/07 209 300 Medford Township, New Jersey, GO, 5.30%, 07/15/08 315 400 Medford Township, New Jersey, GO, 5.30%, 07/15/09 420 575 Middletown Township, New Jersey, Board of Education, GO, 5.70%, 08/01/04 601 2,000 Middletown Township, New Jersey, Board of Education, GO, 5.85%, 08/01/27 2,058 1,710 New Jersey Economic Development Authority, Market Transition Facility, Senior Lien, Ser. A, Rev., 5.80%, 07/01/08 1,808 1,200 New Jersey Economic Development Authority, Market Transition Facility, Senior Lien, Ser. A, Rev., 5.80%, 07/01/09 1,267 1,060 New Jersey Economic Development Authority, New Jersey Performing Arts Center Project, Ser. A, Rev., 6.00%, 06/15/08 1,155 590 New Jersey Health Care Facilities, Financing Authority, St. Elizabeth Hospital Obligation Group, Rev., 6.00%, 07/01/14 544 670 New Jersey Sports & Exposition Authority, Ser. A, Rev., 6.50%, 03/01/07 701 720 New Jersey State, Educational Facilities Authority, Capital Improvement Fund, Ser. A, Rev., 5.00%, 09/01/08 740 2,545 New Jersey State, Educational Facilities Authority, Drew University Issue, Ser. C, Rev., 5.25%, 07/01/13 2,587 435 New Jersey State, Educational Facilities Authority, Fairleigh Dickinson University, Ser. G, Rev., 4.88%, 07/01/04 428 1,000 New Jersey State, Educational Facilities Authority, Fairleigh Dickinson University, Ser. G, Rev., 5.70%, 07/01/28 920 1,000 New Jersey State, Educational Facilities Authority, Princeton University, Ser. E, Rev., 5.25%, 07/01/13 1,024 1,140 New Jersey State, Ser. B, GO, 6.25%, 01/15/04 1,204 2,195 New Jersey State, Ser. D, GO, 5.75%, 02/15/06 2,326 1,000 New Jersey State, Ser. F, GO, 5.25%, 08/01/09 1,044
See notes to financial statements. 34 CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - -------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - -------------------------------------------------------------------------------- New Jersey -- Continued $ 100 New Jersey State, Transportation Corp., COP, 6.20%, 10/01/02 $ 104 110 New Jersey State, Transportation Trust Fund Authority, Transportation Systems, Ser. A, Rev., 5.00%, 06/15/12 110 1,000 New Jersey State, Transportation Trust Fund Authority, Transportation Systems, Ser. A, Rev., 5.75%, 06/15/16 1,058 205 New Jersey State, Turnpike Authority, Ser. A, Rev., 5.80%, 01/01/02 208 935 New Jersey State, Turnpike Authority, Ser. A, Rev., -, 5.80%, 01/01/02 952 1,000 New Jersey State, Turnpike Authority, Ser. C, Rev., -, 6.25%, 01/01/01 1,021 1,570 North Bergen Township, New Jersey, GO, 5.00%, 08/15/11 1,594 225 North Brunswick Township, New Jersey, GO, 5.25%, 04/01/04 232 1,140 North Jersey District Water Supply, Wanaque South Project, Rev., 5.50%, 07/01/03 1,174 1,140 Northwest Bergen County, New Jersey, Utilities Authority, Utilities System, Rev., 6.00%, 07/15/07 1,202 570 Ocean County, New Jersey, General Improvement, GO, 6.38%, 04/15/03 598 1,500 Port Authority of New York & New Jersey, Consolidated Bonds 93rd Ser., Rev., 6.13%, 06/01/94 1,621 2,435 Port Authority of New York & New Jersey, Consolidated Bonds 114th Ser., Rev., 4.75%, 08/01/33 2,119 1,550 Port Authority of New York & New Jersey, Special Obligation, JFK International Airport Terminal #6, Rev., 6.25%, 12/01/08 1,705 3,000 Port Authority of New York & New Jersey, Special Obligation, JFK International Airport Terminal #6, Rev., 6.25%, 12/01/09 3,321 305 Rahway, New Jersey, COP, 5.00%, 02/15/06 313 430 Rahway, New Jersey, COP, 5.30%, 02/15/11 449 435 Summit, New Jersey, GO, 5.70%, 06/01/10 468 1,105 Summit, New Jersey, GO, 5.70%, 06/01/11 1,183 1,000 Sussex County, New Jersey, General Improvement, GO, -, 6.00%, 04/01/02 1,044 880 Sussex County, New Jersey, GO, 5.00%, 07/15/06 904 785 Union County Improvement Authority, Plainfield Board of Education Project, Rev., 6.25%, 08/01/07 861 1,101 Union County, New Jersey, General Improvement, GO, 4.75%, 12/15/15 1,048 1,100 West Orange, New Jersey, GO, 5.45%, 02/15/15 1,122 1,100 West Orange, New Jersey, GO, 5.45%, 02/15/16 1,116 ------- 63,038 Puerto Rico -- 6.2% 1,200 Puerto Rico Commonwealth, Highway & Transportation Authority, Ser. W, Rev., 5.50%, 07/01/15 1,264 1,000 Puerto Rico Electric Power Authority, Ser. AA, Rev., 6.25%, 07/01/10 1,142 1,000 Puerto Rico Electric Power Authority, Ser. HH, Rev., 5.25%, 07/01/09 1,063
See notes to financial statements. 35 CHASE VISTA SELECT NEW JERSEY TAX FREE INCOME FUND Portfolio of Investments (Continued) As of August 31, 2000 (Amounts in thousands)
Principal Amount Issuer Value - -------------------------------------------------------------------------------------- Long-Term Municipal Securities -- Continued - -------------------------------------------------------------------------------------- Puerto Rico -- Continued $ 1,000 University of Puerto Rico, Ser. O, Rev., 5.75%, 06/01/17 $ 1,056 ------- 4,525 Virgin Islands -- 4.9% 1,155 Virgin Islands Public Finance Authority, Gross Receipts, Tax Lien Notes, Ser. A, Rev., 5.50%, 10/01/02 1,175 500 Virgin Islands Public Finance Authority, Gross Receipts, Taxes Lien Notes, Ser. A, Rev., 6.38%, 10/01/19 515 2,000 Virgin Islands Public Finance Authority, Senior Lien, Ser. A, Rev., @ 5.50%, 10/01/22 1,883 ------- 3,573 - -------------------------------------------------------------------------------------- Total Long-Term Municipal Securities 71,136 (Cost $69,948) - -------------------------------------------------------------------------------------- Short-Term Investments -- 1.6% - -------------------------------------------------------------------------------------- Municipal Security -- 0.4% -------------------------- New Jersey -- 0.4% 300 New Jersey Economic Development Authority, Water Facilities, United Water New Jersey Inc. Project, Ser. B, Rev., FRDO, 4.30%, 09/01/00 300 (Cost $300) Shares Money Market Fund -- 1.2% ------------------------- 837 Provident New Jersey Money Market Fund 837 (Cost $837) - -------------------------------------------------------------------------------------- Total Short-Term Investments 1,137 (Cost $1,137) - -------------------------------------------------------------------------------------- Total Investments -- 99.7% $72,273 (Cost $71,085) - --------------------------------------------------------------------------------------
Notional Number Original Value at Unrealized of Expiration Notional 08/31/00 Appreciation Contracts Description Date Value (USD) (USD) (USD) - -------------------------------------------------------------------------------------- Long Futures Outstanding - ------------------------ December, 57 U.S. Treasury Bonds 2000 $5,685 $5,725 $ 40
See notes to financial statements. 36 CHASE VISTA SELECT FUNDS Portfolio of Investments (Continued) As of August 31, 2000 INDEX: + -- When issued or delayed delivery security. * -- All or portion of this security is segregated for when issued or delayed delivery securities. - - -- Security is prerefunded or escrowed to maturity. The maturity date shown is the date of the prerefunded call. @ -- All or a portion of the security is segregated for futures. COP -- Certificates of Participation. Dorm -- Dormitory. FRDO -- Floating Rate Demand Obligation. The maturity date shown is the next interest reset date. The interest rate shown is the rate in effect at August 31, 2000. GO -- General Obligation. IAR -- Improvement Authority Revenue. IDA -- Industrial Development Authority. IDR -- Industrial Development Revenue. PCFA -- Pollution Control Financing Authority. PCFFA -- Pollution Control Facilities Financing Authority. PCR -- Pollution Control Revenue. RAN -- Revenue Anticipation Notes. Rev. -- Revenue Bond. Ser. -- Series. See notes to financial statements. 37 - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES August 31, 2000 - -------------------------------------------------------------------------------- (Amounts in Thousands, Except Per Share Amounts)
New York Intermediate Intermediate New Jersey Tax Free Tax Free Tax Free Tax Free Income Fund Income Fund Income Fund Income Fund - ------------------------------------------------------------------------------------------- ASSETS: Investment securities, at value (Note 1) ............... $744,567 $694,559 $274,416 $72,273 Other assets ................. 19 19 7 2 Receivables: Investment securities sold 122 -- -- -- Interest .................... 10,047 9,371 3,439 750 Fund shares sold ............ 1,077 69 64 -- Margin account for futures contracts ........... 615 36 -- 41 - --------------------------------------------------------------------------------------- Total Assets .............. 756,447 704,054 277,926 73,066 - --------------------------------------------------------------------------------------- LIABILITIES: Payables: Investment securities purchased ................... -- 6,388 -- -- Fund shares redeemed 20 403 83 209 Dividends ................... 2,986 2,493 1,004 270 Accrued liabilities: (Note 2) Investment advisory fees . 190 177 70 18 Administration fees ......... 95 88 29 7 Shareholder servicing fees . 158 147 59 6 Custodian fees .............. 49 32 16 5 Other ....................... 144 152 86 32 - --------------------------------------------------------------------------------------- Total Liabilities ......... 3,642 9,880 1,347 547 - --------------------------------------------------------------------------------------- NET ASSETS: Paid in capital .............. 744,706 682,026 272,560 71,402 Accumulated undistributed (distributions in excess of) net investment income 11 49 (79) (67) Accumulated net realized loss on investments and futures transactions ................. (9,710) (3,913) (2,145) (44) Net unrealized appreciation of investments and futures contracts .................... 17,798 16,012 6,243 1,228 - --------------------------------------------------------------------------------------- Net Assets .................... $752,805 $694,174 $276,579 $72,519 - --------------------------------------------------------------------------------------- Shares of beneficial interest outstanding ($.001 par value; unlimited number of shares authorized) ................... 120,377 66,356 39,467 7,451 Net Asset Value, maximum offering and redemption price per share ............... $ 6.25 $ 10.46 $ 7.01 $ 9.73 Cost of investments ........... $727,045 $678,587 $268,173 $71,085 - ---------------------------------------------------------------------------------------
See notes to financial statements. 38 - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the year ended August 31, 2000 - -------------------------------------------------------------------------------- (Amounts in Thousands)
New York Intermediate Intermediate New Jersey Tax Free Tax Free Tax Free Tax Free Income Fund Income Fund Income Fund Income Fund INTEREST INCOME: (Note 1C) $40,697 $35,542 $14,386 $3,544 - ------------------------------------------------------------------------------------- EXPENSES: (Note 2) Investment advisory fees ..... 2,201 2,110 854 202 Administration fees .......... 1,101 1,055 427 101 Shareholder servicing fees 1,218 1,156 468 112 Custodian fees ............... 151 136 108 54 Printing and postage ......... 21 21 9 3 Professional fees ............ 56 59 40 34 Registration expenses ........ 19 27 8 17 Transfer agent fees .......... 13 14 14 17 Trustees' fees ............... 37 35 14 3 Other ........................ 59 44 34 10 - ------------------------------------------------------------------------------------- Total expenses ............. 4,876 4,657 1,976 553 - ------------------------------------------------------------------------------------- Less amounts waived (Note 2F) .................... 667 658 332 140 Less expense reimbursements (Note 2G) .................... -- -- -- 13 Less earnings credits (Note 2E) .................... 10 1 1 -- - ------------------------------------------------------------------------------------- Net expenses ................ 4,199 3,998 1,643 400 - ------------------------------------------------------------------------------------- Net investment income ..................... 36,498 31,544 12,743 3,144 - ------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments ................. (9,111) (4,138) (2,145) (14) Futures transactions ........ 329 235 -- 40 Change in net unrealized appreciation/depreciation of: Investments ................. 16,042 10,103 5,793 910 Futures ..................... 276 40 -- 40 - ------------------------------------------------------------------------------------- Net realized and unrealized gain on investments and futures transactions ................. 7,536 6,240 3,648 976 - ------------------------------------------------------------------------------------- Net increase in net assets from operations ....... $44,034 $37,784 $16,391 $4,120
See notes to financial statements. 39 STATEMENT OF CHANGES IN NET ASSETS For the year ended August 31, (Amounts in Thousands)
Tax Free Income Fund ----------------------- 2000 1999 - ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income ....................................................... $ 36,498 $ 40,150 Net realized gain (loss) on investments and futures transactions ............ (8,782) (282) Change in net unrealized appreciation/depreciation of investments and futures ..................................................................... 16,318 (43,875) - ------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations ......................... 44,034 (4,007) - ------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ....................................................... (36,500) (40,149) Net realized gain on investment transactions ................................ -- (4,060) - ------------------------------------------------------------------------------------------------------- Total distributions to shareholders ....................................... (36,500) (44,209) - ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares issued ................................................. 94,232 83,194 Dividends reinvested ........................................................ 55 55 Cost of shares redeemed ..................................................... (93,114) (51,987) - ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions ..... 1,173 31,262 - ------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets ................................. 8,707 (16,954) - ------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period ......................................................... 744,098 761,052 - ------------------------------------------------------------------------------------------------------- End of period ............................................................... $752,805 $744,098 - ------------------------------------------------------------------------------------------------------- Share Transactions: Issued ...................................................................... 15,513 12,829 Reinvested .................................................................. 9 9 Redeemed .................................................................... (15,332) (8,037) - ------------------------------------------------------------------------------------------------------- Change in shares ............................................................. 190 4,801 - ------------------------------------------------------------------------------------------------------- Intermediate Tax Free Income Fund ----------------------- 2000 1999 - ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income ....................................................... $ 31,544 $ 35,249 Net realized gain (loss) on investments and futures transactions ............ (3,903) 6,211 Change in net unrealized appreciation/depreciation of investments and futures ..................................................................... 10,143 (33,446) - ------------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations ......................... 37,784 8,014 - ------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ....................................................... (31,525) (35,250) Net realized gain on investment transactions ................................ (3,807) (8,069) - ------------------------------------------------------------------------------------------------------- Total distributions to shareholders ....................................... (35,332) (43,319) - ------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares issued ................................................. 66,780 104,889 Dividends reinvested ........................................................ 3,806 8,063 Cost of shares redeemed ..................................................... (107,611) (65,922) - ------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions ..... (37,025) 47,030 - ------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets ................................. (34,573) 11,725 - ------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period ......................................................... 728,747 717,022 - ------------------------------------------------------------------------------------------------------- End of period ............................................................... $694,174 $728,747 - ------------------------------------------------------------------------------------------------------- Share Transactions: Issued ...................................................................... 6,521 9,728 Reinvested .................................................................. 372 744 Redeemed .................................................................... (10,502) (6,129) - ------------------------------------------------------------------------------------------------------- Change in shares ............................................................. (3,609) 4,343 - -------------------------------------------------------------------------------------------------------
See notes to financial statements. 40 STATEMENT OF CHANGES IN NET ASSETS For the periods indicated (continued)
New York Intermediate New Jersey Tax Free Tax Free Income Fund Income Fund ------------------------- -------------------- 2000 1999 2000 1999 - ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income ....................................................... $ 12,743 $ 14,213 $ 3,144 $ 3,452 Net realized gain (loss) on investments and futures transactions ............ (2,145) 566 26 (78) Change in net unrealized appreciation/depreciation of investments and futures ..................................................................... 5,793 (13,501) 950 (3,102) - ------------------------------------------------------------------------------------------------------------------------------- Increase in net assets from operations .................................... 16,391 1,278 4,120 272 - ------------------------------------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income ....................................................... (12,793) (14,214) (3,149) (3,452) Net realized gain on investment transactions ................................ (83) (2,596) -- (1,222) - ------------------------------------------------------------------------------------------------------------------------------- Total distributions to shareholders ....................................... (12,876) (16,810) (3,149) (4,674) - ------------------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) FROM CAPITAL SHARE TRANSACTIONS: Proceeds from shares issued ................................................. 42,794 49,190 12,035 5,638 Dividends reinvested ........................................................ 89 2,365 6 1,219 Cost of shares redeemed ..................................................... (64,427) (24,227) (8,140) (5,372) - ------------------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in net assets from capital share transactions ..... (21,544) 27,328 3,901 1,485 - ------------------------------------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets ................................. (18,029) 11,796 4,872 (2,917) - ------------------------------------------------------------------------------------------------------------------------------- NET ASSETS: Beginning of period ......................................................... 294,608 282,812 67,647 70,564 - ------------------------------------------------------------------------------------------------------------------------------- End of period ............................................................... $276,579 $294,608 $72,519 $67,647 - ------------------------------------------------------------------------------------------------------------------------------- Share Transactions: Issued ...................................................................... 6,259 6,850 1,271 564 Reinvested .................................................................. 13 327 1 121 Redeemed .................................................................... (9,421) (3,379) (862) (537) - ------------------------------------------------------------------------------------------------------------------------------- Change in shares ............................................................. (3,149) 3,798 410 148 - -------------------------------------------------------------------------------------------------------------------------------
See notes to financial statements. 41 - -------------------------------------------------------------------------------- CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies Mutual Fund Select Trust (the "Trust") was organized as a Massachusetts business trust, and is registered under the Investment Company Act of 1940, as amended, as an open-end, non-diversified management investment company. Select Tax Free Income Fund ("TFI"), Select Intermediate Tax Free Income Fund ("ITFI"), Select New York Intermediate Tax Free Income Fund ("NYTFI") and Select New Jersey Tax Free Income Fund ("NJTFI") (collectively, the "Funds") are four separate portfolios of the Trust. The Funds were established in December 1996 for the conversion of the Chase Manhattan Bank Common Trust Funds. Effective January 1, 1997, the Chase Common Trust Funds contributed securities and other assets in exchange for shares of the newly created Funds in a tax-free exchange. The following is a summary of significant accounting policies followed by the Funds: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. Valuation of investments -- Fixed income securities (other than short-term obligations), including listed issues, are valued using matrix pricing systems of a major dealer in bonds which take in to account factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data, without exclusive reliance upon quoted exchange or over- the-counter prices. Short-term debt securities with 61 days or more to maturity at time of purchase are valued, through the 61st day prior to maturity, at market value based on quotations obtained from market makers or other appropriate sources; thereafter, the value on the 61st day is amortized on a straight-line basis over the remaining number of days to maturity. Short-term investments with 60 days or less to maturity at time of purchase are valued at amortized cost, which approximates market. B. Repurchase agreements -- It is the Fund's policy that repurchase agreements are fully collateralized by U.S. Treasury and Government Agency securities. All collateral is held by the Fund's custodian bank, sub-custodian or a bank with which the custodian bank has entered into a sub-custodian agreement or is segregated in the Federal Reserve Book Entry System. If the seller of a repurchase agreement defaults and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization of the collateral may be delayed or limited. C. Security transactions and investment income -- Investment transactions are accounted for on the trade date (the date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Interest income is determined on the basis of coupon interest accrued, adjusted for amortization of premiums and accretion of discount. Dividend income is recorded on the ex-dividend date. Purchases of when-issued or delayed delivery securities may be settled a month or more after the trade date; interest income is not accrued until 42 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (continued) settlement date. Each Fund segregates assets with a current value at least equal to the amount of its when-issued or delayed delivery purchase commitments. D. Futures contracts -- When a Fund enters into a futures contract, it makes an initial margin deposit in a segregated account, either in cash or liquid securities. Thereafter, the futures contract is marked to market and the Fund makes (or receives) additional cash payments daily to (or from) the broker. Changes in the value of the contract are recorded as unrealized appreciation/depreciation until the contract is closed or settled. The Funds may enter into futures contracts only on exchanges or boards of trade. The exchange or board of trade acts as the counterparty to each futures transaction; therefore, the Fund's credit risk is limited to failure of the exchange or board of trade. The Funds invest in U.S. Treasury and/or municipal bond futures contracts as a hedge to modify the duration of the portfolio holdings. As of August 31, 2000, the Funds had open futures contracts as shown on the Portfolios of Investments. E. Federal income taxes -- Each Fund is treated as a separate taxable entity for Federal income tax purposes. The Fund's policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders all of its distributable net investment income and net realized gain on investments. In addition, the Fund intends to make distributions as required to avoid excise taxes. Accordingly, no provision for Federal income or excise tax is necessary. F. Distributions to shareholders -- Dividends and distributions paid to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains is determined in accordance with Federal income tax regulations, which may differ from generally accepted accounting principles. To the extent these "book/tax" differences are permanent in nature, (i.e., that they result from other than timing of recognition --"temporary differences") such amounts are reclassified within the capital accounts based on their Federal income tax-basis treatment. Dividends and distributions which exceed net investment income or net realized capital gains for financial reporting purposes but not for tax purposes are reported as distributions in excess of net investment income or net realized capital gains. G. Allocation of expenses -- Expenses directly attributable to a Fund are charged to that Fund; other expenses are allocated proportionately among each of the Funds within the Trust in relation to the net assets of each Fund or on another reasonable basis. H. Organization costs -- Organization and initial registration costs incurred in connection with establishing each of the Funds have been deferred and are being amortized on a straight-line basis over a sixty month period beginning with the commencement of operations of each Fund. 43 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (continued) 2. Fees and Other Transactions with Affiliates A. Investment advisory fee -- Pursuant to separate Investment Advisory Agreements, The Chase Manhattan Bank ("Chase" or "Adviser") acts as the investment adviser to the Funds. Chase is a direct wholly-owned subsidiary of The Chase Manhattan Corporation. As Investment Adviser, Chase supervises the investments of the Funds and for such services is paid a fee. The fee is computed daily and paid monthly at an annual rate equal to 0.30% of each Fund's average daily net assets. For the year ended August 31, 2000, the Adviser voluntarily waived fees as outlined in Note 2.F. below. Chase Asset Management, Inc. ("CAM"), a registered investment adviser, is the sub-investment adviser to each Fund, pursuant to a Sub-Investment Advisory Agreement between CAM and Chase. CAM is a wholly owned subsidiary of Chase and is entitled to receive a fee, payable by Chase from its advisory fee, at an annual rate equal to 0.15% of each Fund's average daily net assets. B. Shareholder servicing fees -- Effective January 3, 2000, the Trust adopted an Administrative Services Plan which, among other things, provides that the Trust on behalf of the Funds may obtain the services of one or more Shareholder Servicing Agents. For its services, each Shareholder Servicing Agent receives a fee. The fee is computed daily and paid monthly at an annual rate of 0.25% of the average daily net assets of each Fund. Chase and certain affiliates are the only Shareholder Servicing Agents. The Shareholder Servicing Agents voluntarily waived fees as outlined in Note 2.F. below. C. Sub-administration fees -- Pursuant to a Distribution and Sub- Administration Agreement, Vista Fund Distributors, Inc. ("VFD" or the "Distributor"), a wholly-owned subsidiary of The BISYS Group, Inc. ("BISYS"), acts as the Trust's exclusive underwriter and promotes and arranges for the sale of each Fund's shares. In addition, the Distributor provides certain sub-administration services to the Trust, including providing officers, clerical staff and office space for an annual fee computed daily and paid monthly of 0.05% of the average daily net assets of each Fund. For the year ended August 31, 2000, the Distributor voluntarily waived fees as outlined in Note 2.F. below. D. Administration fee -- Pursuant to an Administration Agreement, Chase (the "Administrator") provides certain administration services to the Trust at an annual fee computed daily and paid monthly of 0.10% of the respective Fund's average daily net assets. For the year ended August 31, 2000, the Administrator voluntarily waived fees as outlined in Note 2.F. below. E. Custodian and accounting fees -- Chase provides portfolio accounting and custody services for the Funds. Compensation for such services is presented in the Statement of Operations as custodian fees. For the year ended August 31, 2000, Chase voluntarily waived a portion of its custodian fees as outlined in Note 2.F. below. In addition, custodian fees 44 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (continued) are subject to reduction by credits earned by each Fund, based on cash balances held by Chase as custodian. Such earnings credits are presented separately in the Statement of Operations. The Funds could have invested the cash balances utilized in connection with the earnings credit arrangements in income producing assets if they had not entered into such arrangements. F. Waivers of fees -- For the year ended August 31, 2000, the Funds' vendors voluntarily waived fees for each of the Funds as follows (in thousands):
Investment Shareholder Advisory Administration Servicing Custody - --------------------------------------------------------------------------- TFI ................. $438 $209 $-- $20 ITFI ................ 429 205 -- 24 NYTFI ............... 174 136 -- 22 NJTFI ............... 40 38 51 11
G. Other -- Certain officers of the Trust are officers of VFD or of its parent corporation, BISYS. Deferred organization costs are included in Other assets in the Statement of Assets and Liabilities, and amortization of such costs is included in Other expenses in the Statement of Operations. The Distributor voluntarily reimbursed expenses of the Funds in the amounts as shown on the Statement of Operations. 3. Investment Transactions The cost of purchases and proceeds from sales of investments (excluding short-term investments) for the year ended August 31, 2000, were as follows (amounts in thousands):
TFI ITF I NYTFI NJTFI --------------------------------------------------------------------------- Purchases ................ $260,394 $411,297 $122,265 $36,738 Sales .................... 247,183 430,884 127,906 31,083
4. Federal Income Tax Matters For Federal income tax purposes, the cost and unrealized appreciation/ (depreciation) in value of the investment securities at August 31, 2000, are as follows (amounts in thousands):
TFI ITFI NYTFI NJTFI ------------------------------------------------------------------------------------- Aggregate cost ......................... $727,045 $678,597 $268,173 $71,085 -------- -------- -------- ------- Gross unrealized appreciation.......... $ 24,031 $ 19,382 $ 6,818 $ 1,682 Gross unrealized depreciation.......... (6,509) (3,420) (575) (494) -------- -------- -------- ------- Net unrealized appreciation .......... $ 17,522 $ 15,962 $ 6,243 $ 1,188 ======== ======== ======== =======
At August 31, 2000, TFI, ITFI, NYTFI and NJTFI had net capital loss carryovers of $3,923,866, $1,684,817, $566,672 and $3,760, respectively, which will be available to offset capital gans arising through August 31, 2008. To the extent that any net capital loss carryovers are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders. 45 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (continued) 5. Concentration of Credit Risk The Funds invest substantially all of their assets in a diversified portfolio of debt obligations issued by states, territories and possessions of the United States and by the District of Columbia, and by their political subdivisions and duly constituted authorities. NYTFI and NJTFI primarily invest in issuers in the States of New York and New Jersey, respectively. TFI invested approximately 28.7% of its net assets in issuers in New York State. The issuer's abilities to meet their obligations may be affected by economic or political developments in a specific state or region. 6. Trustee Compensation The Funds have adopted an unfunded noncontributory defined benefit pension plan covering all independent trustees of the Funds who will have served as an independent trustee for at least five years at the time of retirement. Benefits under this plan are based on compensation and years of service. Pension expenses for the year ended August 31, 2000, included in Trustees Fees in the Statement of Operations, and accrued pension liability included in Other Accrued Liabilities, in the Statement of Assets and Liabilities were as follows (in thousands):
Accrued Pension Pension Expenses Liability - ----------------------------------------------- TFI ................. $13 $55 ITFI ................ 13 52 NYTFI ............... 5 20 NJTFI ............... 1 5
7. Bank Borrowings The Funds may borrow money for temporary or emergency purposes. Any borrowings representing more than 5% of a Fund's total assets must be repaid before the Fund may make additional investments. The funds have entered into an agreement, enabling them to participate with other Chase Vista Funds in an unsecured line of credit with a syndicate of banks, which permits borrowings up to $350 million, collectively. Interest is charged to each fund based on its borrowings at an annual rate equal to the sum of the Federal Funds Rate plus 0.50%. The Funds also pay a commitment fee of 0.10% per annum on the average daily amount of the available commitment, which is allocated on a pro-rata basis to the Funds. The commitment fee is included in Other expenses on the Statement of Operations. Borrowings are payable on demand. The Funds had no borrowings outstanding at August 31, 2000, nor at any time during the year then ended. 8. Subsequent Event Effective September 5, 2000, CAM changed its name to Chase Fleming Asset Management (USA) Inc. 46 - -------------------------------------------------------------------------------- CHASE VISTA FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
Chase Vista Select ---------------------------------------------- Tax Free Income Fund ---------------------------------------------- Year Ended 1/1/97* ---------------------------------- Through 8/31/00 8/31/99 8/31/98 8/31/97 ---------- ------- ------- ------- Per share operating performance Net asset value, beginning of period .......... $6.19 $ 6.60 $6.45 $6.39 ------- ------ ------ ------ Income from investment operations: Net investment income ........................ 0.30 0.34 0.35 0.24 Net gain or losses in securities (both realized and unrealized) ............... 0.06 (0.37) 0.21 0.06 ------- ------ ------ ------ Total from investment operations ............ 0.36 (0.03) 0.56 0.30 ------- ------ ------ ------ Less Distributions: Dividends from net investment income ......... 0.30 0.34 0.35 0.24 Distributions from capital gains ............. -- 0.04 0.06 -- ------- ------ ------ ------ Total distributions ......................... 0.30 0.38 0.41 0.24 ------- ------ ------ ------ Net asset value, end of period ................ $6.25 $ 6.19 $6.60 $6.45 ======= ====== ====== ====== Total return 6.11% (0.63%) 8.99% 4.86% Ratios/supplemental data Net assets, end of period (millions) .......... $ 753 $ 744 $ 761 $ 677 Ratios to average net assets#: Expenses ..................................... 0.57% 0.03% 0.02% 0.02% Net investment income ........................ 4.98% 5.25% 5.39% 5.73% Expenses without waivers, reimbursements and earnings credits ............................. 0.66% 0.50% 0.50% 0.49% Net investment income without waivers, reimbursements and earnings credits .......... 4.89% 4.78% 4.91% 5.26% Portfolio turnover rate ....................... 35% 39% 47% 48% Intermediate Tax Free Income Fund -------------------------------------------- Year Ended -------------------------------- 1/1/97* Through 8/31/00 8/31/99 8/31/98 8/31/97 -------- ------- ------- -------- Per share operating performance Net asset value, beginning of period .......... $10.42 $10.93 $10.85 $10.75 -------- ------- ------- ------- Income from investment operations: Net investment income ........................ 0.46 0.52 0.56 0.39 Net gain or losses in securities (both realized and unrealized) ............... 0.10 (0.39) 0.29 0.10 -------- ------- ------- ------- Total from investment operations ............ 0.56 0.13 0.85 0.49 -------- ------- ------- ------- Less Distributions: Dividends from net investment income ......... 0.46 0.52 0.56 0.39 Distributions from capital gains ............. 0.06 0.12 0.21 -- -------- ------- ------- ------- Total distributions ......................... 0.52 0.64 0.77 0.39 -------- ------- ------- ------- Net asset value, end of period ................ $10.46 $10.42 $10.93 $10.85 ======== ======= ======= ======= Total return 5.54% 1.15% 8.08% 4.58% Ratios/supplemental data Net assets, end of period (millions) .......... $ 694 $ 729 $ 717 $ 631 Ratios to average net assets#: Expenses ..................................... 0.57% 0.03% 0.02% 0.02% Net investment income ........................ 4.49% 4.81% 5.10% 5.40% Expenses without waivers, reimbursements and earnings credits ............................. 0.66% 0.50% 0.50% 0.50% Net investment income without waivers, reimbursements and earnings credits .......... 4.40% 4.34% 4.62% 4.92% Portfolio turnover rate ....................... 60% 62% 71% 60%
* Commencement of operations. # Short periods have been annualized. See notes to financial statements. 47 FINANCIAL HIGHLIGHTS (continued)
Chase Vista Select -------------------------------------------- New York Intermediate Tax Free Income Fund -------------------------------------------- Year Ended 1/1/97* --------------------------------- Through 8/31/00 8/31/99 8/31/98 8/31/97 -------- ------- ------- ------- Per share operating performance Net asset value, beginning of period .......... $6.91 $7.29 $7.15 $7.09 ------- ------ ------ ------ Income from investment operations: Net investment income ........................ 0.31 0.35 0.37 0.26 Net gain or losses in securities (both realized and unrealized) ............... 0.10 (0.31) 0.21 0.06 ------- ------ ------ ------ Total from investment operations ............ 0.41 0.04 0.58 0.32 ------- ------ ------ ------ Less distributions: Dividends from net investment income ......... 0.31 0.35 0.37 0.26 Distributions from capital gains ............. -- 0.07 0.07 -- ------- ------ ------ ------ Total distributions ......................... 0.31 0.42 0.44 0.26 ------- ------ ------ ------ Net asset value, end of period ................ $7.01 $6.91 $7.29 $7.15 ======= ====== ====== ====== Total return .................................. 6.13% 0.38% 8.37% 4.62% Ratios/supplemental data Net assets, end of period (millions) .......... $ 277 $ 295 $ 283 $ 235 Ratios to average net assets#: Expenses ..................................... 0.58% 0.04% 0.03% 0.03% Net investment income ........................ 4.48% 4.85% 5.08% 5.52% Expenses without waivers, reimbursements and earnings credits ............................. 0.70% 0.53% 0.53% 0.53% Net investment income without waivers, reimbursements and earnings credits .......... 4.36% 4.36% 4.58% 5.02% Portfolio turnover rate ....................... 46% 39% 66% 32% New Jersey Tax Free Income Fund ------------------------------------------- Year Ended ------------------------------- 1/1/97* Through 8/31/00 8/31/99 8/31/98 8/31/97 ------- ------- ------- ------- Per share operating performance Net asset value, beginning of period .......... $9.61 $10.24 $10.04 $ 9.99 ------ ------- ------- ------ Income from investment operations: Net investment income ........................ 0.44 0.49 0.52 0.37 Net gain or losses in securities (both realized and unrealized) ............... 0.12 (0.45) 0.24 0.05 ------ ------- ------- ------ Total from investment operations ............ 0.56 0.04 0.76 0.42 ------ ------- ------- ------ Less distributions: Dividends from net investment income ......... 0.44 0.49 0.52 0.37 Distributions from capital gains ............. -- 0.18 0.04 -- ------ ------- ------- ------ Total distributions ......................... 0.44 0.67 0.56 0.37 ------ ------- ------- ------ Net asset value, end of period ................ $9.73 $ 9.61 $10.24 $10.04 ====== ======= ======= ====== Total return .................................. 6.08% 0.37% 7.82% 4.20% Ratios/supplemental data Net assets, end of period (millions) .......... $ 73 $ 68 $ 71 $ 64 Ratios to average net assets#: Expenses ..................................... 0.59% 0.04% 0.02% 0.02% Net investment income ........................ 4.67% 4.94% 5.16% 5.52% Expenses without waivers, reimbursements and earnings credits ............................. 0.82% 0.63% 0.63% 0.57% Net investment income without waivers, reimbursements and earnings credits .......... 4.44% 4.35% 4.55% 4.97% Portfolio turnover rate ....................... 48% 24% 60% 14%
* Commencement of operations. # Short periods have been annualized. See notes to financial statements. 48 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Trustees and Shareholders of Mutual Fund Select Trust In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Chase Vista Select Tax Free Income Fund, Chase Vista Select Intermediate Tax Free Income Fund, Chase Vista Select New York Intermediate Tax Free Income Fund and Chase Vista Select New Jersey Tax Free Income Fund (separate portfolios constituting Mutual Fund Select Trust, hereafter referred to as the "Trust") at August 31, 2000, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at August 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 October 11, 2000 49 - -------------------------------------------------------------------------------- TAX LETTER (UNAUDITED) - -------------------------------------------------------------------------------- Chase Vista Select Tax Free Income Fund (TFI) Chase Vista Select Intermediate Tax Free Income Fund (ITFI) Chase Vista Select New York Tax Free Income Fund (NYTFI) Chase Vista Select New Jersey Tax Free Fund (NJTFI) - -------------------------------------------------------------------------------- Certain tax information regarding the Chase Vista Select Mutual Funds is required to be provided to shareholders based upon the Funds income and distributions for the taxable year ended August 31, 2000. The information and distributions reported in this letter may differ from the information and distributions taxable to the shareholders for the calendar year ending December 31, 2000. The information necessary to complete your income tax returns for the calendar year ending December 31, 2000 will be received under separate cover. FOR THE FISCAL YEAR ENDED AUGUST 31, 2000: o The dividends paid from net investment income are 100.00%, 100.00%, 100.00% and 100.00% exempt from Federal income tax for TFI, ITFI, NYTFI and NJTFI, respectively. o For shareholders who are subject to the Alternative Minimum Tax, the percentage of income from private activity bonds issued after August 7, 1986, which may be considered a tax preference item, was 7.04%, 3.63%, 2.10% and 8.53% for TFI, ITFI, NYTFI and NJTFI, respectively. o Long-term capital gain distributions were $0.055 and $0.002 per share for ITFI and NYTFI, respectively. 50 [This page intentionally left blank] [This page intentionally left blank] [This page intentionally left blank] CHASE VISTA SELECT TAX FREE FUNDS ANNUAL REPORT Investment Adviser, Administrator, Shareholder and Fund Servicing Agent and Custodian The Chase Manhattan Bank Distributor Vista Fund Distributors, Inc. Transfer Agent DST Systems, Inc. Legal Counsel Simpson Thacher & Bartlett Independent Accountants PricewaterhouseCoopers LLP Chase Vista Funds are distributed by Vista Fund Distributors, Inc., which is unaffiliated with The Chase Manhattan Bank. Chase and its respective affiliates receive compensation from Chase Vista Funds for providing investment advisory and other services. This report is submitted for the general information of the shareholders of the funds. It is not authorized for distribution to prospective investors in the funds unless preceded or accompanied by a prospectus. To obtain a prospectus for any of the Chase-Vista Funds, call 1-800-34-VISTA. The prospectus contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. [copyright] The Chase Manhattan Corporation, 2000. All Rights Reserved. October 2000 [Chase Logo] Chase Vista Funds Fulfillment Center 393 Manley Street West Bridgewater, MA 02379-1039 EX-99.17(G) 8 a2044362zex-99_17g.txt EXHIBIT 99.17(G) LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND September 1, 2000 Dear Shareholder: The J.P. Morgan Institutional Tax Exempt Bond Fund returned 3.90% for the 12 months ended July 31, 2000. The fund outperformed its competition, as measured by the Lipper Intermediate Municipal Debt Funds Average, which advanced 3.16% over the same period. At the same time, the fund trailed its benchmark, the Lehman Brothers 1-16 year Municipal Bond Index, which gained 4.72%. The fund's 30-day SEC yield has increased to 4.57% as of July 31, which is a tax equivalent yield of 7.57% at a 39.6% federal income tax rate. The fund's net asset value as of July 31, 2000 was $9.98, down from $10.07 on July 31, 1999. Dividends of approximately $0.47 per share were paid over the 12-month period, of which more than $0.46 was tax-exempt income and less than $0.01 was long-term capital gains. The net assets of the fund stood at approximately $447.9 million on July 31, 2000, while the net assets of the portfolio, in which the fund invests, were approximately $783.9 million. The report that follows includes an interview with Kingsley Wood, Jr., who with Benjamin S. Thompson and Robert Meiselas, manages the portfolio. This interview is designed to reflect what happened during the months past, as well as provide an outlook for the future. As chairman and president of Asset Management Services, we thank you for investing with J.P. Morgan. Should you have any comments or questions, please telephone your Morgan representative or J.P. Morgan Funds Services at 800-766-7722. Sincerely yours, /s/ Ramon de Oliveira /s/ Keith M. Schappert Ramon de Oliveira Keith M. Schappert Chairman of Asset Management Services President of Asset Management Services J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------- TABLE OF CONTENTS LETTER TO THE SHAREHOLDERS...........1 GLOSSARY OF TERMS ...................6 FUND PERFORMANCE.....................2 FUND FACTS AND HIGHLIGHTS............7 PORTFOLIO MANAGER Q&A................3 FINANCIAL STATEMENTS................10 - -------------------------------------------------------------------------------- 1 FUND PERFORMANCE EXAMINING PERFORMANCE There are several ways to evaluate a mutual fund's historical performance. One way is to look at the growth of a hypothetical investment. The chart at right shows that $5,000,000 invested on July 31, 1990, would have grown to $9,040,012 on July 31, 2000. Another way is to review a fund's average annual total return. This calculation takes the fund's actual return and shows what would have happened if the fund had achieved that return by performing at a constant rate each year. Average annual total returns represent the average yearly change of a fund's value over various time periods, typically one, five, or ten years (or since inception). Total returns for periods of less than one year are not annualized and provide a picture of how a fund has performed over the short term. GROWTH OF $5,000,000 OVER 10 YEARS* JULY 31, 1990 -- JULY 31, 2000 [GRAPH]
JP Morgan Lipper Intermediate Lehman Quality Intermed. Lehman 1-16yr Institutional Tax Exempt Bond Muni Debt Muni Bond Muni Bond Index Net Monthly Plot Monthly Plot Monthly Plot Monthly Plot Index Returns Points Returns Points Index Returns Points Index Returns Points 7/31/90 1,635,125 5,000,000 170,745.78 5,000,000 174.76 176,614.40 5,000,000 181,070 182,621.89 186,555 8/31/90 1,615,335 (0.01) 4,939,484 (0.01) 4,956,500 173.26 (0.01) 4,956,850 9/30/90 1,619,508 0.00 4,952,245 0.00 4,972,361 173.63 0.00 4,967,606 10/31/90 1,650,842 0.02 5,048,060 0.01 5,034,018 176.88 0.02 5,060,550 11/30/90 1,677,776 0.02 5,130,423 0.02 5,114,059 179.91 0.02 5,147,288 12/31/90 1,681,934 0.00 5,143,137 0.00 5,135,027 180.48 0.00 5,163,656 1/31/91 1,707,530 0.02 5,221,406 0.01 5,192,539 183.20 0.02 5,241,421 2/28/91 1,719,427 0.01 5,257,784 0.01 5,236,156 184.89 0.01 5,289,799 3/31/91 1,717,304 (0.00) 5,251,295 0.00 5,241,916 184.54 (0.00) 5,279,802 4/30/91 1,738,545 0.01 5,316,245 0.01 5,299,577 187.00 0.01 5,350,182 5/31/91 1,750,412 0.01 5,352,533 0.01 5,338,264 188.20 0.01 5,384,369 6/30/91 1,748,093 (0.00) 5,345,441 (0.00) 5,330,257 187.95 (0.00) 5,377,154 7/31/91 1,766,219 0.01 5,400,868 0.01 5,387,823 189.84 0.01 5,431,410 8/31/91 1,787,702 0.01 5,466,561 0.01 5,442,779 192.43 0.01 5,505,548 9/30/91 1,810,780 0.01 5,537,131 0.01 5,502,650 195.13 0.01 5,582,736 10/31/91 1,822,571 0.01 5,573,187 0.01 5,546,121 196.71 0.01 5,627,845 11/30/91 1,826,296 0.00 5,584,577 0.00 5,562,204 197.25 0.00 5,643,321 12/31/91 1,865,626 0.02 5,704,842 0.02 5,667,330 201.53 0.02 5,765,894 1/31/92 1,867,537 0.00 5,710,686 0.00 5,682,632 201.98 0.00 5,778,579 2/29/92 1,863,086 (0.00) 5,697,076 0.00 5,691,724 201.86 (0.00) 5,775,112 3/31/92 1,858,467 (0.00) 5,682,951 (0.00) 5,683,756 201.31 (0.00) 5,759,519 4/30/92 1,871,961 0.01 5,724,215 0.01 5,729,794 203.14 0.01 5,811,931 5/31/92 1,893,804 0.01 5,791,007 0.01 5,792,249 205.36 0.01 5,875,281 6/30/92 1,924,047 0.02 5,883,487 0.01 5,874,499 208.79 0.02 5,973,398 7/31/92 1,979,084 0.03 6,051,784 0.03 6,041,335 215.03 0.03 6,152,003 8/31/92 1,956,950 (0.01) 5,984,099 (0.01) 5,979,713 212.75 (0.01) 6,086,791 9/30/92 1,973,658 0.01 6,035,190 0.01 6,016,189 214.52 0.01 6,137,312 10/31/92 1,954,501 (0.01) 5,976,610 (0.01) 5,965,653 212.82 (0.01) 6,088,827 11/30/92 1,984,758 0.02 6,069,132 0.02 6,073,035 216.08 0.02 6,181,986 12/31/92 2,004,999 0.01 6,131,028 0.01 6,139,838 218.15 0.01 6,241,333 1/31/93 2,032,136 0.01 6,214,008 0.01 6,211,060 221.38 0.01 6,333,705 2/28/93 2,092,243 0.03 6,397,808 0.03 6,401,740 228.31 0.03 6,531,950 3/31/93 2,063,254 (0.01) 6,309,162 (0.01) 6,333,241 225.20 (0.01) 6,443,115 4/30/93 2,078,221 0.01 6,354,931 0.01 6,386,441 226.87 0.01 6,490,794 5/31/93 2,084,291 0.00 6,373,493 0.00 6,411,986 227.55 0.00 6,510,267 6/30/93 2,116,919 0.02 6,473,263 0.01 6,504,960 231.69 0.02 6,628,754 7/31/93 2,110,499 (0.00) 6,453,633 0.00 6,507,562 231.97 0.00 6,636,708 100.14 (1.00) 103 8/31/93 2,150,192 0.02 6,575,009 0.02 6,626,000 235.84 0.02 6,747,541 101.93 0.02 104 9/30/93 2,177,622 0.01 6,658,885 0.01 6,701,536 238.44 0.01 6,821,764 102.98 0.01 105 10/31/93 2,178,079 0.00 6,660,285 0.00 6,715,609 238.92 0.00 6,835,408 103.19 0.00 106 11/30/93 2,163,917 (0.01) 6,616,979 (0.01) 6,672,630 237.31 (0.01) 6,789,610 102.47 (0.01) 105 12/31/93 2,197,065 0.02 6,718,339 0.02 6,785,397 241.52 0.02 6,909,786 104.36 0.02 107 1/31/94 2,220,423 0.01 6,789,767 0.01 6,855,965 244.05 0.01 6,982,339 105.50 0.01 108 2/28/94 2,172,150 (0.02) 6,642,154 (0.02) 6,709,933 238.85 (0.02) 6,833,615 103.15 (0.02) 106 3/31/94 2,130,072 (0.02) 6,513,484 (0.03) 6,522,055 232.26 (0.03) 6,645,008 99.98 (0.03) 102 4/30/94 2,136,155 0.00 6,532,086 0.00 6,554,013 234.17 0.01 6,699,497 100.86 0.01 103 5/31/94 2,151,154 0.01 6,577,951 0.01 6,603,168 235.52 0.01 6,738,354 101.55 0.01 104 6/30/94 2,146,403 (0.00) 6,563,423 (0.00) 6,586,000 234.98 (0.00) 6,722,856 101.24 (0.00) 104 7/31/94 2,172,512 0.01 6,643,260 0.01 6,670,959 238.20 0.01 6,814,959 102.72 0.01 105 8/31/94 2,178,951 0.00 6,662,949 0.00 6,696,976 239.25 0.00 6,844,944 103.14 0.00 106 9/30/94 2,158,995 (0.01) 6,601,927 (0.01) 6,627,997 237.10 (0.01) 6,783,340 102.06 (0.01) 104 10/31/94 2,136,654 (0.01) 6,533,610 (0.01) 6,550,450 234.84 (0.01) 6,718,898 100.90 (0.01) 103 11/30/94 2,107,417 (0.01) 6,444,208 (0.02) 6,450,883 231.77 (0.01) 6,630,881 99.49 (0.01) 102 12/31/94 2,141,528 0.02 6,548,515 0.02 6,552,162 234.90 0.01 6,720,398 101.01 0.02 103 1/31/95 2,180,376 0.02 6,667,309 0.02 6,685,826 239.34 0.02 6,847,413 103.11 0.02 106 2/28/95 2,231,038 0.02 6,822,225 0.02 6,830,240 244.48 0.02 6,994,632 105.53 0.02 108 3/31/95 2,252,021 0.01 6,886,388 0.01 6,891,712 247.24 0.01 7,073,672 106.72 0.01 109 4/30/95 2,259,364 0.00 6,908,842 0.00 6,903,428 247.86 0.00 7,091,356 106.94 0.00 109 5/31/95 2,317,438 0.03 7,086,425 0.02 7,069,800 254.11 0.03 7,270,058 109.81 0.03 112 JP Morgan Lipper Intermediate Lehman Quality Intermed. Lehman 1-16yr Institutional Tax Exempt Bond Muni Debt Muni Bond Muni Bond Index Net Monthly Plot Monthly Plot Monthly Plot Monthly Plot Index Returns Points Returns Points Index Returns Points Index Returns Points 6/30/95 2,308,474 (0.00) 7,059,013 (0.00) 7,037,986 253.75 (0.00) 7,259,880 109.41 (0.00) 112 7/31/95 2,334,285 0.01 7,137,940 0.01 7,104,143 257.03 0.01 7,353,533 110.75 0.01 113 8/31/95 2,353,280 0.01 7,196,027 0.01 7,175,895 259.80 0.01 7,432,951 112.07 0.01 115 9/30/95 2,360,532 0.00 7,218,201 0.00 7,211,057 260.92 0.00 7,464,912 112.66 0.01 115 10/31/95 2,381,830 0.01 7,283,327 0.01 7,283,889 263.06 0.01 7,526,125 113.72 0.01 116 11/30/95 2,410,329 0.01 7,370,475 0.01 7,366,197 265.87 0.01 7,606,654 115.07 0.01 118 12/31/95 2,430,684 0.01 7,432,716 0.01 7,417,760 267.31 0.01 7,647,730 115.80 0.01 119 1/31/96 2,454,508 0.01 7,505,567 0.01 7,477,102 269.93 0.01 7,722,678 116.91 0.01 120 2/29/96 2,445,031 (0.00) 7,476,587 (0.00) 7,454,671 269.15 (0.00) 7,700,282 116.51 (0.00) 119 3/31/96 2,413,618 (0.01) 7,380,530 (0.01) 7,371,178 266.67 (0.01) 7,629,440 115.37 (0.01) 118 4/30/96 2,408,839 (0.00) 7,365,918 (0.00) 7,357,173 266.19 (0.00) 7,615,707 115.13 (0.00) 118 5/31/96 2,408,869 0.00 7,366,008 0.00 7,357,909 265.82 (0.00) 7,605,045 114.99 (0.00) 118 6/30/96 2,423,563 0.01 7,410,941 0.01 7,403,528 267.81 0.01 7,662,082 115.93 0.01 119 7/31/96 2,448,102 0.01 7,485,979 0.01 7,470,160 269.95 0.01 7,723,379 116.92 0.01 120 8/31/96 2,450,546 0.00 7,493,454 0.00 7,473,148 270.11 0.00 7,728,013 116.98 0.00 120 9/30/96 2,470,450 0.01 7,554,316 0.01 7,538,911 272.38 0.01 7,792,928 118.07 0.01 121 10/31/96 2,492,829 0.01 7,622,747 0.01 7,612,039 275.22 0.01 7,873,975 119.34 0.01 122 11/30/96 2,530,354 0.02 7,737,495 0.01 7,723,936 279.54 0.02 7,997,596 121.30 0.02 124 12/31/96 2,520,838 (0.00) 7,708,395 (0.00) 7,701,536 278.73 (0.00) 7,974,403 120.92 (0.00) 124 1/31/97 2,528,479 0.00 7,731,761 0.00 7,718,480 279.81 0.00 8,005,503 121.39 0.00 124 2/28/97 2,548,883 0.01 7,794,153 0.01 7,775,596 281.97 0.01 8,067,146 122.39 0.01 125 3/31/97 2,521,123 (0.01) 7,709,267 (0.01) 7,697,063 278.75 (0.01) 7,975,180 121.01 (0.01) 124 4/30/97 2,531,435 0.00 7,740,799 0.01 7,736,318 280.26 0.01 8,018,246 121.78 0.01 125 5/31/97 2,564,655 0.01 7,842,383 0.01 7,828,380 283.68 0.01 8,116,069 123.33 0.01 126 6/30/97 2,590,373 0.01 7,921,027 0.01 7,899,618 286.17 0.01 8,187,490 124.48 0.01 127 7/31/97 2,652,048 0.02 8,109,619 0.02 8,073,410 292.16 0.02 8,358,609 127.34 0.02 130 8/31/97 2,623,573 (0.01) 8,022,547 (0.01) 8,008,015 290.26 (0.01) 8,304,278 126.42 (0.01) 129 9/30/97 2,654,649 0.01 8,117,572 0.01 8,091,299 293.22 0.01 8,388,981 127.75 0.01 131 10/31/97 2,664,949 0.00 8,149,069 0.00 8,130,137 294.68 0.00 8,430,926 128.44 0.01 131 11/30/97 2,675,287 0.00 8,180,682 0.00 8,162,658 295.74 0.00 8,461,278 128.98 0.00 132 12/31/97 2,711,834 0.01 8,292,438 0.01 8,266,323 299.15 0.01 8,558,582 130.56 0.01 134 1/31/98 2,737,930 0.01 8,372,237 0.01 8,336,587 301.99 0.01 8,639,889 131.85 0.01 135 2/28/98 2,735,116 (0.00) 8,363,631 0.00 8,339,922 302.26 0.00 8,647,665 131.96 0.00 135 3/31/98 2,734,827 (0.00) 8,362,745 0.00 8,341,590 302.32 0.00 8,649,394 132.04 0.00 135 4/30/98 2,721,290 (0.00) 8,321,353 (0.01) 8,298,213 301.02 (0.00) 8,612,202 131.50 (0.00) 135 5/31/98 2,761,078 0.01 8,443,020 0.01 8,416,048 305.08 0.01 8,728,467 133.34 0.01 136 6/30/98 2,768,838 0.00 8,466,747 0.00 8,440,455 306.09 0.00 8,757,271 133.82 0.00 137 7/31/98 2,773,914 0.00 8,482,271 0.00 8,454,803 306.98 0.00 8,782,667 134.18 0.00 137 8/31/98 2,816,817 0.02 8,613,461 0.01 8,579,934 311.21 0.01 8,903,868 136.09 0.01 139 9/30/98 2,851,763 0.01 8,720,322 0.01 8,673,456 314.70 0.01 9,003,591 137.67 0.01 141 10/31/98 2,851,196 (0.00) 8,718,588 (0.00) 8,670,854 315.45 0.00 9,025,199 137.92 0.00 141 11/30/98 2,856,083 0.00 8,733,532 0.00 8,687,328 316.24 0.00 9,047,762 138.29 0.00 142 12/31/98 2,864,971 0.00 8,760,710 0.00 8,716,865 317.13 0.00 9,073,096 138.72 0.00 142 1/31/99 2,905,590 0.01 8,884,917 0.01 8,816,237 321.06 0.01 9,185,603 140.48 0.01 144 2/28/99 2,882,866 (0.01) 8,815,430 (0.01) 8,766,867 319.84 (0.00) 9,150,697 139.86 (0.00) 143 3/31/99 2,882,098 (0.00) 8,813,082 (0.00) 8,759,853 319.91 0.00 9,152,527 139.92 0.00 143 4/30/99 2,886,929 0.00 8,827,856 0.00 8,783,505 320.80 0.00 9,178,155 140.32 0.00 144 5/31/99 2,869,357 (0.01) 8,774,121 (0.01) 8,730,804 319.39 (0.00) 9,137,771 139.66 (0.00) 143 6/30/99 2,829,378 (0.01) 8,651,873 (0.01) 8,605,953 315.37 (0.01) 9,022,635 137.89 (0.01) 141 7/31/99 2,845,401 0.01 8,700,867 0.00 8,645,541 317.29 0.01 9,077,673 138.63 0.01 142 8/31/99 2,838,875 (0.00) 8,680,912 (0.01) 8,600,584 317 (0.00) 9,065,872 138.29 (0.00) 142 9/30/99 2,846,700 0.00 8,704,839 0.00 8,603,164 318 0.00 9,098,509 138.69 0.00 142 10/31/99 2,834,626 (0.00) 8,667,918 (0.01) 8,538,640 317 (0.00) 9,066,664 138.01 (0.00) 141 11/30/99 2,854,183 0.01 8,727,723 0.01 8,612,072 319 0.01 9,132,851 139.21 0.01 142 12/31/99 2,843,411 (0.00) 8,694,782 (0.00) 8,571,596 318 (0.00) 9,099,973 138.64 (0.00) 142 1/31/00 2,837,327 (0.00) 8,676,179 (0.01) 8,528,738 318 (0.00) 9,087,233 138.40 (0.00) 142 2/29/00 2,857,363 0.01 8,737,446 0.01 8,594,409 319 0.00 9,130,851 139.33 0.01 143 3/31/00 2,889,567 0.01 8,835,922 0.01 8,715,590 323 0.01 9,244,074 141.35 0.01 145 4/30/00 2,877,507 (0.00) 8,799,045 (0.00) 8,679,856 322 (0.00) 9,217,266 141.00 (0.00) 144 JP Morgan Lipper Intermediate Lehman Quality Intermed. Lehman 1-16yr Institutional Tax Exempt Bond Muni Debt Muni Bond Muni Bond Index Net Monthly Plot Monthly Plot Monthly Plot Monthly Plot Index Returns Points Returns Points Index Returns Points Index Returns Points 5/31/00 2,868,522 (0.00) 8,771,568 (0.00) 8,639,929 321 (0.00) 9,196,988 140.56 (0.00) 144 6/30/00 2,923,921 0.02 8,940,973 0.02 8,819,639 328 0.02 9,386,446 143.57 0.02 147 7/31/00 2,956,310 0.01 9,040,012 0.01 8,918,419 331.82 0.01 9,493,452 145.18 0.01 149 - - -------------------------------------------------------------------------------------------------------------------------------- 2,991,868 6.10% 5.96% 6.62% 5.56%
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS ------------------ -------------------------------------- THREE SIX ONE THREE FIVE TEN AS OF JULY 31, 2000 MONTHS MONTHS YEAR YEARS YEARS YEARS - - ------------------------------------------------------------------------------------------------------------------- J.P. Morgan Institutional Tax Exempt Bond Fund 2.74% 4.19% 3.90% 3.69% 4.84% 6.10% Lehman 1-16 year Municipal Bond Index** 2.96% 4.89% 4.72% 4.47% 5.56% 6.69% Lehman Quality Intermediate Municipal Bond Index 3.00% 4.47% 4.58% 4.34% 5.24% 6.62% Lipper Intermediate Municipal Debt Funds Average*** 2.75% 4.59% 3.16% 3.40% 4.72% 6.00% AS OF JUNE 30, 2000 - - ----------------------------------------------------------------------------------------------------------------- J.P. Morgan Institutional Tax Exempt Bond Fund 1.19% 2.83% 3.34% 4.12% 4.84% 6.12% Lehman 1-16 year Municipal Bond Index** 1.57% 3.56% 4.12% 4.87% 5.58% 6.58% Lehman Quality Intermediate Municipal Bond Index 1.54% 3.15% 4.03% 4.66% 5.27% 6.64% Lipper Intermediate Municipal Debt Funds Average*** 1.20% 2.91% 2.50% 3.77% 4.68% 6.01%
*THE J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND'S RETURNS PRIOR TO JULY 12, 1993 (COMMENCEMENT OF OPERATIONS), INCLUDE HISTORICAL RETURNS OF THE J.P. MORGAN TAX EXEMPT BOND FUND, A SEPARATE FEEDER FUND INVESTING IN THE SAME MASTER PORTFOLIO, WHICH HAS A HIGHER EXPENSE RATIO. **THE FUND'S CURRENT BENCHMARK IS THE LEHMAN BROTHERS 1-16 YEAR MUNICIPAL BOND INDEX. SINCE THIS INDEX DID NOT EXIST PRIOR TO JULY 31, 1993, THE TABLE AND GRAPH ALSO INCLUDE THE PERFORMANCE DATA FOR THE LEHMAN QUALITY INTERMEDIATE MUNICIPAL BOND INDEX, THE FUND'S BENCHMARK UNTIL MAY 1, 1997. BOTH ARE UNMANAGED INDICES THAT MEASURE MUNICIPAL BOND MARKET PERFORMANCE. THEY DO NOT INCLUDE FEES OR EXPENSES AND ARE NOT AVAILABLE FOR ACTUAL INVESTMENT. ***DESCRIBES THE AVERAGE ANNUAL TOTAL RETURN FOR ALL FUNDS IN THE INDICATED LIPPER CATEGORY, AS DEFINED BY LIPPER, INC., AND DOES NOT TAKE INTO ACCOUNT APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF FEES, ASSUME THE REINVESTMENT OF FUND DISTRIBUTIONS, AND REFLECT THE REIMBURSEMENT OF FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. 2 PORTFOLIO MANAGER Q&A Following is an interview with Kingsley Wood, Jr., who with Benjamin S. Thompson and Robert Meiselas manages the master portfolio in which the fund invests. [PHOTO] BENJAMIN S. THOMPSON, vice president, is a senior fixed income portfolio manager and head of J.P. Morgan's municipal bond strategies. His responsibilities include coordination of strategy and research, portfolio structuring and trade execution for the Tax Aware Fixed Income Group. Prior to joining Morgan in 1999, Ben was a senior fixed income portfolio manager at Goldman Sachs Asset Management. Earlier, he was in the Structured Finance Group of the Chase Manhattan Bank. He holds a B.A. in Economics from Colorado College. [PHOTO] ROBERT MEISELAS, vice president, is a portfolio manager with the Tax Aware Fixed Income Group responsible for managing municipal bonds, including tax exempt private placements. Bob is a CPA and joined Morgan's financial group in 1982, after having spent 10 years at Coopers & Lybrand. He also spent five years in J.P. Morgan's Private Banking Investment Management Group, and moved to J.P. Morgan Investment Management in 1997. Bob is a graduate of St. John's University and has completed graduate work in taxation at Long Island University. [PHOTO] KINGSLEY (KIT) WOOD, JR., vice president, is a portfolio manager in the Tax Aware Fixed Income Group. Prior to becoming a J.P. Morgan Investment Management employee in 2000, he worked at Mercantile Bank & Trust (MSD&T Funds) in Baltimore, MD as a portfolio manager where he managed all institutional tax-exempt assets (mutual funds and separate accounts). Prior to that, he was a sell-side institutional trader at ABN-AMRO Bank and Kemper Securities in Chicago. Kit holds a B.A. from the University of Colorado and has completed graduate work towards an M.B.A. at the University of Maryland. This interview was conducted on August 12, 2000, and represents the views of Kit, Ben, and Bob on that date. WHAT WERE THE PRIMARY FACTORS THAT DROVE THE TAX-EXEMPT MARKET OVER THE 12-MONTH PERIOD ENDED JULY 31, 2000? KW: The Federal Reserve Board's efforts to fight inflation and slow our overheated economy by raising interest rates was perhaps THE defining factor that drove market performance during the period in question. From June 1999 to May 2000, the Fed raised interest rates no less than six times, totaling 175 basis points (bps). This was a marked departure from its earlier efforts to stimulate global growth by keeping rates relatively low in the wake of the 1997 Thai currency crisis and the 1998 Russian debt crisis. Municipal interest rates rose dramatically over the first six months of this reporting period, as investors grew concerned about the prospect of future rate hikes. These concerns eased during the latter six-month period, 3 as investors felt the Fed was succeeding in its quest and thus would be less inclined to raise rates much further. In response, municipal interest rates declined sharply. DID Y2K HAVE AN EFFECT ON THE MARKETPLACE? KW: Fortunately, this much dreaded event had little-to-no effect on the financial markets, largely due to the substantial preparatory efforts that were made by market participants to ensure this desired result. THE TREASURY YIELD CURVE INVERTED DRAMATICALLY OVER THIS PERIOD. HOW DID THIS AFFECT THE MUNICIPAL BOND MARKET? KW: In sympathy with the Fed's tightening bias, short-term Treasury rates rose during much of this period, while long-term rates declined, this in response to the Treasury's buyback of higher coupon, longer-term debt. The result of both movements was an inverted yield curve that persists to this day. As a consequence, the municipal yield curve flattened dramatically, with longer-dated issues outperforming shorter-dated issues and the yield spread between 2-year and 30-year bonds narrowing by almost 50 bps. WHAT OTHER FACTORS IMPACTED MARKET PERFORMANCE? KW: One was the dominance of the muni market by retail investors. Their appetite for tax-exempt issues was almost insatiable, as they sought to avoid stock market turbulence and lock in some of the gains they had achieved over the long running equity bull market. Their influence was perhaps more pronounced than usual, owing to net redemptions suffered by mutual funds and the movement of insurance companies away from this market and toward other attractive asset classes. At the same time that demand was increasing, supply was declining dramatically. Flush with excess tax revenues and most refundings becoming "out-of-the-money" (due to higher rates) municipalities shied away from the marketplace. The result was a reduction in the supply of new issues, year-on-year through July 31, of approximately 22%. This supply/demand imbalance caused credit-quality spreads to tighten substantially, a situation that continues to weigh on today's marketplace. HOW WAS THE PORTFOLIO POSITIONED OVER THIS PERIOD? KW: Portfolio holdings throughout the period were largely composed of premium bonds. This positioning helped a great deal during the rising interest rate environment that prevailed over the latter half of 1999. But, the upward price movement of these securities was impeded during the first half of 2000, when interest rates declined. In terms of duration, we were shorter than the Lehman Brothers Municipal 1-16 year Index during the early part of this period, in anticipation of higher interest rates. We were neutral to the index during the November 1999 through January 2000 period, as we waited out the Y2K event and the release of key economic data. For the remainder of the year, we were longer than the index in response to our expectation, since realized, of lower interest rates. Overall, the portfolio remains focused on very high credit-quality issues, while we continue to search opportunistically for higher yielding securities. 4 HOW DID THE FUND PERFORM OVER THIS PERIOD? KW: By the close of this reporting period, the fund had returned 3.90%, as compared to the 4.72% return posted by the Lehman Brothers Municipal 1-16 year Index. However, we were well ahead of the Lipper Intermediate Muni Debt Funds Average, which only returned 3.16%. WHAT HELPED OR HURT PERFORMANCE? KW: Through the end of 1999, the fund performed very well as compared to the index and to the Lipper peer group of intermediate municipal funds. This was due primarily to our shorter duration positioning and to our concentration in premium issues, along with an underweight position in market discounts. This strategy helped to temper downward price movements during the rising interest rate scenario that marked this period. This investment posture detracted from relative performance to some degree during the first seven months of 2000. As noted, interest rates declined over this period, along the way boosting the performance of lower dollar-priced issues. With our focus on higher dollar-priced issues, we were unable to participate in much of this price appreciation. Relative performance was also impacted negatively by our major underweight in securities subject to market discount tax treatment, which have also performed well thus far in 2000. On the other hand, the portfolio benefited on a yield and total return perspective from our credit research in high-yielding sectors, such as healthcare. WHAT IS YOUR MARKET OUTLOOK OVER THE NEAR TERM, AND HOW ARE YOU POSITIONING THE PORTFOLIO TO TAKE ADVANTAGE OF IT? KW: We expect that the U.S. economy will continue to slow over the course of this year, and that the soft landing desired by the Fed will, in fact, take hold. There may be an additional rate hike, on the order of 25 bps, but there should be little pressure for the Fed to do much more, if anything. The municipal marketplace will likely continue to be driven by the factors that have defined it in 2000. Supply will remain quite low, off approximately 25% nationally from 1999 levels. Demand will come principally from retail investors, as they strive for diversification and high, after-tax yields. In this environment, duration will remain longer than the benchmark to capitalize on lower rates. Our position on the yield curve will remain neutral, and our concentration will remain on high credit-quality issues, as we identify and selectively purchase higher yielding opportunities. The one change we are making is to increase our exposure to discounts, as we move towards a more neutral coupon position relative to the market. 5 GLOSSARY OF TERMS BASIS POINT: A measure used in quoting bond yields. One basis point equals 0.01% of yield. For example, if a bond's yield changed from 10.25% to 11.00%, it would have moved 75 basis points. CREDIT RATING: The rating assigned to a bond by independent rating agencies such as Standard & Poor's and Moody's. In evaluating creditworthiness, these agencies assess the issuer's present financial condition and future ability and willingness to make principal and interest payments when due. DURATION: Duration is used as a measure of the relative sensitivity of the price of the security to a change in interest rates. The longer the duration, the more sensitive the bond is to interest rate moves. For example, a bond with a 5-year duration will experience an approximate 5% increase in price if interest rates drop 100 basis points (1%), while a bond with a 10-year duration would see its price rise by approximately 10%. MATURITY: The date on which the life of a financial instrument ends through cash or physical settlement or expiration with no value, or the date a security comes due and fully payable. Average maturity refers to the average time to maturity of the entire portfolio. YIELD CURVE: A line graph showing interest rates at a point in time, from the shortest maturity to the longest available. The resulting curve shows if short-term interest rates are higher or lower than long-term rates. Typically interest rates rise with increasing time to maturity. YIELD SPREAD: The difference in yield between different types of securities. For example, if a Treasury bond is yielding 6.5% and a municipal is yielding 5.5%, the spread is 1.0% or 100 basis points. ZERO COUPON BOND: A debt instrument sold at a discount to its face value. The bond makes no payments until maturity, at which time it is redeemed at face value. Effectively, the interest received is the difference between face value and the price paid for the security. 6 FUND FACTS INVESTMENT OBJECTIVE J.P. Morgan Institutional Tax Exempt Bond Fund seeks to provide a high level of current income that is exempt from federal income tax consistent with moderate risk of capital and maintenance of liquidity. It is designed for investors who seek tax exempt yields greater than those generally available from a portfolio of short-term tax-exempt obligations and who are willing to incur the greater price fluctuation of longer-term instruments. - -------------------------------------------------------------------------------- INCEPTION DATE 7/12/93 - -------------------------------------------------------------------------------- FUND NET ASSETS AS OF 7/31/00 $447,858,025 - -------------------------------------------------------------------------------- PORTFOLIO NET ASSETS AS OF 7/31/00 $783,923,182 - -------------------------------------------------------------------------------- DIVIDEND PAYABLE DATES MONTHLY - -------------------------------------------------------------------------------- CAPITAL GAIN PAYABLE DATES (IF APPLICABLE) 12/13/00 EXPENSE RATIO The fund's current annual expense ratio of 0.50% covers shareholders' expenses for custody, tax reporting, investment advisory and shareholder services, after reimbursement. The fund is no-load and does not charge any sales, redemption, or exchange fees. There are no additional charges for buying, selling, or safekeeping fund shares, or for wiring dividend or redemption proceeds from the fund. FUND HIGHLIGHTS ALL DATA AS OF JULY 31, 2000 PORTFOLIO ALLOCATION (PERCENTAGE OF TOTAL INVESTMENTS) [GRAPHIC] REVENUE BONDS 56.2% GENERAL OBLIGATION 36.8% PRIVATE PLACEMENTS 3.8% SHORT-TERM 3.2% 30-DAY SEC YIELD 4.57%* DURATION 5.31 years *YIELD IS NET OF FEES AND REFLECTS THE REIMBURSEMENT OF CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD THESE EXPENSES NOT BEEN SUBSIDIZED, THE 30-DAY SEC YIELD WOULD HAVE BEEN 4.56%. 7 DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC., A WHOLLY OWNED SUBSIDIARY OF J.P. MORGAN & CO. INC., IS THE PORTFOLIO'S INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. The fund invests through a master portfolio (another fund with the same objective). Opinions expressed herein are based on current market conditions and are subject to change without notice. Income may be subject to state and local taxes. Some income may be subject to the federal alternative minimum tax for certain investors. Capital gains are not exempt from taxes. Investors should be prepared for higher share price volatility than from a tax-exempt fund of shorter duration. CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. 8 THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2000 - -------------------------------------------------------------------------------- ASSETS Investment in The Tax Exempt Bond Portfolio ("Portfolio"), at value $448,431,424 Receivable for Shares of Beneficial Interest Sold 800,000 Prepaid Trustees' Fees 568 Prepaid Expenses and Other Assets 3,252 ------------ Total Assets 449,235,244 ------------ LIABILITIES Dividends Payable to Shareholders 1,269,063 Shareholder Servicing Fee Payable 37,489 Administrative Services Fee Payable 9,075 Fund Services Fee Payable 388 Administration Fee Payable 293 Accrued Expenses 60,911 ------------ Total Liabilities 1,377,219 ------------ NET ASSETS Applicable to 44,889,228 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $447,858,025 ============ Net Asset Value, Offering and Redemption Price Per Share $9.98 ---- ---- ANALYSIS OF NET ASSETS Paid-in Capital $453,656,776 Distributions in Excess of Net Investment Income (127,149) Accumulated Net Realized Loss on Investment (12,407,281) Net Unrealized Appreciation of Investment 6,735,679 ------------ Net Assets $447,858,025 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 10 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED JULY 31, 2000 - -------------------------------------------------------------------------------- INVESTMENT INCOME ALLOCATED FROM PORTFOLIO Allocated Interest Income $21,101,462 Allocated Portfolio Expenses (1,463,233) ----------- Net Investment Income Allocated from Portfolio 19,638,229 FUND EXPENSES Shareholder Servicing Fee $408,511 Administrative Services Fee 100,841 Transfer Agent Fees 24,106 Registration Fees 19,117 Professional Fees 17,066 Fund Services Fee 6,545 Administration Fee 4,950 Trustees' Fees and Expenses 4,908 Miscellaneous 34,683 -------- Total Fund Expenses 620,727 Less: Reimbursement of Expenses (41,479) -------- NET FUND EXPENSES 579,248 ----------- NET INVESTMENT INCOME 19,058,981 NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM PORTFOLIO (12,006,983) NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED FROM PORTFOLIO 9,255,848 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $16,307,846 ===========
The Accompanying Notes are an Integral Part of the Financial Statements. 11 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE FISCAL FOR THE ELEVEN FOR THE FISCAL YEAR ENDED MONTHS ENDED YEAR ENDED JULY 31, 2000 JULY 31, 1999 AUGUST 31, 1998 -------------- -------------- --------------- INCREASE IN NET ASSETS FROM OPERATIONS Net Investment Income $ 19,058,981 $ 15,302,856 $ 11,644,410 Net Realized Gain (Loss) on Investment Allocated from Portfolio (12,006,983) 487,502 148,572 Net Change in Unrealized Appreciation (Depreciation) of Investment Allocated from Portfolio 9,255,848 (12,674,815) 6,333,423 ------------- ------------ -------------- Net Increase in Net Assets Resulting from Operations 16,307,846 3,115,543 18,126,405 ------------- ------------ -------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (19,058,981) (15,302,031) (11,645,234) Net Realized Gain (161,308) (177,932) -- Distributions in Excess of Net Investment Income (130,473) -- -- ------------- ------------ -------------- Total Distributions to Shareholders (19,350,762) (15,479,963) (11,645,234) ------------- ------------ -------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 219,541,792 264,573,023 181,046,169 Reinvestment of Dividends and Distributions 5,891,358 6,981,210 4,331,708 Cost of Shares of Beneficial Interest Redeemed (163,465,427) (186,850,540) (76,879,522) ------------- ------------ -------------- Net Increase from Transactions in Shares of Beneficial Interest 61,967,723 84,703,693 108,498,355 ------------- ------------ -------------- Total Increase in Net Assets 58,924,807 72,339,273 114,979,526 NET ASSETS Beginning of Period 388,933,218 316,593,945 201,614,419 ------------- ------------ -------------- End of Period (including undistributed net investment income of $0, $3,305, and $2,480, respectively) $ 447,858,025 $388,933,218 $ 316,593,945 ============= ============ ==============
The Accompanying Notes are an Integral Part of the Financial Statements. 12 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share outstanding throughout each period are as follows:
FOR THE FOR THE FISCAL YEAR ELEVEN MONTHS FOR THE FISCAL YEAR ENDED AUGUST 31, ENDED ENDED -------------------------------------------- JULY 31, 2000 JULY 31, 1999 1998 1997 1996 1995 --------------- --------------- -------- ---------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 10.07 $ 10.38 $ 10.12 $ 9.92 $ 10.01 $ 9.75 ------------ ------------ -------- -------- -------- ------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.46 0.41 0.47 0.48 0.48 0.49 Net Realized and Unrealized Gain (Loss) on Investment (0.08) (0.30) 0.26 0.20 (0.07) 0.26 ------------ ------------ -------- -------- -------- ------- Total from Investment Operations 0.38 0.11 0.73 0.68 0.41 0.75 ------------ ------------ -------- -------- -------- ------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.46) (0.41) (0.47) (0.48) (0.48) (0.49) Net Realized Gain (0.01) (0.01) -- (0.00)(a) (0.02) -- Distributions in Excess of Net Investment Income (0.00)(a) -- -- -- -- -- ------------ ------------ -------- -------- -------- ------- Total Distributions to Shareholders (0.47) (0.42) (0.47) (0.48) (0.50) (0.49) ------------ ------------ -------- -------- -------- ------- NET ASSET VALUE, END OF PERIOD $ 9.98 $ 10.07 $ 10.38 $ 10.12 $ 9.92 $ 10.01 ============ ============ ======== ======== ======== ======= RATIOS AND SUPPLEMENTAL DATA Total Return 3.90% 1.01%(b) 7.37% 7.06% 4.13% 8.00% Net assets, End of Period (in thousands) $ 447,858 $ 388,933 $316,594 $201,614 $121,131 $59,867 Ratios to Average Net Assets Net Expenses 0.50% 0.50%(c) 0.50% 0.50% 0.50% 0.50% Net Investment Income 4.67% 4.37%(c) 4.58% 4.83% 4.82% 5.09% Expenses without Reimbursement 0.51% 0.53%(c) 0.53% 0.56% 0.60% 0.71%
- - ------------------------ (a) Less than $0.001 per share. (b) Not Annualized. (c) Annualized. The Accompanying Notes are an Integral Part of the Financial Statements. 13 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS JULY 31, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES J.P. Morgan Institutional Tax Exempt Bond Fund (the "fund") is a separate series of the J.P. Morgan Institutional Funds, a Massachusetts business trust (the "trust") which was organized on November 4, 1992. The trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The fund commenced operations on July 12, 1993. At a meeting on November 12, 1998, the trustees elected to change the funds fiscal year end from August 31 to July 31. The fund invests all of its investable assets in The Tax Exempt Bond Portfolio (the "portfolio"), a no-load diversified, open-end management investment company having the same investment objective as the fund. The value of such investment included in the Statement of Assets and Liabilities reflects the fund's proportionate interest in the net assets of the portfolio (57% at July 31, 2000). The performance of the fund is directly affected by the performance of the portfolio. The financial statements of the portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the fund's financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the fund: a) Valuation of securities by the portfolio is discussed in Note 1a of the portfolio's Notes to Financial Statements which are included elsewhere in this report. b) The fund records its share of net investment income, realized and unrealized gain and loss and adjusts its investment in the portfolio each day. All the net investment income and realized and unrealized gain and loss of the portfolio is allocated pro rata among the fund and other investors in the portfolio at the time of such determination. c) Substantially all the fund's net investment income is declared as dividends daily and paid monthly. Distributions to shareholders of net realized capital gains, if any, are declared and paid annually. d) Expenses incurred by the trust with respect to any two or more funds in the trust are allocated in proportion to the net assets of each fund in the trust, except where allocations of direct expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. e) The fund is treated as a separate entity for federal income tax purposes and intends to comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income, including net realized capital gains, if any, within the prescribed time periods. Accordingly, no provision for federal income or excise tax is necessary. f) The fund accounts for and reports distributions to shareholders in accordance with Statement of Position 93-2: "Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies." The effect of applying this statement as of July 31, 2000 was to decrease distributions in excess of net investment income by $19, 14 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 - -------------------------------------------------------------------------------- increase accumulated net realized loss on investment by $400,317 and increase paid in-capital by $400,298. Net investment income, net realized gains and net assets were not affected by this change. This adjustment is primarily attributable to the application of tax allocation rules. g) For federal income tax purposes, the fund had a capital loss carryforward at July 31, 2000 of $5,513,713, all of which expires in the year 2008. To the extent that this capital loss is used to offset future capital gains, it is probable that gains so offset will not be distributed to shareholders. h) For federal income tax purposes, the fund incurred approximately $6,893,568 of capital losses in the period from November 1, 1999 to July 31, 2000. These losses were deferred for tax purposes until August 1, 2000. 2. TRANSACTIONS WITH AFFILIATES a) The trust, on behalf of the fund, has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and distributor for the fund. Under a Co-Administration Agreement between FDI and the trust, on behalf of the fund, FDI provides administrative services necessary for the operations of the fund, furnishes office space and facilities required for conducting the business of the fund and pays the compensation of the fund's officers affiliated with FDI. The fund has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to the fund is based on the ratio of the fund's net assets to the aggregate net assets of the trust and certain other investment companies subject to similar agreements with FDI. For the fiscal year ended July 31, 2000, the fee for these services amounted to $4,950. b) The trust, on behalf of the fund, has an Administrative Services Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of New York ("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), under which Morgan is responsible for certain aspects of the administration and operation of the fund. Under the Services Agreement, the fund has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the portfolio and the other portfolios in which the trust and the J.P. Morgan Funds invest ( the "master portfolios") and J.P. Morgan Series Trust in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to FDI. The portion of this charge payable by the fund is determined by the proportionate share that its net assets bear to the net assets of the trust, the master portfolios, other investors in the master portfolios for which Morgan provides similar services, and J.P. Morgan Series Trust. For the fiscal year ended July 31, 2000, the fee for these services amounted to $100,841. In addition, J.P. Morgan has agreed to reimburse the fund to the extent necessary to maintain the total operating expenses of the fund, including the expenses allocated to the fund from the portfolio, at no more than 0.50% of the average daily net assets of the fund. This reimbursement agreement can be changed or terminated at any time after November 28, 2000 at the option of J.P. Morgan. For the fiscal year ended July 31, 2000, J.P. Morgan has agreed to reimburse the fund $41,479 for expenses under this agreement. 15 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 - -------------------------------------------------------------------------------- c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement with Morgan to provide account administration and personal account maintenance services to fund shareholders. The agreement provides for the fund to pay Morgan a fee for these services which is computed daily and paid monthly at an annual rate of 0.10%. of the average daily net assets of the fund. For the fiscal year ended July 31, 2000, the fee for these services amounted to $408,511. d) The trust, on behalf of the fund, has a Fund Services Agreement with Pierpont Group, Inc. ("Group") to assist the trustees in exercising their overall supervisory responsibilities for the trust's affairs. The trustees of the trust represent all the existing shareholders of Group. For the fiscal year ended July 31, 2000, the fund's allocated portion of Group's costs in performing its services amounted to $6,545. e) An aggregate annual fee of $75,000 is paid to each trustee for serving as a trustee of the trust, the J.P. Morgan Funds, the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the financial statements represents the fund's allocated portion of the total fees and expenses. The trust's Chairman and Chief Executive Officer also serves as Chairman of Group and receives compensation and employee benefits from Group in his role as Group's Chairman. The allocated portion of such compensation and benefits included in the Fund Services Fee shown in the financial statements was $1,200 for the fiscal year ended July 31, 2000. 3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the trustees to issue an unlimited number of full and fractional shares of beneficial interest of one or more series. Transactions in shares of beneficial interest of the fund were as follows:
FOR THE FISCAL FOR THE ELEVEN FOR THE FISCAL YEAR ENDED MONTHS ENDED YEAR ENDED JULY 31, 2000 JULY 31, 1999 AUGUST 31, 1998 -------------- -------------- --------------- Shares of Beneficial Interest Sold... 22,166,606 25,514,866 17,650,667 Reinvestment of Dividends and Distributions....................... 595,212 675,131 422,096 Shares of Beneficial Interest Redeemed............................ (16,501,269) (18,060,995) (7,487,251) ----------- ----------- ----------- Net Increase......................... 6,260,549 8,129,002 10,585,512 =========== =========== ===========
4. CREDIT AGREEMENT The trust, on behalf of the fund, together with other affiliated investment companies (the "funds"), entered into a revolving line of credit agreement (the "Agreement") on May 26, 1999, with unaffiliated lenders. The maximum borrowing under the Agreement was $150,000,000. The Agreement expired on May 23, 2000, however, the fund as party to the Agreement has extended the Agreement and continues its participation therein for an additional 364 days until May 21, 2001. The maximum borrowing under the new agreement is $150,000,000. The purpose of the Agreement is to provide another alternative for settling large fund shareholder redemptions. Interest on any such borrowings outstanding will approximate market rates. Under the Agreement, the commitment fee is at an annual rate of 0.085% on the unused portion of the committed amount. The commitment fee is allocated to the funds in accordance with the procedures established by their respective trustees or directors. There were no outstanding borrowings pursuant to the Agreement at July 31, 2000. 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of J.P. Morgan Institutional Tax Exempt Bond Fund In our opinion, the accompanying statement of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of J.P. Morgan Institutional Tax Exempt Bond Fund (one of the series constituting part of the J.P. Morgan Institutional Funds, hereafter referred to as the "fund") at July 31, 2000, the results of its operations for the year then ended, and the changes in its net assets for the year then ended, for the eleven months ended July 31, 1999 and for the year ended August 31, 1998 and the financial highlights for the year then ended, for the eleven months ended July 31, 1999 and for the four years ended August 31, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York September 15, 2000 17 The Tax Exempt Bond Portfolio Annual Report July 31, 2000 (The following pages should be read in conjunction with J.P. Morgan Institutional Tax Exempt Bond Fund Annual Financial Statements) 18 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ LONG-TERM INVESTMENTS (98.1%) ALABAMA (0.1%) $ 1,000 Daphne Special Care Facilities Financing Authority, (Presbyterian Retirement, Prerefunded, Series A)................ RB NR/NR 08/15/18 7.300% $ 1,029,680 ------------ ALASKA (0.3%) 2,000 Anchorage, (Prerefunded), MBIA Insured............................... GO Aaa/AAA 07/01/02 6.600 2,040,040 ------------ ARIZONA (0.4%) 3,430 Arizona Healthcare Facilities Authority (Catholic Healthcare Revenue, Series A)............................. RB Baa1/BBB+ 07/01/09 6.125 3,412,850 ------------ CALIFORNIA (2.6%) 2,520 California Department of Water Resources, (Central Valley Project, Water Systems Service, Refunding, Series J-1)........................... RB Aa2/AA 12/01/12 7.000 3,014,953 13,070 California Statewide Community Development Authority, (Catholic Healthcare West)...................... RB Baa1/BBB+ 07/01/09 6.000 13,117,052 1,049 Kaweah Delta Hospital District, Tulare County, (Series E).................... PP NR/A+ 06/01/14 5.250 1,048,567 353 Kaweah Delta Hospital District, Tulare County, (Series G).................... PP NR/A+ 06/01/14 6.400 369,840 2,500 Los Angeles County Public Works Financing Authority, (Lease Revenue, Refunding, Series A), MBIA Insured.... RB Aaa/AAA 09/01/06 6.000 2,719,175 ------------ TOTAL CALIFORNIA.................... 20,269,587 ------------ COLORADO (1.1%) 5,000 Colorado Department of Transportation, (Revenue Anticipation Notes, due 06/15/14), AMBAC Insured.............. RB Aaa/AAA 06/15/10(a) 6.000 5,290,350 2,850 Weld County School District #6.......... GO Aa3/AA- 12/01/04 5.750 2,971,267 ------------ TOTAL COLORADO...................... 8,261,617 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 19 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ CONNECTICUT (1.6%) $ 2,000 Connecticut Heatlh & Educational Facilities Authority, (St Mary's Hospital, Series D)................... RB Baa1/NR 07/01/01 5.750% $ 2,012,220 7,240 Connecticut, (Series B, due 06/15/17)... GO Aa3/AA 06/15/10(a) 5.875 7,518,885 2,815 Connecticut, (Special Tax Obligation, Transportation Infrastructure, Prerefunded, Series A, due 06/01/04),............................ RB NR/AA- 06/01/03(a) 6.600 2,962,450 ------------ TOTAL CONNECTICUT................... 12,493,555 ------------ DISTRICT OF COLUMBIA (3.0%) 220 District of Columbia, (Escrowed to Maturity, Prerefunded, Series A), MBIA-IBC Insured...................... GO Aaa/AAA 06/01/07 6.000 235,330 2,600 District of Columbia, (Escrowed to Maturity, Prerefunded, Series B), MBIA Insured.......................... GO Aaa/AAA 06/01/02 6.000 2,667,496 6,795 District of Columbia, (Escrowed to Maturity, Prerefunded, Series C), FGIC Insured.......................... GO Aaa/AAA 12/01/03 5.250 6,929,405 10,645 District of Columbia, (Escrowed to Maturity, Series A)................... GO Aaa/BBB 06/01/04 5.800 11,072,716 2,780 District of Columbia, (Unrefunded Balance, Series A), MBIA-IBC Insured............................... GO Aaa/AAA 06/01/07 6.000 2,955,251 ------------ TOTAL DISTRICT OF COLUMBIA.......... 23,860,198 ------------ FLORIDA (0.3%) 465 Florida Board of Education, (Capital Outlay, Unrefunded Balance, Series C, due 06/01/01),........................ GO Aa2/AA+ 08/24/00(a) 7.000 467,055 2,000 Volusia County School District, (Refunding, due 08/01/02), FGIC Insured............................... GO Aaa/AAA 08/01/01(a) 6.100 2,063,080 ------------ TOTAL FLORIDA....................... 2,530,135 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 20 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ GEORGIA (5.5%) $ 3,200 De Kalb County, (Water & Sewer Revenue, Refunding)............................ RB Aa/AA 10/01/02 6.000% $ 3,300,896 2,630 Fulton County School District, (Refunding)........................... GO Aa2/AA 05/01/14 6.375 2,927,243 1,250 Georgia Municipal Electric Authority, (Power Revenue, Refunding, Series A)............................. RB A3/A 01/01/12 6.500 1,389,187 4,000 Georgia Municipal Electric Authority, (Power Revenue, Refunding, Series A), MBIA-IBC Insured...................... RB Aaa/AAA 01/01/12 6.500 4,467,360 4,895 Georgia, (Refunding, Series E).......... GO Aaa/AAA 07/01/03 5.500 5,024,277 6,000 Georgia, (Series B)..................... GO Aaa/AAA 03/01/07 7.200 6,825,240 3,000 Georgia, (Series B)..................... GO Aaa/AAA 03/01/10 6.300 3,326,220 4,470 Georgia, (Series C)..................... GO Aaa/AAA 07/01/11 5.700 4,744,234 2,500 Gwinnett County School District, (Refunding, Series B)................. GO Aa1/AA+ 02/01/08 6.400 2,749,475 5,000 Metropolitan Atlanta Rapid Transit Authority, (Sales Tax Revenue, Refunding, Series P, due 07/01/11), AMBAC Insured......................... RB Aaa/AAA 07/01/09(a) 6.250 5,558,750 3,000 Roswell, (due 02/01/13)................. GO Aaa/AAA 02/01/09(a) 5.500 3,085,440 ------------ TOTAL GEORGIA....................... 43,398,322 ------------ ILLINOIS (4.1%) 8,110 Chicago, (Prerefunded, due 01/01/13), AMBAC Insured......................... GO Aaa/AAA 07/01/05(a) 6.250 8,806,649 5,000 Chicago, (Skyway Toll Bridge Revenue, Prerefunded) due 01/01/17............. RB NR/AAA 01/01/04(a) 6.750 5,422,800 3,000 Illinois Development Bank............... PP NR/NR 08/01/28 4.900 2,927,940 1,665 Illinois Health Facilities Authority, (due 02/15/12)........................ RB A1/NR 02/15/10(a) 6.625 1,742,506 4,175 Illinois, (Sales Tax Revenue, Refunding, Series Q)............................. RB Aa2/AAA 06/15/12 6.000 4,481,654 3,770 Illinois Health Facilities Authority, (Riverside Health System)............. RB A3/A 11/15/10 6.750 3,933,543
The Accompanying Notes are an Integral Part of the Financial Statements. 21 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ ILLINOIS (CONTINUED) $ 1,380 Metropolitan Pier & Exposition Authority, (Dedicated State Tax Revenue, Unrefunded Balance, Series A)............................. RB Aa3/AA- 06/15/06 8.500% $ 1,636,542 2,810 Regional Transportation Authority, (Series D), FGIC Insured.............. RB Aaa/AAA 06/01/07 7.750 3,264,433 ------------ TOTAL ILLINIOS...................... 32,216,067 ------------ INDIANA (1.0%) 5,400 Indiana Bond Bank, (State Revolving Fund Program, Series A, due 08/01/13)...... RB NR/AAA 08/01/10(a) 5.875 5,672,430 2,000 Indiana Municipal Power Agency, (Power Supply System Revenue, Refunding, Series B), MBIA Insured............... RB Aaa/AAA 01/01/13 6.000 2,157,600 ------------ TOTAL INDIANA....................... 7,830,030 ------------ IOWA (0.9%) 2,095 Iowa Finance Authority, (Hospital Facilities Revenue, due 02/15/15)..... RB A1/NR 02/15/10(a) 6.750 2,192,732 2,385 Iowa Finance Authority, (Hospital Facilities Revenue, due 02/15/16)..... RB A1/NR 02/15/10(a) 6.750 2,483,071 2,440 Iowa Finance Authority, (Hospital Facilities Revenue, due 02/15/17)..... RB A1/NR 02/15/10(a) 6.750 2,530,768 ------------ TOTAL IOWA.......................... 7,206,571 ------------ KENTUCKY (0.7%) 3,905 Kentucky Property & Buildings Commission (Refunding, Project #64, due 05/01/10), MBIA Insured............... RB Aaa/AAA 11/01/09(a) 5.750 4,123,368 1,470 Kentucky Turnpike Authority, (Road Recovery Revenue, Escrowed to Maturity, due 07/01/02)............... RB Aaa/AAA 08/24/00(a) 7.100 1,496,475 ------------ TOTAL KENTUCKY...................... 5,619,843 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 22 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ MAINE (0.6%) $ 4,050 Maine Municipal Bond Bank, (Prerefunded, Series E due 11/01/12)................ RB Aa2/NR 11/01/02(a) 6.250% $ 4,277,124 ------------ MARYLAND (2.4%) 1,000 Maryland Community Development Administration, (Department of Housing & Community Development, First Series, due 04/01/12)......................... RB Aa2/NR 10/01/09(a) 5.500 1,003,850 1,250 Maryland Community Development Administration, (Department of Housing & Community Development, Refunding, Series A, due 09/01/10)............... RB Aa2/NR 09/01/09(a) 5.300 1,253,075 1,425 Maryland Community Development Administration, (Department of Housing & Community Development, Refunding, Series A, due 09/01/11)............... RB Aa2/NR 09/01/09(a) 5.400 1,431,541 1,105 Maryland Community Development Administration, (Department of Housing & Communty Development, First Series, due 04/01/10)......................... RB Aa2/NR 10/01/09(a) 5.300 1,107,729 5,435 Maryland Health & Higher Educational Facilities Authority, (John Hopkins University, Refunding)................ RB Aa2/AA 07/01/03 5.750 5,610,714 5,000 Maryland State, (State & Local Facilities Loan, First Series)........ GO Aaa/AAA 08/01/05 5.125 5,116,400 3,000 Maryland, (Third Series, due 07/15/03)............................. GO Aaa/AAA 07/15/01(a) 6.400 3,066,720 ------------ TOTAL MARYLAND...................... 18,590,029 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 23 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ MASSACHUSETTS (5.9%) $ 5,650 Massachusetts Bay Transportation Authority, (General Transportation System, Refunding, Series A).......... RB Aa2/AA- 03/01/08 7.000% $ 6,409,134 1,495 Massachusetts State College Building Authority, (Refunding, Series A)...... RB Aa2/AA- 05/01/11 7.500 1,799,367 9,500 Massachusetts State Water Pollution Abatement Trust, (Abatement MWRA Program, Sub-Series A, due 08/01/15)............................. RB Aa1/AA 08/01/09(a) 6.000 9,961,320 5,000 Massachusetts State, (Consolidation Loan, Series A, due 02/01/14)......... GO Aa2/AA- 02/01/10(a) 6.000 5,301,650 14,035 Massachusetts State, (Consolidation Loan, Series B, due 06/01/12)......... GO Aa2/AA- 06/01/10(a) 5.750 14,692,540 8,000 Massachusetts State, (Prerefunded, Series B) AMBAC Insured............... GO Aaa/AAA 07/01/11 5.500 8,373,360 ------------ TOTAL MASSACHUSETTS................. 46,537,371 ------------ MICHIGAN (6.3%) 10,000 Detroit Water Supply System, (Prerefunded due 07/01/22), FGIC Insured............................... RB Aaa/AAA 07/01/02(a) 6.375 10,538,000 10,000 Michigan Hospital Finance Authority, (Ascension Health Credit Corp., Refunding, Series B).................. RB Aa2/AA 11/15/33 5.300 10,032,500 13,050 Michigan Hospital Finance Authority, (Ascension Health Credit Corp., Series A, due 11/15/15), MBIA Insured............................... RB Aaa/AAA 11/15/09(a) 6.250 13,636,728 10,500 Michigan Hospital Finance Authority, (Genesys Health System, Prerefunded, Series A due 10/01/21)................ RB Baa2/AAA 10/01/05(a) 8.125 12,263,685 2,905 Michigan Hospital Finance Authority, (Mercy Health Services, Refunding, Series T)............................. RB Aa3/AA- 08/15/04 5.750 2,961,473 ------------ TOTAL MICHIGAN...................... 49,432,386 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 24 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ MINNESOTA (2.6%) $ 9,330 Minnesota............................... GO Aaa/AAA 06/01/10 5.500% $ 9,794,727 5,000 University of Minnesota, (Refunding, Series A)............................. RB Aa2/AA 07/01/10 5.750 5,332,150 5,000 University of Minnesota, (Refunding, Series A)............................. RB Aa2/AA 07/01/15 5.750 5,260,400 ------------ TOTAL MINNESOTA..................... 20,387,277 ------------ MISSISSIPPI (2.4%) 4,080 Jackson Redevelopment Authority, (Urban Renewal Revenue, Jackson Medical Mall Foundation Project, Series A), LOC Bank One Louisiana.................... RB NR/A+ 11/01/12 4.600 4,057,438 2,505 Mississippi Higher Education, (Refunding, Series B, due 09/01/04)... RB Aaa/NR 09/01/02(a) 5.600 2,537,765 10,875 Mississippi, (Escrowed to Maturity, Refunding)............................ GO Aaa/AAA 02/01/08 6.200 11,788,935 ------------ TOTAL MISSISSIPPI................... 18,384,138 ------------ MISSOURI (1.2%) 5,000 Missouri Regional Convention & Sports Complex Authority, (Prerefunded, Series A, due 08/15/21)............... RB Aaa/AAA 08/15/03(a) 6.900 5,329,300 4,000 St. Louis County Regional Convention & Sports Complex Authority, (Prerefunded, Series B, due 08/15/21)............................. RB Aaa/AAA 08/15/03(a) 7.000 4,274,680 ------------ TOTAL MISSOURI...................... 9,603,980 ------------ NEBRASKA (0.7%) 5,245 Nebhelp Inc. (Sub-Series A-5B), MBIA Insured............................... RB Aaa/NR 06/01/13 6.200 5,497,022 ------------ NEVADA (3.7%) 8,200 Clark County School District, (Series A), MBIA Insured.............. GO Aaa/AAA 06/01/11 7.000 9,487,810 1,200 Las Vegas, (Clark County Library District, Prerefunded, Series A due 06/01/04), FGIC Insured........... GO Aaa/AAA 06/01/01(a) 6.700 1,234,368
The Accompanying Notes are an Integral Part of the Financial Statements. 25 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ NEVADA (CONTINUED) $ 280 Las Vegas, (Clark County Library District, Refunding, Series B, due 08/01/04), FGIC Insured............... GO Aaa/AAA 08/01/01(a) 6.700% $ 288,053 15,500 Nevada, (Colorado River Commission, Prerefunded due 07/01/24)............. GO Aaa/AA 07/01/04(a) 6.500 16,677,845 1,330 Nevada, (Prison Facilities, Prerefunded, due 08/01/04)......................... GO Aa2/AAA 08/01/00(a) 7.000 1,356,600 ------------ TOTAL NEVADA........................ 29,044,676 ------------ NEW HAMPSHIRE (0.9%) 4,900 New Hampshire Higher Educational & Health Facilities Authority, (Dartmouth College, Refunding)........ RB Aaa/NR 06/01/07 6.750 5,450,172 1,720 New Hampshire, (Prerefunded, Series A)............................. GO Aa2/AA+ 06/15/03 6.600 1,785,136 ------------ TOTAL NEW HAMPSHIRE................. 7,235,308 ------------ NEW JERSEY (5.3%) 4,180 Jersey City, (School Board Reserve Fund, Refunding, Series A).................. GO Aa2/AA 10/01/11 6.250 4,590,894 10,000 New Jersey.............................. GO Aa1/AA+ 05/01/07 5.500 10,450,400 7,000 New Jersey Economic Development Authority, (Market Transition Facilities Revenue, Sr. Lien, Series A), MBIA Insured............... RB Aaa/AAA 07/01/02 5.400 7,120,260 4,100 New Jersey Economic Development Authority, (Transition Project Sublease, Series A), FSA Insured...... RB Aaa/AAA 05/01/11 5.750 4,351,248 6,000 New Jersey Transportation Trust Fund Authority, (Transportation System, Series B), MBIA Insured............... RB Aaa/AAA 06/15/05 6.000 6,349,320 8,000 New Jersey Turnpike Authority, (Series A), MBIA Insured.............. RB Aaa/AAA 01/01/11 6.000 8,666,560 ------------ TOTAL NEW JERSEY.................... 41,528,682 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 26 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ NEW YORK (5.2%) $ 75 Monroe County, (Public Improvement, Unrefunded Balance, Series 1995, due 06/01/10), AMBAC Insured.............. GO Aaa/AAA 06/01/08(a) 6.000% $ 81,788 50 New York City, (Escrowed to Maturity, Prerefunded, Series A)................ GO A3/A- 08/01/02 5.750 51,256 1,465 New York City, (Escrowed to Maturity, Series B)............................. GO Aaa/AAA 06/01/01 8.000 1,508,481 2,595 New York City, (Unrefunded Balance, Series A)............................. GO A3/A- 08/01/02 5.750 2,653,725 10,000 New York Convention Center Operating Corp., (Yale Building Acquisition Project).............................. PP NR/NR 12/01/04 6.500 10,147,700 2,850 New York State Dormitory Authority, (Secured Hospital, Interfaith Medical Center, Series D)..................... RB Baa1/A 02/15/04 5.500 2,901,100 13,010 New York State Thruway Authority, (Highway & Bridge Trust Fund, Series B-1), FGIC Insured............. RB NR/AAA 04/01/09 5.500 13,575,675 8,700 Triborough Bridge & Tunnel Authority, (General Purpose, Refunding, Series X)............................. RB Aa3/A+ 01/01/12 6.625 9,874,239 ------------ TOTAL NEW YORK...................... 40,793,964 ------------ NORTH CAROLINA (2.0%) 8,900 North Carolina Municipal Power Agency, (No. 1 Catawba Electric Revenue, Refunding, Series B).................. RB Baa1/BBB+ 01/01/06 6.125 9,179,193 6,275 North Carolina Municipal Power Agency, (No. 1 Catawba Electric Revenue, Refunding, Series B).................. RB Baa1/BBB+ 01/01/07 6.250 6,531,898 ------------ TOTAL NORTH CAROLINA................ 15,711,091 ------------ NORTH DAKOTA (1.4%) 11,280 North Dakota Housing Finance Agency, (Mortgage Revenue, Refunding, Series C, due 01/01/31)............... RB Aa3/NR 07/01/10(a) 5.550 11,280,113 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 27 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ OHIO (2.8%) $ 10,000 Ohio State, (Highway Capital Improvements, Series E)............... GO Aa1/AAA 05/01/04 5.250% $ 10,234,300 8,000 Ohio Turnpike Commission, (Prerefunded, Series A), MBIA Insured............... RB Aaa/AAA 02/15/26 5.500 8,436,240 2,795 Ohio Water Development Authority, (Escrowed to Maturity, Refunding, due 12/01/10)............................. RB Aaa/AAA 12/01/00(a) 9.375 3,347,012 ------------ TOTAL OHIO.......................... 22,017,552 ------------ PENNSYLVANIA (1.4%) 970 Pennsylvania Higher Education Assistance Agency, (Student Loan Revenue, Refunding, Series A), FGIC Insured.... RB Aaa/AAA 12/01/00 6.800 977,517 1,310 Pennsylvania Higher Education Facilities Authority, (College & University Revenue, University of Pennsylvania, Refunding, Series A).................. RB A1/AA 09/01/02 6.500 1,362,151 2,800 Pennsylvania Higher Education Facilities Authority, (Health Services Revenue, University of Pennsylvania Health Services, Refunding, Series A)........ RB A3/A 01/01/06 6.000 2,763,600 1,500 Pennsylvania, (2nd Series A, Prerefunded), MBIA Insured............ GO Aaa/AAA 11/01/04 6.500 1,558,365 4,250 Philadelphia Authority for Industrial Development, (Academy of Natural Sciences)............................. PP NR/NR 01/01/18 4.750 4,246,047 ------------ TOTAL PENNSYLVANIA.................. 10,907,680 ------------ PUERTO RICO (0.7%) 5,000 Puerto Rico Municipal Finance Agency, (Refunding, Series B)................. GO Baa1/A- 08/01/02 5.500 5,097,200 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 28 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ SOUTH CAROLINA (5.9%) $ 1,000 Piedmont Municipal Power Agency, (Electric Revenue, Escrowed to Maturity, Refunding), MBIA Insured.... RB Aaa/AAA 01/01/08 6.200% $ 1,088,990 15,000 Piedmont Municipal Power Agency, (Electric Revenue, Refunding), FGIC Insured............................... RB Aaa/AAA 01/01/20 6.750 17,141,700 5,500 South Carolina Economic Development Authority, (Hospital Facilities Revenue, Palmetto Health Alliance, Series A)............................. RB Baa1/BBB 12/15/10 7.000 5,628,205 3,000 South Carolina Economic Development Authority, (Hospital Facilities Revenue, Palmetto Health Alliance, Series A, due 12/15/15)............... RB Baa1/BBB 12/15/10(a) 7.125 3,057,720 7,000 South Carolina Public Service Authority, (Santee Cooper, Prerefunded Series D due 07/01/31)......................... RB Aaa/AAA 07/01/02(a) 6.625 7,408,310 5,385 South Carolina, (Capital Improvement, Series A)............................. GO Aaa/AAA 10/01/09 5.500 5,654,681 5,655 South Carolina, (Capital Improvement, Series A, due 10/01/10)............... GO Aaa/AAA 10/01/09(a) 5.500 5,944,310 ------------ TOTAL SOUTH CAROLINA................ 45,923,916 ------------ TENNESSEE (1.2%) 3,320 Knox County, (Public Improvement, due 05/01/12)............................. GO Aa2/AA 05/01/08(a) 6.000 3,520,661 3,500 Knox County, (Public Improvement, due 05/01/13)............................. GO Aa2/AA 05/01/08(a) 6.000 3,695,440 2,310 Shelby County, (School Board, Prerefunded).......................... GO Aa3/AA+ 03/01/14 5.900 2,381,956 ------------ TOTAL TENNESSEE..................... 9,598,057 ------------ TEXAS (9.8%) 1,500 Austin Utilities System, (Escrowed to Maturity, due 10/01/01)............... RB Aaa/AAA 10/01/00(a) 6.500 1,534,650 6,920 Austin Utilities System, (Refunding, Series A), FSA Insured................ RB Aaa/AAA 11/15/03 5.750 7,152,996
The Accompanying Notes are an Integral Part of the Financial Statements. 29 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ TEXAS (CONTINUED) $ 4,040 Austin, (Public Improvement, due 09/01/12)............................. GO Aa2/AA 09/01/09(a) 5.750% $ 4,205,802 4,500 Austin, (Public Improvement, due 09/01/14)............................. GO Aa2/AA 09/01/09(a) 5.750 4,625,505 10,000 Brazos River Authority, (Pollution Control Revenue, Refunding, Texas Utilities Electric Co., Series A, due 04/01/33)............................. RB A3/BBB+ 04/01/01(a) 5.000 10,028,700 2,260 Corpus Christi Independent School District, (Refunding), PSFG Insured... GO Aaa/AAA 08/15/05 6.000 2,388,504 1,305 Dallas County Flood Control District #1, (Prerefunded)......................... GO Aaa/NR 04/01/10 9.250 1,562,085 1,650 El Paso Independent School District, (Prerefunded), PSFG Insured........... GO Aaa/AAA 07/01/03 6.550 1,682,290 5,000 Humble Independent School District, Zero Coupon, (Compensation Interest, Refunding), PSFG Insured.............. GO Aaa/AAA 02/15/16 0.000 2,082,200 5,880 Humble Independent School District, Zero Coupon, (Compensation Interest, Refunding), PSFG Insured.............. GO Aaa/AAA 02/15/17 0.000 2,292,142 3,805 Lewisville Independent School District, (Refunding), PSFG Insured............. GO Aaa/NR 08/15/03 6.000 3,949,780 10,000 Lower Colorado River Authority, (Refunding, Series B, due 05/15/10), FSA Insured........................... RB Aaa/AAA 05/15/09(a) 6.000 10,784,900 7,000 Texas Water Development Board, (Revolving Fund, Sr. Lien, Series B, due 07/15/12)......................... RB Aa1/AAA 01/15/10(a) 5.750 7,312,830 10,000 Texas, (Prerefunded, Series C).......... GO NR/AA 04/01/20 5.500 10,351,600 4,000 Texas, (Public Finance Authority, Refunding, Series B).................. GO Aa1/AA 10/01/03 6.000 4,168,680 2,500 University of Texas, (Permanent University Fund, Refunding)........... RB Aaa/AAA 07/01/01 6.300 2,544,100 ------------ TOTAL TEXAS......................... 76,666,764 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 30 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ UTAH (2.0%) $ 4,155 Intermountain Power Agency, (Power Supply Revenue, Refunding, Series C), MBIA Insured.......................... RB Aaa/AAA 07/01/01 6.000% $ 4,213,544 6,645 Intermountain Power Agency, (Power Supply Revenue, Refunding, Series C), MBIA Insured.......................... RB Aaa/AAA 07/01/02 6.000 6,816,707 4,180 Jordan School District, (Refunding, due 06/15/06)............................. GO Aa3/NR 06/15/03(a) 6.050 4,336,207 ------------ TOTAL UTAH.......................... 15,366,458 ------------ VIRGINIA (5.6%) 13,390 Fairfax County, (Economic Development Authority Resource Recovery Revenue, Refunding, Series A), AMBAC Insured... RB NR/AAA 02/01/04 5.700 13,816,873 2,730 Fairfax County, (Water Authority Revenue, Prerefunded due 04/01/22).... RB Aaa/AAA 04/01/07(a) 6.000 2,972,479 3,650 Loudoun County, (Public Improvement, Series B)............................. GO Aa1/AA 01/01/04 5.125 3,712,013 3,650 Loudoun County, (Public Improvement, Series B)............................. GO Aa1/AA 01/01/05 5.125 3,719,533 3,650 Loudoun County, (Public Improvement, Series B)............................. GO Aa1/AA 01/01/06 5.250 3,747,236 3,665 Metropolitan Airport Washington D.C. Authority, (General Airport Revenue, Series A, due 10/01/10), FGIC Insured............................... RB Aaa/AAA 10/01/00(a) 7.250 3,751,347 5,000 Virginia College Building Authority, (Educational Facilities Revenue, 21st Century College Program).............. RB Aa1/AA+ 02/01/03 5.750 5,138,800 2,000 Virginia Public School Authority, (Prerefunded, Series A)............... RB Aa1/AA 08/01/04 6.500 2,081,120 5,000 Virginia Public School Authority, (Refunding)........................... RB Aa1/AA 01/01/02 6.000 5,106,000 ------------ TOTAL VIRGINIA...................... 44,045,401 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 31 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ WASHINGTON (5.0%) $ 7,215 Clark County, (Industrial Revenue Bond, Camas Power Boiler Ltd. Solid Waste Disposal Project, Series A, due 08/01/07), LOC Landesbank Hessen...... RB Aaa/NR 08/01/02(a) 4.650% $ 7,159,661 2,995 Grant County Public Utility District #2, (Priest Rapids Hydroelectric Revenue, Refunding, 2nd Series C, due 01/01/13), AMBAC Insured............................... RB Aaa/AAA 01/01/07(a) 6.000 3,136,843 1,315 Grant County Public Utility District #2, (Wanapum Hydroelectric Revenue, Refunding, 2nd Series C, due 01/01/13), AMBAC Insured.............. RB Aaa/AAA 01/01/07(a) 6.000 1,373,623 1,555 King & Snohomish Counties School District # 417, (due 12/01/02), FGIC Insured............................... GO Aaa/AAA 12/01/00 6.600 1,564,890 605 King County, (Escrowed to Maturity, Prerefunded, Series B)................ GO Aa1/AA+ 01/01/01 6.700 610,602 5,750 King County, (Unrefunded Balance, Series B)............................. GO Aa1/AA+ 01/01/01 6.700 5,805,143 1,000 Pierce County School District #320, (Prerefunded due 12/01/02), MBIA-IBC Insured............................... GO Aaa/AAA 12/01/01(a) 6.600 1,027,600 1,250 Snohomish County School District #2, (Refunding, Series A, due 12/01/02), MBIA-IBC Insured...................... GO Aaa/AAA 06/01/01(a) 6.700 1,271,175 2,000 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series A)............................. RB Aa1/AA- 07/01/06 7.250 2,227,380 5,265 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series A)............................. RB Aa1/AA- 07/01/01 6.300 5,348,398 2,000 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series C, due 07/01/01), FGIC Insured............................... RB Aaa/AAA 01/01/01(a) 7.000 2,043,140 1,500 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series C, due 07/01/02)............... RB Aa1/AA- 01/01/01(a) 7.500 1,546,500
The Accompanying Notes are an Integral Part of the Financial Statements. 32 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) JULY 31, 2000 - --------------------------------------------------------------------------------
PRINCIPAL SECURITY MOODY'S/ AMOUNT TYPE S&P RATING MATURITY (IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE - - -------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------ WASHINGTON (CONTINUED) $ 1,750 Washington, (Refunding, Series R-92-A, due 09/01/02)......................... GO Aa1/AA+ 09/01/01(a) 6.300% $ 1,799,193 4,000 Washington, (Series B & AT-7)........... GO Aa1/AA+ 06/01/17 6.400 4,413,960 ------------ TOTAL WASHINGTON.................... 39,328,108 ------------ WISCONSIN (1.5%) 6,250 Wisconsin Health & Educational Facilities............................ PP NR/NR 05/01/19 5.950 5,889,063 6,250 Wisconsin Health & Educational Facilities............................ PP NR/NR 05/01/14 5.700 6,006,125 ------------ TOTAL WISCONSIN..................... 11,895,188 ------------ TOTAL LONG TERM INVESTMENTS (COST $754,481,750).................................... 769,317,980 ------------ SHORT-TERM INVESTMENTS (3.2%) OTHER INVESTMENT COMPANIES (3.2%) SHARES - - -------------- 25,177,479 J.P. Morgan Institutional Tax Exempt Money Market Fund* (cost $25,177,479)............. 25,177,479 ------------ TOTAL INVESTMENTS (COST $779,659,229) (101.3%)......................................... 794,495,459 LIABILITIES IN EXCESS OF OTHER ASSETS (-1.3%).......................................... (10,572,277) ------------ NET ASSETS (100.0%).................................................................... $783,923,182 ============
- - ------------------------------ Note: Based on the cost of investments of $779,659,229 for federal income tax purposes at July 31, 2000 the aggregate gross unrealized appreciation and depreciation was $15,705,322 and $869,092 respectively, resulting in net unrealized appreciation of investments of $14,836,230. (a) The date under the heading maturity date represents an optional tender date. The actual maturity date is indicated in the security description. AMBAC - Ambac Indemnity Corp., FGIC - Financial Guaranty Insurance Co., FSA - Financial Securities Assurance, GO - General Obligation, IBC - IBC Financial Data, Inc., LOC - Letter of Credit, MBIA - Municipal Bond Assurance Corp., NR - Not Rated, PP - Private Placement, PSFG - Permanent School Fund Guarantee, RB - Revenue Bond Escrowed to Maturity: Bonds for which cash and/or securities have been deposited with a third party to cover the payments of principal and interest at the maturity which coincides with the first call date of the first bond. * Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc. The Accompanying Notes are an Integral Part of the Financial Statements. 33 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES JULY 31, 2000 - -------------------------------------------------------------------------------- ASSETS Investments at Value (Cost $779,659,229 ) $794,495,459 Interest Receivable 9,548,091 Prepaid Trustees' Fees 3,273 Prepaid Expenses and Other Assets 93,876 ------------ Total Assets 804,140,699 ------------ LIABILITIES Payable to Custodian 10,726 Payable for Investments Purchased 19,883,269 Advisory Fee Payable 196,848 Administrative Services Fee Payable 15,888 Administration Fee Payable 343 Fund Services Fee Payable 676 Accrued Expenses 109,767 ------------ Total Liabilities 20,217,517 ------------ NET ASSETS Applicable to Investors' Beneficial Interests $783,923,182 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 34 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED JULY 31, 2000 - -------------------------------------------------------------------------------- INVESTMENT INCOME Interest Income $ 40,506,238 EXPENSES Advisory Fee $2,344,217 Custodian Fees and Expenses 195,879 Administrative Services Fee 194,913 Professional Fees and Expenses 47,183 Fund Services Fee 12,760 Trustees' Fees and Expenses 9,104 Administration Fee 5,677 Miscellaneous 11,522 ---------- Total Expenses 2,821,255 ------------ NET INVESTMENT INCOME 37,684,983 NET REALIZED LOSS ON INVESTMENTS (13,494,852) NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS 6,100,102 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 30,290,233 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 35 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE FISCAL FOR THE ELEVEN FOR THE FISCAL YEAR ENDED MONTHS ENDED YEAR ENDED JULY 31, 2000 JULY 31, 1999 AUGUST 31, 1998 -------------- -------------- --------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net Investment Income $ 37,684,983 $ 34,387,277 $ 31,583,373 Net Realized (Loss) Gain on Investments (13,494,852) 4,500,130 680,094 Net Change in Unrealized Appreciation (Depreciation) of Investments 6,100,102 (30,158,895) 15,917,500 ------------- ------------- -------------- Net Increase in Net Assets Resulting from Operations 30,290,233 8,728,512 48,180,967 ------------- ------------- -------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS Contributions 318,241,114 417,545,311 337,310,680 Withdrawals (386,477,921) (361,383,038) (232,110,590) ------------- ------------- -------------- Net (Decrease) Increase from Investors' Transactions (68,236,807) 56,162,273 105,200,090 ------------- ------------- -------------- Total (Decrease) Increase in Net Assets (37,946,574) 64,890,785 153,381,057 NET ASSETS Beginning of Period 821,869,756 756,978,971 603,597,914 ------------- ------------- -------------- End of Period $ 783,923,182 $ 821,869,756 $ 756,978,971 ============= ============= ==============
- -------------------------------------------------------------------------------- SUPPLEMENTARY DATA - --------------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED FOR THE FISCAL FOR THE ELEVEN AUGUST 31, YEAR ENDED MONTHS ENDED ---------------------------- JULY 31, 2000 JULY 31, 1999 1998 1997 1996 1995 -------------- -------------- ---- ---- ---- ---- RATIOS TO AVERAGE NET ASSETS Net Expenses 0.36% 0.37%(a) 0.37% 0.38% 0.38% 0.42% Net Investment Income 4.78% 4.49%(a) 4.70% 4.93% 4.92% 5.15% Portfolio Turnover 84% 29%(b) 16% 25% 25% 47%
- ------------------------ (a) Annualized. (b) Not Annualized. The Accompanying Notes are an Integral Part of the Financial Statements. 36 THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS JULY 31, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Tax Exempt Bond Portfolio (the "portfolio") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company which was organized as a trust under the laws of the State of New York on January 29, 1993. The portfolio commenced operations on July 12, 1993. The portfolio's investment objective is to provide a high level of current income that is exempt from federal income tax consistent with moderate risk of capital. The Declaration of Trust permits the trustees to issue an unlimited number of beneficial interests in the portfolio. At a meeting on November 12, 1998, the trustees elected to change the portfolio's fiscal year from August 31 to July 31. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the portfolio: a) The portfolio values securities that are listed on an exchange using prices supplied daily by an independent pricing service that are based on the last traded price on a national securities exchange or in the absence of recorded trades, at the readily available bid price on such exchange, if such exchange or market constitutes the broadest and most representative market for the security. Independent pricing service procedures may also include the use of prices based on yields or prices of securities of comparable quality, coupon, maturity and type, indications as to values from dealers, operating data, and general market conditions. Unlisted securities are valued at the quoted bid price in the over-the- counter market provided by a principal market maker or dealer. If prices are not supplied by the portfolio's independent pricing service or principal market maker or dealer, such securities are priced using fair values in accordance with procedures adopted by the portfolio's trustees. All short-term securities with a remaining maturity of sixty days or less are valued using the amortized cost method. b) Securities transactions are recorded on a trade date basis. Interest income, which includes the amortization of premiums and discounts, if any, is recorded on an accrual basis. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. c) The portfolio intends to be treated as a partnership for federal income tax purposes. As such, each investor in the portfolio will be taxed on its share of the portfolio's ordinary income and capital gains. It is intended that the portfolio's assets will be managed in such a way that an investor in the portfolio will be able to satisfy the requirements of Subchapter M of the Internal Revenue Code. The cost of securities is substantially the same for book and tax purposes. 2. TRANSACTIONS WITH AFFILIATES a) The portfolio has an Investment Advisory Agreement with J.P. Morgan Investment Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company of New York ("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the portfolio paid JPMIM at an annual rate of 0.30% of the portfolio's average daily net assets. For the fiscal year ended July 31, 2000, such fees amounted to $2,365,565. 37 THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 - -------------------------------------------------------------------------------- The portfolio may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the portfolio in an amount to offset any doubling of investment advisory, shareholder servicing, and administrative services fees. For the fiscal year ended July 31 ,2000, J.P. Morgan has agreed to reimburse the portfolio $21,348 under this agreement. Interest income included in the Statement of Operations for the year ended July 31, 2000 includes $269,024 of interest income from investment in affiliated Money Market Funds. b) The trust on behalf of the portfolio has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and exclusive placement agent. Under a Co-Administration Agreement between FDI and the portfolio, FDI provides administrative services necessary for the operations of the portfolio, furnishes office space and facilities required for conducting the business of the portfolio and pays the compensation of the portfolio's officers affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to the portfolio is based on the ratio of the portfolio's net assets to the aggregate net assets of the portfolio and certain other investment companies subject to similar agreements with FDI. For the fiscal year ended July 31, 2000, the fee for these services amounted to $5,677. c) The trust on behalf of the portfolio has an Administrative Services Agreement (the "Services Agreement") with Morgan under which Morgan is responsible for certain aspects of the administration and operation of the portfolio. Under the Services Agreement, the portfolio has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the portfolio and certain other portfolios for which JPMIM acts as investment advisor (the "master portfolios") and J.P. Morgan Series Trust in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to FDI. The portion of this charge payable by the portfolio is determined by the proportionate share that its net assets bear to the net assets of the master portfolios, other investors in the master portfolios for which Morgan provides similar services, and J.P. Morgan Series Trust. For the fiscal year ended July 31, 2000, the fee for these services amounted to $194,913. d) The trust on behalf of the portfolio has a Fund Services Agreement with Pierpont Group, Inc. ("Group") to assist the trustees in exercising their overall supervisory responsibilities for the portfolio's affairs. The trustees of the portfolio represent all the existing shareholders of Group. For the fiscal year ended July 31, 2000, the portfolio's allocated portion of Group's costs in performing its services amounted to $12,760. e) An aggregate annual fee of $75,000 is paid to each trustee for serving as a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the financial statements represents the portfolio's allocated portion of the total fees and expenses. The portfolio's Chairman and Chief Executive Officer 38 THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) JULY 31, 2000 - -------------------------------------------------------------------------------- also serves as Chairman of Group and receives compensation and employee benefits from Group in his role as Group's Chairman. The allocated portion of such compensation and benefits included in the Fund Services Fee shown in the financial statements was $2,400 for the fiscal year ended July 31, 2000. 3. INVESTMENT TRANSACTIONS Investments transactions (excluding short-term investments) for the fiscal year ended July 31, 2000 were as follows:
COST OF PROCEEDS PURCHASES FROM SALES - - --------- ------------ $644,817,931 $656,683,081
4. CREDIT AGREEMENT The portfolio is party to a revolving line of credit agreement (the "Agreement") as discussed more fully in Note 4 of the fund's Notes to the Financial Statements which are included elsewhere in this report. 39 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Investors of The Tax Exempt Bond Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the supplementary data present fairly, in all material respects, the financial position of The Tax Exempt Bond Portfolio (the "portfolio") at July 31, 2000, the results of its operations for the year then ended, and the changes in its net assets for the year then ended, for the eleven months ended July 31, 1999 and for the year ended August 31, 1998 and the supplementary data for the year then ended, for the eleven months ended July 31, 1999 and for the four years ended August 31, 1998, in conformity with accounting principles generally accepted in the United States. These financial statements and supplementary data (hereafter referred to as "financial statements") are the responsibility of the portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at July 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York September 15, 2000 40 J.P. MORGAN INSTITUTIONAL FUNDS PRIME MONEY MARKET FUND TREASURY MONEY MARKET FUND FEDERAL MONEY MARKET FUND TAX EXEMPT MONEY MARKET FUND TAX AWARE ENHANCED INCOME FUND: INSTITUTIONAL SHARES SHORT TERM BOND FUND BOND FUND INTERNATIONAL BOND FUND GLOBAL STRATEGIC INCOME FUND TAX EXEMPT BOND FUND NEW YORK TAX EXEMPT BOND FUND CALIFORNIA BOND FUND: INSTITUTIONAL SHARES DIVERSIFIED FUND DISCIPLINED EQUITY FUND SMARTINDEX(TM) FUND: INSTITUTIONAL SHARES MARKET NEUTRAL FUND: INSTITUTIONAL SHARES LARGE CAP GROWTH FUND: INSTITUTIONAL SHARES U.S. EQUITY FUND U.S. SMALL COMPANY FUND TAX AWARE DISCIPLINED EQUITY FUND: INSTITUTIONAL SHARES INTERNATIONAL EQUITY FUND EUROPEAN EQUITY FUND INTERNATIONAL OPPORTUNITIES FUND EMERGING MARKETS EQUITY FUND FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT (800)766-7722. J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND ANNUAL REPORT JULY 31, 2000 IMAR374 EX-99.17(H) 9 a2044362zex-99_17h.txt EXHIBIT 99,17(H) (front cover) J.P. Morgan Institutional Tax Exempt Bond Fund Semiannual Report January 31, 2001 LETTER TO THE SHAREHOLDERS - -------------------------------------------------------------------------------- February 20, 2001 Dear Shareholder, We are pleased to inform you that the J.P. Morgan Institutional Tax Exempt Bond Fund outperformed its peer group, as measured by the Lipper Intermediate Municipal Debt Funds Average, for the six months ended January 31, 2001. The Fund provided a total return of 5.74% for the semiannual period, while the peer group had a total return of 5.42% for the same time period. The Fund was also competitive with its two benchmark indexes, the Lehman Brothers 1-16 year Municipal Bond Index and the Lehman Quality Intermediate Municipal Bond Index, which returned 5.77% and 5.72%, respectively, for the six months ended January 31, 2001. The J.P. Morgan Tax Exempt Bond Fund's 30-day SEC yield as of January 31, 2001 was 3.95%. This is equivalent to a taxable yield of 6.54% for an investor in the top federal income tax bracket of 39.6%. The Fund's net asset value (NAV) on January 31, 2001 was $10.31, an increase from $9.98 at the start of the fiscal year. During the past six months, the Fund distributed approximately $0.24 per share. This includes $0.24 from ordinary income, most of which was exempt from federal income tax. This report includes an interview with portfolio manager Robert Meiselas, who discusses the fixed income market in detail. Robert also explains the factors that influenced Fund performance during the period, and provides insight in regard to positioning the Portfolio for the coming months. As chairman and president of Asset Management Services, we appreciate your investment in the Funds. If you have any comments or questions, please contact your Morgan representative, or call J.P. Morgan Funds Services at (800) 766-7722. Sincerely yours, /signature/ /signature/ Ramon de Oliveira Keith M. Schappert Chairman of Asset Management Services President of Asset Management Services J.P. Morgan Chase & Co. J.P. Morgan Chase & Co. TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter to the Shareholders 1 Fund Performance 2 Portfolio Manager Q&A 3 Fund Facts & Portfolio Highlights 5 Financial Statements 6 1 FUND PERFORMANCE - -------------------------------------------------------------------------------- EXAMINING PERFORMANCE One way to look at performance is to review a fund's average annual total return. This calculation takes the fund's actual return and shows what would have happened if the fund had achieved that return by performing at a constant rate each year. Average annual total returns represent the average yearly change of a fund's value over various time periods, typically one, five, and ten years, (or since inception). Total returns for periods of less than one year are not annualized and provide a picture of how a fund has performed over the short-term. PERFORMANCE
TOTAL AVERAGE ANNUAL RETURNS TOTAL RETURNS -------------------- -------------------------------- SIX ONE THREE FIVE TEN MONTHS YEAR YEARS YEARS YEARS* AS OF JANUARY 31, 2001 J.P. Morgan Institutional Tax Exempt Bond Fund 5.74% 10.18% 4.52% 4.96% 6.23% Lehman Brothers 1-16 year Municipal Bond Index** 5.77% 10.94% 5.21% 5.60% N/A Lehman Quality Intermediate Municipal Bond Index** 5.72% 10.44% 5.12% 5.38% 6.71% Lipper Intermediate Municipal Debt Funds Average*** 5.42% 10.26% 4.12% 4.72% 6.09% AS OF DECEMBER 31, 2000 J.P. Morgan Institutional Tax Exempt Bond Fund 5.57% 8.56% 4.41% 4.89% 6.26% Lehman Brothers 1-16 year Municipal Bond Index** 5.57% 9.32% 5.10% 5.53% N/A Lehman Quality Intermediate Municipal Bond Index** 5.32% 8.64% 4.92% 5.27% 6.71% Lipper Intermediate Municipal Debt Funds Average*** 5.46% 8.55% 4.05% 4.66% 6.16%
* The J.P. Morgan Institutional Tax Exempt Bond Fund's returns prior to July 12, 1993 (commencement of operations), include historical returns of the J.P. Morgan Tax Exempt Bond Fund, a separate feeder fund investing in the same master portfolio, which has a higher expense ratio. ** The Fund's current benchmark is the Lehman Brothers 1-16 year Municipal Bond Index. Since this index did not exist prior to July 31, 1993, the table also includes the performance data for the Lehman Quality Intermediate Municipal Bond Index, the Fund's benchmark until May 1, 1997. Both are unmanaged indices that measure municipal bond market performance. They do not include fees or expenses and are not available for actual investment. ***Describes the average annual total return for all funds in the indicated Lipper category, as defined by Lipper, Inc., and does not take into account applicable sales charges. Lipper Analytical Services, Inc. is a leading source for mutual fund data. Past performance is no guarantee of future results. Fund returns are net of fees, assume the reinvestment of fund distributions, and reflect the reimbursement of fund expenses as described in the prospectus. Had expenses not been subsidized, returns would have been lower. 2 PORTFOLIO MANAGER Q&A - -------------------------------------------------------------------------------- Following is an interview with Robert Meiselas, who along with Benjamin S. Thompson and Kingsley Wood Jr., manages the J.P. Morgan Tax Exempt Bond Fund. This interview was conducted on February 16, 2001, and reflects Robert's views on that date. [photo of Robert Meiselas] ROBERT MEISELAS, vice president, is a portfolio manager with the Tax Aware Fixed Income Group responsible for managing municipal bonds, including tax exempt private placements. Bob is a CPA and joined Morgan's financial group in 1982, after having spent 10 years at Coopers & Lybrand. He also spent five years in J.P. Morgan's Private Banking Investment Management Group, and moved to J.P. Morgan Investment Management in 1997. Bob is a graduate of St. John's University and has completed graduate work in taxation at Long Island University. [photo of Benjamin S. Thompson] BENJAMIN S. THOMPSON, vice president, is a senior fixed income portfolio manager and head of J.P. Morgan's municipal bond strategies. His responsibilities include coordination of strategy and research, portfolio structuring, and trade execution for the Tax Aware Fixed Income Group. Prior to joining Morgan in 1999, Ben was a senior fixed income portfolio manager at Goldman Sachs Asset Management. Earlier, he was in the Structured Finance Group of the Chase Manhattan Bank. He holds a B.A. in Economics from Colorado College [photo of Kingsley Wood, Jr.] KINGSLEY (KIT) WOOD, JR., vice president, is a portfolio manager in the Tax Aware Fixed Income Group. Prior to becoming a J.P. Morgan Investment Management employee in 2000, he worked at Mercantile Bank & Trust (MSD&T Funds) in Baltimore, MD as a portfolio manager where he managed all institutional tax-exempt assets (mutual funds and separate accounts). Prior to that, he was a sell-side institutional trader at ABN-AMRO Bank and Kemper Securities in Chicago. Kit holds a B.A. from the University of Colorado, and has completed graduate work towards an M.B.A. at the University of Maryland. WHAT EVENTS IMPACTED THE FIXED INCOME MARKETS, GENERALLY, AND THE MUNICIPAL BOND MARKET, SPECIFICALLY, OVER THE LAST SIX MONTHS? The fixed income markets began the period on a volatile note after a period of rising interest rates, and ended in a rally as interest rates declined. By and large, the most significant factor was the Federal Reserve shifting its interest rate stance from tightening to easing, and the subsequent recognition by the bond market that U.S. economic growth slowed more than anticipated. At the outset of this reporting period, there was some question as to whether the Federal Reserve would continue to increase interest rates, and whether the previous rate increases were actually slowing the economy to the much-discussed "soft landing" that everyone desired. As we moved through autumn, investors became confident that the economy was, indeed, slowing. Near year-end, however, it became evident the economy might be slowing more than originally desired. In response, the Fed acted quickly and cut interest rates by 50 basis points during the first week of January. The Fed then followed with another 50 basis point cut on January 31, 2001, the last day of this reporting period. Bonds generally performed well in this environment. Prices in most fixed income markets trended upward. In the end, performance was driven by whether you were appropriately positioned as market expectations vacillated and whether you were invested in the right bonds at the right time as the economic scenario unfolded. Another significant occurrence was the volatility experienced by the stock market throughout the period. Stock market volatility led to increased retail awareness of bonds, as investors sought safe havens for their equity-related gains. This propelled the municipal bond market, in particular, as municipal bonds pay attractive returns for investors attempting to lower their tax bill. 3 PORTFOLIO MANAGER Q&A - -------------------------------------------------------------------------------- (Continued) HOW WAS THE FUND POSITIONED DURING THE LAST SIX MONTHS? Although we forecasted an eventual decline in interest rates, we tempered our bullish outlook to allow for market uncertainty. During this period, the fund performed well during periods when interest rates declined and also out-performed the competition when market uncertainty drove interest rates upward. A key element of our strategy was a long duration position, amplified through the addition of zero coupon and market discount bonds, which respond best to a decline in rates. We continued to add higher-yielding private placements to the portfolios and maintained a bias toward bonds of higher credit quality due to the narrow credit spreads prevailing in the marketplace. HAS YOUR POSITIONING PAID OFF THE WAY YOU EXPECTED? Not always, but much of the time. While our bias toward higher quality bonds did not add significantly to performance during the period, we believe it will buffer the fund when the bond market begins to weaken. We think that, as a general rule, our positioning in the market has made us less susceptible to NAV declines during a downturn. Because we are tax aware and don't take gains purely to provide marginally higher returns, and because we are not as structurally long as some other similar type funds, longer funds may have a higher return every now and then. A particular disappointment during the period was the performance of the portfolio's tax-exempt healthcare bonds, which failed to rally in concert with the general municipal market. The healthcare sector was beset with weak earnings and cash flow difficulties due in part to insufficient reimbursement from third party payers. We expected a leveling of conditions in this sector followed by steady improvement. Unfortunately, higher reimbursement rates from federal and local healthcare plans were not enacted until late in the year, and by that time, hospital bonds had lost much ground. HOW ARE YOU POSITIONING THE PORTFOLIO TO PROSPER IN THE MONTHS AHEAD? After a long rally, we believe that the strong bull market for bonds may be starting to wane. In our view, the Federal Reserve has signaled that it will act vigorously to prevent the U.S. economy from sinking into recession. Consequently, investors will not continue their aggressive buying of U.S. government bonds as a safe haven investment. Due to current technical factors in the municipal bond market, we don't believe that municipal bond prices will significantly weaken. Nevertheless, in order to avoid taking undue risk, we have repositioned the portfolio to de-emphasize holdings that could rapidly decline in value during periods of bond market volatility. In view of the tight spreads that currently prevail in the market, we will continue to emphasize high-quality securities. 4 FUND FACTS - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE J.P. Morgan Institutional Tax Exempt Bond Fund seeks to provide a high level of current income that is exempt from federal income tax consistent with moderate risk of capital and maintenance of liquidity. It is designed for investors who seek tax exempt yields greater than those generally available from a portfolio of short-term tax-exempt obligations and who are willing to incur the greater price fluctuation of longer-term instruments. - -------------------------------------------------------------------------------- Inception Date: 7/12/1993 - -------------------------------------------------------------------------------- Fund Net Assets as of 1/31/2001: $546,385,077 - -------------------------------------------------------------------------------- Portfolio Net Assets as of 1/31/2001: $903,891,025 - -------------------------------------------------------------------------------- Income Payable Dates (if applicable): MONTHLY - -------------------------------------------------------------------------------- Capital Gain Payable Dates (if applicable): 12/14/2001 EXPENSE RATIOS The Fund's current annualized expense ratio of 0.50% covers shareholders' expenses for custody, tax reporting, investment advisory, and shareholder services, after reimbursement. The Fund is no-load and does not charge any sales, redemption, or exchange fees. There are no additional charges for buying, selling or safekeeping fund shares, or for wiring redemption proceeds from the Fund. PORTFOLIO HIGHLIGHTS - -------------------------------------------------------------------------------- ASSET ALLOCATION All data as of January 31, 2001 [data from pie chart] Revenue Bonds 30.6% Insured 29.1% General Obligations and House Authority 27.6% Prerefunded 6.3% Private Placement 4.7% Tax Anticipation Notes 0.9% Short-Term Instruments 0.8%
- -------------------------------------------------------------------------------- 30 day SEC Yield: 3.95% - -------------------------------------------------------------------------------- Duration: 5.42 YEARS DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY THE FDIC, ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL INSTITUTION AND ARE NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES OF THE FUND ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED. RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell securities. Opinions expressed herein and other Fund data presented are based on current market conditions and are subject to change without notice. The Fund invests through a master portfolio (another Fund with the same objective). CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. 5 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) - -------------------------------------------------------------------------------- JANUARY 31, 2001 ASSETS Investment in The Tax Exempt Bond Portfolio ("Portfolio"), at value $543,980,729 Receivable for Shares of Beneficial Interest Sold 3,975,000 Prepaid Trustees' Fees and Expenses 717 Prepaid Expenses and Other Assets 611 ---------------- TOTAL ASSETS 547,957,057 ---------------- LIABILITIES Dividends Payable to Shareholders 1,445,061 Shareholder Servicing Fee Payable 45,613 Payable for Shares of Beneficial Interest Redeemed 43,421 Administrative Services Fee Payable 10,774 Administration Fee Payable 238 Fund Services Fee Payable 132 Accrued Expenses and Other Liabilities 26,741 ---------------- TOTAL LIABILITIES 1,571,980 ---------------- NET ASSETS Applicable to 53,004,853 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $546,385,077 ================ Net Asset Value, Offering and Redemption Price Per Share $10.31 ================ ANALYSIS OF NET ASSETS Paid-in Capital $535,564,980 Distributions in Excess of Net Investment Income (88,374) Accumulated Net Realized Loss on Investment (7,333,331) Net Unrealized Appreciation on Investment 18,241,802 ---------------- NET ASSETS $546,385,077 ================
6 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND STATEMENT OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 INVESTMENT INCOME INCOME Allocated Investment Income from Portfolio $12,667,510 Allocated Portfolio Expenses (865,634) ------------- Investment Income 11,801,876 ------------- FUND EXPENSES Shareholder Servicing Fee 245,695 Administrative Services Fee 58,527 Financial and Fund Accounting Services Fee 16,083 Registration Fees 12,107 Transfer Agent Fees 11,389 Professional Fees and Expenses 5,458 Printing Expenses 5,236 Fund Services Fee 3,234 Administration Fee 2,564 Trustees' Fees and Expenses 2,201 Miscellaneous Expenses 2,663 ------------- Total Fund Expenses 365,157 Less: Reimbursement of Expenses (875) ------------- Net Fund Expenses 364,282 ------------- NET INVESTMENT INCOME 11,437,594 ------------- REALIZED AND UNREALIZED GAIN NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 5,073,950 ------------- CHANGE IN NET UNREALIZED APPRECIATION ON INVESTMENT ALLOCATED FROM PORTFOLIO 11,506,123 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $28,017,667 ==============
The Accompanying Notes are an Integral Part of the Financial Statements. 7 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 (UNAUDITED) AND THE YEAR ENDED JULY 31, 2000 INCREASE IN NET ASSETS 2001 2000 FROM OPERATIONS Net Investment Income $ 11,437,594 $ 19,058,981 Net Realized Gain (Loss) on Investment Allocated from Portfolio 5,073,950 (12,006,983) Change in Net Unrealized Appreciation (Depreciation) on Investment Allocated from Portfolio 11,506,123 9,255,848 ------------------- ----------------- Net Increase in Net Assets Resulting from Operations 28,017,667 16,307,846 ------------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (11,398,819) (19,058,981) Net Realized Gain - (161,308) In Excess of Net Investment Income - (130,473) ------------------- ----------------- Total Distributions to Shareholders (11,398,819) (19,350,762) ------------------- ----------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 147,370,046 219,541,792 Reinvestment of Distributions 3,464,579 5,891,358 Cost of Shares of Beneficial Interest Redeemed (68,926,421) (163,465,427) ------------------- ----------------- Net Increase from Transactions in Shares of Beneficial Interest 81,908,204 61,967,723 ------------------- ----------------- Total Increase in Net Assets 98,527,052 58,924,807 ------------------- ----------------- NET ASSETS Beginning of Period 447,858,025 388,933,218 ------------------- ----------------- End of Period $546,385,077 $447,858,025 =================== ================= TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Shares of Beneficial Interest Sold 14,569,542 22,166,606 Shares of Beneficial Interest Reinvested 342,463 595,212 Shares of Beneficial Interest Redeemed (6,796,380) (16,501,269) ------------------- ----------------- Net Increase in Shares of Beneficial Interest 8,115,625 6,260,549 =================== =================
8 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
FOR THE SIX MONTHS ENDED FOR THE FOR THE ELEVEN FOR THE YEARS ENDED AUGUST 31 JANUARY 31, 2001 YEAR ENDED MONTHS ENDED --------------------------------------- (UNAUDITED) JULY 31, 2000 JULY 31, 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $9.98 $10.07 $10.38 $10.12 $9.92 $10.01 $9.75 ------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.24 0.46 0.41 0.47 0.48 0.48 0.49 Net Realized and Unrealized Gain (Loss) on Investment 0.33 (0.08) (0.30) 0.26 0.20 (0.07) 0.26 ------------------------------------------------------------------------------------- Total From Investment Operations 0.57 0.38 0.11 0.73 0.68 0.41 0.75 ------------------------------------------------------------------------------------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.24) (0.46) (0.41) (0.47) (0.48) (0.48) (0.49) Net Realized Gain - (0.01) (0.01) - (0.00)(a) (0.02) - In Excess of Net Investment Income - (0.00)(a) - - - - - ------------------------------------------------------------------------------------- Total Distributions to Shareholders (0.24) (0.47) (0.42) (0.47) (0.48) (0.50) (0.49) ------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE, END OF PERIOD $10.31 $9.98 $10.07 $10.38 $10.12 $9.92 $10.01 ===================================================================================== RATIOS AND SUPPLEMENTAL DATA Total Return 5.74%(b) 3.90% 1.01%(b) 7.37% 7.06% 4.13% 8.00% Net Assets, End of Period (in thousands) $546,385 $447,858 $388,933 $316,594 $201,614 $121,131 $59,867 Ratios to Average Net Assets Net Expenses 0.50%(c) 0.50% 0.50%(c) 0.50% 0.50% 0.50% 0.50% Net Investment Income 4.66%(c) 4.67% 4.37%(c) 4.58% 4.83% 4.82% 5.09% Expenses without Reimbursement 0.50%(c) 0.51% 0.53%(c) 0.53% 0.56% 0.60% 0.71%
(a) Amount is less than $0.005. (b) Not annualized (c) Annualized The Accompanying Notes are an Integral Part of the Financial Statements. 9 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- JANUARY 31, 2001 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--J.P. Morgan Institutional Tax Exempt Bond Fund (the "Fund") is a separate series of the J.P. Morgan Institutional Funds, a Massachusetts business trust (the "Trust") which was organized on November 4, 1992. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund commenced operations on July 12, 1993. At a meeting on November 12, 1998, the Trustees elected to change the Fund's fiscal year end from August 31 to July 31. The Fund invests all of its investable assets in The Tax Exempt Bond Portfolio (the "Portfolio"), a diversified open-end management investment company having the same investment objective as the Fund. The value of such investment included in the Statement of Assets and Liabilities reflects the Fund's proportionate interest in the net assets of the Portfolio (approximately 60% at January 31, 2001). The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the Fund: SECURITY VALUATION--Valuation of securities by the Portfolio is discussed in Note 1 of the Portfolio's Notes to Financial Statements that are included elsewhere in this report. INVESTMENT INCOME--The Fund earns income, net of expenses, daily on its investment in the Portfolio. All net investment income, realized and unrealized gains and losses of the Portfolio are allocated pro-rata among the Fund and other investors in the Portfolio at the time of such determination. EXPENSES--Expenses incurred by the Trust with respect to any two or more Funds in the Trust are allocated in proportion to the net assets of each Fund in the Trust, except where allocations of direct expenses to each Fund can otherwise be made fairly. INCOME TAX STATUS--It is the Fund's policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded on the ex-dividend date. Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are paid annually. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES ADMINISTRATIVE SERVICES--The Trust has an Administrative Services Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of New York ("Morgan") under which Morgan is responsible for certain aspects of the administration and operation of the Fund. Under the Services Agreement, the Trust has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Trust and certain other registered investment companies for which J.P. Morgan Investment Management, Inc. ("JPMIM") acts as investment advisor in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. ("FDI"). The portion of this charge payable by the Fund is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which Morgan provides similar services. Morgan has agreed to reimburse the Fund to the extent the total operating expenses of the Fund, including the expenses allocated to the Fund from the Portfolio exceed 0.50% of the Fund's average daily net assets. The reimbursement agreement expired November 28, 2000. ADMINISTRATION--The Trust has retained FDI, a registered broker-dealer, to serve as the co-administrator and distributor for the Fund. Under a Co-Administration Agreement between FDI and the Trust, FDI provides administrative services necessary for the operations of the Fund, furnishes office space and facilities required for conducting the business of the Fund and pays the compensation of the Fund's officers affiliated with FDI. The Fund has agreed to pay FDI fees equal to its allocable 10 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) JANUARY 31, 2001 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Fund is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with Morgan under which Morgan provides account administration and personal account maintenance service to Fund shareholders. The agreement provides for the Fund to pay Morgan a fee for these services that is computed daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Fund. FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Trust's affairs. The Trustees of the Trust represent all the existing shareholders of PGI. TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for serving on the boards of the Trust, the J.P. Morgan Funds, and other registered investment companies in which they invest. The Trustees' Fees and Expenses shown in the financial statements represent the Fund's allocated portion of the total Trustees' Fees and Expenses. The Trust's Chairman and Chief Executive Officer also serves as Chairman of PGI and receives compensation and employee benefits from PGI. The allocated portion of such compensation and benefits included in the Fund Services Fee shown on the Statement of Operations was $600. - -------------------------------------------------------------------------------- 3. BANK LOANS The Fund may borrow money for temporary or emergency purposes, such as funding shareholder redemptions. Effective May 23, 2000, the Fund, along with certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of credit agreement with DeutscheBank. Borrowings under the agreement will bear interest at approximate market rates. A commitment fee is charged at an annual rate of 0.085% on the unused portion of the committed amount. - -------------------------------------------------------------------------------- 4. CONCENTRATIONS OF RISK From time to time, the Fund may have a concentration of several shareholders holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the Fund. - -------------------------------------------------------------------------------- 5. CORPORATE EVENT The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Fund's Advisor, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P. Morgan Chase & Co. will be the new parent company of JPMIM, which will continue to serve as the Fund's Advisor. 11 THE TAX EXEMPT BOND PORTFOLIO Semiannual Report January 31, 2001 (The following pages should be read in conjunction with J.P. Morgan Institutional Tax Exempt Bond Fund Semiannual Financial Statements) 12 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------------------- MUNICIPALS - 99.2% GENERAL OBLIGATIONS & HOUSE AUTHORITY - 27.6% CONNECTICUT - 1.7% $ 7,240,000 Connecticut, Series 1997 B, 5.88%, 6/15/17 $ 7,880,233 6,655,000 Connecticut, Series 2000 C, 5.25%, 12/15/11 7,139,018 --------------------------- 15,019,251 --------------------------- DISTRICT OF COLUMBIA - 1.3% 10,645,000 District of Columbia, Series 1993 A, 5.80%, 6/1/04 11,313,187 --------------------------- FLORIDA - 0.1% 465,000 Florida State Board of Education Capital Outlay, 7.00%, 6/1/01 466,488 --------------------------- GEORGIA - 3.0% 2,630,000 Fulton County School District, 6.38%, 5/1/14 3,076,942 11,000,000 Georgia, Series 1991 D, 3.00%, 11/1/11 9,696,390 3,000,000 Georgia, Series 1992 B, 6.30%, 3/1/10 3,464,880 6,000,000 Georgia, Series 1995 B, 7.20%, 3/1/07 7,028,880 2,500,000 Gwinnett County School District, Series 1992 B, 6.40%, 2/1/08 2,848,100 --------------------------- 26,115,192 --------------------------- MARYLAND - 0.9% 5,000,000 Maryland, Series 2000-1, (State & Local Facilities Loan), 5.13%, 8/1/05 5,281,700 3,000,000 Maryland, Series 1991-3, 6.40%, 7/15/03 3,051,600 --------------------------- 8,333,300 --------------------------- MASSACHUSETTS - 1.7% 14,035,000 Massachusetts, Series 2000 B, 5.75%, 6/1/12 15,306,711 --------------------------- MINNESOTA - 1.2% 9,330,000 Minnesota, 5.50%, 6/1/10 10,245,366 --------------------------- MISSISSIPPI - 1.4% 11,210,000 Mississippi, 6.20%, 2/1/08 12,556,097 --------------------------- NEW JERSEY - 1.8% 4,180,000 Jersey City, Series 1996 A, 6.25%, 10/1/11 4,815,109 10,000,000 New Jersey, 5.50%, 5/1/07 10,859,600 --------------------------- 15,674,709 --------------------------- NEW YORK - 0.0%(z) 50,000 New York, Series 1994 A, 5.75%, 8/1/02 51,670 --------------------------- NORTH CAROLINA - 1.2% 10,410,000 North Carolina, Series 2000 A, (Public Improvements), 5.00%, 9/1/04 10,872,828 --------------------------- PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------------------- OHIO - 6.8% $ 17,385,000 Columbus, Series 2000-1, 5.25%, 11/15/03 to 11/15/05 $ 18,309,830 12,245,000 Columbus, Series 2000-1, 5.50%, 11/15/06 to 11/15/11 13,345,350 10,000,000 Ohio, Series 2000 E, (Highway Capital Improvements), 5.63%, 5/1/10 11,060,599 10,000,000 Ohio, Series 2000 E, (Highway Capital Improvements), 5.25%, 5/1/04 10,480,900 7,000,000 Ohio, Series 1998 C, (Highway Capital Improvements), 4.50%, 5/1/02 7,096,600 --------------------------- 60,293,279 --------------------------- SOUTH CAROLINA - 1.6% 13,305,000 South Carolina, Series 2001 A, (State School Facilities), 5.00%, 1/1/05 13,893,746 --------------------------- TENNESSEE - 0.8% 6,820,000 Knox County, 6.00%, 5/1/12 to 5/1/13 7,474,925 --------------------------- TEXAS - 2.3% 12,485,000 Fort Worth Independent School District, (Premium Capital Appreciation), 4.99%, 2/15/06(y) 9,729,061 10,000,000 Texas, Series 1992 C, 5.50%, 4/1/20, Prerefunded at 102% of Par 10,418,499 --------------------------- 20,147,560 --------------------------- VIRGINIA - 0.4% 3,650,000 Loudoun County, Series 2000 B, (State Aid Withholding), 5.13%, 1/1/04 3,791,912 --------------------------- WASHINGTON - 0.7% 1,750,000 Washington State, Series 1991 R-92-A, 6.30%, 9/1/02 1,795,938 4,000,000 Washington State, Series 1992 B & AT-7, 6.40%, 6/1/17 4,708,040 --------------------------- 6,503,978 --------------------------- WISCONSIN - 0.7% 5,615,000 Milwaukee Metropolitan Sewerage District, Series 1990 A, 6.70%, 10/1/02 5,898,445 --------------------------- 243,958,644 --------------------------- INSURED - 29.1% ALASKA - 1.0% 2,000,000 Anchorage GO, 6.60%, 7/1/02, Prerefunded at 100% of Par(MBIA) 2,026,240 10,000,000 North Slope Boro Alaska, Series 2000 B, 5.18%, 6/30/09(MBIA)(y) 6,828,300 --------------------------- 8,854,540 --------------------------- CALIFORNIA - 2.6% 5,000,000 California, 5.00%, 12/1/09(FGIC-TCRS) 5,420,150 3,000,000 California, 6.50%, 9/1/10(FGIC-TCRS) 3,569,310 10,000,000 California, Series 1999, 5.50%, 2/1/10(FGIC-TCRS) 11,026,900
The Accompanying Notes are an Integral Part of the Financial Statements. 13 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------------------- $ 2,500,000 Los Angeles County Public Works Financing Auth. Lease Rev., Series 1996 A, 6.00%, 9/1/06(MBIA) $ 2,804,000 --------------------------- 22,820,360 --------------------------- DISTRICT OF COLUMBIA - 1.5% 2,600,000 District of Columbia, Series 1992 B, 6.00%, 6/1/02, Escrowed to Maturity(MBIA) 2,682,108 3,220,000 District of Columbia, Series 1993 A, 6.00%, 6/1/07 to 6/1/07, Escrowed to Maturity(MBIA-IBC) 3,566,843 6,795,000 District of Columbia, Series 1993 C, 5.25%, 12/1/03, Escrowed to Maturity(FGIC) 7,074,410 --------------------------- 13,323,361 --------------------------- FLORIDA - 0.2% 2,000,000 Volusia County School District, 6.10%, 8/1/02(FGIC) 2,065,400 --------------------------- GEORGIA - 0.7% 5,000,000 Metropolitan Atlanta Rapid Transportation Auth., Series 1992 P, 6.25%, 7/1/11(AMBAC) 5,809,100 --------------------------- ILLINOIS - 0.4% 2,810,000 Regional Transportation Auth., Series 1994 D, 7.75%, 6/1/07(FGIC) 3,365,453 --------------------------- LOUISIANA - 2.0% 14,425,000 Louisiana, Series 1996 A, 6.00%, 8/1/02(FGIC) 14,967,092 4,165,000 New Orleans, (Capital Appreciation), 5.28%, 9/1/11(AMBAC)(y) 2,546,106 --------------------------- 17,513,198 --------------------------- MASSACHUSETTS - 2.3% 18,620,000 Massachusetts, Series 2000 A, (Grant Anticipation Notes), 5.75%, 12/15/12(FSA) 20,604,891 --------------------------- MICHIGAN - 2.1% 3,910,000 Grand Rapids Water Supply System Rev., 5.75%, 1/1/13(FGIC) 4,275,741 13,050,000 Michigan State Hospital Finance Auth., Series 1999 A, (Ascension Health Credit), 6.25%, 11/15/15(MBIA) 14,342,865 --------------------------- 18,618,606 --------------------------- NEBRASKA - 1.8% 5,245,000 Nebhelp Inc, Series 1993 A-5B, 6.20%, 6/1/13(MBIA) 5,499,225 10,000,000 Nebraska Public Power District, Series 1998 A, 5.25%, 1/1/05(MBIA) 10,462,200 --------------------------- 15,961,425 --------------------------- NEVADA - 1.2% 8,200,000 Clark County School District, Series 1991 A, 7.00%, 6/1/11(MBIA) 9,927,412 280,000 Las Vegas-Clark County Library District, Series 1991 B, 6.70%, 8/1/04(FGIC) 286,849 --------------------------- 10,214,261 --------------------------- PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------------------- NEW JERSEY - 2.1% $ 4,100,000 New Jersey Economic Development Auth. Rev., Transition Project Sublease, Series A, 5.75%, 5/1/11(FSA) $ 4,554,034 7,000,000 New Jersey Economic Development Auth., Market Transition Facilities Rev., Sr. Lien, Series A, 5.40%, 7/1/02(MBIA) 7,187,390 6,000,000 New Jersey State Transportation Trust Fund, Series 1995 B, (Transportation System), 6.00%, 6/15/05(MBIA) 6,520,620 --------------------------- 18,262,044 --------------------------- NEW YORK - 1.2% 75,000 Monroe County, 6.00%, 6/1/10(AMBAC) 85,047 10,000,000 New York State Thruway Auth., Series 2000 B-1, 5.50%, 4/1/09(FGIC) 10,941,900 --------------------------- 11,026,947 --------------------------- OHIO - 1.2% 10,000,000 Ohio State Turnpike Commission, Series 1996 A, 5.50%, 2/15/26, Prerefunded at 102% of Par(MBIA) 10,912,699 --------------------------- PENNSYLVANIA - 0.4% 2,360,000 Pennridge School District, 4.45%, 8/15/09(FSA State Aid Withholding) 2,374,538 1,500,000 Pennsylvania State, Series 1991 A-2, 6.50%, 11/1/04, Prerefunded at 101.5% of Par(MBIA) 1,556,625 --------------------------- 3,931,163 --------------------------- SOUTH CAROLINA - 3.3% 1,000,000 Piedmont Municipal Power Agency Electric Rev., 6.20%, 1/1/08(MBIA) 1,127,060 15,000,000 Piedmont Municipal Power Agency Electric Rev., 6.75%, 1/1/20(FGIC) 18,124,950 10,310,000 South Carolina GO, Series 2000 A, (State School Facilities), 4.25%, 1/1/15 (FSA State Aid Withholding) 9,736,249 --------------------------- 28,988,259 --------------------------- TENNESSEE - 0.4% 3,720,000 Tennessee School Bond Authority, Series 1987 A, (GO of Authority), 4.00%, 5/1/12 3,553,939 --------------------------- TEXAS - 3.4% 11,135,000 Houston Independent School District, (Capital Appreciation), 4.76%, 8/15/13(PSF-GTD)(y) 6,013,345 10,880,000 Humble Independent School District, Series 2000 C, (Humble Island), 3.95%, 2/15/16 to 2/15/17(PSF-GTD)(y) 4,834,402 8,200,000 San Antonio, Series 1991 B, (Capital Appreciation), 4.64%, 2/1/12(FGIC)(y) 4,811,760 12,500,000 Texas Municipal Power Agency Rev., (Capital Appreciation), 4.76%, 9/1/13(MBIA)(y) 6,735,750 10,100,000 Texas Public Building Auth., (Capital Appreciation), 4.21%, 8/1/06(MBIA)(y) 8,039,701 --------------------------- 30,434,958 ---------------------------
14 The Accompanying Notes are an Integral Part of the Financial Statements. THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------------------- UTAH - 0.8% $ 6,645,000 Intermountain Power Agency Power Supply Rev., Series 1996 C, 6.00%, 7/1/02(MBIA) $ 6,876,246 --------------------------- WASHINGTON - 0.5% 1,000,000 Pierce County School District No. 320 Sumner, 6.60%, 12/1/02, Prerefunded at 100% of Par(MBIA) 1,026,490 1,250,000 Snohomish County School District No. 2 Everett, Series 1991 A, 6.70%, 12/1/02(MBIA) 1,262,825 2,000,000 Washington Public Power Supply System Rev., Series 1990 C, (Nuclear Project No. 2), 7.00%, 7/1/01(FGIC) 2,027,220 --------------------------- 4,316,535 --------------------------- 257,453,385 --------------------------- PREREFUNDED - 6.3% ALABAMA - 0.1% 1,000,000 Daphne Special Care Facilities Financing Auth. Rev., Series 1988 A, (Presbyterian Retirement), 7.30%, 8/15/18, Prerefunded at 100% of Par 1,020,740 --------------------------- CONNECTICUT - 0.3% 2,815,000 Connecticut Special Tax Obligation Rev., Series 1999 A, (Transportation Infrastructure), 6.60%, 6/1/04, Prerefunded at 100% of Par 2,998,116 --------------------------- MICHIGAN - 2.7% 10,000,000 Detroit Water Supply System Rev., 6.37%, 2/15/01, Prerefunded at 102% of Par(FGIC) 10,583,900 10,500,000 Michigan State Hospital Finance Auth., Series 1995 A, (Genesys Health Systems), 8.13%, 10/1/21, Prerefunded at 102% of Par 12,541,620 --------------------------- 23,125,520 --------------------------- MISSOURI - 1.1% 5,000,000 Missouri State Regional Convention & Sports Complex Auth., Series A, 6.90%, 8/15/21, Prerefunded at 100% of Par 5,388,900 4,000,000 St. Louis County Regional Convention & Sports Complex Auth., Series 1991 B, 7.00%, 8/15/21, Prerefunded at 100% of Par 4,320,720 --------------------------- 9,709,620 --------------------------- NEVADA - 1.9% 15,500,000 Nevada, (Colorado River Community), 6.50%, 7/1/24, Prerefunded at 101% of Par 17,002,415 --------------------------- TEXAS - 0.2% 1,305,000 Dallas County Flood Control District, 9.25%, 4/1/10, Prerefunded at 100% of Par 1,586,280 --------------------------- 55,442,691 --------------------------- PRIVATE PLACEMENT - 4.7% CALIFORNIA - 0.2% 353,329 Kawaeh Delta Hospital District, 6.40%, 6/1/14 377,568 1,048,640 Kaweah Delta Hospital District, 5.25%, 6/1/14 1,046,574 --------------------------- 1,424,142 --------------------------- PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------- FLORIDA - 1.2% $ 10,250,000 Orlando Utility Commission, 4.48%, 9/1/03 $ 10,303,300 --------------------------- ILLINOIS - 0.3% 3,000,000 Illinois Development Bank, 4.90%, 8/1/28 3,059,640 --------------------------- NEW YORK - 1.2% 10,000,000 New York Convention Center Operating Corp. COP, (Yale Building Acquisition), 6.50%, 12/1/04 10,201,500 --------------------------- PENNSYLVANIA - 0.5% 4,250,000 Philadelphia Auth. for Industrial Development, 4.75%, 1/1/18 4,265,385 --------------------------- WISCONSIN - 1.3% 6,250,000 Wisconsin Health & Educational Facilities, 5.70%, 5/1/14 6,285,500 6,250,000 Wisconsin Health & Educational Facilities, 5.95%, 5/1/19 6,223,563 --------------------------- 12,509,063 --------------------------- 41,763,030 --------------------------- REVENUE BONDS - 30.6% ARIZONA - 0.4% 3,430,000 Arizona Health Facilities Auth., Series 1999 A, (Catholic Healthcare West), 6.13%, 7/1/09 3,408,940 --------------------------- CALIFORNIA - 1.9% 2,520,000 California State Department of Water Resources Center Valley Project, Series 1992 J-1, (Water systems), 7.00%, 12/1/12 3,179,660 13,070,000 California Statewide Community Development Auth., 6.00%, 7/1/09 13,243,178 --------------------------- 16,422,838 --------------------------- GEORGIA - 0.2% 1,250,000 Georgia Municipal Electric Auth., Series 1997 A, 6.50%, 1/1/12 1,439,800 --------------------------- ILLINOIS - 0.9% 3,770,000 Illinois Health Facilities Auth. Rev., 6.75%, 11/15/10 4,077,293 1,665,000 Illinois Health Facilities Auth. Rev., 6.63%, 2/15/12 1,802,895 1,380,000 Metropolitan Pier & Exposition Auth. Dedicated State Tax Rev., Series 1992 A, 8.50%, 6/15/06 1,675,154 --------------------------- 7,555,342 --------------------------- IOWA - 0.8% 6,920,000 Iowa Finance Auth., 6.75%, 2/15/15 to 2/15/17 7,415,378 --------------------------- KENTUCKY - 1.0% 3,905,000 Kentucky Property & Buildings Commission Rev., 5.75%, 5/1/10 4,320,687 4,450,000 Kentucky Property & Buildings Commission Rev., (Project No. 67), 5.50%, 9/1/09 4,857,131 --------------------------- 9,177,818 ---------------------------
The Accompanying Notes are an Integral Part of the Financial Statements. 15 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------- MARYLAND - 0.6% $ 5,435,000 Maryland State Health & Higher Educational Facilities Auth. Rev., (John Hopkins University), 5.75%, 7/1/03 $ 5,705,609 --------------------------- MASSACHUSETTS - 4.1% 5,650,000 Massachusetts Bay Transportation Auth., Series 1994 A, (General Transportation System), 7.00%, 3/1/08 6,624,682 6,750,000 Massachusetts Health & Educational Facilities Auth., Series 2000 A, (Harvard University), 5.00%, 1/15/07 7,135,628 1,495,000 Massachusetts State College Building Auth., Series 1994 A, 7.50%, 5/1/11 1,873,130 9,500,000 Massachusetts State Water Pollution Abatement, Series 1999 A, (MWRA Program), 6.00%, 8/1/15 10,521,060 10,000,000 Massachusetts State Water Resources Auth., Series 2000 D, 5.50%, 8/1/09 10,922,600 --------------------------- 37,077,100 --------------------------- MICHIGAN - 3.0% 2,905,000 Michigan State Hospital Finance Auth., Series 1997 T, (Mercy Health Services), 5.75%, 8/15/04 3,026,022 10,000,000 Michigan State Hospital Finance Auth., Series 1999 B, (Ascension Health Credit), 5.30%, 11/15/33 10,218,900 3,755,000 Michigan State Hospital Finance Auth., Series 2000 A, (Trinity Health), 5.50%, 12/1/05 3,871,968 8,565,000 Michigan State Hospital Finance Auth., Series 2000 A, (Trinity Health), 6.00%, 12/1/11 to 12/1/12 9,147,482 --------------------------- 26,264,372 --------------------------- MINNESOTA - 1.3% 10,000,000 University of Minnesota, Series 1996 A, 5.75%, 7/1/10 to 7/1/15 11,115,500 --------------------------- MISSISSIPPI - 0.3% 2,505,000 Mississippi Higher Education Assistance Corp., Series 1993 B, 5.60%, 9/1/04 2,595,330 --------------------------- NEW HAMPSHIRE - 0.6% 4,900,000 New Hampshire Higher Educational & Health Facilities Auth., (Dartmouth College), 6.75%, 6/1/07 5,651,513 --------------------------- NEW YORK - 1.2% 8,700,000 Triborough Bridge & Tunnel Auth., 6.63%, 1/1/12 10,317,939 --------------------------- NORTH CAROLINA - 1.8% 8,900,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 1999 B, 6.13%, 1/1/06 9,378,553 6,275,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 1999 B, 6.25%, 1/1/07 6,686,766 --------------------------- 16,065,319 --------------------------- PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------------------- NORTH DAKOTA - 1.3% $ 11,280,000 North Dakota State Housing Finance Agency Mortgage Rev., Series 2000 C, (Housing Finance Program), 5.55%, 1/1/31 $ 11,500,186 --------------------------- OHIO - 0.4% 2,585,000 Ohio State Water Development Auth., 9.38%, 12/1/10 3,124,826 --------------------------- PENNSYLVANIA - 1.6% 10,000,000 Clinton County Industrial Development Auth., Series 1992 A, (International Paper Co.), VRN, 4.73%, 9/1/22 9,999,999 1,310,000 Pennsylvania State Higher Educational Facilities Auth., Series 1995 A, (University of Pennsylvania), 6.50%, 9/1/02 1,369,160 2,800,000 Pennsylvania State Higher Educational Facilities Auth., Series 1996 A, (University of Pennsylvania Health Services), 6.00%, 1/1/06 2,912,084 --------------------------- 14,281,243 --------------------------- SOUTH CAROLINA - 1.0% 5,500,000 South Carolina Jobs-Economic Development Auth. Hospital Facilities Rev., Series 2000 A, (Palmetto Health Alliance), 7.00%, 12/15/10 5,651,305 3,000,000 South Carolina Jobs-Economic Development Auth. Hospital Facilities Rev., Series 2000 A, (Palmetto Health Alliance), 7.13%, 12/15/15 2,977,200 --------------------------- 8,628,505 --------------------------- TEXAS - 3.3% 10,000,000 Brazos River Auth. Rev., Series 1999 A, (Utility Electric Co.), 5.00%, 4/1/33 10,015,500 13,000,000 Dallas-Fort Worth International Airport Facility Improvement Corp. Rev., Series 2000 B, (American Airlines), 6.05%, 5/1/29 13,307,319 5,875,000 Lubbock Health Facilities Development Corp., (St. Joseph Health Systems), 5.25%, 7/1/11 6,000,138 --------------------------- 29,322,957 --------------------------- VIRGINIA - 3.9% 5,000,000 Virginia College Building Auth., 5.75%, 2/1/03 5,198,700 27,415,000 Virginia Commonwealth Transportation Board, (Federal Highway), 5.50%, 10/1/05 to 10/1/08 29,771,104 --------------------------- 34,969,804 --------------------------- WASHINGTON - 1.0% 2,000,000 Washington Public Power Supply System, Series 1990 A, (Project II), 7.25%, 7/1/06 2,302,180 1,500,000 Washington Public Power Supply System, Series 1990 C, 7.50%, 7/1/02 1,538,700 5,265,000 Washington Public Power Supply System, Series 1991 A, 6.30%, 7/1/01 5,323,020 --------------------------- 9,163,900 --------------------------- 271,204,219 ---------------------------
16 The Accompanying Notes are an Integral Part of the Financial Statements. THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE - ---------------------------------------------------------------------------------------------------- TAX ANTICIPATION NOTES - 0.9% CALIFORNIA - 0.9% $ 8,000,000 Tustin Unified School District Rev., (Community Facilities 97-1), 6.10%, 9/1/02 $ 8,103,360 --------------------------- TOTAL MUNICIPALS 877,925,329 --------------------------- (Cost $843,701,858) SHORT-TERM INVESTMENTS - 0.8% INVESTMENT COMPANIES - 0.8% 7,234,748 J.P. Morgan Institutional Tax Exempt Money Market Fund* 7,234,748 --------------------------- (Cost $7,234,748) TOTAL INVESTMENT SECURITIES - 100.0% $885,160,077 =========================== (Cost $850,936,606)
AMBAC - AMBAC Assurance Corporation COP - Certificate of Participation FGIC - Financial Guaranty Insurance Co. FSA - Financial Securities Assurance GO - General Obligation IBC - Insured Bond Certificates MBIA - MBIA Insurance Corp. PSF - Permanent School Fund VRN - Variable Rate Note (y) Yield to maturity (z) Category is less than 0.05% of total investment securities. * Affiliated money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc The Accompanying Notes are an Integral Part of the Financial Statements. 17 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) - -------------------------------------------------------------------------------- JANUARY 31, 2001 ASSETS Investments at Value (Cost $850,936,606) $885,160,077 Cash 7,788,886 Dividend and Interest Receivable 11,248,596 Prepaid Trustees' Fees and Expenses 1,327 Prepaid Expenses and Other Assets 1,319 --------------- TOTAL ASSETS 904,200,205 --------------- LIABILITIES Advisory Fee Payable 228,701 Administrative Services Fee Payable 18,009 Administration Fee Payable 226 Fund Services Fee Payable 223 Accrued Expenses and Other Liabilities 62,021 --------------- TOTAL LIABILITIES 309,180 --------------- NET ASSETS Applicable to Investors' Beneficial Interest $903,891,025 ===============
18 The Accompanying Notes are an Integral Part of the Financial Statements. THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 INVESTMENT INCOME INCOME Interest Income $21,634,029 Dividend Income from Affiliated Investment 21,056 ------------- Investment Income 21,655,085 ------------- EXPENSES Advisory Fee 1,262,929 Administrative Services Fee 100,301 Custodian Fees and Expenses 73,507 Professional Fees and Expenses 23,042 Trustees' Fees and Expenses 6,011 Fund Services Fee 5,578 Printing Expenses 4,496 Administration Fee 2,459 Insurance Expenses 1,077 Miscellaneous Expenses 85 ------------- Total Expenses 1,479,485 ------------- NET INVESTMENT INCOME 20,175,600 ------------- REALIZED AND UNREALIZED GAIN NET REALIZED GAIN ON INVESTMENT TRANSACTIONS 8,564,956 ------------- CHANGE IN NET UNREALIZED APPRECIATION ON INVESTMENTS 19,387,241 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $48,127,797 =============
The Accompanying Notes are an Integral Part of the Financial Statements. 19 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 (UNAUDITED) AND THE YEAR ENDED JULY 31, 2000 INCREASE (DECREASE) IN NET ASSETS 2001 2000 FROM OPERATIONS Net Investment Income $ 20,175,600 $ 37,684,983 Net Realized Gain (Loss) on Investment Transactions 8,564,956 (13,494,852) Change in Net Unrealized Appreciation on Investments 19,387,241 6,100,102 ----------------- ----------------- Net Increase in Net Assets Resulting from Operations 48,127,797 30,290,233 ----------------- ----------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Contributions 217,800,376 318,241,114 Withdrawals (145,960,330) (386,477,921) ----------------- ----------------- Net Increase (Decrease) from Transactions in Shares of Beneficial Interest 71,840,046 (68,236,807) ----------------- ----------------- Total Increase (Decrease) in Net Assets 119,967,843 (37,946,574) ----------------- ----------------- NET ASSETS Beginning of Period 783,923,182 821,869,756 ------------------ ---------------- End of Period $903,891,025 $783,923,182 ================== ================
SUPPLEMENTARY DATA FOR THE SIX MONTHS ENDED FOR THE FOR THE ELEVEN FOR THE YEARS ENDED AUGUST 31 JANUARY 31, 2001 YEAR ENDED MONTHS ENDED ------------------------------------- (UNAUDITED) JULY 31, 2000 JULY 31, 1999 1998 1997 1996 1995 ---------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS Net Expenses 0.35%(a) 0.36% 0.37%(a) 0.37% 0.38% 0.38% 0.42% Net Investment Income 4.79%(a) 4.78% 4.49%(a) 4.70% 4.93% 4.92% 5.15% Portfolio Turnover 39%(b) 84% 29%(b) 16% 25% 25% 47%
(a) Annualized (b) Not annualized 20 The Accompanying Notes are an Integral Part of the Financial Statements. THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- JANUARY 31, 2001 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--The Tax Exempt Bond Portfolio (the "Portfolio") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company which was organized as a trust under the laws of the State of New York on January 29, 1993. The Portfolio commenced operations on July 12, 1993. The Portfolio's investment objective is to provide a high level of current income that is exempt from federal income tax consistent with moderate risk of capital. The Declaration of Trust permits the Trustees to issue an unlimited number of beneficial interests in the Portfolio. At a meeting on November 12, 1998, the Trustees elected to change the Portfolio's fiscal year from August 31 to July 31. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the Portfolio: SECURITY VALUATIONS--Fixed income securities, (other than convertible bonds), with a maturity of 60 days or more held by funds other than money market funds will be valued each day based on readily available market quotations received from independent or affiliated commercial pricing services. Such pricing services will generally provide bidside quotations. Convertible bonds are valued at the last sale price on the primary exchange on which the bond is principally traded. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Trustees. All short-term securities with a remaining maturity of sixty days or less are valued using the amortized cost method. SECURITY TRANSACTIONS--Security transactions are accounted for as of the trade date. Realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is recorded as of the ex-dividend date or as of the time that the relevant ex-dividend and amount becomes known. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums RESTRICTED AND ILLIQUID SECURITIES--The Portfolio is permitted to invest in securities that are subject to legal or contractual restrictions on resale or are illiquid. Restricted securities generally may be resold in transactions exempt from registration. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at the current valuation may be difficult. At the end of the period, the Portfolio had no investments in restricted and illiquid securities (excluding 144A issues). INCOME TAX STATUS--The Portfolio intends to be treated as a partnership for federal income tax purposes. As such, each investor in the Portfolio will be taxed on its share of the Portfolio's ordinary income and capital gains. It is intended that the Portfolio's assets will be managed in such a way that an investor in the Portfolio will be able to satisfy the requirements of Subchapter M of the Internal Revenue Code. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES ADVISORY--The Portfolio has an Investment Advisory Agreement with J.P. Morgan Investment Management, Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P. Morgan Chase & Co. Under the terms of the agreement, the Portfolio pays JPMIM at an annual rate of 0.30% of the Portfolio's average daily net assets. The Portfolio may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the Portfolio in an amount to offset any investment advisory, administrative fee and shareholder servicing fees related to a Portfolio investment in an affiliated money market fund. ADMINISTRATIVE SERVICES--The Portfolio has an Administrative Services Agreement (the "Services Agreement") with Morgan under which Morgan is responsible for certain aspects of the administration and operation of the Portfolio. Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Portfolio and certain other registered investment companies for which JPMIM acts as investment advisor in accordance with the following annual schedule: 21 THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) JANUARY 31, 2001 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which Morgan provides similar services. ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and distributor for the Fund. Under a Co-Administration Agreement between FDI and the Portfolio, FDI provides administrative services necessary for the operations of the Portfolio, furnishes office space and facilities required for conducting the business of the Portfolio and pays the compensation of the Portfolio's officers affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Portfolio's affairs. The Trustees of the Portfolio represent all the existing shareholders of PGI. TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for serving on the boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, and other registered investment companies in which they invest. The Trustees' Fees and Expenses shown in the financial statements represent the Fund's allocated portion of the total Trustees' Fees and Expenses. The Trust's Chairman and Chief Executive Officer also serves as Chairman of PGI and receives compensation and employee benefits from PGI. The allocated portion of such compensation and benefits included in the Fund Services Fee shown on the Statement of Operations was $1,000. - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS During the six months ended January 31, 2001, the Portfolio purchased $387,674,016 of investment securities and sold $305,924,392 of investment securities other than short-term investments. - -------------------------------------------------------------------------------- 4. CREDIT AGREEMENT The Portfolio is party to a revolving line of credit agreement (the "Agreement") as discussed more fully in Note 3 of the Fund's Notes to the Financial Statements, which are included elsewhere in this report. - -------------------------------------------------------------------------------- 5. CONCENTRATIONS OF RISK The ability of the issuers of debt, asset-backed and mortgage-backed securities to meet their obligations may be affected by the economic and political developments in a specific industry or region. The value of asset-backed and mortgage-backed securities can be significantly affected by changes in interest rates or rapid principal payments including prepayments. - -------------------------------------------------------------------------------- 6. CORPORATE EVENT The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Portfolio's Advisor, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P. Morgan Chase & Co. will be the new parent company of JPMIM, which will continue to serve as the Portfolio's Advisor. 22 NOTES - -------------------------------------------------------------------------------- 23 NOTES - -------------------------------------------------------------------------------- 24 [back cover] J.P. MORGAN INSTITUTIONAL FUNDS Federal Money Market Fund --------------------------------------------------------------------- Prime Money Market Fund --------------------------------------------------------------------- Treasury Money Market Fund --------------------------------------------------------------------- Tax Aware Enhanced Income Fund: Institutional Shares --------------------------------------------------------------------- Tax Exempt Money Market Fund --------------------------------------------------------------------- Short Term Bond Fund --------------------------------------------------------------------- Bond Fund --------------------------------------------------------------------- Global Strategic Income Fund --------------------------------------------------------------------- Tax Exempt Bond Fund --------------------------------------------------------------------- California Bond Fund: Institutional Shares --------------------------------------------------------------------- New York Tax Exempt Bond Fund --------------------------------------------------------------------- Diversified Fund --------------------------------------------------------------------- Disciplined Equity Fund --------------------------------------------------------------------- Large Cap Growth Fund: Institutional Shares --------------------------------------------------------------------- Market Neutral Fund: Institutional Shares --------------------------------------------------------------------- Tax Aware U.S. Equity Fund: Institutional Shares --------------------------------------------------------------------- Tax Aware Disciplined Equity Fund: Institutional Shares --------------------------------------------------------------------- U.S. Equity Fund --------------------------------------------------------------------- U.S. Small Company Fund --------------------------------------------------------------------- Emerging Markets Equity Fund --------------------------------------------------------------------- European Equity Fund --------------------------------------------------------------------- International Equity Fund --------------------------------------------------------------------- International Opportunities Fund --------------------------------------------------------------------- SmartIndex(tm) Fund: Institutional Shares --------------------------------------------------------------------- For more information on the J.P. Morgan Institutional Funds, call J.P. Morgan Funds Services at (800) 766-7722. --------------------------------------------------------------------- Morgan Guaranty Trust Company MAILING 500 Stanton Christiana Road INFORMATION Newark, Delaware 19713-2107 IN-SAN-24964 0102 -----END PRIVACY-ENHANCED MESSAGE-----