-----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,
ERZMdvg8TIQQzAXH+efiyLA/dSSio6zXx4gk3C1eUviBk/0qoiaViKiYUjkJqfth
YMKau5Xu0PZSQuw6cUhPqQ==
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 28, 2006 File No. 811-21638 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM N-1A REGISTRATION STATEMENT UNDER AMENDMENT No. 8 JPMORGAN INSTITUTIONAL TRUST
(Exact Name of Registrant as Specified in Charter) 245 Park Avenue New York, New York 10167 (Address of Principal Executive Offices) Registrants Telephone Number, including Area Code (212) 837-2524
Scott E.
Richter, Esq. JPMorgan Chase & Co. 1111 Polaris Parkway, Mail Code OH1-0152 Columbus, Ohio 43240 (Name and Address of Agent for Service) Copies to: Jessica K. Ditullio, Esq. JPMorgan Chase & Co. 1111 Polaris Parkway, Mail Code OH1-0152 Columbus, Ohio 43240 Frederick Wertheim, Esq. Sullivan & Cromwell LLP 125 Broad Street New York, New York 10004 EXPLANATORY NOTE This Amendment is filed by JPMorgan Institutional Trust (the Registrant). This
Registration Statement has been filed by the Registrant pursuant to Section 8(b) of the Investment Company Act of 1940, as amended. However, shares of beneficial interest in the Registrant are not being registered under the Securities Act of
1933, as amended (the Securities Act), because such shares are issued solely in private placement transactions that do not involve a public offering within the meaning of Section 4(2) of the Securities Act. The shares
have not been registered under any state securities laws in reliance upon various exemptions provided by those laws. Investments in the shares of the Registrant may be made only by accredited investors within the meaning of Regulation D
under the Securities Act. This Registration Statement does not constitute an offer to sell, or the solicitation of an offer to buy, any shares of the Registrant.
THE INVESTMENT COMPANY ACT OF 1940
x
Prospective Investor
Copy #________
____________________
DO NOT COPY OR CIRCULATE
INSTITUTIONAL INVESTING
JPMorgan Institutional Trust
JPMorgan Ultra
Short-Term Bond Trust |
1 | |||||||||
JPMorgan
Short-Term Bond Trust |
5 | |||||||||
JPMorgan
Intermediate Bond Trust |
9 | |||||||||
JPMorgan Core
Bond Trust |
15 | |||||||||
JPMorgan
Equity Index Trust |
21 | |||||||||
The
Funds Management and Administration |
26 | |||||||||
Subscribing
for and Purchasing and Redeeming Fund Shares |
28 | |||||||||
Purchasing
Fund Shares |
28 | |||||||||
Redeeming Fund
Shares |
30 | |||||||||
Shareholder
Information |
31 | |||||||||
Voting Rights
|
31 | |||||||||
Dividend
Policies |
31 | |||||||||
Tax Treatment
of Shareholders |
31 | |||||||||
Shareholder
Statements and Reports |
32 | |||||||||
Availability
of Proxy Voting Record |
32 | |||||||||
Portfolio
Holdings Disclosure |
32 | |||||||||
JPMorgan
Investment Advisors Related Performance |
33 | |||||||||
Investments
|
37 | |||||||||
Risk and
Reward Elements of the Funds |
44 | |||||||||
How
to Reach Us |
Inside back cover |
|
There is no assurance that the Fund will meet its investment objective. |
|
The Fund does not represent a complete investment program. |
Management
Fees |
0.25 | % | ||||
Other
Expenses1 |
0.38 | |||||
Total Annual
Fund Operating Expenses |
0.63 | |||||
Fee Waiver
and/or Expense Reimbursement2 |
(0.53 | ) | ||||
Net
Expenses2 |
0.10 |
1 |
Other Expenses are based on estimated amounts for the current fiscal year. |
2 |
JPMIM and the Trusts Administrator have contractually agreed to waive fees and/or reimburse expenses to the extent total annual operating expenses of the Fund (excluding Acquired Fund Fees and Expenses, dividend expenses relating to short sales, interest, taxes and extraordinary expenses) exceed 0.10% of the average daily net assets through June 30, 2008. |
1 Year |
3 Years |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
10 | 148 |
|
There is no assurance that the Fund will meet its investment objective. |
|
The Fund does not represent a complete investment program. |
Management
Fees |
0.25 | % | ||||
Other
Expenses1 |
0.14 | |||||
Total Annual
Fund Operating Expenses |
0.39 | |||||
Fee Waiver
and/or Expense Reimbursement2 |
(0.29 | ) | ||||
Net
Expenses2 |
0.10 |
1 |
Other Expenses are based on estimated amounts for the current fiscal year. |
2 |
JPMIM and the Trusts Administrator have contractually agreed to waive fees and/or reimburse expenses to the extent total annual operating expenses of the Fund (excluding Acquired Fund Fees and Expenses, dividend expenses relating to short sales, interest, taxes and extraordinary expenses) exceed to 0.10% of the average daily net assets through June 30, 2008. |
1 Year |
3 Years |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
10 | 96 |
|
There is no assurance that the Fund will meet its investment objective. |
|
The Fund does not represent a complete investment program. |
Best
Quarter |
3rd
quarter, 2006 |
3.13 | % | Worst Quarter |
1st
quarter, 2006 |
0.28 | % |
1 |
The Funds fiscal year end is the last day of February. |
Past 1 Year |
Life of Fund1 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
INTERMEDIATE
BOND TRUST |
||||||||||||||
Return Before
Taxes |
4.48 | 3.23 | ||||||||||||
Return After
Taxes |
2.71 | 1.50 | ||||||||||||
Return After
Taxes on Distributions |
2.88 | 1.74 | ||||||||||||
LEHMAN
BROTHERS INTERMEDIATE GOVERNMENT/CREDIT BOND INDEX2ˆ |
||||||||||||||
(Reflects No
Deduction for Fees, Expenses or Taxes) |
4.08 | 3.28 | ||||||||||||
LIPPER
SHORT-INTERMEDIATE U.S. GOVERNMENT FUNDS INDEX3ˆ |
||||||||||||||
(Reflects No
Deduction for Taxes) |
3.97 | 3.11 |
1 |
The Fund commenced operations on 2/7/05. Performance for the benchmark is from 2/28/05. |
2 |
The Lehman Brothers Intermediate Government/Credit Bond Index is an unmanaged index comprised of U.S. Government Agency and Treasury securities and investment grade corporate bonds. The performance of the index does not reflect the deduction of expenses associated with a mutual fund, such as investment management fees. By contrast, the performance of the Fund reflects the deduction of mutual fund expenses, including sale charges, if applicable. |
3 |
The performance of the Lipper Short-Intermediate U.S. Government Funds Index includes expenses associated with a mutual fund, such as investment management fees. These expenses are not identical to the expenses charged by the Fund. |
^ |
Investors cannot invest directly in an index. |
Management
Fees |
0.30 | % | ||||
Other
Expenses1 |
0.16 | |||||
Acquired
Fund Fees and Expenses2 |
0.02 | |||||
Total Annual
Fund Operating Expenses3,4 |
0.48 | |||||
Fee Waiver
and/or Expense Reimbursement4 |
(0.31 | ) | ||||
Net
Expenses4 |
0.17 |
1 |
Other Expenses have been calculated based on the actual amounts incurred in the most recent fiscal year. |
2 |
Acquired Fund Fees and Expenses are based on the allocation of the Funds assets among the acquired funds calculated on a daily basis through the Funds last fiscal year end. This amount reflects the allocation only through the fiscal year ending 2/28/07. Acquired Fund Fees and Expenses will vary with changes in the expenses of the acquired funds as well as allocation of the Funds assets, and may be higher or lower than those shown above. Acquired funds include a money market fund advised by an affiliate of JPMIM. The advisory, administration and shareholder servicing fees associated with the money market fund are waived and/or reimbursed in an amount sufficient to offset any doubling up of these fees related to the Funds investments in the affiliated money market fund. |
3 |
The Total Annual Operating Expenses included in the fee table do not correlate to the ratio of expenses to average net assets in the Financial Highlights. The Financial Highlights reflect only the operating expenses of the Fund and do not include Acquired Fund Fees and Expenses. |
4 |
JPMIM and the Trusts Administrator have contractually agreed to waive fees and/or reimburse expenses to the extent total annual operating expenses of the Fund (excluding Acquired Fund Fees and Expenses, dividend expenses relating to short sales, interest, taxes and extraordinary expenses) exceed 0.15% of its average daily net assets through 6/30/08. Without the Acquired Fund Fees and Expenses, the Total Annual Operating Expenses would have been 0.46% for the Fund. |
1 Year |
3 Years |
5 Years |
10 Years |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
17 | 123 | 238 | 574 |
|
There is no assurance that the Fund will meet its investment objective. |
|
The Fund does not represent a complete investment program. |
Best
Quarter |
3rd
quarter, 2006 |
3.66 | % | Worst Quarter |
1st
quarter, 2006 |
0.48 | % |
1 |
The Funds fiscal year end is the last day of February. |
Past 1 Year |
Life of Fund1 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
CORE BOND
TRUST |
||||||||||||||
Return Before
Taxes |
4.46 | 3.35 | ||||||||||||
Return After
Taxes |
2.69 | 1.60 | ||||||||||||
Return After
Taxes on Distributions |
2.87 | 1.83 | ||||||||||||
LEHMAN
BROTHERS AGGREGATE BOND INDEX2ˆ |
||||||||||||||
(Reflects No
Deduction for Fees, Expenses or Taxes) |
4.33 | 3.67 | ||||||||||||
LIPPER
INTERMEDIATE U.S. GOVERNMENT FUNDS INDEX3ˆ |
||||||||||||||
(Reflects No
Deduction for Taxes) |
3.71 | 3.14 |
1 |
The Fund commenced operations on 2/7/05. Performance for the benchmark is from 2/28/05. |
2 |
The Lehman Brothers Aggregate Bond Index is an unmanaged index and represents a mix of maturities. It is a replica (or model) of the U.S. government bond, mortgage-backed securities and corporate bond markets. The performance of the index does not reflect the deduction of expenses associated with a mutual fund, such as investment management fees. By contrast, the performance of the Fund reflects the deduction of mutual fund expenses, including sale charges, if applicable. |
3 |
The performance of the Lipper Intermediate U.S. Government Funds Index includes expenses associated with a mutual fund, such as investment management fees. These expenses are not identical to the expenses charged by the Fund. |
^ |
Investors cannot invest directly in an index. |
Management
Fees |
0.30 | % | ||||
Other
Expenses1 |
0.13 | |||||
Acquired
Fund Fees and Expenses2 |
0.02 | |||||
Total Annual
Fund Operating Expenses3,4 |
0.45 | |||||
Fee Waiver
and/or Expense Reimbursement4 |
(0.28 | ) | ||||
Net
Expenses4 |
0.17 |
1 |
Other Expenses have been calculated based on the actual amounts incurred in the most recent fiscal year. |
2 |
Acquired Fund Fees and Expenses are based on the allocation of the Funds assets among the acquired funds calculated on a daily basis through the Funds last fiscal year end. This amount reflects the allocation only through the fiscal year ending 2/28/07. Acquired Fund Fees and Expenses will vary with changes in the expenses of the acquired funds as well as allocation of the Funds assets, and may be higher or lower than those shown above. Acquired funds include a money market fund advised by an affiliate of JPMIM. The advisory, administration and shareholder servicing fees associated with the money market fund are waived and/or reimbursed in an amount sufficient to offset any doubling up of these fees related to the Funds investments in the affiliated money market fund. |
3 |
The Total Annual Operating Expenses included in the fee table do not correlate to the ratio of expenses to average net assets in the Financial Highlights. The Financial Highlights reflect only the operating expenses of the Fund and do not include Acquired Fund Fees and Expenses. |
4 |
JPMIM and the Trusts Administrator have contractually agreed to waive fees and/or reimburse expenses to the extent total annual operating expenses of the Fund (excluding Acquired Fund Fees and Expenses, dividend expenses relating to short sales, interest, taxes and extraordinary expenses) exceed 0.15% of its average daily net assets through 6/30/08. Without the Acquired Fund Fees and Expenses, the Total Annual Operating Expenses would have been 0.43% for the Fund. |
1 Year |
3 Years |
5 Years |
10 Years |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
17 | 116 | 224 | 540 |
1 |
S&P 500 is a registered service mark of Standard & Poors Corporation, which does not sponsor and is in no way affiliated with the Fund. |
|
There is no assurance that the Fund will meet its investment objective. |
|
The Fund does not represent a complete investment program. |
Best
Quarter |
4th
quarter, 2006 |
6.63 | % | Worst Quarter |
2nd
quarter, 2006 |
1.47 | % |
1 |
The Funds fiscal year end is the last day of February. |
Past 1 Year |
Life of Fund1 |
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
EQUITY INDEX
TRUST |
||||||||||||||
Return Before
Taxes |
15.63 | 10.98 | ||||||||||||
Return After
Taxes |
15.23 | 10.59 | ||||||||||||
Return After
Taxes on Distributions |
10.58 | 9.30 | ||||||||||||
S&P 500
INDEX2ˆ |
||||||||||||||
(Reflects No
Deduction for Fees, Expenses or Taxes) |
15.80 | 11.43 | ||||||||||||
LIPPER
S&P 500 OBJECTIVE FUNDS INDEX3ˆ |
||||||||||||||
(Reflects No
Deduction for Taxes) |
15.55 | 11.17 |
1 |
The Fund commenced operations on 2/7/05. Performance for the benchmark is from 2/28/05. |
2 |
The S&P 500 Index is an unmanaged index generally representative of the performance of large companies in the U.S. stock market. The performance of the index does not reflect the deduction of expenses associated with a mutual fund, such as investment management fees. By contrast, the performance of the Fund reflects the deduction of mutual fund expenses, including sale charges, if applicable. |
3 |
The performance of the Lipper S&P 500 Objective Funds Index includes expenses associated with a mutual fund, such as investment management fees. These expenses are not identical to the expenses charged by the Fund. |
^ |
Investors cannot invest directly in an index. |
Management
Fees |
0.25 | % | ||||
Other
Expenses1 |
0.15 | |||||
Total Annual
Fund Operating Expenses |
0.40 | |||||
Fee Waiver
and/or Expense Reimbursement2 |
(0.30 | ) | ||||
Net
Expenses2 |
0.10 |
1 |
Other Expenses have been calculated based on actual amounts, incurred in the most recent fiscal year. |
2 |
JPMIM and the Trusts Administrator have contractually agreed to waive fees and/or reimburse expenses to the extent total annual operating expenses of the Fund (excluding Acquired Fund Fees and Expenses, dividend expenses relating to short sales, interest, taxes and extraordinary expenses) exceed to 0.10% of the average daily net assets through June 30, 2008. |
1 Year |
3 Years |
5 Years |
10 Years |
|||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
10 | 98 | 194 | 476 |
JPMorgan
Intermediate Bond Trust |
0.09 | % | ||||
JPMorgan Core
Bond Trust |
0.12 | |||||
JPMorgan
Equity Index Trust |
0.05 |
Annual Rate as Percentage of Average Daily Net Assets |
||||||
---|---|---|---|---|---|---|
JPMorgan Ultra
Short-Term Bond Trust |
0.25%1 | |||||
JPMorgan
Short-Term Bond Trust |
0.25 | 1 |
1 |
JPMIM and the Trusts Administrator have contractually agreed to waive fees and/or reimburse expenses to the extent total annual operating expenses of the Fund (excluding Acquired Fund Fees and Expenses, dividend expenses related to short sales, interest, taxes and extraordinary expenses) exceed 0.10% of the average daily net assets of the JPMorgan Ultra Short-Term Bond Trust and the JPMorgan Short-Term Bond Trust respectively through June 30, 2008. |
|
The minimum initial investment for shares of the Funds is $10,000,000. |
|
You are required to maintain a minimum account balance equal to the minimum initial investment in each Fund. |
|
The Funds reserve the right to waive any investment minimum. For further information on investment minimum waivers, contact your client relationship or client service manager. |
|
Purchases may be made on any business day. This includes any day that the Funds are open for business, other than weekends and days on which the New York Stock Exchange (NYSE) is closed, including the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Investors should contact their client relationship or client service manager to make initial investment requests and in order to request to purchase additional shares. |
|
Purchase requests received by the Fund or an authorized agent of the Fund in proper form before 4:00 p.m. Eastern Time (ET) will be effective that day. On occasion, the NYSE will close before 4:00 p.m. ET. When that happens, purchase requests received by the Fund or an authorized agent of the Fund after the NYSE closes will be effective the following business day. |
|
Shares are electronically recorded. Therefore, certificates will not be issued. |
|
The Funds do not authorize market timing and, except for the JPMorgan Ultra Short-Term Bond Trust and the JPMorgan Short-Term Bond Trust, use reasonable methods to seek to identify market timers and to prevent such activity. However, there can be no assurance that these methods will prevent market timing or other trading that may be deemed abusive. Market timing is |
an investment strategy using frequent purchases, redemptions and/or exchanges in an attempt to profit from short-term market movements. Market timing may result in dilution of the value of Fund shares held by long-term shareholders, disrupt portfolio management and increase Fund expenses for all shareholders. Although market timing may affect any Fund, these risks may be higher for Funds that invest significantly in non-U.S. securities or thinly traded securities (e.g., certain small cap securities), such as international, global or emerging market funds or small cap funds. For example, when a Fund invests in securities trading principally in non-U.S. markets that close prior to the close of the NYSE, market timers may seek to take advantage of the difference between the prices of these securities at the close of their non-U.S. markets and the value of such securities when the Fund calculates its net asset value. The Funds will prohibit any purchase order (including exchanges) with respect to one investor, a related group of investors or their agent(s), where they detect a pattern of either purchases and sales of the Funds, that indicates market timing or trading that they determine is abusive. |
|
The Funds Board of Trustees has adopted policies and procedures that use a variety of methods to identify market timers, including reviewing round trips in and out of the Funds by investors. A round trip includes a purchase or exchange into a Fund followed by a redemption or exchange out of the same Fund. The Fund will reject your purchase orders if it detects that you have completed two round trips within 60 days within the same Fund. In identifying market timers, the Fund may also consider activity of accounts that it believes to be under common ownership or control. |
|
Market timers may disrupt portfolio management and harm Fund performance. To the extent that the Funds are unable to identify market timers effectively, long-term investors may be adversely affected. Although the Funds use a variety of methods to detect and deter market timing, there is no assurance that the Funds will be able to identify and eliminate all market timers. For example, certain accounts, which are known as omnibus accounts, include multiple investors and such accounts typically provide the Funds with a net purchase or redemption order on any given day where purchasers of Fund shares and redeemers of Fund shares are netted against one another and the identity of individual purchasers and redeemers whose orders are aggregated are not known by the Funds. While the Funds seek to monitor for market timing activities in omnibus accounts, the netting effect often makes it more difficult to locate and eliminate individual market timers from the Funds and there can be no assurances that the Funds will be able to do so. |
|
Subject to the foregoing, the Funds will seek to apply these policies and restrictions as uniformly as practicable, except in cases of purchases, redemptions and exchanges made on a systematic basis, automatic reinvestments of dividends and distributions or purchases, redemptions or exchanges that are part of a rebalancing program, such as a wrap program, or as part of a bona fide asset allocation program. Please see the Supplement for a further description of these arrangements. |
|
The JPMorgan Ultra Short-Term Bond Trust and the JPMorgan Short-Term Bond Trust are intended for short-term investment horizons and do not monitor for market timers or prohibit such short-term trading activity. Although these Funds will be managed in a manner that is consistent with their investment objectives, frequent trading by shareholders may disrupt their management and increase their expenses. |
|
In addition to rejecting purchase orders in connection with suspected market timing activities, the Funds can reject a purchase order (including purchase orders for the Funds listed above) for any reason, including purchase orders that it does not think are in the best interests of a Fund and/or its shareholders or if it determines the procedures for identifying market timers and rejecting or otherwise restricting purchase orders and/or exchanges. |
|
Shares are sold at net asset value (NAV). |
|
NAV per share is calculated by dividing the total market value of a Funds investments and other assets (minus liabilities) by the number of outstanding shares in that class. |
|
The market value of a Funds investments is determined primarily on the basis of readily available market quotations. Certain short-term securities are valued at amortized cost, which approximates market value. If market quotations are not readily available or if available market quotations are determined not to be reliable or if a securitys value has been materially affected by events occurring after the close of trading on the exchange or market on which the security is principally traded (for example, a natural disaster affecting an entire country or region, or an event that affects an individual company), but before a Funds NAV is calculated, that security may be valued at its fair value in accordance with policies and procedures adopted by |
the Funds Board of Trustees. A securitys valuation may differ depending on the method used for determining value. Shareholders who purchase or redeem shares when NAV has been determined using fair valuation procedures may receive a number of shares or redemption proceeds that is greater or lower than they would have received if securities were not valued using the Trusts fair valuation procedures. The Board of Trustees receives regular reports concerning the operations of the fair valuation procedures. |
|
A Funds NAV changes every day. NAV is calculated each business day following the close of the NYSE at 4:00 p.m. ET. On occasion, the NYSE will close before 4:00 p.m. ET. When that happens, NAV will be calculated as of the time the NYSE closes. |
1. |
Trading on the NYSE is restricted; |
2. |
The NYSE is closed (other than weekend or holiday closings); |
3. |
Federal securities laws permit; |
4. |
The SEC has permitted a suspension; or |
5. |
An emergency exists, as determined by the SEC. |
Calendar Year |
|
JPMorgan Intermediate Bond Composite1 |
|
Lehman
Brothers Intermediate Government/Credit Bond Index2 |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1995 |
19.32 | % | 15.31 | % | ||||||||||||||
1996 |
5.63 | 4.06 | ||||||||||||||||
1997 |
8.29 | 7.87 | ||||||||||||||||
1998 |
7.89 | 8.42 | ||||||||||||||||
1999 |
0.75 | 0.39 | ||||||||||||||||
2000 |
10.09 | 10.10 | ||||||||||||||||
2001 |
8.30 | 8.98 | ||||||||||||||||
2002 |
9.57 | 9.82 | ||||||||||||||||
2003 |
3.81 | 4.30 | ||||||||||||||||
2004 |
3.48 | 3.04 | ||||||||||||||||
2005 |
1.85 | 1.58 | ||||||||||||||||
2006 |
4.10 | 4.08 | ||||||||||||||||
Annualized Period |
JPMorgan Intermediate Bond Composite1 |
Lehman Brothers Intermediate Government/Credit Bond Index2 |
||||||||||||||||
1 Yr. Ended
4/30/07 |
6.60 | % | 6.59 | % | ||||||||||||||
3 Yr. Ended
4/30/07 |
3.79 | 3.59 | ||||||||||||||||
5 Yr. Ended
4/30/07 |
4.58 | 4.66 | ||||||||||||||||
10 Yr. Ended
4/30/07 |
5.84 | 5.91 | ||||||||||||||||
Inception
(through 4/30/07) |
7.02 | 7.13 |
1 |
The information presented is for JPMorgan Investment Advisors Intermediate Bond Composite. The composite performance contains information from the separate accounts and a registered investment company managed in a substantially similar style as the JPMorgan Intermediate Bond Trust. The net performance represents total return, assuming reinvestment of all dividends and proceeds from capital transactions. The composite performance has been adjusted to reflect the total annual fund operating expenses for Select Class Shares of a registered investment company included in the composite absent any fee waivers or expense reimbursements for such companys fiscal year ended February 28, 2007. These expenses are higher than the expenses of the Fund. |
2 |
The Lehman Brothers Intermediate Government/Credit Bond Index is an unmanaged index comprised of U.S. government agency and Treasury securities and investment grade corporate bonds. The performance of the index does not reflect the deduction of expenses associated with a mutual fund, such as investment management fees. |
Calendar Year |
|
JPMorgan Core Bond Composite1 |
|
Lehman Brothers Aggregate Bond Index2 |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1995 |
23.54 | % | 18.48 | % | ||||||||||||||
1996 |
5.01 | 3.61 | ||||||||||||||||
1997 |
10.06 | 9.68 | ||||||||||||||||
1998 |
8.20 | 8.67 | ||||||||||||||||
1999 |
(0.47 | ) | (0.83 | ) | ||||||||||||||
2000 |
12.01 | 11.63 | ||||||||||||||||
2001 |
8.48 | 8.42 | ||||||||||||||||
2002 |
10.23 | 10.27 | ||||||||||||||||
2003 |
4.00 | 4.11 | ||||||||||||||||
2004 |
4.32 | 4.34 | ||||||||||||||||
2005 |
2.22 | 2.43 | ||||||||||||||||
2006 |
3.97 | 4.33 | ||||||||||||||||
Annualized Period |
|
JPMorgan Core Bond Composite1 |
|
Lehman Brothers Aggregate Bond Index2 |
|
|||||||||||||
1 Yr. Ended
4/30/07 |
7.09 | % | 7.36 | % | ||||||||||||||
3 Yr. Ended
4/30/07 |
4.12 | 4.40 | ||||||||||||||||
5 Yr. Ended
4/30/07 |
4.88 | 5.06 | ||||||||||||||||
10 Yr. Ended
4/30/07 |
6.34 | 6.35 | ||||||||||||||||
Inception
(through 4/30/07) |
7.73 | 7.69 |
1 |
The information presented is for JPMorgan Investment Advisors Core Bond Composite. The composite performance contains information from the separate accounts and two registered investment companies managed in a substantially similar style as the JPMorgan Core Bond Trust. The net performance represents total return, assuming reinvestment of all dividends and proceeds from capital transactions. The composite performance has been adjusted to reflect the total annual fund operating expenses for Select Class Shares of a registered investment company included in the composite absent any fee waivers or expense reimbursements for such companys fiscal year ended February 28, 2007. These expenses are higher than the expenses of the Fund. |
2 |
The Lehman Brothers Aggregate Bond Index is an unmanaged index generally representative of the bond market as a whole. The performance of the index does not reflect the deduction of expenses associated with a mutual fund, such as investment management fees. |
Calendar Year |
|
JPMorgan Equity Index Composite1 |
|
S&P 500 Index2 |
|
|||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
1995 |
37.20 | % | 37.58 | % | ||||||||||||||
1996 |
22.70 | 22.96 | ||||||||||||||||
1997 |
33.17 | 33.36 | ||||||||||||||||
1998 |
28.46 | 28.58 | ||||||||||||||||
1999 |
20.73 | 21.04 | ||||||||||||||||
2000 |
(9.14 | ) | (9.11 | ) | ||||||||||||||
2001 |
(12.04 | ) | (11.88 | ) | ||||||||||||||
2002 |
(22.16 | ) | (22.10 | ) | ||||||||||||||
2003 |
28.39 | 28.68 | ||||||||||||||||
2004 |
10.63 | 10.88 | ||||||||||||||||
2005 |
4.74 | 4.91 | ||||||||||||||||
2006 |
15.53 | 15.80 | ||||||||||||||||
Annualized Period |
|
JPMorgan Equity Index Composite1 |
|
S&P 500 Index2 |
|
|||||||||||||
1 Yr. Ended
4/30/07 |
15.00 | % | 15.24 | % | ||||||||||||||
3 Yr. Ended
4/30/07 |
12.02 | 12.25 | ||||||||||||||||
5 Yr. Ended
4/30/07 |
8.34 | 8.54 | ||||||||||||||||
10 Yr. Ended
4/30/07 |
7.87 | 8.05 | ||||||||||||||||
Inception
(through 4/30/07) |
11.58 | 11.87 |
1 |
The information presented is for JPMorgan Investment Advisors Equity Index Composite. The composite performance contains information from the separate accounts and two registered investment companies managed in a substantially similar style as the JPMorgan Equity Index Trust. The net performance represents total return, assuming reinvestment of all dividends and proceeds from capital transactions. The composite performance has been adjusted to reflect the total annual fund operating expenses for Select Class Shares of a registered investment company included in the composite absent any fee waivers or expense reimbursements for such companys fiscal year ended June 30, 2006. These expenses are higher than the expenses of the Fund. |
2 |
The S&P 500 is an unmanaged index generally representative of the performance of large companies in the U.S. stock market. The performance of the index does not reflect the deduction of expenses associated with a mutual fund, such as investment management fees. |
FUND NAME | FUND CODE | |||||
---|---|---|---|---|---|---|
JPMorgan Core
Bond Trust |
1 | |||||
JPMorgan
Intermediate Bond Trust |
2 | |||||
JPMorgan
Short-Term Bond Trust |
3 | |||||
JPMorgan
Ultra Short-Term Bond Trust |
4 | |||||
JPMorgan
Equity Index Trust |
5 |
INSTRUMENT | FUND CODE | RISK TYPE | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Adjustable Rate Mortgage Loans (ARMs): Loans in a mortgage pool which provide for a fixed initial mortgage
interest rate for a specified period of time, after which the rate may be subject to periodic adjustments. |
14 |
Credit Interest Rate Market Political Prepayment |
||||||||
Asset-Backed Securities: Securities secured by company receivables, home equity loans, truck and auto loans,
leases, credit card receivables and other securities backed by other types of receivables or other assets. |
14 |
Credit Interest Rate Market Political Prepayment |
||||||||
Auction Rate Securities: Auction rate securities consist of auction rate municipal securities and auction rate
preferred securities issued by closed-end investment companies. |
4 |
Credit Interest Rate Market |
||||||||
Bank Obligations: Bank obligations consist of bankers acceptances, certificates of deposit and time
deposits. Bankers acceptances are bills of exchange or time drafts drawn on and accepted by a commercial bank. Maturities are generally six
months or less. Certificates of deposit and time deposits are non-negotiable receipts issued by a bank in exchange for the deposit of
funds. |
15 |
Credit Currency Interest Rate Liquidity Market Political |
||||||||
Borrowings: A Fund may borrow for temporary purposes and/or for investment purposes. Such a practice will result
in leveraging of a Funds assets and may cause a Fund to liquidate portfolio positions when it would not be advantageous to do so. A Fund must
maintain continuous asset coverage of 300% of the amount borrowed, with the exception for borrowings not in excess of 5% of a Funds total assets
made for temporary administrative purposes. |
15 |
Credit Interest Rate Market |
INSTRUMENT | FUND CODE | RISK TYPE | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Brady Bonds: Brady bonds are securities created through the exchange of existing commercial bank loans to public
and private entities in certain emerging markets for new bonds in connection with debt restructurings. |
4 |
Credit Currency Foreign Investment Interest Rate Market Political |
||||||||
Call and Put Options: A call option gives the buyer the right to buy, and obligates the seller of the option to
sell, a security at a specified price at a future date. A put option gives the buyer the right to sell, and obligates the seller of the option to buy a
security at a specified price at a future date. A Fund will sell only covered call and secured put options. |
15 |
Credit Leverage Liquidity Management Market |
||||||||
Commercial Paper: Secured and unsecured short-term promissory notes issued by corporations and other entities.
Maturities generally vary from a few days to nine months. |
15 |
Credit Currency Interest Rate Liquidity Market Political |
||||||||
Common Stock: Shares of ownership of a company. |
5 |
Market |
||||||||
Common Stock Warrants and Rights: Securities, typically issued with preferred stock or bonds, that give the holder
the right to buy a proportionate amount of common stock at a specified price. |
5 |
Credit Market |
||||||||
Convertible Securities: Bonds or preferred stock that can convert to common stock. |
4,5 |
Credit Currency Interest Rate Liquidity Market Political Valuation |
||||||||
Corporate Debt Securities: Corporate debt securities may include bonds and other debt securities of domestic and
foreign issuers, including obligations of industrial, utility, banking and other corporate issuers. |
14 |
Credit Currency Interest Rate Liquidity Market Political Valuation |
||||||||
Credit Default Swaps: A swap agreement between two parties pursuant to which one party pays the other a fixed
periodic coupon for the specified life of the agreement. The other party makes no payment unless a credit event, relating to a predetermined reference
asset, occurs. If such an event occurs, the party will then make a payment to the first party, and the swap will terminate. |
14 |
Credit Currency Interest Rate Leverage Liquidity Management Market Political Valuation |
INSTRUMENT | FUND CODE | RISK TYPE | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Custodial Receipts: Certain Funds may acquire securities in the form of custodial receipts that evidence ownership
of future interest payments, principal payments or both on certain U.S. Treasury notes or bonds in connection with programs sponsored by banks and
brokerage firms. These are not considered to be U.S. government securities. These notes and bonds are held in custody by a bank on behalf of the owners
of the receipts. |
14 |
Credit Liquidity Market |
||||||||
Demand Features: Securities that are subject to puts and standby commitments to purchase the securities at a fixed
price (usually with accrued interest) within a fixed period of time following demand by a Fund. |
14 |
Liquidity Management Market |
||||||||
Emerging Market Securities: Securities issued by issuers or governments in countries with emerging economies or
securities markets may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic
stability characteristic of more developed countries. |
4 |
Foreign Investment |
||||||||
Exchange Traded Funds (ETFs): Ownership interest in unit investment trusts, depositary receipts, and other pooled
investment vehicles that hold a portfolio of securities or stocks designed to track the price performance and dividend yield of a particular broad
based, sector or international index. ETFs include a wide range of investments such as iShares, Standard & Poors Depository Receipts (SPDRs)
and NASDAQ 100s. |
15 |
Market Investment Company |
||||||||
Foreign Investments: Equity and debt securities (e.g., bonds and commercial paper) of foreign entities and
obligations of foreign branches of U.S. banks and foreign banks. Foreign securities may also include American Depositary Receipts, Global Depositary
Receipts, European Depositary Receipts and American Depositary Securities. |
14 |
Foreign Investment Liquidity Market Political Prepayment |
||||||||
Inflation-Linked Debt Securities: Inflation-linked securities include fixed and floating rate debt securities of
varying maturities issued by the U.S. government as well as securities issued by other entities such as corporations, foreign governments and foreign
issuers. |
14 |
Credit Currency Interest Rate |
||||||||
Inverse Floating Rate Instruments: Leveraged variable debt instruments with interest rates that reset in the
opposite direction from the market rate of interest to which the inverse floater is indexed. |
14 |
Credit Leverage Market |
||||||||
Investment Company Securities: Shares of other investment companies, including money market funds for which the
Adviser and/or its affiliates serve as investment adviser or administrator. The Adviser will waive certain fees when investing in funds for which it
serves as investment adviser, to the extent required by law. |
15 |
Market Investment Company |
||||||||
Loan Participations and Assignments: Participations in, or assignments of all or a portion of loans to
corporations or to governments of less developed countries (LDCs). |
14 |
Credit Currency Extension Foreign Investment Interest Rate Liquidity Market Political Prepayment |
INSTRUMENT | FUND CODE | RISK TYPE | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Mortgages (Directly Held): Mortgages are debt instruments secured by real property. |
14 |
Credit Environmental Extension Interest Rate Liquidity Market Natural Event Political Prepayment Valuation |
||||||||
Mortgage-Backed Securities: Debt obligations secured by real estate loans and pools of loans including
collateralized mortgage obligations (CMOs), commercial mortgage-backed securities (CMBs), and other asset-backed structures. |
14 |
Credit Currency Extension Interest Rate Leverage Market Political Prepayment Tax |
||||||||
Mortgage Dollar Rolls: A transaction in which a Fund sells securities for delivery in a current month and
simultaneously contracts with the same party to repurchase similar but not identical securities on a specified future date. |
14 |
Currency Extension Interest Rate Leverage Liquidity Market Political Prepayment |
||||||||
Municipal Securities: Securities issued by a state or political subdivision to obtain funds for various public
purposes. Municipal securities include private activity bonds and industrial development bonds, as well as General Obligation Notes, Tax Anticipation
Notes, Bond Anticipation Notes, Revenue Anticipation Notes, other short-term tax-exempt obligations, municipal leases, obligations of municipal housing
authorities and single-family revenue bonds. |
14 |
Credit Interest Rate Market Natural Event Political Prepayment Tax |
||||||||
New Financial Products: New options and futures contracts and other financial products continue to be developed
and a Fund may invest in such options, contracts and products. |
15 |
Credit Liquidity Management Market |
||||||||
Obligations of Supranational Agencies: Obligations of supranational agencies which are chartered to promote
economic development and are supported by various governments and governmental agencies. |
14 |
Credit Foreign Investment |
||||||||
Options and Futures Transactions: A Fund may purchase and sell exchange traded and over the counter put and call
options on securities, indexes of securities and futures contracts on securities. |
15 |
Credit Leverage Liquidity Management Market |
||||||||
Preferred Stock: A class of stock that generally pays a dividend at a specified rate and has preference over
common stock in the payment of dividends and in liquidation. |
1,2,4,5 |
Market |
INSTRUMENT | FUND CODE | RISK TYPE | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Private Placements, Restricted Securities and Other Unregistered Securities: Securities not registered under the
Securities Act of 1933, such as privately placed commercial paper and Rule 144A securities. |
15 |
Liquidity Market |
||||||||
Real Estate Investment Trusts (REITs): Pooled investment vehicles which invest primarily in income producing real
estate or real estate related loans or interest. |
15 |
Credit Interest Rate Liquidity Management Market Political Prepayment Tax Valuation |
||||||||
Repurchase Agreements: The purchase of a security and the simultaneous commitment to return the security to the
seller at an agreed upon price on an agreed upon date. This is treated as a loan. |
15 |
Credit Liquidity Market |
||||||||
Reverse Repurchase Agreements: The sale of a security and the simultaneous commitment to buy the security back at
an agreed upon price on an agreed upon date. This is treated as a borrowing by a Fund. |
15 |
Credit Leverage Market |
||||||||
Securities Issued in Connection with Reorganizations and Corporate Restructurings: In connection with reorganizing
or restructuring of an issuer, an issuer may issue common stock or other securities to holders of its debt securities. |
15 |
Market |
||||||||
Securities Lending: The lending of up to 33-1/3% of a Funds total assets. In return, the Fund will receive
cash, other securities, and/or letters of credit as collateral. |
15 |
Credit Leverage Market |
||||||||
Short-Term Funding Agreements: Agreements issued by banks and highly rated U.S. insurance companies such as
Guaranteed Investment Contracts (GICs) and Bank Investment Contracts (BICs). |
14 |
Credit Liquidity Market |
||||||||
Sovereign Obligations: Investments in debt obligations issued or guaranteed by a foreign sovereign government, or
its agencies, authorities or political subdivisions. |
14 |
Foreign Investment |
||||||||
Stripped Mortgage-Backed Securities: Derivative multi-class mortgage securities which are usually structured with
two classes of shares that receive different proportions of the interest and principal from a pool of mortgage assets. These include Interest Only (IO)
and Principal Only (PO) securities issued outside a REMIC or CMO structure. |
14 |
Credit Market Political Prepayment |
||||||||
Structured Investments: A structured investment is a security having a return tied to an underlying index or other
security or asset class. Structured investments generally are individually negotiated agreements and may be traded over-the-counter. Structured
investments are organized and operated to restructure the investment characteristics of the underlying security. |
14 |
Credit Foreign Investment Liquidity Management Market |
INSTRUMENT | FUND CODE | RISK TYPE | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Swaps and Related Swap Products: Swaps involve an exchange of obligations by two parties. Caps and floors entitle
a purchaser to a principal amount from the seller of the cap or floor to the extent that a specified index exceeds or falls below a predetermined
interest rate or amount. A Fund may enter into these transactions to manage its exposure to changing interest rates and other
factors. |
15 |
Credit Currency Interest Rate Leverage Liquidity Management Market Political Valuation |
||||||||
Synthetic Variable Rate Instruments: Synthetic variable rate 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. |
4 |
Credit Liquidity Market |
||||||||
Temporary Defensive Positions: To respond to unusual circumstances a Fund may invest up to 100% of its assets in
cash and cash equivalents for temporary defensive purposes. These investments may prevent a Fund from meeting its investment
objective. |
14 |
Credit Interest Rate Liquidity Market |
||||||||
Treasury Receipts: A Fund may purchase interests in separately traded interest and principal component parts of
U.S. Treasury obligations that are issued by banks or brokerage firms and that are created by depositing U.S. Treasury notes and U.S. Treasury bonds
into a special account at a custodian bank. Receipts include Treasury Receipts (TRs), Treasury Investment Growth Receipts (TIGRs), and Certificates of
Accrual on Treasury Securities (CATS). |
15 |
Market |
||||||||
Trust Preferreds: Securities with characteristics of both subordinated debt and preferred stock. Trust preferreds
are generally long term securities that make periodic fixed or variable interest payments. |
1-4 |
Credit Currency Interest Rate Liquidity Market Political Valuation |
||||||||
U.S. Government Agency Securities: Securities issued by agencies and instrumentalities of the U.S. government.
These include all types of securities issued by Ginnie Mae, Fannie Mae and Freddie Mac, including funding notes, subordinated benchmark notes,
collateralized mortgage obligations (CMOs) and Real Estate Mortgage Investment Conduits (REMICs). |
15 |
Credit Govt Securities Interest Rate Market |
||||||||
U.S. Government Obligations: U.S. government obligations may include 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, and separately traded principal and interest component parts of such obligations that are transferable through the Federal book-entry system
known as Separate Trading of Registered Interest and Principal of Securities (STRIPS) and Coupons Under Book Entry Safekeeping
(CUBES). |
15 |
Interest Rate Market |
||||||||
Variable and Floating Rate Instruments: Obligations with interest rates which are reset daily, weekly, quarterly
or some other period and which may be payable to a Fund on demand or at the expiration of a specified term. |
14 |
Credit Liquidity Market |
INSTRUMENT | FUND CODE | RISK TYPE | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
When-Issued Securities, Delayed Delivery Securities and Forward Commitments: Purchase or contract to purchase
securities at a fixed price for delivery at a future date. |
14 |
Credit Leverage Liquidity Market |
||||||||
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. Pay-in-kind securities are securities that have
interest payable by delivery of additional securities. Deferred payment securities are zero coupon debt securities which convert on a specified date to
interest bearing debt securities. |
14 |
Credit Currency Interest Rate Liquidity Market Political Valuation |
POTENTIAL RISKS | POTENTIAL REWARDS | POLICIES TO BALANCE RISK AND REWARD | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Credit
Quality |
||||||||||
The default of an issuer would leave a Fund with unpaid interest or principal |
Investment-grade bonds have a lower risk of default |
Each Fund maintains its own policies for balancing credit quality against potential
yields and gains in light of its investment goals lines a Funds policies toward various investments, including those that are designed to help
certain Funds manage risk. The adviser develops its own ratings of unrated securities and makes a credit quality determination for unrated securities |
||||||||
Derivatives* |
||||||||||
Derivatives such as futures, options, and swaps1 that are used
for hedging the portfolio or specific securities may not fully offset the underlying positions and this could result in losses to a Fund that would not
have otherwise occurred A Fund may have difficulty exiting a derivatives position Derivatives used for risk management or, (for certain Funds), to increase the Funds gain may not have the intended effects and may result in losses or missed opportunities The counterparty to a derivatives contract could default Derivatives that involve leverage could magnify losses Segregated or earmarked assets and collateral accounts established in connection with derivatives may limit a Funds investment flexibility Derivatives used for non-hedging purposes could cause losses that exceed the original investment Derivatives may, for tax purposes, affect the character of gain and loss realized by a Fund, accelerate recognition of income to a Fund, affect the holding period of a Funds assets and defer recognition of certain of a Funds losses |
Hedges that correlate well with underlying positions can reduce or eliminate losses at low cost The Funds could make money and protect against losses if the investment analysis (managements analysis) proves correct Derivatives that involve leverage could generate substantial gains at low cost |
A Fund uses derivatives for hedging and for risk management (i.e., to establish or adjust exposure to particular securities,
or markets); risk management may include management of such Funds exposure relative to its benchmark A Fund only establishes hedges that it expects will be highly correlated with underlying positions While a Fund may use derivatives that incidentally involve leverage, it does not use them for the specific purpose of leveraging its portfolio The Fund segregates or earmarks liquid assets to cover its derivatives and offset a portion of the leverage risk |
* |
The Funds are not subject to registration or regulation as a commodity pool operator as defined in the Commodity Exchange Act because the Funds have claimed an exclusion from that definition. |
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. |
POTENTIAL RISKS | POTENTIAL REWARDS | POLICIES TO BALANCE RISK AND REWARD | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Market
Conditions |
||||||||||
Adverse market, economic, political and other conditions may from time to time cause a Fund to take temporary defensive
positions that are inconsistent with its principal investment strategies and may hinder a Fund from achieving its investment
objective The value of most bonds will fall when interest rates rise; the longer a bonds maturity and the lower its credit quality, the more its value typically falls Each Funds share price, yield and total return will fluctuate in response to bond market movements Mortgage-backed and asset-backed securities (securities representing an interest in, or secured by, a pool of mortgages or other assets such as receivables) and direct mortgages could generate capital losses or periods of low yields if they are paid off substantially earlier or later than anticipated Each Funds share price and performance will fluctuate in response to stock and/or bond market movements The market value of convertible securities and other debt securities tends to fall when prevailing interest rates rise. The value of convertible securities also tends to change whenever the market value of the underlying common or preferred stock fluctuates |
Stocks have generally outperformed more stable investments (such as bonds and cash equivalents) over the
long-term Bonds have generally outperformed money market investments over the long term, with less risk than stocks Most bonds will rise in value when interest rates fall Mortgage-backed and asset-backed securities and direct mortgages can offer attractive returns |
Each Fund seeks to limit risk and enhance performance through active management and/or diversification The Funds seek to limit risk and enhance total return or yields through careful management, sector allocations, individual securities selection and duration management During severe market downturns, each Bond Fund has the option of investing up to 100% of its assets in high-quality short-term instruments Under normal circumstances the Bond Funds plan to remain fully invested in bonds and other fixed-income securities and may invest uninvested cash in affiliated money market funds The adviser monitors interest rate trends, as well as geographic and demographic information related to mortgage-backed securities and mortgage prepayments Under normal circumstances each Fund plans to remain fully invested in accordance with its policies and each Fund may invest uninvested cash in affiliated money market funds; in addition to the securities described in the Fund Summary |
POTENTIAL RISKS | POTENTIAL REWARDS | POLICIES TO BALANCE RISK AND REWARD | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
When-Issued
and Delayed Delivery Securities |
||||||||||
When a Fund buys securities before issue or for delayed delivery, it could be exposed to leverage risk
if it does not segregate liquid assets |
A Fund can take advantage of attractive transaction opportunities |
Each Fund segregates liquid assets to offset leverage risk |
||||||||
Management
Choices |
||||||||||
A Fund could underperform its benchmark due to its sector, securities or duration
choices |
Each Fund could outperform its benchmark due to these same choices |
The adviser focuses its management on those areas where it believes its commitment to
research can most enhance returns and manage risks in a consistent way |
||||||||
Securities
Lending |
||||||||||
When a Fund lends a security, there is a risk that the loaned securities may not be returned if the
borrower or the lending agent defaults The collateral will be subject to the risks of the securities in which it is invested |
A Fund may enhance income through the investment of the collateral received from the
borrower |
The adviser maintains a list of approved borrowers Each Fund receives collateral equal to at least 100% of the current value of securities loaned plus accrued interest The lending agent indemnifies the Funds against borrower default The advisers collateral investment guidelines limit the quality and duration of collateral investment to minimize losses Upon recall, the borrower must return the securities loaned within the normal settlement period |
||||||||
Illiquid
Holdings |
||||||||||
A Fund could have difficulty valuing these holdings precisely |
These holdings may offer more attractive yields or potential growth than comparable widely traded
securities |
A Fund could be unable to sell these holdings at the time or price it desires No Fund may invest more than 15% of its net assets in illiquid holdings To maintain adequate liquidity to meet redemptions, each Fund may hold high-quality short-term instruments (including repurchase agreements and reverse repurchase agreements) and for temporary or extraordinary purposes, may borrow from banks up to 33-1/3% of the value of its total assets |
POTENTIAL RISKS | POTENTIAL REWARDS | POLICIES TO BALANCE RISK AND REWARD | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Short-Term
Trading |
||||||||||
Increased trading would raise a Funds brokerage and related costs Increased short-term capital gains distributions could raise shareholders income tax liability Increased short-term capital gains distributions could raise shareholders income tax liability; such an increase in transaction costs and/or tax liability, if not offset by gains from short-term trading, would reduce a Funds returns |
A Fund could realize gains in a short period of time A Fund could protect against losses if a stock is overvalued and its value later falls |
Each Fund generally avoids short-term trading, except to take advantage of attractive
or unexpected opportunities or to meet demands generated by shareholder activity |
||||||||
ETFS and
Other Investment Companies |
||||||||||
If the Fund invests in shares of another investment company, shareholders would bear not only their proportionate share of
the Funds expenses, but also similar expenses of the investment company The price movement of an ETF may not track the underlying index, market, sector, regions or industries and may result in a loss |
Investing in ETFs helps to manage smaller cash flows Investing in ETFs offers instant exposure to an index or a broad range of markets, sectors, geographic regions and industries |
Generally, a Funds investments in other investment companies, including ETFs, are subject to the percentage
limitations of the Investment Company Act of 1940 (1940 Act)1 Exemptive orders granted to various iShares funds (which are ETFs), other ETFs, and their investment advisers by the Securities and Exchange Commission (SEC) permit a Fund to invest beyond the 1940 Act limits, subject to certain terms and conditions, including a finding of the Board of Trustees that the advisory fees charged by the adviser are for services that are in addition to, and not duplicative of, the advisory services provided to those ETFs Under SEC Rule 12d1-1, a Fund may invest in both affiliated and unaffiliated money market funds without limit subject to a Funds investment policies and restrictions and the conditions of the rule |
1 |
Under the 1940 Act, a Fund may not own more than 3% of the outstanding voting stock of another investment company. Additionally, a Funds aggregate investments in other investment companies are restricted as follows: no more than 5% of the Funds total assets when the Fund invests in another investment company; and no more than 10% of its total assets when the Fund invests in two or more investment companies |
CONFIDENTIAL OFFERING MEMORANDUM SUPPLEMENT
JPMORGAN INSTITUTIONAL TRUST
JPMORGAN ULTRA SHORT-TERM BOND TRUST (THE ULTRA SHORT-TERM BOND TRUST)
JPMORGAN SHORT-TERM BOND TRUST (THE SHORT-TERM BOND TRUST)
JPMORGAN INTERMEDIATE BOND TRUST (THE INTERMEDIATE BOND TRUST)
JPMORGAN CORE BOND TRUST (THE CORE BOND TRUST)
JPMORGAN EQUITY INDEX TRUST (THE EQUITY INDEX TRUST)
(EACH A FUND, AND COLLECTIVELY THE FUNDS)
June 28, 2007
This Confidential Offering Memorandum Supplement (the Supplement) should be read in conjunction with the Confidential Offering Memorandum of JPMorgan Institutional Trust, dated June 28, 2007, as amended or supplemented from time to time. Each Fund issues its shares only in private placement transactions in accordance with Regulation D or other applicable exemptions under the Securities Act of 1933, as amended (the Securities Act). This Supplement is not an offer to sell, or a solicitation of any offer to buy, any security to the public within the meaning of the Securities Act.
Shares of the Funds may be purchased only by certain clients of J.P. Morgan Investment Management Inc. (JPMIM) and its affiliates who maintain one or more separately managed private accounts, and who are also accredited investors, as defined in Regulation D under the Securities Act. Eligible investors are institutional investors such as corporations, pension and profit sharing plans, financial institutions, endowments, and foundations. The Funds are not intended for individuals or accounts established for the benefit of individuals (other than certain pension and profit-sharing plans sponsored by employers or unions for the benefit of individual plan participants). Subscriptions may be accepted or rejected, in whole or in part, in the sole discretion of JPMIM. Shares of the Funds may also be purchased by certain investors outside of the United States consistent with applicable regulatory requirements.
Shares of the Funds are subject to restrictions on transferability and resale and may not be transferred or resold except as permitted under the Securities Act. Shares may be redeemed in accordance with the procedures set forth in the Confidential Offering Memorandum.
This Supplement is intended for use only by the person to whom it has been issued. Reproduction of this Supplement is prohibited.
There shall be no sale of the shares referred to herein in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.
SAI-INSTT-607
TABLE OF CONTENTS
THE TRUST |
1 |
| |||||||||
INVESTMENT OBJECTIVES AND POLICIES |
1 |
| |||||||||
Asset-Backed Securities |
1 |
| |||||||||
Auction Rate Securities |
2 |
| |||||||||
Bank Obligations |
3 |
| |||||||||
Commercial Paper |
3 |
| |||||||||
Convertible Securities |
4 |
| |||||||||
Custodial Receipts |
4 |
| |||||||||
Debt Instruments |
4 |
| |||||||||
Corporate Debt Securities |
4 |
| |||||||||
Inflation-Linked Debt Securities |
5 |
| |||||||||
Variable and Floating Rate Instruments |
6 |
| |||||||||
Zero-Coupon, Pay-in-Kind and Deferred Payment Securities |
7 |
| |||||||||
Demand Features |
7 |
| |||||||||
Equity Securities, Warrants and Rights |
8 |
| |||||||||
Common Stock |
8 |
| |||||||||
Common Stock Warrants and Rights |
8 |
| |||||||||
Preferred Stock |
8 |
| |||||||||
Risks Associated with Intitial Public Offerings |
8 |
| |||||||||
Foreign Investments |
8 |
| |||||||||
Risk Factors of Foreign Investments |
9 |
| |||||||||
Brady Bonds |
10 |
| |||||||||
Obligations of Supranational Entities |
10 |
| |||||||||
Sovereign Obligations |
10 |
| |||||||||
Inverse Floaters and Interest Rate Caps |
10 | ||||||||||
Investment Company Securities and Exchange Traded Funds |
11 | ||||||||||
Investment Company Securities |
11 |
| |||||||||
Exchange Traded Funds ("ETFs") |
11 |
| |||||||||
Index Investing by the Equity Index Trust |
12 | ||||||||||
Loan Participations and Assignments |
13 | ||||||||||
Miscellaneous Investment Strategies and Risks |
13 | ||||||||||
Borrowings |
13 |
| |||||||||
New Financial Products |
14 |
| |||||||||
Private Placements, Restricted Securities and Other Unregistered Securities |
14 |
| |||||||||
Securities Issued in Connection With Reorganizations and Corporate Restructuring |
15 |
| |||||||||
Temporary Defensive Positions |
16 |
| |||||||||
Mortgage-Related Securities |
16 | ||||||||||
Mortgages (Directly Held) |
16 |
| |||||||||
Limitations on the use of Mortgage-Backed Securities |
18 |
| |||||||||
Mortgage Dollar Rolls |
19 |
| |||||||||
Stripped Mortgage-Backed Securities |
19 |
| |||||||||
Adjustable Rate Mortgage Loans |
20 |
| |||||||||
Risks Factors of Mortgage-Related Securities |
21 |
| |||||||||
Municipal Securities |
22 | ||||||||||
Risk Factors in Municipal Securities |
26 |
| |||||||||
Limitations on the use of Municipal Securities |
27 |
| |||||||||
Options and Futures Transactions |
27 | ||||||||||
Purchasing Put and Call Options |
28 |
| |||||||||
Selling (Writing) Put and Call Options |
28 |
| |||||||||
Engaging in Straddles and Spreads |
29 |
| |||||||||
Options on Indexes |
29 |
| |||||||||
Exchange-Traded and OTC Options |
29 |
|
i
|
Futures Contracts |
29 |
| ||||
|
Cash Equitization |
30 |
| ||||
|
Options on Futures Contracts |
30 |
| ||||
|
Combined Positions |
31 |
| ||||
|
Correlation of Price Changes |
31 |
| ||||
|
Liquidity of Options and Futures Contracts |
31 |
| ||||
|
Position Limits |
31 |
| ||||
|
Asset coverage for Futures Cotnracts and Options Positions |
31 |
| ||||
|
Real Estate Investment Trusts (REITs) |
32 | |||||
|
Repurchase Agreements |
32 | |||||
|
Reverse Repurchase Agreements |
33 | |||||
|
Securities Lending |
33 | |||||
|
Short-Term Funding Agreements |
34 | |||||
|
Structured Instruments |
34 | |||||
|
Swaps and Related Swap Products |
35 | |||||
|
Credit Default Swaps |
36 |
| ||||
|
Synthetic Variable Rate Instruments |
37 | |||||
|
Treasury Receipts |
37 | |||||
|
U.S. Government Obligations |
38 | |||||
|
When-Issued Securities and Forward Commitments |
38 | |||||
|
INVESTMENT RESTRICTIONS |
39 |
| ||||
|
FUNDAMENTAL POLICIES |
39 |
| ||||
|
NON-FUNDAMENTAL POLICIES |
40 |
| ||||
|
Portfolio Turnover |
41 | |||||
|
DISTRIBUTIONS AND TAX MATTERS |
41 |
| ||||
|
Capital Loss Carryforwards |
50 | |||||
|
VALUATION |
50 |
| ||||
|
ADDITIONAL INFORMATION REGARDING THE CALCULATION OF PER SHARE NET ASSET VALUE |
51 |
| ||||
|
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION |
51 |
| ||||
|
Purchases-in-Kind |
52 | |||||
|
Redemptions-in-Kind |
52 | |||||
|
Redemptions |
52 | |||||
|
Cut-Off Times for Purchase and Redemption Orders |
52 | |||||
|
MANAGEMENTOF THE TRUST |
52 |
| ||||
|
TRUSTEES |
53 |
| ||||
|
OFFICERS |
55 |
| ||||
|
THE ADVISER |
58 |
| ||||
|
CODES OF ETHICS |
63 |
| ||||
|
Portfolio Transactions |
63 | |||||
|
Administrator |
65 | |||||
|
Placement Agent |
66 | |||||
|
Custodian, Transfer Agent, Accounting Agent and Dividend Disbursing Agent |
67 | |||||
|
Securities Lending Agent |
68 | |||||
|
ADDITIONAL INFORMATION |
68 |
| ||||
|
Proxy Voting Policies and Procedures |
68 | |||||
|
Description of Shares |
69 | |||||
|
Shareholder and Trustee Liability |
70 | |||||
|
Portfolio Holdings Disclosure |
70 | |||||
|
Miscellaneous |
71 | |||||
|
Financial Statements |
74 | |||||
|
APPENDIX A - DESCRIPTION OF RATINGS |
A-1 |
|
ii
THE TRUST
JPMorgan Institutional Trust is an open-end management investment company. The Trust was formed as a Delaware statutory trust on September 14, 2004. The Trust consists of five series of units of beneficial interest (Shares) each representing interests in one of the following separate investment portfolios (each a Fund and collectively, the Funds):
Equity Fund: The JPMorgan Equity Index Trust (this Fund is referred to as the Equity Fund).
Bond Funds: The JPMorgan Intermediate Bond Trust, the JPMorgan Ultra Short-Term Bond Trust, the JPMorgan Short-Term Bond Trust and the JPMorgan Core Bond Trust (these four Funds are collectively referred to as the Bond Funds).
INVESTMENT OBJECTIVES AND POLICIES
The following policies supplement each Funds investment objective and policies as set forth in the Confidential Offering Memorandum. The Funds are advised by J.P. Morgan Investment Management Inc. (JPMIM or the Adviser).
Asset-Backed Securities
Asset-backed securities consist of securities secured by company receivables, home equity loans, truck and auto loans, leases, or credit card receivables. Asset-backed securities also include other securities backed by other types of receivables or other assets, including collateralized debt obligations ("CDOs"), which include collateralized bond obligations ("CBOs"), collateralized loan obligations ("CLOs") and other similarly structured securities. Such assets are generally securitized through the use of trusts or special purpose corporations. Asset-backed securities are backed by a pool of assets often representing the obligations of a number of different parties. Certain of such securities may be illiquid.
Asset-backed securities are generally subject to the risks of the underlying assets. In addition, asset-backed securities, in general, are subject to certain additional risks including depreciation, damage or loss of the collateral backing the security, failure of the collateral to generate the anticipated cash flow or in certain cases more rapid prepayment because of events affecting the collateral, such as accelerated prepayment of loans backing these securities or destruction of equipment subject to equipment trust certificates. In addition, the underlying assets (for example, the underlying credit card debt) may be refinanced or paid off prior to maturity during periods of declining interest rates. Changes in prepayment rates can result in greater price and yield volatility. If asset-backed securities are pre-paid, a Fund may have to reinvest the proceeds from the securities at a lower rate. Potential market gains on a security subject to prepayment risk may be more limited than potential market gains on a comparable security that is not subject to prepayment risk. Under certain prepayment rate scenarios, a Fund may fail to recover additional amounts paid (i.e., premiums) for securities with higher interest rates, resulting in an unexpected loss.
A CBO is a trust or other special purpose entity (SPE) which is typically backed by a diversified pool of fixed income securities (which may include high risk, below investment grade securities). A CLO is a trust or other SPE that is typically collateralized by a pool of loans, which may include, among others, domestic and non-U.S. senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or equivalent unrated loans. Although certain CDOs may receive credit enhancement in the form of a senior-subordinate structure, over-collateralization or bond insurance, such enhancement may not always be present and may fail to protect a Fund against the risk of loss on default of the collateral. Certain CDOs may use derivatives contracts to create synthetic exposure to assets rather than holding such assets directly, which entails the risks of derivative instruments described elsewhere in this Supplement. CDOs may charge management fees and administrative expenses, which are in addition to those of a Fund.
1
For both CBOs and CLOs, the cashflows from the SPE are split into two or more portions, called tranches, varying in risk and yield. The riskiest portion is the equity tranche, which bears the first loss from defaults from the bonds or loans in the SPE and serves to protect the other, more senior tranches from default (though such protection is not absolute). Since it is partially protected from defaults, a senior tranche from a CBO or CLO typically has higher ratings and lower yields than its underlying securities, and may be rated investment grade. Despite the protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, increased sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults, as well as investor aversion to CBO or CLO securities as a class. Interest on certain tranches of a CDO may be paid in kind (paid in the form of obligations of the same type rather than cash), which involves continued exposure to default risk with respect to such payments.
The risks of an investment in a CDO depend largely on the type of the collateral securities and the class of the CDO in which a Fund invests. Normally, CBOs, CLOs and other CDOs are privately offered and sold, and thus are not registered under the securities laws. As a result, investments in CDOs may be characterized by a Fund as illiquid securities. However, an active dealer market may exist for CDOs, allowing a CDO to qualify for Rule 144A transactions. In addition to the normal risks associated with fixed income securities and asset-backed securities generally discussed elsewhere in this Supplement, CDOs carry additional risks including, but not limited to: (i) the possibility that distributions from collateral securities will not be adequate to make interest or other payments; (ii) the quality of the collateral may default or decline in value; (iii) a Fund may invest in tranches of CDOs that are subordinate to other tranches; (iv) the complex structure of the security may not be fully understood at the time of investment and may produce disputes with the issuer or unexpected investment results; and (v) the CDOs manager may perform poorly.
Total annual operating expenses set forth in the fee table section of the Confidential Offering Memorandum do not include any expenses associated with investments in certain structured or synthetic products that may rely on exceptions to the definition of investment company provided by section 3(c) (1) and 3(c) (7) of the Investment Company Act of 1940 (the 1940 Act).
Auction Rate Securities
Auction rate securities consist of auction rate municipal securities and auction rate preferred securities sold through an auction process issued by closed-end investment companies, municipalities and governmental agencies. For more information on risks associated with municipal securities, see Municipal Securities below.
Provided that the auction mechanism is successful, auction rate securities generally permit the holder to sell the securities in an auction at par value at specified intervals. The dividend is reset by Dutch auction in which bids are made by broker-dealers and other institutions for a certain amount of securities at a specified minimum yield. The dividend rate set by the auction is the lowest interest or dividend rate that covers all securities offered for sale. While this process is designed to permit auction rate securities to be traded at par value, there is the risk that an auction will fail due to insufficient demand for the securities.
Dividends on auction rate preferred securities issued by a closed-end fund may be designated as exempt from federal income tax to the extent they are attributable to tax-exempt interest income earned by the closed-end fund on the securities in its portfolio and distributed to holders of the preferred securities. However, such designation may be made only if the closed-end fund treats preferred securities as equity securities for federal income tax purposes and the closed-end fund complies with certain requirements under the Internal Revenue Code of 1986, as amended (the Code).
A Funds investment in auction rate preferred securities of closed-end funds is subject to limitations on investments in other U.S. registered investment companies, which limitations are prescribed under the 1940 Act. Except as permitted by rule or exemptive order, a Fund is generally prohibited from acquiring more than 3% of the voting securities of any other such investment company, and investing more than 5% of
2
a Funds assets in securities of any one such investment company or more than 10% of its assets in securities of all such investment companies. A Fund will indirectly bear its proportionate share of any management fees paid by such closed-end funds in addition to the advisory fee payable directly by the Fund.
Bank Obligations
Bank obligations consist of bankers acceptances, certificates of deposit, and time deposits.
Bankers acceptances are negotiable drafts or bills of exchange typically drawn by an importer or exporter to pay for specific merchandise, which are accepted by a bank, meaning, in effect, that the bank unconditionally agrees to pay the face value of the instrument on maturity. To be eligible for purchase by a Fund, a bankers acceptance must be guaranteed by a domestic or foreign bank or savings and loan association having, at the time of investment, total assets in excess of $1 billion (as of the date of its most recently published financial statements).
Certificates of deposit are negotiable certificates issued against funds deposited in a commercial bank or a savings and loan association for a definite period of time and earning a specified return. To be eligible for purchase by a Fund, a certificate of deposit must be issued by (i) a domestic or foreign branch of a U.S. commercial bank which is a member of the Federal Reserve System or the deposits of which are insured by the Federal Deposit Insurance Corporation, or (ii) a domestic savings and loan association, the deposits of which are insured by the Federal Deposit Insurance Corporation provided that, in each case, at the time of purchase, such institution has total assets in excess of $1 billion (as of the date of their most recently published financial statements). Certificates of deposit may also include those issued by foreign banks outside the United States with total assets at the time of purchase in excess of the equivalent of $1 billion.
Some of the Funds may also invest in Eurodollar certificates of deposit, which are U.S. dollar-denominated certificates of deposit issued by branches of foreign and domestic banks located outside the United States. The Funds may also invest in yankee certificates of deposit, which are certificates of deposit issued by a U.S. branch of a foreign bank denominated in U.S. dollars and held in the United States. Certain Funds may also invest in obligations (including bankers acceptances and certificates of deposit) denominated in foreign currencies (see Foreign Investments herein).
Time deposits are interest-bearing non-negotiable deposits at a bank or a savings and loan association that have a specific maturity date. A time deposit earns a specific rate of interest over a definite period of time. Time deposits cannot be traded on the secondary market and those exceeding seven days and with a withdrawal penalty are considered to be illiquid. Time deposits will be maintained only at banks or savings and loan associations from which a Fund could purchase certificates of deposit. All of the Funds may utilize demand deposits in connection with their day-to-day operations.
Commercial Paper
Commercial paper is defined as short-term obligations with maturities from 1 to 270 days issued by banks or bank holding companies, corporations and finance companies. Although commercial paper is generally unsecured, the Funds may also purchase secured commercial paper. In the event of a default of an issuer of secured commercial paper, a Fund may hold the securities and other investments that were pledged as collateral even if it does not invest in such securities or investments. In such a case, the Fund would take steps to dispose of such securities or investments in a commercially reasonable manner. Commercial paper includes master demand obligations. See "Variable and Floating Rate Instruments" below. The Funds only purchase commercial paper that meets the following criteria:
Bond Funds . The Bond Funds may purchase commercial paper consisting of issues rated at the time of purchase in the highest or second highest rating category by at least one Nationally Recognized Statistical Rating Organization (NRSRO) (such as A-2 or better by Standard & Poors Rating Service (S&P), Prime-2 or better by Moodys Investors Service, Inc. (Moodys), F2 or better by Fitch Ratings (Fitch), or
3
R-2 or better by Dominion Bond Rating Service (DBRS)) or if unrated, determined by JPMIM to be of comparable quality.
Equity Fund. The Equity Fund may purchase commercial paper consisting of issues rated at the time of purchase in the highest or second highest rating category by at least one NRSRO (such as A-2 or better by S&P, Prime-2 or better by Moodys, F-2 or better by Fitch or R-2 or better by DBRS) or if unrated, determined by JPMIM to be of comparable quality.
Some of the above Funds may also invest in Canadian commercial paper, which is commercial paper issued by a Canadian corporation or a Canadian counterpart of a U.S. corporation, and in Europaper which is U.S. dollar denominated commercial paper of a foreign issuer. See Risk Factors of Foreign Investments below.
Convertible Securities
Subject to a Fund's investment restrictions, objective and strategy, the Funds may invest in convertible securities. Convertible securities include any debt securities or preferred stock which may be converted into common stock or which carry the right to purchase common stock. Generally, convertible securities entitle the holder to exchange the securities for a specified number of shares of common stock, usually of the same company, at specified prices within a certain period of time.
The terms of any convertible security determine its ranking in a companys capital structure. In the case of subordinated convertible debentures, the holders claims on assets and earnings are subordinated to the claims of other creditors, and are senior to the claims of preferred and common shareholders. In the case of convertible preferred stock, the holders claims on assets and earnings are subordinated to the claims of all creditors and are senior to the claims of common shareholders.
Convertible securities have characteristics similar to both debt and equity securities. Due to the conversion feature, the market value of convertible securities tends to move together with the market value of the underlying common stock. As a result, selection of convertible securities, to a great extent, is based on the potential for capital appreciation that may exist in the underlying stock. The value of convertible securities is also affected by prevailing interest rates, the credit quality of the issuer, and any call provisions. In some cases, the issuer may cause a convertible security to convert to common stock. In other situations, it may be advantageous for a Fund to cause the conversion of convertible securities to common stock. If a convertible security converts to common stock, a Fund may hold such common stock in its portfolio even if it does not ordinarily invest in common stock.
Custodial Receipts
Certain Funds may acquire securities in the form of custodial receipts that evidence ownership of future interest payments, principal payments or both on certain U.S. Treasury notes or bonds in connection with programs sponsored by banks and brokerage firms. These are not considered U.S. government securities and are not backed by the full faith and credit of the U.S. government. These notes and bonds are held in custody by a bank on behalf of owners of the receipts.
Debt Instruments
Corporate Debt Securities. Corporate debt securities may include bonds and other debt securities of U.S. and non-U.S. issuers, including obligations of industrial, utility, banking and other corporate issuers. All debt securities are subject to the risk of an issuers inability to meet principal and interest payments on the obligation and may also be subject to price volatility due to such factors as fluctuation of market interest rates, market perception of the creditworthiness of the issuer and general market liquidity.
4
Inflation-Linked Debt Securities. Inflation-linked securities include fixed and floating rate debt securities of varying maturities issued by the U.S. government, its agencies and instrumentalities, such as Treasury Inflation Protected Securities (TIPS), as well as securities issued by other entities such as corporations, municipalities, foreign governments and foreign issuers, including foreign issuers from emerging markets. See also Foreign Investments. Typically, such securities are structured as fixed income investments whose principal value is periodically adjusted according to the rate of inflation. The following two structures are common: (i) the U.S. Treasury and some other issuers issue inflation-linked securities that accrue inflation into the principal value of the security and (ii) other issuers may pay out the Consumer Price Index (CPI) accruals as part of a semi-annual coupon. Other types of inflation-linked securities exist which use an inflation index other than the CPI.
Inflation-linked securities issued by the U.S. Treasury, such as TIPS, have maturities of approximately five, ten, twenty, or thirty years, although it is possible that securities with other maturities will be issued in the future. Typically, TIPS pay interest on a semi-annual basis equal to a fixed percentage of the inflation-adjusted principal amount. For example, if a Fund purchased an inflation-indexed bond with a par value of $1000 and a 3% real rate of return coupon (payable 1.5% semi-annually), and the rate of inflation over the first six months was 1%, the mid-year par value of the bond would be $1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the second half of the year resulted in an annual inflation rate of 3%, the end-of-year par value of the bond would be $1,030 and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate that measures inflation falls, the principal value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller principal amount) will be reduced. Repayment of the original bond principal upon maturity (as adjusted for inflation) is guaranteed in the case of TIPS, even during a period of deflation, although the inflation-adjusted principal received could be less than the inflation-adjusted principal that had accrued to the bond at the time of purchase. The current market value of the bonds, however, is not guaranteed and may fluctuate. Other inflation-related bonds exist which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal value of the bond repaid at maturity may be less than the original principal.
The value of inflation-linked securities is expected to change in response to changes in real interest rates. Real interest rates in turn are tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if the rate of inflation rises at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in value of inflation-linked securities.
While inflation-linked securities are expected to be protected from long-term inflationary trends, short-term increases in inflation may lead to a decline in value. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the bonds inflation measure.
The periodic adjustment of U.S. inflation-linked securities is tied to the Consumer Price Index for All Urban Consumers (CPI-U), which is not seasonably adjusted and which is calculated monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of living, made up of components such as housing, food, transportation and energy. Inflation-linked securities issued by a foreign government are generally adjusted to reflect a comparable inflation index calculated by that government. There can be no assurance that the CPI-U or a foreign inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States.
5
Any increase in the principal amount of an inflation-linked security will be considered taxable ordinary income, even though investors do not receive their principal until maturity.
Variable and Floating Rate Instruments. Certain obligations purchased by the Funds may carry variable or floating rates of interest, may involve a conditional or unconditional demand feature and may include variable amount master demand notes. Variable and floating rate instruments are issued by a wide variety of issuers and may be issued for a wide variety of purposes, including as a method of reconstructing cash flows.
Subject to their investment objective policies and restrictions, certain Funds may acquire variable and floating rate instruments. A variable rate instrument is one whose terms provide for the adjustment of its interest rate on set dates and which, upon such adjustment, can reasonably be expected to have a market value that approximates its par value. The Funds may purchase extendable commercial notes. Extendable commercial notes are variable rate notes which normally mature within a short period of time (e.g., 1 month) but which may be extended by the issuer for a maximum maturity of thirteen months.
A floating rate instrument is one whose terms provide for the adjustment of its interest rate whenever a specified interest rate changes and which, at any time, can reasonably be expected to have a market value that approximates its par value. Floating rate instruments are frequently not rated by credit rating agencies; however, unrated variable and floating rate instruments purchased by a Fund will be determined by the Funds Adviser to be of comparable quality at the time of purchase to rated instruments eligible for purchase under the Funds investment policies. In making such determinations, a Funds Adviser will consider the earning power, cash flow and other liquidity ratios of the issuers of such instruments (such issuers include financial, merchandising, bank holding and other companies) and will continuously monitor their financial condition. There may be no active secondary market with respect to a particular variable or floating rate instrument purchased by a Fund. The absence of such an active secondary market could make it difficult for the Fund to dispose of the variable or floating rate instrument involved in the event the issuer of the instrument defaults on its payment obligations, and the Fund could, for this or other reasons, suffer a loss to the extent of the default. Variable or floating rate instruments may be secured by bank letters of credit or other assets. A Fund may purchase a variable or floating rate instrument to facilitate portfolio liquidity or to permit investment of the Funds assets at a favorable rate of return.
As a result of the floating and variable rate nature of these investments, the Funds yields may decline, and they may forego the opportunity for capital appreciation during periods when interest rates decline; however, during periods when interest rates increase, the Funds yields may increase, and they may have reduced risk of capital depreciation.
Past periods of high inflation, together with the fiscal measures adopted to attempt to deal with it, have seen wide fluctuations in interest rates, particularly prime rates charged by banks. While the value of the underlying floating or variable rate securities may change with changes in interest rates generally, the nature of the underlying floating or variable rate should minimize changes in value of the instruments. Accordingly, as interest rates decrease or increase, the potential for capital appreciation and the risk of potential capital depreciation is less than would be the case with a portfolio of fixed rate securities. A Funds portfolio may contain floating or variable rate securities on which stated minimum or maximum rates, or maximum rates set by state law limit the degree to which interest on such floating or variable rate securities may fluctuate; to the extent it does, increases or decreases in value may be somewhat greater than would be the case without such limits. Because the adjustment of interest rates on the floating or variable rate securities is made in relation to movements of the applicable banks prime rates or other short-term rate securities adjustment indices, the floating or variable rate securities are not comparable to long-term fixed rate securities. Accordingly, interest rates on the floating or variable rate securities may be higher or lower than current market rates for fixed rate obligations of comparable quality with similar maturities.
Variable Amount Master Demand Notes. Variable amount master demand notes are demand notes that permit the indebtedness to vary and provide for periodic adjustments in the interest rate according to the
6
terms of the instrument. Because master demand notes are direct lending arrangements between a Fund and the issuer, they are not normally traded. Although there is no secondary market in such notes, a Fund may demand payment of principal and accrued interest. While the notes are not typically rated by credit rating agencies, issuers of variable amount master demand notes (which are normally manufacturing, retail, financial, brokerage, investment banking and other business concerns) must satisfy the same criteria as those set forth with respect to commercial paper, if any. A Funds Adviser will consider the earning power, cash flow, and other liquidity ratios of the issuers of such notes and will continuously monitor their financial status and ability to meet payment on demand. In determining average weighted portfolio maturity, a variable amount master demand note will be deemed to have a maturity equal to the period of time remaining until the principal amount can be recovered from the issuer through demand.
Limitations on the Use of Variable and Floating Rate Notes. Variable and floating rate instruments for which no readily available market exists (e.g., illiquid securities) will be purchased in an amount which, together with securities with legal or contractual restrictions on resale or for which no readily available market exists (including repurchase agreements providing for settlement more than seven days after notice), exceeds 15% of a Funds net assets only if such instruments are subject to a demand feature that will permit the Fund to demand payment of the principal within seven days after demand by the Fund. There is no limit on the extent to which a Fund may purchase demand instruments that are not illiquid or deemed to be liquid in accordance with the Advisers liquidity determination procedures. If not rated, such instruments must be found by the Funds Adviser to be of comparable quality to instruments in which the Fund may invest. A rating may be relied upon only if it is provided by a nationally recognized statistical rating organization that is not affiliated with the issuer or guarantor of the 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. A Fund 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 a 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 applicable Fund 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.
Demand Features
Some of the Funds may acquire securities that are subject to puts and standby commitments (Demand Features) to purchase the securities at their principal amount (usually with accrued interest) within a fixed period (usually seven days) following a demand by the Fund. The Demand Feature may be issued by the issuer of the underlying securities, a dealer in the securities or by another third party, and may not be transferred separately from the underlying security. The underlying securities subject to a put may be sold at any time at market rates. The Funds expect that they will acquire puts only where the puts are available without the payment of any direct or indirect consideration. However, if advisable or necessary, a premium may be paid for put features. A premium paid will have the effect of reducing the yield otherwise payable on the underlying security.
Under a Stand-by Commitment, a dealer would agree to purchase, at a Funds option, specified securities at a specified price. A Fund will acquire these commitments solely to facilitate portfolio liquidity and does not intend to exercise its rights thereunder for trading purposes. Stand-by commitments may also be
7
referred to as put options. A Fund will generally limit its investments in stand-by commitments to 25% of its total assets.
The purpose of engaging in transactions involving puts is to maintain flexibility and liquidity to permit the Fund to meet redemption requests and remain as fully invested as possible.
Equity Securities, Warrants and Rights
Common Stock. Common stock represents a share of ownership in a company and usually carries voting rights and may earn dividends. Unlike preferred stock, common stock dividends are not fixed but are declared at the discretion of the issuers board of directors. Common stock occupies the most junior position in a company's capital structure. As with all equity securities, the price of common stock fluctuates based on changes in a company's financial condition and on overall market and economic conditions.
Common Stock Warrants and Rights. Common stock warrants entitle the holder to buy common stock from the issuer of the warrant at a specific price (the strike price) at any time during a specific period of time. The market price of warrants may be substantially lower than the current market price of the underlying common stock, yet warrants are subject to similar price fluctuations. Warrants may in fact be more volatile investments than the underlying common stock. If a warrant is exercised, a Fund may hold common stock in its portfolio even if it does not ordinarily invest in common stock.
Rights are similar to warrants but normally have a shorter duration and are typically distributed directly by the issuers to existing shareholders, while warrants are typically attached to new debt or preferred stock issuances.
Warrants and rights generally do not entitle the holder to dividends or voting rights with respect to the underlying common stock and do not represent any rights in the assets of the issuer company. Warrants and rights will expire if not exercised on or prior to the expiration date.
Preferred Stock. Preferred stock is a class of stock that generally pays dividends at a specified rate and has preference over common stock in the payment of dividends and liquidation. Preferred stock generally does not carry voting rights. As with all equity securities, the price of preferred stock fluctuates based on changes in a companys financial condition and on overall market and economic conditions.
Risks Associated with Initial Public Offerings. The Funds may purchase securities in initial public offerings (IPOs). These securities are subject to many of the same risks as investing in companies with smaller market capitalizations. Securities issued in IPOs have no trading history, and information about the companies may be available for very limited periods. The prices of securities sold in IPOs may be highly volatile. At any particular time or from time to time, a Fund may not be able to invest in securities issued in IPOs, or invest to the extent desired, because, for example, only a small portion of the securities being offered in an IPO may be made available to the Fund. In addition, under certain market conditions, a relatively small number of companies may issue securities in IPOs. Similarly, as the number of Funds to which IPO securities are allocated increases, the number of securities issued to any one Fund may decrease. The investment performance of a Fund during periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when the Fund is able to do so. In addition, as a Fund increases in size, the impact of IPOs on the Funds performance will generally decrease.
Foreign Investments
Some of the Funds may invest in certain obligations or securities of foreign issuers. Possible investments include equity securities and debt securities (e.g., bonds and commercial paper) of foreign entities, obligations of foreign branches of U.S. banks and of foreign banks, including, without limitation, Eurodollar Certificates of Deposit, Eurodollar Time Deposits, Eurodollar Bankers Acceptances, Canadian Time Deposits and Yankee Certificates of Deposit, and investments in Canadian Commercial Paper, and
8
Europaper. Securities of foreign issuers may include sponsored and unsponsored American Depositary Receipts (ADRs), European Depositary Receipts (EDRs), and Global Depositary Receipts (GDRs). Sponsored ADRs are listed on the New York Stock Exchange; unsponsored ADRs are not. Therefore, there may be less information available about the issuers of unsponsored ADRs than the issuers of sponsored ADRs. Unsponsored ADRs are restricted securities. EDRs and GDRs are not listed on the New York Stock Exchange. As a result, it may be difficult to obtain information about EDRs and GDRs.
Risk Factors of Foreign Investments
Political and Exchange Risks. Foreign investments may subject a Fund to investment risks that differ in some respects from those related to investments in obligations of U.S. domestic issuers. Such risks include future adverse political and economic developments, the possible imposition of withholding taxes on interest or other income, possible seizure, nationalization or expropriation of foreign deposits, the possible establishment of exchange controls or taxation at the source, greater fluctuations in value due to changes in exchange rates, or the adoption of other foreign governmental restrictions which might adversely affect the payment of principal and interest on such obligations.
Higher Transaction Costs. Foreign investments may entail higher custodial fees and sales commissions than domestic investments.
Accounting and Regulatory Differences. Foreign issuers of securities or obligations are often subject to accounting treatment and engage in business practices that are different from those of domestic issuers of similar securities or obligations. In addition, foreign issuers may not be subject to the same degree of regulation as domestic issuers, and their securities may trade on relatively small markets, causing their securities to experience potentially higher volatility and more limited liquidity than securities of domestic issuers. Foreign branches of U.S. banks and foreign banks are not regulated by U.S. banking authorities and may be subject to less stringent reserve requirements than those applicable to domestic branches of U.S. banks. In addition, foreign banks generally are not bound by accounting, auditing, and financial reporting standards comparable to those applicable to U.S. banks. Dividends and interest paid by foreign issuers may be subject to withholding and other foreign taxes which may decrease the net return on foreign investments as compared to dividends and interest paid to a Fund by domestic companies.
Currency Risk. Foreign securities may be denominated in foreign currencies, although foreign issuers may also issue securities denominated in U.S. dollars. The value of a Funds investments denominated in foreign currencies and any funds held in foreign currencies will be affected by changes in currency exchange rates, the relative strength of those currencies and the U.S. dollar, and exchange-control regulations.
Changes in the foreign currency exchange rates may affect the value of dividends and interest earned, gains and losses realized on the sale of securities and net investment income and gains, if any, to be distributed to shareholders by a Fund. The exchange rates between the U.S. dollar and other currencies are determined by the forces of supply and demand in foreign exchange markets. Accordingly, the ability of a Fund that invests in foreign securities as part of its principal investment strategies to achieve its investment objective may depend, to a certain extent, on exchange rate movements.
In addition, while the volume of transactions effected on foreign stock exchanges has increased in recent years, in most cases it remains appreciably below that of domestic securities exchanges. Accordingly, a Funds foreign investments may be less liquid and their prices may be more volatile than comparable investments in securities of U.S. companies. Moreover, the settlement periods for foreign securities, which are often longer than those for securities of U.S. issuers, may affect Fund liquidity. In buying and selling securities on foreign exchanges, purchasers normally pay fixed commissions that are generally higher than the negotiated commissions charged in the United States. In addition, there is generally less government supervision and regulation of securities exchanges, brokers and issuers located in foreign countries than in the United States.
9
Limitations on the Use of Foreign Investments. Investments in all types of foreign obligations or securities will not exceed 25% of the net assets of the Core Bond Trust and the Short-Term Bond Trust.
Brady Bonds. Brady bonds are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings. Brady bonds have been issued since 1989. In light of the history of defaults of countries issuing Brady bonds on their commercial bank loans, investments in Brady bonds may be viewed as speculative and subject to the same risks as emerging market securities. Brady bonds may be fully or partially collateralized or uncollateralized, are issued in various currencies (but primarily the dollar) and are actively traded in over-the counter (OTC) secondary markets. Incomplete collateralization of interest or principal payment obligations results in increased credit risk. Dollar-denominated collateralized Brady bonds, which may be either fixed-rate or floating rate bonds, are generally collateralized by U.S. Treasury securities.
Obligations of Supranational Entities. Obligations of supranational entities include securities designated or supported by governmental entities to promote economic reconstruction or development and of international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the World Bank), the European Coal and Steel Community, the Asian Development Bank and the Inter-American Development Bank. Each supranational entitys lending activities are limited to a percentage of its total capital (including callable capital contributed by its governmental members at the entitys call), reserves and net income. There is no assurance that participating governments will be able or willing to honor their commitments to make capital contributions to a supranational entity.
Sovereign Obligations. An investment in sovereign debt obligations involves special risks not present in corporate debt obligations. Sovereign debt includes investments in securities issued or guaranteed by a foreign sovereign government or its agencies, authorities or political subdivisions. The issuer of the sovereign debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and a Fund may have limited recourse in the event of a default. During periods of economic uncertainty, the market prices of sovereign debt, and the Funds net asset value (NAV), may be more volatile than prices of U.S. debt obligations. In the past, certain emerging markets have encountered difficulties in servicing their debt obligations, withheld payments of principal and interest and declared moratoria on the payment of principal and interest on their sovereign debts.
A sovereign debtors willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availability of sufficient foreign exchange, the relative size of the debt service burden, the sovereign debtors policy toward principal international lenders and local political constraints. Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies and other entities to reduce principal and interest arrearages on their debt. The failure of a sovereign debtor to implement economic reforms, achieve specified levels of economic performance or repay principal or interest when due may result in the cancellation of third-party commitments to lend funds to the sovereign debtor, which may further impair such debtors ability or willingness to service its debts.
Inverse Floaters and Interest Rate Caps
Inverse floaters are instruments whose interest rates bear an inverse relationship to the interest rate on another security or the value of an index. The market value of an inverse floater will vary inversely with changes in market interest rates and will be more volatile in response to interest rate changes than that of a fixed rate obligation. Interest rate caps are financial instruments under which payments occur if an interest rate index exceeds a certain predetermined interest rate level, known as the cap rate, which is tied to a
10
specific index. The price of these financial products may be more volatile than securities that do not include such a structure.
Investment Company Securities and Exchange Traded Funds
Investment Company Securities . A Fund may acquire the securities of other investment companies to the extent permitted under the 1940 Act and consistent with its investment objective and strategies. As a shareholder of another investment company, a Fund would bear, along with other shareholders, its pro rata portion of the other investment companys expenses, including advisory fees. These expenses would be in addition to the advisory and other expenses that a Fund bears directly in connection with its own operations. The 1940 Act currently requires that, as determined immediately after a purchase is made, (i) not more than 5% of the value of a Funds total assets will be invested in the securities of any one investment company, (ii) not more than 10% of the aggregate value of its total assets will be invested in securities of investment companies and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by a fund.
Effective July 31, 2006, under SEC Rule 12d1-1, any of the Funds may invest in affiliated and unaffiliated money market funds without limit subject to the acquiring Funds investment policies and restrictions and the conditions of the rule.
Pursuant to exemptive rules under the 1940 Act effective as of July 31, 2006, funds of funds that previously were permitted only to invest in affiliated funds, government securities and short-term paper are now permitted under certain circumstances to invest in: (1) unaffiliated investment companies (subject to certain limits), (2) other types of securities (such as stocks, bonds and other securities) not issued by an investment company that are consistent with the fund's investment policies and (3) affiliated or unaffiliated money market funds as part of "cash sweep" arrangements. One consequence of these new rules is that any fund, whether or not previously designated as a fund of funds, may invest without limit in affiliated funds if the acquisition is consistent with the investment policies of the fund and the restrictions of the rules. A Fund investing in affiliated funds under these new rules could not invest in a Fund that did not have a policy prohibiting it from investing in shares of other funds in reliance on Section 12(d)(1)(f) and (g) of the 1940 Act.
Exchange Traded Funds . Exchange Traded Funds (ETFs) are ownership interests in unit investment trusts, depositary receipts, and other pooled investment vehicles that hold a portfolio of securities or stocks designed to track the price performance and dividend yield of a particular broad-based, sector or international index. Broad based ETFs typically track a broad group of stocks from different industries and market sectors. For example, iShares S&P 500 Index Fund and Standard and Poors Depositary Receipts are ETFs that track the S&P 500 Index. Sector ETFs track companies represented in related industries within a sector of the economy. International ETFs track a group of stocks from a specific country.
ETFs may also hold a portfolio of debt securities. For example, iShares Lehman 1-3 Year Treasury Bond Fund invests in a portfolio of publicly issued, U.S. Treasury securities designed to track the Lehman Brothers 1-3 Year Treasury Index. Similarly, iShares GS $ Investor Corporate Bond Fund is designed to track a segment of the U.S. investment grade corporate bond market as defined by the GS $ InvesTop Index.
ETFs invest in a portfolio of securities that includes substantially all of the securities (in substantially the same weights) as the securities included in the designated index. ETFs are traded on an exchange and, in some cases may not be redeemed. The results of ETFs will not match the performance of the designated index due to reductions in the performance attributable to transaction and other expenses, including fees paid by the ETF to service providers. ETFs are subject to risks specific to the performance of a few component securities if such securities represent a highly concentrated weighting in the designated index. ETFs are eligible to receive their portion of dividends, if any, accumulated on the securities held in trust, less fees and expenses of the trust.
11
The investment vehicles issuing ETFs may not be actively managed. Rather, the investment vehicles objective is to track the performance of a specified index. Therefore, securities may be purchased, retained and sold at times when an actively managed fund would not do so. This may result in a greater risk of loss (and a correspondingly greater prospect of gain) from changes in the value of securities that are heavily weighted in the index than would be the case if the investment vehicle was not fully invested in such securities.
Select sector ETFs and other types of ETFs continue to be developed. As new products are developed, the Funds may invest in them to the extent consistent with the Funds investment objective, policies and restrictions.
Unless permitted by the 1940 Act or an order or rule issued by the Securities and Exchange Commission (SEC), the Funds investments in unaffiliated ETFs are subject to certain percentage limitations of the 1940 Act regarding investments in other investment companies. As a general matter, these percentage limitations currently require a Fund to limit its investments in any one issue of ETFs to 5% of the Funds total assets and 3% of the outstanding voting securities of the ETF issue. Moreover, a Funds investments in all ETFs may not currently exceed 10% of the Funds total assets, when aggregated with all other investments in investment companies.
SEC exemptive orders granted to various iShares funds (which are ETFs) and other ETFs and their investment advisers permit the Funds to invest beyond the 1940 Act limits, subject to certain terms and conditions, including a finding by the Board of Trustees that the advisory fees charged by the adviser are for services that are in addition to, and not duplicative of, the advisory services provided by such ETFs.
Index Investing by the Equity Index Trust
The Equity Index Trust attempts to track the performance of the S&P 500 Index (the Index) to achieve a correlation between the performance of the Fund and that of the Index of at least 0.95, without taking into account expenses. A correlation of 1.00 would indicate perfect correlation, which would be achieved when the Funds net asset value, including the value of its dividend and capital gains distributions, increases or decreases in exact proportion to changes in the Index. The Funds ability to correlate its performance with the Index, however, may be affected by, among other things, changes in securities markets, the manner in which the Index is calculated by Standard & Poors Corporation (S&P) and the timing of purchases and redemptions. In the future, the Trustees of the Trust, subject to the approval of Shareholders, may select another index if such a standard of comparison is deemed to be more representative of the performance of common stocks.
S&P chooses the stocks to be included in the Index largely on a statistical basis. Inclusion of a stock in the Index in no way implies an opinion by S&P as to its attractiveness as an investment. The Index is determined, composed and calculated by S&P without regard to the Equity Index Trust. S&P is neither a sponsor of, nor in any way affiliated with the Equity Index Trust, and S&P makes no representation or warranty, expressed or implied on the advisability of investing in the Equity Index Trust or as to the ability of the Index to track general stock market performance, and S&P disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Index or any data included in the Index. S&P 500 is a service mark of S&P.
The weights of stocks in the Index are based on each stocks relative total market value, i.e., market price per share times the number of Shares outstanding. Because of this weighting, approximately 50% of the Index is currently composed of the 50 largest companies in the Index, and the Index currently represents over 65% of the market value of all U.S. common stocks listed on the New York Stock Exchange. Typically, companies included in the Index are the largest and most dominant firms in their respective industries.
JPMIM generally selects stocks for the Equity Index Trust in the order of their weights in the Index beginning with the heaviest weighted stocks. The percentage of the Equity Index Trusts assets to be invested
12
in each stock is approximately the same as the percentage it represents in the Index. No attempt is made to manage the Equity Index Trust in the traditional sense using economic, financial and market analysis. The Equity Index Trust is managed using a computer program to determine which stocks are to be purchased and sold to replicate the Index to the extent feasible. From time to time, administrative adjustments may be made in the Fund because of changes in the composition of the Index, but such changes should be infrequent.
Loan Participations and Assignments
Some of the Funds may invest in fixed and floating rate loans (Loans). Loans are typically arranged through private negotiations between borrowers (which may be corporate issuers or issuers of sovereign debt obligations) and one or more financial institutions (Lenders). Generally, the Funds invest in Loans by purchasing Loan Participations (Participations) or assignments of all or a portion of Loans (Assignments) from third parties.
Typically, a Fund will have a contractual relationship only with the Lender and not with the borrower when it purchases a Participation. In contrast, a Fund has direct rights against the borrower on the Loan when it purchases an Assignment. Because Assignments are arranged through private negotiations between potential assignees and potential assignors, however, the rights and obligations acquired by a Fund as the purchaser of an Assignment may differ from, and be more limited than, those held by the assigning Lender.
Loan Participations and assignments include synthetic letters of credit. In a synthetic letter of credit transaction, the Lender typically creates a special purpose entity or a credit linked deposit account for the purpose of funding a letter of credit to the borrower. When a Fund invests in a synthetic letter of credit, the Fund is typically paid a rate based on the Lenders borrowing costs and the terms of the synthetic letter of credit. Synthetic letters of credit are typically structured as Assignments with the Fund acquiring direct rights against the borrower.
Limitations on Investments in Loan Participations and Assignments. Loan participations and assignments may be illiquid. As a result, a Fund will invest no more than 15% of its net assets in these investments. If a government entity is a borrower on a Loan, the Fund will consider the government to be the issuer of a Participation or Assignment for purposes of a Funds fundamental investment policy that it will not invest 25% or more of its total assets in securities of issuers conducting their principal business activities in the same industry (i.e., foreign government).
Risk Factors of Loan Participations and Assignments. A Fund may have difficulty disposing of Assignments and Participations because to do so it will have to assign such securities to a third party. Because there is no liquid market for such securities, the Funds anticipate that such securities could be sold only to a limited number of institutional investors. The lack of a liquid secondary market may have an adverse impact on the value of such securities and a Funds ability to dispose of particular Assignments or Participations when necessary to meet a Funds liquidity needs in response to a specific economic event such as a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for Assignments and Participations also may make it more difficult for a Fund to assign a value to those securities when valuing the Funds securities and calculating its net asset value.
Miscellaneous Investment Strategies and Risks
Borrowings. A Fund may borrow for temporary purposes and/or for investment purposes. Such a practice will result in leveraging of a Funds assets and may cause a Fund to liquidate portfolio positions when it would not be advantageous to do so. This borrowing may be secured or unsecured. Provisions of the 1940 Act require a Fund to maintain continuous asset coverage (that is, total assets including borrowings, less liabilities exclusive of borrowings) of 300% of the amount borrowed, with an exception for borrowings not in excess of 5% of the Funds total assets made for temporary administrative or emergency purposes. Any borrowings for temporary administrative purposes in excess of 5% of the Funds total assets must
13
maintain continuous asset coverage. If the 300% asset coverage should decline as a result of market fluctuations or other reasons, a Fund may be required to sell some of its portfolio holdings within three days to reduce the debt and restore the 300% asset coverage, even though it may be disadvantageous from an investment standpoint to sell securities at that time. Borrowing will tend to exaggerate the effect on net asset value of any increase or decrease in the market value of a Funds portfolio. Money borrowed will be subject to interest costs which may or may not be recovered by appreciation of the securities purchased. A Fund may also be required to maintain minimum average balances in connection with such borrowing or to pay a commitment or other fee to maintain a line of credit; either of these requirements would increase the cost of borrowing over the stated interest rate.
Certain types of investments are considered to be borrowings under precedents issued by the SEC. Such investments are subject to the limitations as well as asset segregation requirements.
New Financial Products. New options and futures contracts and other financial products, and various combinations thereof, including OTC products, continue to be developed. These various products may be used to adjust the risk and return characteristics of certain Funds investments. These various products may increase or decrease exposure to security prices, interest rates, commodity prices, or other factors that affect security values, regardless of the issuers credit risk. If market conditions do not perform as expected, the performance of a Fund would be less favorable than it would have been if these products were not used. In addition, losses may occur if counterparties involved in transactions do not perform as promised. These products may expose the Fund to potentially greater return as well as potentially greater risk of loss than more traditional fixed income investments.
Private Placements, Restricted Securities and Other Unregistered Securities. Subject to its policy limitation, a Fund may acquire investments that are illiquid or have limited liquidity, such as commercial obligations issued in reliance on the so-called private placement exemption from registration afforded by Section 4(2) under the Securities Act, and cannot be offered for public sale in the United States without first being registered under the Securities 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 a Fund. The price a Fund pays for illiquid securities or receives upon resale may be lower than the price paid or received for similar securities with a more liquid market. Accordingly the valuation of these securities will reflect any limitations on their liquidity.
A Fund is subject to a risk that should the Fund decide to sell illiquid securities when a ready buyer is not available at a price the Fund deems representative of their value, the value of the Funds net assets could be adversely affected. Where an illiquid security must be registered under the Securities Act before it may be sold, a Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the time of the decision to sell and the time the Fund may be permitted to sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Fund might obtain a less favorable price than prevailed when it decided to sell.
The Funds may invest in commercial paper issued in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act and other restricted securities (i.e., other securities subject to restrictions on resale). Section 4(2) commercial paper (4(2) Paper) is restricted as to disposition under federal securities law and is generally sold to institutional investors, such as the Funds, that agree that they are purchasing the paper for investment purposes and not with a view to public distribution. Any resale by the purchaser must be in an exempt transaction. 4(2) Paper is normally resold to other institutional investors through or with the assistance of the issuer or investment dealers who make a market in 4(2) Paper, thus providing liquidity. The Funds believe that 4(2) paper and possibly certain other restricted securities which meet the criteria for liquidity established by the Trustees are quite liquid. The Funds intend, therefore, to treat restricted securities that meet the liquidity criteria established by the Board of Trustees, including 4(2) Paper and securities issued pursuant to Rule 144A of the Securities Act, as determined by the Funds Adviser, as liquid and not subject to the investment limitation applicable to illiquid securities.
14
The ability of the Trustees to determine the liquidity of certain restricted securities is permitted under an SEC Staff position set forth in the adopting release for Rule 144A under the 1933 Act (Rule 144A). Rule 144A is a nonexclusive safe-harbor for certain secondary market transactions involving securities subject to restrictions on resale under federal securities laws. Rule 144A provides an exemption from registration for resales of otherwise restricted securities to qualified institutional buyers. Rule 144A was expected to further enhance the liquidity of the secondary market for securities eligible for resale. The Funds believe that the Staff of the SEC has left the question of determining the liquidity of all restricted securities to the Trustees. The Trustees have directed each Funds Adviser to consider the following criteria in determining the liquidity of certain restricted securities:
|
|
the frequency of trades and quotes for the security; |
|
|
the number of dealers willing to purchase or sell; |
|
|
the security and the number of other potential buyers; |
|
|
dealer undertakings to make a market in the security; and |
|
|
the nature of the security and the nature of the marketplace trades. |
Certain 4(2) Paper programs cannot rely on Rule 144A because, among other things, they were established before the adoption of the rule. However, the Trustees may determine for purposes of the Trusts liquidity requirements that an issue of 4(2) Paper is liquid if the following conditions, which are set forth in a 1994 SEC no-action letter, are met:
|
|
The 4(2) Paper must not be traded flat or in default as to principal or interest; |
|
|
The 4(2) Paper must be rated in one of the two highest rating categories by at least two NRSROs, or if only one NRSRO rates the security, by that NRSRO, or if unrated, is determined by a Funds Adviser to be of equivalent quality; |
|
|
The Funds Adviser must consider the trading market for the specific security, taking into account all relevant factors, including but not limited to, whether the paper is the subject of a commercial paper program that is administered by an issuing and paying agent bank and for which there exists a dealer willing to make a market in that paper, or is administered by a direct issuer pursuant to a direct placement program; |
|
|
The Funds Adviser shall monitor the liquidity of the 4(2) Paper purchased and shall report to the Board of Trustees promptly if any such securities are no longer determined to be liquid if such determination causes a Fund to hold more than 10% of its net assets in illiquid securities in order for the Board of Trustees to consider what action, if any, should be taken on behalf of the Trust, unless the Funds Adviser is able to dispose of illiquid assets in an orderly manner in an amount that reduces the Funds holdings of illiquid assets to less than 10% of its net assets; and |
|
|
The Funds Adviser shall report to the Board of Trustees on the appropriateness of the purchase and retention of liquid restricted securities under these guidelines no less frequently than quarterly. |
Securities Issued in Connection with Reorganizations and Corporate Restructuring. Debt securities may be downgraded and issuers of debt securities including investment grade securities may default in the payment of principal or interest or be subject to bankruptcy proceedings. In connection with reorganizing or restructuring of an issuer, an issuer may issue common stock or other securities to holders of its debt securities. A Fund may hold such common stock and other securities even though it does not ordinarily invest in such securities.
15
Temporary Defensive Positions. To respond to unusual market conditions, certain of the Funds may invest their assets in cash or cash equivalents. Cash equivalents are highly liquid, high quality instruments with maturities of three months or less on the date they are purchased (Cash Equivalents). These investments may result in a lower yield than lower-quality or longer term investments and may prevent the Funds from meeting their investment objectives. The percentage of Fund assets that a Fund may invest in cash or cash equivalents is described in the Funds Confidential Offering Memorandum. They include securities issued by the U.S. government, its agencies and instrumentalities, repurchase agreements with maturities of 7 days or less (other than equity repurchase agreements), certificates of deposit, bankers acceptances, commercial paper (rated in one of the two highest rating categories), variable rate master demand notes, money market mutual funds (including affiliated money market funds), and bank money market deposit accounts.
Mortgage-Related Securities
Mortgages (Directly Held). Mortgages are debt instruments secured by real property. Unlike mortgage-backed securities, which generally represent an interest in a pool of mortgages, direct investments in mortgages involve prepayment and credit risks of an individual issuer and real property. Consequently, these investments require different investment and credit analysis by a Funds Adviser.
Directly placed mortgages may include residential mortgages, multifamily mortgages, mortgages on cooperative apartment buildings, commercial mortgages, and sale-leasebacks. These investments are backed by assets such as office buildings, shopping centers, retail stores, warehouses, apartment buildings and single-family dwellings. In the event that a Fund forecloses on any non-performing mortgage, and acquires a direct interest in the real property, such Fund will be subject to the risks generally associated with the ownership of real property. There may be fluctuations in the market value of the foreclosed property and its occupancy rates, rent schedules and operating expenses. There may also be adverse changes in local, regional or general economic conditions, deterioration of the real estate market and the financial circumstances of tenants and sellers, unfavorable changes in zoning, building, environmental and other laws, increased real property taxes, rising interest rates, reduced availability and increased cost of mortgage borrowings, the need for unanticipated renovations, unexpected increases in the cost of energy, environmental factors, acts of God and other factors which are beyond the control of a Fund or the Funds Adviser. Hazardous or toxic substances may be present on, at or under the mortgaged property and adversely affect the value of the property. In addition, the owners of property containing such substances may be held responsible, under various laws, for containing, monitoring, removing or cleaning up such substances. The presence of such substances may also provide a basis for other claims by third parties. Costs of clean up or of liabilities to third parties may exceed the value of the property. In addition, these risks may be uninsurable. In light of these and similar risks, it may be difficult to profitably dispose of properties in foreclosure.
Mortgage-Backed Securities (CMOs and REMICs). Mortgage-backed securities include collateralized mortgage obligations (CMOs) and Real Estate Mortgage Investment Conduits (REMICs). (A REMIC is a CMO that qualifies for special tax treatment under the Code and invests in certain mortgages principally secured by interests in real property and other permitted investments).
Mortgage-backed securities represent pools of mortgage loans assembled for sale to investors by:
|
|
various governmental agencies such as the Government National Mortgage Association (Ginnie Mae); |
|
|
government-related organizations such as the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac); and |
|
|
non-governmental issuers such as commercial banks, savings and loan institutions, mortgage bankers, and private mortgage insurance companies. (Non-governmental mortgage securities cannot be treated as U.S. government securities for purposes of investment policies). |
16
There are a number of important differences among the agencies and instrumentalities of the U.S. government that issue mortgage-related securities and among the securities that they issue.
Ginnie Mae Securities. Mortgage-related securities issued by Ginnie Mae include Ginnie Mae Mortgage Pass-Through Certificates which are guaranteed as to the timely payment of principal and interest by Ginnie Mae. Ginnie Maes guarantee is backed by the full faith and credit of the United States. Ginnie Mae is a wholly-owned U.S. government corporation within the Department of Housing and Urban Development. Ginnie Mae certificates also are supported by the authority of Ginnie Mae to borrow funds from the U.S. Treasury to make payments under its guarantee.
Fannie Mae Securities. Mortgage-related securities issued by Fannie Mae include Fannie Mae Guaranteed Mortgage Pass-Through Certificates which are solely the obligations of Fannie Mae and are not backed by or entitled to the full faith and credit of the United States. Fannie Mae is a government-sponsored organization owned entirely by private stockholders. Fannie Mae Certificates are guaranteed as to timely payment of the principal and interest by Fannie Mae.
Freddie Mac Securities. Mortgage-related securities issued by Freddie Mac include Freddie Mac Mortgage Participation Certificates. Freddie Mac is a corporate instrumentality of the United States, created pursuant to an Act of Congress, which is owned entirely by private stockholders. Freddie Mac Certificates are not guaranteed by the United States or by any Federal Home Loan Bank and do not constitute a debt or obligation of the United States or of any Federal Home Loan Bank. Freddie Mac Certificates entitle the holder to timely payment of interest, which is guaranteed by Freddie Mac. Freddie Mac guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage loans. When Freddie Mac does not guarantee timely payment of principal, Freddie Mac may remit the amount due on account of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than one year after it becomes payable.
CMOs and guaranteed REMIC pass-through certificates (REMIC Certificates) issued by Fannie Mae, Freddie Mac, Ginnie Mae and private issuers are types of multiple class pass-through securities. Investors may purchase beneficial interests in REMICs, which are known as regular interests or residual interests. The Funds do not currently intend to purchase residual interests in REMICs. The REMIC Certificates represent beneficial ownership interests in a REMIC Trust, generally consisting of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage pass-through certificates (the Mortgage Assets). The obligations of Fannie Mae, Freddie Mac or Ginnie Mae under their respective guaranty of the REMIC Certificates are obligations solely of Fannie Mae, Freddie Mac or Ginnie Mae, respectively.
Fannie Mae REMIC Certificates. Fannie Mae REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by Fannie Mae. In addition, Fannie Mae will be obligated to distribute the principal balance of each class of REMIC Certificates in full, whether or not sufficient funds are otherwise available.
Freddie Mac REMIC Certificates. Freddie Mac guarantees the timely payment of interest, and also guarantees the payment of principal as payments are required to be made on the underlying mortgage participation certificates (PCs). PCs represent undivided interests in specified residential mortgages or participation therein purchased by Freddie Mac and placed in a PC pool. With respect to principal payments on PCs, Freddie Mac generally guarantees ultimate collection of all principal of the related mortgage loans without offset or deduction. Freddie Mac also guarantees timely payment of principal on certain PCs referred to as Gold PCs.
Ginnie Mae REMIC Certificates. Ginnie Mae guarantees the full and timely payment of interest and principal on each class of securities (in accordance with the terms of those classes as specified in the related offering circular supplement). The Ginnie Mae guarantee is backed by the full faith and credit of the United States of America.
17
REMIC Certificates issued by Fannie Mae, Freddie Mac and Ginnie Mae are treated as U.S. Government securities for purposes of investment policies.
CMOs and REMIC Certificates provide for the redistribution of cash flow to multiple classes. Each class of CMOs or REMIC Certificates, often referred to as a tranche, is issued at a specific adjustable or fixed interest rate and must be fully retired no later than its final distribution date. This reallocation of interest and principal results in the redistribution of prepayment risk across different classes. This allows for the creation of bonds with more or less risk than the underlying collateral exhibits. Principal prepayments on the mortgage loans or the Mortgage Assets underlying the CMOs or REMIC Certificates may cause some or all of the classes of CMOs or REMIC Certificates to be retired substantially earlier than their final distribution dates. Generally, interest is paid or accrues on all classes of CMOs or REMIC Certificates on a monthly basis.
The principal of and interest on the Mortgage Assets may be allocated among the several classes of CMOs or REMIC Certificates in various ways. In certain structures (known as sequential pay CMOs or REMIC Certificates), payments of principal, including any principal prepayments, on the Mortgage Assets generally are applied to the classes of CMOs or REMIC Certificates in the order of their respective final distribution dates. Thus, no payment of principal will be made on any class of sequential pay CMOs or REMIC Certificates until all other classes having an earlier final distribution date have been paid in full.
Additional structures of CMOs and REMIC Certificates include, among others, principal only structures, interest only structures, inverse floaters and parallel pay CMOs and REMIC Certificates. Certain of these structures may be more volatile than other types of CMO and REMIC structures. Parallel pay CMOs or REMIC Certificates are those which are structured to apply principal payments and prepayments of the Mortgage Assets to two or more classes concurrently on a proportionate or disproportionate basis. These simultaneous payments are taken into account in calculating the final distribution date of each class.
A wide variety of REMIC Certificates may be issued in the parallel pay or sequential pay structures. These securities include accrual certificates (also known as Z-BONDS), which only accrue interest at a specified rate until all other certificates having an earlier final distribution date have been retired and are converted thereafter to an interest-paying security, and planned amortization class (PAC) certificates, which are parallel pay REMIC Certificates which generally require that specified amounts of principal be applied on each payment date to one or more classes of REMIC Certificates (the PAC Certificates), even though all other principal payments and prepayments of the Mortgage Assets are then required to be applied to one or more other classes of the certificates. The scheduled principal payments for the PAC Certificates generally have the highest priority on each payment date after interest due has been paid to all classes entitled to receive interest currently. Shortfalls, if any, are added to the amount of principal payable on the next payment date. The PAC Certificate payment schedule is taken into account in calculating the final distribution date of each class of PAC. In order to create PAC tranches, one or more tranches generally must be created that absorb most of the volatility in the underlying Mortgage Assets. These tranches tend to have market prices and yields that are much more volatile than the PAC classes. The Z-Bonds in which the Funds may invest may bear the same non-credit-related risks as do other types of Z-Bonds. Z-Bonds in which the Fund may invest will not include residual interest.
Limitations on the use of Mortgage-Backed Securities
Bond Funds. The Bond Funds invest in mortgage-backed securities may invest in mortgage-backed securities issued by private issuers including Guaranteed CMOs and REMIC pass-through securities. The Bond Funds may also invest in mortgage-backed securities that are rated in one of the four highest rating categories by at least one NRSRO at the time of investment or, if unrated, determined by JPMIM to be of comparable quality.
Mortgage Dollar Rolls. Some of the Funds may enter into Mortgage Dollar Rolls in which the Funds sell securities for delivery in the current month and simultaneously contract with the same
18
counterparty to repurchase similar (same type, coupon and maturity) but not identical securities on a specified future date. When a Fund enters into mortgage dollar rolls, the Fund will hold and maintain a segregated account until the settlement date. The segregated account will contain cash or liquid securities in an amount equal to the forward purchase price. The Funds benefit to the extent of:
|
|
any difference between the price received for the securities sold and the lower forward price for the future purchase (often referred to as the drop); or |
|
|
fee income plus the interest earned on the cash proceeds of the securities sold until the settlement date of the forward purchase. |
Unless such benefits exceed the income, capital appreciation or gains on the securities sold as part of the mortgage dollar roll, the investment performance of a Fund will be less than what the performance would have been without the use of mortgage dollar rolls. The benefits of mortgage dollar rolls may depend upon JPMIMs ability to predict mortgage prepayments and interest rates. There is no assurance that mortgage dollar rolls can be successfully employed. The Funds currently intend to enter into mortgage dollar rolls that are accounted for as a financing transaction. For purposes of diversification and investment limitations, mortgage dollar rolls are considered to be mortgage-backed securities.
Stripped Mortgage-Backed Securities. Stripped Mortgage-Backed Securities (SMBS) are derivative multi-class mortgage securities issued outside the REMIC or CMO structure. SMBS are usually structured with two classes that receive different proportions of the interest and principal distributions from a pool of mortgage assets. A common type of SMBS will have one class receiving all of the interest from the mortgage assets (IOs), while the other class will receive all of the principal (POs). Mortgage IOs receive monthly interest payments based upon a notional amount that declines over time as a result of the normal monthly amortization and unscheduled prepayments of principal on the associated mortgage POs.
In addition to the risks applicable to Mortgage-Related Securities in general, SMBS are subject to the following additional risks:
Prepayment/Interest Rate Sensitivity. SMBS are extremely sensitive to changes in prepayments and interest rates. Even though these securities have been guaranteed by an agency or instrumentality of the U.S. government, under certain interest rate or prepayment rate scenarios, the Funds may lose money on investments in SMBS.
Interest Only SMBS. Changes in prepayment rates can cause the return on investment in IOs to be highly volatile. Under extremely high prepayment conditions, IOs can incur significant losses.
Principal Only SMBS. POs are bought at a discount to the ultimate principal repayment value. The rate of return on a PO will vary with prepayments, rising as prepayments increase and falling as prepayments decrease. Generally, the market value of these securities is unusually volatile in response to changes in interest rates.
Yield Characteristics. Although SMBS may yield more than other mortgage-backed securities, their cash flow patterns are more volatile and there is a greater risk that any premium paid will not be fully recouped. JPMIM will seek to manage these risks (and potential benefits) by investing in a variety of such securities and by using certain analytical and hedging techniques.
The Bond Funds may invest in SMBS to enhance revenues or hedge against interest rate risk. The Funds invest in SMBS issued or guaranteed by the U.S. government, its agencies or instrumentalities (Agency SMBS). To the extent that Non Agency SMBS are issued, the Funds may buy them to the extent such investment is consistent with the applicable Funds investment objective, strategies and policies.
Adjustable Rate Mortgage Loans . The Bond Funds may invest in adjustable rate mortgage loans (ARMs). ARMs eligible for inclusion in a mortgage pool will generally provide for a fixed initial
19
mortgage interest rate for a specified period of time. Thereafter, the interest rates (the Mortgage Interest Rates) may be subject to periodic adjustment based on changes in the applicable index rate (the Index Rate). The adjusted rate would be equal to the Index Rate plus a gross margin, which is a fixed percentage spread over the Index Rate established for each ARM at the time of its origination.
Adjustable interest rates can cause payment increases that some borrowers may find difficult to make. However, certain ARMs may provide that the Mortgage Interest Rate may not be adjusted to a rate above an applicable lifetime maximum rate or below an applicable lifetime minimum rate for such ARM. Certain ARMs may also be subject to limitations on the maximum amount by which the Mortgage Interest Rate may adjust for any single adjustment period (the Maximum Adjustment). Other ARMs (Negatively Amortizing ARMs) may provide instead or as well for limitations on changes in the monthly payment on such ARMs. Limitations on monthly payments can result in monthly payments which are greater or less than the amount necessary to amortize a Negatively Amortizing ARM by its maturity at the Mortgage Interest Rate in effect in any particular month. In the event that a monthly payment is not sufficient to pay the interest accruing on a Negatively Amortizing ARM, any such excess interest is added to the principal balance of the loan, causing negative amortization and will be repaid through future monthly payments. It may take borrowers under Negatively Amortizing ARMs longer periods of time to achieve equity and may increase the likelihood of default by such borrowers. In the event that a monthly payment exceeds the sum of the interest accrued at the applicable Mortgage Interest Rate and the principal payment which would have been necessary to amortize the outstanding principal balance over the remaining term of the loan, the excess (or accelerated amortization) further reduces the principal balance of the ARM. Negatively Amortizing ARMs do not provide for the extension of their original maturity to accommodate changes in their Mortgage Interest Rate. As a result, unless there is a periodic recalculation of the payment amount (which there generally is), the final payment may be substantially larger than the other payments. These limitations on periodic increases in interest rates and on changes in monthly payment protect borrowers from unlimited interest rate and payment increases.
Certain adjustable rate mortgage loans may provide for periodic adjustments of scheduled payments in order to amortize fully the mortgage loan by its stated maturity. Other adjustable rate mortgage loans may permit their stated maturity to be extended or shortened in accordance with the portion of each payment that is applied to interest as affected by the periodic interest rate adjustments.
There are two main categories of indices which provide the basis for rate adjustments on ARMs: those based on U.S. Treasury securities and those derived from a calculated measure such as a cost of funds index or a moving average of mortgage rates. Commonly utilized indices include the one-year, three-year and five-year constant maturity Treasury bill rates, the three-month Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th District Federal Home Loan Bank Cost of Funds, the National Median Cost of Funds, the one-month, three-month, six-month or one-year London Interbank Offered Rate (LIBOR), the prime rate of a specific bank, or commercial paper rates. Some indices, such as the one-year constant maturity Treasury rate, closely mirror changes in market interest rate levels. Others, such as the 11th District Federal Home Loan Bank Cost of Funds index, tend to lag behind changes in market rate levels and tend to be somewhat less volatile. The degree of volatility in the market value of the Funds portfolio and therefore in the net asset value of the Funds shares will be a function of the length of the interest rate reset periods and the degree of volatility in the applicable indices.
In general, changes in both
prepayment rates and interest rates will change the yield on Mortgage-Backed Securities. The rate of principal prepayments with
respect to ARMs has fluctuated in recent years. As is the case with fixed mortgage loans, ARMs may be subject to a greater rate of
principal prepayments in a declining interest rate environment. For example, if prevailing interest rates fall significantly, ARMs
could be subject to higher prepayment rates than if prevailing interest rates remain constant because the availability of fixed rate
mortgage loans at competitive interest rates may encourage mortgagors to refinance their ARMs to lock-in a lower fixed
interest rate. Conversely, if prevailing interest rates rise significantly, ARMs may prepay at lower rates than if prevailing rates
remain at or below those in effect at the time such ARMs were originated. As with
fixed rate mortgages, there can be no certainty as to the rate of prepayments on the
20 ARMs in either stable or changing
interest rate environments. In addition, there can be no certainty as to whether increases in the principal balances of the ARMs due
to the addition of deferred interest may result in a default rate higher than that on ARMs that do not provide for negative
amortization. Other factors affecting
prepayment of ARMs include changes in mortgagors housing needs, job transfers, unemployment, mortgagors net equity in
the mortgage properties and servicing decisions. Risk
Factors of Mortgage-Related Securities Guarantor Risk.
There can be no assurance that the U.S. government would provide financial support to Fannie Mae or Freddie Mac if
necessary in the future. Although certain mortgage-related securities are guaranteed by a third party or otherwise similarly
secured, the market value of the security, which may fluctuate, is not so secured. Interest Rate Sensitivity.
If a Fund purchases a mortgage-related security at a premium, that portion may be lost if there is a decline
in the market value of the security whether resulting from changes in interest rates or prepayments in the underlying mortgage
collateral. As with other interest-bearing securities, the prices of such securities are inversely affected by changes in interest
rates. However, though the value of a mortgage-related security may decline when interest rates rise, the converse is not
necessarily true since in periods of declining interest rates the mortgages underlying the securities are prone to prepayment. For
this and other reasons, a mortgage-related securitys stated maturity may be shortened by unscheduled prepayments on the
underlying mortgages and, therefore, it is not possible to predict accurately the securitys
return to the Funds. In addition, regular payments received in respect of mortgage-related securities include both interest and
principal. No assurance can be given as to the return the Funds will receive when these amounts are reinvested. Market Value.
The market value of the Funds adjustable rate Mortgage-Backed Securities may be adversely affected if interest
rates increase faster than the rates of interest payable on such securities or by the adjustable rate mortgage loans underlying such
securities. Furthermore, adjustable rate Mortgage-Backed Securities or the mortgage loans underlying such securities may contain
provisions limiting the amount by which rates may be adjusted upward and downward and may limit the amount by which monthly payments
may be increased or decreased to accommodate upward and downward adjustments in interest rates. Prepayments.
Adjustable rate Mortgage-Backed Securities have less potential for capital appreciation than fixed rate Mortgage-Backed
Securities because their coupon rates will decline in response to market interest rate declines. The market value of fixed rate
Mortgage-Backed Securities may be adversely affected as a result of increases in interest rates and, because of the risk of
unscheduled principal prepayments, may benefit less than other fixed rate securities of similar maturity from declining interest
rates. Finally, to the extent Mortgage-Backed Securities are purchased at a premium, mortgage foreclosures and unscheduled principal
prepayments may result in some loss of the Funds principal investment to the extent of the premium paid. On the other hand, if
such securities are purchased at a discount, both a scheduled payment of principal and an
unscheduled prepayment of principal will increase current and total returns and will accelerate the recognition of income.
Yield Characteristics.
The yield characteristics of Mortgage-Backed Securities differ from those of traditional fixed income
securities. The major differences typically include more frequent interest and principal payments, usually monthly, and the
possibility that prepayments of principal may be made at any time. Prepayment rates are influenced by changes in current interest
rates and a variety of economic, geographic, social and other factors and cannot be predicted with certainty. As with fixed rate
mortgage loans, adjustable rate mortgage loans may be subject to a greater prepayment rate in a declining interest rate environment.
The yields to maturity of the Mortgage-Backed Securities in which the Funds invest will be affected by the actual rate of payment
(including prepayments) of principal of the underlying mortgage loans. The mortgage loans underlying
such securities generally may be prepaid at any time without penalty. In a fluctuating interest rate environment, a predominant
factor affecting the prepayment rate on a pool of mortgage loans is the difference between the interest rates on the mortgage loans
and prevailing mortgage 21 loan interest rates (giving
consideration to the cost of any refinancing). In general, if mortgage loan interest rates fall sufficiently below the interest
rates on fixed rate mortgage loans underlying mortgage pass-through securities, the rate of prepayment would be expected to
increase. Conversely, if mortgage loan interest rates rise above the interest rates on the fixed rate mortgage loans underlying the
mortgage pass-through securities, the rate of prepayment may be expected to decrease. Municipal Securities Municipal Securities are issued
to obtain funds for various public purposes, including the construction of a wide range of public facilities such as:
1. bridges,
2. highways,
3. roads,
4. schools,
5. waterworks
and sewer systems, and
6. other
utilities. Other public purposes for which Municipal Securities
may be issued include:
1. refunding
outstanding obligations,
2. obtaining
funds for general operating expenses, and
3. obtaining
funds to lend to other public institutions and facilities. In addition, certain debt
obligations known as Private Activity Bonds may be issued by or on behalf of municipalities and public authorities to
obtain funds to provide:
1. water,
sewage and solid waste facilities,
2. qualified
residential rental projects,
3. certain
local electric, gas and other heating or cooling facilities,
4. qualified
hazardous waste facilities,
5. high-speed
intercity rail facilities,
6.
governmentally-owned airports, docks and wharves and mass transportation facilities,
7. qualified
mortgages,
8. student loan
and redevelopment bonds, and
9. bonds used
for certain organizations exempt from Federal income taxation. Certain debt obligations known as
Industrial Development Bonds under prior Federal tax law may have been issued by or on behalf of public authorities to
obtain funds to provide: 22
1. privately
operated housing facilities,
2. sports
facilities,
3. industrial
parks,
4. convention
or trade show facilities,
5. airport,
mass transit, port or parking facilities,
6. air or water
pollution control facilities,
7. sewage or
solid waste disposal facilities, and
8. facilities
for water supply. Other private activity bonds and
industrial development bonds issued to fund the construction, improvement, equipment or repair of privately-operated industrial,
distribution, research, or commercial facilities may also be Municipal Securities, but the size of such issues is limited under
current and prior Federal tax law. The aggregate amount of most private activity bonds and industrial development bonds is limited
(except in the case of certain types of facilities) under federal tax law by an annual volume cap. The volume cap limits
the annual aggregate principal amount of such obligations issued by or on behalf of all governmental instrumentalities in the state.
The two principal classifications
of Municipal Securities consist of general obligation and limited (or revenue) issues. General obligation
bonds are obligations involving the credit of an issuer possessing taxing power and are payable from the issuers general
unrestricted revenues and not from any particular fund or source. The characteristics and method of enforcement of general
obligation bonds vary according to the law applicable to the particular issuer, and payment may be dependent upon appropriation by
the issuers legislative body. Limited obligation bonds are payable only from the revenues derived from a particular facility
or class of facilities or, in some cases, from the proceeds of a special excise or other specific revenue source. Private activity
bonds and industrial development bonds generally are revenue bonds and thus not payable from
the unrestricted revenues of the issuer. The credit and quality of such bonds is generally related to the credit of the bank
selected to provide the letter of credit underlying the bond. Payment of principal of and interest on industrial development revenue
bonds is the responsibility of the corporate user (and any guarantor). The Funds may also acquire
moral obligation issues, which are normally issued by special purpose authorities, and in other tax-exempt investments
including pollution control bonds and tax-exempt commercial paper. Each Fund that may purchase municipal bonds may purchase:
1. Short-term
tax-exempt General Obligations Notes,
2. Tax
Anticipation Notes,
3. Bond
Anticipation Notes,
4. Revenue
Anticipation Notes,
5. Project
Notes, and
6. Other forms
of short-term tax-exempt loans. 23 Such notes are issued with a
short-term maturity in anticipation of the receipt of tax funds, the proceeds of bond placements, or other revenues. Project Notes
are issued by a state or local housing agency and are sold by the Department of Housing and Urban Development. While the issuing
agency has the primary obligation with respect to its Project Notes, they are also secured by the full faith and credit of the
United States through agreements with the issuing authority which provide that, if required, the Federal government will lend the
issuer an amount equal to the principal of and interest on the Project Notes. There are, of course, variations
in the quality of Municipal Securities, both within a particular classification and between classifications. Also, the yields on
Municipal Securities depend upon a variety of factors, including:
general
money market conditions,
coupon rate,
the
financial condition of the issuer,
general
conditions of the municipal bond market,
the size of
a particular offering,
the maturity
of the obligations, and
the rating
of the issue. The ratings of Moodys and
S&P represent their opinions as to the quality of Municipal Securities. However, ratings are general and are not absolute
standards of quality. Municipal Securities with the same maturity, interest rate and rating may have different yields while
Municipal Securities of the same maturity and interest rate with different ratings may have the same yield. Subsequent to its
purchase by a Fund, an issue of Municipal Securities may cease to be rated or its rating may be reduced below the minimum rating
required for purchase by the Fund. JPMIM will consider such an event in determining whether the Fund should continue to hold the
obligations. Municipal Securities may include
obligations of municipal housing authorities and single-family mortgage revenue bonds. Weaknesses in Federal housing subsidy
programs and their administration may result in a decrease of subsidies available for payment of principal and interest on housing
authority bonds. Economic developments, including fluctuations in interest rates and increasing construction and operating costs,
may also adversely impact revenues of housing authorities. In the case of some housing authorities, inability to obtain additional
financing could also reduce revenues available to pay existing obligations. Single-family mortgage revenue
bonds are subject to extraordinary mandatory redemption at par in whole or in part from the proceeds derived from prepayments of
underlying mortgage loans and also from the unused proceeds of the issue within a stated period which may be within a year from the
date of issue. Municipal leases are obligations
issued by state and local governments or authorities to finance the acquisition of equipment and facilities. Municipal leases may be
considered to be illiquid. They may take the form of a lease, an installment purchase contract, a conditional sales contract, or a
participation interest in any of the above. The Board of Trustees is responsible for determining the credit quality of unrated
municipal leases, on an ongoing basis, including an assessment of the likelihood that the lease will not be canceled. 24
Risk Factors in Municipal Securities Tax Risk.
The Code imposes certain continuing requirements on issuers of tax-exempt bonds regarding the use, expenditure and
investment of bond proceeds and the payment of rebates to the United States of America. Failure by the issuer to comply subsequent
to the issuance of tax-exempt bonds with certain of these requirements could cause interest on the bonds to become includable in
gross income retroactive to the date of issuance. Housing Authority Tax Risk.
The exclusion from gross income for Federal income tax purposes for certain housing authority bonds depends
on qualification under relevant provisions of the Code and on other provisions of Federal law. These provisions of Federal law
contain requirements relating to the cost and location of the residences financed with the proceeds of the single-family mortgage
bonds and the income levels of tenants of the rental projects financed with the proceeds of the multi-family housing bonds.
Typically, the issuers of the bonds, and other parties, including the originators and servicers of the single-family mortgages and
the owners of the rental projects financed with the multi-family housing bonds, covenant to meet these requirements. However, there
is no assurance that the requirements will be met. If such requirements are not met:
the interest
on the bonds may become taxable, possibly retroactively from the date of issuance;
the value of
the bonds may be reduced;
you and
other Shareholders may be subject to unanticipated tax liabilities;
a Fund may
be required to sell the bonds at the reduced value;
it may be an
event of default under the applicable mortgage;
the holder
may be permitted to accelerate payment of the bond; and
the issuer
may be required to redeem the bond. In addition, if the mortgage
securing the bonds is insured by the Federal Housing Administration (FHA), the consent of the FHA may be required before
insurance proceeds would become payable. Information Risk.
Information about the financial condition of issuers of Municipal Securities may be less available than about
corporations having a class of securities registered under the Securities Exchange Act of 1934, as amended (the Securities
Exchange Act). State and Federal Laws.
An issuers obligations under its Municipal Securities are subject to the provisions of bankruptcy,
insolvency, and other laws affecting the rights and remedies of creditors. These laws may extend the time for payment of principal
or interest, or restrict the Funds ability to collect payments due on Municipal Securities. In addition, recent amendments to
some statutes governing security interests (e.g., Revised Article 9 of the Uniform Commercial Code) change the way in which security
interests and liens securing Municipal Securities are perfected. These amendments may have an adverse impact on existing Municipal
Securities (particularly issues of Municipal Securities that do not have a corporate trustee who is responsible for filing UCC
financing statements to continue the security interest or lien). Litigation and Current
Developments. Litigation or other conditions may materially adversely affect the power or ability of an
issuer to meet its obligations for the payment of interest on and principal of its Municipal Securities. Such litigation or
conditions may from time to time have the effect of introducing uncertainties in the market for tax-exempt obligations, or may
materially affect the credit risk with respect to 25 particular
bonds or notes. Adverse economic, business, legal or political developments might affect
all or a substantial portion of a Funds Municipal Securities in the same manner. New Legislation.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the
federal income tax exemption for interest on tax exempt bonds, and similar proposals may be introduced in the future. The Supreme
Court has held that Congress has the constitutional authority to enact such legislation. It is not possible to determine what effect
the adoption of such proposals could have on (i) the availability of Municipal Securities for investment by the Funds, and (ii) the
value of the investment portfolios of the Funds.
Limitations on the Use of Municipal Securities The Funds may invest in Municipal
Securities if JPMIM determines that such Municipal Securities offer attractive yields. The Funds may invest in Municipal Securities
either by purchasing them directly or by purchasing certificates of accrual or similar instruments evidencing direct ownership of
interest payments or principal payments, or both, on Municipal Securities, provided that, in the opinion of counsel to the initial
seller of each such certificate or instrument, any discount accruing on such certificate or instrument that is purchased at a yield
not greater than the coupon rate of interest on the related Municipal Securities will to the same extent as interest on such
Municipal Securities be exempt from federal income tax and state income tax (where applicable) and not treated as a preference item
for individuals for purposes of the federal alternative minimum tax. The Funds may also invest in
Municipal Securities by purchasing from banks participation interests in all or part of specific holdings of Municipal Securities.
Such participation may be backed in whole or in part by an irrevocable letter of credit or guarantee of the selling bank. The
selling bank may receive a fee from a Fund in connection with the arrangement. A Fund will not purchase participation interests
unless it receives an opinion of counsel or a ruling of the Internal Revenue Service that interest earned by it on Municipal
Securities in which it holds such participation interest is exempt from federal income tax and state income tax (where applicable)
and not treated as a preference item for individuals for purposes of the federal alternative minimum tax. Each Fund will limit its
investment in municipal leases to no more than 5% of its total assets. Options and Futures Transactions A Fund may purchase and sell (a)
exchange traded and OTC put and call options on securities, indexes of securities and futures contracts on securities and indexes of
securities and (b) futures contracts on securities and indexes of securities. Each of these instruments is a derivative instrument
as its value derives from the underlying asset or index. Subject to its investment
objective and policies, a Fund may use futures contracts and options for hedging and risk management purposes and to seek to enhance
portfolio performance. A Fund may not use futures contracts and options for speculation. Options and futures contracts may
be used to manage a Funds exposure to changing interest rates and/or security prices. Some options and futures strategies,
including selling futures contracts and buying puts, tend to hedge a Funds investments against price fluctuations. Other
strategies, including buying futures contracts and buying calls, tend to increase market exposure. Options and futures contracts may
be combined with each other or with forward contracts in order to adjust the risk and return characteristics of a Funds
overall strategy in a manner deemed appropriate by the Funds Adviser and consistent with the Funds 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 that involves investment strategies and risks different from those associated with ordinary portfolio
securities transactions, and there can be no 26 guarantee that their use will
increase a Funds return. While the use of these instruments by a Fund may reduce certain risks associated with owning its
portfolio securities, these techniques themselves entail certain other risks. If a Funds Adviser applies a strategy at an
inappropriate time or judges market conditions or trends incorrectly, options and futures strategies may lower a Funds return.
Certain strategies limit a Funds opportunities to realize gains, as well as its exposure to losses. A Fund may 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 Fund will incur transaction costs, including trading
commissions and option premiums, in connection with its futures and options transactions, and these transactions may significantly
increase the Funds turnover rate. The Funds have filed a 4.5 notice
under the Commodity Exchange Act and are operated by a person who has claimed an exclusion from the definition of the term
commodity pool operator under the Commodity Exchange Act and, therefore, who is not subject to registration or
regulation as a pool operator under the Commodity Exchange Act. Purchasing Put and Call
Options. By purchasing a put option, a Fund obtains the right (but not the obligation) to sell the
instrument underlying the option at a fixed strike price. In return for this right, a Fund 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. A Fund may terminate its position in a put option it has
purchased by allowing it to expire or by exercising the option. A Fund may also close out a put option position by entering into an
offsetting transaction, if a liquid market exists. If the option is allowed to expire, a Fund will lose the entire premium it paid.
If a Fund exercises a put option on a security, it will sell the instrument underlying the option at
the strike price. If a Fund exercises an option on an index, settlement is in cash and does not involve the actual purchase or 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 value of the underlying instrument falls substantially. However, if the price of the instrument
underlying the option does not fall enough to offset the cost of purchasing the option, a put buyer can expect to suffer a loss
(limited to the amount of the premium paid, plus related transaction costs). The features of call options are
essentially the same as those of put options, except that the purchaser of a call option obtains the right to purchase, rather than
sell, the instrument underlying the option at the options 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 a Fund writes a put option, it takes the opposite side of the transaction from the
options purchaser. In return for the receipt of the premium, a Fund 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. A Fund 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 a Fund has written, however, it 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. 27 Writing a call option obligates a
Fund to sell or deliver the options 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. Engaging in Straddles and
Spreads. In a straddle transaction, a Fund either buys a call and a put or sells a call and a put on the
same security. In a spread, a Fund purchases and sells a call or a put. A Fund will sell a straddle when the Funds Adviser
believes the price of a security will be stable. The Fund will receive a premium on the sale of the put and the call. A spread
permits a Fund to make a hedged investment that the price of a security will increase or decline. Options on Indexes.
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 purchase or sale of securities. In addition, these options are
designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations
in a single security. A Fund, 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 a Funds investments generally will not match the composition of an
index. For a number of reasons, a liquid
market may not exist and thus a Fund may not be able to close out an option position that it has previously entered into. When a
Fund purchases an OTC option (as defined below), it will be relying on its counterparty to perform its obligations and the Fund may
incur additional losses if the counterparty is unable to perform. Exchange-Traded and OTC
Options. All options purchased or sold by a Fund 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 Board of
Trustees. While exchange-traded options are obligations of the Options Clearing Corporation, in the case of OTC options, a Fund
relies on the dealer from which it purchased the option to perform if the option is exercised. Thus, when a Fund 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 a Fund as well as loss of the expected benefit of the
transaction. Provided that a Fund has
arrangements with certain qualified dealers who agree that a Fund may repurchase any option it writes for a maximum price to be
calculated by a predetermined formula, a Fund 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
. When a Fund purchases a futures contract, it agrees to purchase a specified quantity of an underlying instrument at a
specified future date or to make a cash payment based on the value of a securities index. When a Fund 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 a Fund 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 Fund wishes to close out a particular position. 28 When a Fund purchases a futures
contract, the value of the futures contract tends to increase and decrease in tandem with the value of its underlying instrument.
Therefore, purchasing futures contracts will tend to increase a Funds exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument directly. When a Fund 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 a Fund buys or sells a futures contract it will be required to deposit initial margin with a futures
commission merchant (FCM). Initial margin deposits are typically equal to a small percentage of the contracts
value. If the value of either partys position declines, that party will be required to make additional variation
margin payments equal to the change in value on a daily basis. The party that has a gain may be entitled to receive all or a
portion of this amount. A Fund may be obligated to make payments of variation margin at a time when it is disadvantageous to do so.
Furthermore, it may not always be possible for a Fund to close out its futures positions. Until
it closes out a futures position, a Fund will be obligated to continue to pay variation margin. Initial and variation margin
payments do not constitute purchasing on margin for purposes of a Funds investment restrictions. In the event of the
bankruptcy of an FCM that holds margin on behalf of a Fund, the Fund may be entitled to return of margin owed to it only in
proportion to the amount received by the FCMs other customers, potentially resulting in losses to the Fund. Each Fund will
earmark and reserve Fund assets, in cash or liquid securities, in connection with its use of options and futures contracts to the
extent required by the staff of the SEC. Such assets 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 earmarking and reservation of a large percentage
of a Funds assets could impede portfolio management or a Funds ability to meet redemption
requests or other current obligations. The Funds only invest in futures
contracts to the extent they could invest in the underlying instrument directly. Cash Equitization.
The objective where equity futures are used to equitize cash is to match the notional value of all
futures contracts to a Funds cash balance. The notional values of the futures contracts and of the cash are monitored daily.
As the cash is invested in securities and/or paid out to participants in redemptions, the Adviser simultaneously adjusts the futures
positions. Through such procedures, a Fund not only gains equity exposure from the use of futures, but also benefits from increased
flexibility in responding to client cash flow needs. Additionally, because it can be less expensive to trade a list of securities as
a package or program trade rather than as a group of individual orders, futures provide a means through which transaction costs can
be reduced. 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.
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 securities, including but not limited to U.S. Treasury bonds, notes and bills,
Eurodollar certificates of deposit and on indexes of 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. 29 The seller of an option on a
futures contract receives the premium paid by the purchaser and may be required to pay initial margin. Amounts equal to the initial
margin and any additional collateral required on any options on futures contracts sold by a Fund are earmarked by a Fund and set
aside by the Fund, as required by the 1940 Act and the SECs interpretations thereunder. Combined Positions.
Certain Funds may purchase and write options in combination with futures or forward contracts, to adjust the risk and
return characteristics of the overall position. For example, a Fund may purchase a put option and write a call option on the same
underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a
futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call
option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase.
Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to
open and close out. Correlation of Price Changes.
Because there are a limited number of types of exchange-traded options and futures contracts, it is likely
that the standardized options and futures contracts available will not match a Funds current or anticipated investments
exactly. A Fund 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 a Funds other investments. Options and futures contracts
prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match the Funds
investments well. Options and futures contracts prices are affected by such factors as current and anticipated short term interest
rates, changes in volatility of the underlying instrument, and the time remaining until expiration of the contract, which may not
affect security prices the same way. Imperfect correlation 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. A Fund may purchase or sell options and futures contracts with a
greater or lesser value than the securities it wishes to hedge or intends to purchase in
order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be
successful in all cases. If price changes in a Funds 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 contracts 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 a Fund to enter into new positions or close out existing positions. If the market for a contract is not liquid
because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and could
potentially require a Fund to continue to hold a position until delivery or expiration regardless of
changes in its value. As a result, a Funds 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, a Fund or the Funds Adviser may be required to reduce the size of its
futures and options positions or may not be able to trade a certain futures or options contract in order to avoid exceeding such
limits. Asset Coverage for Futures
Contracts and Options Positions. Although the Funds will not be commodity pools, certain derivatives subject
the Funds to the rules of the Commodity Futures Trading 30 Commission which limit the extent to
which a Fund can invest in such derivatives. A Fund may invest in futures contracts and options with respect thereto for hedging
purposes without limit. A 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 the amount prescribed. Such assets 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 the reservation of a
large percentage of a Funds assets could impede portfolio management or a Funds ability to meet redemption requests or
other current obligations. Real Estate Investment Trusts (REITs)
Certain of the Funds may invest
in equity interests or debt obligations issued by REITs. REITs are pooled investment vehicles which invest primarily in income
producing real estate or real estate related loans or interest. REITs are generally classified as equity REITs, mortgage REITs or a
combination of equity and mortgage REITs. Equity REITs invest the majority of their assets directly in real property and derive
income primarily from the collection of rents. Equity REITs can also realize capital gains by selling property that has appreciated
in value. Mortgage REITs invest the majority of their assets in real estate mortgages and derive income from the collection of
interest payments. Similar to investment companies, REITs are not taxed on income distributed to shareholders provided they comply
with several requirements of the Code. A Fund will indirectly bear its proportionate share
of expenses incurred by REITs in which a Fund invests in addition to the expenses incurred directly by a Fund. Investing in REITs involves
certain unique risks in addition to those risks associated with investing in the real estate industry in general. Equity REITs may
be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the
quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow
dependency, default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax
free pass-through of income under the Code and failing to maintain their exemption from registration under the 1940 Act. REITs (especially mortgage REITs)
are also subject to interest rate risks. When interest rates decline, the value of a REITs investment in fixed rate
obligations can be expected to rise. Conversely, when interest rates rise, the value of a REITs investment in fixed rate
obligations can be expected to decline. In contrast, as interest rates on adjustable rate mortgage loans are reset periodically,
yields on a REITs investment in such loans will gradually align themselves to fluctuate less dramatically in response to
interest rate fluctuations than would investments in fixed rate obligations. Investment in REITs involves
risks similar to those associated with investing in small capitalization companies. These risks include:
limited
financial resources;
infrequent
or limited trading; and
more abrupt
or erratic price movements than larger company securities. In addition, small capitalization
stocks, such as REITs, historically have been more volatile in price than the larger capitalization stocks included in the S&P
500 Index. Repurchase Agreements The Funds may enter into
repurchase agreements with brokers, dealers or banks that meet the Advisers credit guidelines. A Fund will enter into
repurchase agreements only with member banks of the Federal 31 Reserve System and securities
dealers believed creditworthy, and only if the agreement is collateralized by securities in which the Fund is permitted to invest.
In a repurchase agreement, a Fund buys a security from a seller that has agreed to repurchase the same security at a mutually agreed
upon date and price. The resale price normally is in excess of the purchase price, reflecting an agreed upon interest rate. This
interest rate is effective for the period of time a Fund is invested in the agreement and is not related to the coupon rate on the
underlying security. A repurchase agreement may also be viewed as a fully collateralized loan of money by a Fund to the seller.
Except in
the case of a tri-party agreement, the maximum maturity of a repurchase agreement will be seven days. In the case of a tri-party
agreement, the maximum maturity of a repurchase agreement will be 95 days, or as limited by the specific repurchase agreement.
The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of 95 days from the effective date of the repurchase agreement. Repurchase agreements
maturing in more than seven days are treated as illiquid for purposes of the Funds restrictions on purchases of illiquid
securities. The Funds will always receive securities as collateral during the term of the agreement whose market value is at least
equal to 100% of the dollar amount invested by the Funds in each agreement plus accrued interest. The repurchase agreements further
authorize the Funds to demand additional collateral in the event that the value of the
collateral falls below 100%. The Funds will make payment for such securities only upon physical delivery or upon evidence of book
entry transfer to the account of the Custodian. A repurchase agreement is subject
to the risk that the seller may fail to repurchase the security. In the event of default by the seller under a repurchase agreement
construed to be a collateralized loan, the underlying securities would not be owned by the Fund, but would only constitute
collateral for the sellers obligation to pay the repurchase price. Therefore, a Fund may suffer time delays and incur costs in
connection with the disposition of the collateral. The collateral underlying repurchase agreements may be more susceptible to claims
of the sellers creditors than would be the case with securities owned by the Fund. Certain of the Funds may invest
in repurchase agreements where the underlying securities are non-governmental securities but only if the Funds would be permitted to
invest in such securities directly. These repurchase securities are subject to additional risks. Reverse Repurchase Agreements Some of the Funds may borrow
money for temporary purposes by entering into reverse repurchase agreements. Pursuant to such agreements, a Fund would sell
portfolio securities to financial institutions such as banks and broker-dealers, and agree to repurchase them at a mutually
agreed-upon date and price. A Fund would enter into reverse repurchase agreements only to avoid otherwise selling securities during
unfavorable market conditions to meet redemptions. At the time a Fund entered into a reverse repurchase agreement, it would place in
a segregated custodial account assets, such as cash or liquid securities consistent with the Funds investment restrictions and
having a value equal to the repurchase price (including accrued interest), and would subsequently monitor the account to ensure that
such equivalent value was maintained. Reverse repurchase agreements involve the risk that
the market value of the securities sold by a Fund may decline below the price at which the Fund is obligated to repurchase the
securities. Reverse repurchase agreements are considered by the SEC to be borrowings by a Fund under the 1940 Act. Securities Lending To generate additional income,
each of the Funds except the Ultra Short-Term Bond Trust, may lend up to 33-1/3% of such Funds total assets
pursuant to agreements requiring that the loan be continuously secured by cash as collateral equal at all times to at least 100% of
the market value plus accrued interest on the securities lent. The Funds receive payments from the borrowers equivalent to the
dividends and interest which would have been earned on the securities lent while simultaneously seeking to earn interest on the
investment of cash collateral in investments permitted by the Confidential Offering Memorandum and the investment guidelines
approved by the Trusts board of trustees. Collateral is marked to market daily to provide a level of collateral at least
equal to the market value plus accrued interest of the securities lent. There may be risks of delay in
recovery of the securities or even loss of rights in the collateral should the 32 borrower of the securities fail
financially. There are no limits on the number of borrowers the Fund may use and the Fund may lend securities to only one or a small group
of borrowers. However, loans will only be made to borrowers authorized pursuant to the Securities Lending Agreement with the Funds.
Loans are subject to termination by the Funds or the borrower at any time, and are therefore, not considered to be illiquid
investments. The Funds do not have the right to vote proxies for securities on loan. However, JPMIM will instruct the securities
lending agent to terminate a loan and regain the right to vote if it were considered material with respect to an investment.
Short-Term Funding Agreements To enhance yield, some Funds may
make limited investments in short-term funding agreements issued by banks and highly rated U.S. insurance companies. Short-term
funding agreements issued by insurance companies are sometimes referred to as Guaranteed Investment Contracts (GICs),
while those issued by banks are referred to as Bank Investment Contracts (BICs). Pursuant to such agreements, the Funds
make cash contributions to a deposit account at a bank or insurance company. The bank or insurance company then credits to the Funds
on a monthly basis guaranteed interest at either a fixed, variable or floating rate. These contracts are general obligations of the
issuing bank or insurance company (although they may be the obligations of an insurance company separate account) and are paid from
the general assets of the issuing entity. The Funds will purchase
short-term funding agreements only from banks and insurance companies which, at the time of purchase, are rated in one of the three
highest rating categories and have assets of $1 billion or more. Generally, there is no active secondary market in short-term
funding agreements. Therefore, short-term funding agreements may be considered by the Funds to be illiquid investments. To the
extent that a short-term funding agreement is determined to be illiquid, such agreements will be acquired by the Funds only if, at
the time of purchase, no more than 15% of the Funds net assets will be invested in short-term funding agreements and other
illiquid securities. Structured Instruments A structured investment is a
security having a return tied to an underlying index or other security or asset class. Structured investments generally are
individually negotiated agreements and may be traded over-the-counter. Structured investments are organized and operated to
restructure the investment characteristics of the underlying security. This restructuring involves the deposit with or purchase by
an entity, such as a corporation or trust, or specified instruments (such as commercial bank loans) and the issuance by that entity
or one or more classes of securities (structured securities) backed by, or representing interests in, the underlying
instruments. The cash flow on the underlying instruments may be apportioned among the newly issued structured securities to create
securities with different investment characteristics, such as varying maturities, payment priorities
and interest rate provisions, and the extent of such payments made with respect to structured securities is dependent on the extent
of the cash flow on the underlying instruments. Because structured securities typically involve no credit enhancement, their credit
risk generally will be equivalent to that of the underlying instruments. Investments in structured securities are generally of a
class of structured securities that is either subordinated or unsubordinated to the right of payment of another class. Subordinated
structured securities typically have higher yields and present greater risks than unsubordinated structured securities. Structured
instruments include structured notes. In addition to the risks applicable to investments in structured investments and debt securities
in general, structured notes bear the risk that the issuer may not be required to pay interest on the structured note if the index rate
rises above or falls below a certain level. Structured
securities are typically sold in private placement transactions, and there currently is no active trading market for structured
securities. Investments in government and government-related restructured debt instruments are subject to special risks, including
the inability or unwillingness to repay principal and interest, requests to
reschedule or restructure outstanding debt and requests to extend additional loan amounts. Structured investments include a wide
variety of instruments including, without limitation, CDOs. Structured instruments that are
registered under the federal securities laws may be treated as liquid. In addition, many structured instruments may not be
registered under the federal securities laws. In that event, a Funds ability to resell such a structured instrument may be
more limited than its ability to resell other Fund securities. The Funds will treat such instruments as illiquid, and will limit
their investments in 33 such instruments to no more than
15% of each Funds net assets, when combined with all other illiquid investments of each Fund. Swaps and Related Swap Products Swap transactions may include,
but are not limited to, interest rate swaps, currency swaps, cross-currency interest rate swaps, forward rate agreements, contracts for
differences, total return swaps, index swaps, basket swaps, specific security swaps, fixed income sectors swaps, commodity swaps,
asset-backed swaps (ABX), credit default swaps, interest rate caps, floors and collars and swaptions (collectively defined as
swap transactions). A Fund 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, to protect against any increase in the price of securities
a Fund anticipates purchasing at a later date, or to gain exposure to certain markets in the most economical way possible. 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 or floor 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 a Fund 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
a Fund, payments by the parties will be exchanged on a net basis, and a Fund will receive or pay, as the case may be,
only the net amount of the two payments. The amount of a Funds
potential gain or loss on any swap transaction is not subject to any fixed limit. Nor is there any fixed limit on a Funds
potential loss if it sells a cap or collar. If a Fund buys a cap, floor or collar, however, the Funds 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 that are different from those associated with portfolio security
transactions. If a Funds Adviser is incorrect in its forecasts of market values, interest rates, and other applicable factors,
the investment performance of the 34 Fund 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 a Fund or that a Fund 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 a Fund. A Funds Adviser will consider such risks and will enter into swap and
other
derivatives transactions only when it believes that the risks are not unreasonable. A Fund will earmark and reserve
Fund assets, in cash or liquid securities, in an amount sufficient at all times to cover its current obligations under its swap
transactions, caps, floors and collars. If a Fund enters into a swap agreement on a net basis, it will earmark and reserve assets
with a daily value at least equal to the excess, if any, of a Funds accrued obligations under the swap agreement over the
accrued amount a Fund is entitled to receive under the agreement. If a Fund enters into a swap agreement on other than a net basis,
or sells a cap, floor or collar, it will earmark and reserve assets with a daily value at least equal to the full amount of a
Funds accrued obligations under the agreement. A Fund will not enter into any swap transaction, cap, floor, or collar, unless
the counterparty to the transaction is deemed creditworthy by the Funds Adviser. If a
counterparty defaults, a Fund 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 a Funds Adviser 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 a Funds rights and
obligations relating to the instrument). Such determination will govern whether the instrument will be deemed within the applicable
liquidity 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, a Fund will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing transaction and a Funds 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 a Fund may engage in such
transactions. Credit Default Swaps.
As described above, swap agreements are two party contracts entered into primarily by institutional investors for
periods ranging from a few weeks to more than one year. In the case of a credit default swap (CDS), the contract gives one party
(the buyer) the right to recoup the economic value of a decline in the value of debt securities of the reference issuer if the
credit event (a downgrade or default) occurs. This value is obtained by delivering a debt security of the reference issuer to the
party in return for a previously agreed payment from the other party (frequently, the par value of the debt security). Credit default swaps may require
initial premium (discount) payments as well as periodic payments (receipts) related to the interest leg of the swap or to the
default of a reference obligation. A Fund will segregate assets necessary to meet any accrued payment obligations when it is the
buyer of CDS. In cases where a Fund is a seller of a CDS, if the CDS is physically settled, the Fund will be required to segregate
the full notional amount of the CDS. 35 If a Fund is a seller of a CDS
contract, the Fund would be required to pay the par (or other agreed upon) value of a referenced debt obligation to the counterparty
in the event of a default or other credit event by the reference issuer, such as a U.S. or foreign corporate issuer, with respect to
debt obligations. In return, a Fund would receive from the counterparty a periodic stream of payments over the term of the contract
provided that no event of default has occurred. If no default occurs, a Fund would keep the stream of payments and would have no
payment obligations. As the seller, a Fund would be subject to investment exposure on the notional amount of the swap. If a Fund is a buyer of a CDS
contract, the Fund would have the right to deliver a referenced debt obligation and receive the par (or other agreed-upon) value of
such debt obligation from the counterparty in the event of a default or other credit event (such as a credit downgrade) by the
reference issuer, such as a U.S. or foreign corporation, with respect to its debt obligations. In return, the Fund would pay the
counterparty a periodic stream of payments over the term of the contract provided that no event of default has occurred. If no
default occurs, the counterparty would keep the stream of payments and would have no further obligations to the Fund. The use of CDSs, like all swap
agreements, is subject to certain risks. If a counterpartys creditworthiness declines, the value of the swap would likely
decline. Moreover, there is no guarantee that a Fund could eliminate its exposure under an outstanding swap agreement by entering
into an offsetting swap agreement with the same or another party. Synthetic Variable Rate Instruments. Synthetic variable rate
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. A Funds Adviser reviews 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 Fund 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 occur, 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 bonds tax exempt status, then the put will terminate and the risk to the Fund will be that of holding a long-term bond.
Total Annual Operating Expenses
set forth in the fee table and Financial Highlights section of the Funds Confidential Offering Memorandum do not include any
expenses associated with investments in certain structured or synthetic products that may rely on the exception for the definition
of investment company provided by section 3(c)(1) or 3(c)(7) of the 1940 Act. Treasury Receipts A Fund may purchase interests in
separately traded interest and principal component parts of U.S. Treasury obligations that are issued by banks or brokerage firms
and are created by depositing U.S. Treasury notes and U.S. Treasury bonds into a special account at a custodian bank. Receipts
include Treasury Receipts (TRs), Treasury Investment Growth Receipts (TIGRs), and Certificates of Accrual on
Treasury Securities (CATS). Receipts in which an entity other than the government separates the interest and principal
components are not considered government securities unless such securities are issued through the Treasury Separate Trading of
Registered Interest and Principal of Securities (STRIPS) program. 36
U.S. Government Obligations U.S. government obligations may
include 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, and separately traded principal and interest component
parts of such obligations that are transferable through the Federal book-entry system known as STRIPS and Coupon Under Book Entry
Safekeeping (CUBES). The Funds may also invest in TIPS. The principal and interest
components of United States Treasury bonds with remaining maturities of longer than ten years are eligible to be traded
independently under the STRIPS program. Under the STRIPS program, the principal and interest components are separately issued by the
United States Treasury at the request of depository financial institutions, which then trade the component parts separately. The
interest component of STRIPS may be more volatile than that of United States Treasury bills with comparable maturities. Other obligations include those
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 Ginnie Mae, 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 Funds 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 Funds 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 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 Freddie Mac and Fannie Mae, which are supported only by the credit
of such securities, but for which the Secretary of the Treasury has discretionary authority to purchase limited amounts of the
agencys 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. When-Issued Securities and Forward Commitments
Some Funds may purchase securities
on a when-issued and forward commitment basis. When a Fund agrees to purchase securities on this basis, the Funds
custodian will set aside cash or liquid portfolio securities equal to the amount of the commitment in a separate account. The Funds
may purchase securities on a when-issued basis when deemed by JPMIM to present attractive investment opportunities. When-issued
securities are purchased for delivery beyond the normal settlement date at a stated price and yield, thereby involving the risk that
the yield obtained will be less than that available in the market at delivery. The Funds generally will not pay for such securities
or earn interest on them until received. Although the purchase of securities on a when-issued basis is not considered to be
leveraging, it has the effect of leveraging. When JPMIM purchases a when-issued
security, the custodian will set aside cash or liquid securities to satisfy the purchase commitment. In such a case, a Fund may be
required subsequently to place additional assets in the separate account in order to assure that the value of the account remains
equal to the amount of the Funds commitment. In addition, when a Fund engages in when-issued transactions, it
relies on the seller to consummate the trade. Failure of the seller to do so may result in the Funds incurring a loss or
missing the opportunity to obtain a price considered to be advantageous. Each of the Funds may purchase
securities on a forward commitment basis. In order to invest a Funds assets immediately while awaiting delivery of securities
purchased on a forward commitment basis, short-term obligations that offer same-day settlement and earnings will normally be
purchased. When a commitment to purchase a security on a forward commitment basis is made, procedures are established consistent
with the General Statement of Policy of the SEC concerning such purchases. Since that policy currently recommends that an amount of
a Funds assets equal to the amount of the purchase be held aside or 37 segregated to be used to pay for the commitment, cash or
liquid securities equal to the amount of such Funds commitments will be reserved for payment of the commitment. For the
purpose of determining the adequacy of the securities reserved for payment of commitments, the
reserved securities will be valued at market value. If the market value of such securities declines, additional cash, cash
equivalents or highly liquid securities will be reserved for payment of the commitment so that the value of the Funds assets
reserved for payment of a commitment will equal the amount of such commitments purchased by the respective Fund. Although it is not intended that
such purchases would be made for speculative purposes, purchases of securities on a forward commitment basis may involve more risk
than other types of purchases. Securities purchased on a forward commitment basis and the securities held in the respective
Funds portfolio are subject to changes in value based upon the publics perception of the issuer and changes, real or
anticipated, in the level of interest rates. Purchasing securities on a forward commitment basis can involve the risk that the
yields available in the market when the delivery takes place may actually be higher or lower than those obtained in the transaction
itself. On the settlement date of the forward commitment transaction, the respective Fund will meet its obligations from then
available cash flow, sale of securities reserved for payment of the commitment, sale of other
securities or, although it would not normally expect to do so, sale of the forward commitment securities themselves (which may have
a value greater or lesser than such Funds payment obligations). The sale of securities to meet such obligations may result in
the realization of capital gains or losses. Purchasing securities on a forward commitment basis can also involve the risk of default
by the other party on its obligation, delaying or preventing the Fund from recovering the collateral or completing the transaction.
To the extent a Fund engages in
forward commitment transactions, it will do so for the purpose of acquiring securities consistent with its investment objective and
policies and not for the purpose of investment leverage. Limitations on the Use of
When-Issued Securities and Forward Commitments. No Fund intends to purchase when-issued
securities for speculative purposes but only for the purpose of acquiring portfolio securities. Because a Fund will set aside cash
or liquid portfolio securities to satisfy its purchase commitments in the manner described, the Funds liquidity and the
ability of JPMIM to manage the Fund might be affected in the event its commitments to purchase when-issued securities ever exceeded
40% of the value of its assets. Commitments to purchase when-issued securities will not, under normal market conditions, exceed 25%
of a Funds total assets. A Fund may dispose of a when-issued security or forward commitment prior to settlement if JPMIM deems
it appropriate to do so. INVESTMENT RESTRICTIONS The following investment
restrictions are Fundamental and may be changed with respect to a particular Fund only by a vote of a majority of the outstanding
Shares of that Fund. See Additional InformationMiscellaneous in this Supplement. Additional investment
restrictions may be found in the Confidential Offering Memorandum. FUNDAMENTAL POLICIES The Funds have adopted certain
investment restrictions that are fundamental and may not be changed without approval by a majority vote of the Funds
shareholders. Such majority is defined in the 1940 Act as the lesser of (i) 67% or more of the voting securities of the Funds
present in person or by proxy at a meeting, if the holders of more than 50% of the outstanding voting securities are present or
represented by proxy; or (ii) more than 50% of the outstanding voting securities of the Funds. 1. Borrowing. The Funds may (i) borrow for non-leveraging, temporary
or emergency purposes and (ii) engage in reverse repurchase agreements, make other investments or engage in other transactions, that
may involve a borrowing, in a manner consistent with the Funds investment objective and program, provided that the combination
of (i) and (ii) shall not exceed 33-1/3% of the value of the Funds total assets (including 38 the amount borrowed) less
liabilities (other than borrowings) or such other percentage permitted by law. Any borrowings which come to exceed this amount will
be reduced in accordance with applicable law. The Funds may borrow from banks or other persons to the extent permitted by
applicable law. 2.
Senior Securities. The Funds may not issue senior securities,
except as permitted under the 1940 Act. 3.
Underwriting. The Funds may not underwrite securities issued by
other persons, except to the extent that the Funds may be deemed to be an underwriter, within the meaning of the 1933 Act, in
connection with the purchase and sale of its portfolio securities in the ordinary course of pursuing its investment objective,
policies and program. 4.
Purchases of Commodities. The Funds may not purchase or sell physical
commodities, except that it may (i) enter into futures contracts and options thereon in accordance with applicable law and (ii)
purchase or sell physical commodities if acquired as a result of ownership of securities or other instruments. The Funds will not
consider stock index futures contracts, currency contracts, hybrid investments, swaps or other similar instruments to be
commodities. 5.
Loans. The Funds may not lend any security or make any loan if,
as a result, more than 33-1/3% of its total assets would be lent to other parties. This limitation does not apply to purchases
of publicly distributed or privately placed debt securities or money market instruments or to entering into repurchase agreements by
the Funds. 6.
Concentration. The Funds may not purchase the securities of any
issuer if, as a result, more than 25% of the Funds total assets would be invested in the securities of issuers, the principal
business activities of which are in the same industry, provided that this limitation does not apply to investment in obligations
issued or guaranteed by the United States Government, state or local governments, or their agencies or instrumentalities.
7.
Real Estate. The Funds may not purchase or sell real estate, except that
the Funds may purchase (i) securities of issuers that invest or deal in real estate, (ii) securities that are directly or indirectly
secured by real estate or interests in real estate, and (iii) securities that represent interests in real estate, and the Funds may
acquire and dispose of real estate or interests in real estate acquired through the exercise of its rights as a holder of debt
obligations secured by real estate or interests therein. In addition, the Funds may make direct investments in mortgages.
8.
Diversification. The Funds may not, with respect to 75% of its total assets, purchase the
securities of any issuer (other than securities issued or guaranteed by the U.S. Government or any of its agencies or
instrumentalities, or securities of other investment companies) if, as a result, (i) more than 5% of the Funds total assets
would be invested in the securities of that issuer, or (ii) the Funds would hold more than 10% of the voting securities of any one
issuer. NON-FUNDAMENTAL POLICIES The following investment
restrictions are Non-Fundamental except as noted otherwise and therefore can be changed by the Board of Trustees without prior
shareholder approval. The following policy applies to the Equity Index
Trust: The Fund may not invest more
than 10% of its total assets in securities issued or guaranteed by the United States, its agencies or instrumentalities. Repurchase
agreements held in margin deposits and segregated accounts for futures contracts are not considered issued or guaranteed by the
United States, its agencies or instrumentalities for purposes of the 10% limitation. 39 Portfolio Turnover A portfolio turnover rate is, in
summary, the percentage computed by dividing the lesser of a Funds purchases or sales of securities (excluding short-term
securities) by the average market value of the Fund. The Adviser intends to manage each Funds assets by buying and selling
securities to help attain its investment objective. The table below sets forth the Funds portfolio turnover rates for the
last two fiscal years. A rate of 100% indicates that the equivalent of all of a Funds assets have been sold and reinvested in
a year. High portfolio turnover may affect the amount, timing and character of distributions, and, as a result, may increase the
amount of taxes payable by shareholders. Higher portfolio turnover also results in higher transaction costs. To the extent that net
short term capital gains are realized by a Fund, any distributions resulting from such
gains are considered ordinary income for federal income tax purposes. See Distribution and Tax Matters below. Funds
Fiscal
Year Ended February 28, 2006 Fiscal
Year Ended February 28, 2007 Core Bond Trust
12%
12%
Equity Index
Trust 5 10 Intermediate
Bond Trust 6 14 DISTRIBUTIONS AND TAX MATTERS The following discussion is a
brief summary of some of the important federal (and, where noted, state) income tax consequences affecting each Fund and its
shareholders. Except as otherwise noted in Confidential Offering Memorandum, the Funds are not intended for foreign shareholders.
As a result, this section does not address the tax consequences affecting any shareholder who, as to the United States, is a
nonresident alien individual, foreign trust or estate, foreign corporation, or foreign partnership. This section is based on the
Code, the regulations thereunder, published rulings and court decisions, all as currently in effect. These laws are subject to
change, possibly on a retroactive basis. The discussion is very general, and therefore prospective investors are urged to consult
their tax advisors about the impact an investment in a Fund may have on their own tax situations and
the possible application of foreign, state and local law. Each Fund generally will be
treated as a separate entity for federal income tax purposes, and thus the provisions of the Code generally will be applied to each
Fund separately. Net long-term and short-term capital gains, net income and operating expenses therefore will be determined
separately for each Fund. Qualification as a Regulated
Investment Company. Each Fund intends to elect to be treated and qualify each year as a regulated investment
company under Subchapter M of the Code. In order to qualify for the special tax treatment accorded regulated investment companies
and their shareholders, each Fund must, among other things:
(a) derive at
least 90% of its gross income for each taxable year from (i) dividends, interest, payments with respect to certain securities loans,
and gains from the sale or other disposition of stock, securities, or foreign currencies, or other income (including but not limited
to gains from options, futures, or forward contracts) derived with respect to its business of investing in such stock, securities,
or currencies and (ii) net income derived from interests in qualified publicly traded partnerships (as defined below);
(b) distribute
with respect to each taxable year at least 90% of the sum of its investment company taxable income (as that term is defined in the
Code, without regard to the deduction for dividends paidgenerally, taxable ordinary income and any excess of net short-term
capital gains over net long-term capital losses) and net tax-exempt interest income, for such year; and
(c) diversify
its holdings so that, at the end of each quarter of the Funds taxable year, (i) at least 50% of the market value of the
Funds total assets is represented by cash and cash items, 40
U.S.
government securities, securities of other regulated investment
companies, and other securities, that are limited, in respect of any one issuer, to an amount not greater than 5% of the value of
the Funds total assets and not more than 10% of the outstanding voting securities of such issuer, and (ii) not more than 25%
of the value of the Funds total assets is invested in the securities (other than cash or cash items, or securities issued by
the U.S. government or other regulated investment companies) of any one issuer or of two or more issuers that the Fund controls and
that are engaged in the same, similar, or related trades or businesses, or in
the securities of one or more qualified publicly traded partnerships (as defined below). In the case of a Funds investments in
loan participations, the Fund shall treat both the financial intermediary and the issuer of the underlying loan as an issuer for the
purposes of meeting this diversification requirement. In general, for purposes of the
90% gross income requirement described in paragraph (a) above, income derived from a partnership will be treated as qualifying
income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if
realized by the regulated investment company. However, 100% of the net income derived from an interest in a qualified publicly
traded partnership (defined as a partnership (i) interests in which are traded on an established securities market or readily
tradable on a secondary market or the substantial equivalent thereof and (ii) that derives less than 90% of its income from the
qualifying income described in paragraph (a)(i) above) will be treated as qualifying income. In addition, although in general the
passive loss rules of the Code do not apply to regulated investment companies, such rules
do apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded
partnership. Finally, for purposes of paragraph (c) above, the term outstanding voting securities of such issuer will
include the equity securities of a qualified publicly traded partnership. Gains from foreign currencies
(including foreign currency options, foreign currency futures and foreign currency forward contracts) currently constitute
qualifying income for purposes of the 90% test. However, the Treasury Department has the authority to issue regulations (possibly
retroactively) excluding from the definition of qualifying income a funds foreign currency gains to the extent
that such income is not directly related to the funds principal business of investing in stock or securities. If the Fund qualifies as a
regulated investment company that is accorded special tax treatment, the Fund will not be subject to federal income tax on income
distributed in a timely manner to its shareholders in the form of dividends (including Capital Gain Dividends, defined below).
Excise Tax on Regulated
Investment Companies. If a Fund were to fail to distribute in a calendar year substantially all of its
ordinary income for such year and substantially all of its capital gain net income for the one-year period ending October 31 (or
later if the Fund is permitted to elect and so elects), plus any retained amount from the prior year, the Fund will be subject to a
4% excise tax on the undistributed amounts. The Funds intend to make distributions sufficient to avoid imposition of the 4% excise
tax, although each Fund reserves the right to pay an excise tax rather than make an additional distribution when circumstances
warrant (e.g., the payment of the excise tax amount is deemed by a Fund to be de minimis
). Certain derivative instruments give rise to ordinary income and loss. If a Fund has a
taxable year that begins in one calendar year and ends in the next calendar year, the Fund will be required to make this excise tax
distribution during its taxable year. There is a risk that a Fund could recognize income prior to making this excise tax
distribution and could recognize losses after making this distribution. As a result, an excise tax distribution could constitute a
return of capital (see discussion below). Fund Distributions.
The Funds anticipate distributing substantially all of their net investment income for each taxable year. For
federal income tax purposes, distributions of investment income are generally taxable as ordinary income. Taxes on distributions of
capital gains are determined by how long a Fund owned the investments that generated them, rather than how long a shareholder may
have owned shares in the Fund. Distributions of net capital gains from the sale of investments that a Fund owned for more than one
year and that are properly designated by the Fund as capital gain dividends (Capital Gain Dividends) 41 will be taxable to
shareholders as long-term capital gains. Distributions of gains from the sale of investments that a Fund owned for one year or less
will be taxable to shareholders as ordinary income. Distributions are taxable
whether shareholders receive them in cash or reinvest them in additional shares. For taxable years beginning on or before December
31, 2010, qualified dividend income received by an individual will be taxed at the rates applicable to long-term capital
gain. In order for some portion of the dividends received by a Fund shareholder to be qualified dividend income, each Fund must meet
holding period and other requirements with respect to some portion of the dividend-paying stocks in its portfolio and the
shareholder must meet holding period and other requirements with respect to the Funds shares. A dividend will not be treated
as qualified dividend income (at either the Fund or shareholder level) (i) if the dividend is received with respect to any share of
stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such
share becomes ex-dividend with respect to such dividend (or, in the case of certain
preferred stock, 91 days during the 181-day period beginning 90 days before such date), (ii) to the extent that the recipient is
under an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property, (iii) if the recipient elects to have the dividend income treated as investment interest
for purposes of the limitation on deductibility of investment interest, or (iv) if the dividend is received from a foreign
corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the United States (with the
exception of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in the
United States) or (b) treated as a passive foreign investment company (PFIC). In general, distributions of
investment income designated by a Fund as derived from qualified dividend income will be treated as qualified dividend income by a
shareholder taxed as an individual provided the shareholder meets the holding period and other requirements described above with
respect to the Funds shares. In any event, if the qualified dividend income received by each Fund during any taxable year is
95% or more of its "gross income", then 100% of the Funds dividends (other than Capital Gain Dividends) will be eligible to be
treated as qualified dividend income. For this purpose, the only gain included in the term gross income is the excess of
net short-term capital gain over net long-term capital loss. If a Fund receives dividends from
an underlying fund, and the underlying fund designates such dividends as qualified dividend income, then the Fund may,
in turn, designate a portion of its distributions as qualified dividend income as well, provided the Fund meets the
holding period and other requirements with respect to shares of the underlying fund. Long-term capital gain rates
applicable to most individuals have been temporarily reduced to 15% (with lower rates applying to taxpayers in the 10% and 15% rate
brackets) for taxable years beginning on or before December 31, 2010. Any loss realized upon a taxable
disposition of shares held for six months or less will be treated as long-term capital loss to the extent of any Capital Gain
Dividends received by the shareholder with respect to those shares. All or a portion of any loss realized upon a taxable disposition
of Fund shares will be disallowed if other shares of such Fund are purchased within 30 days before or after the disposition. In such
a case, the basis of the newly purchased shares will be adjusted to reflect the disallowed loss. A distribution paid to
shareholders by a Fund in January of a year generally is deemed to have been received by shareholders on December 31 of the
preceding year, if the distribution was declared and payable to shareholders of record on a date in October, November, or December
of that preceding year. The Funds will provide federal tax information annually, including information about dividends and
distributions paid during the preceding year to taxable investors and others requesting such information. If a Fund makes a distribution to
its shareholders in excess of its current and accumulated earnings and profits in any taxable year, the excess
distribution will be treated as a return of capital to the extent of each shareholders tax basis in its shares, and thereafter
as capital gain. A return of capital is not taxable, but 42 it reduces the shareholders tax basis in its shares, thus reducing
any loss or increasing any gain on a subsequent taxable disposition by such shareholder of the shares. Dividends and distributions on a
Funds shares are generally subject to federal income tax as described herein to the extent they do not exceed the Funds
realized income and gains, even though such dividends and distributions may economically represent a return of a particular
shareholders investment. Such dividends and distributions are likely to occur in respect of shares purchased at a time when
the Funds net asset value reflects gains that are either unrealized, or realized but not distributed. For corporate shareholders (other
than S corporations), the dividends-received deduction will generally apply (subject to a holding period requirement imposed by the
Code) to a Funds dividends paid from investment income to the extent derived from dividends received from U.S. corporations.
However, any distributions received by a Fund from real estate investment trusts ("REITs") and PFICs will not qualify for the
corporate dividends-received deduction. Special tax rules apply to
investments through defined contribution plans and other tax-qualified plans. Shareholders should consult their tax advisors to
determine the suitability of shares of the Fund as an investment through such plans. Sale or Redemption of Shares.
The sale, exchange, or redemption of Fund shares may give rise to a gain or loss. In general, any gain or
loss arising from (or treated as arising from) the sale or redemption of shares of the Fund will be considered capital gain or loss
and will be long-term capital gain or loss if the shares were held for more than one year. However, any capital loss arising from
the sale or redemption of shares held for six months or less will be treated as a long-term capital loss to the extent of the amount
of capital gain dividends received on (or undistributed capital gains credited with respect to) such shares. Capital gain of a
non-corporate U.S. shareholder that is recognized in a taxable year beginning on or before December 31, 2010 is generally taxed at a
maximum rate of 15% where the property is held by the shareholder for more than
one year. Capital gain of a corporate shareholder is taxed at the same rate as ordinary income. Depending on a shareholders
percentage ownership in the Fund, a partial redemption of Fund shares could cause the shareholder to be treated as receiving a
dividend, taxable as ordinary income in an amount equal to the full amount of the distribution, rather than capital gain income.
Fund Investments.
Certain investment and hedging activities of the Funds, including transactions in options, swaptions, futures
contracts, hedging transactions, forward contracts, straddles, swaps, short sales, foreign currencies, inflation-linked securities
and foreign securities will be subject to special tax rules (including mark-to-market, constructive sale, straddle, wash sale and
short sale rules). In a given case, these rules may accelerate income to a Fund, defer losses to a Fund, cause adjustments in the
holding periods of a Funds securities, convert long-term capital gains into short-term capital gains, convert short-term
capital losses into long-term capital losses, or otherwise affect the character of a Funds income. These rules could therefore
affect the amount, timing and character of distributions to shareholders and cause differences
between a Funds book income and taxable income. Income earned as a result of these transactions would, in general, not be
eligible for the dividends-received deduction or for treatment as exempt-interest dividends when distributed to shareholders. The
Funds will endeavor to make any available elections pertaining to such transactions in a manner believed to be in the best interest
of the Fund and its shareholders. The Funds participation in
repurchase agreements and loans of securities may affect the amount, timing, and character of distributions to shareholders. With
respect to any security subject to a repurchase agreement or a securities loan, any (i) amounts received by the Fund in place of
dividends earned on the security during the period that such security was not directly held by the Fund will not give rise to
qualified dividend income and (ii) withholding taxes accrued on dividends during the period that such security was not directly held
by the Fund will not qualify as a foreign tax paid by the Fund and therefore cannot be passed through to shareholders even if the
Fund meets the requirements described in Foreign Taxes, below. 43 Certain debt securities purchased
by the Funds are sold at original issue discount and thus do not make periodic cash interest payments. Similarly, zero-coupon bonds
do not make periodic interest payments. A Fund will be required to include as part of its current income for tax purposes the
imputed interest on such obligations even though the Fund has not received any interest payments on such obligations during that
period. Because each Fund distributes substantially all of its net investment income to its shareholders (including such imputed
interest), a Fund may have to sell portfolio securities in order to generate the cash necessary for the required distributions. Such
sales may occur at a time when the Adviser would not otherwise have chosen to sell such securities and may result in a taxable gain
or loss. Some of the Funds may invest in inflation-linked debt securities. Any
increase in the principal amount of an inflation-linked debt security will be original issue discount, which is taxable as ordinary
income and is required to be distributed, even though the Fund will not receive the principal, including any increase thereto, until
maturity. Therefore, a Fund investing in such securities may be required to liquidate other investments, including at times when it
is not advantageous to do so, in order to satisfy its distribution requirements and to eliminate tax at the Fund level. A Fund may invest to a
significant extent in debt obligations that are in the lowest rating categories or are unrated, including debt obligations of
issuers not currently paying interest or who are in default. Investments in debt obligations that are at risk of or in default
present special tax issues for a Fund. Tax rules are not entirely clear about issues such as when a Fund may cease to accrue
interest, original issue discount or market discount, when and to what extent deductions may be taken for bad debts or worthless
securities and how payments received on obligations in default should be allocated between principal and income. These and other
related issues will be addressed by each Fund when, as and if it invests in such securities, in order to seek to ensure that it
distributes sufficient income to preserve its status as a regulated investment company and does not become
subject to U.S. federal income or excise tax. Transactions of certain Funds in
foreign currencies, foreign currency denominated debt securities and certain foreign currency options, future contracts and forward
contracts (and similar instruments) may result in ordinary income or loss to a Fund for federal income tax purposes which will be
taxable to the shareholders as such when it is distributed to them. Special tax considerations apply
if a Fund invests in investment companies taxed as partnerships. In general, the Fund will not recognize income earned by such an
investment company until the close of the investment companys taxable year. However, the Fund will recognize such income as it
is earned by the investment company for purposes of determining whether it is subject to the 4% excise tax. Therefore, if the Fund
and such an investment company have different taxable years, the Fund may be compelled to make distributions in excess of the income
recognized from such an investment company in order to avoid the imposition of the 4% excise tax. A Fund's receipt of a
non-liquidating cash distribution from an investment company taxed as a partnership generally will result in recognized gain (but
not loss) only to the extent that the amount of the distribution exceeds the Fund's
adjusted basis in shares of such investment company before the distribution. A Fund that receives a liquidating cash distribution
from an investment company taxable as a partnership will recognize capital gain or loss to the extent of the difference between the
proceeds received by the Fund and the Fund's adjusted tax basis in shares of such investment company; however, the Fund will
recognize ordinary income, rather than capital gain, to the extent that the Fund's allocable share of "unrealized receivables"
(including any accrued but untaxed market discount) exceeds the shareholder's share of the basis in those unrealized receivables.
Some of the Funds may invest in
real estate investment trusts (REITs). Such investments in REIT equity securities may require a Fund to accrue and
distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Fund may be
required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued
to hold. A Funds investments in REIT equity securities may at other times result in the Funds receipt of cash in excess
of the REITs earnings; if the Fund distributes such amounts, such distribution could constitute a return of capital to Fund
shareholders for federal income tax purposes. Dividends received by a Fund from a REIT will generally not constitute qualified
dividend income. 44 Some of the REITs in which the
Funds may invest will be permitted to hold residual interests in real estate mortgage investment conduits (REMICs).
Under Treasury regulations that have not yet been issued, but may apply retroactively, a portion of a Funds income from a REIT
that is attributable to the REITs residual interest in REMIC (referred to in the Code as an excess inclusion) will
be subject to federal income tax in all events. These regulations are also expected to provide that excess inclusion income of a
regulated investment company, such as the Funds, will be allocated to shareholders of the regulated investment company in proportion
to the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC residual
interest directly. In general, excess inclusion
income allocated to shareholders cannot be offset by net operating losses (subject to a limited exception for certain thrift
institutions). Any investment in residual interests of a Collateralized Mortgage Obligation (a CMO) that has elected to
be treated as a REMIC can create complex tax problems, especially if the Fund has state or local governments or other tax-exempt
organizations as shareholders. Under current law, the Fund serves to block unrelated business taxable income (UBTI) from
being realized by its tax-exempt shareholders. Notwithstanding the foregoing, a tax-exempt shareholder will recognize UBTI by virtue
of its investment in the Fund if shares in the Fund constitute debt-financed property in the hands of the tax-exempt shareholder
within the meaning of Code Section 514(b). Furthermore, a tax-exempt shareholder may
recognize UBTI if the Fund recognizes excess inclusion income derived from direct or indirect investments in REMIC
residual interests or taxable mortgage pools if the amount of such income recognized by the Fund exceeds the Funds investment
company taxable income (after taking into account deductions for dividends paid by the Fund). A charitable remainder trust
("CRT"), as defined in section 664 of the Code that realizes unrelated business taxable income ("UBTI") for a taxable year must pay
an excise tax annually of an amount equal to such UBTI. Under recent IRS guidance, a CRT will not recognize UBTI as a result of
investing in a Fund that recognizes excess inclusion income. Rather, if at any time during any taxable year a CRT (or
one of certain other tax-exempt shareholders, such as the United States, a state or political subdivision, or an agency or
instrumentality thereof, and certain energy cooperatives) is a record holder of a share in a Fund that recognizes excess
inclusion income, then the Fund will be subject to a tax on that portion of its excess inclusion income for the
taxable year that is allocable to such shareholders at the highest federal corporate income tax
rate. To the extent permitted under the 1940 Act, each Fund may elect to specially allocate any such tax to the applicable CRT, or
other shareholder, and thus reduce such shareholders distributions for the year by the amount of the tax that relates to such
shareholders interest in the Fund. The Funds have not yet determined whether such an election will be made. CRTs are urged
to consult their tax advisors concerning the consequences of investing in the Fund. A Funds investments in
certain PFICs could subject the Fund to a U.S. federal income tax (including interest charges) on distributions received from the
company or on proceeds received from the disposition of shares in the company, which tax cannot be eliminated by making
distributions to Fund shareholders. In addition, certain interest charges may be imposed on the Fund as a result of such
distributions. A PFIC is any foreign corporation
in which (i) 75% or more of the gross income for the taxable year is passive income, or (ii) the average percentage of the assets
(generally by value, but by adjusted tax basis in certain cases) that produce or are held for the production of passive income is at
least 50%. Generally, passive income for this purpose means dividends, interest (including income equivalent to interest),
royalties, rents, annuities, the excess of gains over losses from certain property transactions and commodities transactions, and
foreign currency gains. Passive income for this purpose does not include rents and royalties received by the foreign corporation
from active business and certain income received from related persons. If a Fund is in a position to treat a PFIC as a
qualified electing fund (QEF), the Fund will be required to include its share
of the companys income and net capital gain annually, regardless of whether it receives any distribution from the company.
Alternately, a Fund may make an election to mark the gains (and to a limited extent losses) in such holdings to the
market as though it had sold and repurchased its holdings in those 45 PFICs on the last day of the Funds taxable year. Such
gains and losses are treated as ordinary income and loss. The QEF and mark-to-market elections may have the effect of accelerating
the recognition of income (without the receipt of cash) and increasing the amount required to be distributed by the Fund to avoid
taxation. Making either of these elections therefore may require the Fund to liquidate other investments (including when it is not
advantageous to do so) to meet its distribution requirement, which also may accelerate the recognition of gain and affect the
Funds total return. A fund that indirectly invests in PFICs by virtue of the funds
investment in other investment companies may not make such elections; rather, the underlying investment companies directly investing
in the PFICs would decide whether to make such elections. Dividends paid by PFICs will not be eligible to be treated as
qualified dividend income. Investment in Other Funds.
If a Fund invests in shares of other mutual funds, ETFs or other companies that are taxed as regulated
investment companies, as well as certain investments in REITs (collectively, underlying funds) its distributable income
and gains will normally consist, in part, of distributions from the underlying funds and gains and losses on the disposition of
shares of the underlying funds. To the extent that an underlying fund realizes net losses on its investments for a given taxable
year, the Fund will not be able to recognize its share of those losses (so as to offset distributions of net income or capital gains
from other underlying funds) until it disposes of shares of the underlying fund. Moreover, even when the Fund does make such a
disposition, a portion of its loss may be recognized as a long-term capital loss, which will
not be treated as favorably for federal income tax purposes as a short-term capital loss or an ordinary deduction. In particular,
the Fund will not be able to offset any capital losses from its dispositions of underlying fund shares against its ordinary income
(including distributions of any net short-term capital gains realized by an underlying fund). As a result of the foregoing rules,
and certain other special rules, the amounts of net investment income and net capital gains that each Fund will be required to
distribute to shareholders may be greater than such amounts would have been had the Fund invested directly in the securities held by
the underlying funds, rather than investing in shares of the underlying funds. For similar reasons, the character of distributions
from the Fund (e.g., long-term capital gain, exempt interest, eligibility for dividends-received deduction, etc.) will not
necessarily be the same as it would have been had the Fund invested directly in the securities
held by the underlying funds. Depending on a Funds
percentage ownership in an underlying fund, both before and after a redemption, a redemption of shares of an underlying fund by a
Fund may cause the Fund to be treated as not receiving capital gain income on the amount by which the distribution exceeds the tax
basis of the Fund in the shares of the underlying fund, but instead to be treated as receiving a dividend. Such a distribution may
be treated as qualified dividend income and thus eligible to be taxed at the rates applicable to long-term capital gain. If
qualified dividend income treatment is not available, the distribution may be taxed at ordinary income rates. This could cause
shareholders of the Fund to recognize higher amounts of ordinary income than if the shareholders had held the shares of the
underlying funds directly. Under current law, a Fund cannot
pass through to shareholders foreign tax credits borne in respect of foreign securities income earned by an underlying fund. Each
Fund is permitted to elect to pass through to its shareholders foreign income taxes it pays only if it directly holds more than 50%
of its assets in foreign stock and securities at the close of its taxable year. Foreign securities held indirectly through an
underlying fund do not contribute to this 50% threshold. Backup Withholding.
Each Fund generally is required to withhold and remit to the U.S. Treasury a percentage of the taxable dividends
and other distributions paid to, and the proceeds of share sales, exchanges, or redemptions made by, any individual shareholder who
fails to properly furnish the Fund with a correct taxpayer identification number (TIN), who has under-reported dividend
or interest income, or who fails to certify to the Fund that he or she is not subject to such withholding. Pursuant to recently
enacted tax legislation, the backup withholding rules may also apply to distributions that are properly designated as
exempt-interest dividends. The backup withholding tax rate is 28% for amounts paid through 2010. The backup withholding rate will be
31% for amounts paid after December 31, 2010, unless Congress enacts tax legislation providing otherwise. 46 Foreign Taxes.
Certain Funds may be subject to foreign withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gain) received from sources within foreign countries. Tax conventions between certain countries
and the U.S. may reduce or eliminate such taxes. If more than 50% of a Funds assets at year end consists of the securities of
foreign corporations, the Fund may elect to permit shareholders to claim a credit or deduction on their income tax returns for their
pro rata portion of qualified taxes paid by the Fund to foreign countries in respect of foreign securities the Fund has held for at
least the minimum period specified in the Code. In such a case, shareholders will include in gross income from foreign sources their
pro rata shares of such taxes. A shareholders ability to claim a foreign tax
credit or deduction in respect of foreign taxes paid by a Fund may be subject to certain limitations imposed by the Code, as a
result of which a shareholder may not get a full credit or deduction for the amount of such taxes. In particular, shareholders must
hold their Fund shares (without protection from risk of loss) on the ex-dividend date and for at least 15 additional days during the
30-day period surrounding the ex-dividend date to be eligible to claim a foreign tax credit with respect to a given dividend.
Shareholders who do not itemize on their federal income tax returns may claim a credit (but no deduction) for such foreign taxes.
If a Fund does not make the above
election or if more than 50% of its assets at year end do not consist of securities of foreign corporations, the Funds net
income will be reduced by the foreign taxes paid or withheld. In such cases, shareholders will not be entitled to claim a credit or
deduction with respect to foreign taxes. The foregoing is only a general
description of the treatment of foreign source income or foreign taxes under the United States federal income tax laws. Because the
availability of a credit or deduction depends on the particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisors. Withholding Taxes.
Capital Gain Dividends and exempt-interest dividends generally will not be subject to withholding of federal income
tax. However, distributions properly designated as exempt-interest dividends may be subject to backup withholding, as discussed
above. In general, dividends other than Capital Gain Dividends and exempt-interest dividends paid by a Fund to a shareholder that is
not a U.S. person within the meaning of the Code (such shareholder, a foreign person) are subject to
withholding of U.S. federal income tax at a rate of 30% (or, subject to certain limitations, a lower applicable treaty rate) even if
they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest
income) that, if paid to a foreign person directly, would not be subject to withholding.
However, effective for taxable years of the Funds beginning before January 1, 2008, each Fund will not be required to withhold any
amounts (i) with respect to distributions (other than distributions to a foreign person (w) that has not provided a satisfactory
statement that the beneficial owner is not a U.S. person, (x) to the extent that the dividend is attributable to certain interest on
an obligation if the foreign person is the issuer or is a 10% shareholder of the issuer, (y) that is within certain foreign
countries that have inadequate information exchange with the United States, or (z) to the extent the dividend is attributable to
interest paid by a person that is a related person of the foreign person and the foreign person is a controlled foreign corporation)
from U.S.-source interest income that, in general, would not be subject to U.S. federal income tax if earned directly by an
individual foreign person, to the extent such distributions are properly designated by the Fund,
and (ii) with respect to distributions (other than distributions to an individual foreign person who is present in the United States
for a period or periods aggregating 183 days or more during the year of the distribution) of net short-term capital gains in excess
of net long-term capital losses, to the extent such distributions are properly designated by the Fund. The Funds have not
determined whether to make such designations. Depending on the circumstances, the Funds may make such designations with respect to
all, some or none of its potentially eligible dividends and/or treat such dividends, in whole or in part, as ineligible for this
exemption from withholding. In order to qualify for this exemption from withholding, a foreign person will need to comply with
applicable certification requirements relating to its non-US status (including, in general, furnishing an IRS Form W-8BEN or
substitute Form). In the case of shares held through an intermediary, the intermediary may withhold
even if a Fund makes a designation with respect to a payment. Foreign persons should contact their intermediaries with respect to
the application of these rules to their accounts. 47 If a beneficial holder who is a
foreign person has a trade or business in the United States, and the dividends are effectively connected with the conduct by the
beneficial holder of a trade or business in the United States, the dividend will be subject to U.S. federal net income taxation at
regular income tax rates. Exempt-Interest Dividends.
Some of the Funds intend to qualify to pay exempt-interest dividends to their respective shareholders. In
order to qualify to pay exempt-interest dividends, at least 50% of the value of a Funds total assets must consist of
tax-exempt municipal bonds at the close of each quarter of the Funds taxable year. An exempt-interest dividend is that part of
a dividend that is properly designated as an exempt-interest dividend and that consists of interest received by a Fund on such
tax-exempt securities. Shareholders of Funds that pay exempt-interest dividends would not incur any regular federal income tax on
the amount of exempt-interest dividends received by them from a Fund but may be liable for federal and state alternative minimum tax
and may be subject to state and local taxes. Interest on indebtedness incurred
or continued by a shareholder, whether a corporation or an individual, to purchase or carry shares of a Fund is not deductible to
the extent it relates to exempt-interest dividends received by the shareholder from that Fund. Any loss incurred on the sale or
redemption of a Funds shares held six months or less will be disallowed to the extent of exempt-interest dividends received
with respect to such shares. Interest on certain tax-exempt
bonds that are private activity bonds within the meaning of the Code is treated as a tax preference item for purposes of the
alternative minimum tax, and any such interest received by a Fund and distributed to shareholders will be so treated for purposes of
any alternative minimum tax liability of shareholders to the extent of the dividends proportionate share of a Funds
income consisting of such interest. All exempt-interest dividends are subject to the corporate alternative minimum tax. The exemption from federal income
tax for exempt-interest dividends does not necessarily result in exemption for such dividends under the income or other tax laws of
any state or local authority. Shareholders that receive social security or railroad retirement benefits should consult their tax
advisor to determine what effect, if any, an investment in the Fund may have on the federal taxation of their benefits. Shareholders
are also advised to consult with their own tax advisors about state and local tax matters. State and Local Tax Matters.
Depending on the residence of the shareholders for tax purposes, distributions may also be subject to state
and local taxes. Rules of state and local taxation regarding qualified dividend income, ordinary income dividends and capital gain
dividends from regulated investment companies may differ from the U.S. federal income tax rules in other respects. Shareholders are
urged to consult their tax advisers as to the consequences of these and other state and local tax rules affecting investment in the
Funds. Most states provide that a
regulated investment company may pass through (without restriction) to its shareholders state and local income tax exemptions
available to direct owners of certain types of U.S. government securities (such as U.S. Treasury obligations). Thus, for residents
of these states, distributions derived from a Funds investment in certain types of U.S. government securities should be free
from state and local income taxes to the extent that the interest income from such investments would have been exempt from state and
local taxes if such securities had been held directly by the respective shareholders. Certain states, however, do not allow a
regulated investment company to pass through to its shareholders the state and local income tax exemptions available to direct
owners of certain types of U.S. government securities unless a Fund holds at least a required
amount of U.S. government securities. Accordingly, for residents of these states, distributions derived from a Funds
investment in certain types of U.S. government securities may not be entitled to the exemptions from state and local income taxes
that would be available if the shareholders had purchased U.S. government securities directly. The exemption from state and local
income taxes does not preclude states from asserting other taxes on the ownership of U.S. government securities. To the extent that
a Fund invests to a substantial degree in U.S. government securities which are subject to 48 favorable state and local tax treatment,
shareholders of the Fund will be notified as to the extent to which distributions from the Fund are attributable to interest on such
securities. Tax Shelter Reporting
Regulations. If a shareholder realizes a loss on disposition of a Funds shares of $2 million or more
for an individual shareholder or $10 million or more for a corporate shareholder, the shareholder must file with the Internal
Revenue Service a disclosure statement on Form 8886. Direct shareholders of portfolio securities are in many cases excepted from
this reporting requirement, but under current guidance, shareholders of a regulated investment company are not excepted. Future
guidance may extend the current exception from this reporting requirement to shareholders of most or all regulated investment
companies. Capital Loss Carryforwards For Federal income tax purposes, the
following Funds had capital loss carryforwards for the fiscal year ended February 28, 2007 (amounts in thousands): Fund
Capital
Loss Expiration
Date Core Bond Trust
$969
2/28/2014
5,377
2/28/2015
Total
6,346
Intermediate
Bond Trust 1,000
2/28/2014
1,123
2/28/2015
Total
2,123
VALUATION Equity securities listed
on a North American, Central American, South American or Caribbean securities
exchange shall generally be valued at the last sale price on the exchange on
which the security is principally traded that is reported before the time when
the net assets of the Funds are valued. The value of securities listed on the
NASDAQ Stock Market, Inc. shall generally be the NASDAQ Official Closing
Price. Generally, trading of foreign
securities on most foreign markets is completed before the close in trading in U.S. markets. Additionally, trading on foreign
markets may also take place on days on which the U.S. markets, and the Funds, are closed. The Funds have implemented fair value
pricing on a daily basis for equity securities, except for North American, Central American, South American or Caribbean equity securities, held by the Funds. The fair value pricing utilizes the
quotations of an independent pricing service, unless the Adviser determines in accordance with procedures adopted by the Board,
that use of another fair valuation methodology is appropriate. To the extent that foreign equity securities are
not fair valued utilizing quotations of an independent pricing service, such securities shall generally be valued using the price of the last
sale or official close of the primary exchange on which the security is purchased that is
reported before the time when the net assets of the Funds are valued. For purposes of calculating net
asset value (NAV), all assets and liabilities initially expressed in foreign currencies will be converted into U.S.
dollars at the prevailing market rates from an approved independent pricing service as of 4:00 PM EST. 49 Swaps shall generally be
valued by a Board approved independent or affiliated pricing service or at an
evaluated price provided by a counterparty or third-party broker. Futures,
options and other derivatives are valued on the basis of available market
quotations. Securities of other open-end
investment companies are valued at their respective NAVs. Fixed income securities with a
remaining maturity of 61 days or more are valued using market quotations
available from and supplied daily by a Board approved independent or affiliated
third party pricing services or brokers/dealers of comparable securities. It is
anticipated that such pricing services and brokers/dealers will provide bid-side
quotations. Emerging market debt securities, in accordance with the Funds
pricing procedures, may be valued using market quotations provided by Emerging
Markets Research, a pricing product supplied by JPMorgan Securities, Inc., an
affiliate of the Funds Adviser. This product is supplied to other
affiliated and non-affiliated entities for pricing purposes. All parties,
including the Funds, are provided access to this product at no charge and the
prices reflected are the same prices used to price the securities that comprise
the JPMorgan Emerging Markets Bond Indices. Generally, short-term investments
which mature in 60 days or less are
valued at amortized cost if their original maturity was 60 days or less, or by
amortizing their value on the 61st day prior to maturity if their original
maturity when acquired by the Fund was more than 60 days. Securities or other assets for
which market quotations are not readily available or for which market quotations do not represent the value at the time of pricing
(including certain illiquid securities) are fair valued in accordance with procedures established by and under the general
supervision and responsibility of the Trustees. The Board of Trustees has established a Valuation Committee to assist the Board in its oversight
of the valuation of the Funds securities. The Funds Administrator has established a Fair Valuation Committee (FVC)
to (1) make fair value determinations in certain pre-determined situations as outlined in the procedures approved by the Board and
(2) provide recommendations to the Boards Valuation Committee in other situations. This FVC includes senior representatives
from Funds management as well as the Funds investment adviser. Fair value situations
could include, but are not limited to: (1) a significant event that affects the value of a Funds securities (e.g., news
relating to natural disasters affecting an issuers operations or earnings announcements); (2) illiquid securities; (3)
securities that may be defaulted or de-listed from an exchange and are no longer trading; or (4) any other circumstance in which the
FVC believes that market quotations do not accurately reflect the value of a security. ADDITIONAL INFORMATION REGARDING THE CALCULATION OF
PER SHARE NET ASSET VALUE The net asset value of each Fund
is determined as of the times specified in the Confidential Offering Memorandum. The net asset value per share of each Fund is
calculated by determining the value of the securities and other assets of the Fund, less the liabilities allocable only to such
Fund, and dividing such amount by the number of Shares of the Fund outstanding. ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
J.P. Morgan Institutional
Investments Inc. (JPMII) serves as the placement agent (Placement Agent) of the Funds shares pursuant
to a placement agency agreement (Placement Agency Agreement) with the Trust, which is subject to annual approval by the
Board. The Placement Agent is a subsidiary of JPMorgan Chase & Co. The Placement Agent, located at 245 Park Avenue, 22rd
Floor, New York, NY 10167, is a broker-dealer registered with the SEC. Shares of the Funds may be
purchased only by certain clients of JPMIM and its affiliates who maintain separately managed private accounts, and who are also
accredited investors, as defined in Regulation D under the Securities Act. Eligible investors are institutional
investors such as corporations, pension and profit sharing plans, financial institutions, endowments, and foundations. The Funds are
not intended for individuals or accounts established for the benefit of individuals (other than certain pension and profit-sharing
plans sponsored by employers or unions for the benefit of individual plan participants). Subscriptions may be accepted or rejected,
in whole or in part, in the sole discretion of JPMIM. Shares of the Funds may also
be purchased by certain investors outside of the United States consistent with applicable
regulatory requirements. 50 Purchases-in-Kind The Funds may, at their own
option, accept securities in payment for shares. The securities delivered in such a transaction are valued in the same manner as
they would be valued for purposes of computing a Funds NAV, as described in the section entitled Valuation. This
is a taxable transaction to the shareholder. Purchases by means of in-kind contributions of securities will only be accepted if a
variety of conditions are satisfied, including without limitation the following:: (i) the securities must be traded on a public
securities market or have quoted bid and asked prices available; (ii) JPMIM must determine that acceptance is in the best interest
of the Fund and conforms with the applicable Funds fundamental objectives, policies and restrictions; and (iii) a Fund may not
accept unregistered securities which, if transferred, would be required to be registered. Redemptions-in-Kind Subject to compliance with
applicable regulations, each Fund has reserved the right to pay the redemption price of its shares, either totally or partially, by
a distribution in-kind of readily marketable portfolio securities (instead of cash). The securities so distributed would be valued
at the same amount as that assigned to them in calculating the NAV of the shares being sold. If a Shareholder received a
distribution in-kind, the Shareholder could incur brokerage or other charges in converting the securities to cash. The Trust has
not filed an election under Rule 18f-1 under the 1940 Act. Redemptions The Trust may suspend the right
of redemption or postpone the date of payment for Shares during any period when:
trading on
the New York Stock Exchange (the EXCHANGE) is broadly restricted by the applicable rules and regulations of the SEC;
the Exchange
is closed for other than customary weekend and holiday closing;
the SEC has
by order permitted such suspension; or
the SEC has
declared a market emergency. Cut-Off Times for Purchase and Redemption Orders
Orders to purchase, exchange or
redeem shares received by the Funds by the cut-off times indicated in the Confidential Offering Memorandum will be processed at the
NAV next calculated after the order is received by the Fund. MANAGEMENT OF THE TRUST The management and affairs of the
Trust are supervised by the Board of Trustees under Delaware law. The Trustees and Officers of the Trust and their principal
occupations during the past five years, addresses and year of birth are set forth below. Each may have held other positions with the
named companies during that period. The Trust pays the fees to unaffiliated Trustees for their service as trustees. Unless otherwise
noted, the business address of each Trustee and each officer is 245 Park Avenue, New York, New York 10167. 51 TRUSTEES The Trustees of the Trust are
responsible for the management and supervision of each Fund. The Trustees approve all significant agreements with those companies
that furnish services to the Funds. These companies are as follows: J.P. Morgan
Investment Management Inc. Investment
Adviser J.P. Morgan
Institutional Investments Inc. Placement Agent
JPMorgan Funds Management, Inc. Administrator
JPMorgan Chase
Bank, N.A. Custodian, Fund
Accountant, and Securities Lending Agent The names of the Board of
Trustees of the Trust, together with information regarding the year of their birth, positions with the Trust, principal occupations
and other board memberships in any company with a class of securities registered pursuant to Section 12 of the Securities Exchange
Act of 1934, as amended (the Exchange Act) or subject to the requirements of Section 15(d) of the Exchange Act or any
company registered as an investment company under the 1940 Act, are shown below. The contact address for each of the Trustees is
245 Park Avenue, New York, New York 10167. The following table contains basic
information regarding the Trustees that oversee operations of the Trust and other investment companies within the JPMorgan Fund
Complex. NAME (YEAR
OF BIRTH); POSITIONS WITH THE FUNDS (SINCE) PRINCIPAL
OCCUPATION(S) DURING PAST 5 YEARS NUMBER OF
PORTFOLIOS/FUNDS IN JPMORGAN FUNDS COMPLEX 1 OVERSEEN BY TRUSTEE OTHER
DIRECTORSHIPS HELD OUTSIDE JPMORGAN FUNDS COMPLEX
NON-INTERESTED TRUSTEES Cheryl
Ballenger (1956), Chairperson and Trustee
(since 2005) Mathematics
Teacher, Vernon Hills High School (August 2004 Present); Mathematics Teacher, Round Lake High School (2003-2004) and formerly
Executive Vice President and Chief Financial Officer, Galileo International Inc. (travel technology) 12 None Jerry B. Lewis
(1939), Trustee (since 2005) Retired;
formerly President, Lewis Investments Inc. (registered investment adviser); previously, various managerial and executive positions
at Ford Motor Company (Treasurers Office, Controllers Office, Auditing and Corporate Strategy) 12 None John B.
Rettberg (1937), Trustee (since 2005) Retired;
formerly Corporate Vice President and Treasurer, Northrop Grumman Corporation (defense contractor) 12 None 52 NAME (YEAR
OF BIRTH); POSITIONS WITH THE FUNDS (SINCE) PRINCIPAL
OCCUPATION(S) DURING PAST 5 YEARS NUMBER OF
PORTFOLIOS/FUNDS IN JPMORGAN FUNDS COMPLEX 1 OVERSEEN BY TRUSTEE OTHER
DIRECTORSHIPS HELD OUTSIDE JPMORGAN FUNDS COMPLEX
NON-INTERESTED TRUSTEES Ken Whipple
(1934), Trustee (since 2005) Chairman
(1999-Present) and CEO (1999-2004), CMS Energy 12 Director of CMS
Energy and Korn Ferry International (executive recruitment) INTERESTED
TRUSTEE 2 John F. Ruffle
(1937), Trustee (since 2005) Retired;
formerly Vice Chairman, J.P. Morgan Chase & Co. Inc. and Morgan Guaranty Trust Co. of NY 12
Trustee of
Johns Hopkins University and Director of American Shared Hospital Services 1 A Fund
Complex means two or more registered investment companies that hold themselves out to investors as related companies for purposes of
investment and investor 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. The JPMorgan Fund Complex for which the Trustees serve included
three investment companies as of February 28, 2007. 2 The Board
has designated Mr. Ruffle as an interested person at his request because, until his retirement in 1993, he was an
executive officer of the parent company of the Trusts investment adviser. The following table shows the
dollar range of each Trustees beneficial ownership as of December 31, 2006, in each fund, including the Funds, that the
Trustee oversees and each Trustees aggregate ownership in any funds that the Trustee oversees in the JPMorgan Funds complex:
NAME
OF TRUSTEE DOLLAR
RANGE OF EQUITY SECURITIES IN THE FUNDS
AGGREGATE DOLLAR RANGE OF EQUITY SECURITIES IN JPMORGAN FUNDS COMPLEX Cheryl
Ballenger None
None
Jerry B. Lewis
None
None
John B.
Rettberg None
None
John F. Ruffle
None
None
Kenneth
Whipple, Jr. None
None
Each Trustee serves for an indefinite
term, subject to the Funds current retirement policy, which is age 73, except Mr. Whipple, for whom
it is age 74. The Trustees decide upon general policies and are responsible for overseeing the Trusts business affairs.
Committees
of the Board There are three standing
committees of the Board: the Audit Committee, the Nominating Committee and the Valuation Committee. The duties of these Committees
are described below. Audit Committee
. Each Trustee who is not an interested person of the Trust serves as a member of the Audit Committee.
The function of the Audit Committee is to recommend independent auditors and monitor accounting and financial matters. The Audit
Committee pre-approves any services to be provided by the independent auditors to the Trust. In addition, the Audit Committee
considers and approves any non-audit services, and the fees to be charged for such non-audit services, to be provided by the
independent auditors to any entity controlling, controlled by or under common control with JPMIM that provides ongoing 53 services to
the Trust. Pre-approval considerations include whether the proposed services are compatible with maintaining the auditors
independence. The Audit Committee met 4 times during the fiscal year ended February 28, 2007. Nominating Committee.
Each Trustee who is not an interested person of the Trust serves as a member of the Nominating
Committee. The function of the Nominating Committee is to select and nominate persons who will continue to contribute to the
independence and effectiveness of the Board. The Nominating Committee will consider and evaluate candidates on the basis of the
candidates relevant knowledge, experience, and expertise, the candidates ability to carry out his or her duties in the
best interests of the Trust and its shareholders and the candidates ability to qualify as a non-interested Trustee. The
Nominating Committee does not have a charter. The Nominating Committee did not meet during the fiscal year ended February 28, 2007.
Valuation Committee.
Each Trustee who is not an interested person of the Trust serves as a member of the Valuation Committee.
The function of the Valuation Committee is to oversee the implementation of the Trusts valuation procedures and to review fair
value determinations outside of regularly scheduled Board meetings. The Chairperson of the Valuation Committee, in consultation
with the full Committee as the Chairperson deems appropriate, is authorized to review and approve fair value determinations. The
Valuation Committee met 4 times during the fiscal year ended February 28, 2007. Trustee Compensation
The aggregate amount of
compensation paid to each Trustee by the Trust and JPMorgan Fund Complex for the fiscal year ending February 28, 2007 was as
follows: NAME OF
TRUSTEE TOTAL
COMPENSATION TOTAL
COMPENSATION Cheryl
Ballenger $26,264
$36,000
Jerry B. Lewis
26,264
36,000
John B.
Rettberg 26,264
36,000
John F. Ruffle
26,264
36,000
Kenneth
Whipple, Jr. 26,264
36,000
1 A Fund
Complex means two or more registered investment companies that hold themselves out to investors as related companies for purposes of
investment and investor services, or have a common investment adviser or have an investment adviser that is an affiliated person of
the investment adviser of any other of the investment companies. The JPMorgan Funds Complex for which the Trustees currently oversee
includes twelve (12) investment companies. Each Trustee will receive total
annual compensation of $36,000 for their services as Trustees of the Trust, JPMorgan Series Trust II and JPMorgan Fleming Series
Trust (collectively, JPMorgan Funds Complex). Fees are allocated to each trust within the JPMorgan Funds Complex pro
rata, on the basis of relative net assets. The Funds executive
officers (listed below) are generally employees of JPMIM or one of its affiliates. The officers conduct and supervise the business
operations of the Funds. As of December 31, 2006, the Trust has no employees and as of this date, did not provide any compensation
to any non-employees of the Trust.. OFFICERS The officers of the Funds,
together with their year of birth, information regarding their positions held with the Funds, principal occupations are shown below.
The contact address for each of the officers unless otherwise noted is 245 Park Avenue, New York, NY 10167. 54 NAME
(YEAR OF BIRTH), POSITIONS HELD WITH THE FUNDS (SINCE) PRINCIPAL
OCCUPATIONS George C.W.
Gatch (1962), Managing
Director, J.P. Morgan Investment Management Inc.: Director and President, JPMorgan Distribution Services, Inc. and JPMorgan Funds
Management, Inc. since 2005. Mr. Gatch is CEO and President of JPMorgan Funds. Mr. Gatch has been an employee of JPMorgan since
1986 and has held positions such as President and CEO of DKB Morgan, a Japanese mutual fund company, which was a joint venture
between J.P. Morgan and Dai-Ichi Kangyo Bank, as well as positions in business management, marketing, and sales. Robert L. Young
(1963), Senior Vice President
(2005)* Director and
Vice President, JPMorgan Distribution Services, Inc. and JPMorgan Funds Management, Inc.; Chief Operating Officer, JPMorgan Funds
since 2005, and One Group Mutual Funds from 2001 until 2005. Mr. Young was Vice President and Treasurer, JPMorgan Funds Management,
Inc. (formerly One Group Administrative Services) and Vice President and Treasurer, JPMorgan Distribution Services, Inc. (formerly
One Group Dealer Services, Inc.) from 1999 to 2005. Patricia A. Maleski (1960), Managing
Director, JPMorgan Funds Management, Inc.; Head of Funds Administration and Board Liaison; previously, Treasury, JPMorgan Funds.
Ms. Maleski has been with JPMorgan Funds since 2001. Stephanie J.
Dorsey (1969), Treasurer (2005)*
Vice President,
JPMorgan Funds Management, Inc.; Director of Mutual Fund Administration, JPMorgan Funds Management, Inc. (formerly One Group
Administrative Services), from 2004 to 2005; Ms. Dorsey worked for JPMorgan Chase & Co. (formerly Bank One Corporation) from
2003 to 2004; prior to joining Bank One Corporation, she was a Senior Manager specializing in Financial Services audits at
PricewaterhouseCoopers LLP from 1992 through 2002. Scott E. Richter (1956), From April 2005
to present, Managing Director and Associate General Counsel, JPMorgan Chase & Co.; from February 2003 to April 2005, Senior
Associate General Counsel, Bank One Corporation (now known as JPMorgan Chase & Co.); from November 1998 to January 2003,
Stephen M. Ungerman (1953), Vice President,
JPMorgan Chase & Co.; Mr. Ungerman was head of Fund Administration-Pooled Vehicles from 2000 to 2004. Mr. Ungerman has been
with JPMorgan Chase & Co. since 2000. 55 NAME
(YEAR OF BIRTH), POSITIONS HELD WITH THE FUNDS (SINCE) PRINCIPAL
OCCUPATIONS Susan M.
Canning (1969), Assistant Secretary (2005)* Vice President
and Assistant General Counsel, JPMorgan Chase & Co. Member of Law Department since 1991. Paul L.
Gulinello (1950), AML Compliance Officer (2005) Vice President
and Anti Money Laundering Compliance Officer for JPMorgan Asset Management Americas, additionally responsible for personal trading
and compliance testing since 2004; Treasury Services Operating Risk Management and Compliance Executive supporting all JPMorgan
Treasury Services business units from July 2000 to 2004. Stephan M.
Benham (1959), Assistant Secretary (2005) Vice President
and Assistant General Counsel, JPMorgan Chase & Co., since 2004; Vice President (Legal Advisory) of Merrill Lynch Investment
Managers, L.P from 2000 to 2004 Elizabeth A.
Davin (1964), Assistant Secretary (2005)* Vice President
and Assistant General Counsel, JPMorgan Chase & Co. since 2004; Senior Counsel, JPMorgan Chase & Co. (formerly Bank One
Corporation) from 2004 to 2005; Assistant General Counsel and Associate General Counsel and Vice President, Gartmore Global
Investments, Inc. 1999 to 2004. Jessica K.
Ditullio (1962), Assistant Secretary (2005)* Vice President
and Assistant General Counsel, JPMorgan Chase & Co. since 2005: Ms. Ditullio has served as attorney with various titles for
JPMorgan Chase & Co. (formerly Bank One Corporation) since 1990. Nancy E.
Fields (1949), Assistant Secretary (2005)* Vice President,
JPMorgan Funds Management, Inc. and JPMorgan Distribution Services, Inc. from 1999 to 2005; Director, Mutual Fund Administration,
JPMorgan Funds Management, Inc. (formerly One Group Administrative Services, Inc.) and Senior Project Management, Mutual Funds,
JPMorgan Distribution Services, Inc. (formerly One Group Dealer Services, Inc.). Ellen W.
OBrien (1957), Assistant Secretary (2005)** Assistant Vice
President, JPMorgan Investor Services, Co. responsible for Blue Sky registration. Ms. OBrien has served in this capacity
since joining the firm in 1991. Laura S. Melman
(1966) Assistant Treasurer (2006)
Vice President,
JPMorgan Funds Management, Inc. since August 2006, responsible for Taxation; Vice President of Structured Products, Bank of
New York Co., Inc. from 2001 until 2006. Arthur A.
Jensen (1966), Assistant Secretary (2004)* Vice President,
JPMorgan Funds Management, Inc. since April 2005: formerly, Vice President, Financial Services of BISYS Fund Services, Inc. from
June 2001 until 2005. Jeffrey D.
House (1972) Assistant Treasurer (2006)* Vice President,
JPMorgan Funds Management, Inc. since July 2006; formerly, Senior Manager of Financial Services at BISYS Fund Services, Inc. from
1995 until 2006. 56 NAME
(YEAR OF BIRTH), POSITIONS HELD WITH THE FUNDS (SINCE) PRINCIPAL
OCCUPATIONS Francesco Tango
(1971) Assistant Treasurer (2007)
Vice President,
JPMorgan Funds Management, Inc. since January 2003; Associate, JPMorgan Funds Management Inc. since 1999. * The contact
address for the officer is 1111 Polaris Parkway, Columbus, OH 43240. ** The contact
address for the officer is 73 Tremont Street, Floor 1, Boston MA 02108. As of December 31, 2006, the officers
and Trustees as a group owned less than 1% of the shares of each Fund. THE ADVISER The Trust has retained JPMIM as
investment adviser to provide investment advice and portfolio management services to the Funds, pursuant to an advisory agreement
(the Advisory Agreement). Under the Advisory Agreement, JPMIM manages the investment of the assets of each Fund and
obtains and evaluates economic, statistical and financial information to formulate and implement investment policies for each Fund.
Any investment program undertaken by JPMIM is and will at all times be subject to the policies and control of the Trustees. JPMIM
also provides certain administrative services to each Fund. The Advisory Agreement provides
that JPMIM shall not be protected against any liability to the Funds shareholders by reason of willful misfeasance, bad faith
or gross negligence on its part in the performance of its duties or from reckless disregard of its obligations or duties thereunder.
Effective October 1, 2003, JPMIM
became a wholly-owned subsidiary of JPMorgan Asset Management Holdings, Inc., which, in turn, is a wholly owned subsidiary of
JPMorgan Chase & Co. (JPMorgan Chase). JPMIM is a registered investment adviser under the Investment Advisers Act of
1940, as amended. JPMIM acts as investment adviser to individuals, governments, corporations, employee benefit plans, labor unions
and state and local governments, mutual funds and other institutional investors. JPMIM is located at 245 Park Avenue, New York, NY
10167. Effective July 1, 2004, Bank One
Corporation merged with and into JPMorgan Chase & Co., a bank holding company organized under the laws of the State of Delaware.
JPMorgan Chase has a long history of offering a wide range of banking and investment services to customers throughout the United
States and the world. The firm, through its predecessor companies, has been in business for over a century. The investment advisory services
JPMIM provides to the Funds are not exclusive under the terms of the Advisory Agreement. JPMIM is free to and does render similar
investment advisory services to others. JPMIM serves as investment adviser to personal investors and other investment companies and
acts as fiduciary for trusts, estates and employee benefit plans. Investors in the Funds are required to maintain separately managed
private accounts with JPMIM or its affiliates. Certain of the assets of trusts and estates under management are invested in common
trust funds for which JPMIM serves as trustee. The accounts which are managed or advised by JPMIM have varying investment
objectives, and JPMIM 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 Funds. Such accounts are
supervised by employees of JPMIM who may also be acting in similar capacities for the Funds. See the Portfolio
Transactions section. As compensation for the services
rendered and related expenses such as salaries of advisory personnel borne by JPMIM under the Advisory Agreement, the Fund has
agreed to pay JPMIM a fee, which is computed daily and may be paid monthly, equal to a percentage of each Funds average daily
net assets specified in the Confidential Offering Memorandum. In the interest of limiting total expenses of the Fund, JPMIM and the
Administrator have entered into an expense limitation agreement with the Trust (Expense 57 Limitation Agreement), pursuant
to which JPMIM and the Administrator have agreed to waive or limit their fees and to assume other expenses so that the total annual
fund operating expenses (other than interest, taxes, brokerage commissions, other expenditures which are capitalized in accordance
with generally accepted accounting principles, placement related expenses (if
any), and other extraordinary expenses not incurred in the ordinary course of the Funds business) are limited to the following
amounts with respect to each Fund: 0.10% of the average daily net assets of the JPMorgan Ultra Short-Term Bond Trust, JPMorgan
Short-Term Bond Trust, and JPMorgan Equity Index Trust, and 0.15% of the average daily net assets of the JPMorgan Intermediate Bond
Trust and JPMorgan Core Bond Trust, for the period through June 30, 2007. For the fiscal year end as
indicated, the operational Funds of the Trust paid the following investment advisory fees to JPMIM and JPMIM waived investment
advisory fees as follows: ADVISORY FEES (in 000s) Fund
Fiscal
Year Ended June 30, 2005 Fiscal
Year Ended February 28, 2006* Fiscal
Year Ended February 28, 2007
Paid
Waived
Paid
Waived
Paid
Waived
Core Bond Trust
$1,295
$1,832
$2,514
$3,241
$3,281
$4,866
Equity Index
Trust 63 311 148
548
223
834
Intermediate
Bond Trust 155 325 293
434
283
656
The fiscal
year end changed from June 30 to the last day in February. Other Accounts Managed by the Portfolio Managers of
Funds. The following tables show information
regarding other accounts managed by Portfolio managers of the Funds listed in this Confidential Offering Supplement as of February
28, 2007:
Non-Performance Based Fee Advisory Accounts
Registered
Investment Companies Other
Pooled Investment Vehicles
Other Accounts
Number of
Accounts Total
Assets ($millions) Number of
Accounts Total
Assets ($millions) Number of
Accounts Total
Assets ($millions) Core Bond
Trust
Douglas Swanson
6 $6,351.56
4
$1,899.88
49 $7,054.61
Christopher
Nauseda 3 3,715.26
0
0 41 2,398.07
Equity Index
Trust
Bala Iyer
10 12,725.48
3 591,03
38 1,411.69
Michael
Loeffler 8 10,557.21
2 515.00
33 1,256.60
Intermediate
Bond Trust
Douglas Swanson
6 8,813.10
4 1,899.88
49 7,054.61
Scott Grimshaw
6 2,648.36
0 0 42 2,998.16
Short-Term
Bond Trust
Gregg F.
Hrivnak 2 2,303.50
0 0 20 2,177.31
Richard Figuly
3 3,239.78
1 1,016.24
19 2,217.76
58
Non-Performance Based Fee Advisory Accounts
Registered
Investment Companies Other
Pooled Investment Vehicles
Other Accounts
Number of
Accounts Total
Assets ($millions) Number of
Accounts Total
Assets ($millions) Number of
Accounts Total
Assets ($millions) Ultra
Short-Term Bond Trust
Michael Sais
4 3,839.85
1 1,477.24
3 2,761.61
Gregg F.
Hrivnak 2 2,303.50
0 0 20 2,177.31
Richard Figuly
3 3,239.78
0
1,016.24
19 2,217.76
Performance Based Fee Advisory Accounts
Registered
Investment Companies Other
Pooled Investment Vehicles
Other Accounts
Number of
Accounts Total
Assets ($millions) Number of
Accounts Total
Assets ($millions) Number of
Accounts Total
Assets ($millions) Core Bond
Trust
Douglas Swanson
0 0
0
0 0
0 Christopher
Nauseda 0 0
0
0 0
0 Equity Index
Trust
Bala Iyer
0 0
0
0 0
0 Michael
Loeffler 0 0
0
0 0
0 Intermediate
Bond Trust
Douglas Swanson
0 0
0
0 0
0 Scott Grimshaw
0 0
0
0 0
0 Short-Term
Bond Trust
Gregg F.
Hrivnak 0 0
0
0 0
0 Richard Figuly
0 0
0
0 0
0 Ultra
Short-Term Bond Trust
Michael Sais
0 0
0
0 0
0 Gregg F.
Hrivnak 0 0
0
0 0
0 Richard Figuly
0 0
0
0 0
0 Potential Conflict of Interest The chart above shows the number,
type and market value as of February 28, 2007 of the accounts other than the Fund that are managed by the Funds portfolio
managers. The potential for conflicts of interest exists when portfolio managers manage other accounts with similar investment
objectives and strategies as the Funds ("Similar Accounts"). Potential conflicts may include, for example, conflicts between
investment strategies and conflicts in the allocation of investment opportunities. Responsibility for managing the
Advisers and its affiliates clients portfolios is organized according to investment strategies within asset
classes. Generally, client portfolios with similar strategies are managed by portfolio managers in the same portfolio management
group using the same objectives, approach and philosophy. Underlying sectors or strategy allocations within a larger portfolio are
likewise managed by portfolio managers who use the same approach and philosophy as similarly managed portfolios. Therefore,
portfolio holdings, relative position sizes and industry and sector exposures tend to be similar across similar portfolios and
strategies, which minimizes the potential for conflicts of interest. 59 JPMIM and/or its affiliates may
receive more compensation with respect to certain Similar Accounts than that received with respect to the Funds or may receive
compensation based in part on the performance of certain Similar Accounts. This may create a potential conflict of interest for
JPMIM and its affiliates or the portfolio managers by providing an incentive to favor these Similar Accounts when, for example,
placing securities transactions. In addition, JPMIM or its affiliates could be viewed as having a conflict of interest to the
extent that JPMIM or an affiliate has a proprietary investment in Similar Accounts, the portfolio managers have personal investments
in Similar Accounts or the Similar Accounts are investment options in JPMIMs or its affiliates employee benefit plans.
Potential conflicts of interest may arise with both the aggregation and allocation of
securities transactions and allocation of investment opportunities because of market factors or investment restrictions imposed upon
the Adviser and its affiliates by law, regulation, contract or internal policies. Allocations of aggregated trades, particularly
trade orders that were only partially completed due to limited availability and allocation of investment opportunities generally,
could raise a potential conflict of interest, as JPMIM or its affiliates may have an incentive to allocate securities that are
expected to increase in value to favored accounts. Initial public offerings, in particular, are frequently of very limited
availability. JPMIM and its affiliates may be perceived as causing accounts they manage to participate in an offering to increase
JPMIMs and its affiliates overall allocation of securities in that offering. A potential conflict of interest also may
be perceived to arise if transactions in one account closely follow related transactions in a
different account, such as when a purchase increases the value of securities previously purchased by another account, or when a sale
in one account lowers the sale price received in a sale by a second account. If JPMIM or its affiliates manage accounts that engage
in short sales of securities of the type in which the Fund invests, JPMIM or its affiliates could be seen as harming the performance
of the Fund for the benefit of the accounts engaging in short sales if the short sales cause the market value of the securities to
fall. As an internal policy matter, the
Adviser may from time to time maintain certain overall investment limitations on the securities positions or positions in other
financial instruments the Adviser or its affiliates will take on behalf of its various clients due to, among other things, liquidity
concerns and regulatory restrictions. It should be recognized that such policies may preclude a Fund from purchasing particular
securities or financial instruments, even if such securities or financial instruments would otherwise meet the Funds
objectives. The goal of JPMIM and its
affiliates is to meet their fiduciary obligation with respect to all clients. JPMIM and its affiliates have policies and procedures
designed to manage the conflicts. JPMIM and its affiliates monitor a variety of areas, including compliance with fund guidelines,
review of allocation decisions and compliance with the Advisers Codes of Ethics and JPMorgan Chase & Co.s Code of
Conduct. With respect to the allocation of investment opportunities, JPMIM and its affiliates also have certain policies designed to
achieve fair and equitable allocation of investment opportunities among its clients over time. For example: Orders for the same equity
security traded through a single trading desk or system are aggregated on a continual basis throughout each trading day consistent
with JPMIMs and its affiliates duty of best execution for its clients. If aggregated trades are fully executed,
accounts participating in the trade will be allocated their pro rata share on an average price basis. Partially completed orders
generally will be allocated among the participating accounts on a pro-rata average price basis, subject to certain limited
exceptions. For example, accounts that would receive a de minimis allocation
relative to their size may be excluded from the order. Another exception may occur when thin markets or price volatility require
that an aggregated order be completed in multiple executions over several days. If partial completion of the
order would result in an uneconomic allocation to an account due to fixed transaction or custody costs, JPMIM and its affiliates may
exclude small orders until 50% of the total order is completed. Then the small orders will be executed. Following this procedure,
small orders will lag in the early execution of the order, but will be completed before completion of the total order. Purchases of money market
instruments and fixed income securities cannot always be allocated pro-rata across the accounts with the same investment strategy
and objective. However, JPMIM and its affiliates 60 attempt to mitigate any potential unfairness by basing non-pro rata allocations
traded through a single trading desk or system upon an objective predetermined criteria for the selection of investments and a
disciplined process for allocating securities with similar duration, credit quality and liquidity in the good faith judgment of
JPMIM or its affiliates so that fair and equitable allocation will occur over time. Portfolio Manager Compensation
JPMIMs
portfolio managers participate in a competitive compensation program that is designed to attract and retain outstanding people and
closely link the performance of investment professionals to client investment objectives. The total compensation program includes a
base salary fixed from year to year and a variable performance bonus consisting of cash incentives and restricted
stock and may include mandatory notional investments (as described below) in selected mutual funds advised by the
Adviser and its affiliates. These elements reflect individual performance and the
performance of JPMIMs business as a whole. Each portfolio
managers performance is formally evaluated annually based on a variety of factors including the aggregate size and blended
performance of the portfolios such portfolio manager manages. Individual contribution relative to client goals carries the highest
impact. Portfolio manager compensation is primarily driven by meeting or exceeding clients risk and return objectives,
relative performance to competitors or competitive indices and compliance with firm policies and regulatory requirements. In
evaluating each portfolio managers performance with respect to the mutual funds he or she manages, the funds pre-tax
performance is compared to the appropriate market peer group and to each funds benchmark index listed in the Funds
Confidential Offering Memorandum over one, three and five year periods (or such shorter time as the
portfolio manager has managed the fund). Investment performance is generally more heavily weighted to the long-term.
Awards of
restricted stock are granted as part of an employees annual performance bonus and comprise from 0% to 35% of a portfolio
managers total bonus. As the level of incentive compensation increases, the percentage of compensation awarded in restricted
stock also increases. Up to 50% of the restricted stock portion of a portfolio managers bonus may instead be subject to a
mandatory notional investment in selected mutual funds advised by the Adviser or its affiliates. When these awards vest over time,
the portfolio manager receives cash equal to the market value of the notional investment in the selected mutual funds.
Investment Personnel Holdings The following table indicates for
each Fund the dollar range of shares beneficially owned by the Fund personnel identified in the Confidential Offering Memorandum, as
of February 28, 2007. Due to the nature of these Funds, Portfolio Managers typically will not own shares of the Funds.
Dollar
Range of Shares in the Fund Fund
Name
None
$1
$10,000 $10,001
$50,000 $50,001
$100,000
$100,001$500,000
$500,001$1,000,000 over
$1,000.000 Core Bond
Trust Douglas Swanson
X
Christopher
Nauseda X
Equity Index
Trust Bala Iyer
X
Michael
Loeffler X
Intermediate
Bond Trust Douglas Swanson
X
Scott Grimshaw
X
61
Dollar
Range of Shares in the Fund Fund
Name
None
$1
$10,000 $10,001
$50,000 $50,001
$100,000
$100,001$500,000
$500,001$1,000,000 over
$1,000.000 Short-Term
Bond Trust Gregg F.
Hrivnak X
Richard Figuly
X
Ultra
Short-Term Bond Trust Michael Sais
X
Gregg F.
Hrivnak X
Richard D.
Figuly X
CODES OF ETHICS The Trust, JPMIM and the
Placement Agent 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. Portfolio Transactions Pursuant to the Advisory
Agreement, JPMIM determines, subject to the general supervision of the Board of Trustees of the Trust and in accordance with each
Funds investment objective and restrictions, which securities are to be purchased and sold by each such Fund and which brokers
are to be eligible to execute its portfolio transactions. Purchases and sales of portfolio securities with respect to the Bond Funds
usually are principal transactions in which portfolio securities are purchased directly from the issuer or from an underwriter or
market maker for the securities. Purchases from underwriters of portfolio securities generally include a commission or concession
paid by the issuer to the underwriter and purchases from dealers serving as market makers may include the spread between the bid and
asked price. Transactions on stock exchanges (other than certain foreign stock
exchanges) involve the payment of negotiated brokerage commissions. Transactions in the over-the-counter market are generally
principal transactions with dealers. With respect to the over-the-counter market, the Trust, where possible, will deal directly with
the dealers who make a market in the securities involved except in those circumstances where better price and execution are
available elsewhere. While JPMIM generally seeks competitive spreads or commissions, the Trust may not necessarily pay the lowest
spread or commission available on each transaction, for reasons discussed below. Allocation of transactions,
including their frequency, to various broker-dealers is determined by JPMIM, with respect to the Funds each serves, based on their
best judgment and in a manner deemed fair and reasonable to Shareholders. The primary consideration is prompt execution of orders in
an effective manner at the most favorable price. Subject to this consideration, in selecting broker-dealers to execute a particular
transaction, and in evaluating the best overall terms available, JPMIM is authorized to consider the brokerage and research services
(as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended (1934 Act)) provided to
the Funds and/or other accounts over which JPMIM or their affiliates exercise investment discretion. JPMIM may cause a Fund to pay
a broker-dealer that furnishes brokerage and research services a higher
commission than that which might be charged by another broker-dealer for effecting the same transaction, provided that JPMIM, as
applicable, determines in good faith that such commission is reasonable in relation to the value of the brokerage and research
services provided by such broker-dealer, viewed in terms of either the particular transaction or the overall responsibilities of
JPMIM to the Funds. Such brokerage and research services might consist of reports and statistics on specific 62 companies or
industries, general summaries of groups of bonds and their comparative earnings and yields, or broad overviews of the securities
markets and the economy. Shareholders of the Funds should understand that the services provided by such brokers may be useful to
JPMIM in connection with their services to other clients. Supplementary research
information so received is in addition to, and not in lieu of, services required to be performed by JPMIM, as the case may be, and
does not reduce the advisory fees payable to JPMIM by the Funds. It is possible that certain of the supplementary research or other
services received will primarily benefit one or more other investment companies or other accounts for which investment discretion is
exercised. Conversely, a Fund may be the primary beneficiary of the research or services received as a result of portfolio
transactions effected for such other account or investment company. Under JPMIMs policy,
soft dollar services refer to arrangements that fall within the safe harbor requirements of Section 28(e) of the
Securities Exchange Act of 1934, as amended, which allow JPMIM to allocate client brokerage transactions to a broker-dealer in
exchange for products or services that are research and brokerage-related and enhance the investment decision-making process. These
services include third party research, market data services, and proprietary broker-dealer research. The Trust will not execute
portfolio transactions through, acquire portfolio securities issued by, make savings deposits in, or enter into repurchase or
reverse repurchase agreements with its investment advisors or their affiliates except as may be permitted under the 1940 Act, and
will not give preference to correspondents of JPMorgan Chase subsidiary banks with respect to such transactions, securities, savings
deposits, repurchase agreements, and reverse repurchase agreements. For the fiscal year end as
indicated, the Funds of the Trust that paid brokerage commissions and the amounts paid for such period were as follows (amounts in
thousands): BROKERAGE COMMISSIONS Funds
Fiscal
Year Ended February 28, 2006 Fiscal
Year Ended February 28, 2007 Core Bond Trust
N/A
N/A
Intermediate
Bond Trust N/A
^
Equity Index
Trust $72,077
$48
^ Amount
rounds to less than $1,000. During the last fiscal year,
the Funds did not incur any brokerage commissions with broker/dealers affiliated with JPMIM. As of February 28, 2007, certain
Funds owned securities of their regular broker dealers (or parents) as shown below: Fund
Name of
Broker-Dealer Value of
Securities Owned
Core Bond Trust
ABN AMRO Inc. $3,701
Banc of America Securities LLC 68,087
Bank of America Corporation 17,872
Barclays Capital Inc. 10,000
Bear Stearns & Co. Inc. 24,841
Citigroup Global markets Inc. 52,133
Credit Suisse First Boston LLC 6,504
Deutsche Bank AG 9,750
HSBC Securities Inc. 18,350
Lehman Brothers Inc. 3,992
Merrill Lynch & Com. Inc. 16,367
63
Intermediate Bond Trust
Banc of America Securities LLC 3,570
Bank of America Corporation 2,144
Bear Stearns & Co. Inc. 2,091
Citigroup Global markets Inc. 839,932
Credit Suisse First Boston LLC 2,234
Goldman Sachs and Company 2,342
HSBC Securities Inc. 3,504
Lehman Brothers Inc. 3,274
Merrill Lynch & Co. Inc. 2,038
Equity Index Trust
Banc of America Securities LLC 5,058
Bank of America Corporation 7,555
Bear Stearns & Co. Inc. 4,841
Citigroup Global Markets Inc. 8,990
Goldman Sachs and Company 2,841
JPMorgan Securities Inc. 5,668
*
Lehman Brothers Inc. 5,536
Merrill Lynch & Co. Inc. 2,445
Investment decisions for each Fund
of the Trust are made independently from those for the other Funds. Other investment companies or accounts managed by JPMIM may
also invest in the same securities as the Trust. When a purchase or sale of the same security is made at substantially the same
time on behalf of a given Fund and another Fund, investment company or account, the transaction will be averaged as to price, and
available investments allocated as to amount, in a manner which the Adviser of the given Fund believes to be equitable to the
Fund(s) and such other investment company or account. In some instances, this procedure may adversely affect the price paid or
received by a Fund or the size of the position obtained by a Fund. To the extent permitted by law, JPMIM may aggregate the
securities to be sold or purchased by it for a Fund with those to be sold or purchased by it for other
Funds or for other investment companies or accounts in order to obtain best execution. As provided by the Investment Advisory
Agreement, in making investment recommendations for the Trust, JPMIM will not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by the Trust is a customer of JPMIM or their parents or subsidiaries or affiliates and,
in dealing with its commercial customers, JPMIM and their respective parent, subsidiaries, and affiliates will not inquire or take
into consideration whether securities of such customers are held by the Trust. Administrator JPMorgan Funds Management, Inc.,
1111 Polaris Parkway, Columbus, Ohio 43240 serves as administrator for the Trust (JPMorgan Funds Management or the
Administrator) pursuant to an administration agreement (Administration Agreement). JPMorgan Funds
Management is an affiliate of JPMIM, the Adviser of the Trust, and an indirect wholly-owned subsidiary of JPMorgan Chase.
The Administrator assists in
supervising all operations of each Fund to which it serves (other than those performed under the Advisory Agreement, the Custodian
Agreement and the Transfer Agency Agreement for that Fund). Under the Administration Agreement, the Administrator has agreed to
maintain the necessary office space for the Funds, to price the Fund securities of each Fund it serves and compute the net asset
value and net income of the Funds on a daily basis, to maintain each Funds financial accounts and records, and to furnish
certain other services required by the Funds with respect to each Fund. The Administrator prepares annual and semi-annual reports to
the SEC, prepares federal and state tax returns, and generally assists in all aspects of the Trusts operations other than
those performed under the Advisory Agreement, the Custodian Agreement and the Transfer Agency
Agreement. Under the Administration Agreement, the Administrator 64 may, at its expense, subcontract with any entity or person
concerning the provision of services under the Administration Agreement. Unless sooner terminated, the
Administration Agreement between the Trust and the Administrator will continue in effect through October 31, 2007. The
Administration Agreement thereafter shall be renewed automatically for successive one year terms, unless written notice not to renew
is given by the non-renewing party to the other party at least 60 days prior to the expiration of the then-current term. The
Administration Agreement may be terminated with respect to the Trust only upon mutual agreement of the parties to the Administration
Agreement and for cause (as defined in the Administration Agreement) by the party alleging cause. Effective July 1, 2005, J.P.
Morgan Investor Services, Co (JPMIS) began serving as the Funds sub-administrator. For its services as
sub-administrator, JPMIS receives a portion of the fees payable to the Administrator. Prior to July 1, 2005, BISYS Fund Services,
L.P.(BISYS) served as the Funds sub-administrator. For its services as sub-administrator, BISYS received a
portion of the fees payable to the Administrator. ADMINISTRATIVE FEES
(in thousands) The Administrator is entitled to
a fee for its services, which is calculated daily and paid monthly, at the annual rate of ten-hundredths of one percent (.10%) of
the aggregate daily net assets of all Funds. The Trust paid fees for administrative services to JPMorgan Funds Management, Inc. as
Administrator for the fiscal year end as indicated as follows: Funds Fiscal Year Ended Fiscal Year Ended Fiscal Year Ended Paid Waived Paid Waived Paid Waived Core Bond Trust $1,042 $1,918 $2,715 Intermediate Bond Trust 160 278 423 Equity Index Trust 149 242 313 * The fiscal year end changed from June 30 to the last day of
February. The Administration Agreement
provides that the Administrator shall not be liable for any error of judgment or mistake of law or any loss suffered by the Funds in
connection with the matters to which the Administration Agreement relates, except a loss resulting from willful misfeasance, bad
faith, or negligence in the performance of its duties, or from the reckless disregard by it of its obligations and duties
thereunder. Placement Agent J.P. Morgan Institutional
Investments Inc. (JPMII) serves as the placement agent (Placement Agent) of the Funds shares pursuant
to a placement agency agreement (Placement Agency Agreement) with the Trust, which is subject to annual approval by the
Board. The Placement Agent is a subsidiary of JPMorgan Chase & Co. The Placement Agent is located at 245 Park Avenue, 22
rd Floor, New York, NY 10167 is a broker-dealer and member of NASD. The Placement Agency Agreement is
terminable with respect to a Fund without penalty, at any time, by the Fund by not less than 30 days written notice to the
Placement Agent, or by the Placement Agent upon not more than 30 days written notice to the Trust. The Placement Agency Agreement
will continue in effect with respect to each Fund for successive one-year periods, provided that each such continuance is
specifically approved (i) by the vote of a majority of the Trustees who are not interested persons of the Trust (as defined in the
1940 Act) and who have no 65 direct or indirect financial interest in the Placement Agency Agreement; and (ii) by the vote of a
majority of the entire Board of Trustees cast in person at a meeting called for that purpose. If the Placement Agency Agreement is
terminated (or not renewed) with respect to one or more Funds, it may continue in effect with respect to any Fund as to which it has
not been terminated (or has been renewed). Custodian, Transfer Agent, Accounting Agent and
Dividend Disbursing Agent Pursuant to a Global Custody
Agreement with JPMorgan Chase Bank, N.A., 4 Chase MetroTech Center, Brooklyn, N.Y. 11245, JPMorgan Chase Bank, N.A. serves as the
Funds custodian and fund accounting agent and is responsible for holding portfolio securities and cash and maintaining the
books of account and records of portfolio transactions. JPMorgan Chase Bank, N.A. is an affiliate of JPMIM. For fund accounting services, each
of the Bond Funds pays to JPMorgan Chase Bank, N.A. the higher of (a) each Funds pro rata share of an annual complex-wide
charge on the average daily net assets of all U.S. income funds in an asset category as follows: U.S Equity Funds: 0.0085% of the first $10 billion
0.005% on the next $10 billion
0.0035% on the next $10 billion
0.0025% for such assets over $30
billion U.S. Fixed Income Funds: 0.0090% of the first $10 billion
0.0050% on the next $10 billion
0.0035% on the next $10 billion
0.0020% for such assets over $30
billion The minimum total annual fund
accounting charge per Fund is $20,000. For custodian services, each Fund
pays to JPMorgan Chase Bank, N.A. fees of between 0.001% and 0.6% of assets under management (depending on the domicile in which the
asset is held), calculated monthly in arrears, for safekeeping and fees between $7.50 and $150 for securities trades (depending on
the domicile in which the trade is settled). JPMorgan Chase Bank, N.A. is also
reimbursed for its reasonable out-of-pocket or incidental expenses, including, but not limited to, legal fees. Boston Financial Data Services,
Inc. (BFDS) serves as Transfer Agent and Dividend Disbursing Agent for each Fund pursuant to a Transfer Agency Agreement
with the Trust (the Transfer Agency Agreement). Under the Transfer Agency Agreement, BFDS has agreed:
(i)
to issue and
redeem Shares of the Trust;
(ii) to address
and mail all communications by the Trust to its Shareholders, including reports to Shareholders, dividend and distribution notices,
and proxy material for its meetings of Shareholders;
(iii)
to respond
to correspondence or inquiries by Shareholders and others relating to its duties;
(iv)
to maintain
Shareholder accounts and certain sub-accounts; and
(v) to make
periodic reports to the Trusts Board of Trustees concerning the Trusts operations. 66 Securities Lending Agent To generate additional
income, certain funds may lend up to 33-1/3% of their assets pursuant to agreements
(borrower agreements) requiring that the loan be continuously
secured by cash or securities issued by the U.S. government or its agencies or
its instrumentalities (U.S. government securities). JPMorgan chase
bank, an affiliate of the funds, serves as lending agent pursuant to a
securities lending agreement approved by the board of trustees (the
securities lending agreement). Under the Securities
Lending Agreement, JPMorgan Chase Bank acting as agent for the Funds (except the
Ultra Short-Term Bond Trust), loans securities to approved borrowers pursuant to
approved Borrower Agreements in exchange for collateral equal to at least 100%
of the market value of the loaned securities plus accrued interest. During the
term of the loan, the Funds receive payments from borrowers equivalent to the
dividends and interest that would have been earned on securities lent while
simultaneously seeking to earn income on the investment of cash collateral in
accordance with investment guidelines contained in the Securities Lending
Agreement. For loans secured by cash, the Funds retain the interest on cash
collateral investments but are required to pay the borrower a rebate for the use
of cash collateral. For loans secured by U.S. government securities, the
borrower pays a borrower fee to the lending agent on behalf of the Funds. The
net income earned on the securities lending (after payment of rebates and the
lending agents fee) is included in the Statement of Operations as income
from securities lending (net in the Funds financial statements).
Information on the investment of cash collateral is shown in the Schedule of
Portfolio Investments (in the Funds financial statements). Under the Securities
Lending Agreement, JPMorgan Chase Bank is entitled to a fee equal to (i) 0.06%
calculated on an annualized basis and accrued daily, based upon the value of
collateral received from borrowers for each loan of U.S. securities outstanding
during a given month; and (ii) 0.1142% calculated on an annualized basis and
accrued daily, based upon the value of collateral received from borrowers for
each loan of non-U.S. securities outstanding during a given month. JPMorgan
Chase Bank has voluntarily reduced its fees to (i) 0.05% for each loan of U.S.
securities and (ii) 0.10% for each loan of the non-U.S. securities,
respectively. The purpose of these fees is to cover the custodial,
administrative and related costs of securities lending including securities
movement, settlement of trades involving cash received as collateral, custody of
collateral and marking to market loans. ADDITIONAL INFORMATION Proxy Voting Policies and Procedures
The Board of Trustees has
delegated to the Funds investment adviser, JPMIM, proxy voting authority with respect to the Funds portfolio securities.
To ensure that the proxies of portfolio companies are voted in the best interests of the Funds, the Funds Board of Trustees
has adopted JPMIMs detailed proxy voting procedures (the Procedures) that incorporate guidelines
(Guidelines) for voting proxies on specific types of issues. The Guidelines have been developed with the objective of
encouraging corporate action that enhances shareholder value. Except as noted below, proxy voting decisions will be made in
accordance with the Guidelines covering a multitude of both routine and non-routine matters that JPMIM and its affiliated advisers
have encountered globally, based on many years of collective investment management experience. JPMIM and its affiliated advisers
are part of a global asset management organization with the capability to invest in securities of issuers located around the globe.
Because the regulatory framework and the business cultures and practices vary from region to region, the Guidelines are customized
for each region to take into account such variations. Separate Guidelines cover the regions of (1) North America, (2) Europe, Middle
East, Africa, Central America and South America (3) Asia (ex-Japan) and (4) Japan, respectively. Notwithstanding the variations
among the Guidelines, all of the Guidelines have been designed with the uniform objective of encouraging corporate action that
enhances shareholder value. As a general rule, in voting proxies of a particular security, JPMIM will apply the Guidelines of the
region in which the issuer of such security is organized. Except as noted below,
proxy voting decisions will be made in accordance with the Guidelines covering a multitude of both routine and non-routine matters
that JPMIM and its affiliated advisers have encountered globally, based on many years of collective investment management
experience. To oversee and monitor the
proxy-voting process, JPMIM has established a proxy committee and appointed a proxy administrator in each global location where
proxies are voted. The primary function of each proxy committee is to review periodically general proxy-voting matters, review and
approve the Guidelines annually, and provide advice and recommendations on general proxy-voting matters as well as on specific
voting issues. The procedures permit an independent voting service, currently Institutional Shareholder Services, Inc.
(ISS) in the United States, to perform certain services otherwise carried out or coordinated by the proxy administrator.
Although for many matters the
Guidelines specify the votes to be cast, for many others, the Guidelines contemplate case-by-case determinations. In addition,
there will undoubtedly be proxy matters that are not contemplated by the Guidelines. For both of these categories of matters and to
override the Guidelines, the Procedures require a certification and review process to be completed before the vote is cast. That
process is designed to identify actual or potential material conflicts of interest (between the Fund on the one hand, and the
Funds investment adviser, placement agent or an affiliate of any of the foregoing, on the other hand) and ensure that the
proxy vote is cast in the best interests of the Fund. When a potential material conflict of interest has been identified, the proxy
administrator and a subgroup of proxy committee members 67 (composed of a member from the
Investment Department and one or more members from the Legal, Compliance or Risk Management Departments) will evaluate the potential
conflict of interest and determine whether such conflict actually exists, and if so, will recommend how JPMIM will vote the proxy.
In addressing any material conflict, JPMIM may take one or more of the following measures (or other appropriate action): removing
or walling off from the proxy voting process certain JPMIM personnel with knowledge of the conflict, voting in
accordance with any applicable Guideline if the application of the Guideline would objectively result in the casting of a proxy vote
in a predetermined manner, or deferring the vote to ISS, which will vote in accordance with its own recommendation. The following summarizes some of
the more noteworthy types of proxy voting policies of the U.S. Guidelines:
JPMIM
considers votes on director nominees on a case-by-case basis. Votes generally will be withheld from directors who: (a) attend
less than 75% of board and committee meetings without a valid excuse; (b) implement or renew a dead-hand poison pill;
(c) are affiliated directors who serve on audit, compensation or nominating committees or are affiliated directors and the full
board serves on such committees or the company does not have such committees; or (d) ignore a shareholder proposal that is
approved for two consecutive years by a majority of either the shares outstanding or the votes cast.
JPMIM votes
proposals to classify boards on a case-by-case basis, but will vote in favor of such proposal if the issuers governing
documents contain each of eight enumerated safeguards (for example, a majority of the board is composed of independent directors and
the nominating committee is composed solely of such directors).
JPMIM also
considers management poison pill proposals on a case-by-case basis, looking for shareholder-friendly provisions before voting in
favor.
JPMIM votes
against proposals for a super-majority vote to approve a merger.
JPMIM
considers proposals to increase common and/or preferred shares and to issue shares as part of a debt restructuring plan on a
case-by-case basis, taking into account the extent of dilution and whether the transaction will result in a change in control.
JPMIM votes
proposals on a stock option plan, based primarily on a detailed, quantitative analysis that takes into account factors such as
estimated dilution to shareholders equity and dilution to voting power. JPMIM generally considers other management
compensation proposals on a case-by-case basis.
JPMIM
Advisors also considers on a case-by-case basis proposals to change an issuers state of incorporation, mergers and
acquisitions and other corporate restructuring proposals and certain social and environmental issue proposals. The Funds proxy voting
records for the most recent 12-month period ended June 30 is available on the SECs website at www.sec.gov or by calling the
following toll-free number 1-800-343-1113. Description of Shares The Trust is a Delaware statutory
trust. The Trusts Declaration of Trust authorizes the Board of Trustees to establish one or more series of Shares of the
Trust, and to classify or reclassify any series into one or more classes by setting or changing in any one or more respects the
preferences, designations, conversion, or other rights, restrictions, or limitations as to dividends, conditions of redemption,
qualifications, or other terms applicable to the Shares of such class, subject to those matters expressly provided for in the
Declaration of Trust, as amended, with respect to the Shares of each series of the Trust. The Trust presently includes five series
of Shares, which represent interests in the following: 68
1.
JPMorgan
Core Bond Trust;
2.
JPMorgan
Equity Index Trust;
3.
JPMorgan
Intermediate Bond Trust;
4.
JPMorgan
Short-Term Bond Trust; and
5.
JPMorgan
Ultra Short-Term Bond Trust. Shares have no subscription or
preemptive rights and only such conversion or exchange rights as the Board may grant in its discretion. When issued for payment as
described in the Confidential Offering Memorandum and this Supplement, the Trusts Shares will be fully paid and
non-assessable. In the event of a liquidation or dissolution of the Trust, Shares of a Fund are entitled to receive the assets
available for distribution belonging to the Fund, and a proportionate distribution, based upon the relative asset values of the
respective Funds, of any general assets not belonging to any particular Fund which are available for distribution. Shareholder and Trustee Liability The Trusts Declaration of
Trust provides that Shareholders shall not be personally liable for the debts, liabilities, obligations and expenses incurred by,
contracted for, or otherwise existing with respect to, the Trust or any series or class of Shares of the Trust. Under the
Declaration of Trust, neither the Trust, the Trustees, nor any officer, employee, or agent of the Trust shall have any power to bind
personally any Shareholders, nor, except as specifically provided therein, to call upon any Shareholder for the payment of any sum
of money or assessment whatsoever other than such as the Shareholder may at any time personally agree to pay. The Declaration of
Trust grants to Shareholders the same limitation of personal liability as is extended to shareholders of a private corporation for
profit incorporated in the State of Delaware. The Trusts Declaration of
Trust states further that no Trustee of the Trust shall be personally liable to any person other than the Trust or a beneficial
owner for any act, omission or obligation of the Trust or any Trustee. The Declaration of Trust also states that a Trustee shall
not be liable for any act or omission or any conduct whatsoever in his capacity as Trustee, unless the Trustee would be subject to
liability to the Trust or to Shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of the office of Trustee thereunder. Portfolio Holdings Disclosure No sooner than thirty days after
the end of each month, each Fund will make available upon request a complete uncertified schedule of its portfolio holdings as of
the last day of that month. Not later than sixty days after the end of each quarter, each Fund will make available a complete,
certified schedule of its portfolio holdings as of the last day of that quarter. In addition to providing hard copies upon request,
the Funds will post these quarterly schedules on the SECs EDGAR filing system at www.sec.gov. Shareholders may request
portfolio holdings schedules at no charge by contacting their client relationship or client service manager. The Funds publicly available
uncertified complete list of portfolio holdings information, as described above, may also be provided regularly pursuant to a
standing request, such as on a monthly or quarterly basis, to (i) third party service providers, rating and ranking agencies,
financial intermediaries, and affiliated persons of the Funds and (ii) clients of JPMIM or its affiliates that invest in the Funds
or such clients consultants. No compensation or other consideration is received by the Funds or JPMIM, or any other person for
these disclosures. A list of the entities that receive the Funds portfolio holdings information on such basis and the
frequency with which it is provided to them is provided below: All Funds Lipper, Inc. Monthly 30 days after month end JPMorgan Core Bond Trust Akzo Nobel Monthly 30 days after month end 69 Detroit Symphony Orchestra Monthly 30 days after month end New England Pension Consultants Monthly 30 days after month end St. Lawrence University Monthly 30 days after month end JPMorgan Intermediate Bond Trust Brunswick Corporation Monthly 30 days after month end JPMorgan Equity Index Trust Detroit Symphony Orchestra Monthly 30 days after month end In addition, certain service
providers to the Funds or JPMIM, Administrator, or the Placement Agent may for legitimate business purposes receive the Funds
portfolio holdings information earlier than 30 days after month end, such as rating and ranking agencies, pricing services, proxy
voting service providers, accountants, attorneys, custodians, securities lending agents, brokers in connection with Fund
transactions and in providing price quotations, and transfer agents. These service providers include the following: The Bank of New
York Company, Inc.; Bowne & Co., Inc.; Dechert LLP; R.R. Donnelley & Sons Company; FT Interactive Data; Institutional
Shareholder Services, Inc.; J.J. Kenny; Morgan Stanley & Co., Incorporated; Moodys Investors Service; and Fitch Ratings.
Other service providers (e.g., the Funds administrator) are identified elsewhere in the
registration statement. In addition, when a Fund redeems a shareholder in kind, the shareholder generally receives its proportionate
share of the Funds portfolio holdings and, therefore, the shareholder and its agent may receive such information earlier than
30 days after month end. Such holdings are released on conditions of confidentiality, which include appropriate trading
prohibitions. Conditions of confidentiality include confidentiality terms included in written agreements, implied by the
nature of the relationship (e.g., attorney-client relationship), or required by fiduciary or regulatory principles (e.g., custody
services provided by financial institutions). Disclosure of a Funds portfolio securities as an exception to the Funds
normal business practice requires the business unit proposing such exception to identify a legitimate business purpose for the
disclosure and submit the proposal to the Funds Treasurer for approval following
business and compliance review. Additionally, no compensation or other consideration is received by a Fund or JPMIM, or any other
person for these disclosures. The Funds Trustees will review annually a list of such entities that have received such
information, the frequency of such disclosures and the business purpose therefore. These procedures are designed to address
conflicts of interest between the Funds shareholders on the one hand and JPMIM or any affiliated person of the Fund or such
entities on the other hand by creating a structured review and approval process which seeks to ensure that disclosure of information
about the Funds portfolio securities is in the best interests of the Funds shareholders. There can be no assurance,
however that a Funds policies and procedures with respect to the disclosure of portfolio holdings information will prevent the
misuse of such information by individuals or firms in possession of such information. Portfolio holdings of each Fund
will be disclosed on a quarterly basis on forms required to be filed with the SEC as follows: (i) portfolio holdings as of the end
of each fiscal year will be filed as part of the annual report filed on Form N-CSR; (ii) portfolio holdings as of the end of the
first and third fiscal quarters will be filed on Form N-Q; and (iii) portfolio holdings as of the end of the six month period will
be filed as part of the semi-annual report filed on Form N-CSR. The Trusts Form N-CSRs and Form N-Qs will be available on the
SECs website at www.sec.gov. Finally, the Funds release
information concerning any and all portfolio holdings when required by law. Such releases may include providing information
concerning holdings of a specific security to the issuer of such security. Miscellaneous The Trust is not required to hold
a meeting of Shareholders for the purpose of electing Trustees except that (i) the Trust is required to hold a Shareholders
meeting for the election of Trustees at such time as less than a majority of the Trustees holding office have been elected by
Shareholders and (ii) if, as a result of a vacancy on the Board of Trustees, less than two-thirds of the Trustees holding office
have been elected by the Shareholders, that vacancy may only be filled by a vote of the Shareholders. In addition, Trustees may be
removed from office by a written consent signed by the holders of Shares representing two-thirds of the 70 outstanding Shares of the
Trust at a meeting duly called for the purpose, which meeting shall be held upon the written request of the holders of Shares
representing not less than 10% of the outstanding Shares of the Trust. Except as set forth
above, the Trustees may continue to hold office and may appoint successor Trustees. As used in the Trusts
Confidential Offering Memorandum and in this Supplement, assets belonging to a Fund means the consideration received by
the Trust upon the issuance or sale of Shares in that Fund, together with all income, earnings, profits, and proceeds derived from
the investment thereof, including any proceeds from the sale, exchange, or liquidation of such investments, and any funds or
payments derived from any reinvestment of such proceeds, and any general assets of the Trust not readily identified as belonging to
a particular Fund that are allocated to that Fund by the Trusts Board of Trustees. The Board of Trustees may allocate such
general assets in any manner it deems fair and equitable. It is anticipated that the factor that will be used by the Board of
Trustees in making allocations of general assets to particular Funds will be the relative net
asset values of the respective Funds at the time of allocation. Assets belonging to a particular Fund are charged with the direct
liabilities and expenses in respect of that Fund, and with a share of the general liabilities and expenses of the Trust not readily
identified as belonging to a particular Fund that are allocated to that Fund in proportion to the relative net asset values of the
respective Funds at the time of allocation. The timing of allocations of general assets and general liabilities and expenses of the
Trust to particular Funds will be determined by the Board of Trustees of the Trust and will be in accordance with generally accepted
accounting principles. Determinations by the Board of Trustees of the Trust as to the timing of the allocation of general
liabilities and expenses and as to the timing and allocable portion of any general assets with respect to a particular Fund are
conclusive. As used in the Confidential Offering Memorandum and in this Supplement, a
vote of a majority of the outstanding Shares of the Trust, a particular Fund means the affirmative vote of the lesser of
(a) more than 50% of the outstanding Shares of the Trust or such Fund or (b) 67% or more of the Shares of the Trust or such Fund
present at a meeting at which the holders of more than 50% of the outstanding Shares of the Trust or such Fund are represented in
person or by proxy. The Trust is registered with the
SEC as an open-end, management investment company. Such registration does not involve supervision by the SEC of the management or
policies of the Trust. The Confidential Offering
Memorandum and this Supplement omit certain of the information contained in the Registration Statement filed with the SEC. Copies of
such information may be obtained from the SEC upon payment of the prescribed fee. The Confidential Offering
Memorandum and this Supplement are not an offering of the securities herein described in any State in which such offering may not
lawfully be made. No salesperson, dealer, or other person is authorized to give any information or make any representation other
than those contained in the Confidential Offering Memorandum and this Supplement. As of May 31, 2007, the following
persons were the owners of more than 5% of the outstanding Shares of the following Funds. Shareholders designated by an asterisk
holder 25% or more of a Fund. Such shareholders are controlling persons under the 1940 Act. 71 TRUST1
NAME AND
ADDRESS OF SHAREHOLDER PERCENTAGE
HELD CORE BOND
TRUST
JPMIM AS AGENT
FBO FIRSTENERGY* ATTN CLIENT SERVICE MANAGER
1111 POLARIS PKWY STE 3F
COLUMBUS OH 43240-2031
12.55
JPMIM AS AGENT
FBO ROCKWELL* ATTN CLIENT SERVICE MANAGER
1111 POLARIS PKWY STE 3F
COLUMBUS OH 43240-2031
9.05
STRAFE &
CO* BOIA-ONE GROUP OPERATIONS
1111 POLARIS PARKWAY
PO BOX 711234 COLUMBUS OH 43271-0001
44.46
EQUITY INDEX
TRUST
JPMIM AS AGENT
FOR FIRST ENERGY CORP NDT NON QUALIFIED EQUITIES* ATTN CLIENT SERVICE MANAGER
1111 POLARIS PKWY FL 3 #
OH1-0213 COLUMBUS OH 43240-2031
13.08
STRAFE &
CO* BOIA-ONE GROUP OPERATIONS
1111 POLARIS PARKWAY
PO BOX 711234 COLUMBUS OH 43271-0001
81,47
INTERMEDIATE
BOND TRUST
JPMIM AS AGENT
FBO BRUNSWICK* ATTN CLIENT SERVICE MANAGER
1111 POLARIS PKWY STE 3F
COLUMBUS OH 43240-2031
23.94
JPMIM AS AGENT
FBO SILVER CROSS* 5.45
JPMIM AS AGENT
FBO TEXTRON* ATTN CLIENT SERVICE MANAGER
MICHAEL P WAGNER 1111 POLARIS PKWY STE 3F
COLUMBUS OH 43240-2031
13.75
JPMIM AS AGENT
FBO UHHS* ATTN CLIENT SERVICE MANAGER
BRETT D CAMBERN 1111 POLARIS PKWY STE 3F
COLUMBUS OH 43240-2031
10.77
JPMIM AS AGENT
FOR POLYONE* CLIENT SERVICE MANAGER
1111 POLARIS PKWY STE 3F
COLUMBUS OH 43240-2031
8.71
72 TRUST1
NAME AND
ADDRESS OF SHAREHOLDER PERCENTAGE
HELD
STRAFE &
CO* BOIA-ONE GROUP OPERATIONS
1111 POLARIS PARKWAY
PO BOX 711234 COLUMBUS OH 43271-0001
28.19
1 Shares of the
Funds are offered only to certain clients of either JPMIM or its affiliates who maintain one or more separately managed private
accounts, and who are accredited investors, within the meaning of
Regulation D under the Securities Act. Due to JPMIM or its affiliates voting or investment power with respect to the Funds,
JPMorgan Chase & Co. may be deemed to be a controlling person of such shares under the 1940 Act. * The
shareholder of record is a subsidiary or affiliate of JPMorgan Chase & Co. (a JPMorgan Affiliate). Typically, the
shares are held for the benefit of underlying accounts for which the JPMorgan Affiliate may have voting or investment power. To the
extent that JPMorgan Affiliates own 25% or more of a class of shares of a Fund, JPMorgan Chase & Co. may be deemed to be a
controlling person of such shares under the 1940 Act. Financial Statements The Financial Statements of the
Trust for the fiscal year ended February 28, 2007 have been audited by PricewaterhouseCoopers LLP, the independent registered public
accounting firm to the Trust, as indicated in their reports with respect thereto, and are incorporated herein by reference. 73 APPENDIX ADESCRIPTION OF RATINGS The following is a summary of published ratings by major
credit rating agencies. Credit ratings evaluate only the safety of principal and interest payments, not the market value risk of
lower quality securities. Credit rating agencies may fail to change credit ratings to reflect subsequent events on a timely basis.
Although JPMIM considers security ratings when making investment decisions, it also performs its own investment analysis and does
not rely solely on the ratings assigned by credit agencies. Unrated securities will be treated as non-investment
grade securities unless JPMIM determines that such securities are the equivalent of investment grade securities. Securities that
have received different ratings from more than one agency are considered investment grade if at least one agency has rated the
security investment grade. DESCRIPTION OF COMMERCIAL PAPER RATINGS
Standard & Poors Rating Service
(S&P) A-1 Highest
category of commercial paper. Capacity to meet financial commitment is strong. Obligations designated with a plus sign (+) indicate
that capacity to meet financial commitment is extremely strong. A-2 Issues somewhat
more susceptible to adverse effects of changes in circumstances and economic conditions than obligations in higher rating
categories. However, the capacity to meet financial commitments is satisfactory. A-3 Exhibits
adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened
capacity of the obligor to meet its financial commitment on the obligation. B Regarded as
having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the
obligation; however, it faces major ongoing uncertainties which could lead to the obligors inadequate capacity to meet its
financial commitment on the obligation. C 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. D In payment
default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace
period has not expired, unless S&P Rating Service believes that such payments will be made during such grace period. The D
rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are
jeopardized. Fitch Ratings (Fitch) F1 HIGHEST CREDIT
QUALITY. Indicates the strongest capacity for timely payment of financial commitments; may have an added + to denote
any exceptionally strong credit feature. F2 GOOD CREDIT
QUALITY. A satisfactory capacity for timely payment of financial commitments, but the margin of safety is not as great as in the
case of the higher ratings. F3 FAIR CREDIT
QUALITY. The capacity for timely payment of financial commitments is adequate; however, near-term adverse changes could result in a
reduction to non-investment grade. A-1 B SPECULATIVE.
Minimal capacity for timely payment of financial commitments, plus vulnerability to near-term adverse changes in financial and
economic conditions. C HIGH DEFAULT
RISK. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon a sustained, favorable
business and economic environment. D DEFAULT.
Denotes actual or imminent payment default.
+ or may be appended
to a rating to denote relative status within major rating categories. PIF
denotes a
security that is paid-in-full, matured, called, or refinanced. NR
indicates that
Fitch Ratings does not rate the issuer or issue in question.
Withdrawn A rating is
withdrawn when Fitch Ratings deems the amount of information available to be inadequate for rating purposes, or when an obligation
matures, is called, or refinanced, or for any other reason Fitch Ratings deems sufficient. Moodys Investors Service, Inc.
(Moodys) Prime-1
Superior
ability for repayment, often evidenced by such characteristics as: leading market positions in well-established industries; high
rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset protection;
broad margins in earnings coverage of fixed financial charges and high internal cash generation; and well-established access to a
range of financial markets and assured sources of alternate liquidity. Prime-2
Strong capacity
for repayment. 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
Acceptable
capacity for repayment. 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. Not Prime
Does not fall
within any of the Prime rating categories. Dominion Bond Rating Service (DBRS)
R-1 Prime Credit
Quality R-2 Adequate Credit
Quality R-3 Speculative
D Default
All three DBRS rating categories for short term debt use
high, middle or low as subset grades to designate the relative standing of the credit within a
particular rating category. The following comments provide separate definitions for the three grades in the Prime Credit Quality
area. A-2 R-1 (high)
Short term debt
rated R-1 (high) is of the highest credit quality, and indicates an entity which possesses unquestioned ability to repay
current liabilities as they fall due. Entities rated in this category normally maintain strong liquidity positions, conservative
debt levels and profitability which is both stable and above average. Companies achieving an R-1 (high) rating are
normally leaders in structurally sound industry segments with proven track records, sustainable positive future results and no
substantial qualifying negative factors. Given the extremely tough definition which DBRS has established for an R-1
(high), few entities are strong enough to achieve this rating. R-1 (middle)
Short term debt
rated R-1 (middle) is of superior credit quality and, in most cases, ratings in this category differ from R-1
(high) credits to only a small degree. Given the extremely tough definition which DBRS has for the R-1 (high)
category (which few companies are able to achieve), entities rated R-1 (middle) are also considered strong credits which
typically exemplify above average strength in key areas of consideration for debt protection. R-1 (low)
Short term debt
rated R-1 (low) is of satisfactory credit quality. The overall strength and outlook for key liquidity, debt and
profitability ratios is not normally as favorable as with higher rating categories, but these considerations are still respectable.
Any qualifying negative factors which exist are considered manageable, and the entity is normally of sufficient size to have some
influence in its industry. R-2 (high);
Short term debt
rated R-2 is of adequate credit quality and within the three subset grades, debt protection ranges from having
reasonable ability for timely repayment to a level which is considered only just adequate. The liquidity and debt ratios of entities
in the R-2 classification are not as strong as those in the R-1 category, and the past and future trend may
suggest some risk of maintaining the strength of key ratios in these areas. Alternative sources of liquidity support are considered
satisfactory; however, even the strongest liquidity support will not improve the commercial paper rating of the issuer. The size of
the entity may restrict its flexibility, and its relative position in the industry is not typically as strong as an R-1
credit. Profitability trends, past and future, may be less
favorable, earnings not as stabled, and there are often negative qualifying factors present which could also make the entity more
vulnerable to adverse changes in financial and economic conditions. R-3 (high);
Short term debt
rated R-3 is speculative, and within the three subset grades, the capacity for timely payment ranges from mildly
speculative to doubtful. R-3 credits tend to have weak liquidity and debt ratios, and the future trend of these ratios
is also unclear. Due to its speculative nature, companies with R-3 ratings would normally have very limited access to
alternative sources of liquidity. Earnings would typically be very unstable, and the level of overall profitability of the entity is
also likely to be low. The industry environment may be weak, and strong negative qualifying factors are also likely to be present.
D A security
rated D implies the issuer has either not met a scheduled payment or the issuer has made it clear that it will be missing such a
payment in the near future. In some cases, DBRS may not assign a D rating under a bankruptcy announcement scenario, as allowances
for grace periods may exist in the underlying legal documentation. Once assigned, the D rating will continue as long as the missed
payment continues to be in arrears, and until such time as the rating is suspended, discontinued, or reinstated by DBRS. A-3 DESCRIPTION OF BANK RATINGS Moodys Moodys Bank Financial Strength Ratings (BFSRs)
represent Moodys opinion of a banks intrinsic safety and soundness and, as such, exclude certain external credit risks
and credit support elements that are addressed by Moodys Bank Deposit Ratings. In addition to commercial banks, Moodys
BFSRs may also be assigned to other types of financial institutions such as multilateral development banks, government-sponsored
financial institutions and national development financial institutions. A These banks
possess superior intrinsic financial strength. Typically they will be major financial institutions with highly valuable and
defensible business franchises, strong financial fundamentals, and a very predictable and stable operating environment. B These banks
possess strong intrinsic financial strength. Typically, they will be institutions with valuable and defensible business franchises,
good financial fundamentals, and a predictable and stable operating environment. C These banks
possess adequate intrinsic financial strength. Typically, they will be institutions with more limited but still valuable and
defensible business franchises. These banks will display either acceptable financial fundamentals within a predictable and stable
operating environment, or good financial fundamentals within a less predictable and stable operating environment. D Banks rated D
display modest intrinsic financial strength, potentially requiring some outside support at times. Such institutions may be limited
by one or more of the following factors; a weak business franchise; financial fundamentals that are deficient in one or more
respects; or an unpredictable and unstable operating environment. E Banks rated E
display very modest intrinsic financial strength, with a higher likelihood of periodic outside support or an eventual need for
outside assistance. Such institutions may be limited by one or more of the following factors: a weak and limited business franchise;
financial fundamentals that are materially deficient in one or more respects; or a highly unpredictable or unstable operating
environment. Where appropriate, a + modifier will be
appended to ratings below the A category and a modifier will be appended to ratings above the
E category to distinguish those banks that fall in intermediate categories. DESCRIPTION OF BOND RATINGS S&P Corporate and Municipal Bond Ratings Investment Grade AAA Debt rated AAA
has the highest rating assigned by S&P Rating Service. Capacity to pay interest and repay principal is extremely strong.
AA Debt rated AA
has a very strong capacity to pay interest and repay principal and differs from the highest rated issues only to a small degree.
A-4 A Debt rated A
has a strong capacity to pay interest and repay principal; it is somewhat more susceptible, however, to the adverse effects of
changes in circumstances and economic conditions than debt in higher rated categories. BBB Debt rated BBB
is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection
parameters, adverse economic conditions, or changing circumstances are more likely to impair the obligors capacity to pay
interest and repay principal for debt in this category in higher-rated categories. Speculative Grade Debt rated BB, CCC, CC, and C is regarded as having
predominantly speculative characteristics with respect to capacity to pay interest and repay principal. BB indicates the least
degree of speculation and C the highest. While such debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major exposures to adverse conditions. BB Debt rated BB
has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure
to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal
payments. The BB rating category is also used for debt subordinated to senior debt that is assigned an actual or implied BBB
rating. B Debt rated B
has a greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse
business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal.
The B rating
category is also used for debt subordinated to senior debt that is assigned an actual or implied BB or BB rating. CCC Debt rated CCC
has a currently identifiable vulnerability to default and is dependent upon favorable business, financial, and economic conditions
to meet timely payment of interest and repayment of principal. In the event of adverse business, financial or economic conditions,
it is not likely to have the capacity to pay interest and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or B rating. CC The rating CC
is typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC rating. C The rating C is
typically applied to debt subordinated to senior debt that is assigned an actual or implied CCC debt rating. The C rating may be
used to cover a situation where a bankruptcy petition has been filed, but debt service payments are continued. C1 The rating C1
is reserved for income bonds on which no interest is being paid. D Debt rated D is
in payment default. The D rating category is used when interest payments or principal payments are not made on the date due even if
the applicable grace period has not expired, unless S&P Rating Service believes that such payments will be made during such
grace period. The D rating will also be used upon the filing of bankruptcy petition if debt service payments are jeopardized.
Plus(+) or Minus (): The ratings from AA to CCC may be
modified by the addition of a plus or minus sign to show relative standing within the major rating categories. A-5 c: The c subscript is used to provide
additional information to investors that the bank may terminate its obligation to purchase tendered bonds if the long-term credit
rating of the issuer is below an investment-grade level and/or the issuers bonds are deemed taxable. p: The letter p indicates that
the rating is provisional. A provisional rating assumes the successful completion of the project being financed by the debt being
rated and indicates that payment of debt service requirements is largely or entirely dependent upon the successful and timely
completion of the project. This rating, however, while addressing credit quality subsequent to completion of the project, makes no
comment on the likelihood of, or the risk of default upon failure of, such completion. The investor should exercise his own judgment
with respect to such likelihood and risk. *: Continuance of the ratings is contingent upon
Standard & Poors receipt of an executed copy of the escrow agreement or closing documentation confirming investments and
cash flows. r: The r is attached to highlight
derivative, hybrid, and certain other obligations that S&P Rating Service believes may experience high volatility or high
variability in expected returns due to non-credit risks. Examples of such obligations are: securities whose principal or interest
return is indexed to equities, commodities, or currencies; certain swaps and options; and interest only and principal only mortgage
securities. The absence of an r symbol should not be
taken as an indication that an obligation will exhibit no volatility or variability in total return. N.R. Not rated.
Debt obligations of issuers outside the United States
and its territories are rated on the same basis as domestic corporate and municipal issues. The ratings measure the creditworthiness
of the obligor but do not take into account currency exchange and related uncertainties. Moodys Long-Term Ratings: Bonds and Preferred Stock
Investment Grade 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 edged. Interest payments are protected by a large or by an exceptionally stable margin and principal is secure.
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 that make the long-term risks
appear somewhat larger than with 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 that suggest a susceptibility to impairment
sometime in the future. A-6 Baa Bonds which are
rated Baa are considered as medium-grade obligations (i.e., they are neither highly protected nor poorly secured). Interest payments
and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative
characteristics as well. Non-Investment Grade Ba Bonds which are
rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. The protection of interest and
principal payments may be no more than 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 a 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. Moodys applies numerical modifiers, 1, 2, and 3 in
each generic rating classified from Aa through Caa in its corporate bond rating system. The modifier 1 indicates that the security
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the issue ranks in the lower end of its generic rating category. Corporate Short-Term Debt Ratings
Moodys short-term debt ratings are opinions of the
ability of issuers to repay punctually senior debt obligations. These obligations have an original maturity not exceeding one year,
unless explicitly noted Moodys employs the following three designations,
all judged to be investment grade, to indicate the relative repayment ability of rated issuers: PRIME-1
Issuers rated
Prime-1 (or supporting institutions) have a superior ability for repayment of senior short-term debt obligations. Prime-1 repayment
ability will often be evidenced by many of the following characteristics: leading market positions in well-established industries;
high rates of return on funds employed; conservative capitalization structure with moderate reliance on debt and ample asset
protection; broad margins in earnings coverage of fixed financial charges and high internal cash generation; and 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. A-7 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. NOT PRIME: Issuers rated Not Prime do not fall within
any of the Prime rating categories. Fitch Investment Grade AAA HIGHEST CREDIT
QUALITY. AAA ratings denote the lowest expectation of credit risk. They are assigned only in case of exceptionally
strong capacity for timely payment of financial commitments. This capacity is highly unlikely to be adversely affected by
foreseeable events. AA VERY HIGH
CREDIT QUALITY. AA ratings denote a very low expectation of credit risk. They indicate very strong capacity for timely
payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events. A HIGH CREDIT
QUALITY. A ratings denote a low expectation of credit risk. The capacity for timely payment of financial commitments is
considered strong. This capacity may, nevertheless, be more vulnerable to changes in circumstances or in economic conditions than is
the case for higher ratings. BBB GOOD CREDIT
QUALITY. BBB ratings indicate that there is currently a low expectation of credit risk. The capacity for timely payment
of financial commitments is considered adequate, but adverse changes in circumstances and in economic conditions are more likely to
impair this capacity. This is the lowest investment-grade category. Speculative Grade BB SPECULATIVE.
BB ratings indicate that there is a possibility of credit risk developing, particularly as the result of adverse
economic change over time; however, business or financial alternatives may be available to allow financial commitments to be met.
Securities rated in this category are not investment grade. B HIGHLY
SPECULATIVE. B ratings indicate that significant credit risk is present, but a limited margin of safety remains.
Financial commitments are currently being met: however, capacity for continued payment is contingent upon a sustained, favorable
business and economic environment. CCC, HIGH DEFAULT
RISK. Default is a real possibility. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business
or economic developments. A CC rating indicates that default of some kind appears probable. C ratings signal
imminent default. RD Indicates an
entity that has failed to make due payments (within the applicable grace period) on some but not all material financial obligations,
but continues to honor other classes of obligations. D Indicates an
entity or sovereign that has defaulted on all of its financial obligations. A-8 DBRS Bond and Long-Term Debt Rating Scale The DBRS long-term debt rating scale is meant to give an
indication of the risk that a borrower will not fulfill its full obligations in a timely manner, with respect to both interest and
principal commitments. Every DBRS rating is based on quantitative and qualitative considerations relevant to the borrowing entity.
Each rating category is denoted by the subcategories "high" and "low". The absence of either a "high" or "low" designation indicates
the rating is in the "middle" of the category. The AAA and D categories do not utilize "high", "middle", and "low" as differential
grades. AAA Bonds rated
AAA are of the highest credit quality, with exceptionally strong protection for the timely repayment of principal and
interest. Earnings are considered stable, the structure of the industry in which the entity operates is strong, and the outlook for
future profitability is favorable. There are few qualifying factors present which would detract from the performance of the entity,
the strength of liquidity and coverage ratios is unquestioned and the entity has established a creditable track record of superior
performance. Given the extremely tough definition which DBRS has established for this category, few entities are able to achieve a
AAA rating. AA Bonds rate
AA are of superior credit quality, and protection of interest and principal is considered high. In many cases, they
differ from bonds rated AAA only to a small degree. Given the extremely tough definition which DBRS has for the AAA category (which
few companies are able to achieve), entities rated AA are also considered to be strong credits which typically exemplify
above-average strength in key areas of consideration and are unlikely to be significantly affected by reasonably foreseeable events.
A Bonds rated
A are of satisfactory credit quality. Protection of interest and principal is still substantial, but the degree of
strength is less than with AA rated entities. While a respectable rating, entities in the A category are considered to
be more susceptible to adverse economic conditions and have greater cyclical tendencies than higher rated companies. BBB Bonds rated
BBB are of adequate credit quality. Protection of interest and principal is considered adequate, but the entity is more
susceptible to adverse changes in financial and economic conditions, or there may be other adversities present which reduce the
strength of the entity and its rated securities. BB Bonds rated
BB are defined to be speculative, where the degree of protection afforded interest and principal is uncertain,
particularly during periods of economic recession. Entities in the BB area typically have limited access to capital markets and
additional liquidity support and, in many cases, small size or lack of competitive strength may be additional negative
considerations. B Bonds rated
B are highly speculative and there is a reasonably high level of uncertainty which exists as to the ability of the
entity to pay interest and principal on a continuing basis in the future, especially in periods of economic recession or industry
adversity. CCC/ Bonds rated in
any of these categories are very highly speculative and are in danger of default of interest and principal. The degree of adverse
elements present is more severe than bonds rated B, Bonds rated below B often have characteristics which, if
not remedied, may lead to default. In practice, there is little difference between the C to CCC categories,
with CC and C normally used to lower ranking debt of companies where the senior debt is rated in the
CCC to B range. A-9 D A security
rated D implies the issuer has either not met a scheduled payment of interest or principal or that the issuer has made it clear that
it will miss such a payment in the near future. In some cases, DBRS may not assign a D rating under a bankruptcy announcement
scenario, as allowances for grace periods may exist in the underlying legal documentation. Once assigned, the D rating will continue
as long as the missed payment continues to be in arrears, and until such time as the rating is suspended, discontinued, or
reinstated by DBRS. (high, low) grades are used to
indicate the relative standing of a credit within a particular rating category. The lack of one of these designations indicates a
rating which is essentially in the middle of the category. Note that high and low grades are not used for
the AAA category. DESCRIPTION OF INSURANCE RATINGS Moodys Insurance Financial Strength Ratings Moodys Insurance Financial Strength Ratings are
opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. Specific obligations
are considered unrated unless they are individually rated because the standing of a particular insurance obligation would depend on
an assessment of its relative standing under those laws governing both the obligation and the insurance company. Moodys rating symbols for Insurance Financial
Strength Ratings are identical to those used to indicate the credit quality of long-term obligations. These rating gradations
provide investors with a system for measuring an insurance companys ability to meet its senior policyholder claims and
obligations. Aaa Insurance
companies rated in this category offer exceptional financial security. While the credit profile of these companies is likely to
change, such changes as can be visualized are most unlikely to impair their fundamentally strong position. Aa These insurance
companies offer excellent financial security. Together with the Aaa group, they constitute what are generally known as high grade
companies. They are rated lower than Aaa companies because long-term risks appear somewhat larger. A Insurance
companies rated in this category offer good financial security. However, elements may be present which suggest a susceptibility to
impairment sometime in the future. Baa Insurance
companies rated in this category offer adequate financial security. However, certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Ba Insurance
companies rated in this category offer questionable financial security. Often the ability of these companies to meet policyholder
obligations may be very moderate and thereby not well safeguarded in the future. B Insurance
companies rated in this category offer poor financial security. Assurance of punctual payment of policyholder obligations over any
long period of time is small. A-10 Caa Insurance
companies rated in this category offer very poor financial security. They may be in default on their policyholder obligations or
there may be present elements of danger with respect to punctual payment of policyholder obligations and claims. Ca Insurance
companies rated in this category offer extremely poor financial security. Such companies are often in default on their policyholder
obligations or have other marked shortcomings. C Insurance
companies rated in this category are the lowest rated class of insurance company and can be regarded as having extremely poor
prospects of ever offering financial security. Moodys appends numerical modifiers 1, 2, and 3 to
each generic rating classification from Aa through Caa. Numeric modifiers are used to refer to the ranking within a group
with 1 being the highest and 3 being the lowest. However, the financial strength of companies within a generic rating symbol (Aa,
for example) is broadly the same. Short-Term Insurance Financial Strength Ratings
These ratings represents Moodys opinions of the
ability of the insurance company to repay punctually its short-term senior policyholder claims and obligations. The ratings apply to
senior policyholder obligations that mature or are payable within one year or less. Specific obligations are considered unrated unless
individually rated because the standing of a particular insurance obligation would depend on an assessment of its relative standing
under those laws governing both the obligation and the insurance company. P-1 Insurers (or
supporting institutions) rated Prime-1 have a superior ability for repayment of senior short-term policyholder claims and
obligations. P-2 Insurers (or
supporting institutions) rated Prime-2 have a strong ability for repayment of senior short-term policyholder claims and obligations.
P-3 Insurers (or
supporting institutions) rated Prime-3 have an acceptable ability for repayment of senior short-term policyholder claims and
obligations. NP Insurers (or
supporting institutions) rated Not Prime (NP) do not fall within any of the Prime rating categories. S&P An insurer rated BBB or higher is regarded
as having financial security characteristics that outweigh any vulnerabilities, and is highly likely to have the ability to meet
financial commitments. AAA Extremely
Strong financial security characteristics. AAA is the highest Insurer Financial Strength Rating assigned by S&P
Rating Service. AA Very Strong
financial security characteristics, differing only slightly from those rated higher. A Strong
financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with
higher ratings. BBB Good financial
security characteristics, but is more likely to be affected by adverse business conditions than are higher rated insurers.
A-11 An insurer rated BB or lower is regarded as
having vulnerable characteristics that may outweigh its strengths. BB indicates the least degree of vulnerability within
the range; CC the highest. BB Marginal
financial security characteristics. Positive attributes exist, but adverse business conditions could lead to insufficient ability to
meet financial commitments. B Weak financial
security characteristics. Adverse business conditions will likely impair its ability to meet financial commitments. CCC Very Weak
financial security characteristics, and is dependent on favorable business conditions to meet financial commitments. CC Extremely Weak
financial security characteristics and is likely not to meet some of its financial commitments. R An insurer
rated R is under regulatory supervision owing to its financial condition. During the pendency of the regulatory supervision, the
regulators may have the power to favor one class of obligations over others or pay some obligations and not others. The rating does
not apply to insurers subject only to nonfinancial actions such as market conduct violations. NR Not Rated,
which implies no opinion about the insurers financial security. Plus (+) or minus () following ratings from
AA to CCC show relative standing within the major rating categories. Fitch Insurer Financial Strength Ratings A Fitch insurer financial strength rating (IFS
rating) provides an assessment of the financial strength of an insurance organization, and its capacity to meet senior
obligations to policyholders and contractholders on a timely basis. The IFS rating is assigned to the insurance organization itself,
and no liabilities or obligations of the insurer are specifically rated unless otherwise stated (for example, Fitch may separately
rate the debt obligations of an insurer). The IFS rating can be assigned to insurance and reinsurance companies in all insurance
sectors, including the life & health, property & casualty, mortgage, financial guaranty and title insurance sectors, as well
as managed care companies such as health maintenance organizations. The IFS rating uses the same ratings scale and
symbols used by Fitch for its international ratings of long-term debt obligations and issuers. However, the definitions associated
with the ratings reflect the unique aspects of the IFS rating within an insurance industry context. Ratings in the AA
through CCC categories may be amended with a plus or minus sign to show relative standing within the major rating
category. Ratings of BBB and higher are considered to be Secure, and those of BB+ and
lower are considered to be Vulnerable. AAA EXCEPTIONALLY
STRONG. Companies assigned this highest rating are viewed as possessing exceptionally strong capacity to meet policyholder and
contract obligations. For such companies, risk factors are minimal and the impact of any adverse business and economic factors is
expected to be extremely small. AA VERY STRONG.
Companies are viewed as possessing very strong capacity to meet policyholder and contract obligations. Risk factors are modest, and
the impact of any adverse business and economic factors is expected to be very small. A-12 A STRONG.
Companies are viewed as possessing strong capacity to meet policyholder and contract obligations. Risk factors are moderate, and the
impact of any adverse business and economic factors is expected to be small. BBB GOOD. Companies
are viewed as possessing good capacity to meet policyholder and contract obligations. Risk factors are somewhat high, and the impact
of any adverse business and economic factors is expected to be material, yet manageable. BB Moderately
Weak. Companies are viewed as moderately weak with an uncertain capacity to meet policyholder and contract obligations. Though
positive factors are present, overall risk factors are high, and the impact of any adverse business and economic factors is expected
to be significant. B Weak. Companies
are viewed as weak with a poor capacity to meet policyholder and contract obligations. Risk factors are very high, and the impact of
any adverse business and economic factors is expected to be very significant. CCC, Very Weak.
Companies rated in any of these three categories are viewed as very weak with a very poor capacity to meet policyholder and contract
obligations. Risk factors are extremely high, and the impact of any adverse business and economic factors is expected to be
insurmountable. A CC rating indicates that some form of insolvency or liquidity impairment appears probable. A
C rating signals that insolvency or a liquidity impairment appears imminent. DDD, Distressed.
These ratings are assigned to companies that have either failed to make payments on their obligations in a timely manner, are deemed
to be insolvent, or have been subjected to some form of regulatory intervention. Within the DDD-D range,
those companies rated DDD have the highest prospects for resumption of business operations or, if liquidated or wound
down, of having a vast majority of their obligations to policyholders and contractholders ultimately paid off, though on a delayed
basis (with recoveries expected in the range of 90-100%). Those rated DD show a much lower likelihood of ultimately
paying off material amounts of their obligations in a liquidation or wind down scenario (in a range of 50-90%). Those rated
D are ultimately expected to have
very limited liquid assets available to fund obligations, and therefore any ultimate payoffs would be quite modest (at under 50%).
+ or may be appended to a
rating to indicate the relative position of a credit within the rating category. Such suffixes are not added to ratings in the
AAA category or to ratings below the CCC category. Short-Term Insurer Financial Strength Ratings
A Fitch Short-Term Insurer Financial Strength Rating
(ST-IFS Rating) provides an assessment of the near-term financial health of an insurance organization, and its capacity to meet
senior obligations to policyholders and contractholders that would be expected to be due within one year. The analysis supporting
the ST-IFS Rating encompasses all of the factors considered within the context of the IFS Rating, but with greater weighting given
to an insurers near-term liquidity, financial flexibility and regulatory solvency characteristics, and less weight given to
longer-term issues such as competitiveness and earnings trends. Fitch will only assign a ST-IFS rating to insurers that
also have been assigned an IFS rating. Currently, ST-IFS ratings are used primarily by U.S. life insurance companies that sell
short-term funding agreements. A-13 The ST-IFS rating uses the same international ratings
scale used by Fitch for short-term debt and issuer ratings. Ratings of F1, F2 and F3 are
considered to be Secure, while those of B and below are viewed as Vulnerable. F1 STRONG.
Insurers are viewed as having a strong capacity to meet their near-term obligations. When an insurer rated in this rating category
is designated with a (+) sign, it is viewed as having a very strong capacity to meet near-term obligations. F2 MODERATELY
STRONG. Insurers are viewed as having a moderately strong capacity to meet their near-term obligations. F3 MODERATE.
Insurers are viewed as having a moderate capacity to meet their near-term obligations, and a near-term adverse change in business or
economic factors would likely move the insurer to a vulnerable rating category. B WEAK. Insurers
are viewed as having a weak capacity to meet their near-term obligations. C VERY WEAK.
Insurers are viewed as having a very weak capacity to meet their near-term obligations. D DISTRESSED.
Insurers have either been unable to meet near-term obligations, or the failure to meet such obligations is imminent. DESCRIPTION OF SHORT-TERM MUNICIPAL BOND RATINGS
Moodys Moodys ratings for short-term municipal
obligations are designated Moodys Investment Grade (MIG) or Variable Moodys Investment
Grade (VMIG), in the case of variable rate demand obligations (VRDOs). For VRDOs, a two-component rating is
assigned. The first element represents an evaluation of the degree of risk associated with scheduled principal and interest
payments, and the other represents an evaluation of the degree of risk associated with the demand feature. The short-term rating
assigned to the demand feature of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated,
that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1. MIG ratings terminate at the retirement of the obligation while VMIG rating
expiration will be a function of each issues specific structural or credit features. Those short-term
obligations that are of speculative quality are designated SG. MIG1/VMIG1
Superior credit
quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support or demonstrated broad-based
access to the market for refinancing. MIG2/VMIG2
Strong credit
quality. Margins of protection are ample although not so large as in the preceding group. MIG3/VMIG3
Acceptable
credit quality. Liquidity and cash flow protection may be narrow and marketing access for refinancing is likely to be less well
established. SG Speculative
quality. Debt instruments in this category lack margins of protection. A-14 S&P An S&P Rating Service note rating reflects the
liquidity concerns and market access risks unique to notes. Notes due in three years or less will likely receive a note rating.
Notes maturing beyond three years will most likely receive a long-term debt rating. SP-1 Strong capacity
to pay principal and interest. Those issues determined to possess overwhelming safety characteristics will be given a plus (+)
designation. SP-2 Satisfactory
capacity to pay principal and interest. SP-3 Speculative
capacity to pay principal and interest. DESCRIPTION OF PREFERRED STOCK RATINGS
Moodys Moodys ratings for short-term
municipal obligations are designated Moodys Investment Grade (MIG) or Variable Moodys Investment
Grade (VMIG), in the case of variable rate demand obligations (VRDOs). For VRDOs, a two-component rating is
assigned. The first element represents an evaluation of the degree of risk associated with scheduled principal and interest
payments, and the other represents an evaluation of the degree of risk associated with the demand feature. The short-term rating
assigned to the demand feature of VRDOs is designated as VMIG. When either the long- or short-term aspect of a VRDO is not rated,
that piece is designated NR, e.g., Aaa/NR or NR/VMIG 1. MIG ratings terminate at the retirement of the obligation while VMIG rating
expiration will be a function of each issues specific structural or credit features.
Those short-term obligations that are of speculative quality are designated SG. aaa Top-quality
preferred stock. This rating indicates good asset protection and the least risk of dividend impairment within the universe of
preferred stocks. aa High-grade
preferred stock. This rating indicates that there is a reasonable assurance the earnings and asset protection will remain relatively
well maintained in the foreseeable future. a Upper-medium
grade preferred stock. While risks are judged to be somewhat greater than in the aaa and aa classifications,
earnings and asset protection are, nevertheless, expected to be maintained at adequate levels. baa Medium-grade
preferred stock, neither highly protected nor poorly secured. Earnings and asset protection appear adequate at present but may be
questionable over any great length of time. ba Considered to
have speculative elements and its future cannot be considered well assured. Earnings and asset protection may be very moderate and
not well safeguarded during adverse periods. Uncertainty of position characterizes preferred stocks in this class. b Lacks the
characteristics of a desirable investment. Assurance of dividend payments and maintenance of other terms of the issue over any long
period of time may be small. caa Likely to be in
arrears on dividend payments. This rating designation does not purport to indicate the future status of payments. ca Speculative in
a high degree and is likely to be in arrears on dividends with little likelihood of eventual payments. A-15 c Lowest rated
class of preferred or preference stock. Issues so rated can thus be regarded as having extremely poor prospects of ever attaining
any real investment standing. Note: Moodys applies numerical modifiers 1, 2, and
3 in each rating classification; the modifier 1 indicates that the security ranks in the higher end of its generic rating category;
the modifier 2 indicates a mid-range ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic
rating category. DBRS Preferred Share Rating Scale The DBRS preferred share rating
scale is used in the Canadian securities market and is meant to give an indication of the risk that a borrower will not fulfill its
full obligations in a timely manner, with respect to both dividend and principal commitments. Every DBRS rating is based on
quantitative and qualitative considerations relevant to the borrowing entity. Each rating category is denoted by the subcategories
"high" and "low". The absence of either a "high" or "low" designation indicates the rating is in the middle of the category.
Pfd-1
Preferred
shares rated Pfd-1 are of superior credit quality, and are supported by entities with strong earnings and balance sheet
characteristics. Pfd-1 generally corresponds with companies whose senior bonds are rated in the AAA or
AA categories. As is the case with all rating categories, the relationship between senior debt ratings and preferred
share ratings should be understood as one where the senior debt rating effectively sets a ceiling for the preferred shares issued by
the entity. However, there are cases where the preferred share rating could be lower than the normal relationship with the
issuers senior debt rating. Pfd-2
Preferred
shares rated Pfd-2 are of satisfactory credit quality. Protection of dividends and principal is still substantial, but
earnings, the balance sheet, and coverage ratios are not as strong as Pfd-1 rated companies. Generally, Pfd-2 ratings
correspond with companies whose senior bonds are rated in the A category. Pfd-3
Preferred
shares rated Pfd-3 are of adequate credit quality. While protection of dividends and principal is still considered
acceptable, the issuing entity is more susceptible to adverse changes in financial and economic conditions, and there may be other
adversities present which detract from debt protection. Pfd-3 ratings generally correspond with companies whose senior
bonds are rated in the higher end of the BBB category. Pfd-4
Preferred
shares rated Pfd-4 are speculative, where the degree of protection afforded to dividends and principal is uncertain,
particularly during periods of economic adversity. Companies with preferred shares rated Pfd-4 generally coincide with
entities that have senior bond ratings ranging from the lower end of the BBB category through the BB
category. Pfd-5
Preferred
shares rated Pfd-5 are highly speculative and the ability of the entity to maintain timely dividend and principal
payments in the future is highly uncertain. The Pfd-5 rating generally coincides with companies with senior bond ratings
of B or lower. Preferred shares rated Pfd-5 often have characteristics which, if not remedied, may lead to
default. D
This category
indicates preferred shares that are in arrears of paying either dividends or principal. A-16 PART C: OTHER INFORMATION Item 23. Exhibits Exhibits filed pursuant to Form N-1A: (a) (1) Certificate of Trust is incorporated by reference to Registrants Initial Registration Statement on Form N-1A, SEC File
No. 811-21638. (a) (2) Declaration of Trust is incorporated by reference
to Registrants Initial Registration Statement on Form N-1A, SEC File No. 811-21638. (b) By-Laws is incorporated by reference to Registrants Initial Registration Statement on Form N-1A, SEC File No. 811-21638. (c) None. (d) Investment Advisory Agreement between the Registrant and J.P. Morgan Investment Management Inc. is incorporated by reference to Amendment No. 4 to Registrants
Registration Statement filed on October 28, 2005. (e) Not applicable. (f) Not applicable. (g) (1) Global Custody and Fund Accounting Agreement with JPMorgan Chase Bank is
incorporated by reference to Amendment No. 4 to Registrants Registration Statement filed on October 28, 2005. (g) (1) (a) Form of Amended Schedule A to the Global Custody & Fund Accounting Agreement
(amended as of June 14, 2007). Filed herewith. (h) (1) Transfer Agency Agreement between the Registrant and Boston Data Services, Inc.
is incorporated by reference to Amendment No. 4 to Registrants Registration Statement filed on October 28, 2005. (h) (1) (a) Amendment as of January 31, 2007 to the Transfer Agency Agreement
between JPMorgan Funds and BFDS, dated February 19, 2005. Filed herewith. (h) (1) (b) Form of Amended Appendix A to the Transfer Agency Agreement (amended as of
June 14, 2007). Filed herewith. (h) (2) Form of Administration Agreement between the Registrant and JPMorgan Funds Management, Inc. (formerly known as One Group
Administrative Services, Inc.) is incorporated by reference to Amendment No. 4 to Registrants Registration Statement filed on October 28, 2005. (h) (3) Placement Agency Agreement between the Registrant and J.P. Morgan Institutional Investments Inc. is incorporated by reference to Amendment No. 4 to
Registrants Registration Statement filed on October 28, 2005. (h)
(4) Placement Agency Agreement between the Registrant and J.P. Morgan Institutional Investments Inc., dated May 25, 2005, is filed herewith. (h) (5) Securities Lending Agreement between Registrant and JPMorgan Chase Bank, NA is incorporated by reference to Amendment No. 4 to Registrants Registration
Statement filed on October 28, 2005. (i) Not applicable. (j) Not applicable. (k) Not applicable. (l) Not applicable.
(m) Not applicable. (n) Not applicable. (o) Reserved. (p) Codes of Ethics. (1) Code of Ethics of The J.P. Morgan Family of Funds. Incorporated herein by reference to Post-Effective Amendment No. 18 to the Registration
Statement of JP Morgan Series Trust II (CIK 0000916118) filed on February 13, 2004 (Accession Number 0001047469-04-00425). (2) Code of Ethics of Adviser. (Effective February 1, 2005, Revised
March 1, 2007). Filed herewith. (99) (a) Powers of Attorney for the Trustees. Filed herewith. (99) (b) Power of Attorney for George C.W. Gatch. Filed herewith. (99) (c) Power of Attorney for Stephanie J. Dorsey. Filed herewith. Item 24. Persons Controlled by or Under Common Control with the Registrant The Registrant is not directly or indirectly controlled by or under common control with any
person other than the Trustees. It does not have any subsidiaries. Item 25. Indemnification Article VII,
Section 3 of the Trusts Declaration of Trust provides that, subject
to the exceptions and limitations contained in the Trusts By-Laws:
(a) every person who is, has been, or becomes a Trustee or officer of the
Trust (hereinafter referred to as a Covered Person) shall be
indemnified by the Trust to the fullest extent permitted by law against
liability and against all expenses reasonably incurred or paid by him in
connection with any proceeding in which he becomes involved as a party or
otherwise by virtue of his being or having been a Trustee or officer of the
Trust and against amounts paid or incurred by him in the settlement thereof; and
(ii) expenses in connection with the defense of any proceeding of the
character described in clause (i) above shall be advanced by the Trust to
the Covered Person from time to time prior to final disposition of such
proceeding to the fullest extent permitted by law. Article VII, Section 2 of the Trusts By-Laws provides that
subject to the exceptions and limitations contained in Article VII,
Section 4 of the By-Laws the Trust shall indemnify its Covered Persons to
the fullest extent consistent with state law and the Investment Company Act of
1940, as amended (1940 Act). Without limitation of the foregoing,
the Trust shall indemnify each person who was or is a party or is threatened to
be made a party to any proceedings, by reason of alleged acts or omissions
within the scope of his or her service as a Trustee or officer of the Trust,
against judgments, fines, penalties, settlements and reasonable expenses
(including attorneys fees) actually incurred by him or her in connection
with such proceeding to the maximum extent consistent with state law and the
1940 Act. Subject to the exceptions and limitations contained in Section 4
of Article VII of the By-Laws, the Trust may, to the fullest extent consistent
with law, indemnify each person who is serving or has served at the request of
the Trust as a director, officer, partner, trustee, employee, agent or fiduciary
of another domestic or foreign corporation, partnership, joint venture, trust,
other enterprise or employee benefit plan (Other Position) and who
was or is a party or is threatened to be made a party to any proceeding by
reason of alleged acts or omissions while acting within the scope of his or her
service in such Other Position, against judgments, fines, settlements and
reasonable expenses (including attorneys fees) actually incurred by him or
her in connection with such proceeding to the maximum extent consistent with
state law and the 1940 Act. The indemnification and other rights provided by
Article VII of the By-Laws shall continue as to a person who has ceased to be a
Trustee or officer of the Trust.
Article VII, Section 4 of the Trusts By-Laws provides that:
(a) the Trust shall not indemnify a Covered Person or agent who shall have
been adjudicated by a court or body before which the proceeding was brought
(i) to be liable to the Trust or its Shareholders by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office (collectively, disabling
conduct) or (ii) not to have acted in good faith in the reasonable
belief that his action was in or not opposed to the best interest of the Trust;
and (b) the Trust shall not indemnify a Covered Person or agent unless the
court or other body before which the proceeding was brought determines that such
Trustee, officer or agent did not engage in disabling conduct or, with respect
to any proceeding disposed of (whether by settlement, pursuant to a consent
decree or otherwise) without an adjudication by the court or other body before
which the proceeding was brought, there has been a dismissal of the proceeding
by the court or other body before which it was brought for insufficiency of
evidence of any disabling conduct with which such a Covered Person or agent has
been charged and a determination that such Trustee, officer or agent did not
engage in disabling conduct by at least a majority of those Trustees who are
neither interested persons of the Trust (as that term is defined in
Section 2(a)(19) of the 1940 Act) nor parties to the proceeding based upon
a review of readily available facts (as opposed to a full trial-type inquiry).
Item 26. Business
and Other Connections of the Investment Adviser See Management of the
Trust in Part B. Information as to the directors and officers of the Adviser is included in its Form ADV filed with the SEC and is incorporated herein by reference. Item 27. Principal Underwriter Not applicable. Item 28. Location of Accounts and Records All accounts, books, records and documents required pursuant to Section 31(a) of the Investment Company Act of 1940, as amended, and the rules promulgated
thereunder are maintained in the physical possession of: One Group
Administrative Services, Inc., the Registrants administrator, at 1111
Polaris Parkway, Columbus, Ohio 43240; JPMorgan Chase Bank, the
Registrants custodian at 4 Chase MetroTech Center, Brooklyn, N.Y. 11245;
J.P. Morgan Investment Management Inc., the Registrants investment
adviser, at 522 Fifth Avenue, New York, NY 10036; Boston Financial Data
Services, Inc., the Registrants transfer agent, at 2 Heritage Drive, North
Quincy, Massachusetts 02171. Item 29. Management Services None. Item 30. Undertakings Not applicable.
SIGNATURES Pursuant to the requirements of the Investment Company Act of 1940, the Registrant has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York on the 28th day of June, 2007.
/s/ George C. W. Gatch* This amendment to the Registration Statement of the Registrant
has been signed below by the following persons in the capacities and on the
dates indicated on June 28, 2007. /s/ Cheryl Ballenger* /s/ John F. Ruffle* /s/ Jerry B. Lewis* /s/ Kenneth Whipple, Jr.* /s/ John R. Rettberg* /s/ Stephanie J. Dorsey* /s/ George C.W. Gatch* /s/ Jessica K. Ditullio
Exhibit Index (g)(1)(a) Form of Amended Schedule A to the Global Custody & Fund Accounting Agreement. (h)(1)(a) Amendment as of January 31, 2007 to the Transfer
Agency Agreement. (h)(1)(b) Form of Amended Appendix A to the Transfer
Agency Agreement. (2) Code of Ethics of Adviser. (99)(a) Powers of Attorney for the Trustees. (99)(b) Power of Attorney for George C.W. Gatch. (99)(c) Power of Attorney for Stephanie J. Dorsey. Schedule A List of Entities Covered by the Global
Custody and Fund Accounting Agreement JPMorgan Trust I JPMorgan Emerging Markets
Debt Fund JPMorgan Bond Fund JPMorgan Strategic Income
Fund JPMorgan Short Term Bond
Fund JPMorgan Enhanced Income
Fund JPMorgan California Tax
Free Bond Fund JPMorgan Intermediate Tax
Free Bond Fund JPMorgan New York Tax Free
Bond Fund JPMorgan Tax Aware
Short-Intermediate Income Fund JPMorgan Tax Aware
Disciplined Equity Fund JPMorgan Tax Aware Enhanced
Income Fund JPMorgan Tax Aware U.S.
Equity Fund JPMorgan Tax Aware Large
Cap Growth Fund JPMorgan Equity Income II
Fund JPMorgan Intrepid
International Fund JPMorgan Market Neutral
Fund JPMorgan Emerging Markets
Equity Fund JPMorgan International
Opportunities Fund JPMorgan International
Value Fund JPMorgan Asia Equity Fund JPMorgan Intrepid European
Fund JPMorgan International
Growth Fund (beginning March 21, 2005) JPMorgan International
Small Cap Equity Fund JPMorgan Japan Fund JPMorgan International
Equity Fund JPMorgan Disciplined Equity
Fund JPMorgan Diversified Fund JPMorgan U.S. Equity Fund JPMorgan U.S. Small Company
Fund JPMorgan Capital Growth
Fund (custody only until March 21, 2005) JPMorgan Dynamic Small Cap
Fund (to be renamed JPMorgan Dynamic Small Cap Growth Fund as of 6/29/07) JPMorgan Growth and Income
Fund (custody only until March 21, 2005) JPMorgan Mid Cap Equity
Fund JPMorgan Small Cap Core
Fund JPMorgan Small Cap Equity
Fund A-1 JPMorgan Trust I (continued) JPMorgan Value Advantage
Fund JPMorgan Intrepid America
Fund JPMorgan Intrepid Growth
Fund JPMorgan Intrepid Multi Cap
Fund JPMorgan Intrepid Value
Fund JPMorgan 100% U.S. Treasury
Securities Money Market Fund JPMorgan California
Municipal Money Market Fund JPMorgan Federal Money
Market Fund JPMorgan New York Municipal
Money Market Fund JPMorgan Prime Money Market
Fund JPMorgan Tax Free Money
Market Fund JPMorgan Tax Aware Core
Equity Fund JPMorgan Tax Aware
Diversified Equity Fund JPMorgan Tax Aware Real
Return Fund JPMorgan Real Return Fund JPMorgan U.S. Large Cap
Core Plus Fund JPMorgan Micro Cap Fund JPMorgan Intrepid
Long/Short Fund JPMorgan Strategic Small
Cap Value Fund JPMorgan International
Realty Fund JPMorgan China Region Fund JPMorgan Global Focus Fund JPMorgan Strategic
Appreciation Fund JPMorgan Strategic
Preservation Fund JPMorgan India Fund JPMorgan International
Currency Income Fund JPMorgan Latin America Fund
JPMorgan Russia Fund JPMorgan Tax Aware Real
Return SMA Fund JPMorgan Income Builder
Fund JPMorgan Value Discovery
Fund (effective upon the effectiveness of the Funds registration statement) JPMorgan Tax Aware High
Income Fund (effective upon the effectiveness of the Funds registration
statement) A-2 Undiscovered Managers Funds Undiscovered Managers
Behavioral Growth Fund Undiscovered Managers
Behavioral Value Fund JPMorgan Realty Income Fund
Undiscovered Managers Small
Cap Growth Fund J.P. Morgan Mutual Fund Group JPMorgan Short Term Bond
Fund II J.P. Morgan Fleming Mutual Fund Group, Inc. JPMorgan Mid Cap Value Fund J.P. Morgan Mutual Fund Investment Trust JPMorgan Growth Advantage
Fund UM Investment Trust Undiscovered Managers
Multi-Strategy Fund J.P. Morgan Series Trust II JPMorgan Bond Portfolio JPMorgan International
Equity Portfolio JPMorgan Mid Cap Value
Portfolio JPMorgan Small Company
Portfolio JPMorgan U.S. Large Cap
Core Equity Portfolio JPMorgan Institutional Trust JPMorgan Ultra Short-Term
Bond Trust JPMorgan Short-Term Bond
Trust JPMorgan Intermediate Bond
Trust JPMorgan Core Bond Trust
JPMorgan Equity Index Trust
A-3 JPMorgan Trust II JPMorgan Small Cap Growth
Fund JPMorgan Small Cap Value
Fund JPMorgan Diversified Mid
Cap Growth Fund JPMorgan Diversified Mid
Cap Value Fund JPMorgan Intrepid Mid Cap
Fund JPMorgan Large Cap Growth
Fund JPMorgan Large Cap Value
Fund JPMorgan Equity Income Fund JPMorgan Equity Index Fund JPMorgan Market Expansion
Index Fund JPMorgan International
Equity Index Fund JPMorgan Multi-Cap Market
Neutral Fund JPMorgan U.S. Real Estate
Fund JPMorgan Investor Growth
Fund JPMorgan Investor Growth
& Income Fund JPMorgan Investor Balanced
Fund JPMorgan Investor
Conservative Growth Fund JPMorgan Short Duration
Bond Fund JPMorgan Ultra Short
Duration Bond Fund JPMorgan Intermediate Bond
Fund JPMorgan Core Bond Fund JPMorgan Core Plus Bond
Fund JPMorgan Government Bond
Fund JPMorgan Treasury &
Agency Fund JPMorgan High Yield Bond
Fund JPMorgan Mortgage-Backed
Securities Fund JPMorgan Short Term
Municipal Bond Fund JPMorgan Tax Free Bond Fund JPMorgan Municipal Income
Fund JPMorgan Arizona Municipal
Bond Fund JPMorgan Kentucky Municipal
Bond Fund JPMorgan Louisiana
Municipal Bond Fund JPMorgan Michigan Municipal
Bond Fund JPMorgan Ohio Municipal
Bond Fund JPMorgan West Virginia
Municipal Bond Fund JPMorgan Liquid Assets
Money Market Fund JPMorgan U.S. Government
Money Market Fund JPMorgan U.S. Treasury Plus
Money Market Fund JPMorgan Municipal Money
Market Fund JPMorgan Michigan Municipal
Money Market Fund JPMorgan Ohio Municipal
Money Market Fund A-4 JPMorgan
Insurance Trust JPMorgan Insurance Trust
Balanced Portfolio JPMorgan Insurance Trust
Core Bond Portfolio JPMorgan Insurance Trust
Diversified Equity Portfolio JPMorgan Insurance Trust
Diversified Mid Cap Growth Portfolio JPMorgan Insurance Trust
Diversified Mid Cap Value Portfolio JPMorgan Insurance Trust
Equity Index Portfolio JPMorgan Insurance Trust
Government Bond Portfolio JPMorgan Insurance Trust
International Equity Portfolio JPMorgan Insurance Trust
Intrepid Mid Cap Portfolio JPMorgan Insurance Trust
Intrepid Growth Portfolio JPMorgan Insurance Trust
Large Cap Value Portfolio JPMorgan Insurance Trust
Small Cap Equity Portfolio * * * * * * JPMorgan Trust I JPMorgan Trust II Undiscovered Managers Funds J.P. Morgan Mutual Fund Group J.P. Morgan Fleming Mutual Fund Group, Inc. J.P. Morgan Mutual Fund Investment Trust UM Investment Trust J.P. Morgan Series Trust II JPMorgan Institutional Trust JPMorgan Insurance Trust By: Name: Title: Date: JPMorgan Chase Bank, N.A. By: Name: Title: Date: A-5 AMENDMENT To Transfer Agency Agreement This Amendment is made as of this 31st day
of January 2007 in accordance with Section 27 D of the Transfer Agency
Agreement dated February 19, 2005 between each of the entities listed on
Exhibit A (JP Morgan)and Boston Financial Data Services, Inc.
(Boston Financial) (the Agreement). The parties desire to amend the
Agreement as set forth herein. WHEREAS,
the parties hereto wish to amend the Agreement to reflect the addition of JPMorgan
Cash Plus Fund LLC as a Trust under the Agreement. NOW, THEREFORE, in consideration of the
mutual premises and covenants herein set forth, the parties agree as follows: 1. Capitalized terms not otherwise defined herein shall
have the same meaning as are set forth in the Agreement. 2. Because the JPMorgan Cash Plus Fund LLC is not
required to be to be registered as an investment company under the Investment
Company Act of 1940, the representation in 3.B of the Agreement is not
applicable to it. 3. The current Appendix A dated August 10, 2006 is
hereby replaced and superseded with the Appendix A dated January 31, 2007. 4. The current Exhibit A Fee Schedule dated Fund Merger
August 31, 2009 is hereby replaced and superseded with the Exhibit A dated
January 31, 2007 August 31, 2009. 5. This Amendment shall inure to the benefit of and is
binding upon the parties hereto and their respective successors and permitted
assigns. 6. This Amendment may be executed in one or more
counterparts, each of which will be deemed an original, but all of which
together shall constitute one and the same instrument. SIGNATURES TO
FOLLOW ON NEXT PAGE AMENDMENT IN
WITNESS WHEREOF, the parties have caused this Amendment to be executed by their
duly authorized officers as of the day and year first above written. BOSTON FINANCIAL DATA SERVICES,
INC. JPMORGAN
TRUST I By: /s/ BRIAN W. AGNEW By: /s/ LAURA S. MELMAN Name: Brian W. Agnew Name: Laura S. Melman Title: Vice
President Title: Assistant Treasurer APPENDIX A JPMorgan Trust I APPENDIX A JPMorgan Tax Aware
Diversified Equity Fund Undiscovered
Managers Funds J.P. Morgan Mutual Fund Group J.P. Morgan Fleming Mutual Fund
Group, Inc. J.P. Morgan Mutual Fund Investment
Trust UM Investment Trust APPENDIX A J.P. Morgan Series Trust II J.P. Morgan Fleming Series Trust JPMorgan Institutional Trust JPMorgan Trust II APPENDIX A JPMorgan Municipal Income
Fund JPMorgan Insurance Trust JPMorgan Cash Plus Fund LLC SIGNATURES TO
FOLLOW ON NEXT PAGE BOSTON FINANCIAL DATA SERVICES,
INC. JPMORGAN
TRUST I By: /s/ BRIAN W. AGNEW By: /s/ LAURA S. MELMAN Name: Brian W. Agnew Name: Laura S. Melman Title: Vice
President Title: Assistant Treasurer EXHIBIT A Effective: January 31, 2007 August 31, 2009 I. TRANSFER AGENCY A. Base Fees: Base Fee Per CUSIP (across the Fund Sponsor): CUSIPS (including ACI) $3,335 per CUSIP per year Closed CUSIPS - $150 per month through May of the following year CUSIPS Base Fee for JPMorgan Cash Plus Fund: $15,000 per CUSIP per year B. Account Maintenance and Processing Fees Non-Institutional Non-Network Level 3 & 1 Open Accounts - $19.07
per account per year Non-Institutional Network Level 3 Open Accounts - $8.07 per account
per year Non-Institutional Network Level 1 Open Accounts - $8.07 per account
per year Institutional Open Accounts: Accounts in the range from 0 - 400: no charge, included in complex base fee Accounts in the range from 401 - 600: $1,160 per account per year Accounts in the range from 601 - 800: $930 per account per year Accounts in the range from 801 - 1,000: $700 per account per year Accounts in the range over 1,000: $580 per account per year Closed Accounts - $2.09 per closed account per year Non-Institutional
Omnibus Transactions - $1.00 per transaction Institutional
and Intermediary Phone Calls (Inbound & Outbound) - $2.60 per call C. Optional Services* Investor - $1.80 per investor ID AML/CIP - $0.23 per open account per year Universal Dealer
- $150,000 per year Includes conversion to Universal Rep for combined fund
family Same Day
Cash Management Projected Cash - $18,000 per year. * Fees
designated with an asterisk will be allocated between the JPMorgan Funds and
the JPMorgan Value Opportunities Fund. EXHIBIT
A D. Alternative Investment Funds: (Multi Strategy Fund, Spinnaker Fund) Annual CUSIP: S/T investment vehicle - $5,000 per fund per year Investment Fund - $15,000 per fund per year Manual Transactions: S/T Investment Vehicle N/A Investment Fund- $5.00 per transaction Phone Calls: S/T Investment Vehicle $2.60 per call Investment Fund - $2.60 per call Certificate Processing Fee: S/T Investment Vehicle N/A Investment Fund - $5.50 per Certificate E. Financial Intermediary Interface:* Automated: First four funds - $19,780 per intermediary per year Each additional fund - $3,490 per year Manual/Partially Automated: First four funds - $39,570 per intermediary per year Each additional fund - $6,980 per year Programming Rates (rates not subject to usual Boston Financial annual
increases provided the existing six dedicated COBOL resources and the existing
five dedicated Client Services resources are maintained during the term of this
agreement; additional resources would be priced at Boston Financials standard
rate at the time of the addition). Boston Financial would require
a 30-day notification for a reduction of programming support and a 60-day
notification to increase the programming support. COBOL Programmer: Dedicated Resources $140,400 per year each* Additional COBOL Programmers: Dedicated Resources $150,000 per year each* Client Services: Dedicated Resources $100,000 per year each* Business Analyst/Tester: On-Request $125.00 per hour * Technical Programmer: On-Request $160.00 per hour* Insight Technical Support $60,000 per year (across the Fund Sponsor)* TRAC-2000 under separate schedule * Fees
designated with an asterisk will be allocated between the JPMorgan Funds and
the JPMorgan Value Opportunities Fund. EXHIBIT A NOTES TO THE ABOVE FEE SCHEDULE A. The above schedule does not include out of pocket expenses incurred
by Boston Financial on the Trusts behalf. Examples of out of pocket expenses
include but are not limited to Confirmation statements, Investor statements,
forms, postage, mailing services, records retention, transcripts, telephone
line and long distance charges, client remote hardware, excess history, DST
TA2000 Voice, Fan Web, Fan Mail, vision, escheatment, state tax reporting,
wire processing charges, same day cash management, regulatory compliance,
training, disaster recovery ($.20 per account), magnetic tapes, printing, ACH
bank charges, NSCC charges, proxy processing, microfilm/microfiche, etc. B. Service fees and out of pocket expenses are billed monthly. Fees or
out-of-pocket expenses are due within 60 days of the date of the original
invoice. The application of late charges shall be as set forth in the
Agreement. C. NOTICE OF
INTENT TO TERMINATE To terminate
the Transfer Agency Agreement, a party must give written notice to the other
party of at least 120 days prior to the end of a term, as further described
in Section 22 of the Agreement. D. ANNUAL CPI
INCREASE The fees and charges set forth in this fee schedule shall increase
upon each anniversary of this Agreement over the fees and charges during the
prior 12 months in an amount based on the annual percentage of change in the
Consumer Price Index (CPI-U) in the Kansas City, Missouri-Kansas Standard
Metropolitan Statistical Area, All Items, Base 1982-1984=100, as last
reported by the U.S. Bureau of Labor Statistics. E. EARLY
TERMINATION COSTS The
parties acknowledge that BOSTON FINANCIAL has made significant concessions to
JP Morgan, including a substantial reduction in the Fees to be paid by JP
Morgan for Services under the Agreement, partially in exchange for JP Morgans
agreement to a longer term. Should JP Morgan terminate the Agreement to which
this Exhibit A is attached prior to the end of its term, BOSTON FINANCIAL will
suffer damages in an amount difficult to calculate and uncertain in scope and,
accordingly, the parties have agreed that, as liquidated damages and not as a
penalty, in such event, BOSTON FINANCIAL shall be entitled to impose the
mutually agreed upon liquidated damages equal to the sum of the previous 12
months fees excluding Out of Pocket Charges. Notwithstanding the foregoing, in
the event that JP Morgan terminates the Agreement during the last year of the
Initial Term, the foregoing early termination damages amount shall be
calculated as noted above but shall be subject to a pro rata reduction over the
final twelve months of the term depending on JP Morgans actual deconversion
date. EXHIBIT A F. Non-Institutional open account rates will be discounted as follows: Accounts in the range of 1,150,000 1,500,000 10% discount Accounts in the range of 1,500,001 2,000,000 15% discount Accounts greater than 2,000,000 20% discount G. As used
herein, the term JP Morgan is intended to refer, and shall be deemed to
refer, jointly and severally to the each Trust who has executed, or on whose
behalf there has been executed, the Transfer Agency Agreement between Boston
Financial and each Trust pursuant to which Boston Financial acts as transfer
agent for and provides transfer agent services to each such Trust to which
this Fee Proposal is attached (variously, the Agreement, the Agency
Agreement and the Transfer Agency Agreement). H. Institutional
Accounts are defined as follows: A. Non Level 3
Account B. Excessive
Traders equals four or more trades per month C. Account must
be in a dealer serviced by the KC Institutional Desk via fax or phone. D. TPA Traders E. Relationship
Level (i.e. Global Trust has 85 trades per day but in 85 different accounts.
Accounts would be marked proportionate to the number of trades per day. F. Special
Servicing Requirements -with approval from fund (i.e. M Shares accounts) G. Reports are
produced each month allocated by Fund. Account totals are provided to the
client each month. BOSTON FINANCIAL DATA SERVICES, INC. JPMORGAN TRUST I JPMORGAN TRUST II UNDISCOVERED MANAGERS FUNDS J.P. MORGAN MUTUAL FUND GROUP J.P. MORGAN FLEMING MUTUAL FUND J.P. MORGAN MUTUAL FUND INVESTMENT TRUST UM INVESTMENT TRUST J.P. MORGAN SERIES TRUST II J.P. MORGAN FLEMING SERIES TRUST JPMORGAN INSTITUTIONAL TRUST JPMORGAN INSURANCE TRUST JPMORGAN CASH PLUS FUND LLC By: /s/ BRIAN W. AGNEW By: /s/ LAURA S. MELMAN Name: Brian W. Agnew Name: Laura S. Melman Title: Vice
President Title: Assistant Treasurer Appendix A JPMorgan Trust I JPMorgan Emerging Markets
Debt Fund JPMorgan Bond Fund JPMorgan Strategic Income
Fund JPMorgan Short Term Bond
Fund JPMorgan Enhanced Income Fund
JPMorgan California Tax
Free Bond Fund JPMorgan Intermediate Tax
Free Bond Fund JPMorgan New York Tax Free
Bond Fund JPMorgan Tax Aware
Short-Intermediate Income Fund JPMorgan Tax Aware
Disciplined Equity Fund JPMorgan Tax Aware
Enhanced Income Fund JPMorgan Tax Aware U.S.
Equity Fund JPMorgan Tax Aware Large
Cap Growth Fund JPMorgan Equity Income II
Fund JPMorgan Intrepid
International Fund JPMorgan Market Neutral
Fund JPMorgan Emerging Markets
Equity Fund JPMorgan International
Opportunities Fund JPMorgan International
Value Fund JPMorgan Asia Equity Fund JPMorgan Intrepid European
Fund JPMorgan International
Growth Fund JPMorgan International
Small Cap Equity Fund JPMorgan Japan Fund JPMorgan International
Equity Fund JPMorgan Disciplined
Equity Fund JPMorgan Diversified Fund JPMorgan U.S. Equity Fund JPMorgan U.S. Small
Company Fund JPMorgan Capital Growth
Fund JPMorgan Dynamic Small Cap
Fund (to be renamed JPMorgan Dynamic Small Cap Growth Fund as of 6/29/07) JPMorgan Growth and Income
Fund JPMorgan Mid Cap Equity
Fund JPMorgan Small Cap Core
Fund JPMorgan Small Cap Equity
Fund JPMorgan Value Advantage
Fund JPMorgan Intrepid America
Fund JPMorgan Intrepid Growth
Fund JPMorgan Intrepid Multi
Cap Fund JPMorgan Intrepid Value
Fund JPMorgan 100% U.S.
Treasury Securities Money Market Fund JPMorgan California
Municipal Money Market Fund JPMorgan Federal Money
Market Fund JPMorgan New York
Municipal Money Market Fund JPMorgan Prime Money Market
Fund JPMorgan Tax Free Money
Market Fund JPMorgan Tax Aware Core
Equity Fund A-1 JPMorgan Trust I (continued) JPMorgan Tax Aware
Diversified Equity Fund JPMorgan Tax Aware Real
Return Fund JPMorgan Real Return Fund JPMorgan U.S. Large Cap Core
Plus Fund JPMorgan Micro Cap Fund Highbridge Statistical
Market Neutral Fund JPMorgan Intrepid
Long/Short Fund JPMorgan Strategic Small
Cap Value Fund JPMorgan SmartRetirement
Income Fund JPMorgan SmartRetirement
2010 Fund JPMorgan SmartRetirement
2015 Fund JPMorgan SmartRetirement
2020 Fund JPMorgan SmartRetirement
2030 Fund JPMorgan SmartRetirement
2040 Fund JPMorgan International
Realty Fund JPMorgan China Region Fund JPMorgan Global Focus Fund JPMorgan Strategic
Appreciation Fund JPMorgan Strategic
Preservation Fund JPMorgan India Fund JPMorgan International
Currency Income Fund JPMorgan Latin America
Fund JPMorgan Russia Fund JPMorgan Tax Aware Real
Return SMA Fund JPMorgan Income Builder
Fund JPMorgan SmartRetirement
2025 Fund (effective upon the effectiveness of the Funds registration
statement) JPMorgan SmartRetirement
2035 Fund (effective upon the effectiveness of the Funds registration
statement) JPMorgan SmartRetirement
2045 Fund (effective upon the effectiveness of the Funds registration
statement) JPMorgan SmartRetirement
2050 Fund (effective upon the effectiveness of the Funds registration
statement) JPMorgan Value Discovery
Fund (effective upon the effectiveness of the Funds registration statement) JPMorgan Tax
Aware High Income Fund (effective upon the effectiveness of the Funds
registration statement) Undiscovered Managers Funds Undiscovered Managers
Behavioral Growth Fund Undiscovered Managers
Behavioral Value Fund JPMorgan Realty Income
Fund Undiscovered Managers
Small Cap Growth Fund J.P. Morgan Mutual Fund Group JPMorgan Short Term Bond
Fund II J.P. Morgan Fleming Mutual Fund Group, Inc. JPMorgan Mid Cap Value
Fund J.P. Morgan Mutual Fund Investment Trust JPMorgan Growth Advantage
Fund A-2 UM Investment Trust Undiscovered Managers
Multi-Strategy Fund J.P. Morgan Series Trust II JPMorgan Bond Portfolio JPMorgan International
Equity Portfolio JPMorgan Mid Cap Value
Portfolio JPMorgan Small Company
Portfolio JPMorgan U.S. Large Cap
Core Equity Portfolio JPMorgan Institutional Trust JPMorgan Ultra Short-Term
Bond Trust JPMorgan Short-Term Bond
Trust JPMorgan Intermediate Bond
Trust JPMorgan Core Bond Trust JPMorgan Equity Index
Trust JPMorgan Trust II JPMorgan Small Cap Growth
Fund JPMorgan Small Cap Value
Fund JPMorgan Diversified Mid
Cap Growth Fund JPMorgan Diversified Mid
Cap Value Fund JPMorgan Intrepid Mid Cap
Fund JPMorgan Large Cap Growth
Fund JPMorgan Large Cap Value
Fund JPMorgan Equity Income
Fund JPMorgan Equity Index Fund JPMorgan Market Expansion
Index Fund JPMorgan International
Equity Index Fund JPMorgan Multi-Cap Market
Neutral Fund JPMorgan U.S. Real Estate
Fund JPMorgan Investor Growth
Fund JPMorgan Investor Growth
& Income Fund JPMorgan Investor Balanced
Fund JPMorgan Investor
Conservative Growth Fund JPMorgan Short Duration
Bond Fund JPMorgan Ultra Short
Duration Bond Fund JPMorgan Intermediate Bond
Fund JPMorgan Core Bond Fund JPMorgan Core Plus Bond
Fund JPMorgan Government Bond
Fund JPMorgan Treasury &
Agency Fund JPMorgan High Yield Bond
Fund JPMorgan Mortgage-Backed
Securities Fund JPMorgan Short Term
Municipal Bond Fund JPMorgan Tax Free Bond
Fund JPMorgan Municipal Income
Fund JPMorgan Arizona Municipal
Bond Fund JPMorgan Kentucky
Municipal Bond Fund JPMorgan Louisiana
Municipal Bond Fund JPMorgan Michigan
Municipal Bond Fund JPMorgan Ohio Municipal
Bond Fund A-3 JPMorgan Trust II (continued) JPMorgan West Virginia
Municipal Bond Fund JPMorgan Liquid Assets
Money Market Fund JPMorgan U.S. Government
Money Market Fund JPMorgan U.S. Treasury
Plus Money Market Fund JPMorgan Municipal Money
Market Fund JPMorgan Michigan
Municipal Money Market Fund JPMorgan Ohio Municipal
Money Market Fund JPMorgan Insurance Trust JPMorgan Insurance Trust
Balanced Portfolio JPMorgan Insurance Trust
Core Bond Portfolio JPMorgan Insurance Trust
Diversified Equity Portfolio JPMorgan Insurance Trust
Diversified Mid Cap Growth Portfolio JPMorgan Insurance Trust
Diversified Mid Cap Value Portfolio JPMorgan Insurance Trust
Equity Index Portfolio JPMorgan Insurance Trust
Government Bond Portfolio JPMorgan Insurance Trust
International Equity Portfolio JPMorgan Insurance Trust
Intrepid Mid Cap Portfolio JPMorgan Insurance Trust
Intrepid Growth Portfolio JPMorgan Insurance Trust
Large Cap Value Portfolio JPMorgan Insurance Trust
Small Cap Equity Portfolio JPMorgan
Cash Plus Fund LLC * * * * * * * * BOSTON FINANCIAL DATA SERVICES, INC. JPMORGAN TRUST I JPMORGAN TRUST II UNDISCOVERED MANAGERS FUNDS J.P. MORGAN MUTUAL FUND GROUP J.P. MORGAN FLEMING MUTUAL FUND GROUP, INC. J.P. MORGAN MUTUAL FUND INVESTMENT TRUST UM INVESTMENT TRUST J.P. MORGAN SERIES TRUST II JPMORGAN INSTITUTIONAL TRUST JPMORGAN INSURANCE TRUST JPMORGAN CASH PLUS FUND LLC By: By: Name: Name: Title: Title: A-4 Code of Ethics of DVCMM LLC J.P. Morgan Alternative Asset Management, Inc. JPMorgan Asset Management (UK) Ltd. JPMorgan Capital Management LLC JPMorgan Investment Advisors Inc. J.P. Morgan Investment Management Inc. Security Capital Research & Management Inc. (collectively, JPMAM) Effective February 1, 2005 (Revised March 1, 2007) Code of Ethics JPMorgan Asset Management Table of Contents i Code of Ethics JPMorgan Asset Management 1. Introduction and Standards Adoption of the Code of Ethics This Code of Ethics for JPMAM (the Code) has been adopted by the registered investment advisers named on the cover hereof in accordance with Rule 204A-1 under the Investment Advisers Act of 1940 (the Advisers Act). Rule 204A-1 requires, at a minimum, that an advisers code of ethics set forth standards of conduct, require compliance with federal securities laws and address personal trading by advisory personnel. While all J.P. Morgan Chase & Co. (JPMC) staff, including JPMAM Supervised Persons, as defined below, are subject to the personal trading policies under the JPMC Code of Conduct, theJPMAM Code establishes more stringent standards reflecting the fiduciary obligations of JPMAM and its Supervised Persons. Where matters are addressed by both the JPMC Code of Conduct and this Code, Supervised Persons of JPMAM must observe and comply with the stricter standards set forth in this Code. JPMAM hereby designates the staff of its Compliance Department to act as designees for the respective chief compliance officers of the JPMAM registered investment advisers (CCO) in administering this Code. Anyone with questions regarding the Code or its application should contact the Compliance Department. Standards of Business Conduct It is the duty of all Supervised Persons to place the interests of JPMAM clients before their own personal interests at all times and avoid any actual or potential conflict of interest. Given the access that Supervised Persons may have to proprietary and client information, JPMAM and its Supervised Persons must avoid even the appearance of impropriety with respect to personal trading, which must be oriented toward investment rather than short-term or speculative trading. Supervised Persons must also comply with applicable federal securities laws and report any violations of the Code promptly to the Compliance Department, which shall report any such violation promptly to the CCO. Access Persons, as defined below, must report, and JPMAM must review, their personal securities transactions and holdings periodically. See section 2. Reporting Requirements and the Personal Trading Policy for Investment Management Americas Staff, as defined below, for details regarding reporting procedures. Compliance with the Code, and other applicable policies and procedures, is a condition of employment. The rules, procedures, reporting and recordkeeping requirements contained in the Code are designed to prevent employees from violating the provisions of the Code. Failure by a Supervised Person to comply with the Code may adversely impact JPMAM and may constitute a violation of federal securities laws. The Compliance Department shall distribute to each Supervised Person a copy of the Code and any amendments, receipt of which shall be acknowledged in writing by the Supervised Person. Written acknowledgements shall be maintained by the Compliance Department in accordance with section 5. Books and Records to be Maintained by Investment Advisers. The form of acknowledgment shall be determined by the Compliance Department. At least annually, each CCO must review the adequacy of the Code and the policies and the procedures herein referenced. 1 Code of Ethics JPMorgan Asset Management 1.3. General Definitions (a) Supervised Persons include: (1) Any partner, officer, director (or other person occupying a similar status or performing similar functions) and employees of JPMAM; (2) All employees of entities affiliated with JPMAM that have been authorized by the Office of the Corporate Secretary to act in an official capacity on behalf of a legal entity within JPMAM, sometimes referred to as dual hatted employees; (3) Certain consultants as well as any other persons who provide advice on behalf of JPMAM and are subject to JPMAMs supervision and control; and (4) All Access Persons, as defined in paragraph (b). (b) Access Persons include any partner, officer, director (or other person occupying a similar status or performing similar functions) of JPMAM, as well as any other Supervised Person who: (1) Has access to nonpublic information regarding any clients purchase or sale of securities, or nonpublic information regarding the portfolio holdings of any registered fund advised or sub-advised by JPMAM; or (2) Is involved in making securities recommendations to clients, including Funds, or who has access to such recommendations that are nonpublic. (c) Associated Account refers to an account in the name or for the direct or indirect benefit of a Supervised Person or a Supervised Persons spouse, domestic partner, minor children and any other person for whom the Supervised Person provides significant financial support, as well as to any other account over which the Supervised Person or any of these other persons exercise investment discretion, regardless of beneficial interest. Excluded from Associated Accounts are any 401(k) and deferred compensation plan accounts for which the Supervised Person has no investment discretion. (d) Automatic investment plan means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An automatic investment plan includes a dividend reinvestment plan. (f) Client refers to any entity (e.g., person, corporation or Fund) for which JPMAM
provides a service or has a fiduciary responsibility. (g) Federal securities laws means the Securities Act of 1933, the Securities Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, the Investment Company Act of 1940 (1940 Act), the Advisers Act, Title V of the Gramm-Leach-Bliley Act (1999), any rules adopted by the 2 Code of Ethics JPMorgan Asset Management Securities and Exchange Commission (SEC) under any of these statutes, the Bank Secrecy Act as it applies to funds and investment advisers, and any rules adopted thereunder by the SEC or the Department of the Treasury. (h) Fund means an investment company registered
under the 1940 Act. (i) Initial public offering means an offering of securities registered
under the Securities Act of 1933, the issuer of which, immediately before the registration, was not subject to the reporting requirements of sections 13 or 15(d) of the Securities Exchange
Act of 1934. (j) JPMAM is an abbreviation for JPMorgan Asset Management, the asset management business of JPMorgan Chase & Co. Within the context of this document, JPMAM refers to the U.S. registered investment advisers of JPMorgan Asset Management identified on the cover of this Code. (k) Limited offering means an offering that is exempt from registration under the Securities Act of 1933 pursuant to section 4(2) or section 4(6) or pursuant to Rules 504, 505 or 506 thereunder. (l) Personal Trading Policy refers to the Personal Trading Policy for Investment Management Americas Staff and/or the Personal Investment Policy for JPMAM Employees in EMEA, Asia and Japan, as applicable, and the procedures thereunder. (m) Reportable Security means a security as defined under section 202(a)(18) of the Advisers Act held for the direct or indirect benefit of an Access Person, including any note, stock, treasury stock, security future, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security (including a certificate of deposit) or on any group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities
exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a security, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guaranty of, or warrant or right to subscribe to or purchase any of the foregoing. Also included in this definition are open-end mutual funds (except as noted below) and exchange traded funds. Excluded from this definition are: (1) Direct obligations of the Government of the United States; (2) Bankers acceptances, bank certificates of deposit, commercial paper
and high quality short-term debt instruments, including repurchase agreements; (3) Shares issued by money market funds; and (4) Shares of other types of mutual funds, unless JPMAM acts as the investment
adviser, sub-adviser or principal underwriter for the Fund. Reporting Requirements Holdings Reports Access Persons must submit to the Compliance Department a report, in the form designated by the Compliance Department, of the Access Persons current securities holdings that meets the following requirements: 3 Code of Ethics JPMorgan Asset Management 2.1.1. Content of Holdings Reports Each holdings report must contain, at a minimum: (a) The name of any broker, dealer or bank with which the Access Person maintains an Associated Account in which any Reportable
Securities are held for the Access Persons direct or indirect benefit, as well as all pertinent Associated Account details (e.g.,
account title, account number, etc.); (b) The title and type of security, and as applicable the exchange ticker symbol or CUSIP number, number of shares, and principal
amount of each Reportable Security in which the Access Person has any direct or indirect beneficial ownership; and (c) The date the Access Person submits the report. Timing of Holdings Reports Access Persons must each submit a holdings report: (a) No later than 10 days after the person becomes an Access Person, and the information must be current as of a date no more than 45 days prior to the date the person becomes an Access Person. (b) At least once each 12-month period thereafter on January 30, and the information must be current as of a date no more than 45 days prior to the date the report was submitted. Transaction Reports Access Persons must submit to the Compliance Department quarterly securities transactions reports, in the form designated by the Compliance Department, that meet the following requirements: Content of Transaction Reports Each transaction report must contain, at a minimum, the following information about each transaction involving a Reportable Security in which the Access Person had, or as a result of the transaction acquired, any direct or indirect beneficial ownership: (a) The date of the transaction, the title, and as applicable the exchange ticker symbol or
CUSIP number, interest rate and maturity date, number of shares, and principal amount of each Reportable Security involved; (b) The nature of the transaction (i.e., purchase, sale or any other type of
acquisition or disposition); (c) The price of the security at which the transaction was effected; (d) The name of the broker, dealer or bank with or through which the transaction was effected;
and (e) The date the Access Person
submits the report. Timing of Transaction Reports Each Access Person must submit a transaction report no later than 30 days after the end of each calendar quarter, which report must cover, at a minimum, all transactions during the quarter. 4 Code of Ethics JPMorgan Asset Management Consolidated Report At the discretion of the Compliance Department, the form of annual holdings report may be combined with the form of the concurrent quarterly transaction report, provided that such consolidated holdings and transaction report meets, at a minimum, the timing requirements of both such reports if submitted separately. Exceptions from Reporting Requirements An Access Person need not submit: (a) Any report with respect to securities held in accounts over which the Access Person had no direct or indirect influence or control; (b) A transaction report with respect to transactions effected pursuant to an automatic investment plan; (c) A transaction report if the report would duplicate information contained in broker trade confirmations or account statements that the Compliance Department holds in its records so long as the Compliance Department receives the confirmations or statements no later than 30 days after the end of the applicable calendar quarter. Pre-approval of Certain Investments Supervised Persons must obtain approval from the Compliance Department before they directly or indirectly acquire beneficial ownership in any reportable security, including initial public offerings and limited offerings. The Personal Trading Policy shall set forth the Compliance pre-clearance procedures as well as any exceptions to the pre-clearance requirement. Additional Restrictions and Corrective Action under the Personal Trading Policy and other related Policies and Procedures In furtherance of the standards for personal trading set forth herein, JPMAM shall maintain a Personal Trading Policy with respect to the trading restrictions and corrective actions discussed under this section 4, and such other restrictions as may be deemed necessary or appropriate by JPMAM. Designated Broker Requirement Any Associated Account, except as otherwise indicated in the Personal Trading Policy, must be maintained with a Designated Broker, as provided under the JPMC Code of Conduct and the Personal Trading Policy. Blackout Provisions The personal trading and investment activities of Supervised Persons
are subject to particular scrutiny because of the fiduciary nature of the business. Specifically, JPMAM must avoid even the appearance that its Supervised Persons
conduct personal transactions in a manner that conflicts with the firms investment activities on behalf of clients. Towards this end, Supervised Persons may be
restricted from conducting personal investment transactions during certain periods (Blackout Periods), and may be instructed to reverse previously completed personal investment transactions (see
section 4.4
). Additionally, the Compliance Department may restrict the personal trading activity of any Supervised Person if such activity has the appearance
of violating the intent of the blackout provision or is deemed to present a possible conflict of interest. 5 Code of Ethics JPMorgan Asset Management The Blackout Periods set forth in the Personal Trading Policy may reflect varying levels of restriction appropriate for different categories of Supervised Persons based upon their level of access to nonpublic client or proprietary information. Minimum Investment Holding Period and Market Timing Prohibition Supervised Persons are subject to a minimum holding period, as set forth under the Personal Trading Policy, for all transactions in Reportable Securities, as defined under section 1.3. Supervised Persons are not permitted to conduct transactions for the purpose of market timing in any Reportable Security. Market timing is defined as an investment strategy using frequent purchases, redemptions, and/or exchanges in an attempt to profit from short-term market movements. Please see the Personal Trading Policy for further details on transactions covered or exempted from the minimum investment holding period. Trade Reversals and Disciplinary Action Transactions by Supervised Persons are subject to reversal due to a conflict (or appearance of a conflict) with the firms fiduciary responsibility or a violation of the Code or the Personal Trading Policy. Such a reversal may be required even for a pre-cleared transaction that results in an inadvertent conflict or a breach of black out period requirements under the Personal Trading Policy. Disciplinary actions resulting from a violation of the Code will be administered in accordance with related JPMAM policies governing disciplinary action and escalation. All violations and disciplinary actions will be reported promptly by the Compliance Department to the JPMAM CCO. Violations will be reported at least quarterly to the firms executive committee and, where applicable, to the directors or trustees of an affected Fund. Violations by Supervised Persons of any laws that relate to JPMAMs operation of its business or any failure to cooperate with an internal investigation may result in disciplinary action up to and including immediate dismissal and, if applicable, termination of registration. Books and Records to be Maintained by Investment Advisers (a) A copy of this Code and any other code of ethics
adopted by JPMAM pursuant to Rule 204A-1 that has been in effect during the past five years; (b) A record of any violation of the Code, and any action taken as
a result of that violation; (c) A record of all written acknowledgments for each person
who is currently, or within the past five years was, a Supervised Person of JPMAM; (d) A record of each report made by an Access Personas required
under section 2. Reporting Requirements; (e) A record of the names of persons who are currently, or within
the past five years were, Access Persons; 6 Code of Ethics JPMorgan Asset Management (f) A record of any decision, and the reasons supporting the decision, to approve the acquisition of securities by Supervised Personsunder section 3. Pre-approval of Certain Investments, for at least five years after the end of the fiscal year in which the approval is granted; and (g) Any other such record as may be required under the Code or the Personal Trading Policy. Confidentiality Supervised Persons have a special responsibility to protect the confidentiality of information related to customers. This responsibility may be imposed by law, may arise out of agreements with customers, or may be based on policies or practices adopted by the firm. Certain jurisdictions have regulations relating specifically to the privacy of individuals and/or business and institutional customers. Various business units and geographic areas within JPMC have internal policies regarding customer privacy. The foregoing notwithstanding, JPMAM and its Supervised Persons must comply with all provisions under the Bank Secrecy Act, the USA Patriot Act and all other applicable federal securities laws, as well as applicable anti-money laundering and know your client policies, procedures and training requirements of JPMAM and JPMC. Conflicts of Interest With regards to each of the following restrictions, more detailed guidelines may be found under the applicable JPMAM policy and/or the JPMC Code of Conduct. Trading in Securities of Clients Supervised Persons should not invest in any securities of a client with which the Supervised Person has or recently had significant dealings or responsibility on behalf of JPMAM if such investment could be perceived as based on confidential information. Trading in Securities of Suppliers Supervised Persons in possession of information regarding, or directly involved in negotiating, a contract material to a supplier of JPMAM may not invest in the securities of such supplier. If you own the securities of a company with which we are dealing and you are asked to represent JPMorgan Chase in such dealings you must: (a) Disclose this fact to your department head and the Compliance Department; and (b) Obtain prior approval from the Compliance Department before selling such securities. Gifts A conflict of interest occurs when the personal interests of Supervised Persons interfere or could potentially interfere with their responsibilities to the firm and its clients. Supervised Persons should not accept inappropriate gifts, favors, entertainment, special accommodations, or other things of material value that could influence their decision-making or make them feel beholden to a person or firm. Similarly, Supervised Persons should not offer gifts, favors, entertainment or other things of value that could be viewed as overly generous or aimed at influencing decision-making or making a client feel beholden to the firm or the Supervised Person. More specific guidelines are set forth under the JPMC Code of Conduct and operating procedures for the JPMAM Gift, Entertainment and Political
Contributions Database. Supervised Persons are required to log all gifts subject to reporting into the JPMAM Gift, Entertainment and Political Contributions Database. 7 Code of Ethics JPMorgan Asset Management Entertainment No Supervised Person may provide or accept extravagant or excessive entertainment to or from a client, prospective client, or any person or entity that does or seeks to do business with or on behalf of JPMAM. Supervised Persons may provide or accept a business entertainment event, such as dinner or a sporting event, of reasonable value, if the person or entity providing the entertainment is present, and only to the extent that such entertainment is permissible under the JPMC Code of Conduct and operating procedures for the JPMAM Gift, Entertainment and Political Contributions Database. Supervised Persons are required to log all entertainment subject to reporting into the JPMAM Gift, Entertainment and Political Contributions Database. Political and Charitable Contributions Supervised Persons are prohibited from making political contributions for the purpose of obtaining or retaining advisory contracts with government entities. In addition, Supervised Persons are prohibited from considering JPMAMs current or anticipated business relationships as a factor in soliciting political or charitable donations. Additional restrictions, disclosures and other requirements regarding political activities are described under the JPMC Code of Conduct. Supervised Persons are required to pre-clear all political contributions to the election campaigns of non-federal level candidates and PACs. Outside Business Activities A Supervised Persons outside activities must not reflect adversely on the firm or give rise to a real or apparent conflict of interest with the Supervised Persons duties to the firm or its clients. Supervised Persons must be alert to potential conflicts of interest and be aware that they may be asked to discontinue any outside activity if a potential conflict arises. Supervised Persons may not, directly or indirectly: (a) Accept a business opportunity from someone doing business
or seeking to do business with JPMAM that is made available to the Supervised Person because of the individuals position with the firm.
(b) Take for oneself a business opportunity belonging to the firm.
(c) Engage in a business opportunity that competes with any of the
firms businesses.
More specific guidelines are set forth under the conflicts of interest policy of JPMAM and under the JPMC Code of Conduct. Procedures and forms for pre-clearance of these activities by the Office of the Secretary of JPMC are available in the JPMC Procedures for Pre-Clearance of Outside Activities Referenced in the JPMC Code of Conduct. Supervised Persons must seek a new clearance for a previously approved activity whenever there is any material change in relevant circumstances, whether arising from a change in your job or association with JPMAM or in your role with respect to that activity or organization. You are required to be continually alert to any real or apparent conflicts of interest with respect to investment management activities and promptly disclose any such conflicts to Compliance
and the Office of the Corporate Secretary. You must also notify the Office of the Secretary of JPMC when any approved outside activity terminates. Regardless of whether an activity is specifically addressed under JPMAM policies or the JPMC Code of Conduct, Supervised Persons should disclose any personal interest that might present a conflict of interest or harm the reputation of the firm. 8 J.P. Morgan Series Trust II POWERS OF ATTORNEY KNOW
ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and appoints
George C.W. Gatch, Robert L. Young, Patricia A. Maleski, Jessica K. Ditullio,
Stephen M. Benham, Nancy E. Fields, Elizabeth A. Davin, John T. Fitzgerald,
Michael C. Raczynski, Pamela L. Woodley, Ellen W. OBrien, Stephen M. Ungerman,
Arthur A. Jensen, Laura S. Melman, Joseph Bertini and Thomas J. Smith, and each
of them, as his or her true and lawful attorney-in-fact and agent with full
power of substitution and resubstitution for such attorney-in-fact in such
attorney-in-facts name, place and stead, to sign any and all registration
statements or other filings made with the Securities and Exchange Commission or
any state regulatory agency or authority applicable to the above named Trusts,
and any amendments or supplements thereto, and withdrawals thereof, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission or any state regulatory
agency or authority, as appropriate, granting unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
requisite and necessary to be done as fully to all intents and purposes as he or
she might or could do in person in his or her capacity as a Trustee or officer
of the Trusts, hereby ratifying and confirming all that said attorney-in-fact
and agent, or his or her substitute or substitutes, may lawfully do or cause to
be done by virtue hereof. This Powers of Attorney may be signed in one or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same document. Dated March 27, 2007 JPMorgan Trust I J.P. Morgan Series Trust II JPMorgan Trust II JPMorgan Insurance Trust J.P. Morgan Fleming Mutual Fund Group, Inc. Undiscovered Managers Funds J.P. Morgan Mutual Fund Group UM Investment Trust J.P. Morgan Mutual Fund Investment Trust JPMorgan Institutional Trust POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and appoints Robert L. Young, Patricia A. Maleski, Stephanie J. Dorsey, Jessica K. Ditullio, Stephen M. Benham, Nancy E. Fields, Elizabeth A. Davin, John T. Fitzgerald, Pamela L. Woodley, Susan Canning, Ellen W. OBrien, Stephen M. Ungerman, Arthur A. Jensen, Laura S. Melman, Joseph Bertini and Thomas J. Smith, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such attorney-in-fact in such attorney-in-fact's name, place and stead, to sign any and all registration statements or other filings made with the Securities and Exchange Commission or any state regulatory agency or authority applicable to the above named Trusts, and any amendments or supplements thereto, and withdrawals thereof, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission or any state regulatory agency or authority, as appropriate, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person in his or her capacity as a Trustee or officer of the Trusts, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/George C.W. Gatch George C.W. Gatch Dated: May 7, 2007 JPMorgan Trust I J.P. Morgan Series Trust II JPMorgan Trust II JPMorgan Insurance Trust J.P. Morgan Fleming Mutual Fund Group, Inc. Undiscovered Managers Funds J.P. Morgan Mutual Fund Group UM Investment Trust J.P. Morgan Mutual Fund Investment Trust JPMorgan Institutional Trust POWER OF ATTORNEY KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned constitutes and appoints George C.W. Gatch, Robert L. Young, Patricia A. Maleski, Jessica K. Ditullio, Stephen M. Benham, Nancy E. Fields, Elizabeth A. Davin, John T. Fitzgerald, Pamela L. Woodley, Susan Canning, Ellen W. OBrien, Stephen M. Ungerman, Arthur A. Jensen, Laura S. Melman, Joseph Bertini and Thomas J. Smith, and each of them, as his or her true and lawful attorney-in-fact and agent with full power of substitution and resubstitution for such attorney-in-fact in such attorney-in-facts name, place and stead, to sign any and all registration statements or other filings made with the Securities and Exchange Commission or any state regulatory agency or authority applicable to the above named Trusts, and any amendments or supplements thereto, and withdrawals thereof, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange Commission or any state regulatory agency or authority, as appropriate, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done as fully to all intents and purposes as he or she might or could do in person in his or her capacity as a Trustee or officer of the Trusts, hereby ratifying and confirming all that said attorney-in-fact and agent, or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof. /s/Stephanie J. Dorsey Stephanie J. Dorsey May 7, 2007
Carryforwards
FROM TRUST
FROM FUND COMPLEX1
DURING PAST 5 YEARS
President (2005)
Vice President and Chief
Administrative Officer (2005)
Secretary and Chief Legal Officer (2005)*
Chief Compliance Officer (2005)
DURING PAST 5 YEARS
DURING PAST 5 YEARS
$(000s)
*
Securities are of JPMorgan Chase & Co., the parent company of JPMorgan Securities, Inc. These securities are included
in the S&P 500 Index.
June 30,
2005
February
28, 2006*
February
28, 2007
ATTN CLIENT SERVICE MANAGER
1111 POLARIS PKWY STE 3F
COLUMBUS OH 43240-2031
R-2 (middle);
R-2 (low)
R-3 (middle);
R-3 (low)
CC,
C
CC/C
CC,
C
DD,
D
JPMorgan Institutional Trust
By:
George C. W. Gatch
President
Cheryl Ballenger, Trustee
John F. Ruffle, Trustee
Jerry B. Lewis, Trustee
Kenneth Whipple, Jr., Trustee
John R. Rettberg, Trustee
By:
By:
Stephanie J. Dorsey
George C.W. Gatch
Treasurer
President
*By:
Jessica K. Ditullio
Attorney-in-fact
(Amended as of June 14, 2007)
between
JP Morgan Funds and Boston Financial Data Services, Inc.
(continued)
JPMORGAN TRUST II
UNDISCOVERED MANAGERS FUNDS
J.P. MORGAN MUTUAL FUND GROUP
J.P. MORGAN FLEMING MUTUAL FUND
GROUP, INC.
J.P. MORGAN MUTUAL FUND
INVESTMENT TRUST
UM INVESTMENT TRUST
J.P. MORGAN SERIES TRUST II
J.P. MORGAN FLEMING SERIES TRUST
JPMORGAN INSTITUTIONAL TRUST
JPMORGAN INSURANCE TRUST
JPMORGAN CASH PLUS FUND LLC
January 31, 2007
JPMorgan Emerging
Markets Debt Fund
JPMorgan Bond Fund
JPMorgan Strategic Income Fund
JPMorgan Short Term Bond Fund
JPMorgan Enhanced Income Fund
JPMorgan
California Tax Free Bond Fund
JPMorgan Intermediate Tax Free Bond Fund
JPMorgan New York Tax Free Bond Fund
JPMorgan Tax Aware Short-Intermediate
Income Fund
JPMorgan Tax Aware Disciplined Equity
Fund
JPMorgan Tax Aware Enhanced Income Fund
JPMorgan Tax Aware U.S. Equity Fund
JPMorgan Tax Aware Large Cap Growth Fund
JPMorgan Equity Income II Fund
JPMorgan Intrepid International Fund
JPMorgan Market Neutral Fund
JPMorgan Emerging
Markets Equity Fund
JPMorgan International Opportunities
Fund
JPMorgan International Value Fund
JPMorgan Asia Equity Fund
JPMorgan Intrepid European Fund
JPMorgan
International Growth Fund
JPMorgan International Small Cap Equity
Fund
JPMorgan Japan Fund
JPMorgan International Equity Fund
JPMorgan Disciplined Equity Fund
JPMorgan Diversified Fund
JPMorgan U.S. Equity Fund
JPMorgan U.S. Small Company Fund
JPMorgan Capital Growth Fund
JPMorgan Dynamic Small Cap
Fund
JPMorgan Growth and Income Fund
JPMorgan Mid Cap Equity Fund
JPMorgan Small Cap Core Fund
JPMorgan Small Cap Equity Fund
JPMorgan Value Advantage Fund
JPMorgan Intrepid America Fund
JPMorgan Intrepid Growth Fund
JPMorgan Intrepid Multi Cap Fund
JPMorgan Intrepid Value
Fund
JPMorgan 100% U.S. Treasury Securities
Money Market Fund
JPMorgan California Municipal Money
Market Fund
JPMorgan Federal Money Market Fund
JPMorgan New York Municipal Money Market
Fund
JPMorgan Prime Money Market Fund
JPMorgan Tax Free Money Market Fund
JPMorgan Tax Aware Core Equity Fund
January 31, 2007
(continued)
JPMorgan Tax Aware International
Fund
JPMorgan Tax Aware Real Return Fund
JPMorgan Real Return Fund
JPMorgan U.S. Large Cap Core Plus Fund
JPMorgan Micro Cap Fund
Highbridge Statistical Market Neutral
Fund
JPMorgan Intrepid Long/Short Fund
JPMorgan Strategic Small Cap Value Fund
JPMorgan SmartRetirement Income
Fund
JPMorgan SmartRetirement 2010 Fund
JPMorgan SmartRetirement 2015 Fund
JPMorgan SmartRetirement 2020 Fund
JPMorgan
SmartRetirement 2030 Fund
JPMorgan SmartRetirement 2040 Fund
JPMorgan International Realty Fund
JPMorgan China Region Fund
JPMorgan Global Focus Fund
JPMorgan Global Strategic Appreciation Fund
JPMorgan Global Strategic Preservation Fund
JPMorgan India Fund
JPMorgan International Currency Income Fund
JPMorgan Latin America Fund
JPMorgan Russia Fund
JPMorgan Tax Aware Real Return SMA Fund
JPMorgan World Income Builder Fund
Undiscovered
Managers Behavioral Growth Fund
Undiscovered Managers Behavioral Value Fund
JPMorgan Realty Income Fund
Undiscovered Managers Small Cap Growth Fund
JPMorgan Short
Term Bond Fund II
JPMorgan Mid Cap
Value Fund
JPMorgan Growth
Advantage Fund
Undiscovered
Managers Multi-Strategy Fund
January 31, 2007
(continued)
JPMorgan Bond
Portfolio
JPMorgan International Equity Portfolio
JPMorgan Mid Cap Value Portfolio
JPMorgan Small Company Portfolio
JPMorgan U.S. Large Cap Core Equity Portfolio
JPMorgan
Multi-Manager Small Cap Growth Fund
JPMorgan Multi-Manager Small Cap Value Fund
JPMorgan Ultra Short-Term Bond
Trust
JPMorgan Short-Term Bond Trust
JPMorgan Intermediate Bond Trust
JPMorgan Core Bond Trust
JPMorgan Equity Index Trust
JPMorgan Small Cap
Growth Fund
JPMorgan Small Cap Value Fund
JPMorgan Diversified Mid Cap Growth Fund
JPMorgan Diversified Mid Cap Value Fund
JPMorgan Intrepid Mid Cap Fund
JPMorgan Large Cap Growth Fund
JPMorgan Large Cap Value Fund
JPMorgan Equity Income Fund
JPMorgan Equity Index Fund
JPMorgan Market Expansion Index
Fund
JPMorgan International Equity Index Fund
JPMorgan Multi-Cap Market Neutral Fund
JPMorgan U.S. Real Estate
Fund
JPMorgan Investor Growth Fund
JPMorgan Investor Growth & Income
Fund
JPMorgan Investor Balanced Fund
JPMorgan Investor Conservative Growth
Fund
JPMorgan Short Duration Bond Fund
JPMorgan Ultra Short Duration Bond Fund
JPMorgan Intermediate Bond Fund
JPMorgan
Core Bond Fund
JPMorgan Core Plus Bond Fund
JPMorgan Government Bond Fund
JPMorgan Treasury & Agency Fund
JPMorgan
High Yield Bond Fund
JPMorgan Mortgage-Backed Securities Fund
JPMorgan Short Term Municipal Bond Fund
JPMorgan Tax Free Bond
Fund
January 31, 2007
(continued)
JPMorgan Arizona Municipal Bond
Fund
JPMorgan Kentucky Municipal Bond Fund
JPMorgan Louisiana Municipal Bond Fund
JPMorgan Michigan Municipal Bond
Fund
JPMorgan Ohio Municipal Bond Fund
JPMorgan West Virginia Municipal Bond
Fund
JPMorgan Liquid Assets Money Market Fund
JPMorgan U.S. Government Money Market
Fund
JPMorgan U.S. Treasury Plus Money Market
Fund
JPMorgan Municipal Money Market Fund
JPMorgan Michigan Municipal Money Market
Fund
JPMorgan Ohio Municipal Money Market
Fund
JPMorgan Insurance
Trust Balanced Portfolio
JPMorgan Insurance Trust Core Bond
Portfolio
JPMorgan Insurance Trust Diversified
Equity Portfolio
JPMorgan Insurance Trust Diversified Mid
Cap Growth Portfolio
JPMorgan Insurance Trust Diversified Mid
Cap Value Portfolio
JPMorgan Insurance Trust Equity Index
Portfolio
JPMorgan Insurance Trust Government Bond
Portfolio
JPMorgan Insurance Trust International
Equity Portfolio
JPMorgan Insurance Trust Intrepid Mid
Cap Portfolio
JPMorgan Insurance Trust Large Cap
Growth Portfolio
JPMorgan Insurance Trust Large Cap Value
Portfolio
JPMorgan Insurance Trust Small Cap
Equity Portfolio
JPMORGAN TRUST II
UNDISCOVERED MANAGERS FUNDS
J.P. MORGAN MUTUAL FUND GROUP
J.P. MORGAN FLEMING MUTUAL FUND
GROUP, INC.
J.P. MORGAN MUTUAL FUND
INVESTMENT TRUST
UM INVESTMENT TRUST
J.P. MORGAN SERIES TRUST II
J.P. MORGAN FLEMING SERIES TRUST
JPMORGAN INSTITUTIONAL TRUST
JPMORGAN INSURANCE TRUST
JPMORGAN CASH PLUS FUND LLC
BOSTON FINANCIAL DATA SERVICES
FEE SCHEDULE
J.P. MORGAN FUNDS
PAGE 1 OF 4
-Includes all transactions
processed in accounts within social code 009,902,960
BOSTON FINANCIAL DATA SERVICES
FEE SCHEDULE
JPMORGAN FUNDS
PAGE 2 OF 4
BOSTON FINANCIAL DATA SERVICES
FEE SCHEDULE
JPMORGAN FUNDS
PAGE 3 OF 4
BOSTON FINANCIAL DATA SERVICES
FEE SCHEDULE
JPMORGAN FUNDS
PAGE 4 OF 4
GROUP, INC.
Transfer Agency Agreement for JPMorgan Funds
(Amended as of June 14, 2007)
1.
Introduction and Standards
1
1.1.
Adoption of the Code of Ethics
1
1.2.
Standards of Business Conduct
1
1.3.
General Definitions
2
2.
Reporting Requirements
3
2.1.
Holdings Reports.
3
2.1.1.
Content of Holdings Reports
4
2.1.2.
Timing of Holdings Reports
4
2.2.
Transaction Reports
4
2.2.1.
Content of Transaction Reports
4
2.2.2.
Timing of Transaction Reports
4
2.3.
Consolidated Report
5
2.4.
Exceptions from Reporting Requirements
5
3.
Pre-approval of Certain Investments
5
4.
Additional Restrictions and Corrective Action under the Personal
Trading Policy and other related Policies and Procedures
5
4.1.
Designated Broker Requirement
5
4.2.
Blackout Provisions
5
4.3.
Minimum Investment Holding Period and Market Timing Prohibition
6
4.4.
Trade Reversals and Disciplinary Action
6
5.
Books and Records to be Maintained by Investment Advisers
6
6.
Confidentiality
7
7.
Conflicts of Interest
7
7.1.
Trading in Securities of Clients
7
7.2.
Trading in Securities of Suppliers
7
7.3.
Gifts
7
7.4.
Entertainment
8
7.5.
Political and Charitable Contributions
8
7.6.
Outside Business Activities
8
J.P. Morgan Fleming
Series Trust
JPMorgan Institutional Trust
/s/ Cheryl Ballenger
Cheryl Ballenger, Trustee
/s/ John F. Ruffle
John F. Ruffle, Trustee
/s/ Jerry B. Lewis
Jerry B. Lewis, Trustee
/s/ Kenneth Whipple, Jr.
Kenneth Whipple, Jr., Trustee
/s/ John R. Rettberg
John R. Rettberg, Trustee