-----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, WhniR82HNMRWpU14uvCPQwhCQNgcjbmDZpIcwty86E8omLnvIFuSc9oYrW1Q4JeB X3DK5hLn1NChV8OtcMbXvA== 0000912057-01-508681.txt : 20010416 0000912057-01-508681.hdr.sgml : 20010416 ACCESSION NUMBER: 0000912057-01-508681 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 9 FILED AS OF DATE: 20010413 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JP MORGAN FUNDS CENTRAL INDEX KEY: 0000894089 STANDARD INDUSTRIAL CLASSIFICATION: UNKNOWN SIC - 0000 [0000] IRS NUMBER: 133692750 STATE OF INCORPORATION: MA FISCAL YEAR END: 0731 FILING VALUES: FORM TYPE: N-14 SEC ACT: SEC FILE NUMBER: 333-58936 FILM NUMBER: 1602407 BUSINESS ADDRESS: STREET 1: 60 STATE ST STE 1300 STREET 2: 60 STATE STREET, SUITE 1300 CITY: BOSTON STATE: MA ZIP: 02109- BUSINESS PHONE: 6175570700 MAIL ADDRESS: STREET 1: C/O FUNDS DISTRIBUTOR, INC. STREET 2: 60 STATE STREET, SUITE 1300 CITY: BOSTON STATE: MA ZIP: 02109- FORMER COMPANY: FORMER CONFORMED NAME: JPM PIERPONT FUNDS DATE OF NAME CHANGE: 19961011 FORMER COMPANY: FORMER CONFORMED NAME: PIERPONT FUNDS DATE OF NAME CHANGE: 19930328 N-14 1 a2043521zn-14.txt N-14 As filed with the Securities and Exchange Commission on April 13, 2001 Registration No. 333-___/811-07342 ================================================================================ U.S. Securities and Exchange Commission Washington, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ___ Post-Effective Amendment No.___ (Check appropriate box or boxes) Exact Name of Registrant as Specified in Charter: J.P. MORGAN INSTITUTIONAL FUNDS Area Code and Telephone Number: (617) 557-0700 Address of Principal Executive Offices: 60 State Street, Suite 1300 Boston, Massachusetts 02109 Name and Address of Agent for Service: Margaret W. Chambers c/o Fund Distributors, Inc. 60 State Street, Suite 1300 Boston, Massachusetts 02109 Copies to: JOSEPH J. BERTINI, ESQ. SARAH E. COGAN, ESQ. JOHN E. BAUMGARDNER, PETER B. ELDRIDGE, ESQ. Simpson Thacher & Bartlett JR., ESQ. J.P. Morgan Fleming Asset 425 Lexington Avenue Sullivan & Cromwell Management (USA) Inc. New York, NY 10017-3954 125 Broad Street 522 Fifth Avenue New York, NY 10004 New York, NY 10036 ================================================================================ Approximate Date of Proposed Public Offering: As soon as practicable after the Registration Statement becomes effective under the Securities Act of 1933. It is proposed that this filing will become effective on May 13, 2001 pursuant to Rule 488 under the Securities Act of 1933. Calculation of Registration Fee under the Securities Act of 1933: No filing fee is required because an indefinite number of shares have previously been registered on Form N-1A (Registration No. 033-54642/811-07342) pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended. The Registrant's Form 24f-2 for the fiscal year ended May 31, 2000 was filed on October 3, 2000. Pursuant to Rule 429, this Registration Statement relates to the aforesaid Registration Statement on Form N-1A. J.P.Morgan U.S. Equity Fund - Advisor Series a series of J.P. Morgan Institutional Funds 60 State Street, Suite 1300 Boston, Massachusetts 02109 May 12, 2001 Dear Shareholder: A special meeting of the shareholders of J.P.Morgan U.S. Equity Fund - Advisor Series (the "Merging Fund"), a series of J.P. Morgan Institutional Funds ("JPMF"), will be held on July 3, 2001 at 9:00 a.m., Eastern time. Formal notice of the meeting appears after this letter, followed by materials regarding the meeting. As you may be aware, The Chase Manhattan Corporation recently completed a merger with J.P. Morgan & Co. Incorporated, the former corporate parent of the investment adviser of the Merging Fund's assets, to form J.P. Morgan Chase & Co. ("JPMC"). As a result of this merger, JPMC is seeking to reorganize parts of its investment management business and funds advised by its subsidiaries. At the special meeting (the "Meeting"), shareholders will be asked to consider and vote upon the proposed reorganization of the Merging Fund into JPMorgan Institutional U.S. Equity Fund (the "Surviving Fund"), another series of J.P. Morgan Institutional Funds ("JPMF") (the "Reorganization"). After the Reorganization, shareholders of the Merging Fund would hold Class A Shares of the Surviving Fund. The investment objective and policies of the Surviving Fund are identical to those of the Merging Fund. Both the Merging Fund and the Surviving Fund currently invest all of their investable assets in The U.S. Equity Portfolio (the "Master Portfolio"). Concurrent with the Reorganization, the Surviving Fund will cease to operate under a "master/feeder" structure and will instead invest directly in portfolio securities. In connection with the Reorganization, the Surviving Fund will be renamed "JPMorgan U.S. Equity Fund." The Surviving Fund has also entered into agreements and plans of reorganization with (i) JPMorgan Large Cap Equity Fund (formerly, Chase Vista Large Cap Equity Fund), a series of Mutual Fund Select Group ("MFSG") with similar investment objectives and policies to the Merging Fund (the "Chase Fund Reorganization"), and (ii) another mutual fund whose assets are managed by J.P. Morgan Investment Management Inc. ("JPMIM") with identical investment objectives and policies to the Surviving Fund (the "Feeder Reorganization" and, together with the Chase Fund Reorganization, the "Concurrent Reorganizations"). If the Concurrent Reorganizations are approved by the shareholders of these other funds and certain other conditions are met, these other funds will be reorganized into the Surviving Fund. The consummation of the Reorganization is contingent upon the consummation of the Feeder Reorganization. At the Meeting, you will also be asked to consider and vote upon the election of Trustees of JPMF. The investment adviser for the assets of both of the Merging Fund and the Surviving Fund is JPMIM. Please see the enclosed Combined Prospectus/Proxy Statement for detailed information regarding the proposed Reorganization, the Concurrent Reorganizations and a comparison of the Merging Fund and to the Surviving Fund. The cost and expenses associated with the Reorganization, including costs of soliciting proxies, will be borne by JPMC and not by the Merging Fund, the Surviving Fund, JPMF or their shareholders. If approval of the Reorganization is obtained, you will automatically receive Class A Shares of the Surviving Fund. The Proposals have been carefully reviewed by the Board of Trustees of JPMF, which has approved the Proposals. THE BOARD OF TRUSTEES OF JPMF UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE PROPOSALS. Following this letter is a list of commonly asked questions. If you have any additional questions on voting of proxies and/or the meeting agenda, please call us at 1-800-766-7722. A proxy card is enclosed for your use in the shareholder meeting. This card represents shares you held as of the record date, __________, 2001. IT IS IMPORTANT THAT YOU COMPLETE, SIGN, AND RETURN YOUR PROXY CARD IN THE ENVELOPE PROVIDED OR CALL ____________ AS SOON AS POSSIBLE. This will ensure that your shares will be represented at the Meeting to be held on July 3, 2001. Please read the enclosed materials carefully. You may, of course, attend the meeting in person if you wish, in which case the proxy can be revoked by you at the Meeting. Sincerely, Matthew Healey Chairman SPECIAL NOTE: Certain shareholders may receive a telephone call from D.F. King & Co., Inc., us to answer any questions you may have or to provide assistance in voting. Remember, your vote is important! Please sign, date and promptly mail your proxy card(s) in the return envelope provided or call ________ in order to vote. 2 WHY IS THE REORGANIZATION BEING PROPOSED? The Reorganization is being proposed because each Fund's board believes it is in the best interests of shareholders to operate in a multi-class rather than a "master/feeder" structure. IF THE REORGANIZATION IS APPROVED, WHAT WILL HAPPEN? In connection with the Reorganization, the Merging Fund will transfer all of its assets and liabilities to the Surviving Fund and will receive, in exchange, Class A Shares of the Surviving Fund. The Merging Fund will then be liquidated and the Class A Shares of the Surviving Fund will be distributed pro rata to shareholders such as you. After the Reorganization, you will own Class A Shares of the Surviving Fund rather than shares of the Merging Fund. WHAT WILL BE THE EFFECT ON THE INVESTMENT STRATEGIES ASSOCIATED WITH MY INVESTMENT IF THE PROPOSED CHANGES ARE APPROVED? The Surviving Fund has identical investment objectives and policies to those of the Merging Fund. Both the Merging Fund and the Surviving Fund currently invest all of their investable assets in the Master Portfolio. Concurrent with the Reorganization, the Surviving Fund will cease to operate under a "master/feeder" structure and will instead invest its assets directly in portfolio securities. HOW WILL THE FEES AND EXPENSES ASSOCIATED WITH MY INVESTMENT BE AFFECTED? As a result of the Reorganization, the contractual (or pre-waiver) total expense ratios are expected to be higher for your shares in the Surviving Fund than they are for your shares in the Merging Fund. However, the actual (or post-waiver) total expense ratios are expected to be the same or less for your shares in the Surviving Fund than they are for your shares in the Merging Fund. This is because JPMIM has contractually agreed to waive fees payable to it and reimburse expenses so that the total expense ratio will remain the same for at least THREE YEARS after the Reorganization. WILL THERE BE ANY CHANGE IN WHO MANAGES MY INVESTMENT? No. JPMIM will continue to manage the assets of the Surviving Fund after the Reorganization. WHO WILL PAY FOR THE REORGANIZATION? The cost and expenses associated with the Reorganization, including costs of soliciting proxies, will be borne by JPMC and not by either the Merging Fund or the Surviving Fund (or shareholders of either fund). WHAT IF I DO NOT VOTE OR VOTE AGAINST THE REORGANIZATION, YET APPROVAL OF THE REORGANIZATION IS OBTAINED? You will automatically receive Class A shares of the Surviving Fund. 3 HOW WILL THE PROPOSED CONCURRENT REORGANIZATIONS AFFECT MY INVESTMENT IF THEY ARE APPROVED BY THE SHAREHOLDERS OF THE OTHER FUNDS? If the Concurrent Reorganizations are approved and certain other conditions are met, the assets and liabilities of these other merging funds will become assets and liabilities of the Surviving Fund. The consummation of the Reorganization is contingent upon the consummation of the Feeder Reorganization, but not on the consummation of the Chase Fund Reorganization. AS A HOLDER OF SHARES OF THE MERGING FUND, WHAT DO I NEED TO DO? Please read the enclosed Combined Prospectus/Proxy Statement and vote. Your vote is important! Accordingly, please sign, date and mail the proxy card(s) promptly in the enclosed return envelope as soon as possible after reviewing the enclosed Combined Prospectus/Proxy Statement. MAY I ATTEND THE MEETING IN PERSON? Yes, you may attend the Meeting in person. If you complete a proxy card and subsequently attend the Meeting, your proxy can be revoked. Therefore, to ensure that your vote is counted, we strongly urge you to mail us your signed, dated and completed proxy card(s) even if you plan to attend the Meeting. 4 JPMorgan U.S. Equity Fund - Advisor Series a series of J.P. Morgan Institutional Funds 60 State Street, Suite 1300 Boston, Massachusetts 02109 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 3, 2001 To the Shareholders of JPMorgan U.S. Equity Fund - Advisor Series: NOTICE IS HEREBY GIVEN THAT a Special Meeting of the shareholders ("Shareholders") of JPMorgan U.S. Equity Fund - Advisor Series (the "Merging Fund"), a series of J.P. Morgan Institutional Funds ("JPMF"), will be held at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st Floor, New York, NY on July 3, 2001 at 9:00 a.m., (Eastern time) for the following purposes: ITEM 1. To consider and act upon a proposal to approve an Agreement and Plan of Reorganization (the "Reorganization Plan") by and among JPMF, on behalf of the Merging Fund, JPMF, on behalf of JPMorgan Institutional U.S. Equity Fund (the "Surviving Fund"), and J.P. Morgan Chase & Co., and the transactions contemplated thereby, including (a) the transfer of all of the assets and liabilities of the Merging Fund to the Surviving Fund in exchange for Class A Shares of the Surviving Fund (the "Class A Shares"), and (b) the distribution of such Class A Shares to the Shareholders of the Merging Fund in connection with the liquidation of the Merging Fund. ITEM 2. To elect __ Trustees to serve as members of the Board of Trustees of JPMF. ITEM 3. To transact such other business as may properly come before the Special Meeting or any adjournment(s) thereof. YOUR FUND TRUSTEES UNANIMOUSLY RECOMMEND THAT YOU VOTE IN FAVOR OF ITEMS 1 AND 2. Each proposal is described in the accompanying Combined Prospectus/Proxy Statement. Attached as Appendix A to the Combined Prospectus/Proxy Statement is a copy of the Reorganization Plan. Shareholders of record as of the close of business on April 6, 2001 are entitled to notice of, and to vote at, the Special Meeting or any adjournment(s) thereof. SHAREHOLDERS ARE REQUESTED TO EXECUTE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE THE ACCOMPANYING PROXY CARD WHICH IS BEING SOLICITED BY THE BOARD OF TRUSTEES OF JPMF. THIS IS IMPORTANT TO ENSURE A QUORUM AT THE SPECIAL MEETING. PROXIES MAY BE REVOKED AT ANY TIME BEFORE THEY ARE EXERCISED BY SUBMITTING TO THE MERGING FUND A WRITTEN NOTICE OF REVOCATION OR A SUBSEQUENTLY EXECUTED PROXY OR BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON. Margaret W. Chambers Secretary May 12, 2001 2 COMBINED PROSPECTUS/PROXY STATEMENT DATED MAY 12, 2001 ACQUISITION OF THE ASSETS AND LIABILITIES OF JPMORGAN U.S. EQUITY FUND - ADVISOR SERIES A SERIES OF J.P. MORGAN INSTITUTIONAL FUNDS 60 STATE STREET, SUITE 1300 BOSTON, MASSACHUSETTS 02109 (617) 557-0700 BY AND IN EXCHANGE FOR CLASS A SHARES OF JPMORGAN INSTITUTIONAL U.S. EQUITY FUND, A SERIES OF J.P. MORGAN INSTITUTIONAL FUNDS 60 STATE STREET, SUITE 1300 BOSTON, MASSACHUSETTS 02109 (617) 557-0700 This Combined Prospectus/Proxy Statement relates to the proposed reorganization of J.P. Morgan U.S. Equity Fund - Advisor Series (the "Merging Fund"), a series of J.P. Morgan Institutional Funds ("JPMF"), into J.P. Morgan Institutional U.S. Equity Fund (the "Surviving Fund"), a series of JPMF. If approved by shareholders of the Merging Fund, the proposed reorganization will be effected by transferring all of the assets and liabilities of the Merging Fund to the Surviving Fund, which has identical investment objectives and policies to those of the Merging Fund, in exchange for Class A shares of the Surviving Fund (the "Reorganization"). Therefore, as a result of the proposed Reorganization, current shareholders of the Merging Fund (the "Merging Fund Shareholders") will become shareholders of the Surviving Fund ("Surviving Fund Shareholders"). JPMF is an open-end management investment company offering shares in several portfolios. In connection with the Reorganization, the JPMorgan Institutional U.S. Equity Fund will be renamed "JPMorgan U.S. Equity Fund." In connection with the proposed Reorganization, the Surviving Fund will implement a new multi-class structure under which it will offer Class A, Class B, Class C, Select Class and Institutional Class. If the proposed Reorganization is approved by Merging Fund Shareholders, each Merging Fund Shareholder will receive Class A shares (the "Class A Shares") of the Surviving Fund with a value equal to such Merging Fund Shareholder's holdings in the Merging Fund. Merging Fund Shareholders will not pay a sales charge on Class A Shares received in the Reorganization or other JPMorgan Funds subsequently purchased or received as a result of an exchange. At the Meeting, you will also be asked to consider and vote upon the election of Trustees of JPMF. i The terms and conditions of these transactions are more fully described in this Combined Prospectus/Proxy Statement and in the Agreement and Plan of Reorganization (the "Reorganization Plan") among JPMF, on behalf of the Merging Fund, JPMF, on behalf of the Surviving Fund, and J.P. Morgan Chase & Co., attached to this Combined Prospectus/Proxy Statement as Appendix A. The Board of Trustees for JPMF is soliciting proxies in connection with a Special Meeting (the "Meeting") of Shareholders to be held on July 3, 2001 at 9:00 a.m., Eastern time, at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st Floor, New York, NY, at which meeting shareholders in the Merging Fund will be asked to consider and approve the proposed Reorganization Plan, certain transactions contemplated by the Reorganization Plan and certain other proposals. This Combined Prospectus/Proxy Statement constitutes the proxy statement of the Merging Fund for the meeting of its Shareholders and also constitutes JPMF's prospectus for Class A Shares that have been registered with the Securities and Exchange Commission (the "Commission") and are to be issued in connection with the Reorganization. This Combined Prospectus/Proxy Statement, which should be retained for future reference, sets forth concisely the information about JPMF that an investor should know before voting on the proposals. The current Prospectuses, Statements of Additional Information and Annual Reports of the Merging Fund and the Surviving Fund (including the Annual Report of The U.S. Equity Portfolio), and the Semi-Annual Reports of the Merging Fund and the Surviving Fund (including the Semi-Annual Report of The U.S. Equity Portfolio) are incorporated herein by reference, and the current Prospectus and Annual Report (including the Annual Report of The U.S. Equity Portfolio), and Semi-Annual Report (including the Semi-Annual Report of the U.S. Equity Portfolio) for the Surviving Fund is enclosed with this Combined Prospectus/Proxy Statement. A Statement of Additional Information relating to this Combined Prospectus/Proxy Statement containing additional information about JPMF has been filed with the Commission and is incorporated by reference into this Combined Prospectus/Proxy Statement. A copy of the Statement of Additional Information, as well as the Prospectus, Statement of Additional Information, Semi-Annual Report and Annual Report of the Merging Fund (including the Annual Report for the U.S. Equity Portfolio), may be obtained without charge by writing to JPMF at its address noted above or by calling 1-800-766-7722. This Combined Prospectus/Proxy Statement is expected to first be sent to shareholders on or about May 12, 2001. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS COMBINED PROSPECTUS/PROXY STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS COMBINED PROSPECTUS/PROXY STATEMENT AND IN THE MATERIALS EXPRESSLY INCORPORATED HEREIN BY REFERENCE AND, IF GIVEN OR ii MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY JPMF. INVESTMENTS IN THE SURVIVING FUND ARE SUBJECT TO RISK--INCLUDING THE POSSIBLE LOSS OF PRINCIPAL. NO SHARES IN THE SURVIVING FUND ARE BANK DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, ANY BANK AND ARE NOT FEDERALLY INSURED BY, OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. iii TABLE OF CONTENTS
PAGE INTRODUCTION.............................................................................1 PROPOSAL 1: REORGANIZATION PLAN.........................................................1 SUMMARY..................................................................................2 COMPARATIVE FEE AND EXPENSE TABLES.......................................................5 RISK FACTORS.............................................................................8 INFORMATION RELATING TO THE PROPOSED REORGANIZATION......................................9 PURCHASES, REDEMPTIONS AND EXCHANGES....................................................14 DISTRIBUTIONS AND TAXES.................................................................18 COMPARISON OF THE MERGING FUND'S AND THE SURVIVING FUND'S ORGANIZATION STRUCTURE........19 INFORMATION RELATING TO THE ADVISORY CONTRACTS AND OTHER SERVICES.......................21 PROPOSAL 2: ELECTION OF TRUSTEES........................................................24 INFORMATION RELATING TO VOTING MATTERS..................................................28 ADDITIONAL INFORMATION ABOUT JPMF.......................................................30 FINANCIAL STATEMENTS AND EXPERTS........................................................30 OTHER BUSINESS..........................................................................30 LITIGATION..............................................................................31 SHAREHOLDER INQUIRIES...................................................................31 APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION.........................................1
iv INTRODUCTION GENERAL This Combined Prospectus/Proxy Statement is being furnished to the shareholders of the Merging Fund, an open-end management investment company, in connection with the solicitation by the Board of Trustees of JPMF of proxies to be used at a Special Meeting of Shareholders of the Merging Fund to be held on July 3, 2001 at 9:00 a.m., Eastern time, at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st Floor, New York, NY (together with any adjournments thereof, the "Meeting"). It is expected that the mailing of this Combined Prospectus/Proxy Statement will be made on or about May 12, 2001. PROPOSAL 1: REORGANIZATION PLAN ------------------------------- At the Meeting, Merging Fund Shareholders will consider and vote upon the Agreement and Plan of Reorganization (the "Reorganization Plan") dated _______, 2001 between JPMF, on behalf of the Merging Fund, JPMF, on behalf of the Surviving Fund (the Merging Fund and the Surviving Fund are collectively defined as the "Funds"), and J.P. Morgan Chase & Co., pursuant to which all of the assets and liabilities of the Merging Fund will be transferred to the Surviving Fund in exchange for Class A Shares of the Surviving Fund. As a result of the Reorganization, Merging Fund Shareholders will become shareholders of the Surviving Fund and will receive Class A Shares equal in value to their holdings in the Merging Fund on the date of the Reorganization. In connection with the Reorganization, the Surviving Fund will be renamed "JPMorgan U.S. Equity Fund." Further information relating to the Surviving Fund is set forth herein, and the Surviving Fund's Prospectus and Annual Report is enclosed with this Combined Prospectus/Proxy Statement. THE JPMF BOARD HAS UNANIMOUSLY RECOMMENDED THAT SHAREHOLDERS VOTE "FOR" PROPOSAL 1. VOTE REQUIRED Approval of the Reorganization Plan by the Merging Fund requires the affirmative vote of the lesser of (i) 67% or more of the shares of the Merging Fund present at the Meeting if the holders of more than 50% of the outstanding shares of the Merging Fund are present or represented by proxy and (ii) more than 50% of all outstanding shares of the Merging Fund. If the Reorganization Plan is not approved by the Merging Fund Shareholders, the JPMF Board will consider other appropriate courses of action. 1 SUMMARY The following is a summary of certain information relating to the proposed Reorganization, the parties thereto and the transactions contemplated thereby, and is qualified by reference to the more complete information contained elsewhere in this Combined Prospectus/Proxy Statement, the Prospectus, Statement of Additional Information and Annual Report (including the Annual Report and Semi-Annual Report of The U.S. Equity Portfolio) of each of the Surviving Fund and the Merging Fund, and the Reorganization Plan attached to this Combined Prospectus/Proxy Statement as Appendix A. PROPOSED REORGANIZATION Each of the Surviving Fund and the Merging Fund currently invests all of its investible assets in The U.S. Equity Portfolio (the "Master Portfolio"), which has identical investment objectives and policies as the Surviving Fund and the Merging Fund and which is advised by J.P. Morgan Investment Management Inc. ("JPMIM"). The Surviving Fund has also entered into plans of reorganization with (i) JPMorgan Large Cap Equity Fund II (formerly, Chase Vista Large Cap Equity Fund), a series of Mutual Fund Select Group ("MFSG") with similar investment objectives and policies to the Merging Fund (the "Chase Fund Reorganization ") and (ii) JPMorgan U.S. Equity Fund, a series of J.P. Morgan Funds - Advisor Series whose assets are managed by JPMIM (the "Feeder Reorganization" and, together with the Chase Fund Reorganization, the "Concurrent Reorganizations"). If each of the Reorganization and the Concurrent Reorganizations is approved by the shareholders of the respective funds and certain other conditions are met, the Merging Fund and these other funds will be reorganized into the Surviving Fund. Concurrent with the Feeder Reorganization, the Surviving Fund will cease to operate under a "master/feeder" structure and will instead invest directly in portfolio securities rather than in the Master Portfolio. The consummation of the Reorganization and the Concurrent Reorganizations are contingent upon the consummation of the Feeder Reorganization. The consummation of the Reorganization is not contingent upon the consummation of the Chase Fund Reorganization. In connection with the proposed Reorganization, the Surviving Fund will implement a new multi-class structure under which it will offer Class A, Class B, Class C, Select Class Shares and Institutional Class Shares. Pursuant to the proposed Reorganization, the Merging Fund will transfer all of its assets and liabilities to the Surviving Fund in exchange for Class A Shares. Under the proposed Reorganization, each Merging Fund Shareholder will receive a number of Class A Shares of the Surviving Fund with an aggregate net asset value equal on the date of the exchange to the aggregate net asset value of such shareholder's Merging Fund Shares on such date. Therefore, following the proposed Reorganization, Merging Fund Shareholders will be Surviving Fund Shareholders. Merging Fund Shareholders will not pay a sales load in connection with the Reorganization. See "Information Relating to the Proposed Reorganization." The Surviving Fund has investment objectives, policies and restrictions identical to the Merging Fund. However, while the Merging Fund and the Surviving Fund currently invest all of 2 their assets in the Master Portfolio (which in turn invests in portfolio securities), after the Reorganization the Surviving Fund will invest directly in portfolio securities. Following the Reorganization the Surviving Fund will have substantially similar purchase, redemption and dividend policies as the Merging Fund. Based upon their evaluation of the relevant information presented to them, including an analysis of the operation of the Surviving Fund both before and after the Reorganization, the terms of the Reorganization Plan, the opportunity to combine the two Funds with identical investment objectives and policies, and the fact that the Reorganization will be tax-free, and in light of their fiduciary duties under federal and state law, the JPMF Board, including a majority of each Board's members who are not "interested persons" within the meaning of the Investment Company Act of 1940, as amended (the "1940 Act"), have each determined that the proposed Reorganization is in the best interests of each Fund and its respective shareholders and that the interests of such shareholders will not be diluted as a result of such Reorganization. REASONS FOR THE REORGANIZATION The Reorganization is being proposed because each Fund's board believes that it is in the best interest of the shareholders to operate in a multi-class rather than a master/feeder structure. FEDERAL INCOME TAX CONSEQUENCES Simpson Thacher & Bartlett will issue an opinion (based on certain assumptions) as of the effective time of the Reorganization to the effect that the transaction will not give rise to the recognition of income, gain or loss for federal income tax purposes to the Merging Fund, the Surviving Fund or the shareholders of the Merging Fund. A shareholder's holding period and tax basis of Class A Shares received by a shareholder of the Merging Fund will be the same as the holding period and tax basis of the shareholder's shares of the Merging Fund. In addition, the holding period and tax basis of those assets owned by the Merging Fund and transferred to the Surviving Fund will be identical for the Surviving Fund. See "Information Relating to the Proposed Reorganization - Federal Income Tax Consequences." INVESTMENT ADVISER The investment adviser for the Master Portfolio (and therefore the assets of the Merging Fund and the Surviving Fund) is JPMIM. Following the Reorganization, JPMIM will serve as the Surviving Fund's investment adviser. JPMIM is a wholly-owned subsidiary of J.P. Morgan Chase & Co. ("JPMC"). JPMIM will continue to serve as investment advisor for the Surviving Fund following the Reorganization. INVESTMENT OBJECTIVE AND POLICIES The investment objective of the Surviving Fund and the Merging Fund is to provide high total return from a portfolio of selected equity securities. See "Risk Factors." Both Funds have identical investment policies, and the Surviving Fund's investment policies will not change after the Reorganization, although, as mentioned above, the Surviving Fund will invest in portfolio securities rather than the Master Portfolio. For more information regarding the Surviving Fund's 3 investment policies, see the Surviving Fund's Prospectus enclosed with this Combined Proxy Statement. The Surviving Fund invests primarily in large- and medium-capitalization U.S. companies. Industry by industry, the Surviving Fund's weightings are similar to those of the Standard & Poor's 500 Stock Index (S&P 500). The Surviving Fund can moderately underweight or overweight industries when it believes it will benefit performance. Within each industry, the Surviving Fund focuses on those stocks that JPMIM believes are most undervalued. PRINCIPAL RISKS OF INVESTING IN THE SURVIVING FUND The principal risk factors associated with an investment in the Surviving Fund are those typically associated with investing in a managed portfolio of equity securities. In particular, the value of shares of the Surviving Fund will be influenced by the performance of the securities selected for its portfolio. The value of the Surviving Fund's shares will fluctuate in response to movements in the stock market, especially movements of those stocks included in the S&P 500. See "Risk Factors." CERTAIN ARRANGEMENTS WITH SERVICE PROVIDERS ADVISORY SERVICES The investment adviser for the Surviving Fund's and the Merging Fund's assets is JPMIM. JPMIM oversees the asset management of both funds. As compensation for its services, JPMIM receives a management fee indirectly from both funds at an annual rate of 0.40% of average daily net assets. Following the Reorganization, JPMIM will manage the Surviving Fund's assets and will receive a fee at an annual rate of 0.40% of average daily net assets. OTHER SERVICES J.P. Morgan Fund Distributors, Inc. ("the Distributor") is the distributor for the Surviving Fund. Morgan Guaranty Trust Company of New York ("Morgan") currently serves as administrator and shareholder servicing agent and an affiliate agent of JFD currently serves as sub-administrator. It is anticipated that prior to the consummation of the Reorganization, Morgan will merge with The Chase Manhattan Bank ("Chase") which will become the Surviving Fund's administrator and shareholder servicing agent. The Bank of New York ("BONY") currently serves as fund accountant and custodian, and DST Systems, Inc. ("DST") currently serves as transfer agent and dividend disbursing agent for the Surviving Fund. It is anticipated that prior to the consummation of the Reorganization, Chase will become the Surviving Fund's fund accountant and custodian. PricewaterhouseCoopers LLP serves as the Surviving Fund's independent accountants. ADMINISTRATOR In connection with the Reorganization, the administration fee paid to Morgan will increase to 0.15% of average daily net assets on the first $26 billion of complex wide non-money market assets and 0.075% on complex wide non-money market assets in excess of $26 billion. ORGANIZATION JPMF is organized as a Massachusetts business trust. Each of the Merging Fund and the Surviving Fund is organized as a series of JPMF. 4 PURCHASES, REDEMPTIONS AND EXCHANGES After the Reorganization, the procedures for making purchases, redemptions and exchanges of Class A Shares of the Surviving Fund will be substantially similar to those with respect to shares of the Merging Fund, as described in this Combined Prospectus/Proxy Statement and the Surviving Fund's Prospectus and Statement of Additional Information. COMPARATIVE FEE AND EXPENSE TABLES The table below shows (i) information regarding the fees and expenses paid by each of the Merging Fund and the Surviving Fund that reflect current expense arrangements, (ii) estimated fees and expenses on a pro forma basis after giving effect to the Reorganization and the Feeder Reorganization but not the Chase Fund Reorganization and (iii) estimated fees and expenses on a pro forma basis for the Surviving Fund after giving effect to the Concurrent Reorganizations. Under the proposed Reorganization, holders of Shares in the Merging Fund will receive Class A Shares in the Surviving Fund. Please note that the Surviving Fund currently has one class of shares. In connection with the Reorganization, this class will be re-named "Institutional Class" and the Class A share class, the Class B share class, Class C share class and the Select share class will be introduced. The table indicates that while contractual (pre-waiver) total expense ratios for current shareholders of the Merging Fund are anticipated to be higher following the Reorganization, actual (post-waiver) total expense ratios for current shareholders of the Merging Fund are anticipated to be less or stay the same following the Reorganization. This is because Morgan has agreed to waive certain fees and/or reimburse certain expenses to ensure that actual total operating expenses do not increase for at least three years.
THE MERGING FUND THE SURVIVING FUND ------------------------ --------------------------- SHARES SHARES ------------------------ --------------------------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)-- Maximum Sales Charge (Load) when you buy shares, shown as % of the offering price .......................................... None None Maximum Deferred Sales Charge (Load) shown as lower of original purchase price or redemption proceeds .......... None None
5
THE MERGING FUND THE SURVIVING FUND ------------------------ --------------------------- SHARES SHARES ------------------------ --------------------------- ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees...................... .40% 0.40% Distribution (12b-1) Fees............ .25% None Other Expenses....................... .53% 0.23% Total Annual Fund Operating Expenses. 1.18% 0.63% Fee Waivers and Expense Reimbursements(1)................. 0.13% None Net Expenses......................... 1.05% 0.63%
- ---------------------- (1) Reflects an agreement by Morgan, an affiliate of JPMC, to reimburse the Fund to the extent operating expenses (which exclude interest, taxes, and extraordinary expenses) exceed 1.05% of average daily net assets with respect to the Merging Fund through 9/30/01.
Class A Shares ---------- SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)- Maximum Sales Charge (Load) when your buy shares, shown as % of the offering price ........................... None Maximum Deferred Sales Charge (Load) shown as lower of original purchase price or redemption proceeds.................................. None ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees........................... 0.40% Distribution (12b-1) Fees................. 0.25% Other Expenses............................ 0.70% Total Annual Fund Operating Expenses...... 1.35% Fee Waivers and Expense Reimbursements(2). 0.30% Net Expenses.............................. 1.05% - --------------------
6 (2) Reflects an agreement by Morgan, an affiliate of JPMC, to reimburse the Fund to the extent operating expenses (which exclude interest, taxes, and extraordinary expenses) exceed 1.05% of average daily net assets with respect to Class A Shares for a period of three years after the Reorganization. CLASS A SHARES --------------
SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT)- Maximum Sales Charge (Load) when you buy shares, shown as % of the offering price ................................... 5.75% Maximum Deferred Sales Charge (Load) shown as lower of original purchase price or redemption proceeds ....................................... None ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees ........................................... 0.40% Distribution (12b-1) Fees ................................. 0.25% Other Expense ............................................. 0.70% Total Annual Fund Operating Expense ................................................... 1.35% Fee Waivers and Expense Reimbursements .................................... 0.30%(A) Net Expenses .............................................. 1.05%
- -------------------- (A) Reflects an agreement by Morgan, an affiliate of JPMC, to reimburse the Fund to the extent total operating expenses (excluding interest, taxes, and extraordinary expenses) exceed 1.05% of average daily net assets with respect to Class A Shares for three years after the Reorganization. The table does not reflect charges or credits which investors might incur if they invest through a financial institution. EXAMPLE: This example helps investors compare the cost of investing in the Funds with the cost of investing in other mutual funds. The example assumes: - You invest $10,000; - You sell all of your shares at the end of each period; - Your investment has a 5% return each year; and - Each Fund's operating expenses are waived for three years after the Reorganization and unwaived for the period thereafter and remain the same as shown above. 7 Although actual costs may be higher or lower, based upon these assumptions your costs would be:
1 YEAR 3 YEARS 5 YEARS 10 YEARS --------- ------- ------- -------- The Merging Fund.................... $107 $358 - - The Surviving Fund.................. $ 64 $202 $351 $786 PRO FORMA COMBINED THE SURVIVING FUND WITH FEEDER Class A Shares..................... $107 $398 $649 $1541 PRO FORMA COMBINED THE SURVIVING FUND WITH CONCURRENT REORGANIZATION Class A Shares...................... $676 $890 $1186 $2027 Class A Shares without sales charge $107 $398 $649 $1541
RISK FACTORS The following discussion highlights the principal risk factors associated with an investment in the Surviving Fund. The Surviving Fund has investment policies and investment restrictions, and therefore risks, identical to those of the Merging Fund. This discussion is qualified in its entirety by the more extensive discussion of risk factors set forth in the Prospectus and Statement of Additional Information of the Surviving Fund, which are incorporated herein by reference. All mutual funds carry a certain amount of risk. You may lose money on your investment in the Surviving Fund. The Surviving Fund may not achieve its objective if JPMIM's expectations regarding particular securities or markets are not met. The Surviving Fund could underperform its benchmark due to JPMIM's securities and asset allocation choices. In general, the value of an investment in the Surviving Fund will fluctuate in response to movements in the stock market. Adverse market conditions may from time to time cause the Fund to take temporary defensive positions that are inconsistent with its principal investment strategies and may hinder the Fund from achieving its investment objective. The Surviving Fund does not expect to invest more than 20% of its assets, at the time of purchase, in foreign securities, and therefore may be subject to risks in addition to those associated with U.S. securities. For example, international currency exchange rate movements could reduce gains or create losses. Additionally, the Surviving Fund could lose money because of foreign government actions, political instability or lack of adequate and/or accurate information. The Surviving Fund may buy when-issued and delayed delivery securities. The Surviving Fund may invest in derivatives such as futures, options, swaps and forward foreign currency contracts that are used for hedging the portfolio or specific securities. 8 These derivatives may not fully offset the underlying positions. This could result in losses to the Fund that would not have otherwise occurred. Derivatives used for risk management may not have the intended effects and may result in losses or missed opportunities. The counterparty to a derivatives contract could default. Certain types of derivatives involve costs to the Fund which can reduce returns. Derivatives that involve leverage could magnify losses. The Surviving Fund may lend some of its portfolio securities in order to earn income. When the Surviving Fund lends a security, there is a risk that the loaned securities may not be returned if the borrower defaults. The collateral the Surviving Fund receives from the borrower will be subject to the risks of the securities in which it is invested. The Surviving Fund may invest in illiquid securities. The Surviving Fund could have difficulty valuing these holdings precisely. The Surviving Fund could be unable to sell these securities at the time or price desired. The Surviving Fund may use short-term trading to take advantage of attractive or unexpected opportunities or to meet demands generated by shareholder activity. Increased trading would raise the Surviving Fund's transaction costs. Increased short-term capital gains distributions would raise shareholders' income tax liability. An investment in the Surviving Fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the Surviving Fund's share price is lower than when you invested. INFORMATION RELATING TO THE PROPOSED REORGANIZATION GENERAL The terms and conditions under which the Reorganization may be consummated are set forth in the Reorganization Plan. Significant provisions of the Reorganization Plan are summarized below; however, this summary is qualified in its entirety by reference to the Reorganization Plan, a copy of which is attached as Appendix A to this Combined Prospectus/Proxy Statement and which is incorporated herein by reference. DESCRIPTION OF THE REORGANIZATION PLAN The Reorganization Plan provides that at the Effective Time (as defined in the Reorganization Plan) of the Reorganization, the assets and liabilities of the Merging Fund will be transferred to and assumed by the Surviving Fund. In exchange for the transfer of the assets and the assumption of the liabilities of the Merging Fund, JPMF will issue at the Effective Time of the Reorganization full and fractional Class A Shares of the Surviving Fund equal in aggregate dollar value to the aggregate net asset value of full and fractional outstanding shares of the Merging Fund as determined at the valuation time specified in the Reorganization Plan. The Reorganization Plan provides that the Merging Fund will declare a dividend or dividends prior to the Effective Time of the Reorganization which, together with all previous dividends, will have the effect of distributing to Merging Fund Shareholders all undistributed net investment income 9 earned and net capital gain realized up to and including the Effective Time of the Reorganization. Following the transfer of assets to, and the assumption of the liabilities of the Merging Fund by, the Surviving Fund, the Merging Fund will distribute Class A Shares received by it to the Merging Fund Shareholders in liquidation of the Merging Fund. Each Merging Fund Shareholder at the Effective Time of the Reorganization will receive an amount of Class A Shares with a total net asset value equal to the net asset value of their Merging Fund Shares plus the right to receive any dividends or distributions which were declared before the Effective Time of the Reorganization but that remained unpaid at that time with respect to the shares of the Merging Fund. The Surviving Fund expects to maintain most of the portfolio investments of the Merging Fund in light of the identical investment policies of the Merging Fund and the Surviving Fund. Concurrently with the Reorganization, the Surviving Fund will cease to operate under a "master/feeder" structure and will instead invest directly in portfolio securities rather than in the Master Portfolio. After the Reorganization, all of the issued and outstanding shares of the Merging Fund shall be canceled on the books of the Merging Fund and the stock transfer books of the Merging Fund will be permanently closed. The Reorganization is subject to a number of conditions, including without limitation: approval of the Reorganization Plan and the transactions contemplated thereby described in this Combined Prospectus/Proxy Statement by the Merging Fund Shareholders; the receipt of a legal opinion from Simpson Thacher & Bartlett with respect to certain tax issues, as more fully described in "Federal Income Tax Consequences" below; and the parties' performance in all material respects of their respective agreements and undertakings in the Reorganization Plan. Assuming satisfaction of the conditions in the Reorganization Plan, the Effective Time of the Reorganization will be on August 11, 2001 or such other date as is agreed to by the parties. In addition, the consummation of the Reorganization is contingent upon the consummation of the Feeder Reorganization. The expenses of the Funds in connection with the Reorganization will be borne by JPMC. The Reorganization Plan and the Reorganization described herein may be abandoned at any time prior to the Effective Time of the Reorganization by either party if a material condition to the performance of such party under the Reorganization Plan or a material covenant of the other party is not fulfilled by the date specified in the Reorganization Plan or if there is a material default or material breach of the Reorganization Plan by the other party. In addition, either party may terminate the Reorganization Plan if its trustees determine that proceeding with the Reorganization Plan is not in the best interests of their Fund's shareholders. BOARD CONSIDERATIONS In 1993, the JPF Board and shareholders approved the restructuring of the Funds into their current "master-feeder" format, pursuant to which the Funds (the feeders) invested their 10 assets in a common Portfolio - the "master" - and shares of each Fund were sold to different categories of investors with different distribution and shareholder services and fees. Among other reasons for the 1993 restructuring was the opportunity to obtain the economies of scale from an investment and expense perspective that might come from the investment and administration of a larger pool of assets than any one fund could expect to have on its own. An important factor in the Board's decision at the time was that non-U.S. investors' assets would be invested alongside those of U.S. investors within the master Portfolio on a basis that was not disadvantageous to the non-U.S. investors from a U.S. tax perspective. For various reasons, the non-U.S. feeders withdrew their assets from the master commencing in 1997, thereby eliminating one of the principal reasons for the master-feeder format. Nevertheless, the Funds continued in that format and, the Board believes, conducted their operations on a basis at least as favorable to the Funds as would have obtained if the format had been abandoned, as is now proposed. Following the announcement of the J.P. Morgan-Chase merger, JPMIM and Morgan and their counterparts within the Chase organization reviewed the compatibilities of their various mutual fund groups, including their respective organizational structures, service providers, distribution arrangements and methodologies, and fees and expenses. The proposed Reorganization of the Merging Fund into the Surviving Fund is a part of the more general integration of the J.P. Morgan funds complex with the Chase Vista funds complex to create a single mutual fund complex with substantially similar arrangements for the provision of advisory, administration, distribution, custody and fund accounting and transfer agency services. The JPF Board believes that the conversion by way of the proposed Reorganization of the current master-feeder format into the multiclass format discussed in this proxy statement and the adoption of the service arrangements by the Surviving Fund described herein (the "Service Arrangements") are in the best interests of the Surviving and Merging Funds and their respective shareholders and that the interests of shareholders will not be diluted as a result of the Reorganization. In considering the proposed Reorganization and Service Arrangements, the JPF Board also noted that there were important benefits expected to arise out of the integration of the J.P. Morgan and Chase Vista mutual funds complexes. Among these benefits, the Board considered (1) investor and shareholder confusion should be mitigated if not eliminated by the adoption by both the J.P. Morgan and the Chase Vista mutual funds of common organizational structures and common service providers, (2) Surviving Fund shareholders would be able to exchange into a 11 larger number and greater variety of funds without paying sales charges, (3) additional share classes offered by the Surviving Fund should have a positive effect on asset growth, which in turn over time could result in a lower total expense ratio as economies of scale were realized; (4) JPMIM advised the Board that it believes that the outsourcing of many functions to the subadministrator will (a) upgrade the quality of services currently being provided to the Funds, and (b) enhance Morgan's ability effectively to monitor and oversee the quality of all Fund service providers, including the investment adviser, distributor, custodian and transfer agent; (5) Morgan's undertaking for three years to waive fees or reimburse the Surviving Fund's expenses in order that the total expense ratios of the Select and Institutional Classes do not exceed those of the Merging Fund and the Surviving Fund, respectively; (6) the fact that all costs and expenses of the Reorganization and implementation of the Service Arrangements would be borne by JPMC and (7) the fact that the Reorganization would constitute a tax-free reorganization. In addition, the Board took into account that, notwithstanding the increase in the contract fee rate of Morgan, J.P. Morgan agreed to increase from one to three years noted above its undertaking to cap the total expense ratio on the Select and Institutional Classes and to institute a breakpoint in the Administration fee from .15% of the average daily net assets in the aggregate of all funds in the fully integrated funds group to .075% of such assets over [$25] billion (the aggregate of such assets being [$19] billion as of March 31, 2001). Moreover, JPMIM agreed that, notwithstanding its proposed increase to $1 million of the minimum investment in the Select Class, all current shareholders of the Merging Fund (for which the current minimum is $2,500) will be entitled to make additional investments in the Select Class of the Surviving Fund or of any other fund in the integrated fund complex or to exchange shares of the Select Class of the Surviving Fund for Select Shares of any other such fund. The Board also noted that J.P. Morgan did not propose and advised that it does not expect to propose the imposition of any distribution (12b-1) fees or shareholder servicing fees on the Select or Institutional Class that are not already in place. Finally the Board was advised that the custody and fund accounting fees to be charged by Chase Global Investors Services will be lower than those currently charged by The Bank of New York. It should be recognized that, at current asset levels and in consequence of the expense cap, the lower custody and fund accounting fees will not have an immediate effect on the Surviving Fund's total expense ratio but should have some positive effect in the future. Based upon their evaluation of the relevant information provided to them, the changes effected in the Service Arrangements in the negotiations between the Trustees and J.P. Morgan, and in light of their fiduciary duties under federal and state law, the Trustees, including a majority who are not interested persons of the Funds or JPMC as defined in the 1940 Act, determined that the proposed Reorganization is in the best interests of both the Merging and Surviving Fund, that the interests of the shareholders of each of the Merging Fund and the Surviving Fund would not be diluted as a result of the Reorganization, and that the Service Arrangements are in the best interests of the Surviving Fund. THE JPMF BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL. 12 The JPMF Board has not determined what action the Merging Fund will take in the event shareholders do not approve the Reorganization Plan or for any reason the Reorganization is not consummated. In either such event, the Board will consider other appropriate courses of action. INFORMATION RELATING TO THE CONCURRENT REORGANIZATIONS The terms and conditions under which the Concurrent Reorganizations may be consummated are set forth in reorganization plans which are substantially similar to the Reorganization Plan you are in considering. Concurrently with the Reorganization and Feeder Reorganization, the Surviving Fund will cease to operate under a "master/feeder" structure and will instead invest directly in portfolio securities rather than in the Master Portfolio. The consummation of the Chase Fund Reorganization is contingent upon the consummation of the Reorganization and the Feeder Reorganization. FEDERAL INCOME TAX CONSEQUENCES Consummation of the Reorganization is subject to the condition that JPMF receive an opinion from Simpson Thacher & Bartlett to the effect that for federal income tax purposes: (i) the transfer of all of the assets and liabilities of the Merging Fund to the Surviving Fund in exchange for the Class A Shares and the liquidating distributions to shareholders of the Class A Shares so received, as described in the Reorganization Plan, will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and with respect to the Reorganization, the Merging Fund and the Surviving Fund will each be considered "a party to a reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized by the Merging Fund as a result of such transaction; (iii) no gain or loss will be recognized by the Surviving Fund as a result of such transaction; (iv) no gain or loss will be recognized by the Merging Fund Shareholders on the distribution to the Merging Fund Shareholders of the Class A Shares solely in exchange for their Merging Fund Shares; (v) the aggregate basis of shares of the Surviving Fund received by a shareholder of the Merging Fund will be the same as the aggregate basis of such Merging Fund Shareholder's Merging Fund Shares immediately prior to the Reorganization; (vi) the basis of the Surviving Fund in the assets of the Merging Fund received pursuant to such transaction will be the same as the basis of such assets in the hands of the Merging Fund immediately before such transaction; (vii) a Merging Fund Shareholder's holding period for the Class A Shares will be determined by including the period for which such Merging Fund Shareholder held the Merging Fund Shares exchanged therefor, provided that the Merging Fund Shareholder held such Merging Fund Shares as a capital asset; and (viii) the Surviving Fund's holding period with respect to the assets received in the Reorganization will include the period for which such assets were held by the Merging Fund. The Master Portfolio currently has an aggregate basis in its assets that is higher than the aggregate basis of all of the partnership interests in the Master Portfolio. Upon consummation of the Reorganization, the Surviving Fund will have an aggregate basis in its assets equal to the aggregate basis of the partnership interests in the Master Portfolio held by the Merging Fund and the Surviving Fund immediately prior to the Reorganization rather than the higher aggregate basis that such assets had in the hands of the Master Portfolio. Thus, the benefit of such higher basis will be lost upon consummation of the Reorganization. JPMF has not sought a tax ruling from the Internal Revenue Service (the "IRS"), but is acting in reliance upon the opinion of counsel discussed in the previous paragraph. That opinion is not binding on the IRS and does not preclude the IRS from adopting a contrary position. Shareholders should consult their own advisers concerning the potential tax consequences to them, including state and local income taxes. 13 CAPITALIZATION Because the Merging Fund will be combined with the Surviving Fund in the Reorganization as well as the Feeder Advisor Portfolio as a result of the Concurrent Reorganizations, the total capitalization of the Surviving Fund after the Reorganization and the Concurrent Reorganizations is expected to be greater than the current capitalization of the Merging Fund. The following tables sets forth as of November 30, 2000: (i) the capitalization of the Merging Fund; (ii) the capitalization of the Surviving Fund and (iii) the pro forma capitalization of the Surviving Fund as adjusted to give effect to the Concurrent Reorganizations. There is, of course, no assurance that the Reorganization and the Concurrent Reorganizations will be consummated. Moreover, if consummated, the capitalizations of the Surviving Fund and the Merging Fund are likely to be different at the Effective Time of the Reorganization as a result of fluctuations in the value of portfolio securities of each Fund and daily share purchase and redemption activity in each Fund. The Surviving Fund currently has one class of shares. In connection with the Reorganization, this class will be renamed Institutional Class and the Class A share class, Class B share class, Class C share class, and the Select share class will be introduced. CAPITALIZATION PRO FORMA WITH CONCURRENT REORGANIZATION
BENEFICIAL NET ASSET INTEREST SHARES VALUE PER OUTSTANDING OUTSTANDING NET ASSETS SHARE ----------- ------------- ---------- --------------- J.P MORGAN FUNDS J.P. Morgan U.S. Equity Fund -- Advisor Series (the Merging Fund) 53,157 - 475,351 8.94 J.P. Morgan U.S. Equity Fund 16,611,076 - 343,997,623 20.71 J.P. Morgan Institutional U.S. Equity Fund (the Surviving Fund) 15,051,872 - 183,470,628 12.19 JPMORGAN LARGE CAP EQUITY FUND Class A - 3,980,818 60,636,740 15.23 Class B - 1,780,660 26,905,354 15.11 Class C - 124,782 1,876,100 15.04 Institutional - 7,076,121 108,285,188 15.30 PRO FORMA COMBINED WITH CONCURRENT REORGANIZATION Class A - 5,013,616 61,112,083 12.19 Class B - 2,207,306 26,905,349 12.19 Class C - 153,915 1,876,106 12.19 Select - 37,105,139 452,282,818 12.19 Institutional - 15,051,872 183,470,628 12.19
(1) Formerly, Chase Vista Large Cap Equity Fund PURCHASES, REDEMPTIONS AND EXCHANGES Following the Reorganization, the procedures for purchases, redemptions and exchanges of shares of the Surviving Fund will be substantially similar to those of the Merging Fund. The Surviving Fund currently has one class of shares. In connection with the Reorganization and the Concurrent Reorganizations, this class will be renamed "Institutional Class" and the Class A share class, Class B share class, Class C share class and Select Class share class will be introduced. The following discussion reflects the new class structure. This section is qualified 14 in its entirety by the discussion in the Prospectus and Statement of Additional Information of the Surviving Fund, which are incorporated herein by reference. 12b-1 FEES JFD is the distributor for the Surviving Fund. The Surviving Fund will adopt a Rule 12b-1 distribution plan for Class A Shares under which it will pay annual distribution fees of up to 0.25% of the average daily net assets attributable to Class A Shares. A similar 12b-1 distribution plan (with annual distribution fees of up to 0.25%) is currently in effect for shares of the Merging Fund. This payment covers such things as compensation for services provided by broker-dealers and expenses connected with the sale of shares. Payments are not tied to actual expenses incurred. Because 12b-1 expenses are paid out of the Surviving Fund's assets on an ongoing basis, over time these fees will increase the cost of a shareholder's investment and may cost more than other types of sales charges used by other mutual funds. There is no Rule 12b-1 distribution plan for the Select Class Shares or the Institutional Class Shares of the Surviving Fund. BUYING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO PURCHASES OF THE CLASS A SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION AND REFLECTS THE NEW CLASS STRUCTURE. The price shareholders pay for their shares is the net asset value per share (NAV), plus any applicable sales charge. However, shareholders who receive Class A Shares as a result of the Reorganization will not be required to pay a sales charge on future purchases of Class A Shares of the Surviving Fund future purchases of Class A shares of other JPMorgan Funds or exchanges into Class A shares of other JPMorgan Funds. NAV is the value of everything the Surviving Fund owns, minus everything it owes, divided by the number of shares held by investors. The Surviving Fund generally values its assets at fair market values but may use fair value if market prices are unavailable. The NAV of each class of the Surviving Fund's shares is generally calculated once each day at the close of regular trading on the New York Stock Exchange. A shareholder will pay the next NAV calculated after the JPMorgan Funds Service Center (the "Center") receives that shareholder's order in proper form. An order is in proper form only after payment is converted into federal funds. The Center accepts purchase orders on any business day that the New York Stock Exchange is open. If an order is received in proper form by the close of regular trading on the New York Stock Exchange, it will be processed at that day's price and the purchaser will be entitled to all dividends declared on that day. If an order is received after the close of regular trading on the New York Stock Exchange, it will generally be processed at the next day's price. If a purchaser pays by check for Surviving Fund shares before the close of regular trading on the 15 New York Stock Exchange, it will generally be processed the next day the Surviving Fund is open for business. If a shareholder buys through an agent and not directly from the Center, the agent could set earlier cut-off times. Each shareholder must provide a Social Security Number or Taxpayer Identification Number when opening an account. The Surviving Fund has the right to reject any purchase order for any reason. Class A Shares of the Surviving Fund generally may be purchased only through financial service firms, such as broker-dealers and banks that have an agreement with the Fund or the Fund's distributor. For Class A Shares, checks should be made out to JPMorgan Funds in U.S. dollars. Credit cards, cash, or checks from a third party will not be accepted. Shares bought by check may not be sold for 15 calendar days. Shares bought through an automated clearing house cannot be sold until the payment clears. This could take more than seven business days. Purchase orders will be canceled if a check does not clear and the investor will be responsible for any expenses and losses to the Fund. Orders by wire will be canceled if the Center does not receive payment by 4:00 p.m., Eastern time, on the day the shareholder buys. Shareholders seeking to buy Class A Shares through an investment representative should instruct their representative to contact the Surviving Fund. Such representatives may charge investors a fee and may offer additional services, such as special purchase and redemption programs, "sweep" programs, cash advances and redemption checks. Such representative may set different minimum investments and earlier cut-off times. A systematic investment plan is available for Class A Shares. SELLING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO SALES OF THE CLASS A SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION AND REFLECTS THE NEW CLASS STRUCTURE. Class A Shares of the Surviving Fund may be sold on any day the Center is open for trading, either directly to the Fund or through an investment representative. Shareholders of the Surviving Fund will receive the next NAV calculated after the Center accepts his or her sale order less any applicable deferred sales charge. Under normal circumstances, if a request is received before the close of regular trading on the New York Stock Exchange, the Surviving Fund will send the proceeds the next business day. An order to sell shares will not be accepted if the Surviving Fund has not collected payment for the shares. The Surviving Fund may stop accepting orders to sell and may postpone payments for more than seven days, as federal securities laws permit. Generally, proceeds are sent by check, electronic transfer or wire for Class A shares. However, if a shareholder's address of record has changed within the 30 days prior to the sale 16 request or if more than $25,000 of shares is sold by phone, proceeds will be sent by electronic transfer or wire only to the bank account on the Surviving Fund's records. For Class A Shares, a shareholder will need to have his or her signature guaranteed if he or she wants payment to be sent to an address other than the one in the Surviving Fund's records. Additional documents or a letter from a surviving joint owner may also be needed. A shareholder who purchased through an investment representative, or through a financial service firm, should contact that representative, who will send the necessary documents to the Center. The representative might charge a fee for this service. Shareholders may also sell their shares by contacting the Center directly. Class A shareholders may call 1-800-_______. A systematic withdrawal plan is available for Class A Shares. EXCHANGING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO EXCHANGES OF THE CLASS A SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION. Class A Shares of the Surviving Fund may be exchanged for shares of the same class in certain other JPMorgan Funds. For tax purposes, an exchange is treated as a sale of those shares. Shareholders should carefully read the prospectus of the fund into which they want to exchange. Shareholders who exchange must meet any minimum investment requirements and may have to pay a sales commission. The exchange privilege is not a means of short-term trading as this could increase management cost and affect all shareholders of the Surviving Fund. The Fund reserves the right to limit the number of exchanges or refuse an exchange. Each exchange privilege may also be terminated. The Surviving Fund charges an administration fee of $5 for each exchange if an investor makes more than 10 exchanges in a year or three in a quarter. OTHER INFORMATION CONCERNING THE SURVIVING FUND For Class A Shares, the Surviving Fund may close an account if the balance falls below $500. The Surviving Fund may also close the account if an investor is in the systematic investment plan and fails to meet investment minimums over a 12-month period. At least 60 days' notice will be given before closing the account. Unless a shareholder indicates otherwise on his or her account application, the Surviving Fund is authorized to act on redemption and transfer instructions received by phone. If someone trades on an account by phone, the Surviving Fund will ask that person to confirm the account registration and address to make sure they match those in the Fund records. If they do correspond, the Surviving Fund is generally authorized to follow that person's instructions. The Surviving Fund will take all reasonable precautions to confirm that the instructions are genuine. 17 Investors agree that they will not hold the Surviving Fund liable for any loss or expenses from any sales request, if the Fund takes reasonable precautions. The Surviving Fund will be liable for any losses to a shareholder from an unauthorized sale or fraud against such shareholder if the Surviving Fund does not follow reasonable procedures. It may not always be possible to reach the Center by telephone. This may be true at times of unusual market changes and shareholder activity. In that event, shareholders can mail instructions to the Surviving Fund or contact their investment representative or agent. The Fund may modify or cancel the sale of shares by phone without notice. JPMF, on behalf of the Surviving Fund, has entered into agreements with certain shareholder servicing agents (including Chase) under which the shareholder servicing agents will agree to provide certain support services to their customers. For performing these services, each shareholder servicing agent will receive an annual fee of up to 0.25% of the average daily net assets of the Class A Shares held by investors serviced by the shareholder servicing agent. The Merging Fund likewise has similar arrangements with respect to its Shares. JPMIM and/or JFD may, at their own expense, make additional payments to certain selected dealers or other shareholder servicing agents for performing administrative services for their customers. The Surviving Fund will issue multiple classes of shares. Each class may have different requirements for who may invest, and may have different sales charges and expense levels. A person who gets compensated for selling Class A Shares may receive a different amount for each class. DISTRIBUTIONS AND TAXES The Surviving Fund can earn income and realize capital gain. The Surviving Fund will deduct from these earnings any expenses and then pay to shareholders the distributions. The Surviving Fund typically distributes any net investment income at least monthly. Net capital gain, if any, is distributed annually. You have three options for your Surviving Fund distributions. You may: - reinvest all of them in additional Surviving Fund shares without a sales charge; - take distributions of net investment income in cash or as a deposit in a pre-assigned bank account and reinvest distributions of net capital gain in additional shares; or - take all distributions in cash or as a deposit in a pre-assigned bank account. If you don't notify us otherwise, we'll reinvest all distributions. If your distributions are reinvested, they will be in the form of shares of the same class. The taxation of dividends won't be affected by the form in which you receive them. Dividends of net investment income are usually taxable as ordinary income at the federal, state and local levels. 18 If you receive distributions of net capital gain, the tax rate will be based on how long the Surviving Fund held a particular asset, not on how long you have owned your shares. If you buy shares just before a distribution, you will pay tax on the entire amount of the taxable distribution you receive, even though the NAV will be higher on that date because it includes the distribution amount. Early in each calendar year, the Surviving Fund will send its shareholders a notice showing the amount of distributions received in the preceding year and the tax status of those distributions. The above is only a general summary of tax implications of investing in the Surviving Fund. Shareholders should consult their tax advisors to see how investing in the Surviving Fund will affect their own tax situation. COMPARISON OF THE MERGING FUND'S AND THE SURVIVING FUND'S ORGANIZATION STRUCTURE There are no material differences in the organizational structure of the Merging Fund and the Surviving Fund. Set forth below are descriptions of the structure, voting rights, shareholder liability and the liability of Trustees. STRUCTURE OF THE MERGING FUND AND THE SURVIVING FUND Each of the Merging Fund and the Surviving Fund is organized as a series of JPMF, which is organized under the law of the Commonwealth of Massachusetts. As a Massachusetts business trust, JPMF's operations are governed by JPMF's Declaration of Trust and By-Laws and applicable Massachusetts law. The operations of the Merging Fund are also subject to the provisions of the 1940 Act and the rules and regulations thereunder. TRUSTEES AND OFFICERS Subject to the provisions of its trust documents, the business of the Merging Fund and the Surviving Fund is managed by JPMF's Trustees, who serve indefinite terms and have all powers necessary or convenient to carry out their responsibilities. Information concerning the current Trustees and officers of JPMF is set forth in the Funds' respective Statements of Additional Information, which are incorporated herein by reference. SHARES OF FUNDS JPMF is a trust with an unlimited number of authorized shares of beneficial interest which may be divided into series or classes thereof. Each Fund is one series of a trust and may issue multiple classes of shares. Each share of a series or class of a trust represents an equal proportionate interest in that series or class with each other share of that series or class. The shares of each series or class of JPMF participate equally in the earnings, dividends and assets of the particular series or class. Fractional shares have proportionate rights to full shares. Expenses 19 of JPMF that are not attributable to a specific series or class will be allocated to all the series of that trust in a manner believed by its board to be fair and equitable. Generally, shares of each series will be voted separately, for example, to approve an investment advisory agreement. Likewise, shares of each class of each series will be voted separately, for example, to approve a distribution plan, but shares of all series and classes vote together, to the extent required by the 1940 Act, including for the election of Trustees. JPMF is not required to hold regular annual meetings of shareholders, but may hold special meetings from time to time. There are no conversion or preemptive rights in connection with shares of JPMF. SHAREHOLDER VOTING RIGHTS A vacancy in the Board of JPMF resulting from the resignation of a Trustee or otherwise may be filled similarly by a vote of a majority of the remaining Trustees then in office, subject to the 1940 Act. In addition, Trustees may be removed from office by a vote of holders of shares representing two-thirds of the outstanding shares of each portfolio of that trust. A meeting of shareholders shall be held upon the written request of the holders of shares representing not less than 10% of the outstanding shares entitled to vote on the matters specified in the written request. Except as set forth above, the Trustees may continue to hold office and may appoint successor Trustees. SHAREHOLDER LIABILITY Under Massachusetts law, shareholders of JPMF could, under certain circumstances, be held personally liable as partners for the obligations of that trust. However, the Declaration of Trust of JPMF disclaims shareholder liability for acts or obligations of that trust and provides for indemnification and reimbursement of expenses out of trust property for any shareholder held personally liable for the obligations of that trust. JPMF may maintain appropriate insurance (for example, fidelity bonding and errors and omissions insurance) for the protection of that trust, its shareholders, Trustees, officers, employees and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of shareholder liability generally is limited to circumstances in which both inadequate insurance existed and the trust itself was unable to meet its obligations. LIABILITY OF DIRECTORS AND TRUSTEES Under the Declaration of Trust of JPMF, the Trustees of that trust are personally liable only for bad faith, willful misfeasance, gross negligence or reckless disregard of their duties as Trustees. Under the Declaration of Trust of JPMF, a Trustee or officer will generally be indemnified against all liability and against all expenses reasonably incurred or paid by such person in connection with any claim, action, suit or proceeding in which such person becomes involved as a party or otherwise by virtue of such person being or having been a Trustee or officer and against amounts paid or incurred by such person in the settlement thereof. The foregoing is only a summary of certain organizational and governing documents and Massachusetts business trust law. It is not a complete description. Shareholders should refer to the provisions of these documents and state law directly for a more thorough comparison. Copies 20 of the Declaration of Trust and By-Laws of JPMF are available without charge upon written request to that trust. INFORMATION RELATING TO THE ADVISORY CONTRACTS AND OTHER SERVICES GENERAL INFORMATION As noted above, the assets of the Surviving Fund currently invested in the Master Portfolio are managed by JPMIM pursuant to an Advisory Agreement between JPMIM and the Master Portfolio, and JPMIM is responsible for the day-to-day management of the Surviving Fund's assets. Following the Reorganization and the Concurrent Reorganizations, the Surviving Fund's assets will be managed directly by JPMIM pursuant to an Advisory Agreement substantially similar to the agreement between the Master Portfolio and JPMIM. DESCRIPTION OF JPMIM JPMIM is an indirect wholly-owned subsidiary of JPMC incorporated under the laws of Delaware. JPMIM's principal executive offices are located at 522 Fifth Avenue, New York, New York 10036. JPMIM, a registered investment advisor, manages employee benefit funds of corporations, labor unions and state and local governments and the accounts of other institutional investors, including investment companies. As of _______ __, 2001, JPMIM and certain of its affiliates provided investment management services with respect to assets of approximately $___ billion. Under the Advisory Agreement, JPMIM will be responsible for making decisions with respect to, and placing orders for, all purchases and sales of the portfolio securities of the Surviving Fund. JPMIM's responsibilities under the Advisory Agreement will include supervising the Surviving Fund's investments and maintaining a continuous investment program, placing purchase and sale orders and paying costs of certain clerical and administrative services involved in managing and servicing the Surviving Fund's investments and complying with regulatory reporting requirements. The services to be provided to the Surviving Fund by JPMIM are substantially similar to the services currently provided to the Master Portfolio and, therefore, indirectly to the Merging Fund by JPMIM. EXPENSES AND MANAGEMENT FEES. The Advisory Agreement provides that the Surviving Fund will pay JPMIM a monthly management fee based upon the net assets of the Surviving Fund. The annual rate of this management fee is 0.40%. The Master Portfolio and, therefore, indirectly the Merging Fund also currently pay 0.40% of average net assets to JPMIM for its advisory services. JPMIM may waive fees from time to time. Under the Advisory Agreement, except as indicated above, the Surviving Fund is responsible for its operating expenses including, but not limited to, taxes; interest; fees (including fees paid to its Trustees who are not affiliated with JPMIM or any of its affiliates); fees payable to the Commission; state securities qualification fees; association membership dues; costs of preparing and printing prospectuses for regulatory purposes and for distribution to existing shareholders; management and administrative fees; charges of the custodian and transfer agent; insurance premiums; auditing and legal expenses; costs of shareholders' reports and 21 shareholder meetings; any extraordinary expenses; and brokerage fees and commissions, if any, in connection with the purchase or sale of portfolio securities. LIMITATION ON LIABILITY. The Advisory Agreement provides that JPMIM will not be liable for any error of judgment or mistake of law or for any act or omission or loss suffered by JPMF or the Surviving Fund in connection with the performance of the Advisory Agreement except a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services or from willful misfeasance, bad faith, or gross negligence in the performance of its duties or reckless disregard of its obligations and duties under the Advisory Agreement. DURATION AND TERMINATION. The Advisory Agreement will continue in effect from year to year with respect to the Surviving Fund, only so long as such continuation is approved at least annually by (i) the Board of Trustees of JPMF or the majority vote of the outstanding voting securities of the Surviving Fund, and (ii) a majority of those Trustees who are neither parties to the Advisory Agreement nor "interested persons," as defined in the 1940 Act, of any such party, acting in person at a meeting called for the purpose of voting on such approval. The Advisory Agreement will terminate automatically in the event of its "assignment," as defined in the 1940 Act. In addition, the Advisory Agreement is terminable at any time as to the Surviving Fund without penalty by the JPMF Board or by vote of the majority of the Surviving Fund's outstanding voting securities upon 60 days' written notice to JPMIM, and by JPMIM on 90 days' written notice to JPMF. PORTFOLIO MANAGER The portfolio management team for the Surviving Fund is comprised of 23 research analysts, who select stocks in their respective sectors. Henry D. Cavanna, managing director, and Bradford L. Frishberg, vice president, oversee the portfolio and manage its cash flows. Mr. Cavanna joined the team in February of 1998, and has been at JPMIM since 1971. He served as manager of U.S. equity portfolios prior to managing the fund. Mr. Frishberg has been at JPMIM since 1996 and is a portfolio manager in the equity and balanced groups. Prior to joining J.P. Morgan, he managed portfolios for Aetna Investment Management in Hong Kong. PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS JPMIM places orders for the Surviving Fund for all purchases and sales of portfolio securities, enters into repurchase agreements, and may enter into reverse repurchase agreements and execute loans of portfolio securities on behalf of the Surviving Fund. Fixed income and debt securities and municipal bonds and notes are generally traded at a net price with dealers acting as principal for their own accounts without a stated commission. The price of the security usually includes profit to the dealers. In underwritten offerings, securities are purchased at a fixed price which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. Portfolio transactions for the Surviving Fund will be undertaken principally to accomplish the Surviving Fund's objective in relation to expected movements in the general 22 level of interest rates. The Surviving Fund may engage in short-term trading consistent with its objectives. In connection with portfolio transactions, JPMIM intends to seek best execution on a competitive basis for both purchases and sales of securities. Subject to the overriding objective of obtaining the best execution of orders, JPMIM may allocate a portion of the Surviving Fund's brokerage transactions to affiliates of JPMIM. Under the 1940 Act, persons affiliated with the Surviving Fund and persons who are affiliated with such persons are prohibited from dealing with the fund as principal in the purchase and sale of securities unless a permissive order allowing such transactions is obtained from the Commission. However, affiliated persons of the fund may serve as its broker in listed or over-the-counter transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions. In addition, the Surviving Fund may not purchase securities during the existence of any underwriting syndicate for such securities of which JPMIM or an affiliate is a member or in a private placement in which JPMIM or an affiliate serves as placement agent except pursuant to procedures adopted by the Board of Trustees that either comply with rules adopted by the Commission or with interpretations of the Commission's staff. Investment decisions made by JPMIM are the product of many factors in addition to basic suitability for the particular fund or other client in question. Thus, a particular security may be bought or sold for certain clients even though it could have been bought or sold for other clients at the same time. Likewise, a particular security may be bought for one or more clients when one or more other clients are selling the same security. The Surviving Fund may only sell a security to other portfolios or accounts managed by JPMIM or its affiliates in accordance with procedures adopted by the Trustees. It also sometimes happens that two or more clients simultaneously purchase or sell the same security. On those occasions when JPMIM deems the purchase or sale of a security to be in the best interests of the Surviving Fund, as well as other clients including other funds, JPMIM, to the extent permitted by applicable laws and regulations, may, but is not obligated to, aggregate the securities to be sold or purchased for the Surviving Fund with those to be sold or purchased for other clients in order to obtain best execution, including lower brokerage commissions if appropriate. In such event, allocation of the securities so purchased or sold as well as any expenses incurred in the transaction will be made by JPMIM in the manner it considers to be most equitable and consistent with JPMIM's fiduciary obligations to the Surviving Fund. In some instances, this procedure might adversely affect the Surviving Fund. OTHER SERVICES JFD, a wholly owned, indirect subsidiary of BISYS Fund Services, Inc., which currently serves as the Merging Fund's distributor and sub-administrator, is the distributor and sub-administrator for the Surviving Fund. JFD is unaffiliated with JPMC or any of its subsidiaries. Morgan serves as administrator and shareholder servicing agent, BONY serves as fund accountant and custodian, and DST serves as transfer agent and dividend disbursing agent for the Surviving Fund. The services provided by Morgan and BONY include day-to-day maintenance In connection with the Reorganization, the administration fee paid to Morgan will increase to 0.15% of average daily net assets on the first $26 billion of complex wide non-money market assets and 0.075% on complex wide non-money market assets in excess of $26 billion. 23 of certain books and records, calculation of the offering price of the shares and preparation of reports. In its role as custodian, BONY will be responsible for the daily safekeeping of securities and cash held by the Surviving Fund. It is anticipated that prior to the consummation of the Reorganization, Chase will become the Surviving Fund's fund accountant and custodian. PROPOSAL 2: ELECTION OF TRUSTEES It is proposed that shareholders of the Merging Fund consider the election of the individuals listed below (the "Nominees") to the Board of Trustees of JPMF, which is currently organized as a Massachusetts business trust. All shareholders of any series of JPMF as of the record date (April 16, 2001) are required to be given a vote on the proposal regarding Trustees. Because as of the record date you are a shareholder in JPMF, you are entitled to vote on this proposal. In connection with the merger of J.P. Morgan & Co. Incorporated and The Chase Manhattan Corporation, it has been proposed, subject to shareholder approval, that the Boards of Trustees of the investment companies managed by JPMIM and their affiliates be rationalized in order to obtain additional operating efficiencies by having the same Board of Trustees for all of the funds. Therefore, the Nominees include certain current Trustees of JPMF and certain current Trustees of JPMF (including certain members of their respective Advisory Boards). Each Nominee has consented to being named in this Proxy Statement and has agreed to serve as a Trustee if elected. Shareholders of JPMF are concurrently considering the election of the same individuals to the Board of Trustees of JPMF. Biographical information about the Nominees and other relevant information is set forth below. More information regarding the current Trustees of JPMF is contained in either of the Fund's Statements of Additional Information, which are incorporated herein by reference. The persons named in the accompanying form of proxy intend to vote each such proxy "FOR" the election of the Nominees, unless shareholders specifically indicate on their proxies the desire to withhold authority to vote for elections to office. It is not contemplated that any Nominee will be unable to serve as a Board member for any reason, but if that should occur prior to the Meeting, the proxy holders reserve the right to substitute another person or persons of their choice as nominee or nominees. THE JPMF BOARD HAS UNANIMOUSLY RECOMMENDED THAT SHAREHOLDERS VOTE "FOR" EACH OF THE NOMINEES LISTED BELOW. VOTE REQUIRED The election of each of the Nominees listed below requires the affirmative vote of a majority of all the votes entitled to be cast at the Meeting by all shareholders of JPMF. The following are the nominees: ------------------- ------------------ 24 The Board of Trustees of JPMF met four times during the fiscal year ended May 31, 2000, and each of the Trustees attended at least 75% of the meetings. The Board of Trustees of JPMF presently has an Audit Committee. The members of the Audit Committee are Messrs. Addy (Chairman), Eschenlauer, Burns, Mallardi and Healey. The function of the Audit Committee is to recommend independent auditors and monitor accounting and financial matters. The Audit Committee met four times during the fiscal year ended May 31, 2000. * Interested Trustee, as defined by the 1940 Act. REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS: Each Trustee is reimbursed for expenses incurred in attending each meeting of the Board of Trustees or any committee thereof. Each Trustee who is not an affiliate of JPMIM is compensated for his or her services according to a fee schedule which recognizes the fact that each Trustee also serves as a Trustee of other investment companies advised by JPMIM. Each Trustee receives a fee, allocated among all investment companies for which the Trustees serves. Annually, each Trustee receives $75,000. Set forth below is information regarding compensation paid or accrued during the calendar year ended December 31, 2000 for each Trustee of JPMF:
Total Trustee Aggregate Trustee Compensation Accrued Compensation Paid by by Fund Complex(1) the Trust During 2000 During 2000(2) --------------------- -------------------- Matthew Healey, Trustee(3), Chairman and Chief Executive Officer $23,538 $75,000 Frederick S. Addy, Trustee $23,538 $75,000 William G. Burns, Trustee $23,538 $75,000 Arthur C. Eschenlauer, Trustee $23,538 $75,000 Michael P. Mallardi, Trustee $23,538 $75,000 - ------------------------
(1) A Fund Complex means two or more investment companies that hold themselves out to investors as related companies for purposes of investment and investment services, or have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other investment companies. (2) No investment company within the Fund Complex has a pension or retirement plan. (3) During 2000, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman of Pierpont Group, Inc., compensation in the amount of $200,000, contributed $25,500 to a defined contribution plan on his behalf and paid $18,400 in insurance premiums for his benefit. The Trustees decide upon general policies and are responsible for overseeing JPMF's business affairs. Each of JPMF and the Master Portfolio has entered into a Fund Services Agreement with Pierpont Group, Inc. to assist the Trustees in exercising their overall supervisory responsibilities. Pierpont Group, Inc. was organized in July 1989 to provide services for the J.P. 25 Morgan Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are the equal and sole shareholders of Pierpont Group, Inc. JPMF has agreed to pay Pierpont Group, Inc. a fee in an amount representing its reasonable costs in performing these services. These costs are periodically reviewed by the Trustees. The principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017. It is anticipated that the Fund will terminate its agreement with Pierpont Group, Inc. in connection with the Reorganization. The aggregate fees paid to Pierpont Group, Inc. by the Merging Fund, the Surviving Fund and the Master Portfolio during the indicated fiscal periods are set forth below: MERGING FUND--For the fiscal years ended May 31, 1998, 1999 and 2000: $______, $______ and $_____, respectively. SURVIVING FUND -- For the fiscal years ended May 31, 1998, 1999 and 2000: $12,419, $7,659 and $4,651, respectively. MASTER PORTFOLIO --For the fiscal years ended May 31, 1998, 1999 and 2000: $30,613, $18,019 and $12,016, respectively. ADVISORY BOARD The Trustees determined as of January 26, 2000 to establish an advisory board and appoint four members ("Members of the Advisory Board") thereto. Each member serves at the pleasure of the Trustees. The advisory board is distinct from the Trustees and provides advice to the Trustees as to investment, management and operations of JPMF; but has no power to vote upon any matter put to a vote of the Trustees. The advisory board and the members thereof also serve each of the other trusts in the Fund Complex. The creation of the Advisory Board and the appointment of the members thereof was designed so that the Board of Trustees will continuously consist of persons able to assume the duties of Trustees and be fully familiar with the business and affairs of JPMF, in anticipation of the current Trustees reaching the mandatory retirement age of seventy. Each Member of the Advisory Board is paid an annual fee of $75,000 for serving in this capacity for the Fund Complex and is reimbursed for expenses incurred in connection for such service. The Members of the Advisory Board may hold various other directorships unrelated to these funds. The mailing address of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal occupations during the past five years and dates of birth are set forth below: Ann Maynard Gray -- President, Diversified Publishing Group and Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945. John R. Laird-- Retired; Former Chief Executive Officer, Shearson Lehman Brothers and The Boston Company. His date of birth is June 21, 1942. Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley Group and President and Chief Operating Officer, Morgan Stanley Services, Inc. His date of birth is October 5, 1936. 26 James J. Schonbachler -- Retired; Prior to September, 1998, Managing Director, Bankers Trust Company and Chief Executive Officer and Director, Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January 26, 1943. PRINCIPAL EXECUTIVE OFFICERS: The principal executive officers of JPMF are as follows: NAME AND POSITION AGE PRINCIPAL OCCUPATION AND OTHER INFORMATION - ----------------- -------- ---------------------------------------------- Matthew Healey 63 Chief Executive Officer; Chairman, Pierpont Group, since prior to 1993. His address is Pine Tree Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436. Margaret W. Chambers 41 Executive Vice President and General Counsel of JFD since April, 1998. From August 1996 to March 1998, Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an associate with the law firm of Ropes & Gray. George A. Rio 46 President and Treasurer. Executive Vice President and Client Service Director of JFD since April 1998. From June 1995 to March 1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for Putnam Mutual Funds. ACCOUNTANTS PricewaterhouseCoopers LLP serves as the Merging Fund's, the Surviving Fund's and the Master Portfolio's independent accountants, auditing and reporting on the annual financial statements and reviewing certain regulatory reports and federal income tax returns. PricewaterhouseCoopers LLP also performs other professional accounting, auditing, tax and advisory services when JPMF engages it to do so. AUDIT FEES. The aggregate fees paid to PricewaterhouseCoopers LLP in connection with the annual audit of the Merging Fund and the Master Portfolio for the last fiscal year was $37,500. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The aggregate fees billed for financial systems design and implementation services rendered by PricewaterhouseCoopers LLP to the Merging Fund, JPMIM and JPMIM's affiliates that provide services to the Fund for the calendar year ended December 31, 2000 was $0. ALL OTHER FEES. The aggregate fees billed for all other non-audit services, including fees for tax-related services, rendered by PricewaterhouseCoopers LLP to the Merging Fund, JPMIM and JPMIM's affiliates that provide services to the Fund for the calendar year ended December 31, 2000 was $11,025,600. The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the independence of PricewaterhouseCoopers LLP. 27 INFORMATION RELATING TO VOTING MATTERS GENERAL INFORMATION This Combined Prospectus/Proxy Statement is being furnished in connection with the solicitation of proxies by the JPMF Board for use at the Meeting. It is expected that the solicitation of proxies will be primarily by mail. JPMF's officers and service providers may also solicit proxies by telephone, facsimile machine, telegraph, the Internet or personal interview. In addition JPMF may retain the services of professional solicitors to aid in the solicitation of proxies for a fee. It is anticipated that banks, brokerage houses and other custodians will be requested on behalf of JPMF to forward solicitation materials to their principals to obtain authorizations for the execution of proxies. Any Merging Fund Shareholder giving a proxy may revoke it at any time before it is exercised by submitting to JPMF a written notice of revocation or a subsequently executed proxy or by attending the Meeting and electing to vote in person. Only the Merging Fund Shareholders of record at the close of business on _________, 2001 will be entitled to vote at the Meeting. On that date, there were outstanding and entitled to be voted _____________ Merging Fund Shares. Each share or fraction thereof is entitled to one vote or fraction thereof. The presence in person or by proxy of shareholders that own one-third of the outstanding Merging Fund Shares will constitute a quorum for purposes of transacting all business at the Meeting. If a quorum is not present at the Meeting, sufficient votes in favor of the proposals are not received by the time scheduled for the Meeting, or the Merging Fund Shareholders determine to adjourn the Meeting for any other reason, the Merging Fund Shareholders present (in person or proxy) may adjourn the Meeting from time to time, without notice other than announcement at the Meeting. Any such adjournment will require the affirmative vote of the Merging Fund Shareholders holding a majority of the Merging Fund Shares present, in person or by proxy, at the Meeting. The persons named in the Proxy will vote in favor of such adjournment those Merging Fund Shares that they are entitled to vote if such adjournment is necessary to obtain a quorum or if they determine such an adjournment is desirable for any other reason. Business may be conducted once a quorum is present and may continue until adjournment of the Meeting notwithstanding the withdrawal or temporary absence of sufficient Merging Fund Shares to reduce the number present to less than a quorum. If the accompanying proxy is executed and returned in time for the Meeting, the shares covered thereby will be voted in accordance with the proxy on all matters that may properly come before the meeting (or any adjournment thereof). PROXIES All Merging Fund Shares represented by each properly signed proxy received prior to the Meeting will be voted at the Meeting. If a Merging Fund Shareholder specifies how the proxy is to be voted on any of the business to come before the Meeting, it will be voted in accordance with such specifications. If a Merging Fund Shareholder returns its proxy but no direction is made on the proxy, the proxy will be voted FOR each Proposal described in this Combined Prospectus/Proxy Statement. The Merging Fund Shareholders voting to ABSTAIN on the Proposals will be treated as present for purposes of achieving a quorum and in determining the votes cast on the Proposals, but not as having voted FOR the Proposals. A properly signed proxy 28 on which a broker has indicated that it has no authority to vote on the Proposals on behalf of the beneficial owner (a "broker non-vote") will be treated as present for purposes of achieving a quorum but will not be counted in determining the votes cast on the Proposals. A proxy granted by any Merging Fund Shareholder may be revoked by such Merging Fund Shareholder at any time prior to its use by written notice to JPMF, by submission of a later dated Proxy or by voting in person at the Meeting. If any other matters come before the Meeting, proxies will be voted by the persons named as proxies in accordance with their best judgment. EXPENSES OF PROXY SOLICITATION JPMC, and not the Merging Fund or the Surviving Fund (or shareholders of either Fund), will bear the cost of solicitation of proxies, including the cost of printing, preparing, assembling and mailing the Notice of Meeting, Combined Prospectus/Proxy Statement and form of proxy. In addition to solicitations by mail, proxies may also be solicited by officers and regular employees of JPMF by personal interview, by telephone or by telegraph without additional remuneration thereof. Professional solicitors may also be retained. ABSTENTIONS AND BROKER NON-VOTES In tallying the Merging Fund Shareholder votes, abstentions and broker non-votes (i.e., proxies sent in by brokers and other nominees that cannot be voted on a proposal because instructions have not been received from the beneficial owners) will be counted for purposes of determining whether or not a quorum is present for purposes of convening the Meeting. Abstentions and broker non-votes will be considered to be a vote against each proposal. INTERESTED PARTIES On the record date, the Trustees and officers of JPMF as a group owned less than 1% of the outstanding shares of the Merging Fund. On the record date, the name, address and percentage ownership of the persons who owned beneficially more than 5% of the shares of the Merging Fund or any class thereof and the percentage of any class or series of shares of the Surviving Fund or any class thereof that would be owned by such persons upon consummation of the Reorganization based upon their holdings at _______, 2001 are as follows: Percentage of Percentage of Amount of Merging Fund Surviving Fund Shares Owned on Owned Upon Name and Address Owned Record Date Consummation - ---------------------- ------------- -------------- --------------- On the record date, the Trustees and officers of JPMF as a group owned less than 1% of the outstanding shares of the Surviving Fund. On the record date, the name, address and share ownership of the persons who owned beneficially more than 5% of the shares of the Surviving Fund or any class thereof and the percentage of any class or series of shares of the Surviving Fund or any class thereof that would be owned by such person upon consummation of the Reorganization based upon their holdings at _________, 2001 were as follows: 29 Percentage of Amount of Surviving Fund Percentage of Surviving Shares Owned on Record Fund Owned Upon Name and Address Owned Date Consummation - ------------------- ------------ ------------------- ------------------------ ADDITIONAL INFORMATION ABOUT JPMF Information about each of the Merging Fund and the Surviving Fund is included in its Prospectus, which is incorporated by reference herein. The Surviving Fund's Prospectus is also enclosed herein. Additional information about each of the Merging Fund and the Surviving Fund is also included in JPMF's Statements of Additional Information with respect to each of them which has been filed with the Commission and which are incorporated herein by reference. Copies of the Statements of Additional information may be obtained without charge by calling 1-800-521-5411. JPMF is subject to the requirements of the 1940 Act and, in accordance with such requirements, files reports and other information with the Commission. These materials can be inspected and copied at the Public Reference Facilities maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center, Suite 1300, New York, NY 10048 and 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material can also be obtained from the Public Reference Branch, Office of Consumer Affairs and Information Services, Securities and Exchange Commission, Washington, D.C. 20549, at prescribed rates, and are also available on the Commission's web site at http://www.sec.gov. FINANCIAL STATEMENTS AND EXPERTS The audited financial highlights, financial statements and notes thereto of each of the Merging Fund and the Surviving Fund for the fiscal year ended May 31, 2000, and the audited financial statements, notes thereto and supplementary data of the Master Portfolio for the fiscal year ended May 31, 2000, are incorporated by reference herein and into the Statement of Additional Information related to this Combined Prospectus/Proxy Statement. The audited financial highlights, financial statements, notes thereto and supplemental data, as applicable, of the Merging Fund, the Surviving Fund and the Master Portfolio have been incorporated herein by reference in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on their authority as experts in auditing and accounting. The unaudited financial highlights, financial statements and notes thereto of each of the Merging Fund and the Surviving Fund for the fiscal period ended November 30, 2000, and the unaudited financial statements, notes thereto and supplementary data of the Master Portfolio for the fiscal period ended November 30, 2000, are incorporated by reference herein and into the Statement of Additional Information related to this Combined Prospectus/Proxy Statement. OTHER BUSINESS The JPMF Board knows of no other business to be brought before the Meeting. However, if any other matters come before the Meeting, it is the intention of the JPMF Board 30 that proxies that do not contain specific restrictions to the contrary will be voted on such matters in accordance with the judgment of the persons named in the enclosed form of proxy. LITIGATION JPMF is not involved in any litigation that would have any material adverse effect upon either the Merging Fund or the Surviving Fund. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to JPMF in writing at the address on the cover page of this Combined Prospectus/Proxy Statement or by telephoning 1-800-766-7722. * * * SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO DATE AND SIGN THE ENCLOSED PROXY AND RETURN IT IN THE ENCLOSED ENVELOPE. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. 31 APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Plan") made this ____ day of ______, 2001 by and among J.P. Morgan Institutional Funds (the "Transferor Trust"), a Massachusetts business trust, on behalf of the J.P. Morgan U.S. Equity Fund-Advisor Series (the "Transferor Portfolio"), J.P. Morgan Institutional Funds (the "Acquiring Trust"), a Massachusetts business trust, on behalf of the J.P. Morgan Institutional U.S. Equity Fund (the "Acquiring Portfolio") and J.P. Morgan Chase & Co. WHEREAS, the Board of Trustees of each of the Transferor Trust and the Acquiring Trust has determined that the transfer of all of the assets and liabilities of the Transferor Portfolio to the Acquiring Portfolio is in the best interests of the Transferor Portfolio and the Acquiring Portfolio, as well as the best interests of shareholders of the Transferor Portfolio and the Acquiring Portfolio, and that the interests of existing shareholders would not be diluted as a result of this transaction; WHEREAS, each of the Transferor Trust and the Acquiring Trust intends to provide for the reorganization of the Transferor Portfolio (the "Reorganization") through the acquisition by the Acquiring Portfolio of all of the assets, subject to all of the liabilities, of the Transferor Portfolio in exchange for shares of beneficial interest of the Acquiring Portfolio (the "Acquiring Portfolio Shares"), the liquidation of the Transferor Portfolio and the distribution to Transferor Portfolio shareholders of such Acquiring Portfolio Shares, all pursuant to the provisions of Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"); NOW, THEREFORE, in consideration of the mutual promises herein contained, the parties hereto agree as follows: 1. TRANSFER OF ASSETS OF THE TRANSFEROR PORTFOLIO IN EXCHANGE FOR THE ACQUIRING PORTFOLIO SHARES AND LIQUIDATION AND TERMINATION OF THE TRANSFEROR PORTFOLIO (a) PLAN OF REORGANIZATION. (i) The Transferor Trust on behalf of the Transferor Portfolio listed above, will convey, transfer and deliver to the Acquiring Portfolio all of the then existing assets of the Transferor Portfolio (consisting, without limitation, of portfolio securities and instruments, dividend and interest receivables, cash and other assets). In consideration thereof, the Acquiring Trust on behalf of the Acquiring Portfolio will (A) assume and pay, to the extent that they exist on or after the Effective Time of the Reorganization (as defined in Section 1(b)(i) hereof), all of the obligations and liabilities of the Transferor Portfolio and (B) issue and deliver to the Transferor Portfolio full and fractional shares of beneficial interest of the Acquiring Portfolio, with respect to the Acquiring Portfolio equal to that number of full and fractional Acquiring Portfolio Shares as determined in Section 1(c) hereof. The Acquiring Portfolio Shares issued and delivered to the Transferor Portfolio shall be of the Class A share class in exchange for Shares of the Transferor Portfolio, with the amounts of shares to be determined by the parties. A-1 Any shares of beneficial interest (if any) of the Transferor Portfolio ("Transferor Portfolio Shares") held in the treasury of the Transferor Trust at the Effective Time of the Reorganization shall thereupon be retired. Such transactions shall take place on the date provided for in Section 1(b) hereof (the "Exchange Date"). All computations for the Transferor Portfolio and the Acquiring Portfolio shall be performed by The Chase Manhattan Bank (the "Custodian"), as custodian and pricing agent for the Transferor Portfolio and the Acquiring Portfolio. The determination of said Custodian shall be conclusive and binding on all parties in interest. (ii) As of the Effective Time of the Reorganization, the Transferor Trust will liquidate and distribute pro rata to its shareholders of record ("Transferor Portfolio Shareholders") as of the Effective Time of the Reorganization the Acquiring Portfolio Shares received by such Transferor Portfolio pursuant to Section 1(a)(i) in actual or constructive exchange for the shares of the Transferor Portfolio held by the Transferor Portfolio shareholders. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Portfolio Shares then credited to the account of the Transferor Portfolio on the books of the Acquiring Portfolio, to open accounts on the share records of the Acquiring Portfolio in the names of the Transferor Portfolio Shareholders and representing the respective pro rata number of the Acquiring Portfolio Shares due such shareholders. The Acquiring Portfolio will not issue certificates representing the Acquiring Portfolio Shares in connection with such exchange. (iii) As soon as practicable after the Effective Time of the Reorganization, the Transferor Trust shall take all the necessary steps under Massachusetts law, the Transferor Trust s Declaration of Trust and any other applicable law to effect a complete termination of the Transferor Portfolio. (b) EXCHANGE DATE AND EFFECTIVE TIME OF THE REORGANIZATION. (i) Subject to the satisfaction of the conditions to the Reorganization specified in this Plan, the Reorganization shall occur as of the close of regularly scheduled trading on the New York Stock Exchange (the "Effective Time of the Reorganization") on August 11, 2001, or such later date as may be agreed upon by the parties (the "Exchange Date"). (ii) All acts taking place on the Exchange Date shall be deemed to take place simultaneously as of the Effective Time of the Reorganization unless otherwise provided. (iii) In the event that on the proposed Exchange Date (A) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted, or (B) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate valuation of the net assets of the Acquiring Portfolio or the Transferor Portfolio is impracticable, the Exchange Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. (iv) On the Exchange Date, portfolio securities of the Transferor Portfolio shall be transferred by the Custodian to the accounts of the Acquiring Portfolio duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the custom of brokers, and shall be accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. A-2 (c) VALUATION. (i) The net asset value of the shares of the Acquiring Portfolio and the net value of the assets of the Transferor Portfolio to be transferred in exchange therefore shall be determined as of the Effective Time of the Reorganization. The net asset value of the Acquiring Portfolio Shares shall be computed by the Custodian in the manner set forth in the Acquiring Trust's Declaration of Trust or By-laws and then current prospectus and statement of additional information and shall be computed to not less than two decimal places. The net value of the assets of the Transferor Portfolio to be transferred shall be computed by the Custodian by calculating the value of the assets transferred by the Transferor Portfolio and by subtracting therefrom the amount of the liabilities assigned and transferred to the Acquiring Portfolio, said assets and liabilities to be valued in the manner set forth in the Transferor Trust's Declaration of Trust or By-laws and then current prospectus and statement of additional information. (ii) The number of Class A Shares of the Acquiring Portfolio to be issued (including fractional shares, if any) by the Acquiring Portfolio in exchange for the Transferor Portfolio's assets attributable to the Transferor Portfolio's shares shall be determined by an exchange ratio computed by dividing the net value of the Transferor Portfolio's assets attributable to its shares by the net asset value per share of the Class A shares of the Acquiring Portfolio, both as determined in accordance with Section 1(c)(i). All computations of value shall be made by the Custodian in accordance with its regular practice as pricing agent for the Acquiring Portfolio and the Transferor Portfolio. 2. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING TRUST The Acquiring Trust represents and warrants as follows: (a) ORGANIZATION, EXISTENCE, ETC. The Acquiring Trust is a business trust that is duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to carry on its business as it is now being conducted. The Acquiring Portfolio is a validly existing series of shares of such business trust representing interests therein under the laws of Massachusetts. Each of the Acquiring Portfolio and the Acquiring Trust have all necessary federal, state and local authorization to own all of its properties and assets and to carry on its business as now being conducted. (b) REGISTRATION AS INVESTMENT COMPANY. The Acquiring Trust is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end investment company of the management type; such registration has not been revoked or rescinded and is in full force and effect. (c) CURRENT OFFERING DOCUMENTS. The current prospectus and statement of additional information of the Acquiring Trust, as amended, included in the Acquiring Trust's registration statement on Form N-1A filed with the Securities and Exchange Commission, comply in all material respects with the requirements of the Securities Act of 1933, as amended (the "Securities Act") and the Act and do not contain an untrue statement of a material fact or omit to A-3 state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) CAPITALIZATION. The Acquiring Trust has an unlimited number of authorized shares of beneficial interest, of which as of November 30, 2000 there were outstanding 15,051,872 shares of the Acquiring Portfolio, and no shares of such Portfolio were held in the treasury of the Acquiring Trust. All of the outstanding shares of the Acquiring Trust have been duly authorized and are validly issued, fully paid and nonassessable (except as disclosed in the Acquiring Trust's prospectus and recognizing that under Massachusetts law, shareholders of an Acquiring Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such Acquiring Trust portfolio). Because the Acquiring Trust is an open-end investment company engaged in the continuous offering and redemption of its shares, the number of outstanding shares may change prior to the Effective Time of the Reorganization. All of the issued and outstanding shares of the Acquiring Portfolio have been offered and sold in compliance in all material respects with applicable registration requirements of the Securities Act and applicable state securities laws. (e) FINANCIAL STATEMENTS. The financial statements of the Acquiring Trust with respect to the Acquiring Portfolio and The U.S. Equity Portfolio for the fiscal year ended May 31, 2000, which have been audited by PricewaterhouseCoopers LLP, fairly present the financial position of the Acquiring Portfolio and The U.S. Equity Portfolio as of the dates thereof and the respective results of operations and changes in net assets for each of the periods indicated in accordance with generally accepted accounting principles ("GAAP"). The financial statements of the Acquiring Trust with respect to the Acquiring Portfolio and for The U.S. Equity Portfolio for the fiscal period ended November 30, 2000 fairly present the financial position of the Acquiring Portfolio as of the dates thereof and the respective results of operations and changes in net assets for each of the periods indicated in accordance with GAAP. (f) SHARES TO BE ISSUED UPON REORGANIZATION. The Acquiring Portfolio Shares to be issued in connection with the Reorganization will be duly authorized and upon consummation of the Reorganization will be validly issued, fully paid and nonassessable (except as disclosed in the Trust's prospectus and recognizing that under Massachusetts law, shareholders of an Acquiring Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such portfolio). (g) AUTHORITY RELATIVE TO THIS PLAN. The Acquiring Trust, on behalf of the Acquiring Portfolio, has the power to enter into this Plan and to carry out its obligations hereunder. The execution and delivery of this Plan and the consummation of the transactions contemplated hereby have been duly authorized by the Acquiring Trust's Board of Trustees and no other proceedings by the Acquiring Trust other than those contemplated under this Plan are necessary to authorize its officers to effectuate this Plan and the transactions contemplated hereby. The Acquiring Trust is not a party to or obligated under any provision of its Declaration of Trust or By-laws, or under any indenture or contract provision or any other commitment or obligation, or subject to any order or decree, which would be violated by or which would prevent its execution and performance of this Plan in accordance with its terms. A-4 (h) LIABILITIES. There are no liabilities of the Acquiring Portfolio, whether actual or contingent and whether or not determined or determinable, other than liabilities disclosed or provided for in the Acquiring Trust's financial statements with respect to the Acquiring Portfolio and liabilities incurred in the ordinary course of business subsequent to November 30, 2000 or otherwise previously disclosed to the Acquiring Trust with respect to the Acquiring Portfolio, none of which has been materially adverse to the business, assets or results of operations of the Acquiring Portfolio. (i) NO MATERIAL ADVERSE CHANGE. Since November 30, 2000, there has been no material adverse change in the financial condition, results of operations, business, properties or assets of the Acquiring Portfolio, other than those occurring in the ordinary course of business (for these purposes, a decline in net asset value and a decline in net assets due to redemptions do not constitute a material adverse change). (j) LITIGATION. There are no claims, actions, suits or proceedings pending or, to the knowledge of the Acquiring Trust, threatened which would adversely affect the Acquiring Trust or the Acquiring Portfolio's assets or business or which would prevent or hinder consummation of the transactions contemplated hereby, there are no facts which would form the basis for the institution of administrative proceedings against the Acquiring Trust or the Acquiring Portfolio and, to the knowledge of the Acquiring Trust, there are no regulatory investigations of the Acquiring Trust or the Acquiring Portfolio, pending or threatened, other than routine inspections and audits. (k) CONTRACTS. No default exists under any material contract or other commitment to which the Acquiring Trust, on behalf of the Acquiring Portfolio, is subject. (l) TAXES. The federal income tax returns of the Acquiring Trust with respect to the Acquiring Portfolio, and all other income tax returns required to be filed by the Acquiring Trust with respect to the Acquiring Portfolio, have been filed and all taxes payable pursuant to such returns have been paid. To the knowledge of the Acquiring Trust, no such return is under audit and no assessment has been asserted in respect of any such return. All federal and other taxes owed by the Acquiring Trust with respect to the Acquiring Portfolio have been paid so far as due. The Acquiring Portfolio has elected to qualify and has qualified as a "regulated investment company" under Subchapter M of the Code as of and since its first taxable year and intends to continue to so qualify. (m) NO APPROVALS REQUIRED. Except for the Registration Statement (as defined in Section 4(a) hereof) and the approval of the Transferor Portfolio's shareholders (referred to in Section 6(a) hereof), no consents, approvals, authorizations, registrations or exemptions under federal or state laws are necessary for the consummation by the Acquiring Trust of the Reorganization, except such as have been obtained as of the date hereof. A-5 3. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR TRUST The Transferor Trust represents and warrants as follows: (a) ORGANIZATION, EXISTENCE, ETC. The Transferor Trust is a business trust that is duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to carry on its business as it is now being conducted. The Transferor Portfolio is a validly existing series of shares of such business trust representing interests therein under the laws of Massachusetts. Each of Transferor Portfolio and the Transferor Trust has all necessary federal, state and local authorization to own all of its properties and assets and to carry on its business as now being conducted. (b) REGISTRATION AS INVESTMENT COMPANY. The Transferor Trust is registered under the Act as an open-end investment company of the management type; such registration has not been revoked or rescinded and is in full force and effect. (c) CURRENT OFFERING DOCUMENTS. The current prospectus and statement of additional information of the Transferor Trust, as amended, included in the Transferor Trust's registration statement on Form N-1A filed with the Commission, comply in all material respects with the requirements of the Securities Act and the Act and do not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (d) CAPITALIZATION. The Transferor Trust has an unlimited number of authorized shares of beneficial interest, of which as of November 30, 2000 there were outstanding 53,157 shares of the Transferor Portfolio, and no shares of such Portfolio were held in the treasury of the Transferor Trust. All of the outstanding shares of the Transferor Trust have been duly authorized and are validly issued, fully paid and nonassessable (except as disclosed in the Transferor Trust's prospectus and recognizing that under Massachusetts law, shareholders of a Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such Trust portfolio). Because the Transferor Trust is an open-end investment company engaged in the continuous offering and redemption of its shares, the number of outstanding shares may change prior to the Effective Time of the Reorganization. All such shares will, at the Exchange Date, be held by the shareholders of record of the Transferor Portfolio as set forth on the books and records of the Transferor Trust in the amounts set forth therein, and as set forth in any list of shareholders of record provided to the Acquiring Portfolio for purposes of the Reorganization, and no such shareholders of record will have any preemptive rights to purchase any Transferor Portfolio shares, and the Transferor Portfolio does not have outstanding any options, warrants or other rights to subscribe for or purchase any Transferor Portfolio shares (other than any existing dividend reinvestment plans of the Transferor Portfolio or as set forth in this Plan), nor are there outstanding any securities convertible into any shares of the Transferor Portfolio (except pursuant to any existing exchange privileges described in the current prospectus and statement of additional information of the Transferor Trust). All of the Transferor Portfolio's issued and outstanding shares have been offered and sold in compliance in all material respects with applicable registration requirements of the Securities Act and applicable state securities laws. A-6 (e) FINANCIAL STATEMENTS. The financial statements for the Transferor Trust with respect to the Transferor Portfolio and The U.S. Equity Portfolio for the fiscal year ended May 31, 2000 which have been audited by PricewaterhouseCoopers LLP fairly present the financial position of the Transferor Portfolio and The U.S. Equity Portfolio as of the dates thereof and the respective results of operations and changes in net assets for each of the periods indicated in accordance with GAAP. The financial statements of the Transferor Trust with respect to the Transferor Portfolio and The U.S. Equity Portfolio for the fiscal period ended November 30, 2000 fairly present the financial position of the Transferor Portfolio as of the dates thereof and the respective results of operations and changes in net assets for each of the periods indicated in accordance with GAAP. (f) AUTHORITY RELATIVE TO THIS PLAN. The Transferor Trust, on behalf of the Transferor Portfolio, has the power to enter into this Plan and to carry out its obligations hereunder. The execution and delivery of this Plan and the consummation of the transactions contemplated hereby have been duly authorized by the Transferor Trust s Board of Trustees and no other proceedings by the Transferor Trust other than those contemplated under this Plan are necessary to authorize its officers to effectuate this Plan and the transactions contemplated hereby. The Transferor Trust is not a party to or obligated under any provision of its Declaration of Trust or By-laws, or under any indenture or contract provision or any other commitment or obligation, or subject to any order or decree, which would be violated by or which would prevent its execution and performance of this Plan in accordance with its terms. (g) LIABILITIES. There are no liabilities of the Transferor Portfolio, whether actual or contingent and whether or not determined or determinable, other than liabilities disclosed or provided for in the Transferor Trust's Financial Statements with respect to the Transferor Portfolio and liabilities incurred in the ordinary course of business subsequent to November 30, 2000 or otherwise previously disclosed to the Transferor Trust with respect to the Transferor Portfolio, none of which has been materially adverse to the business, assets or results of operations of the Transferor Portfolio. (h) NO MATERIAL ADVERSE CHANGE. Since November 30, 2000, there has been no material adverse change in the financial condition, results of operations, business, properties or assets of the Transferor Portfolio, other than those occurring in the ordinary course of business (for these purposes, a decline in net asset value and a decline in net assets due to redemptions do not constitute a material adverse change). (i) LITIGATION. There are no claims, actions, suits or proceedings pending or, to the knowledge of the Transferor Trust, threatened which would adversely affect the Transferor Trust or the Transferor Portfolio's assets or business or which would prevent or hinder consummation of the transactions contemplated hereby, there are no facts which would form the basis for the institution of administrative proceedings against the Transferor Trust or the Transferor Portfolio and, to the knowledge of the Transferor Trust, there are no regulatory investigations of the Transferor Trust or the Transferor Portfolio, pending or threatened, other than routine inspections and audits. (j) CONTRACTS. The Transferor Trust, on behalf of the Transferor Portfolio, is not subject to any contracts or other commitments (other than this Plan) which will not be terminated with A-7 respect to the Transferor Portfolio without liability to the Transferor Trust or the Transferor Portfolio as of or prior to the Effective Time of the Reorganization. (k) TAXES. The federal income tax returns of the Transferor Trust with respect to the Transferor Portfolio, and all other income tax returns required to be filed by the Transferor Trust with respect to the Transferor Portfolio, have been filed and all taxes payable pursuant to such returns have been paid. To the knowledge of the Transferor Trust, no such return is under audit and no assessment has been asserted in respect of any such return. All federal and other taxes owed by the Transferor Trust with respect to the Transferor Portfolio have been paid so far as due. The Transferor Portfolio has elected to qualify as a "regulated investment company" under Subchapter M of the Code, as of and since its first taxable year, and shall continue to so qualify until the Effective Time of the Reorganization. (l) NO APPROVALS REQUIRED. Except for the Registration Statement (as defined in Section 4(a) hereof) and the approval of the Transferor Portfolio's shareholders referred to in Section 6(a) hereof, no consents, approvals, authorizations, registrations or exemptions under federal or state laws are necessary for the consummation by the Transferor Trust of the Reorganization, except such as have been obtained as of the date hereof. 4. COVENANTS OF THE ACQUIRING TRUST The Acquiring Trust covenants to the following: (a) REGISTRATION STATEMENT. On behalf of the Acquiring Portfolio, the Acquiring Trust shall file with the Commission a Registration Statement on Form N-14 (the "Registration Statement") under the Securities Act relating to the Acquiring Portfolio Shares issuable hereunder and the proxy statement of the Transferor Portfolio relating to the meeting of the Transferor Portfolio's shareholders referred to in Section 5(a) herein. At the time the Registration Statement becomes effective, the Registration Statement (i) will comply in all material respects with the provisions of the Securities Act and the rules and regulations of the Commission thereunder (the "Regulations") and (ii) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at the time the Registration Statement becomes effective, at the time of the Transferor Portfolio shareholders' meeting referred to in Section 5 (a) hereof, and at the Effective Time of the Reorganization, the prospectus/proxy statement (the "Prospectus") and statement of additional information (the "Statement of Additional Information") included therein, as amended or supplemented by any amendments or supplements filed by the Trust, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) COOPERATION IN EFFECTING REORGANIZATION. The Acquiring Trust agrees to use all reasonable efforts to effectuate the Reorganization, to continue in operation thereafter, and to obtain any necessary regulatory approvals for the Reorganization. The Acquiring Trust shall furnish such data and information relating to the Acquiring Trust as shall be reasonably requested for inclusion in the information to be furnished to the Transferor Portfolio shareholders A-8 in connection with the meeting of the Transferor Portfolio's shareholders for the purpose of acting upon this Plan and the transactions contemplated herein. (c) OPERATIONS IN THE ORDINARY COURSE. Except as otherwise contemplated by this Plan, the Acquiring Trust shall conduct the business of the Acquiring Portfolio in the ordinary course until the consummation of the Reorganization, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions. 5. COVENANTS OF THE TRANSFEROR TRUST The Transferor Trust covenants to the following: (a) MEETING OF THE TRANSFEROR PORTFOLIO'S SHAREHOLDERS. The Transferor Trust shall call and hold a meeting of the shareholders of the Transferor Portfolio for the purpose of acting upon this Plan and the transactions contemplated herein. (b) PORTFOLIO SECURITIES. With respect to the assets to be transferred in accordance with Section 1(a), the Transferor Portfolio's assets shall consist of all property and assets of any nature whatsoever, including, without limitation, all cash, cash equivalents, securities, claims and receivables (including dividend and interest receivables) owned, and any deferred or prepaid expenses shown as an asset on the Transferor Trust's books maintained or on behalf of the Transferor Portfolio. At least five (5) business days prior to the Exchange Date, the Transferor Portfolio will provide the Acquiring Trust, for the benefit of the Acquiring Portfolio, with a list of its assets and a list of its stated liabilities. The Transferor Portfolio shall have the right to sell any of the securities or other assets shown on the list of assets prior to the Exchange Date but will not, without the prior approval of the Acquiring Trust, on behalf of the Acquiring Portfolio, acquire any additional securities other than securities which the Acquiring Portfolio is permitted to purchase, pursuant to its investment objective and policies or otherwise (taking into consideration its own portfolio composition as of such date). In the event that the Transferor Portfolio holds any investments that the Acquiring Portfolio would not be permitted to hold, the Transferor Portfolio will dispose of such securities prior to the Exchange Date to the extent practicable, to the extent permitted by its investment objective and policies and to the extent that its shareholders would not be materially affected in an adverse manner by such a disposition. In addition, the Transferor Trust will prepare and deliver immediately prior to the Effective Time of the Reorganization, a Statement of Assets and Liabilities of the Transferor Portfolio, prepared in accordance with GAAP (each, a "Schedule"). All securities to be listed in the Schedule for the Transferor Portfolio as of the Effective Time of the Reorganization will be owned by the Transferor Portfolio free and clear of any liens, claims, charges, options and encumbrances, except as indicated in such Schedule, and, except as so indicated, none of such securities is or, after the Reorganization as contemplated hereby, will be subject to any restrictions, legal or contractual, on the disposition thereof (including restrictions as to the public offering or sale thereof under the Securities Act) and, except as so indicated, all such securities are or will be readily marketable. (c) REGISTRATION STATEMENT. In connection with the preparation of the Registration Statement, the Transferor Trust will cooperate with the Acquiring Trust and will furnish to the Acquiring Trust the information relating to the Transferor Portfolio required by the Securities A-9 Act and the Regulations to be set forth in the Registration Statement (including the Prospectus and Statement of Additional Information). At the time the Registration Statement becomes effective, the Registration Statement, insofar as it relates to the Transferor Portfolio, (i) will comply in all material respects with the provisions of the Securities Act and the Regulations and (ii) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at the time the Registration Statement becomes effective, at the time of the Transferor Portfolio's shareholders meeting referred to in Section 5(a) and at the Effective Time of the Reorganization, the Prospectus and Statement of Additional Information, as amended or supplemented by any amendments or supplements filed by the Transferor Trust, insofar as they relate to the Transferor Portfolio, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall apply only to statements in or omissions from the Registration Statement, Prospectus or Statement of Additional Information made in reliance upon and in conformity with information furnished by the Transferor Portfolio for use in the registration statement, prospectus or statement of additional information as provided in this Section 5(c). (d) COOPERATION IN EFFECTING REORGANIZATION. The Transferor Trust agrees to use all reasonable efforts to effectuate the Reorganization and to obtain any necessary regulatory approvals for the Reorganization. (e) OPERATIONS IN THE ORDINARY COURSE. Except as otherwise contemplated by this Plan, the Transferor Trust shall conduct the business of the Transferor Portfolio in the ordinary course until the consummation of the Reorganization, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions. (f) STATEMENT OF EARNINGS AND PROFITS. As promptly as practicable, but in any case within 60 days after the Exchange Date, the Transferor Trust on behalf of the Transferor Portfolio, shall prepare a statement of the earnings and profits of the Transferor Portfolio for federal income tax purposes, and of any capital loss carryovers and other items that the Acquiring Portfolio will succeed to and take into account as a result of Section 381 of the Code. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE TRANSFEROR TRUST The obligations of the Transferor Trust with respect to the consummation of the Reorganization are subject to the satisfaction of the following conditions: (a) APPROVAL BY THE TRANSFEROR PORTFOLIO'S SHAREHOLDERS. This Plan and the transactions contemplated by the Reorganization shall have been approved by the requisite vote of the shares of the Transferor Portfolio entitled to vote on the matter ("Transferor Shareholder Approval"). (b) COVENANTS, WARRANTIES AND REPRESENTATIONS. The Acquiring Trust shall have complied with each of its covenants contained herein, each of the representations and warranties contained herein shall be true in all material respects as of the Effective Time of the Reorganization (except as otherwise contemplated herein), and there shall have been no material A-10 adverse change (as described in Section 2(i)) in the financial condition, results of operations, business, properties or assets of the Acquiring Portfolio since November 30, 2000. (c) REGULATORY APPROVAL. The Registration Statement shall have been declared effective by the Commission and no stop orders under the Securities Act pertaining thereto shall have been issued, and all other approvals, registrations, and exemptions under federal and state laws considered to be necessary shall have been obtained (collectively, the "Regulatory Approvals"). (d) TAX OPINION. The Transferor Trust shall have received the opinion of Simpson Thacher & Bartlett, dated on or before the Exchange Date, addressed to and in form and substance satisfactory to the Transferor Trust, as to certain of the federal income tax consequences under the Code of the Reorganization, insofar as it relates to the Transferor Portfolio and the Acquiring Portfolio, and to shareholders of each Transferor Portfolio (the "Tax Opinion"). For purposes of rendering the Tax Opinion, Simpson Thacher & Bartlett may rely exclusively and without independent verification, as to factual matters, upon the statements made in this Plan, the Prospectus and Statement of Additional Information, and upon such other written representations as the President or Treasurer of the Transferor Trust will have verified as of the Effective Time of the Reorganization. The Tax Opinion will be to the effect that, based on the facts and assumptions stated therein, for federal income tax purposes: (i) the Reorganization will constitute a reorganization within the meaning of section 368(a)(1) of the Code with respect to the Transferor Portfolio and the Acquiring Portfolio; (ii) no gain or loss will be recognized by any of the Transferor Portfolio or the Acquiring Portfolio upon the transfer of all the assets and liabilities, if any, of the Transferor Portfolio to the Acquiring Portfolio solely in exchange for shares of the Acquiring Portfolio or upon the distribution of the shares of the Acquiring Portfolio to the holders of the shares of the Transferor Portfolio solely in exchange for all of the shares of the Transferor Portfolio; (iii) no gain or loss will be recognized by shareholders of the Transferor Portfolio upon the exchange of shares of such Transferor Portfolio solely for shares of the Acquiring Portfolio; (iv) the holding period and tax basis of the shares of the Acquiring Portfolio received by each holder of shares of the Transferor Portfolio pursuant to the Reorganization will be the same as the holding period and tax basis of shares of the Transferor Portfolio held by such holder immediately prior to the Reorganization; (provided the shares of the Transferor Portfolio were held as a capital asset on the date of the Reorganization) and (v) the holding period and tax basis of the assets of the Transferor Portfolio acquired by the Acquiring Portfolio will be the same as the holding period and tax basis of those assets to the Transferor Portfolio immediately prior to the Reorganization. (e) CONCURRENT REORGANIZATION. The reorganization of J.P. Morgan U.S. Equity Fund, a series of J.P. Morgan Funds, into the Acquiring Portfolio shall have been consummated. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING TRUST The obligations of the Acquiring Trust with respect to the consummation of the Reorganization are subject to the satisfaction of the following conditions: (a) APPROVAL BY THE TRANSFEROR PORTFOLIO'S SHAREHOLDERS. The Transferor Shareholder Approval shall have been obtained. A-11 (b) COVENANTS, WARRANTIES AND REPRESENTATIONS. The Transferor Trust shall have complied with each of its covenants contained herein, each of the representations and warranties contained herein shall be true in all material respects as of the Effective Time of the Reorganization (except as otherwise contemplated herein), and there shall have been no material adverse change (as described in Section 3(h)) in the financial condition, results of operations, business, properties or assets of the Transferor Portfolio since November 30, 2000. (c) PORTFOLIO SECURITIES. All securities to be acquired by the Acquiring Portfolio in the Reorganization shall have been approved for acquisition by J.P. Morgan Investment Management Inc. ("JPMIM"), in its capacity as investment adviser to the Acquiring Portfolio, as consistent with the investment policies of the Acquiring Portfolio. (d) REGULATORY APPROVAL. The Regulatory Approvals shall have been obtained. (e) DISTRIBUTION OF INCOME AND GAINS. The Transferor Trust on behalf of the Transferor Portfolio shall have distributed to the shareholders of the Transferor Portfolio all of the Transferor Portfolio's investment company taxable income (determined without regard to the deduction for dividends paid) as defined in Section 852(b)(2) of the Code for its taxable year ending on the Exchange Date and all of its net capital gain as such term is used in Section 852(b)(3) of the Code, after reduction by any capital loss carry forward, for its taxable year ending on the Exchange Date. (f) TAX OPINION. The Acquiring Trust shall have received the Tax Opinion. (g) CONCURRENT REORGANIZATION. The reorganization of J.P. Morgan U.S. Equity Fund , a series of J.P. Morgan Funds, into the Acquiring Portfolio shall have been consummated. 8. AMENDMENTS; TERMINATIONS; NO SURVIVAL OF COVENANTS, WARRANTIES AND REPRESENTATIONS (a) AMENDMENTS. The parties hereto may, by agreement in writing authorized by their Boards of Trustees amend this Plan at any time before or after approval hereof by the shareholders of the Transferor Portfolio, but after such approval, no amendment shall be made which substantially changes the terms hereof. (b) WAIVERS. At any time prior to the Effective Time of the Reorganization, either the Transferor Trust or the Acquiring Trust may by written instrument signed by it (i) waive any inaccuracies in the representations and warranties made to it contained herein and (ii) waive compliance with any of the covenants or conditions made for its benefit contained herein, except that conditions set forth in Sections 6(c) and 7(d) may not be waived. (c) TERMINATION BY THE TRANSFEROR TRUST. The Transferor Trust, on behalf of the Transferor Portfolio, may terminate this Plan with respect to the Transferor Portfolio at any time prior to the Effective Time of the Reorganization by notice to the Acquiring Trust and JPMIM if (i) a material condition to the performance of the Transferor Trust hereunder or a material covenant of the Acquiring Trust contained herein shall not be fulfilled on or before the date specified for the fulfillment thereof or (ii) a material default or material breach of this Plan shall A-12 be made by the Acquiring Trust. In addition, this Plan may be terminated by the Transferor Trust at any time prior to the Effective Time of the Reorganization, whether before or after approval of this Plan by the shareholders of the Transferor Portfolio, without liability on the part of any party hereto, its Trustees, officers or shareholders or JPMIM on notice to the other parties in the event that the Board of Trustees determines that proceeding with this Plan is not in the best interests of the shareholders of the Transferor Portfolio. (d) TERMINATION BY THE ACQUIRING TRUST. The Acquiring Trust, on behalf of the Acquiring Portfolio, may terminate this Plan with respect to the Acquiring Portfolio at any time prior to the Effective Time of the Reorganization by notice to the Transferor Trust and JPMIM if (i) a material condition to the performance of the Acquiring Trust hereunder or a material covenant of the Transferor Trust contained herein shall not be fulfilled on or before the date specified for the fulfillment thereof or (ii) a material default or material breach of this Plan shall be made by the Transferor Trust. In addition, this Plan may be terminated by the Acquiring Trust at any time prior to the Effective Time of the Reorganization, whether before or after approval of this Plan by the shareholders of the Transferor Portfolio, without liability on the part of any party hereto, its Trustees, officers or shareholders or JPMIM on notice to the other parties in the event that the Board of Trustees determines that proceeding with this Plan is not in the best interests of the shareholders of the Acquiring Portfolio. (e) SURVIVAL. No representations, warranties or covenants in or pursuant to this Plan, except for the provisions of Section 5(f) and Section 9 of this Plan, shall survive the Reorganization. 9. EXPENSES The expenses of the Reorganization will be borne by J.P. Morgan Chase & Co ("JPMC"). Such expenses include, without limitation, (i) expenses incurred in connection with the entering into and the carrying out of the provisions of this Plan; (ii) expenses associated with the preparation and filing of the Registration Statement; (iii) fees and expenses of preparing and filing such forms as are necessary under any applicable state securities laws in connection with the Reorganization; (iv) postage; (v) printing; (vi) accounting fees; (vii) legal fees and (viii) solicitation costs relating to the Reorganization. In addition, JPMC or an affiliate will waive fees payable to it or reimburse expenses to the extent necessary such that the actual (post-waiver) total expense ratios of the Select Class Shares and the Institutional Class Shares of the Acquiring Portfolio are not higher than those set forth in the Registration Statement Portfolio for a period of three years after the Exchange Date. 10. NOTICES Any notice, report, statement or demand required or permitted by any provision of this Plan shall be in writing and shall be given by hand, certified mail or by facsimile transmission, shall be deemed given when received and shall be addressed to the parties hereto at their respective addresses listed below or to such other persons or addresses as the relevant party shall designate as to itself from time to time in writing delivered in like manner: A-13 if to the Transferor Trust (for itself or on behalf of the Transferor Portfolio): 60 State Street Suite 1300 Boston, Massachusetts 02109 with a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: John E. Baumgardner, Jr., Esq. if to the Acquiring Trust (for itself or on behalf of the Acquiring Portfolio): 60 State Street Suite 1300 Boston, Massachusetts 02109 with a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: John E. Baumgardner, Jr., Esq. 11. RELIANCE All covenants and agreements made under this Plan shall be deemed to have been material and relied upon by the Transferor Trust and the Acquiring Trust notwithstanding any investigation made by such party or on its behalf. 12. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT (a) The section and paragraph headings contained in this Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of this Plan. (b) This Plan may be executed in any number of counterparts, each of which shall be deemed an original. (c) This Plan shall be governed by and construed in accordance with the laws of the State of New York. (d) This Plan shall bind and inure to the benefit of the Transferor Trust, the Transferor Portfolio, the Acquiring Trust and the Acquiring Portfolio and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be A-14 made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Plan. (e) The name "J.P. Morgan Institutional Funds" is the designation of its Trustees under a Declaration of Trust dated November 4, 1992, as amended, and all persons dealing with the Acquiring Trust must look solely to the Acquiring Trust's property for the enforcement of any claims against the Acquiring Trust, as none of the Acquiring Trustees, officers, agents or shareholders assumes any personal liability for obligations entered into on behalf of the Acquiring Trust. No series of the Acquiring Trust shall be liable for claims against any other series of the Acquiring Trust. A-15 IN WITNESS WHEREOF, the undersigned have executed this Plan as of the date first above written. J.P. MORGAN INSTITUTIONAL FUNDS on behalf of J.P. Morgan Institutional U.S. Equity Fund By: --------------------------------------- Name: Title: J.P. MORGAN INSTITUTIONAL FUNDS on behalf of J.P. Morgan U.S. Equity Fund-Advisor Series By: --------------------------------------- Name: Title: Agreed and acknowledged with respect to Section 9: J.P. MORGAN CHASE & CO. By: --------------------------------------- Name: Title: A-16 STATEMENT OF ADDITIONAL INFORMATION (SPECIAL MEETING OF SHAREHOLDERS OF J.P. MORGAN U.S. EQUITY FUND-ADVISOR SERIES A SERIES OF J.P. MORGAN INSTITUTIONAL FUNDS) This Statement of Additional Information is not a prospectus but should be read in conjunction with the Combined Prospectus/Proxy Statement dated May 12, 2001 for the Special Meeting of Shareholders of J.P. Morgan U.S. Equity Fund-Advisor Series (the "Merging Fund"), a series of J.P. Morgan Institutional Funds ("JPMF"), to be held on July 3, 2001. Copies of the Combined Prospectus/Proxy Statement may be obtained at no charge by calling JPMorgan U.S. Equity Fund-Advisor Series at ______________. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Combined Prospectus/Proxy Statement. Further information about the Surviving Fund and the Merging Fund is contained in JPMF's Statements of Additional Information for the relevant Fund, which are incorporated herein by reference. The date of this Statement of Additional Information is May 12, 2001. 1 GENERAL INFORMATION The Shareholders of the Merging Fund are being asked to consider and vote on two proposals. With respect to an Agreement and Plan of Reorganization (the "Reorganization Plan") dated as of __________, 2001 by and among JPMF, on behalf of the Merging Fund, JPMF, on behalf of the Surviving Fund, and JPMC, and the transactions contemplated thereby, the Reorganization Plan contemplates the transfer of all of the assets and liabilities of the Merging Fund to the Surviving Fund in exchange for shares issued by JPMF in the Surviving Fund that will have an aggregate net asset value equal to the aggregate net asset value of the shares of the Merging Fund that are outstanding immediately before the Effective Time of the Reorganization. Following the exchange, the Merging Fund will make a liquidating distribution of the Surviving Fund shares to its Shareholders, so that a holder of Shares in the Merging Fund will receive Class A Shares of the Surviving Fund of equal value, plus the right to receive any unpaid dividends and distributions that were declared before the Effective Time of the Reorganization. At the Meeting, shareholders will also be asked to consider and vote upon the election of Trustees of JPMF. A Special Meeting of Shareholders of the Merging Fund to consider the proposals and the related transaction will be held at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st Floor, New York, NY, on July 3, 2001 at 9:00 a.m., Eastern time. For further information about the transaction, see the Combined Prospectus/Proxy Statement. 2 FINANCIAL STATEMENTS The audited financial highlights, financial statements and notes thereto of each of the Merging Fund and the Surviving Fund contained in their respective Annual Reports dated May 31, 2000, and the audited financial statements, notes thereto and supplementary data of the Master Portfolio contained in its Annual Report dated May 31, 2000, are incorporated by reference into this Statement of Additional Information related to this Combined Prospectus/Proxy Statement. The audited financial highlights, financial statements, notes thereto and supplementary data, as applicable, which appear in each of the Surviving Fund's, the Master Portfolio's and the Merging Fund's Annual Report have been audited by PricewaterhouseCoopers LLP, whose reports thereon also appear in such Annual Reports and are also incorporated herein by reference. The financial highlights, financial statements, notes thereto and supplementary data, as applicable, for the Merging Fund, the Surviving Fund and the Master Portfolio for the fiscal year ended May 31, 2000 have been incorporated herein by reference in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on their authority as experts in auditing and accounting. The unaudited financial highlights, financial statements and notes thereto of the Merging Fund and the Surviving Fund contained in their respective Semi-Annual Reports dated November 30, 2000, and the unaudited financial statements, notes thereto and supplementary data of the Master Portfolio contained in its Semi-Annual Report dated November 30, 2000, are incorporated by reference into this Statement of Additional Information related to this Combined Prospectus/Proxy Statement. 3 PRO FORMA FINANCIAL STATEMENTS J.P. MORGAN U.S. EQUITY PORTFOLIO / CHASE VISTA LARGE CAP EQUITY FUND (1) PRO FORMA COMBINING SCHEDULE OF INVESTMENTS NOVEMBER 30, 2000 (UNAUDITED)
PRINCIPAL AMOUNT MARKET VALUE ------------------------------------------- ------------------------------------------------ PRO FORMA PRO FORMA PRO FORMA PRO FORMA CHASE JPM ADJUSTMENTS COMBINED CHASE JPM ADJUSTMENTS COMBINED ---------- --------- ----------- ---------- ------------ ---------- ----------- ----------- COMMON STOCKS - 95.6% CAPITAL MARKETS CAPITAL MARKETS - 1.8% Goldman Sachs Group, Inc. (The) 119,700 119,700 - 9,830,363 - 9,830,363 TD Waterhouse Group, Inc.(+) 253,400 253,400 - 3,357,550 - 3,357,550 ------------------------------------------- ------------------------------------------------ - 373,100 - 373,100 - 13,187,913 - 13,187,913 ------------------------------------------- ------------------------------------------------ COMPUTER HARDWARE COMPUTER HARDWARE & BUSINESS MACHINES - 9.1% Avaya Inc.(+) 7,300 7,300 - 85,319 - 85,319 Cisco Systems Inc.(s)(+) 77,000 414,800 491,800 3,686,375 19,858,550 - 23,544,925 Compaq Computer Corp. 77,000 232,400 309,400 1,655,500 4,996,600 - 6,652,100 Dell Computer Corp.(+) 47,100 47,100 - 906,675 - 906,675 EMC Corp. (Mass.)(+) 46,000 104,500 150,500 3,421,250 7,772,188 - 11,193,438 Hewlett-Packard Co. 56,000 69,600 125,600 1,771,000 2,201,100 - 3,972,100 Quantum Corp. - DLT & Storage Systems(+) 202,500 202,500 - 2,733,750 - 2,733,750 Sun Microsystems, Inc.(s)(+) 36,000 186,900 222,900 2,738,250 14,216,081 - 16,954,331 ------------------------------------------- ------------------------------------------------ 292,000 1,265,100 - 1,557,100 13,272,375 52,770,263 66,042,638 ------------------------------------------- ------------------------------------------------ CONSUMER CYCLICAL HOTELS - 0.3% ------------------------------------------- ------------------------------------------------ Marriott International, Inc. 58,700 58,700 - 2,432,381 - 2,432,381 ------------------------------------------- ------------------------------------------------ MOTOR VEHICLES & PARTS - 1.9% Dana Corp. 66,400 66,400 - 1,112,200 - 1,112,200 Delphi Automotive Systems 167,500 167,500 - 2,313,594 - 2,313,594 Ford Motor Company 145,136 93,492 238,628 3,301,844 2,126,943 - 5,428,787 General Motors Corp. 32,200 23,800 56,000 1,593,900 1,178,100 - 2,772,000 Lear Corp. (+) 129,800 129,800 - 2,839,375 - 2,839,375 ------------------------------------------- ------------------------------------------------ 177,336 480,992 - 658,328 4,895,744 9,570,212 - 14,465,956 ------------------------------------------- ------------------------------------------------ RESTAURANTS - 0.3% ------------------------------------------- ------------------------------------------------ McDonald's Corp. 57,000 57,000 - 1,816,875 - 1,816,875 ------------------------------------------- ------------------------------------------------ FOOD/ BEVERAGES - 1.2% Anheuser-Busch Companies, Inc. 47,000 47,000 2,229,563 - 2,229,563 Coca-Cola Co. 42,300 42,300 2,649,038 - 2,649,038 PepsiCo, Inc. 40,000 40,000 1,815,000 - 1,815,000 Sysco Corp. 33,000 33,000 1,823,250 - 1,823,250 ------------------------------------------- ------------------------------------------------ 162,300 - - 162,300 8,516,851 - - 8,516,851 ------------------------------------------- ------------------------------------------------ CONSUMER SERVICES ENTERTAINMENT - 0.9% ------------------------------------------- ------------------------------------------------ Viacom, Inc. Cl B(+) 48,360 76,900 125,260 2,472,405 3,931,512 - 6,403,917 ------------------------------------------- ------------------------------------------------ MEDIA - 2.0% AT&T Corp. - Liberty Media Group Cl A(+) 104,200 104,200 - 1,413,213 - 1,413,213 Charter Communications, Inc.(+) 40,758 40,758 - 804,971 - 804,971 Comcast Corp. Cl A(+) 93,800 93,800 - 3,605,438 - 3,605,438 News Corp. Ltd. (The) ADR(i) 106,400 106,400 - 3,710,699 - 3,710,699 The Walt Disney Co. 49,000 49,000 1,417,938 - - 1,417,938 See notes to Pro Forma Financial Statements 4 Time Warner Inc. 29,000 27,700 56,700 1,798,000 1,717,400 - 3,515,400 ------------------------------------------- ------------------------------------------------ 78,000 372,858 - 450,858 3,215,938 11,251,721 14,467,659 ------------------------------------------- ------------------------------------------------ CONSUMER STABLE HOME PRODUCTS - 3.1% Clorox Company 52,800 52,800 - 2,359,500 - 2,359,500 Estee Lauder Companies, Inc. 62,700 62,700 - 2,715,694 - 2,715,694 Gillette Company 47,400 153,400 200,800 1,605,675 5,196,425 - 6,802,100 Procter & Gamble Co. (The) 142,000 142,000 - 10,632,250 - 10,632,250 ------------------------------------------- ------------------------------------------------ 47,400 410,900 - 458,300 1,605,675 20,903,869 - 22,509,544 ------------------------------------------- ------------------------------------------------ TOBACCO - 1.8% ------------------------------------------- ------------------------------------------------ Philip Morris Companies Inc. 41,500 295,300 336,800 1,584,781 11,276,769 - 12,861,550 ------------------------------------------- ------------------------------------------------ ENERGY ENERGY RESERVES & PRODUCTION - 5.1% Anadarko Petroleum Corp. 44,500 44,500 - 2,647,750 - 2,647,750 Chevron Corp. 42,100 37,900 80,000 3,446,938 3,103,063 - 6,550,001 Exxon Mobil Corp.(s) 95,405 217,548 312,953 8,395,640 19,144,223 - 27,539,863 ------------------------------------------- ------------------------------------------------ 137,505 299,948 - 437,453 11,842,578 24,895,036 - 36,737,614 ------------------------------------------- ------------------------------------------------ OIL REFINING - 0.2% ------------------------------------------- ------------------------------------------------ Texaco Inc. 24,100 24,100 - 1,399,306 - 1,399,306 ------------------------------------------- ------------------------------------------------ OIL SERVICES - 1.0% Baker Hughes Inc. 109,900 109,900 - 3,633,569 - 3,633,569 Global Marine Inc.(+) 108,600 108,600 - 2,382,413 - 2,382,413 ------------------------------------------- ------------------------------------------------ - 242,600 - 242,600 - 6,015,982 - 6,015,982 ------------------------------------------- ------------------------------------------------ OIL & GAS - 1.2% BP Amoco PLC, ADR (United Kingdom) 24,000 24,000 1,138,500 - - 1,138,500 Halliburton Co. 41,500 41,500 1,385,063 - - 1,385,063 Royal Dutch Petroleum Co., N.Y. Registered Shares (Netherlands) 75,800 75,800 4,524,313 - - 4,524,313 Schlumberger LTD 28,000 28,000 1,736,000 1,736,000 ------------------------------------------- ------------------------------------------------ 169,300 - - 169,300 8,783,876 - - 8,783,876 ------------------------------------------- ------------------------------------------------ FINANCE BANKS - 5.5% Amsouth Bancorporation 223,100 223,100 - 3,318,613 - 3,318,613 Bank of New York Co., Inc. 85,834 85,834 4,736,964 - - 4,736,964 Citigroup Inc. 197,000 81,566 278,566 9,813,063 4,063,006 - 13,876,069 First Union Corp. 103,000 103,000 - 2,587,875 - 2,587,875 Firstar Corp.(s) 608,000 608,000 - 11,780,000 - 11,780,000 Wells Fargo Co. 68,500 68,500 3,249,469 - - 3,249,469 ------------------------------------------- ------------------------------------------------ 351,334 792,566 - 1,143,900 17,799,496 21,749,494 - 39,548,990 ------------------------------------------- ------------------------------------------------ FINANCIAL SERVICES - 7.6% American Express Co. 66,600 66,600 3,658,838 - - 3,658,838 Associates First Capital Corp. 219,900 219,900 - 7,765,219 - 7,765,219 Capital One Financial Corp. 69,900 69,900 - 3,901,294 - 3,901,294 Countrywide Credit Industries, Inc. 95,900 95,900 - 3,560,288 - 3,560,288 Fannie Mae 20,700 20,700 1,635,300 - - 1,635,300 Federal Home Loan Mortgage Corp. 43,100 43,100 - 2,604,856 - 2,604,856 General Electric Co. (U.S.)(s) 213,916 331,700 545,616 10,602,212 16,439,880 - 27,042,092 Morgan Stanley Dean Witter & Co. 38,000 38,000 2,408,250 - - 2,408,250 Providian Financial Corp. 14,700 14,700 - 1,323,000 - 1,323,000 State Street Corp. 9,400 9,400 1,212,600 - - 1,212,600 ------------------------------------------- ------------------------------------------------ 348,616 775,200 - 1,123,816 19,517,200 35,594,537 - 55,111,737 ------------------------------------------- ------------------------------------------------ THRIFTS - 0.4% ------------------------------------------- ------------------------------------------------ Washington Mutual, Inc. 56,300 56,300 - 2,558,131 - 2,558,131 ------------------------------------------- ------------------------------------------------ HEALTH SERVICES & SYSTEMS MEDICAL PRODUCTS & SUPPLIES - 1.1% Bard (C.R.), Inc. 38,700 38,700 - 1,905,975 - 1,905,975 Becton Dickinson & Co. 89,100 89,100 - 3,029,400 - 3,029,400 Medtronic, Inc. 53,200 53,200 - 2,832,900 - 2,832,900 ------------------------------------------- ------------------------------------------------ - 181,000 - 181,000 - 7,768,275 - 7,768,275 ------------------------------------------- ------------------------------------------------ INDUSTRIAL CYCLICAL CHEMICALS - 1.9% See notes to Pro Forma Financial Statements 5 Air Products & Chemicals, Inc. 205,300 205,300 - 7,070,019 - 7,070,019 Dow Chemical Co. 33,300 33,300 1,017,731 - - 1,017,731 E.I. DuPont de Nemours Co. 52,900 52,900 2,238,331 - - 2,238,331 Rohm and Haas Co. 112,700 112,700 - 3,352,825 - 3,352,825 ------------------------------------------- ------------------------------------------------ 86,200 318,000 - 404,200 3,256,062 10,422,844 - 13,678,906 ------------------------------------------- ------------------------------------------------ DEFENSE/AEROSPACE - 0.8% ------------------------------------------- ------------------------------------------------ Honeywell Inc. 48,000 74,600 122,600 2,340,000 3,636,750 - 5,976,750 ------------------------------------------- ------------------------------------------------ ELECTRICAL EQUIPMENT - 1.6% Corning Inc. 36,000 36,000 - 2,106,000 - 2,106,000 Corvis Corp.(+) 9,900 9,900 - 285,244 - 285,244 Level 3 Communications, Inc.(+) 100,200 100,200 - 2,692,875 - 2,692,875 Nortel Networks Corp. 142,400 142,400 - 5,375,600 - 5,375,600 QUALCOMM Inc.(+) 12,500 12,500 - 1,003,125 - 1,003,125 ------------------------------------------- ------------------------------------------------ - 301,000 - 301,000 - 11,462,844 - 11,462,844 ------------------------------------------- ------------------------------------------------ ENVIRONMENTAL SERVICES - 0.5% ------------------------------------------- ------------------------------------------------ Waste Management, Inc. 139,757 139,757 - 3,345,433 - 3,345,433 ------------------------------------------- ------------------------------------------------ HEAVY ELECTRICAL EQUIPMENT - 0.4% ------------------------------------------- ------------------------------------------------ Cooper Industries, Inc. 71,600 71,600 - 2,922,175 - 2,922,175 ------------------------------------------- ------------------------------------------------ INDUSTRIAL PARTS - 2.0% ------------------------------------------- ------------------------------------------------ Tyco International Ltd.(i)(s) 281,092 281,092 - 14,827,602 - 14,827,602 ------------------------------------------- ------------------------------------------------ MACHINERY - 0.5% Caterpillar, Inc. 60,000 60,000 2,358,750 - - 2,358,750 Dover Corp. 36,000 36,000 1,473,750 - - 1,473,750 ------------------------------------------- ------------------------------------------------ 96,000 - - 96,000 3,832,500 - - 3,832,500 ------------------------------------------- ------------------------------------------------ MINING/METALS - 0.7% Alcoa Inc. 40,400 61,764 102,164 1,138,775 1,740,973 - 2,879,748 Allegheny Technologies Inc. 110,186 110,186 - 2,189,947 - 2,189,947 ------------------------------------------- ------------------------------------------------ 40,400 171,950 - 212,350 1,138,775 3,930,920 - 5,069,695 ------------------------------------------- ------------------------------------------------ OFFICE EQUIPMENT - 0.1% ------------------------------------------- ------------------------------------------------ Xerox Corp. 145,000 145,000 1,005,938 - - 1,005,938 ------------------------------------------- ------------------------------------------------ PAPER PRODUCTS - 0.4% International Paper Co. 35,100 35,100 1,189,013 - - 1,189,013 Weyerhaeuser Co. 37,000 37,000 1,618,750 - - 1,618,750 ------------------------------------------- ------------------------------------------------ 72,100 - - 72,100 2,807,763 - - 2,807,763 ------------------------------------------- ------------------------------------------------ RAILROADS - 0.3% ------------------------------------------- ------------------------------------------------ Union Pacific Corp. 51,900 51,900 - 2,413,350 - 2,413,350 ------------------------------------------- ------------------------------------------------ INSURANCE LIFE & HEALTH INSURANCE - 1.3% CIGNA Corp. 45,100 45,100 - 5,941,925 - 5,941,925 MetLife, Inc.(+) 118,600 118,600 - 3,513,525 - 3,513,525 ------------------------------------------- ------------------------------------------------ - 163,700 - 163,700 - 9,455,450 - 9,455,450 ------------------------------------------- ------------------------------------------------ PROPERTY AND CASUALTY INSURANCE - 3.8% Allstate Corp. 137,800 137,800 - 5,270,850 - 5,270,850 Ambac Financial Group, Inc. 83,400 83,400 - 6,369,675 - 6,369,675 American International Group, Inc. 117,900 117,900 11,428,931 - - 11,428,931 XL Capital Ltd. Cl A(i) 57,300 57,300 - 4,573,256 - 4,573,256 ------------------------------------------- ------------------------------------------------ 117,900 278,500 - 396,400 11,428,931 16,213,781 - 27,642,712 ------------------------------------------- ------------------------------------------------ PHARMACEUTICALS DRUGS - 11.4% Abbott Laboratories 82,000 82,000 4,515,125 - - 4,515,125 Alza Corp.(+) 125,200 125,200 - 5,555,750 - 5,555,750 American Home Products Corp. 55,000 62,300 117,300 3,306,875 3,745,788 - 7,052,663 Bristol-Myers Squibb Co. 61,700 61,700 - 4,276,581 - 4,276,581 Lilly (Eli) & Co. 35,000 88,500 123,500 3,279,063 8,291,344 - 11,570,407 Merck & Co., Inc. 64,900 64,900 - 6,015,419 - 6,015,419 See notes to Pro Forma Financial Statements 6 Pfizer, Inc.(s) 114,000 269,800 383,800 5,051,625 11,955,512 - 17,007,137 Pharmacia Corp. 115,213 181,675 296,888 7,027,993 11,082,175 - 18,110,168 Schering-Plough Corp. 153,600 153,600 - 8,611,200 - 8,611,200 ------------------------------------------- ------------------------------------------------ 401,213 1,007,675 - 1,408,888 23,180,681 59,533,769 - 82,714,450 ------------------------------------------- ------------------------------------------------ RETAIL CLOTHING STORES - 1.1% Abercrombie & Fitch Co. Cl A(+) 102,400 102,400 - 2,137,600 - 2,137,600 Gap, Inc. (The) 110,400 110,400 - 2,753,100 - 2,753,100 TJX Companies, Inc. (The) 110,300 110,300 - 2,826,438 - 2,826,438 ------------------------------------------- ------------------------------------------------ - 323,100 - 323,100 - 7,717,138 - 7,717,138 ------------------------------------------- ------------------------------------------------ DEPARTMENT STORES - 2.4% Kohls Corp. * 4,000 4,000 214,250 - - 214,250 Target Corp. 86,000 110,000 196,000 2,585,375 3,306,875 - 5,892,250 Wal-Mart Stores, Inc. 81,000 136,800 217,800 4,227,188 7,139,249 - 11,366,437 ------------------------------------------- ------------------------------------------------ 167,000 246,800 - 413,800 7,026,813 10,446,124 - 17,472,937 ------------------------------------------- ------------------------------------------------ SPECIALTY STORES - 1.1% Best Buy Co., Inc.(+) 56,100 56,100 - 1,444,575 - 1,444,575 Home Depot, Inc. 175,300 175,300 - 6,869,569 - 6,869,569 ------------------------------------------- ------------------------------------------------ - 231,400 - 231,400 - 8,314,144 - 8,314,144 ------------------------------------------- ------------------------------------------------ SEMICONDUCTORS SEMICONDUCTORS - 4.0% Altera Corp.(+) 39,500 39,500 - 945,531 - 945,531 Broadcom Corp.(+) 6,200 6,200 - 604,500 - 604,500 Intel Corp.(s) 50,000 243,500 293,500 1,903,125 9,268,219 - 11,171,344 Lattice Semiconductor Corp.(+) 2,400 2,400 - 39,900 - 39,900 Linear Technology Corp.(+) 36,700 36,700 - 1,736,369 - 1,736,369 Maxim Integrated Products, Inc.(+) 35,000 35,000 - 1,785,000 - 1,785,000 Micron Technology, Inc.(+) 55,000 55,000 - 1,732,500 - 1,732,500 SDL, Inc.(+) 17,200 17,200 - 3,126,100 - 3,126,100 Sprint Corp. (PCS Group)(+) 114,600 114,600 - - - - Texas Instruments Inc. 102,000 59,500 161,500 3,805,875 2,220,094 - 6,025,969 Xilinx, Inc.(+) 40,000 40,000 - 1,560,000 - 1,560,000 ------------------------------------------- ------------------------------------------------ 152,000 649,600 - 801,600 5,709,000 23,018,213 - 28,727,213 ------------------------------------------- ------------------------------------------------ SOFTWARE & SERVICES COMPUTER SOFTWARE - 6.8% BEA Systems, Inc.(+) 40,200 40,200 - 2,354,213 - 2,354,213 Gemstar International Group Ltd.(+) 85,100 85,100 - 3,462,506 - 3,462,506 International Business Machines Corp. 44,300 23,800 68,100 4,142,050 2,225,300 - 6,367,350 Microsoft Corp.(s)(+) 276,000 276,000 - 15,835,500 - 15,835,500 NCR Corp.(+) 160,400 160,400 - 7,578,900 - 7,578,900 Oracle Corp.(+) 162,000 141,400 303,400 4,293,000 3,747,100 - 8,040,100 Parametric Technology Corp.(+) 135,200 135,200 - 1,504,100 - 1,504,100 Veritas Software Corp.(+) 41,078 41,078 - 4,007,672 - 4,007,672 ------------------------------------------- ------------------------------------------------ - 41,078 - 41,078 8,435,050 40,715,291 - 49,150,341 ------------------------------------------- ------------------------------------------------ INTERNET - 1.0% Akamai Technologies, Inc.(+) 21,900 21,900 - 629,625 - 629,625 America Online, Inc.(+) 61,800 61,800 - 2,509,698 - 2,509,698 E*trade Group Inc.(+) 380,400 380,400 - 3,043,200 - 3,043,200 eBay Inc.(+) 18,000 18,000 - 617,625 - 617,625 ------------------------------------------- ------------------------------------------------ - 482,100 - 482,100 - 6,800,148 - 6,800,148 ------------------------------------------- ------------------------------------------------ TELECOMMUNICATIONS TELECOMMUNICATIONS - 5.1% AT&T Corp. 69,927 69,927 1,372,317 - - 1,372,317 BellSouth Corp. 55,000 55,000 2,299,688 - - 2,299,688 Motorola, Inc. 86,525 86,525 1,735,908 - - 1,735,908 Qwest Communications International Inc.(+) 109,290 109,290 - 4,125,698 - 4,125,698 SBC Communications Inc.(s) 61,000 189,600 250,600 3,351,188 10,416,149 - 13,767,337 Verizon Communications 89,800 103,300 193,100 5,045,687 5,804,169 - 10,849,856 See notes to Pro Forma Financial Statements 7 WorldCom, Inc.(+) 113,450 113,450 - 1,694,659 - 1,694,659 ------------------------------------------- ------------------------------------------------ 362,252 515,640 - 877,892 13,804,788 22,040,675 - 35,845,463 ------------------------------------------- ------------------------------------------------ WIRELESS TELECOMMUNICATIONS - 0.3% Nextel Communications, Inc.(+) 72,500 72,500 - 2,247,500 - 2,247,500 Sprint Corp. (PCS Group) (+) 114,600 114,600 - 2,599,988 - 2,599,988 ------------------------------------------- ------------------------------------------------ - 187,100 - 187,100 - 4,847,488 - 4,847,488 ------------------------------------------- ------------------------------------------------ UTILITIES ELECTRICAL UTILITY - 2.4% Ameren Corp. 95,100 95,100 - 4,220,062 - 4,220,062 C P & L Energy Inc. 70,900 70,900 - 3,061,994 - 3,061,994 DTE Energy Company 72,800 72,800 - 2,761,850 - 2,761,850 Dynegy Inc. Cl A 68,300 68,300 - 3,022,275 - 3,022,275 Entergy Corp. 100,200 100,200 - 4,120,725 - 4,120,725 ------------------------------------------- ------------------------------------------------ - 407,300 - 407,300 - 17,186,906 - 17,186,906 ------------------------------------------- ------------------------------------------------ UTILITIES 1.2% Dominion Resources, Inc. 20,300 20,300 1,218,000 - - 1,218,000 DQE, Inc. 41,000 41,000 1,417,063 - - 1,417,063 Duke Energy Corp. 28,000 28,000 2,518,250 - - 2,518,250 Enron Corp. 50,000 50,000 3,237,500 - - 3,237,500 ------------------------------------------- ------------------------------------------------ 139,300 - - 139,300 8,390,813 - - 8,390,813 ------------------------------------------- ------------------------------------------------ SHORT-TERM INVESTMENTS - 4.4% REPURCHASE AGREEMENTS - 1.6% Greenwich Capital Markets, Inc., Tri Party 6.55% due 11/01/00 11,724,000 11,724,000 11,724,000 11,724,000 U.S. TREASURY SECURITIES - 0.3% U.S. Treasury Notes, 5.25%, 5/31/01(s) 2,450,000 2,450,000 2,438,510 2,438,510 INVESTMENT COMPANIES - 2.5% J.P. Morgan Institutional Prime Money Market Fund (a) 18,245,417 18,245,417 18,245,416 18,245,416 TOTAL INVESTMENTS - 100.0% (COST $612,534,134) 197,588,033 527,057,247 - 724,645,280 ================================================
FUTURES CONTRACTS - J.P. MORGAN PRO FORM COMBINED
UNDERLYING FACE UNREALIZED UNREALIZED PURCHASED EXPIRATION DATE AMOUNT AT VALUE DEPRECIATION DEPRECIATION 45 S&P 500 Index December 2000 $ 14,866,875 $ (1,006,998) $ (1,006,998)
ADR American Depository Receipt (a) Money Market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment, Inc. (i) Foreign security See notes to Pro Forma Financial Statements 8 (s) Security is fully or partially segregated with custodian as collateral for futures or with brokers as initial margin for futures contracts. (+) Non-income producing security. The Portfolio may invest in one or more affiliated money market funds. The Advisor has agreed to reimburse its advisory fee from the Portfolio in an amount to offset any investment advisory, administrative fee and shareholder servicing fees related to a Portfolio investment in an affiliated money market fund. (1) Subsequently renamed JPMorgan Large Cap Equity Fund See notes to Pro Forma Financial Statements 9 JP MORGAN U.S. EQUITY FUND / JP MORGAN INSTITUTIONAL U.S. EQUITY FUND / JP MORGAN U.S. EQUITY FUND - ADVISOR SERIES / THE U.S. EQUITY PORTFOLIO / CHASE VISTA LARGE CAP FUND(1) PRO FORMA COMBINING STATEMENT OF ASSETS & LIABILITIES AS OF NOVEMBER 30, 2000 (UNAUDITED)
J.P. MORGAN J.P. MORGAN J.P. MORGAN U.S. U.S. EQUITY INSTITUTIONAL U.S. EQUITY FUND - THE U.S. EQUITY FUND EQUITY FUND ADVISOR SERIES PORTFOLIO ASSETS Investment in The U.S. Equity Portfolio, at value $344,117,718 $ 183,522,572 $ 493,577 Investments at Value - - - $527,057,247.00 Cash - - - 844,092 Dividend and Interest Receivable - - - 659,002 Receivable for Fund Shares Sold Prepaid Trustees' Fees and Expenses 4,106 3,445 - 5,536 Receivable for Expense Reimbursements - - 12,235 - Prepaid Expenses and Other Assets 946 709 - 2558 ---------------------------------------------------------------------- TOTAL ASSETS 344,122,770 183,526,726 505,812 528,568,435 LIABILITIES Advisory Fee Payable - - - 183,688 Variation Margin Payable - - - 155,250 Shareholder Servicing Fee Payable 75,082 15,837 - - Distribution Fees - - - - Registration Fees - - - - Transfer Agent Fees - - - - Administrative Services Fee Payable 7,124 3,757 - 10,894 Trustees' fees - - - - Printing and postage - - - - Professional Fees - - - - Custodian fees - - - - Payable for Shares of Beneficial Interest Redeemed - - - - Fund Services Fee Payable 244 128 - 373 Administration Fee Payable 109 - - 621 Accrued Expenses and Other Liabilities 42,588 36,376 30,461 83,742 ---------------------------------------------------------------------- TOTAL LIABILITIES 125,147 56,098 30,461 434,568 ---------------------------------------------------------------------- NET ASSETS $343,997,623 $ 183,470,628 $ 475,351 $ 528,133,867 ====================================================================== ANALYSIS OF NET ASSETS Paid-in Capital $288,461,024 $ 141,861,487 $ 500,225 $ 0 Undistributed ( Distributions in excess of ) Net Investment Income 653,902 597,017 261 - Accumulated Net Realized Gain (Loss) on Investment 11,006,423 6,324,567 (6,149) - Net Unrealized Appreciation (Depreciation) on Investment 43,876,274 34,687,557 (18,986) - ---------------------------------------------------------------------- NET ASSETS $343,997,623 $ 183,470,628 $ 475,351 $ 528,133,867 ====================================================================== Shares of Beneficial Interest Outstanding 16,611,076 15,051,872 53,157 - Shares Outstanding - - - - Net Asset Value Per Share $ 20.71 $ 12.19 $ 8.94 $ - PRO FORMA WITH CONCURRENT REORGANIZATION JPMORGAN U.S. EQUITY FUND Shares Outstanding Class A - - - - Class B - - - - Class C - - - - Select - - - - Institutional - - - - Net Asset Value Per Share Class A - - - - Class B - - - - Class C - - - - Select - - - - Institutional - - - - ---------------------------------------------------------------------- Cost of Investments - - - $447,506,258 ====================================================================== CHASE VISTA LARGE CAP PRO FORMA PROFORMA EQUITY FUND(1) ADJUSTMENTS COMBINED ASSETS Investment in The U.S. Equity Portfolio, at value $ (528,133,867)(a) $ - Investments at Value $ 197,588,033 - 724,645,280 Cash 920 - 845,012 Dividend and Interest Receivable 329,696 - 988,698 Receivable for Fund Shares Sold 78,457 - 78,457 Prepaid Trustees' Fees and Expenses - - 13,087 Receivable for Expense Reimbursements - - 12,235 Prepaid Expenses and Other Assets - - 4,213 ------------------------------------------------------------- TOTAL ASSETS 197,997,106 (528,133,867) 726,586,982 LIABILITIES Advisory Fee Payable 67,227 - 250,915 Variation Margin Payable - - 155,250 Shareholder Servicing Fee Payable 34,409 - 125,328 Distribution Fees 31,259 - 31,259 Registration Fees 30,784 - 30,784 Transfer Agent Fees 30,364 - 30,364 Administrative Services Fee Payable 8,403 - 30,178 Trustees' fees 29,932 - 29,932 Printing and postage 18,025 - 18,025 Professional Fees 11,566 - 11,566 Custodian fees 7,020 - 7,020 Payable for Shares of Beneficial Interest Redeemed 4,557 - 4,557 Fund Services Fee Payable - - 745 Administration Fee Payable 16,806 - 17,536 Accrued Expenses and Other Liabilities 3,372 - 196,539 ------------------------------------------------------------- TOTAL LIABILITIES 293,724 - 939,998 ------------------------------------------------------------- NET ASSETS $ 197,703,382 $ (528,133,867) $ 725,646,984 ============================================================= ANALYSIS OF NET ASSETS Paid-in Capital $ 150,862,920 $ 0 $ 581,685,656 Undistributed ( Distributions in excess of ) Net Investment Income (2,844,536) - ($1,593,356) Accumulated Net Realized Gain (Loss) on Investment 17,124,842 - $ 34,449,683 Net Unrealized Appreciation (Depreciation) on Investment 32,560,156 - $ 111,105,001 ------------------------------------------------------------- NET ASSETS $ 197,703,382 $ (528,133,867) $ 725,646,984 ============================================================= Shares of Beneficial Interest Outstanding - (31,716,105)(b) - Shares Outstanding 12,962,381 (12,962,381)(b) - Net Asset Value Per Share $ 15.23(A)* - - $ 15.11(B)* $ 15.04(C)* $ 15.30(I))* PRO FORMA WITH CONCURRENT REORGANIZATION JPMORGAN U.S. EQUITY FUND Shares Outstanding Class A - 5,013,616(c) 5,013,616 Class B - 2,207,306(c) 2,207,306 Class C - 153,915(c) 153,915 Select - 37,105,139(c) 37,105,139 Institutional - 15,051,872(c) 15,051,872 Net Asset Value Per Share Class A - - $ 12.19 Class B - - $ 12.19 Class C - - $ 12.19 Select - - $ 12.19 Institutional - - $ 12.19 ------------------------------------------------------------- Cost of Investments $ 165,027,877 - $ 612,534,135 =============================================================
(a) Reallocation of investments from the feeder funds to the master portfolio. (b) Reallocation of feeder fund's beneficial interest to Class A, Class B, Class C, Select, and Institutional Shares due to the Concurrent Reorganization. * Share class of fund (c) Reflects the additional number of shares outstanding due to the Concurrent Reorganization. (1) Subsequently renamed JPMorgan Large Cap Equity Fund. See Notes to Pro Forma Financial Statements -10- J.P. MORGAN U.S. EQUITY FUND / J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND / J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES / THE U.S. EQUITY PORTFOLIO/ CHASE VISTA LARGE CAP EQUITY FUND(1) PRO FORMA COMBINING STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED)
J.P. MORGAN U.S. J.P. MORGAN J.P. MORGAN EQUITY FUND - U.S. EQUITY INSTITUTIONAL U.S ADVISOR EQUITY FUND EQUITY FUND SERIES --------------------------------------------------------------- INCOME: Allocated Investment Income From Portfolio 4,837,732 2,916,242 768 Dividend Income - - Interest Income - - - Dividend Income from Affiliated Investments - - Allocated Portfolio Expenses (1,840,805) (1,110,537) (229) -------------------------------------------------------------- Investment Income 2,996,927 1,805,705 539 -------------------------------------------------------------- EXPENSES: Advisory Fee - - - Shareholder Servicing Fee 995,379 240,314 175 Administrative Services Fee 96,491 58,277 - Distribution Fee - - 120 Transfer Agent Fees 82,056 18,473 4,914 Custodian Fees and Expenses - - - Registration Fees 23,213 24,416 11,042 Professional Fees 14,367 13,301 3,285 Financial and Fund Accounting Services Fee 15,041 15,041 6,095 Trustees' Fees and Expenses 5,498 3,128 124 Printing Expenses 10,376 5,584 2,421 Fund Services Fee 6,203 3,772 - Administration Fee 4,413 2,668 - Insurance Expense 497 123 - Line of Credit Expense (2,362) (2,913) - Miscellaneous 33,066 32,181 2,323 -------------------------------------------------------------- Total Expenses 1,284,238 414,365 30,499 -------------------------------------------------------------- Less: Amounts Waived Less: Reimbursement of Expenses (69,360) (30,221) -------------------------------------------------------------- Net Expenses 1,284,238 345,005 278 -------------------------------------------------------------- -------------------------------------------------------------- Net Investment Income 1,712,689 1,460,700 261 -------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net Realized gain (loss ) on: Investment Futures Contracts Investment 17,273,605 12,510,427 (6,149) Futures Contracts Investment Futures Contracts -------------------------------------------------------------- NET REALIZED GAIN (LOSS) 17,273,605 12,510,427 (6,149) -------------------------------------------------------------- Net Change in net unrealized appreciation (depreciation) on Investment (30,496,120) (17,066,424) (18,986) Futures Contracts -------------------------------------------------------------- NET CHANGE IN UNREALIZED DEPRECIATION (30,496,120) (17,066,424) (18,986) -------------------------------------------------------------- -------------------------------------------------------------- NET DECREASE IN NET ASSETS FROM OPERATIONS (11,509,826) (3,095,297) (24,874) ============================================================== THE U.S. EQUITY CHASE VISTA PORTFOLIO LARGE CAP EQUITY(1) ---------------------------------------- INCOME: Allocated Investment Income From Portfolio - Dividend Income 6,921,351 2,722,442 Interest Income 824,294 583,145 Dividend Income from Affiliated Investments 9,096 - Allocated Portfolio Expenses - --------------------------------------- Investment Income 7,754,741 3,305,587 --------------------------------------- EXPENSES: Advisory Fee 2,542,291 937,829 Shareholder Servicing Fee - 586,266 Administrative Services Fee 154,901 353,707 Distribution Fee - 404,746 Transfer Agent Fees - 218,229 Custodian Fees and Expenses 175,789 83,970 Registration Fees - 22,831 Professional Fees 45,775 33,693 Financial and Fund Accounting Services Fee - - Trustees' Fees and Expenses 8,150 11,785 Printing Expenses 257 22,159 Fund Services Fee 9,977 - Administration Fee 4,493 - Insurance Expense (1,285) - Line of Credit Expense - - Miscellaneous 10,320 14,303 --------------------------------------- Total Expenses 2,950,668 2,689,518 --------------------------------------- Less: Amounts Waived Less: Reimbursement of Expenses - (748,110) --------------------------------------- Net Expenses 2,950,668 1,941,408 --------------------------------------- --------------------------------------- Net Investment Income 4,804,073 1,364,179 --------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net Realized gain (loss ) on: Investment Futures Contracts Investment 30,706,898 12,946,307 Futures Contracts (929,015) Investment Futures Contracts --------------------------------------- NET REALIZED GAIN (LOSS) 29,777,883 12,946,307 --------------------------------------- Net Change in net unrealized appreciation (depreciation) on Investment (46,618,392) (12,915,903) Futures Contracts (963,832) --------------------------------------- NET CHANGE IN UNREALIZED DEPRECIATION (47,582,224) (12,915,903) --------------------------------------- --------------------------------------- NET DECREASE IN NET ASSETS FROM OPERATIONS (13,000,268) 1,394,583 ======================================= PRO FORMA PRO FORMA ADJUSTMENTS COMBINED -------------------------------------------------- INCOME: Allocated Investment Income From Portfolio (7,754,742) (a) - Dividend Income - 9,643,793 Interest Income - 1,407,439 Dividend Income from Affiliated Investments - 9,096 Allocated Portfolio Expenses 2,951,571 (b) - -------------------------------------------------- Investment Income (4,803,171) 11,060,328 -------------------------------------------------- EXPENSES: Advisory Fee - 3,480,120 Shareholder Servicing Fee - 1,822,134 Administrative Services Fee 643,515 (d) 1,306,891 Distribution Fee 2,374 (d) 407,240 Transfer Agent Fees - 323,672 Custodian Fees and Expenses (100,240) (e) 159,519 Registration Fees - 81,502 Professional Fees (53,900) (f) 56,521 Financial and Fund Accounting Services Fee (36,177) (e) - Trustees' Fees and Expenses - 28,685 Printing Expenses (20,500) (f) 20,297 Fund Services Fee - 19,952 Administration Fee - 11,574 Insurance Expense - (665) Line of Credit Expense - (5,275) Miscellaneous 92,193 -------------------------------------------------- Total Expenses 435,072 7,804,360 -------------------------------------------------- Less: Amounts Waived (435,072) (d) (435,072) Less: Reimbursement of Expenses (274,160) (a) (1,121,851) -------------------------------------------------- Net Expenses (274,160) 6,247,437 -------------------------------------------------- -------------------------------------------------- Net Investment Income (4,529,011) 4,812,891 -------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS Net Realized gain (loss ) on: Investment Futures Contracts Investment (29,777,883) (c) 43,653,205 Futures Contracts (929,015) Investment Futures Contracts -------------------------------------------------- NET REALIZED GAIN (LOSS) (29,777,883) 42,724,190 -------------------------------------------------- Net Change in net unrealized appreciation (depreciation) on Investment 47,581,530 (c) (59,534,295) Futures Contracts (963,832) -------------------------------------------------- NET CHANGE IN UNREALIZED DEPRECIATION 47,581,530 (60,498,127) -------------------------------------------------- -------------------------------------------------- NET DECREASE IN NET ASSETS FROM OPERATIONS 13,274,636 (12,961,046) ==================================================
(a) Reallocation of investment income to feeder funds (b) Reflects the elimination of master portfolio expenses which have been disclosed under fund expenses. (c) Reflects the elimination of realized and unrealized gain (loss) of the feeder funds. (d) Reflects the adjustments to investment advisory fee, administrative fees and shareholder servicing fees and/or related waivers based on the surviving fund's revised fee schedule. (e) Custody fee includes all fund accounting charges, reflecting estimated benefit of combined fund. (f) Reduction reflects estimated benefits of combined funds. (1) Subsequently renamed JPMorgan Large Cap Equity Fund. See Notes to Pro Forma Financial Statements -11- THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000
SHARES VALUE - ------------------------------------------------------------------- COMMON STOCKS - 96.1% CAPITAL MARKETS - 2.5% SECURITIES & ASSET MANAGEMENT - 2.5% 119,700 Goldman Sachs Group, Inc. (The) $ 9,830,363 253,400 TD Waterhouse Group, Inc.+ 3,357,550 --------------- 13,187,913 --------------- COMPUTER HARDWARE - 10.0% COMPUTER HARDWARE & BUSINESS MACHINES - 10.0% 7,300 Avaya Inc.+ 85,319 414,800 Cisco Systems Inc.(s)+ 19,858,550 232,400 Compaq Computer Corp. 4,996,600 47,100 Dell Computer Corp.+ 906,675 104,500 EMC Corp. (Mass.)+ 7,772,188 69,600 Hewlett-Packard Co. 2,201,100 202,500 Quantum Corp. - DLT & Storage Systems+ 2,733,750 186,900 Sun Microsystems, Inc.(s)+ 14,216,081 --------------- 52,770,263 --------------- CONSUMER CYCLICAL - 2.6% HOTELS - 0.5% 58,700 Marriott International, Inc. 2,432,381 --------------- MOTOR VEHICLES & PARTS - 1.8% 66,400 Dana Corp. 1,112,200 167,500 Delphi Automotive Systems 2,313,594 93,492 Ford Motor Company 2,126,943 23,800 General Motors Corp. 1,178,100 129,800 Lear Corp.+ 2,839,375 --------------- 9,570,212 --------------- RESTAURANTS - 0.3% 57,000 McDonald's Corp. 1,816,875 --------------- 13,819,468 --------------- CONSUMER SERVICES - 2.9% ENTERTAINMENT - 0.7% 76,900 Viacom, Inc. Cl B+ 3,931,512 --------------- MEDIA - 2.2% 104,200 AT&T Corp. - Liberty Media Group Cl A+ 1,413,213 40,758 Charter Communications, Inc.+ 804,971 93,800 Comcast Corp. Cl A+ 3,605,438 106,400 News Corp. Ltd. (The) ADR(i) 3,710,699 27,700 Time Warner Inc. 1,717,400 --------------- 11,251,721 --------------- 15,183,233 --------------- CONSUMER STABLE - 6.1% HOME PRODUCTS - 4.0% 52,800 Clorox Company 2,359,500 62,700 Estee Lauder Companies, Inc. 2,715,694 SHARES VALUE - ------------------------------------------------------------------- 153,400 Gillette Company $ 5,196,425 142,000 Procter & Gamble Co. (The) 10,632,250 --------------- 20,903,869 --------------- TOBACCO - 2.1% 295,300 Philip Morris Companies Inc. 11,276,769 --------------- 32,180,638 --------------- ENERGY - 6.1% ENERGY RESERVES & PRODUCTION - 4.7% 44,500 Anadarko Petroleum Corp. 2,647,750 37,900 Chevron Corp. 3,103,063 217,548 Exxon Mobil Corp.(s) 19,144,223 --------------- 24,895,036 --------------- OIL REFINING - 0.3% 24,100 Texaco Inc. 1,399,306 --------------- OIL SERVICES - 1.1% 109,900 Baker Hughes Inc. 3,633,569 108,600 Global Marine Inc.+ 2,382,413 --------------- 6,015,982 --------------- 32,310,324 --------------- FINANCE - 11.4% BANKS - 4.1% 223,100 Amsouth Bancorporation 3,318,613 81,566 Citigroup Inc. 4,063,006 103,000 First Union Corp. 2,587,875 608,000 Firstar Corp.(s) 11,780,000 --------------- 21,749,494 --------------- FINANCIAL SERVICES - 6.8% 219,900 Associates First Capital Corp. 7,765,219 69,900 Capital One Financial Corp. 3,901,294 95,900 Countrywide Credit Industries, Inc. 3,560,288 43,100 Federal Home Loan Mortgage Corp. 2,604,856 331,700 General Electric Co. (U.S.)(s) 16,439,880 14,700 Providian Financial Corp. 1,323,000 --------------- 35,594,537 --------------- THRIFTS - 0.5% 56,300 Washington Mutual, Inc. 2,558,131 --------------- 59,902,162 --------------- HEALTH SERVICES & SYSTEMS - 1.5% MEDICAL PRODUCTS & SUPPLIES - 1.5% 38,700 Bard (C.R.), Inc. 1,905,975 89,100 Becton Dickinson & Co. 3,029,400 53,200 Medtronic, Inc. 2,832,900 --------------- 7,768,275 --------------- INDUSTRIAL CYCLICAL - 10.0% CHEMICALS - 2.0% 205,300 Air Products & Chemicals, Inc. 7,070,019
The Accompanying Notes are an Integral Part of the Financial Statements. 13 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000
SHARES VALUE - ------------------------------------------------------------------- 112,700 Rohm and Haas Co. $ 3,352,825 --------------- 10,422,844 --------------- DEFENSE/AEROSPACE - 0.7% 74,600 Honeywell Inc. 3,636,750 --------------- ELECTRICAL EQUIPMENT - 2.2% 36,000 Corning Inc. 2,106,000 9,900 Corvis Corp.+ 285,244 100,200 Level 3 Communications, Inc.+ 2,692,875 142,400 Nortel Networks Corp. 5,375,600 12,500 QUALCOMM Inc.+ 1,003,125 --------------- 11,462,844 --------------- ENVIRONMENTAL SERVICES - 0.6% 139,757 Waste Management, Inc. 3,345,433 --------------- HEAVY ELECTRICAL EQUIPMENT - 0.6% 71,600 Cooper Industries, Inc. 2,922,175 --------------- INDUSTRIAL PARTS - 2.7% 281,092 Tyco International Ltd.(i)(s) 14,827,602 --------------- MINING & METALS - 0.7% 61,764 Alcoa Inc. 1,740,973 110,186 Allegheny Technologies Inc. 2,189,947 --------------- 3,930,920 --------------- RAILROADS - 0.5% 51,900 Union Pacific Corp. 2,413,350 --------------- 52,961,918 --------------- INSURANCE - 4.9% LIFE & HEALTH INSURANCE - 1.8% 45,100 CIGNA Corp. 5,941,925 118,600 MetLife, Inc.+ 3,513,525 --------------- 9,455,450 --------------- PROPERTY AND CASUALTY INSURANCE - 3.1% 137,800 Allstate Corp. 5,270,850 83,400 Ambac Financial Group, Inc. 6,369,675 57,300 XL Capital Ltd. Cl A(i) 4,573,256 --------------- 16,213,781 --------------- 25,669,231 --------------- PHARMACEUTICALS - 11.3% DRUGS - 11.3% 125,200 Alza Corp.+ 5,555,750 62,300 American Home Products Corp. 3,745,788 61,700 Bristol-Myers Squibb Co. 4,276,581 88,500 Lilly (Eli) & Co. 8,291,344 64,900 Merck & Co., Inc. 6,015,419 269,800 Pfizer, Inc.(s) 11,955,512 181,675 Pharmacia Corp. 11,082,175 153,600 Schering-Plough Corp. 8,611,200 --------------- 59,533,769 --------------- SHARES VALUE - ------------------------------------------------------------------- RETAIL - 5.0% CLOTHING STORES - 1.5% 102,400 Abercrombie & Fitch Co. Cl A+ $ 2,137,600 110,400 Gap, Inc. (The) 2,753,100 110,300 TJX Companies, Inc. (The) 2,826,438 --------------- 7,717,138 --------------- DEPARTMENT STORES - 1.9% 110,000 Target Corp. 3,306,875 136,800 Wal-Mart Stores, Inc. 7,139,249 --------------- 10,446,124 --------------- SPECIALTY STORES - 1.6% 56,100 Best Buy Co., Inc.+ 1,444,575 175,300 Home Depot, Inc. 6,869,569 --------------- 8,314,144 --------------- 26,477,406 --------------- SEMICONDUCTORS - 4.4% SEMICONDUCTORS - 4.4% 39,500 Altera Corp.+ 945,531 6,200 Broadcom Corp.+ 604,500 243,500 Intel Corp.(s) 9,268,219 2,400 Lattice Semiconductor Corp.+ 39,900 36,700 Linear Technology Corp.+ 1,736,369 35,000 Maxim Integrated Products, Inc.+ 1,785,000 55,000 Micron Technology, Inc.+ 1,732,500 17,200 SDL, Inc.+ 3,126,100 59,500 Texas Instruments Inc. 2,220,094 40,000 Xilinx, Inc.+ 1,560,000 --------------- 23,018,213 --------------- SOFTWARE & SERVICES - 9.0% COMPUTER SOFTWARE - 7.7% 40,200 BEA Systems, Inc.+ 2,354,213 85,100 Gemstar International Group Ltd.+ 3,462,506 23,800 International Business Machines Corp. 2,225,300 276,000 Microsoft Corp.(s)+ 15,835,500 160,400 NCR Corp.+ 7,578,900 141,400 Oracle Corp.+ 3,747,100 135,200 Parametric Technology Corp.+ 1,504,100 41,078 Veritas Software Corp.+ 4,007,672 --------------- 40,715,291 --------------- INTERNET - 1.3% 21,900 Akamai Technologies, Inc.+ 629,625 61,800 America Online, Inc.+ 2,509,698 380,400 E*trade Group Inc.+ 3,043,200 18,000 eBay Inc.+ 617,625 --------------- 6,800,148 --------------- 47,515,439 ---------------
14 The Accompanying Notes are an Integral Part of the Financial Statements. THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000
SHARES/PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------- TELECOMMUNICATIONS - 5.1% TELEPHONE - 4.2% 109,290 Qwest Communications International Inc.+ $ 4,125,698 189,600 SBC Communications Inc.(s) 10,416,149 103,300 Verizon Communications 5,804,169 113,450 WorldCom, Inc.+ 1,694,659 --------------- 22,040,675 --------------- WIRELESS TELECOMMUNICATIONS - 0.9% 72,500 Nextel Communications, Inc.+ 2,247,500 114,600 Sprint Corp. (PCS Group)+ 2,599,988 --------------- 4,847,488 --------------- 26,888,163 --------------- UTILITIES - 3.3% ELECTRICAL UTILITY - 3.3% 95,100 Ameren Corp. 4,220,062 70,900 C P & L Energy Inc. 3,061,994 72,800 DTE Energy Company 2,761,850 68,300 Dynegy Inc. Cl A 3,022,275 100,200 Entergy Corp. 4,120,725 --------------- 17,186,906 --------------- TOTAL COMMON STOCKS 506,373,321 --------------- (Cost $426,829,334) SHORT-TERM INVESTMENTS - 3.9% INVESTMENT COMPANIES - 3.4% 18,245,417 J.P. Morgan Institutional Prime Money Market Fund(a) 18,245,416 --------------- U.S. TREASURY SECURITIES - 0.5% $2,450,000 U.S. Treasury Notes, 5.25%, 5/31/01(s) 2,438,510 --------------- TOTAL SHORT-TERM INVESTMENTS 20,683,926 --------------- (Cost $20,676,924) TOTAL INVESTMENT SECURITIES - 100.0% $ 527,057,247 =============== (Cost $447,506,258) FUTURES CONTRACTS UNDERLYING FACE AMOUNT UNREALIZED PURCHASED EXPIRATION DATE AT VALUE DEPRECIATION - -------------------------------------------------------------------- 45 S&P 500 Index December 2000 $14,866,875 $(1,006,998) ==============================
ADR - American Depositary Receipt (a) Money Market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc. (i) Foreign security (s) Security is fully or partially segregated with custodian as collateral for futures or with brokers as initial margin for futures contracts. + Non-income producing security. The Accompanying Notes are an Integral Part of the Financial Statements. 15 JP MORGAN U.S. EQUITY FUND / JP MORGAN INSTITUTIONAL U.S. EQUITY FUND / JP MORGAN U.S. EQUITY FUND - ADVISOR SERIES / THE U.S. EQUITY PORTFOLIO Pro Forma Combining Statement of Assets & Liabilities As of November 30, 2000 (Unaudited)
J.P. MORGAN U.S. J.P. MORGAN J.P. MORGAN EQUITY FUND INSTITUTIONAL U.S. U.S. EQUITY FUND - THE U.S. EQUITY EQUITY FUND ADVISOR SERIES PORTFOLIO ASSETS Investment in The U.S. Equity Portfolio ("Portfolio"), at vale $ 344,117,718 $ 183,522,572 $ 493,577 $ - Investments at Value (Cost $447,506,258) - - - 527,057,247 Cash - - - 844,092 Dividends and Interest Receivable - - - 659,002 Prepaid Trustees' Fees and Expenses 4,106 3,445 - 5,536 Receivable for Expense Reimbursements - - 12,235 - Prepaid Expenses and Other Assets 946 709 - 2,558 ----------------------------------------------------------------------------------- TOTAL ASSETS 344,122,770 183,526,726 505,812 528,568,435 LIABILITIES Advisory Fee Payable - - - 183,688 Variation Margin Payable - - - 155,250 Shareholder Servicing Fee Payable 75,082 15,837 - 0 Administrative Services Fee Payable 7,124 3,757 - 10894 Fund Services Fee Payable 244 128 - 373 Administration Fee Payable 109 0 - 621 Accrued Expenses and Other Liabilities 42,588 36,376 30,461 83,742 ----------------------------------------------------------------------------------- TOTAL LIABILITIES 125,147 56,098 30,461 434,568 ----------------------------------------------------------------------------------- NET ASSETS $343,997,623 $183,470,628 $475,351 $528,133,867 =================================================================================== ANALYSIS OF NET ASSETS Paid-in Capital $288,461,024 $141,861,487 $500,225 - Undistributed Net Investment Income 653,902 597,017 261 - Accumulated Net Realized Gain (Loss) on Investment 11,006,423 6,324,567 (6,149) - Net Unrealized Appreciation (Depreciation) on Investment 43,876,274 34,687,557 (18,986) - ----------------------------------------------------------------------------------- NET ASSETS $343,997,623 $183,470,628 $475,351 $528,133,867 =================================================================================== Shares of Beneficial Interest Outstanding 16,611,076 15,051,872 53,157 - Net Asset Value Per Share 20.71 12.19 8.94 - PRO FORMA WITH REORGANIZATION JPMORGAN U.S. EQUITY FUND Shares Outstanding Class A Shares - - - - Select Shares - - - - Institutional Shares - - - - Net Asset Value Class A Shares - - - Select Shares - - - Institutional Shares - - - ===================================================================== PROFORMA COMBINED PROFORMA JPMORGAN ADJUSTMENTS U.S. EQUITY FUND ASSETS Investment in The U.S. Equity Portfolio ("Portfolio"), at vale $ (528,133,867) (a) $ - Investments at Value (Cost $447,506,258) - 527,057,247 Cash - 844,092 Dividends and Interest Receivable - 659,002 Prepaid Trustees' Fees and Expenses - 13,087 Receivable for Expense Reimbursements - 12,235 Prepaid Expenses and Other Assets - 4,213 ---------------------------------------------- TOTAL ASSETS (528,133,867) 528,589,876 LIABILITIES Advisory Fee Payable - 183,688 Variation Margin Payable - 155,250 Shareholder Servicing Fee Payable - 90,919 Administrative Services Fee Payable - 21,775 Fund Services Fee Payable - 745 Administration Fee Payable - 730 Accrued Expenses and Other Liabilities - 193,167 ---------------------------------------------- TOTAL LIABILITIES - 646,274 ---------------------------------------------- NET ASSETS $ (528,133,867) $ 527,943,602 ============================================== ANALYSIS OF NET ASSETS Paid-in Capital - $430,822,736 Undistributed Net Investment Income - 1,251,180 Accumulated Net Realized Gain (Loss) on Investment - 17,324,841 Net Unrealized Appreciation (Depreciation) on Investment - 78,544,845 ---------------------------------------------- NET ASSETS $ (528,133,867) $527,943,602 ============================================== Shares of Beneficial Interest Outstanding (31,716,105)(b) - Net Asset Value Per Share - - PRO FORMA WITH REORGANIZATION JPMORGAN U.S. EQUITY FUND Shares Outstanding Class A Shares 38,998 (c) 38,998 Select Shares 28,221,456 (c) 28,221,456 Institutional Shares 15,051,872 (c) 15,051,872 Net Asset Value Class A Shares - $ 12.19 Select Shares - $ 12.19 Institutional Shares - $ 12.19 ==============================================
(a) Reallocation of investments from the feeder funds to the master portfolio (b) Reallocation of feeder fund's beneficial interest to Class A, Institutional, and Select Shares due to the Reorganization (c) Reflects the additional number of shares outstanding due to the Reorganization 12 JP MORGAN U.S. EQUITY FUND / JP MORGAN INSTITUTIONAL U.S. EQUITY FUND / JP MORGAN U.S. EQUITY FUND - ADVISOR SERIES / THE U.S. EQUITY PORTFOLIO PRO FORMA COMBINING STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED)
J.P. MORGAN U.S. J.P. MORGAN EQUITY FUND INSTITUTIONAL U.S. EQUITY FUND INCOME: Allocated Investment Income From Portfolio $ 4,837,732 $ 2,916,242 Interest Income - - Dividend Income from Affiliated Investments - Dividend Income - - Allocated Portfolio Expenses (1,840,805) (1,110,537) ----------------------------------------------- Investment Income 2,996,927 1,805,705 =============================================== EXPENSES: Advisory Fee - - Shareholder Servicing Fee 995,379 240,314 Administrative Services Fee 96,491 58,277 Custodian Fees and Expenses - - Transfer Agent Fees 82,056 18,473 Registration Fees 23,213 24,416 Professional Fees 14,367 13,301 Financial and Fund Accounting Services Fee 15,041 15,041 Fund Services Fee 6,203 3,772 Trustees' Fees and Expenses 5,498 3,128 Administration Fee 4,413 2,668 Printing Expenses 10,376 5,584 Distribution Fee - - Insurance Expense 497 123 Line of Credit Expense (2,362) (2,913) Miscellaneous 33,066 32,181 ----------------------------------------------- Total Expenses 1,284,238 414,365 ----------------------------------------------- Less: Amounts Waived Less: Reimbursement of Expenses (69,360) ----------------------------------------------- Net Expenses 1,284,238 345,005 ----------------------------------------------- ----------------------------------------------- Net Investment Income 1,712,689 1,460,700 =============================================== REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: NET REALIZED GAIN (LOSS) ON: Investment 17,273,605 12,510,427 Futures Contracts ----------------------------------------------- NET REALIZED GAIN (LOSS) 17,273,605 12,510,427 ----------------------------------------------- NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON: Investment (30,496,120) (17,066,424) Futures Contracts ----------------------------------------------- Net Change in net unrealized depreciation (30,496,120) (17,066,424) ----------------------------------------------- ----------------------------------------------- NET DECREASE IN NET ASSETS FROM OPERATIONS $ (11,509,826) $ (3,095,297) =============================================== J.P. MORGAN U.S. EQUITY FUND - THE U.S. EQUITY ADVISOR SERIES PORTFOLIO INCOME: Allocated Investment Income From Portfolio $ 768 $ - Interest Income - 824,294 Dividend Income from Affiliated Investments - 9,096 Dividend Income - 6,921,351 Allocated Portfolio Expenses (229) - ------------------------------------------- Investment Income 539 7,754,741 =========================================== EXPENSES: Advisory Fee - 2,542,291 Shareholder Servicing Fee 175 - Administrative Services Fee - 154,901 Custodian Fees and Expenses - 175,789 Transfer Agent Fees 4,914 - Registration Fees 11,042 - Professional Fees 3,285 45,775 Financial and Fund Accounting Services Fee 6,095 - Fund Services Fee - 9,977 Trustees' Fees and Expenses 124 8,150 Administration Fee - 4,493 Printing Expenses 2,421 257 Distribution Fee 120 - Insurance Expense - (1,285) Line of Credit Expense - - Miscellaneous 2,323 10,320 ------------------------------------------- Total Expenses 30,499 2,950,668 ------------------------------------------- Less: Amounts Waived Less: Reimbursement of Expenses (30,221) - ------------------------------------------- Net Expenses 278 2,950,668 ------------------------------------------- ------------------------------------------- Net Investment Income 261 4,804,073 =========================================== REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: NET REALIZED GAIN (LOSS) ON: Investment (6,149) 30,706,898 Futures Contracts (929,015) ------------------------------------------- NET REALIZED GAIN (LOSS) (6,149) 29,777,883 ------------------------------------------- NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON: Investment (18,986) (46,618,392) Futures Contracts (963,832) ------------------------------------------- Net Change in net unrealized depreciation (18,986) (47,582,224) ------------------------------------------- ------------------------------------------- NET DECREASE IN NET ASSETS FROM OPERATIONS $ (24,874) $ (13,000,268) =========================================== PROFORMA COMBINED PROFORMA JPMORGAN ADJUSTMENTS U.S. EQUITY FUND INCOME: Allocated Investment Income From Portfolio $ (7,754,742) (a) $ - Interest Income - 824,294 Dividend Income from Affiliated Investments - 9,096 Dividend Income - 6,921,351 Allocated Portfolio Expenses 2,951,571 (b) - ----------------------------------------- Investment Income (4,803,171) 7,754,741 ========================================= EXPENSES: Advisory Fee - 2,542,291 Shareholder Servicing Fee - 1,235,868 Administrative Services Fee 646,002 (d) 955,671 Custodian Fees and Expenses (16,270) (e) 159,519 Transfer Agent Fees - 105,443 Registration Fees - 58,671 Professional Fees (23,900) (f) 52,828 Financial and Fund Accounting Services Fee (36,177) (e) - Fund Services Fee - 19,952 Trustees' Fees and Expenses - 16,900 Administration Fee - 11,574 Printing Expenses (10,500) (f) 8,138 Distribution Fee 490 (d) 610 Insurance Expense - (665) Line of Credit Expense - (5,275) Miscellaneous 77,890 ----------------------------------------- Total Expenses 559,645 5,239,415 ----------------------------------------- Less: Amounts Waived (559,645) (d) (559,645) Less: Reimbursement of Expenses (99,581) ----------------------------------------- - Net Expenses - 4,580,189 ----------------------------------------- - ----------------------------------------- Net Investment Income (4,803,171) 3,174,552 ========================================= REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: NET REALIZED GAIN (LOSS) ON: Investment (29,777,883) (c) 30,706,898 Futures Contracts (929,015) ----------------------------------------- NET REALIZED GAIN (LOSS) (29,777,883) 29,777,883 ----------------------------------------- NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON: - Investment 47,581,530 (c) (46,618,392) Futures Contracts (963,832) ----------------------------------------- Net Change in net unrealized depreciation 47,581,530 (47,582,224) ----------------------------------------- - - ----------------------------------------- NET DECREASE IN NET ASSETS FROM OPERATIONS $ 13,000,476 $ (14,629,789) =========================================
(a) Reallocation of investment income to feeder funds. (b) Reflects the elimination of master portfolio expenses which have been disclosed under fund expenses. (c) Reflects the elimination of master portfolio expenses which have been disclosed under fund expenses. (d) Reflects adjustments to investment advisory fee, administrative fees and shareholder servicing fees and/or related waivers based on the surviving Fund's revised fee schedule. (e) Custody fee includes all fund accounting charges, reflecting estimated benefit of combined fund. (f) Reduction reflects estimated benefits of combined funds. 13 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND / J.P. MORGAN U.S EQUITY FUND / J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES / THE U.S. EQUITY PORTFOLIO / CHASE VISTA LARGE CAP EQUITY FUND NOTES TO PRO FORMA FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF COMBINATION: The Pro Forma Combining Statement of Assets and Liabilities, Statement of Operations and Schedule of Investments ("Pro Forma Statements") reflect the accounts of The U.S. Equity Portfolio ("Master Portfolio"), J.P. Morgan Institutional U.S. Equity Fund ("Institutional Fund"), J.P. Morgan U.S. Equity Fund ("U.S. Equity Fund") and J.P. Morgan U.S. Equity Fund - Advisor Series ("Advisor Series Fund") (collectively the "feeder funds" of the Master Portfolio) as if the proposed Reorganization occurred as of and for the twelve months ended November 30, 2000. The Pro Forma Combining Statement of Assets and Liabilities, Statement of Operations and Schedule of Investments ("Pro Forma Statements") reflect the accounts of the Master Portfolio, the feeder funds, and Chase Vista Large Cap Equity Fund ("CVLCE") (renamed JPMorgan Large Cap Equity Fund) as if the proposed Concurrent Reorganization occurred as of and for the twelve months ended November 30, 2000. 2. SHARES OF BENEFICIAL INTEREST: Under the Reorganization, the existing shares of Institutional Fund, U.S. Equity Fund, and Advisor Series Fund would be renamed Institutional Shares, Select Shares, and Class A Shares, respectively. The net asset values per share for Select Shares and Class A Shares at the commencement of offering would be identical to the closing net asset value per share for the Institutional Shares immediately prior to the Reorganization. Under the Concurrent Reorganization, the existing shares of Institutional Fund, U.S. Equity Fund, and Advisor Series Fund would be renamed Institutional Shares, Select Shares, and Class A Shares, respectively and would commence offering Class B and Class C Shares. The net asset values per share for Select Shares, Class A Shares, Class B Shares, and Class C Shares at the commencement of offering would be identical to the closing net asset value per share for the Institutional Shares immediately prior to the Reorganization. Under the proposed Reorganization, each shareholder of U.S Equity Fund and Advisor Series Fund would receive shares of Institutional Fund with a value equal to their holdings in their respective funds. Holders of U.S Equity Fund will receive Select Shares and holders of the Advisor Series Fund will receive Class Shares in Institutional Fund. Therefore, as a result of the proposed Reorganization, current shareholders of U.S. Equity Fund and Advisor Series Fund will become shareholders of Institutional Fund. Under the proposed Concurrent Reorganization, each shareholders of U.S. Equity Fund, Advisor Series Fund, and CVLCE would receive shares of Institutional Fund with a value equal to their holdings in their respective funds. Holders of U.S. Equity Fund will receive Select 14 Shares, holders of the Advisor Series Fund will receive Class A Shares, holders of Class A Shares in CVLCE will receive Class A Shares, holders of Class B Shares in CVLCE will receive Class B Shares, holders of Class C Shares in CVLCE will receive Class C Shares, and holders of Class I Shares in CVLCE will receive Select Shares in Institutional Fund. Therefore, as a result of the proposed Concurrent Reorganization, current shareholders of U.S. Equity Fund, Advisor Series Fund, and CVLCE will become shareholders of Institutional Fund. The Pro Forma net asset value per share assumes the issuance of additional shares of Institutional Fund, which would have been issued on November 30, 2000 in connection with the proposed Reorganization and the proposed Concurrent Reorganization. The amount of additional shares assumed to be issued under the Reorganization was calculated based on the November 30, 2000 net assets of U.S. Equity Fund and Advisor Series Fund and the net asset values per share of Institutional Fund. The amount of additional shares assumed to be issued under the Concurrent Reorganization was calculated based on the November 30, 2000 net assets of U.S. Equity Fund, Advisor Series Fund, and CVLCE and the net asset value per share of Institutional Fund. J.P. MORGAN U.S. EQUITY FUND WITH REORGANIZATION
CLASS A SHARES SELECT SHARES -------------- ------------- Increase in Shares Issued 38,998 28,221,456 Net Assets 11/30/00 475,351 343,997,623 Pro Forma Net Asset Value 11/30/00 12.19 12.19
J.P. MORGAN U.S. EQUITY FUND WITH CONCURRENT REORGANIZATION
CLASS A CLASS B CLASS C SELECT ------- ------- ------- ------ Increase in Shares Issued 5,013,616 2,207,306 153,915 37,105,139 Net Assets 11/30/00 61,112,083 26,905,349 1,876,106 452,282,818 Pro Forma Net Asset Value 11/30/00 12.19 12.19 12.19 12.19
3. PRO FORMA OPERATIONS: The Pro Forma Statement of Operations assumes similar rates of gross investment income for the investments of each Fund. Accordingly, the combined gross investment income is equal to the sum of each Fund's gross investment income. Certain expenses have been adjusted to reflect the expected expenses of the combined entity including the change in administration fee and the new expense cap. The pro forma investment advisory, shareholder servicing and distribution fees of the combined Fund are based on the fee schedule in effect for Surviving Fund at the combined level of average net assets for the twelve months ended November 30, 2000. 15 FORM N-14 PART C OTHER INFORMATION Item 15. Indemnification. ------------------ Reference is made to Section 5.3 of Registrant's Declaration of Trust and Section 5 of Registrant's Distribution Agreement. Registrant, its Trustees and officers are insured against certain expenses in connection with the defense of claims, demands, actions, suits, or proceedings, and certain liabilities that might be imposed as a result of such actions, suits or proceedings. Insofar as indemnification for liabilities arising under the Securities Act of 1933, as amended (the "1933 Act"), may be permitted to directors, trustees, officers and controlling persons of the Registrant and the principal underwriter pursuant to the foregoing provisions or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, trustee, officer, or controlling person of the Registrant and the principal underwriter in connection with the successful defense of any action, suit or proceeding) is asserted against the Registrant by such director, trustee, officer or controlling person or principal underwriter in connection with the shares being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue. Item 16. Exhibits. ------------------ 1 Declaration of Trust. (a) Declaration of Trust, as amended, was filed as Exhibit No. 1 to Post-Effective Amendment No. 25 to the Registrant's Registration Statement on Form N-1A (File No. 033-54642) (the "Registration Statement") filed on September 26, 1996 (Accession Number 0000912057-96-021281). (f) Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest. Incorporated Part C-1 herein by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on December 26, 1996 (Accession Number 0001016964-96-000061). (g) Amendment No. 6 to Declaration of Trust; Amendment and Sixth Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest was filed as Exhibit No. 1(b) to Post-Effective Amendment No. 31 to the Registration Statement on February 28, 1997 (Accession Number 0001016964-97-000041). (h) Amendment No. 7 to Declaration of Trust; Amendment and Seventh Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest was filed as Exhibit No. 1(c) to Post-Effective Amendment No. 32 to the Registration Statement on April 15, 1997 (Accession Number 0001016964-97-000053). (i) Amendment No. 8 to Declaration of Trust; Amendment and Eighth Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest was filed as Exhibit No. l(d) to Post-Effective Amendment No. 40 to the Registration Statement on October 9, 1997 (Accession Number 0001016964-97-000158). (j) Amendment No. 9 to Declaration of Trust; Amendment and Ninth Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest was filed as Exhibit No. l(e) to Post-Effective Amendment No. 50 to the Registration Statement on December 29, 1997 (Accession Number 0001041455-97-000014). (k) Amendment No. 10 to Declaration of Trust; Amendment and Tenth Amended and Restated Establishment and Designation of Series of Shares of Beneficial Interest and change voting procedures to dollar-based voting was filed as Exhibit No. (a)6 to Post-Effective Amendment No. 60 to the Registration Statement on December 31, 1998 (Accession Number 0001041455-98-000097). (l) Amendment No. 11 to Declaration of Trust. Incorporated herein by reference to Post-Effective Amendment No. 63 to the Registration Statement filed on April 29, 1999 (Accession Number 00001041455-99-000041). (m) Amendment No. 12 to Declaration of Trust. Incorporated herein by reference to Post-Effective Amendment No. 72 to the Registration Statement filed on April 3, 2000 (Accession Number 0001041455-00-000084). (n) Amendment No. 13 to Declaration of Trust, incorporated herein by reference to Post-Effective Amendment No. 78 to the Registration Statement filed on August 1, 2000 (Accession Number 0000894088-00-000008). (o) Amendment No.14 to Declaration of Trust incorporated herein by reference to Post-Effective Amendment No. 78 to the Registration Statement filed on August 1, 2000 (Accession Number 0000894088-00-000008). Part C-2 2 By-laws. (a) Restated By-Laws of Registrant. Incorporated herein by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on December 26, 1996 (Accession Number 0001016964-96-000061). (b) Amendment to Restated By-laws of Registrant. Incorporated herein by reference to Post-Effective Amendment No. 71 to the Registration Statement filed on February 28, 2000 (Accession Number 0001041455-00-000056). 3 Not Applicable 4 Agreement and Plan of Reorganization filed herewith as Appendix A to the Combined Prospectus/Proxy Statement. 5 Not Applicable 6 Form of Investment Advisory Agreement to be filed by Amendment. 7 Distribution Agreement to be filed by Amendment. 8 Not Applicable 9 Custodian Agreement (a) Custodian Contract between Registrant and State Street Bank and Trust Company ("State Street"). Incorporated herein by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on December 26, 1996 (Accession Number 0001016964-96-000061). (b) Custodian Contract between Registrant and The Bank of New York. Incorporated herein by reference to Post-Effective Amendment No. 71 to the Registration Statement filed on February 28, 2000 (Accession Number 0001041455-00-000056). 10 Forms of Rule 12b1 Distribution Plans to be filed by Amendment. 11 Opinion and Consent of Nixon Peabody LLP as to legality of shares to be filed by Amendment. 12 Opinion and Consent of Simpson Thacher & Bartlett as to Tax Consequences to be filed by Amendment. 13 Material Contracts. (a) Co-Administration Agreement between Registrant and FDI. Incorporated herein by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on December 26, 1996 (Accession Number 0001016964-96-000061). Part C-3 (b) Restated Shareholder Servicing Agreement between Registrant and Morgan Guaranty Trust Company of New York ("Morgan Guaranty") filed as Exhibit (h)2 to Post Effective Amendment No. 54 to the Registration Statement on August 25, 1998 (Accession No. 0001041455-98-000053). (c) Transfer Agency and Service Agreement between Registrant and State Street. Incorporated herein by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on December 26,1996 (Accession Number 0001016964-96-000061). (d) Restated Administrative Services Agreement between Registrant and Morgan Guaranty. Incorporated herein by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on December 26, 1996 (Accession Number 0001016964-96-000061). (e) Fund Services Agreement, as amended, between Registrant and Pierpont Group, Inc. Incorporated herein by reference to Post-Effective Amendment No. 29 to the Registration Statement filed on December 26, 1996 (Accession Number 0001016964-96-000061). (f) Service Plan with respect to Registrant's Service Money Market Funds. Incorporated herein by reference to Post-Effective Amendment No. 33 to the Registration Statement filed on April 30, 1997 (Accession Number 00001016964-97-000059). (g) Service Plan with respect to Registrant's Small Company Fund Advisor Series, Small Company Opportunities Fund-Advisor Series, International Equity Fund-Advisor Series, International Opportunities Fund-Advisor Series, U.S. Equity Fund-Advisor Series, Diversified Fund-Advisor Series incorporated herein by reference to Post-Effective Amendment No. 78 to the Registration Statement filed on August 1, 2000 (Accession Number 0000894088-00-000008). (h) Amended Service Plan with respect to Registrant's Disciplined Equity-Advisor series and Direct Prime Money Market Funds. Incorporated herein by reference to Post-Effective Amendment No. 72 to the Registration Statement filed on April 3, 2000 (Accession Number 0001041455-00-000084). (i) Amended Service Plan with respect to Registrant's J.P. Morgan Prime Cash Management Fund. Incorporated herein by reference to Post-Effective Amendment No. 75 to Registration Statement filed on May 17, 2000 (Accession Number 0001041455-00-000122). (j) Form of Administration Agreement (to be filed by Amendment) (k) Form of Sub-Administration Agreement (to be filed by Amendment) 14 Consent of PricewaterhouseCoopers LLP. 15 None 16 Powers of Attorney. Part C-4 17(a) Form of Proxy Card. 17(b) Prospectus for the Surviving Fund to be filed by Amendment. 17(c) Prospectus for the Merging Fund. 17(d) Statement of Additional Information for the Surviving Fund to be filed by Amendment. 17(e) Statement of Additional Information for the Merging Fund. 17(f) Annual Report of the Surviving Fund (including the Annual Report of the Master Portfolio), dated May 31, 2000. 17(g) Semi-Annual Report of the Surviving Fund (including the Semi-Annual Report of the Master Portfolio), dated November 30, 2000. 17(h) Annual Report of the Merging Fund (including the Annual Report of the Master Portfolio), dated May 31, 2000 (to be filed by Amendment). 17(i) Semi-Annual Report of the Merging Fund (including the Semi-Annual Report of the Master Portfolio), dated November 30, 2000. Item 17. Undertakings. ---------------- (1) The undersigned Registrant agrees that prior to any public reoffering of the securities registered through the use of a prospectus which is part of this registration statement by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c) of the Securities Act of 1933, as amended (the "1933 Act"), the reoffering prospectus will contain the information called for by the applicable registration form for reofferings by persons who may be deemed underwriters, in addition to the information called for by the other items of the applicable form. (2) The undersigned Registrant agrees that every prospectus that is filed under paragraph (1) above will be filed as part of an amendment to the registration statement and will not be used until the amendment is effective, and that, in determining any liability under the 1933 Act, each post-effective amendment shall be deemed to be a new registration statement for the securities offered therein, and the offering of the securities at that time shall be deemed to be the initial bona fide offering of them. Part C-5 SIGNATURES As required by the Securities Act of 1933, this registration statement has been signed on behalf of the registrant, in the City of New York and the State of New York, on the 9th day of April, 2001. J.P. MORGAN INSTITUTIONAL FUNDS Registrant By: /s/ Christopher Kelley -------------------------------- Christopher Kelley Vice President and Assistant Secretary Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 12, 2001. George Rio* - --------------------------------------- George Rio President and Treasurer Matthew Healey* - --------------------------------------- Matthew Healey Trustee, Chairman and Chief Executive Officer (Principal Executive Officer) Frederick S. Addy* - --------------------------------------- Frederick S. Addy Trustee William G. Burns* - --------------------------------------- William G. Burns Trustee Arthur C. Eschenlauer* - --------------------------------------- Arthur C. Eschenlauer Trustee Michael P. Mallardi* - --------------------------------------- Michael P. Mallardi Trustee *By /s/ Christopher Kelley - --------------------------------------- Christopher Kelley as attorney-in-fact pursuant to a power of attorney. EXHIBITS ITEM DESCRIPTION (14) Consent of PricewaterhouseCoopers LLP. (16) Powers of Attorney. (17) (a) Form of Proxy Card. (c) Prospectus for the J.P. Morgan U.S. Equity Fund-Advisor Series. (e) Statement of Additional Information for J.P. Morgan U.S. Equity Fund-Advisor Series. (f) Annual Report of J.P. Morgan Institutional U.S. Equity Fund (including Annual Report of The U.S. Equity Portfolio), dated May 31, 2000. (g) Semi-Annual Report of J.P. Morgan Institutional U.S. Equity Fund (including Semi-Annual Report of The U.S. Equity Portfolio), dated November 30, 2000. (i) Semi-Annual Report of J.P. Morgan U.S. Equity Fund-Advisor Series (including Semi-Annual Report of The U.S. Equity Portfolio), dated November 30, 2000. EX-99.14 2 a2043521zex-99_14.txt EXHIBIT 99.14 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Prospectus/Proxy Statement and Statement of Additional Information constituting parts of this registration statement on Form N-14 (the "N-14 Registration Statement") of our reports dated July 14, 2000, relating to the May 31, 2000 financial statements and financial highlights of J.P. Morgan U.S. Equity Fund and the financial statements and supplemental data of The U.S. Equity Portfolio, which appear in the May 31, 2000 Annual Reports to Shareholders, which are also incorporated by reference into the N-14 Registration Statement. We also consent to the references to us under the headings "Certain Arrangements with Service Providers- Other Services," "Accountants," "Financial Statements and Experts" and "Financial Statements" in such Registration Statement. We also consent to the references to us under the headings "Financial Highlights," "Independent Accountants" and "Financial Statements" in J.P. Morgan U.S. Equity Fund's registration statement on Form N-1A, dated March 1, 2001, which is incorporated by reference into this N-14 Registration Statement. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 April 12, 2001 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Prospectus/Proxy Statement and Statement of Additional Information constituting parts of this registration statement on Form N-14 (the "N-14 Registration Statement") of our reports dated July 14, 2000, relating to the May 31, 2000 financial statements and financial highlights of J.P. Morgan U.S. Equity Fund - Advisor Series and the financial statements and supplemental data of The U.S. Equity Portfolio, which appear in the May 31, 2000 Annual Reports to Shareholders, which are also incorporated by reference into the N-14 Registration Statement. We also consent to the references to us under the headings "Certain Arrangements with Service Providers- Other Services," "Accountants," "Financial Statements and Experts" and "Financial Statements" in such Registration Statement. We also consent to the references to us under the headings "Financial Highlights," "Independent Accountants" and "Financial Statements" in J.P. Morgan U.S. Equity Fund - Advisor Series' registration statement on Form N-1A, dated March 1, 2001, which is incorporated by reference into this N-14 Registration Statement. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 April 12, 2001 EX-99.16 3 a2043521zex-99_16.txt EXHIBIT 99.16 Exhibit 16 J.P. MORGAN AND J.P. MORGAN INSTITUTIONAL FUNDS AND CORRESPONDING PORTFOLIOS AND J.P. MORGAN SERIES TRUST POWER OF ATTORNEY George Rio, whose signature appears below, hereby constitutes and appoints Elba Vasquez, Christopher Kelley, Margaret W. Chambers, Marie E. Connolly, Douglas C. Conroy, Mary A. Nelson, Christine Rotundo, Mary Jo Pace, Karen Jacoppo-Wood, Kathleen K. Morrisey and Matthew Healey, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies named above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ George Rio --------------------- George Rio Date: April 12, 2001 Exhibit 16 J.P. MORGAN AND J.P. MORGAN INSTITUTIONAL FUNDS AND CORRESPONDING PORTFOLIOS AND J.P. MORGAN SERIES TRUST POWER OF ATTORNEY Matthew Healey, whose signature appears below, hereby constitutes and appoints Elba Vasquez, Christopher Kelley, Margaret W. Chambers, Marie E. Connolly, Douglas C. Conroy, Mary A. Nelson, Christine Rotundo, Mary Jo Pace, Karen Jacoppo-Wood, Kathleen K. Morrisey and George Rio, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies named above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Matthew Healey --------------------- Matthew Healey Date: April 12, 2001 Exhibit 16 J.P. MORGAN AND J.P. MORGAN INSTITUTIONAL FUNDS AND CORRESPONDING PORTFOLIOS AND J.P. MORGAN SERIES TRUST POWER OF ATTORNEY Frederick S. Addy, whose signature appears below, hereby constitutes and appoints Elba Vasquez, Christopher Kelley, Margaret W. Chambers, Marie E. Connolly, Douglas C. Conroy, Mary A. Nelson, Christine Rotundo, Mary Jo Pace, Karen Jacoppo-Wood, Kathleen K. Morrisey, Matthew Healey and George Rio and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies named above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Frederick S. Addy --------------------- Frederick S. Addy Date: April 12, 2001 Exhibit 16 J.P. MORGAN AND J.P. MORGAN INSTITUTIONAL FUNDS AND CORRESPONDING PORTFOLIOS AND J.P. MORGAN SERIES TRUST POWER OF ATTORNEY William G. Burns, whose signature appears below, hereby constitutes and appoints Elba Vasquez, Christopher Kelley, Margaret W. Chambers, Marie E. Connolly, Douglas C. Conroy, Mary A. Nelson, Christine Rotundo, Mary Jo Pace, Karen Jacoppo-Wood, Kathleen K. Morrisey, Matthew Healey and George Rio, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies named above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ William G. Burns --------------------- William G. Burns Date: April 12, 2001 Exhibit 16 J.P. MORGAN AND J.P. MORGAN INSTITUTIONAL FUNDS AND CORRESPONDING PORTFOLIOS AND J.P. MORGAN SERIES TRUST POWER OF ATTORNEY Arthur C. Eschenlauer, whose signature appears below, hereby constitutes and appoints Elba Vasquez, Christopher Kelley, Margaret W. Chambers, Marie E. Connolly, Douglas C. Conroy, Mary A. Nelson, Christine Rotundo, Mary Jo Pace, Karen Jacoppo-Wood, Kathleen K. Morrisey, Matthew Healey and George Rio, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies named above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Arthur C. Eschenlauer ------------------------- Arthur C. Eschenlauer Date: April 12, 2001 Exhibit 16 J.P. MORGAN AND J.P. MORGAN INSTITUTIONAL FUNDS AND CORRESPONDING PORTFOLIOS AND J.P. MORGAN SERIES TRUST POWER OF ATTORNEY Michael P. Mallardi, whose signature appears below, hereby constitutes and appoints Elba Vasquez, Christopher Kelley, Margaret W. Chambers, Marie E. Connolly, Douglas C. Conroy, Mary A. Nelson, Christine Rotundo, Mary Jo Pace, Karen Jacoppo-Wood, Kathleen K. Morrisey, Matthew Healey and George Rio, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies named above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /S/ Michael P. Mallardi ---------------------- Michael P. Mallardi Date: April 12, 2001 EX-99.17(A) 4 a2043521zex-99_17a.txt EXHIBIT 99.17(A) FORM OF PROXY Preliminary Proxy Material J.P. MORGAN INSTITUTIONAL FUNDS JPMORGAN U.S. EQUITY FUND ADVISOR SERIES This proxy is solicited on behalf of the Board of Trustees of J.P. Morgan Institutional Funds for the Special Meeting of the Shareholders to be held on July 3, 2001. The undersigned hereby appoints ___, ___ AND ___, and each of them, attorneys and proxies for the undersigned, with full power of substitution, and revocation to represent the undersigned and to vote on behalf of the undersigned all shares of JPMorgan U.S. Equity Fund - Advisor Series which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held at J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st Floor, New York, NY on July 3, 2001, at 9:00 a.m., and at any adjournments thereof. The undersigned hereby acknowledges receipt of the Notice of the Special Meeting of Shareholders and hereby instructs said attorneys and proxies to vote said shares as indicated hereon. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Special Meeting of Shareholders in person or by substitute (or, if only one shall be so present, then that one) shall have and may exercise all of the power and authority of said proxies hereunder. The undersigned hereby revokes any proxy previously given. NOTE: Please sign exactly as your name appears on this proxy. If joint owners, EITHER may sign this proxy. When signing as attorney, executor, administrator, trustee, guardian or corporate officer, please give your full title. DATE __________ ___, _______ ____________________________ ____________________________ Signature(s), Title(s) (if applicable) PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE OR YOU CAN VOTE BY CALLING __________. J.P. MORGAN INSTITUTIONAL FUNDS JPMORGAN U.S. EQUITY FUND ADVISOR SERIES PLEASE INDICATE YOUR VOTE BY AN "X" ON THE APPROPRIATE LINE BELOW. This proxy, if properly executed, will be voted in the manner directed by the shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL. Please refer to the Combined Prospectus/Proxy Statement for a discussion of each Proposal. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE FOR EACH FOLLOWING PROPOSAL. Proposal 1: To approve or disapprove of the Reorganization. For_____ Against_____ Abstain_____ Proposal 2: To approve or disapprove the election of each of the Nominees. For_____ Against_____ Abstain_____ To withhold authority to vote for any individual Nominee, write that Nominee's name here: - -------------------------------------------------------------------------------- EX-99.17(C) 5 a2043521zex-99_17c.txt EXHIBIT 99.17(C) - -------------------------------------------------------------------------------- AUGUST 1, 2000 | PROSPECTUS - -------------------------------------------------------------------------------- J.P. MORGAN U.S. EQUITY FUNDS - ADVISOR SERIES U.S. Equity Fund - Advisor Series U.S. Small Company Fund - Advisor Series U.S. Small Company Opportunities Fund - Advisor Series ---------------------------------------- Seeking to outperform U.S. stock markets over the long term through a disciplined management approach This prospectus contains essential information for anyone investing in these funds. Please read it carefully and keep it for reference. As with all mutual funds, the fact that these shares are registered with the Securities and Exchange Commission does not mean that the commission approves them or guarantees that the information in this prospectus is correct or adequate. It is a criminal offense for anyone to state or suggest otherwise. Distributed by Funds Distributor, Inc. JPMorgan CONTENTS - -------------------------------------------------------------------------------- 1 | Each fund's goal, principal strategies, principal risks, performance and expenses J.P. MORGAN U.S. EQUITY FUNDS - ADVISOR SERIES J.P. Morgan U.S. Equity Fund - Advisor Series ............................... 1 J.P. Morgan U.S. Small Company Fund - Advisor Series ........................ 3 J.P. Morgan U.S. Small Company Opportunities Fund - Advisor Series .......... 5 7 | Principles and techniques common to the funds in this prospectus U.S. EQUITY MANAGEMENT APPROACH J.P. Morgan ................................................................. 7 J.P. Morgan U.S. Equity Funds - Advisor Series .............................. 7 The spectrum of U.S. Equity Funds ........................................... 7 Who may want to invest ...................................................... 7 U.S. equity investment process .............................................. 8 9 | Investing in the J.P. Morgan U.S. Equity Funds - Advisor Series YOUR INVESTMENT Investing through service organizations ..................................... 9 Account and transaction policies ............................................ 9 Dividends and distributions ................................................. 9 Tax considerations .......................................................... 10 11 | More about risk and the funds' business operations FUND DETAILS Business structure .......................................................... 11 Management and administration ............................................... 11 Risk and reward elements .................................................... 12 FOR MORE INFORMATION ............................................... back cover J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES [GRAPHIC OMITTED] RISK/RETURN SUMMARY For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see page 12. [GRAPHIC OMITTED] GOAL The fund's goal is to provide high total return from a portfolio of selected equity securities. This goal can be changed without shareholder approval. [GRAPHIC OMITTED] INVESTMENT APPROACH Principal Strategies The fund invests primarily in large- and medium-capitalization U.S. companies. Industry by industry, the fund's weightings are similar to those of the Standard & Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or overweight industries when it believes it will benefit performance. Within each industry, the fund focuses on those stocks that are ranked as most undervalued according to the investment process described on page 8. The fund generally considers selling stocks that appear overvalued. Principal Risks The value of your investment in the fund will fluctuate in response to movements in the stock market. Fund performance will also depend on the effectiveness of J.P. Morgan's research and the management team's stock picking decisions. By emphasizing undervalued stocks, the fund seeks to produce returns that exceed those of the S&P 500. At the same time, by controlling the industry weightings of the fund so they can differ only moderately from the industry weightings of the S&P 500, the fund seeks to limit its volatility to that of the overall market, as represented by this index. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS (J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES) PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan, which currently manages approximately $369 billion, including more than $16 billion using similar strategies as the fund. The portfolio management team is comprised of 23 research analysts, who select stocks in their respective sectors using the investment process described on page 8. Henry D. Cavanna, managing director, and Bradford L. Frishberg, vice president, oversee the portfolio and manage its cash flows. Mr. Cavanna joined the team in February of 1998, and has been at J.P. Morgan since 1971. He served as manager of U.S. equity portfolios prior to managing the fund. Mr. Frishberg has been at J.P. Morgan since 1996 and is a portfolio manager in the equity and balanced groups. Prior to joining J.P. Morgan, he managed portfolios for Aetna Investment Management in Hong Kong. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o The fund seeks to achieve its goal by investing its assets in a master portfolio, which is another fund with the same goal. o There is no assurance that the fund will meet its investment goal. o The fund does not represent a complete investment program. 1 | J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES - -------------------------------------------------------------------------------- PERFORMANCE OF A RELATED FUND (unaudited) Shares of the fund have not previously been offered. Accordingly, the bar chart and table shown below provide some indication of the risks of investing in the fund because returns reflect performance of the J.P. Morgan U.S. Equity Fund, a related fund investing in the same master portfolio. The bar chart indicates some of the risks by showing changes in the performance of the J.P. Morgan U.S. Equity Fund's shares from year to year for each of the fund's last 10 calendar years. The table indicates some of the risks by showing how the J.P. Morgan U.S. Equity Fund's average annual returns for the past one, five and ten years compare to those of the S&P 500 Index. This is a widely recognized, unmanaged index of U.S. stocks used as a measure of overall U.S. stock market performance. The J.P. Morgan U.S. Equity Fund's past performance does not necessarily indicate how the fund will perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2) - ----------------------------------------------------------------------------------------------------------------------------------- 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 40% 34.12 32.48 30% 28.41 21.06 24.45 20% 14.69 11.02 10% 8.73 0% 1.38 - ----------------------------------------------------------------------------------------------------------------------------------- (0.61) (10%)
[ ] J.P. Morgan U.S. Equity Fund J.P. Morgan U.S. Equity Fund's year-to-date total return as of June 30, 2000 was 1.02%. For the period covered by this year-by-year total return chart, the J.P. Morgan U.S. Equity Fund's highest quarterly return was 21.33% (for the quarter ended 12/31/98); and the lowest quarterly return was -11.83% (for the quarter ended 9/30/90).
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1) - ----------------------------------------------------------------------------------------------------------------------------------- Past 1 yr. Past 5 yrs. Past 10 yrs. J.P. Morgan U.S. Equity Fund (after expenses) 14.69 24.07 16.97 - ----------------------------------------------------------------------------------------------------------------------------------- S&P 500 Index (no expenses) 21.04 28.55 18.21 - -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The estimated expenses of the fund before and after reimbursement are shown at right. The fund has no redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses after reimbursement are deducted from fund assets prior to performance calculations. Annual fund operating expenses(3) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.40 Distribution (Rule 12b-1) fees(4) 0.25 Service fees(5) 0.25 Other expenses 0.28 - -------------------------------------------------------------------------------- Total annual fund operating expenses 1.18 Fee waiver and expense reimbursement(6) (0.13) - -------------------------------------------------------------------------------- Net expenses(6) 1.05 - -------------------------------------------------------------------------------- Expense example(6) - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, net expenses for the period 8/1/2000 through 9/30/2001, total operating expenses thereafter, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. Your cost($) 107 358 - -------------------------------------------------------------------------------- (1) These returns reflect lower operating expenses than those of the fund. Therefore, the fund's returns would have been lower had the fund existed during the same period. (2) The fund's fiscal year end is 5/31. (3) The fund has a master/feeder structure as described on page 11. This table shows the fund's estimated expenses and its estimated share of master portfolio expenses for the current fiscal year, expressed as a percentage of the fund's estimated average net assets. (4) The plan under Rule 12b-1 (described on page 11) allows such fees to be paid out of the fund's assets on an ongoing basis. Over time, these fees will increase the cost of your invest- ment and may cost you more than paying other types of sales charges. (5) Service organizations (described on page 9) may charge other fees to their customers who are beneficial owners of shares in connection with their customers' accounts. Such fees, if any, may affect the return such customers realize with respect to their investments. (6) Reflects an agreement dated 8/1/00 by Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent expenses (excluding extraordinary expenses) exceed 1.05% of the fund's average daily net assets through 9/30/01. J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES | 2 J.P. MORGAN U.S. SMALL COMPANY FUND - ADVISOR SERIES - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] RISK/RETURN SUMMARY For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see page 12. [GRAPHIC OMITTED] GOAL The fund's goal is to provide high total return from a portfolio of small company stocks. This goal can be changed without shareholder approval. [GRAPHIC OMITTED] INVESTMENT APPROACH Principal Strategies The fund invests primarily in small and medium sized U.S. companies whose market capitalizations are greater than $100 million and less than $2 billion. Industry by industry, the fund's weightings are similar to those of the Russell 2000 Index. The fund can moderately underweight or overweight industries when it believes it will benefit performance. Within each industry, the fund focuses on those stocks that are ranked as most undervalued according to the process described on page 8. The fund generally considers selling stocks that appear overvalued or have grown into large-cap stocks. Principal Risks The value of your investment in the fund will fluctuate in response to movements in the stock market. Fund performance will also depend on the effectiveness of J.P. Morgan's research and the management team's stock picking decisions. Small-cap stocks have historically offered higher long-term growth than large-cap stocks, and have also involved higher risks. The fund's small-cap emphasis means it is likely to be more sensitive to economic news and is likely to fall further in value during broad market downturns. The fund pursues returns that exceed those of the Russell 2000 Index while seeking to limit its volatility relative to this index. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS (J.P. MORGAN U.S. SMALL COMPANY FUND - ADVISOR SERIES) PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan, which currently manages approximately $369 billion, including more than $3 billion using similar strategies as the fund. The portfolio management team is led by Marian U. Pardo, managing director, Alexandra F. Wells, vice president, and Daniel J. Anniello, vice president. Ms. Pardo has been at J.P. Morgan since 1968, except for five months in 1998 when she was president of a small investment management firm. Prior to managing the fund, Ms. Pardo managed small and large cap equity portfolios, equity and convertible funds, and several institutional portfolios. Ms.Wells joined the team in March 1998 and has been with J.P. Morgan since 1992. Prior to managing the fund, Ms. Wells managed large cap equity portfolios, and prior to that served as an equity research analyst. Mr. Anniello has been a small company portfolio manager since 2000 and employed by J.P. Morgan since 1997. Prior to joining J.P. Morgan, Mr. Anniello worked at Warburg Pincus Asset Management and the U.S. Securities and Exchange Commission. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o The fund seeks to achieve its goal by investing its assets in a master portfolio, which is another fund with the same goal. o There is no assurance that the fund will meet its investment goal. o The fund does not represent a complete investment program. 3 | J.P. MORGAN U.S. SMALL COMPANY FUND - ADVISOR SERIES - -------------------------------------------------------------------------------- PERFORMANCE OF A RELATED FUND (unaudited) Shares of the fund have not previously been offered. Accordingly, the bar chart and table shown below provide some indication of the risks of investing in the fund because returns reflect performance of the J.P. Morgan U.S. Small Company Fund, a related fund investing in the same master portfolio. The bar chart indicates some of the risks by showing changes in the performance of the J.P. Morgan U.S. Small Company Fund's shares from year to year for each of the fund's last 10 calendar years. The table indicates some of the risks by showing how the J.P. Morgan U.S. Small Company Fund's average annual returns for the past one, five and ten years compare to those of the Russell 2000 Index. This is a widely recognized, unmanaged index of small cap U.S. stocks used as a measure of overall U.S. small company stock market performance. The J.P. Morgan U.S. Small Company Fund's past performance does not necessarily indicate how the fund will perform in the future.
Year-by-year total return (%) Shows changes in returns by calendar year(1,2) - ----------------------------------------------------------------------------------------------------------------------------------- 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 60% 59.59 44.00 31.86 30% 20.75 22.75 18.98 8.58 0% - ----------------------------------------------------------------------------------------------------------------------------------- (5.89) (5.49) (24.34) (30%)
[ ] J.P. Morgan U.S. Small Company Fund J.P. Morgan U.S. Small Company Fund's year-to-date total return as of June 30, 2000 was 0.48%. For the period covered by this year-by-year total return chart, the J.P. Morgan U.S. Small Company Fund's highest quarterly return was 34.68% (for the quarter ended 12/31/99); and the lowest quarterly return was -30.03% (for the quarter ended 9/30/90).
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1) - ----------------------------------------------------------------------------------------------------------------------------------- Past 1 yr. Past 5 yrs. Past 10 yrs. J.P. Morgan U.S. Small Company Fund (after expenses) 44.00 21.61 14.59 - ----------------------------------------------------------------------------------------------------------------------------------- Russell 2000 Index (no expenses) 21.50 18.92 15.39 - -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The estimated expenses of the fund before and after reimbursement are shown at right. The fund has no redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses after reimbursement are deducted from fund assets prior to performance calculations. Annual fund operating expenses(3) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.60 Distribution (Rule 12b-1) fees(4) 0.25 Service fees(5) 0.25 Other expenses 0.27 - -------------------------------------------------------------------------------- Total annual fund operating expenses 1.37 Fee waiver and expense reimbursement(6) (0.12) - -------------------------------------------------------------------------------- Net expenses(6) 1.25 - -------------------------------------------------------------------------------- Expense example(6) - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, net expenses for the period 8/1/00 through 9/30/01, total operating expenses thereafter, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. Your cost($) 127 418 - -------------------------------------------------------------------------------- (1) These returns reflect lower operating expenses than those of the fund. Therefore, the fund's returns would have been lower had the fund existed during the same period. (2) The fund's fiscal year end is 5/31. (3) The fund has a master/feeder structure as described on page 11. This table shows the fund's estimated expenses and its estimated share of master portfolio expenses for the current fiscal year, expressed as a percentage of the fund's estimated average net assets. (4) The plan under Rule 12b-1 (described on page 11) allows such fees to be paid out of the fund's assets on an ongoing basis. Over time, these fees will increase the cost of your invest- ment and may cost you more than paying other types of sales charges. (5) Service organizations (described on page 9) may charge other fees to their customers who are beneficial owners of shares in connection with their customers' accounts. Such fees, if any, may affect the return such customers realize with respect to their investments. (6) Reflects an agreement dated 8/1/00 by Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent expenses (excluding extraordinary expenses) exceed 1.25% of the fund's average daily net assets through 9/30/01. J.P. MORGAN U.S. SMALL COMPANY FUND - ADVISOR SERIES | 4 J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND - ADVISOR SERIES - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] RISK/RETURN SUMMARY For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see page 12. [GRAPHIC OMITTED] GOAL The fund's goal is to provide long-term growth from a portfolio of small company growth stocks. This goal can be changed without shareholder approval. [GRAPHIC OMITTED] INVESTMENT APPROACH Principal Strategies The fund invests primarily in stocks of small U.S. companies whose market capitalization is greater than $150 million and less than $1.25 billion when purchased. While the fund holds stocks in many industries to reduce the impact of poor performance in any one sector, it tends to emphasize industries with higher growth potential and does not track the sector weightings of the overall small company stock market. In searching for companies, the fund combines the approach described on page 8 with a growth-oriented approach that focuses on each company's business strategies and its competitive environment. The fund seeks to buy stocks when they are undervalued or fairly valued and are poised for long-term growth. Stocks become candidates for sale when they appear overvalued or when the company is no longer a small-cap company, but the fund may also continue to hold them if it believes further substantial growth is possible. Principal Risks The value of your investment in the fund will fluctuate in response to movements in the stock market. Fund performance will also depend on the effectiveness of J.P. Morgan's research and the management team's stock picking decisions. Small-cap stocks have historically offered higher long-term growth than medium- or large-cap stocks, and have also involved higher risks. The fund's small-cap emphasis means it is likely to be more sensitive to economic news and is likely to fall further in value during broad market downturns. Because the fund seeks to outperform the Russell 2000 Growth Index while not tracking its industry weightings, investors should expect higher volatility compared to this index or to more conservatively managed small-cap funds. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS (J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND - ADVISOR SERIES) PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan, which currently manages approximately $369 billion, including more than $1.2 billion using similar strategies as the fund. The portfolio management team is led by Marian U. Pardo, managing director, Saira Durcanin, vice president and CFA, and Carolyn Jones, associate. Ms. Pardo has been at J.P. Morgan since 1968, except for five months in 1998 when she was president of a small investment management firm. Prior to managing the fund, Ms. Pardo managed small and large cap equity portfolios, equity and convertible funds, and several institutional portfolios. Ms. Durcanin has been with J.P. Morgan since July 1995 as a small company equity analyst and portfolio manager after graduating from the University of Wisconsin with an M.S. in finance. Ms. Jones has been with J.P. Morgan since July 1998. Prior to managing this fund, Ms. Jones served as a portfolio manager in J.P. Morgan's private banking group and as a product specialist at Merrill Lynch Asset Management. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o The fund seeks to achieve its goal by investing its assets in a master portfolio, which is another fund with the same goal. o There is no assurance that the fund will meet its investment goal. o The fund does not represent a complete investment program. 5 | J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND - ADVISOR SERIES - -------------------------------------------------------------------------------- PERFORMANCE OF A RELATED FUND (unaudited) Shares of the fund have not previously been offered. Accordingly, the bar chart and table shown below provide some indication of the risks of investing in the fund because returns reflect performance of the J.P. Morgan U.S. Small Company Opportunities Fund, a related fund investing in the same master portfolio. The bar chart indicates some of the risks by showing changes in the performance of the J.P. Morgan U.S. Small Company Opportunities Fund's shares from year to year for each of the last two calendar years. The table indicates some of the risks by showing how the J.P. Morgan U.S. Small Company Opportunities Fund's average annual returns for the past year and for its life compare to those of the Russell 2000 Growth Index. This is a widely recognized, unmanaged index of small cap U.S. growth stocks used as a measure of overall U.S. small cap growth stock performance. The J.P. Morgan U.S. Small Company Opportunities Fund's past performance does not necessarily indicate how the fund will perform in the future. Total return (%) Shows changes in returns by calendar year(1,2,3) - -------------------------------------------------------------------------------- 1998 1999 80% 61.63 60% 40% 20% 5.21 0% - -------------------------------------------------------------------------------- [ ] J.P. Morgan U.S. Small Company Opportunities Fund J.P. Morgan U.S. Small Company Opportunities Fund year-to-date total return as of June 30, 2000 was 1.43%. For the period covered by this total return chart, the J.P. Morgan U.S. Small Company Opportunities Fund's highest quarterly return was 42.58% (for the quarter ended 12/31/99); and the lowest quarterly return was -20.19% (for the quarter ended 9/30/98).
Average annual total return (%) Shows performance over time, for periods ended December 31, 1999(1) - ----------------------------------------------------------------------------------------------------------------------------------- Past 1 yr. Life of fund(1,2) J.P. Morgan U.S. Small Company Opportunities Fund (after expenses) 61.63 30.85 - ----------------------------------------------------------------------------------------------------------------------------------- Russell 2000 Growth Index (no expenses) 43.09 19.31 - -----------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The estimated expenses of the fund before and after reimbursement are shown at right. The fund has no redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses after reimbursement are deducted from fund assets prior to performance calculations. Annual fund operating expenses(4) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.60 Distribution (Rule 12b-1) fees(5) 0.25 Service fees(6) 0.25 Other expenses 0.27 - -------------------------------------------------------------------------------- Total annual fund operating expenses 1.37 Fee waiver and expense reimbursement(7) (0.12) - -------------------------------------------------------------------------------- Net expenses(7) 1.25 - -------------------------------------------------------------------------------- Expense example - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, net expenses for the period 8/1/00 through 9/30/01, total operating expenses thereafter, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. Your cost($) 127 418 - -------------------------------------------------------------------------------- (1) These returns reflect lower operating expenses than those of the fund. Therefore, the fund's returns would have been lower had the fund existed during the same period. (2) The U.S. Small Company Opportunities Fund commenced operations on 6/16/97 and returns reflect performance of the U.S. Small Company Opportunities Fund from 6/30/97. (3) The fund's fiscal year end is 5/31. (4) The fund has a master/feeder structure as described on page 11. This table shows the fund's estimated expenses and its estimated share of master portfolio expenses for the current fiscal year, expressed as a percentage of the fund's estimated average net assets. (5) The plan under Rule 12b-1 (described on page 11) allows such fees to be paid out of the fund's assets on an ongoing basis. Over time, these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. (6) Service organizations (described on page 9) may charge other fees to their customers who are beneficial owners of shares in connection with their customers' accounts. Such fees, if any, may affect the return such customers realize with respect to their investments. (7) Reflects an agreement dated 8/1/00 by Morgan Guaranty Trust Company of New York, an affiliate of J.P. Morgan, to reimburse the fund to the extent expenses (excluding extraordinary expenses) exceed 1.25% of the fund's average daily net assets through 9/30/01. J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND - ADVISOR SERIES | 6 U.S. EQUITY MANAGEMENT APPROACH - -------------------------------------------------------------------------------- J.P. MORGAN Known for its commitment to proprietary research and its disciplined investment strategies, J.P. Morgan is the asset management choice for many of the world's most respected corporations, financial institutions, governments, and individuals. Today, J.P. Morgan employs approximately 420 analysts and portfolio managers around the world and has approximately $369 billion in assets under management, including assets managed by the funds' advisor, J.P. Morgan Investment Management Inc. J.P. MORGAN U.S. EQUITY FUNDS - ADVISOR SERIES These funds invest primarily in U.S. stocks either directly or through another fund. As a shareholder, you should anticipate risks and rewards beyond those of a typical bond fund or a typical balanced fund. THE SPECTRUM OF U.S. EQUITY FUNDS The funds described in this prospectus pursue a range of goals and offer varying degrees of risk and potential reward. Differences between these funds include: o how much emphasis they give to the most undervalued stocks o how closely they follow the industry weightings of their benchmarks o how many securities they typically maintain in their portfolios o the size or market capitalization of the companies in which they invest o whether they focus on before-tax or after-tax returns The table below shows degrees of the relative risk and return that these funds potentially offer. These and other distinguishing features of each U.S. equity fund are described on the following pages. - -------------------------------------------------------------------------------- Who May Want To Invest The funds are designed for investors who: o are pursuing a long-term goal such as retirement o want to add an investment with growth potential to further diversify a portfolio o want funds that seek to outperform the markets in which they each invest over the long term The funds are not designed for investors who: o want funds that pursue market trends or focus only on particular industries or sectors o require regular income or stability of principal o are pursuing a short-term goal or investing emergency reserves Potential risk and return The positions of the funds in this graph reflect long-term performance goals only and are relative, not absolute. R U.S. Small Company Opportunities Fund o e t u U.S. Small Company Fund o r n o U.S. Equity Fund - -------------------------------------------------------------------------------- Risk 7 | U.S. EQUITY MANAGEMENT APPROACH - -------------------------------------------------------------------------------- [GRAPHIC OMITTED] J.P. Morgan analysts develop proprietary fundamental research [GRAPHIC OMITTED] Stocks in each industry are ranked with the help of models [GRAPHIC OMITTED] Using research and valuations, each fund's management team chooses stocks for its fund U.S. EQUITY INVESTMENT PROCESS The J.P. Morgan U.S. equity funds invest primarily in U.S. stocks. While each fund follows its own strategy, the funds as a group share a single investment philosophy. This philosophy, developed by the funds' advisor, focuses on stock picking while largely avoiding sector or market-timing strategies. In managing the funds, J.P. Morgan employs a three-step process: Research J.P. Morgan takes an in-depth look at company prospects over a relatively long period -- often as much as five years -- rather than focusing on near-term expectations. This approach is designed to provide insight into a company's real growth potential. J.P. Morgan's in-house research is developed by an extensive worldwide network of over 125 career equity analysts. The team of analysts dedicated to U.S. equities includes more than 20 members, with an average of over ten years of experience. Valuation The research findings allow J.P. Morgan to rank the companies in each industry group according to their relative value. The greater a company's estimated worth compared to the current market price of its stock, the more undervalued the company. The valuation rankings are produced with the help of a variety of models that quantify the research team's findings. Stock selection Each fund buys and sells stocks according to its own policies, using the research and valuation rankings as a basis. In general, each management team buys stocks that are identified as undervalued and considers selling them when they appear overvalued. Along with attractive valuation, the funds' managers often consider a number of other criteria: o catalysts that could trigger a rise in a stock's price o high potential reward compared to potential risk o temporary mispricings caused by market overreactions. U.S. EQUITY MANAGEMENT APPROACH | 8 YOUR INVESTMENT - -------------------------------------------------------------------------------- INVESTING THROUGH A SERVICE ORGANIZATION Investors may only purchase, exchange and redeem shares of a fund with the assistance of a service organization. Your service organization is paid by the fund to assist you in establishing your fund account, executing transactions, and monitoring your investment. The minimum amount for initial investments in each fund is $2,500 and for additional investments $500, although these minimums may be less for some investors. Service organizations may provide the following services in connection with their customers' investments in a fund: o Acting, directly or through an agent, as the sole shareholder of record o Maintaining account records for customers o Processing orders to purchase, redeem or exchange shares for customers o Responding to inquiries from shareholders o Assisting customers with investment procedures ACCOUNT AND TRANSACTION POLICIES Business days and NAV calculations The funds' regular business days and hours are the same as those of the New York Stock Exchange (NYSE). Each fund calculates its net asset value per share (NAV) every business day as of the close of trading on the NYSE (normally 4:00 p.m. eastern time). The funds' securities are typically priced using market quotes or pricing services. When these methods are not available or do not represent a security's value at the time of pricing (e.g., when an event occurs after the close of trading that would materially impact a security's value), the security is valued in accordance with the fund's fair valuation procedures. Timing of orders Orders to buy or sell shares are executed at the next NAV calculated after the order has been accepted. Orders are accepted until the close of trading on the NYSE every business day and are executed the same day, at that day's NAV. A fund has the right to suspend redemption of shares as permitted by law and to postpone payment of proceeds for up to seven days. Timing of settlements When you buy shares, you will become the owner of record when a fund receives your payment, generally the day following execution. When you sell shares, cash proceeds are generally available the day following execution and will be forwarded according to your instructions. When you sell shares that you recently purchased by check, your order will be executed at the next NAV but the proceeds may not be available until your check clears. This may take up to 15 days. Redemption in kind Each fund reserves the right to make redemptions of over $250,000 in securities rather than in cash. Statements and reports You will receive from your service organization account statements and confirmation of each purchase or sale of shares. Every six months each fund sends out an annual or semi-annual report containing information on its holdings and a discussion of recent and anticipated market conditions and fund performance. Accounts with below-minimum balances If your account balance falls below the minimum for 30 days as a result of selling shares (and not because of performance), each fund reserves the right to request that you buy more shares or close your account. If your account balance is still below the minimum 60 days after notification, each fund reserves the right to close out your account and send the proceeds to the address of record. DIVIDENDS AND DISTRIBUTIONS Income dividends are typically paid four times a year for U.S. Equity and twice a year for the U.S. Small Company and U.S. Small Company Opportunities funds. Each fund typically makes capital gains distributions, if any, once a year. However, a fund may make more or fewer payments in a given year, depending on its investment results and tax compliance situation. Dividends and distributions consist of substantially all of the fund's net investment income and realized capital gains. Dividends and distributions are reinvested in additional fund shares. Alternatively, you may instruct your service organization to have them sent to you by check, credited to a separate account, or invested in another J.P. Morgan Advisor Fund. 9 | YOUR INVESTMENT - -------------------------------------------------------------------------------- TAX CONSIDERATIONS In general, selling shares for cash, exchanging shares, and receiving distributions (whether reinvested or taken in cash) are all taxable events. These transactions typically create the following tax liabilities for taxable accounts: - -------------------------------------------------------------------------------- Transaction Tax status - -------------------------------------------------------------------------------- Income dividends Ordinary income - -------------------------------------------------------------------------------- Short-term capital gains Ordinary income distributions - -------------------------------------------------------------------------------- Long-term capital gains Capital gains distributions - -------------------------------------------------------------------------------- Sales or exchanges of shares Capital gains or losses owned for more than one year - -------------------------------------------------------------------------------- Sales or exchanges of shares Gains are treated as ordinary owned for one year or less income; losses are subject to special rules - -------------------------------------------------------------------------------- Because long-term capital gains distributions are taxable as capital gains regardless of how long you have owned your shares, you may want to avoid making a substantial investment when a fund is about to declare a long-term capital gains distribution. Every January, each fund issues tax information on its distributions for the previous year. Any investor for whom a fund does not have a valid taxpayer identification number will be subject to backup withholding for taxes. The tax considerations described in this section do not apply to tax-deferred accounts or other non-taxable entities. Because each investor's tax circumstances are unique, please consult your tax professional about your fund investment. - -------------------------------------------------------------------------------- Transfer Agent Shareholder Services Agent State Street Bank and Trust Company Morgan Christiana Center P.O. Box 8411 J.P. Morgan Funds Services - 2/OPS3 Boston, MA 02266-8411 500 Stanton Christiana Road Attention: J.P. Morgan Funds Services Newark, DE 19713 1-800-766-7722 Representatives are available 8:00 a.m. to 6:00 p.m. eastern time on fund business days. YOUR INVESTMENT | 10 FUND DETAILS - -------------------------------------------------------------------------------- BUSINESS STRUCTURE As noted earlier, each fund is a series of J.P. Morgan Institutional Funds, a Massachusetts business trust, and is a "feeder" fund that invests in a master portfolio. (Except where indicated, this prospectus uses the term "the fund" to mean the feeder fund and its master portfolio taken together.) Each master portfolio accepts investments from other feeder funds, and all the feeders of a given master portfolio bear the master portfolio's expenses in proportion to their assets. However, each feeder can set its own transaction minimums, fund-specific expenses and other conditions. This means that one feeder could offer access to the same master portfolio on more attractive terms, or could experience better performance, than another feeder. Information about other feeders is available by calling 1-800-766-7722. Generally, when a master portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast its vote proportionately, as instructed by its shareholders. Fund shareholders are entitled to one full or fractional vote for each dollar or fraction of a dollar invested. Each fund and its master portfolio expect to maintain consistent goals, but if they do not, the fund will withdraw from the master portfolio, receiving its assets either in cash or securities. Each fund's trustees would then consider whether the fund should hire its own investment adviser, invest in a different master portfolio, or take other action. MANAGEMENT AND ADMINISTRATION The funds described in this prospectus and their corresponding master portfolios are governed by the same trustees. The trustees are responsible for overseeing all business activities. The trustees are assisted by Pierpont Group, Inc., which they own and operate on a cost basis; costs are shared by all funds governed by these trustees. Funds Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund officers. J.P. Morgan, as co-administrator, oversees each fund's other service providers. J.P. Morgan, subject to the expense reimbursements described earlier in this prospectus, receives the following fees for investment advisory and other services: - -------------------------------------------------------------------------------- Advisory services Percentage of the master portfolio's average net assets - -------------------------------------------------------------------------------- U.S. Equity 0.40% U.S. Small Company 0.60% U.S. Small Company Opportunities 0.60% - -------------------------------------------------------------------------------- Administrative services Master portfolio's and fund's pro- (fee shared with Funds rata portions of 0.09% of the Distributor, Inc.) first $7 billion of average net assets in J.P. Morgan-advised portfolios, plus 0.04% of average net assets over $7 billion - -------------------------------------------------------------------------------- Shareholder services 0.05% of the fund's average net assets - -------------------------------------------------------------------------------- Each fund has a service plan which allows it to pay service organizations up to 0.25% of the average net assets of the shares held in the name of the service organization. Each fund has adopted a plan under Rule 12b-1 that allows the fund to pay distribution fees up to 0.25% of the fund's average net assets for the sale and distribution of its shares. Because these fees are paid out of the fund's assets on an ongoing basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. J.P. Morgan may pay fees to certain firms and professionals for providing recordkeeping or other services in connection with investments in a fund. 11 | FUND DETAILS - -------------------------------------------------------------------------------- RISK AND REWARD ELEMENTS This table discusses the main elements that make up each fund's overall risk and reward characteristics. It also outlines each fund's policies toward various investments, including those that are designed to help certain funds manage risk.
- ----------------------------------------------------------------------------------------------------------------------------------- Potential risks Potential rewards Policies to balance risk and reward - ----------------------------------------------------------------------------------------------------------------------------------- Market conditions o Each fund's share price and o Stocks have generally outperformed o Under normal circumstances the funds plan to performance will fluctuate more stable investments (such remain fully invested, with at least 65% in in response to stock market as bonds and cash equivalents) stocks; stock investments may include U.S. and movements over the long term foreign common stocks, convertible securities, preferred stocks, trust or partnership o Adverse market conditions interests, warrants, rights, and investment may from time to time cause company securities a fund to take temporary defensive positions that are o The funds seek to limit risk through inconsistent with its principal diversification investment strategies and may hinder a fund from achieving o During severe market downturns, the funds have its investment objective the option of investing up to 100% of assets in investment-grade short-term securities - ----------------------------------------------------------------------------------------------------------------------------------- Management choices o A fund could underperform its o A fund could outperform o J.P. Morgan focuses its active management on benchmark due to its securities its benchmark due to these securities selection, the area where it believes and asset allocation choices same choices its commitment to research can most enhance returns - ----------------------------------------------------------------------------------------------------------------------------------- Foreign investments o Currency exchange rate movements o Favorable exchange rate movements o Each fund anticipates that its total foreign could reduce gains or create could generate gains or reduce investments will not exceed 20% of assets losses losses o Each fund actively manages the currency exposure o A fund could lose money because o Foreign investments, which represent of its foreign investments relative to its of foreign government actions, a major portion of the world's benchmark, and may hedge back into the U.S. political instability, or lack securities, offer attractive dollar from time to time (see also of adequate and accurate potential performance and "Derivatives") information opportunities for diversification - ----------------------------------------------------------------------------------------------------------------------------------- When-issued and delayed delivery securities o When a fund buys securities before o A fund can take advantage of o Each fund uses segregated accounts to offset issue or for delayed delivery, it attractive transaction leverage risk could be exposed to leverage opportunities risk if it does not use segregated accounts - ----------------------------------------------------------------------------------------------------------------------------------- Short-term trading o Increased trading would raise a o A fund could realize gains o The funds generally avoid short-term trading, a fund's brokerage and related in a short period of time except to take advantage of attractive or costs unexpected opportunities or to meet demands generated by shareholder activity. The turnover o Increased short-term capital o A fund could protect against rate for the portfolio in which each fund gains distributions would raise losses if a stock is overvalued invests for its most recent fiscal year end is shareholders' income tax liability and its value later falls as follows: U.S. Equity (104%), U.S. Small Company (73%) and U.S. Small Company Opportunities (49%) - -----------------------------------------------------------------------------------------------------------------------------------
FUND DETAILS | 12
- ----------------------------------------------------------------------------------------------------------------------------------- Potential risks Potential rewards Policies to balance risk and reward - ----------------------------------------------------------------------------------------------------------------------------------- Derivatives o Derivatives such as futures, options, o Hedges that correlate well with o The funds use derivatives for hedging and for swaps, and forward foreign currency underlying positions can reduce or risk management (i.e., to establish or adjust contracts that are used for hedging eliminate losses at low cost exposure to particular securities, markets or the portfolio or specific securities currencies); risk management may include may not fully offset the underlying o A fund could make money and protect management of a fund's exposure relative to its positions1 and this could result in against losses if management's benchmark (the U.S. Small Company Opportunities losses to the fund that would not have analysis proves correct Fund - Advisor Series is permitted to use otherwise occurred derivatives, however, it has no current o Derivatives that involve leverage intention to do so) o Derivatives used for risk management could generate substantial gains at may not have the intended effects and low cost o The funds only establish hedges that they expect may result in losses or missed will be highly correlated with underlying opportunities positions o The counterparty to a derivatives o While the funds may use derivatives that contract could default incidentally involve leverage, they do not use them for the specific purpose of leveraging o Derivatives that involve leverage their portfolios could magnify losses o Certain types of derivatives involve costs to the funds which can reduce returns - ----------------------------------------------------------------------------------------------------------------------------------- Securities lending o When a fund lends a security, there is o A fund may enhance income through o J.P. Morgan maintains a list of approved a risk that the loaned securities may the investment of the collateral borrowers not be returned if the borrower received from the borrower defaults o The fund receives collateral equal to at least 100% of the current value of securities loaned o The collateral will be subject to the risks of the securities in which it is o The lending agents indemnify a fund against invested borrower default o J.P. Morgan's collateral investment guidelines limit the quality and duration of collateral investment to minimize losses o Upon recall, the borrower must return the securities loaned within the normal settlement period - ----------------------------------------------------------------------------------------------------------------------------------- Illiquid holdings o A fund could have difficulty valuing o These holdings may offer more o No fund may invest more than 15% of net assets these holdings precisely attractive yields or potential in illiquid holdings growth than comparable widely o A fund could be unable to sell these traded securities o To maintain adequate liquidity to meet holdings at the time or price it redemptions, each fund may hold investment-grade desires short-term securities (including repurchase agreements and reverse repurchase agreements) and, for temporary or extraordinary purposes, may borrow from banks up to 33 1/3% of the value of its total assets - -----------------------------------------------------------------------------------------------------------------------------------
(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 pre-determined price. A swap is a privately negotiated agreement to exchange one stream of payments for another. A forward foreign currency contract is an obligation to buy or sell a given currency on a future date and at a set price. 13 | FUND DETAILS - -------------------------------------------------------------------------------- FOR MORE INFORMATION - -------------------------------------------------------------------------------- For investors who want more information on these funds, the following documents are available free upon request: Annual/Semi-annual Reports Contain financial statements, performance data, information on portfolio holdings, and a written analysis of market conditions and fund performance for a fund's most recently completed fiscal year or half-year. Statement of Additional Information (SAI) Provides a fuller technical and legal description of a fund's policies, investment restrictions, and business structure. This prospectus incorporates each fund's SAI by reference. Copies of the current versions of these documents, along with other information about the funds, may be obtained by contacting: J.P. Morgan Institutional Funds Morgan Christiana Center J.P. Morgan Funds Services - 2/OPS3 500 Stanton Christiana Road Newark, DE 19713 Telephone: 1-800-766-7722 Hearing impaired: 1-888-468-4015 Email: JPM_Mutual_Funds@JPMorgan.com Text-only versions of these documents and this prospectus are available, upon payment of a duplicating fee, from the Public Reference Room of the Securities and Exchange Commission in Washington, D.C. (1-202-942-8090) and may be viewed on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. Each fund's investment company and 1933 Act registration numbers are: J.P. Morgan U.S. Equity Fund - Advisor Series ................................ 811-07342 and 033-54642 J.P. Morgan U.S. Small Company Fund - Advisor Series ......................... 811-07342 and 033-54642 J.P. Morgan U.S. Small Company Opportunities Fund - Advisor Series ........... 811-07342 and 033-54642
J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION The J.P. Morgan Institutional Funds combine a heritage of integrity and financial leadership with comprehensive, sophisticated analysis and management techniques. Drawing on J.P. Morgan's extensive experience and depth as an investment manager, the J.P. Morgan Institutional Funds offer a broad array of distinctive opportunities for mutual fund investors. JPMorgan - -------------------------------------------------------------------------------- J.P. Morgan Institutional Funds Advisor Distributor J.P. Morgan Investment Management Inc. Funds Distributor, Inc. 522 Fifth Avenue 60 State Street New York, NY 10036 Boston, MA 02109 1-800-766-7722 1-800-221-7930 IMPR32 EX-99.17(E) 6 a2043521zex-99_17e.txt EXHIBIT 99.17(E) J.P. MORGAN INSTITUTIONAL FUNDS J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES J.P. MORGAN U.S. SMALL COMPANY FUND - ADVISOR SERIES J.P. MORGAN U.S. SMALL COMPANY OPPORTUNITIES FUND - ADVISOR SERIES STATEMENT OF ADDITIONAL INFORMATION AUGUST 1, 2000 THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS DATED AUGUST 1, 2000 FOR EACH OF THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO TIME. THE PROSPECTUS FOR THE FUNDS IDENTIFIED ABOVE, INCLUDING THE INDEPENDENT ACCOUNTANTS REPORT ON THE ANNUAL FINANCIAL STATEMENTS OF EACH FUND'S MASTER PORTFOLIO ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930. Table of Contents Page General................................. 1 Investment Objectives and Policies...... 1 Investment Restrictions................. 21 Trustees and Advisory Board............. 23 Officers................................ 26 Code of Ethics.......................... 28 Investment Advisor...................... 28 Distributor............................. 30 Co-Administrator........................ 31 Services Agent.......................... 32 Custodian and Transfer Agent............ 32 Shareholder Servicing................... 33 Service Organizations.................... 33 Distribution Plan....................... 34 Independent Accountants................. 35 Expenses................................ 35 Purchase of Shares...................... 36 Redemption of Shares.................... 37 Exchange of Shares...................... 38 Dividends and Distributions............. 38 Net Asset Value......................... 38 Performance Data........................ 40 Portfolio Transactions.................. 41 Massachusetts Trust..................... 43 Description of Shares................... 44 Special Information Concerning Investment Structure............................... 45 Taxes................................... 47 Additional Information.................. 50 Financial Statements.................... 51 Appendix A - Description of Securities Ratings...................... A-1 GENERAL This Statement of Additional Information relates only to J.P. Morgan U.S. Equity Fund - Advisor Series, J.P. Morgan U.S. Small Company Fund - Advisor Series and J.P. Morgan U.S. Small Company Opportunities Fund - Advisor Series (collectively, the "Funds"). Each of the Funds is a series of shares of beneficial interest of J.P. Morgan Institutional Funds, an open-end management investment company formed as a Massachusetts business trust (the "Trust"). In addition to the Funds, the Trust consists of other series representing separate investment funds (each a "J.P. Morgan Institutional Fund"). The other J.P. Morgan Institutional Funds are covered by separate Statements of Additional Information. This Statement of Additional Information describes the financial history, investment objectives and policies, management and operation of each of the Funds in order to enable investors to select the Fund or Funds which best suit their needs. The Funds operate through a two-tier master-feeder investment fund structure. This Statement of Additional Information provides additional information with respect to the Funds and should be read in conjunction with the relevant Fund's current Prospectus (the "Prospectus"). Capitalized terms not otherwise defined herein have the meanings accorded to them in the Prospectus. The Funds' executive offices are located at 60 State Street, Suite 1300, Boston, Massachusetts 02109. Unlike other mutual funds which directly acquire and manage their own portfolio of securities, the Funds seek to achieve their investment objectives by investing all of their investable assets in separate Master Portfolios (each a "Portfolio"), a corresponding diversified open-end management investment company having the same investment objective as the corresponding Fund. Each Fund invests in a Portfolio through a two-tier master-feeder investment fund structure. See "Special Information Concerning Investment Structure." The Portfolios are advised by J.P. Morgan Investment Management Inc. ("JPMIM" or the "Advisor"). Investments in the Funds are not deposits or obligations of, or guaranteed or endorsed by any bank. Shares of the Funds are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other governmental agency. An investment in a Fund is subject to risk that may cause the value of the investment to fluctuate, and when the investment is redeemed, the value may be higher or lower than the amount originally invested by the investor. INVESTMENT OBJECTIVES AND POLICIES The following discussion supplements the information regarding the investment objective of each Fund and the policies to be employed to achieve this objective by its corresponding Portfolio as set forth above and in the Prospectus. The investment objective of each Fund and its corresponding Portfolio is identical. Accordingly, references below to a Fund also include the Fund's corresponding Portfolio; similarly, references to a Portfolio also include the corresponding Fund that invests in the Portfolio unless the context requires otherwise. J.P. Morgan U.S. Equity Fund - Advisor Series (the "U.S. Equity Fund") is designed for investors who want an actively managed portfolio of selected equity securities that seeks to outperform the S&P 500 Index. The U.S. Equity Fund's investment objective is to provide a high total return from a portfolio of selected equity securities. This investment objective can be changed without shareholder approval. The U.S. Equity Fund attempts to achieve its investment objective by investing all of its investable assets in The U.S. Equity Portfolio, a diversified open-end management investment company having the same investment objective as the U.S. Equity Fund. In normal circumstances, at least 65% of the U.S. Equity Fund's net assets will be invested in equity securities consisting of U.S. and foreign common stocks and other securities with equity characteristics comprised of preferred stock, warrants, rights, convertible securities, depository receipts (such as ADRs and EDRs) trust certifications, limited partnership interests and investment company securities (collectively, "Equity Securities"). The U.S. Equity Fund's primary equity investments are the common stock of large capitalization U.S. corporations and, to a limited extent, similar securities of foreign corporations. Investment Process for The U.S. Equity Fund Research: The Advisor's more than 20 domestic equity analysts, each an industry specialist with an average of over 10 years of experience, follow approximately 700 predominantly large- and medium-sized U.S. companies -- approximately 500 of which form the universe for the U.S. Equity Fund's investments. Their research goal is to forecast normalized, longer term earnings and dividends for the companies that they cover. In doing this, they may work in concert with the Advisor's international equity analysts in order to gain a broader perspective for evaluating industries and companies in today's global economy. Valuation: The analysts' forecasts are converted into comparable expected returns using a proprietary dividend discount model, which calculates the long-term earnings by comparing a company's current stock price with its forecasted dividends and earnings. Within each sector, companies are ranked according to their relative value and grouped into quintiles: those with the highest expected returns (Quintile 1) are deemed the most undervalued relative to their long-term earnings power, while those with the lowest expected returns (Quintile 5) are deemed the most overvalued. Stock Selection: A diversified portfolio is constructed using disciplined buy and sell rules. Purchases are concentrated among first-quintile stocks; the specific names selected reflect the portfolio manager's judgment concerning the soundness of the underlying forecasts, the likelihood that the perceived misvaluation will be corrected within a reasonable time frame, and the magnitude of the risks versus the rewards. Once a stock falls into the third quintile -- because its price has risen or its fundamentals have deteriorated -- it generally becomes a candidate for sale. The portfolio manager seeks to hold sector weightings close to those of the S&P 500 Index, the U.S. Equity Fund's benchmark. J.P. Morgan U.S. Small Company Fund - Advisor Series (the "U.S. Small Company Fund") is designed for investors who are willing to assume the somewhat higher risk of investing in small companies in order to seek a higher return over time than might be expected from a portfolio of stocks of large companies. The U.S. Small Company Fund's investment objective is to provide high total return from a portfolio of small company stocks. This investment objective can be changed without shareholder approval. The U.S. Small Company Fund attempts to achieve its investment objective by investing all of its investable assets in The U.S. Small Company Portfolio, a diversified open-end management investment company having the same investment objective as the U.S. Small Company Fund. The U.S. Small Company Fund attempts to achieve its investment objective by investing primarily in the common stock of small sized U.S. companies that are included in the Russell 2000 Index, which is composed of 2,000 common stocks of U.S. small-cap companies with market capitalizations ranging from $100 million to $2 billion. Investment Process for The U.S. Small Company Fund - Advisor Series Research: The Advisor's more than 20 domestic equity analysts, each an industry specialist with an average of over 10 years of experience, continuously monitor the small cap stocks in their respective sectors with the aim of identifying companies that exhibit superior financial strength and operating returns. Meetings with management and on-site visits play a key role in shaping their assessments. Their research goal is to forecast normalized, long-term earnings and dividends for the most attractive small cap companies among those they monitor -- a universe that contains a total of approximately 600 names. Because the Advisor's analysts follow both the larger and smaller companies in their industries -- in essence, covering their industries from top to bottom -- they are able to bring broad perspective to the research they do on both. Valuation: The analysts' forecasts are converted into comparable expected returns using a proprietary dividend discount model, which calculates the long-term earnings by comparing a company's current stock price with the its forecasted dividends and earnings. Within each industry, companies are ranked according to their relative value and grouped into quintiles: those with the highest expected returns (Quintile 1) are deemed the most undervalued relative to their long-term earnings power, while those with the lowest expected returns (Quintile 5) are deemed the most overvalued. Stock Selection: A diversified portfolio is constructed using disciplined buy and sell rules. Purchases are concentrated among the stocks in the top two quintiles of the rankings; the specific names selected reflect the portfolio manager's judgment concerning the soundness of the underlying forecasts, the likelihood that the perceived misvaluation will soon be corrected, and the magnitude of the risks versus the rewards. Once a stock falls into the third quintile -- because its price has risen or its fundamentals have deteriorated -- it generally becomes a candidate for sale. The portfolio manager seeks to hold sector weightings close to those of the Russell 2000 Index, the U.S. Small Company Fund's benchmark. J.P. Morgan U.S. Small Company Opportunities Fund - Advisor Series (the "U.S. Small Company Opportunities Fund") is designed for investors seeking an actively managed portfolio of equity securities of companies with high growth potential, emphasizing growth sectors of the market without undue emphasis on a specific sector and encompassing a higher degree of risk than some small company stock portfolios. The U.S. Small Company Opportunities Fund's investment objective is to provide long-term growth from a portfolio of small company growth stocks. This investment objective can be changed without shareholder approval. The U.S. Small Company Opportunities Fund attempts to achieve its investment objective by investing all of its investable assets in The U.S. Small Company Opportunities Portfolio, a diversified open-end management investment company having the same investment objective as the U.S. Small Company Opportunities Fund. The U.S. Small Company Opportunities Fund attempts to achieve its investment objective by investing in a diversified portfolio of common stocks issued by small companies with above average long-term earnings growth potential that are included in the Russell 2000 Growth Index, an index composed of 2000 equity securities of companies with market capitalizations ranging from $150 billion to $2 billion. The U.S. Small Company Opportunities Fund emphasizes stocks of U.S. small companies with market capitalizations of less than $1.25 billion when purchased. Investment Process for The U.S. Small Company Opportunities Fund - Advisor Series Research: The Advisor's more than 20 domestic equity analysts, each an industry specialist with an average of over 10 years of experience, continuously monitor stocks in the small company universe with the aim of identifying companies that participate in expanding markets or have a competitive advantage that is sustainable over the long term, exhibit superior potential, sound financial and operating characteristics and can be purchased at a reasonable price. Frequent reviews of individual companies focus on the forecasted growth and profitability inputs to the proprietary valuation analyses. The research goal is to forecast normalized, long-term earnings and dividends for the most attractive small capitalization growth companies among those they monitor. Valuation: The analysts' forecasts are converted into comparable expected returns using a proprietary dividend discount model, which calculates the long-term earnings by comparing a company's current stock price with its forecasted dividends and earnings. Within each industry, companies are ranked according to their relative value and grouped into quintiles: those with the highest expected returns (Quintile 1) are deemed the most undervalued relative to their long-term earnings power, while those with the lowest expected returns (Quintile 5) are deemed the most overvalued. Stock Selection: A diversified portfolio is constructed using disciplined buy and sell rules. Purchases are concentrated among the stocks in the top two quintiles of the rankings; the specific names selected reflect the portfolio manager's judgment concerning the soundness of the underlying forecasts, the likelihood that the perceived misevaluation will soon be corrected, and the magnitude of the risks versus the rewards. Once a stock falls into the third quintile -- because its price has risen or its fundamentals have deteriorated -- it generally becomes a candidate for sale. While the U.S. Small Company Opportunities Fund holds stocks in many industries to reduce the impact of poor performance in any one sector, it tends to emphasize industries with higher growth potential and does not track the sector weightings of the overall small company stock market. The various types of securities in which the Funds may invest are described below. Equity Investments The Funds invest primarily in Equity Securities. The Equity Securities in which the Funds invest include those listed on any domestic or foreign securities exchange or traded in the over-the-counter (OTC) market as well as certain restricted or unlisted securities. Equity Securities. The Equity Securities in which the Funds may invest may or may not pay dividends and may or may not carry voting rights. Common stock occupies the most junior position in a company's capital structure. The convertible securities in which the Funds may invest include any debt securities or preferred stock which may be converted into common stock or which carry the right to purchase common stock. 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 company's 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. Common Stock Warrants The Funds may invest in common stock warrants that entitle the holder to buy common stock from the issuer of the warrant at a specific price (the strike price) for 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. As a result, warrants may be more volatile investments than the underlying common stock. Warrants 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. A warrant will expire worthless if it is not exercised on or prior to the expiration date. Foreign Investments The Funds may invest in certain foreign securities. The Funds do not expect to invest more than 20% of their respective total assets, at the time of purchase, in securities of foreign issuers. This 20% limit is designed to accommodate the increased globalization of companies as well as the re-domiciling of companies for tax treatment purposes. It is not currently expected to be used to increase direct non-U.S. exposure. Investors should realize that the value of the Funds' investments in foreign securities may be adversely affected by changes in political or social conditions, diplomatic relations, confiscatory taxation, expropriation, nationalization, limitation on the removal of funds or assets, or imposition of (or change in) exchange control or tax regulations in those foreign countries. In addition, changes in government administrations or economic or monetary policies in the United States or abroad could result in appreciation or depreciation of portfolio securities and could favorably or unfavorably affect the Funds' operations. Furthermore, the economies of individual foreign nations may differ from the U.S. economy, whether favorably or unfavorably, in areas such as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position; it may also be more difficult to obtain and enforce a judgment against a foreign issuer. Any foreign investments made by the Funds must be made in compliance with U.S. and foreign currency restrictions and tax laws restricting the amounts and types of foreign investments. 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 security exchanges. Accordingly, a Fund's 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 portfolio 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. Foreign investments may be made directly in securities of foreign issuers or in the form of American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other similar securities of foreign issuers. ADRs are securities, typically issued by a U.S. financial institution (a "depository"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depository. ADRs include American Depository Shares and New York Shares. EDRs are receipts issued by a European financial institution. GDRs, which are sometimes referred to as Continental Depository Receipts ("CDRs"), are securities, typically issued by a non-U.S. financial institution, that evidence ownership interests in a security or a pool of securities issued by either a U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for investment through "sponsored" or "unsponsored" facilities. A sponsored facility is established jointly by the issuer of the security underlying the receipt and a depository, whereas an unsponsored facility may be established by a depository without participation by the issuer of the receipt's underlying security. Holders of an unsponsored depository receipt generally bear all costs of the unsponsored facility. The depository of an unsponsored facility frequently is under no obligation to distribute shareholder communications received from the issuer of the deposited security or to pass through to the holders of the receipts voting rights with respect to the deposited securities. Since investments in foreign securities may involve foreign currencies, the value of a Fund's assets as measured in U.S. dollars may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations, including currency blockage. The Funds may enter into forward commitments for the purchase or sale of foreign currencies in connection with the settlement of foreign securities transactions or to manage the Funds' currency exposure related to foreign investments. Foreign Currency Exchange Transactions Because each Fund may buy and sell securities and receive interest and dividends in currencies other than the U.S. dollar, a Fund may enter from time to time into foreign currency exchange transactions. Each Fund either enters into these transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market or uses forward contracts to purchase or sell foreign currencies. The cost of a Fund's spot currency exchange transactions is generally the difference between the bid and offer spot rate of the currency being purchased or sold. A forward foreign currency exchange contract is an obligation by the Fund to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract. Forward foreign currency exchange contracts establish an exchange rate at a future date. These contracts are derivative instruments, as their value derives from the spot exchange rates of the currencies underlying the contract. These contracts are entered into in the interbank market directly between currency traders (usually large commercial banks) and their customers. A forward foreign currency exchange contract generally has no deposit requirement and is traded at a net price without commission. Neither spot transactions nor forward foreign currency exchange contracts eliminate fluctuations in the prices of a Fund's securities or in foreign exchange rates, or prevent loss if the prices of these securities should decline. Each Fund may enter into foreign currency exchange transactions in an attempt to protect against changes in foreign currency exchange rates between the trade and settlement dates of specific securities transactions or anticipated securities transactions. Each Fund may also enter into forward contracts to hedge against a change in foreign currency exchange rates that would cause a decline in the value of existing investments denominated or principally traded in a foreign currency. To do this, a Fund would enter into a forward contract to sell the foreign currency in which the investment is denominated or principally traded in exchange for U.S. dollars or in exchange for another foreign currency. The Funds will only enter into forward contracts to sell a foreign currency in exchange for another foreign currency if the Advisor expects the foreign currency purchased to appreciate against the U.S. dollar. Although these transactions are intended to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time they limit any potential gain that might be realized should the value of the hedged currency increase. In addition, forward contracts that convert a foreign currency into another foreign currency will cause a Fund to assume the risk of fluctuations in the value of the currency purchased vis a vis the hedged currency and the U.S. dollar. The precise matching of the forward contract amounts and the value of the securities involved will not generally be possible because the future value of such securities in foreign currencies will change as a consequence of market movements in the value of such securities between the date the forward contract is entered into and the date it matures. The projection of currency market movements is extremely difficult, and the successful execution of a hedging strategy is highly uncertain. Additional Investments When-Issued and Delayed Delivery Securities. Each of the Funds may purchase securities on a when-issued or delayed delivery basis. For example, delivery of and payment for these securities can take place a month or more after the date of the purchase commitment. The purchase price and the interest rate payable, if any, on the securities are fixed on the purchase commitment date or at the time the settlement date is fixed. The value of such securities is subject to market fluctuation and for money market instruments and other fixed income securities no interest accrues to a Fund until settlement takes place. At the time a Fund makes the commitment to purchase securities on a when-issued or delayed delivery basis, it will record the transaction, reflect the value each day of such securities in determining its net asset value, and calculate the maturity for the purposes of average maturity from that date. At the time of settlement a when-issued security may be valued at less than the purchase price. To facilitate such acquisitions, each Fund will maintain with the custodian a segregated account with liquid assets, consisting of cash, U.S. Government securities or other appropriate securities, in an amount at least equal to such commitments. On delivery dates for such transactions, each Fund will meet its obligations from maturities or sales of the securities held in the segregated account and/or from cash flow. If a Fund chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other portfolio obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be disadvantaged if the other party to the transaction defaults. Investment Company Securities. Securities of other investment companies may be acquired by each of the Funds and their corresponding Portfolios to the extent permitted under the 1940 Act. These limits require that, as determined immediately after a purchase is made, (i) not more than 5% of the value of a Fund's total assets will be invested in the securities of any one investment company, (ii) not more than 10% of the value of its total assets will be invested in the aggregate in securities of investment companies as a group, and (iii) not more than 3% of the outstanding voting stock of any one investment company will be owned by a Fund, provided however, that a Fund may invest all of its investable assets in an open-end investment company that has the same investment objective as the Fund (its corresponding Portfolio). As a shareholder of another investment company, a Fund or Portfolio would bear, along with other shareholders, its pro rata portion of the other investment company's expenses, including advisory fees. These expenses would be in addition to the advisory and other expenses that a Fund or Portfolio bears directly in connection with its own operations. The Securities and Exchange Commission ("SEC") has granted the Portfolios an exemptive order permitting it to invest its uninvested cash in any of the following affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The order sets the following conditions: (1) the Portfolio may invest in one or more of the permitted money market funds up to an aggregate limit of 25% of its assets; and (2) the Advisor will waive and/or reimburse its advisory fee from the Portfolio in an amount sufficient to offset any doubling up of investment advisory and shareholder servicing fees. The Fund has applied for additional exemptive relief from the SEC to permit the Fund to invest in additional affiliated investment companies. If the requested relief is granted, the Portfolio would then be permitted to invest in non-money market affiliated funds, subject to certain conditions specified in the applicable order. Reverse Repurchase Agreements. Each of the Funds may enter into reverse repurchase agreements. In a reverse repurchase agreement, a Fund sells a security and agrees to repurchase the same security at a mutually agreed upon date and price reflecting the interest rate effective for the term of the agreement. For purposes of the 1940 Act a reverse repurchase agreement is also considered as the borrowing of money by the Fund and, therefore, a form of leverage. Leverage may cause any gains or losses for a Fund to be magnified. The Funds will invest the proceeds of borrowings under reverse repurchase agreements. In addition, except for liquidity purposes, a Fund will enter into a reverse repurchase agreement only when the expected return from the investment of the proceeds is greater than the expense of the transaction. A Fund will not invest the proceeds of a reverse repurchase agreement for a period, which exceeds the duration of the reverse repurchase agreement. Each Fund will establish and maintain with the custodian a separate account with a segregated portfolio of securities in an amount at least equal to its purchase obligations under its reverse repurchase agreements. See "Investment Restrictions" for each Fund's limitations on reverse repurchase agreements and bank borrowings. Loans of Portfolio Securities. Each Fund is permitted to lend its securities in an amount up to 331/3% of the value of such Fund's net assets. Each of the Funds may lend its securities if such loans are secured continuously by cash or equivalent collateral or by a letter of credit in favor of the Fund at least equal at all times to 100% of the market value of the securities loaned, plus accrued interest. While such securities are on loan, the borrower will pay the Fund any income accruing thereon. Loans will be subject to termination by the Funds in the normal settlement time, generally three business days after notice, or by the borrower on one day's notice. Borrowed securities must be returned when the loan is terminated. Any gain or loss in the market price of the borrowed securities, which occurs during the term of the loan, inures to a Fund and its respective investors. The Funds may pay reasonable finders' and custodial fees in connection with a loan. In addition, a Fund will consider all facts and circumstances before entering into such an agreement, including the creditworthiness of the borrowing financial institution, and no Fund will make any loans in excess of one year. The Funds will not lend their securities to any officer, Trustee, Member of the Advisory Board, Director, employee or other affiliate of the Funds, the Advisor or the Distributor, unless otherwise permitted by applicable law. All forms of borrowing (including reverse repurchase agreements, securities lending and mortgage dollar rolls) are limited in the aggregate and may not exceed 33-1/3% of the fund's total assets. Illiquid Investments; Privately Placed and Other Unregistered Securities. No Fund may acquire any illiquid securities if, as a result thereof, more than 15% of its net assets would be in illiquid investments. Subject to this non-fundamental policy limitation, each Fund may acquire investments that are illiquid or have limited liquidity, such as private placements or investments that are not registered under the Securities Act of 1933, as amended (the "1933 Act"), and cannot be offered for public sale in the United States without first being registered under the 1933 Act. An illiquid investment is any investment that cannot be disposed of within seven days in the normal course of business at approximately the amount at which it is valued by 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. Each Fund may also purchase Rule 144A securities sold to institutional investors without registration under the 1933 Act. These securities may be determined to be liquid in accordance with guidelines established by the Advisor and approved by the Trustees. The Trustees will monitor the Advisor's implementation of these guidelines on a periodic basis. As to illiquid investments, a Fund is subject to a risk that should a Fund decide to sell them when a ready buyer is not available at a price the Fund deems representative of their value, the value of the Fund's net assets could be adversely affected. Where an illiquid security must be registered under the 1933 Act, before it may be sold, a Fund may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the time of the decision to sell and the time a 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. Money Market Instruments Although the Funds intend, under normal circumstances and to the extent practicable, to be fully invested in equity securities, each Fund may invest in money market instruments to the extent consistent with its respective investment objective and policies. The Funds may make money market investments pending other investment or settlement, for liquidity or in adverse market conditions. A description of the various types of money market instruments that may be purchased by the Funds appears below. Also see "Quality and Diversification Requirements." U.S. Treasury Securities. Each of the Funds may invest in direct obligations of the U.S. Treasury, including Treasury bills, notes and bonds, all of which are backed as to principal and interest payments by the full faith and credit of the United States. Additional U.S. Government Obligations. Each of the Funds may invest in obligations issued or guaranteed by U.S. Government agencies or instrumentalities. These obligations may or may not be backed by the "full faith and credit" of the United States. Securities which are backed by the full faith and credit of the United States include obligations of the Government National Mortgage Association, the Farmers Home Administration, and the export-import Bank. In the case of securities not backed by the full faith and credit of the United States, each Fund must look principally to the federal agency issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States itself in the event the agency or instrumentality does not meet its commitments. Securities in which each Fund may invest that are not backed by the full faith and credit of the United States include, but are not limited to: (i) obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Banks and the U.S. Postal Service, each of which has the right to borrow from the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal National Mortgage Association, which are supported by the discretionary authority of the U.S. Government to purchase the agency's obligations; and (iii) obligations of the Federal Farm Credit System and the Student Loan Marketing Association, each of whose obligations may be satisfied only by the individual credits of the issuing agency. Foreign Government Obligations. Each of the Funds, subject to its applicable investment policies, may also invest in short-term obligations of foreign sovereign governments or of their agencies, instrumentalities, authorities or political subdivisions. These securities may be denominated in the U.S. dollar or in another currency. See "Foreign Investments." Bank Obligations. Each of the Funds may invest in negotiable certificates of deposit, time deposits and bankers' acceptances of (i) banks, savings and loan associations and savings banks which have more than $2 billion in total assets (the "Asset Limitation") and are organized under the laws of the United States or any state, (ii) foreign branches of these banks or of foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign banks of equivalent size (Yankees). See "Foreign Investments." The Funds will not invest in obligations for which the Advisor, or any of its affiliated persons, is the ultimate obligor or accepting bank. Each of the Funds may also invest in obligations of international banking institutions designated or supported by national governments to promote economic reconstruction, development or trade between nations (e.g., the European Investment Bank, the Inter-American Development Bank, or the World Bank). Commercial Paper. Each of the Funds may invest in commercial paper, including master demand obligations. Master demand obligations are obligations that provide for a periodic adjustment in the interest rate paid and permit daily changes in the amount borrowed. Master demand obligations are governed by agreements between the issuer and Morgan Guaranty Trust Company of New York ("Morgan"), an affiliate of the Advisor, acting as agent, for no additional fee. The monies loaned to the borrower come from accounts managed by Morgan or its affiliates, pursuant to arrangements with such accounts. Interest and principal payments are credited to such accounts. Morgan, an affiliate of the Advisor, has the right to increase or decrease the amount provided to the borrower under an obligation. The borrower has the right to pay without penalty all or any part of the principal amount then outstanding on an obligation together with interest to the date of payment. Since these obligations typically provide that the interest rate is tied to the Federal Reserve commercial paper composite rate, the rate on master demand obligations is subject to change. Repayment of a master demand obligation to participating accounts depends on the ability of the borrower to pay the accrued interest and principal of the obligation on demand which is continuously monitored by Morgan. Since master demand obligations typically are not rated by credit rating agencies, the Funds may invest in such unrated obligations only if at the time of an investment the obligation is determined by the Advisor to have a credit quality which satisfies the Fund's quality restrictions. See "Quality and Diversification Requirements." It is possible that the issuer of a master demand obligation could be a client of Morgan, to whom Morgan, an affiliate of the Advisor, in its capacity as a commercial bank, has made a loan. Repurchase Agreements. Each of the Funds may enter into repurchase agreements with brokers, dealers or banks that meet the Advisor's credit guidelines. In a repurchase agreement, a Fund buys a security from a seller that has agreed to repurchase the same security at a mutually agreed upon date and price. The resale price normally is in excess of the purchase price, reflecting an agreed upon interest rate. This interest rate is effective for the period of time the Fund is invested in the agreement and is not related to the coupon rate on the underlying security. A repurchase agreement may also be viewed as a fully collateralized loan of money by a Fund to the seller. The period of these repurchase agreements will usually be short, from overnight to one week, and at no time will the Funds invest in repurchase agreements for more than thirteen months. The securities which are subject to repurchase agreements, however, may have maturity dates in excess of thirteen months from the effective date of the repurchase agreement. The Funds will always receive securities as collateral whose market value is, and during the entire term of the agreement remains, at least equal to 100% of the dollar amount invested by the Funds in each agreement plus accrued interest, and the Funds will make payment for such securities only upon physical delivery or upon evidence of book entry transfer to the account of the custodian. If the seller defaults, a Fund might incur a loss if the value of the collateral securing the repurchase agreement declines and might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon disposal of the collateral by a Fund may be delayed or limited. Each of the Funds may make investments in other debt securities with remaining effective maturities of not more than thirteen months, including without limitation corporate and foreign bonds, asset-backed securities and other obligations described in this Statement of Additional Information. Quality and Diversification Requirements Each of the Funds intends to meet the diversification requirements of the 1940 Act. To meet these requirements, 75% of the assets of each Fund is subject to the following fundamental limitations: (1) a Fund may not invest more than 5% of its total assets in the securities of any one issuer, except obligations of the U.S. Government, its agencies and instrumentalities, and (2) a Fund may not own more than 10% of the outstanding voting securities of any one issuer. As for the other 25% of a Fund's assets not subject to the limitation described above, there is no limitation on investment of these assets under the 1940 Act, so that all of such assets may be invested in securities of any one issuer. Investments not subject to the limitations described above could involve an increased risk to a Fund should an issuer, or a state or its related entities, be unable to make interest or principal payments or should the market value of such securities decline. The Funds will also comply with the diversification requirements imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a regulated investment company. See "Taxes." The Funds may invest in convertible debt securities, for which there are no specific quality requirements. In addition, at the time a Fund invests in any commercial paper, bank obligation or repurchase agreement, the issuer must have outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's parent corporation, if any, must have outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the investment must be of comparable quality in the Advisor's opinion. At the time a Fund invests in any other short-term debt securities, they must be rated A or higher by Moody's or Standard & Poor's, or if unrated, the investment must be of comparable quality in the Advisor's opinion. In determining suitability of investment in a particular unrated security, the Advisor takes into consideration asset and debt service coverage, the purpose of the financing, history of the issuer, existence of other rated securities of the issuer, and other relevant conditions, such as comparability to other issuers. Options and Futures Transactions Each of the Funds may (a) purchase and sell exchange traded and over-the-counter (OTC) put and call options on equity securities or indexes of equity securities, (b) purchase and sell futures contracts on indexes of equity securities and (c) purchase and sell put and call options on futures contracts on indexes of equity securities. Each of these instruments is a derivative instrument as its value derives from the underlying asset or index. Each Fund may utilize options and futures contracts to manage its exposure to changing interest rates and/or security prices. Some options and futures strategies, including selling futures contracts and buying puts, tend to hedge a Fund's investments against price fluctuations. Other strategies, including buying futures contracts, writing puts and calls, and buying calls, tend to increase market exposure. Options and futures contracts may be combined with each other or with forward contracts in order to adjust the risk and return characteristics of a Fund's overall strategy in a manner deemed appropriate to the Advisor and consistent with a Fund's objective and policies. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. The use of options and futures is a highly specialized activity which involves investment strategies and risks different from those associated with ordinary portfolio securities transactions, and there can be no guarantee that their use will increase a Fund's 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 the Advisor applies a strategy at an inappropriate time or judges market conditions or trends incorrectly, options and futures strategies may lower a Fund's return. Certain strategies limit a Fund's possibilities to realize gains as well as limiting its exposure to losses. A Fund could also experience losses if the prices of its options and futures positions were poorly correlated with its other investments, or if it could not close out its positions because of an illiquid secondary market. In addition, a Fund will incur transaction costs, including trading commissions and option premiums, in connection with its futures and options transactions and these transactions could significantly increase a Fund's turnover rate. Each Fund may purchase put and call options on securities, indexes of securities and futures contracts, or purchase and sell futures contracts, only if such options are written by other persons and if (i) the aggregate premiums paid on all such options which are held at any time do not exceed 20% of a Fund's net assets, and (ii) the aggregate margin deposits required on all such futures or options thereon held at any time do not exceed 5% of a Fund's total assets. Options 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 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 price 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 option's strike price. A call buyer typically attempts to participate in potential price increases of the instrument underlying the option with risk limited to the cost of the option if security prices fall. At the same time, the buyer can expect to suffer a loss if security prices do not rise sufficiently to offset the cost of the option. Selling (Writing) Put and Call Options. When a Fund writes a put option, it takes the opposite side of the transaction from the option's purchaser. In return for 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, a Fund must continue to be prepared to pay the strike price while the option is outstanding, regardless of price changes, and must continue to post margin as discussed below. If the price of the underlying instrument rises, a put writer would generally expect to profit, although its gain would be limited to the amount of the premium it received. If security prices remain the same over time, it is likely that the writer will also profit, because it should be able to close out the option at a lower price. If security prices fall, the put writer would expect to suffer a loss. This loss should be less than the loss from purchasing and holding the underlying instrument directly, however, because the premium received for writing the option should offset a portion of the decline. Writing a call option obligates a Fund to sell or deliver the option's underlying instrument in return for the strike price upon exercise of the option. The characteristics of writing call options are similar to those of writing put options, except that writing calls generally is a profitable strategy if prices remain the same or fall. Through receipt of the option premium a call writer offsets part of the effect of a price decline. At the same time, because a call writer must be prepared to deliver the underlying instrument in return for the strike price, even if its current value is greater, a call writer gives up some ability to participate in security price increases. The writer of an exchange traded put or call option on a security, an index of securities or a futures contract is required to deposit cash or securities or a letter of credit as margin and to make mark to market payments of variation margin as the position becomes unprofitable. Options on Indexes. 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 Fund's 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, it will be relying on its counterparty to perform its obligations, and a Fund may incur additional losses if the counterparty is unable to perform. Exchange Traded and OTC Options. All options purchased or sold by the Funds will be traded on a securities exchange or will be purchased or sold by securities dealers (OTC options) that meet the Advisor's creditworthiness standards. 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 the 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 and Options on Futures Contracts. The Funds may purchase or sell (write) futures contracts and purchase or sell put and call options, including put and call options on futures contracts. Futures contracts obligate the buyer to take and the seller to make delivery at a future date of a specified quantity of a financial instrument or an amount of cash based on the value of a securities index. Currently, futures contracts are available on various types of fixed income securities, including but not limited to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and on indexes of fixed income securities and indexes of equity securities. Unlike a futures contract, which requires the parties to buy and sell a security or make a cash settlement payment based on changes in a financial instrument or securities index on an agreed date, an option on a futures contract entitles its holder to decide on or before a future date whether to enter into such a contract. If the holder decides not to exercise its option, the holder may close out the option position by entering into an offsetting transaction or may decide to let the option expire and forfeit the premium thereon. The purchaser of an option on a futures contract pays a premium for the option but makes no initial margin payments or daily payments of cash in the nature of "variation" margin payments to reflect the change in the value of the underlying contract as does a purchaser or seller of a futures contract. The seller of an option on a futures contract receives the premium paid by the purchaser and may be required to pay initial margin. Amounts equal to the initial margin and any additional collateral required on any options on futures contracts sold by a Fund are paid by a Fund into a segregated account, in the name of the Futures Commission Merchant, as required by the 1940 Act and the SEC's interpretations thereunder. Combined Positions. The Funds are permitted to purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, 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 Fund's 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 Fund's other investments. Options and futures contracts prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match a Fund's investments well. Options and futures contracts prices are affected by such factors as current and anticipated short term interest rates, changes in volatility of the underlying 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 Fund's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments. Liquidity of Options and Futures Contracts. There is no assurance a liquid market will exist for any particular option or futures contract at any particular time even if the contract is traded on an exchange. In addition, exchanges may establish daily price fluctuation limits for options and futures contracts and may halt trading if a contract's price moves up or down more than the limit in a given day. On volatile trading days when the price fluctuation limit is reached or a trading halt is imposed, it may be impossible for 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 Fund's access to other assets held to cover its options or futures positions could also be impaired. (See "Exchange Traded and OTC Options" above for a discussion of the liquidity of options not traded on an exchange.) Position Limits. Futures exchanges can limit the number of futures and options on futures contracts that can be held or controlled by an entity. If an adequate exemption cannot be obtained, a Fund or the Advisor may be required to reduce the size of its futures and options positions or may not be able to trade a certain futures or options contract in order to avoid exceeding such limits. Asset Coverage for Futures Contracts and Options Positions. Although the Funds will not be commodity pools, certain derivatives subject a Fund to the rules of the Commodity Futures Trading Commission which limit the extent to which each Fund can invest in such derivatives. The Funds may invest in futures contracts and options with respect thereto for hedging purposes without limit. However, a Fund may not invest in such contracts and options for other purposes if the sum of the amount of initial margin deposits and premiums paid for unexpired options with respect to such contracts, other than for bona fide hedging purposes, exceeds 5% of the liquidation value of a Fund's assets, after taking into account unrealized profits and unrealized losses on such contracts and options; provided, however, that in the case of an option that is in-the-money at the time of purchase, the in-the-money amount may be excluded in calculating the 5% limitation. In addition, the Funds will comply with guidelines established by the SEC with respect to coverage of options and futures contracts by mutual funds, and if the guidelines so require, will set aside appropriate liquid assets in a segregated custodial account in the amount prescribed. Securities held in a segregated account cannot be sold while the futures contract or option is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that segregation of a large percentage of a Fund's assets could impede portfolio management or a Fund's ability to meet redemption requests or other current obligations. Swaps and Related Swap Products Each of the Funds may engage in swap transactions, including, but not limited to, interest rate, currency, securities index, basket, specific security and commodity swaps, interest rate caps, floors and collars and options on interest rate swaps (collectively defined as "swap transactions"). Each 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, as a duration management technique, 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. A Fund will not sell interest rate caps, floors or collars if it does not own securities with coupons which provide the interest that a Fund may be required to pay. Swap agreements are two-party contracts entered into primarily by institutional counterparties for periods ranging from a few weeks to several years. In a standard swap transaction, two parties agree to exchange the returns (or differentials in rates of return) that would be earned or realized on specified notional investments or instruments. The gross returns to be exchanged or "swapped" between the parties are calculated by reference to a "notional amount," i.e., the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular foreign currency or commodity, or in a "basket" of securities representing a particular index. The purchaser of an interest rate cap or floor, upon payment of a fee, has the right to receive payments (and the seller of the cap is obligated to make payments) to the extent a specified interest rate exceeds (in the case of a cap) or is less than (in the case of a floor) a specified level over a specified period of time or at specified dates. The purchaser of an interest rate collar, upon payment of a fee, has the right to receive payments (and the seller of the collar is obligated to make payments) to the extent that a specified interest rate falls outside an agreed upon range over a specified period of time or at specified dates. The purchaser of an option on an interest rate swap, upon payment of a fee (either at the time of purchase or in the form of higher payments or lower receipts within an interest rate swap transaction) has the right, but not the obligation, to initiate a new swap transaction of a pre-specified notional amount with pre-specified terms with the seller of the option as the counterparty. The "notional amount" of a swap transaction is the agreed upon basis for calculating the payments that the parties have agreed to exchange. For example, one swap counterparty may agree to pay a floating rate of interest (e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a quarterly basis in exchange for receipt of payments calculated based on the same notional amount and a fixed rate of interest on a semi-annual basis. In the event 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 Fund's potential gain or loss on any swap transaction is not subject to any fixed limit. Nor is there any fixed limit on a Fund's potential loss if it sells a cap or collar. If the Fund buys a cap, floor or collar, however, the Fund's potential loss is limited to the amount of the fee that it has paid. When measured against the initial amount of cash required to initiate the transaction, which is typically zero in the case of most conventional swap transactions, swaps, caps, floors and collars tend to be more volatile than many other types of instruments. The use of swap transactions, caps, floors and collars involves investment techniques and risks which are different from those associated with portfolio security transactions. If the Advisor is incorrect in its forecasts of market values, interest rates, and other applicable factors, the investment performance of a 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. The Advisor will, however, consider such risks and will enter into swap and other derivatives transactions only when it believes that the risks are not unreasonable. Each Fund will maintain cash or liquid assets in a segregated account with its custodian in an amount sufficient at all times to cover its current obligations under its swap transactions, caps, floors and collars. If a Fund enters into a swap agreement on a net basis, it will segregate assets with a daily value at least equal to the excess, if any, of a Fund's 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 segregate assets with a daily value at least equal to the full amount of a Fund's accrued obligations under the agreement. Each Fund will not enter into any swap transaction, cap, floor, or collar, unless the counterparty to the transaction is deemed creditworthy by the Advisor. If a counterparty defaults, 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 the Advisor and approved by the Trustees which are based on various factors, including (1) the availability of dealer quotations and the estimated transaction volume for the instrument, (2) the number of dealers and end users for the instrument in the marketplace, (3) the level of market making by dealers in the type of instrument, (4) the nature of the instrument (including any right of a party to terminate it on demand) and (5) the nature of the marketplace for trades (including the ability to assign or offset a Fund's rights and obligations relating to the instrument). Such determination will govern whether the instrument will be deemed within the 15% restriction on investments in securities that are not readily marketable. During the term of a swap, cap, floor or collar, changes in the value of the instrument are recognized as unrealized gains or losses by marking to market to reflect the market value of the instrument. When the instrument is terminated, 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 Fund's basis in the contract. The federal income tax treatment with respect to swap transactions, caps, floors, and collars may impose limitations on the extent to which a Fund may engage in such transactions. Risk Management The Funds may employ non-hedging risk management techniques. Risk management strategies are used to keep the Funds fully invested and to reduce the transaction costs associated with cash flows into and out of the Funds. The objective where equity futures are used to "equitize" cash is to match the notional value of all futures contracts to a Fund's cash balance. The notional value of futures and of the cash is monitored daily. As the cash is invested in securities and/or paid out to participants in redemptions, the Advisor simultaneously adjusts the futures positions. Through such procedures, the Funds not only gain equity exposure from the use of futures, but also benefit 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. Portfolio Turnover The table below sets forth the portfolio turnover rates for the Funds. A rate of 100% indicates that the equivalent of all of the Fund's assets have been sold and reinvested in a year. High portfolio turnover may result in the realization of substantial net capital gains or losses. To the extent net short term capital gains are realized, any distributions resulting from such gains are considered ordinary income for federal income tax purposes. See "Taxes" below. The U.S. Equity Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: 106% 84% and 89%, respectively. The U.S. Small Company Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: 96%, 104% and 104%, respectively. The U.S. Small Company Opportunities Portfolio -- For the period June 16, 1997 (commencement of operations) through May 31, 1998: 73%. For the fiscal years ended May 31, 1999 and 2000: 116% and 132%, respectively. INVESTMENT RESTRICTIONS The investment restrictions of each Fund and its corresponding Portfolio are identical, unless otherwise specified. Accordingly, references below to a Fund also include the Fund's corresponding Portfolio unless the context requires otherwise; similarly, references to a Portfolio also include its corresponding Fund unless the context requires otherwise. The investment restrictions below have been adopted by the Trust with respect to each Fund and by each corresponding Portfolio. Except where otherwise noted, these investment restrictions are "fundamental" policies which, under the 1940 Act, may not be changed without the vote of a majority of the outstanding voting securities of the Fund or Portfolio, as the case may be. A "majority of the outstanding voting securities" is defined in the 1940 Act as the lesser of (a) 67% or more of the voting securities present at a meeting if the holders of more than 50% of the outstanding voting securities are present or represented by proxy, or (b) more than 50% of the outstanding voting securities. The percentage limitations contained in the restrictions below apply at the time of the purchase of securities. Whenever a Fund is requested to vote on a change in the fundamental investment restrictions of its corresponding Portfolio, the Trust will hold a meeting of Fund shareholders and will cast its votes as instructed by the Fund's shareholders. The Funds and their corresponding Portfolios: 1. May not make any investments inconsistent with a Fund's classification as a diversified investment company under the Investment Company Act of 1940; 2. May not purchase any security which would cause a Fund to concentrate its investments in the securities of issuers primarily engaged in any particular industry except as permitted by the SEC; 3. May not issue senior securities, except as permitted under the Investment Company Act of 1940 or any rule, order or interpretation thereunder; 4. May not borrow money, except to the extent permitted by applicable law; 5. May not underwrite securities of other issuers, except to the extent that a Fund, in disposing of portfolio securities, may be deemed an underwriter within the meaning of the 1933 Act; 6. May not purchase or sell real estate, except that, to the extent permitted by applicable law, a Fund may (a) invest in securities or other instruments directly or indirectly secured by real estate, and (b) invest in securities or other instruments issued by issuers that invest in real estate; 7. May not purchase or sell commodities or commodity contracts unless acquired as a result of ownership of securities or other instruments issued by persons that purchase or sell commodities or commodities contracts; but this shall not prevent a Fund from purchasing, selling and entering into financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), options on financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), warrants, swaps, forward contracts, foreign currency spot and forward contracts or other derivative instruments that are not related to physical commodities; and 8. May make loans to other persons, in accordance with their respective investment objectives and policies and to the extent permitted by applicable law. Non-Fundamental Investment Restrictions - The investment restrictions described below are not fundamental policies of these Funds and their corresponding Portfolios and may be changed by their respective Trustees. These non-fundamental investment policies require that the Funds: (i) May not acquire any illiquid securities, such as repurchase agreements with more than seven days to maturity or fixed time deposits with a duration of over seven calendar days, if as a result thereof, more than 15% of the market value of a Fund's net assets would be in investments which are illiquid; (ii) May not purchase securities on margin, make short sales of securities, or maintain a short position, provided that this restriction shall not be deemed to be applicable to the purchase or sale of when-issued or delayed delivery securities, or to short sales that are covered in accordance with SEC rules; and (iii) May not acquire securities of other investment companies, except as permitted by the 1940 Act or any order pursuant thereto. There will be no violation of any investment restriction if that restriction is complied with at the time the relevant action is taken notwithstanding a later change in market value of an investment, in net or total assets, in the securities rating of the investment, or any other later change. For purposes of fundamental investment restrictions regarding industry concentration, the Advisor may classify issuers by industry in accordance with classifications set forth in the Directory of Companies Filing Annual Reports With The Securities and Exchange Commission or other sources. In the absence of such classification or if the Advisor determines in good faith based on its own information that the economic characteristics affecting a particular issuer make it more appropriately considered to be engaged in a different industry, the Advisor may classify an issuer accordingly. For instance, personal credit finance companies and business credit finance companies are deemed to be separate industries and wholly owned finance companies are considered to be in the industry of their parents if their activities are primarily related to financing the activities of their parents. TRUSTEES AND MEMBERS OF THE ADVISORY BOARD Trustees The Trustees of the Trust, who are also the Trustees of each of the Portfolios and the other Master Portfolios, as defined below, their principal occupations during the past five years and dates of birth are set forth below. The mailing address of the Trustees is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017. FREDERICK S. ADDY -- Trustee; Retired; Prior to April 1994, Executive Vice President and Chief Financial Officer, Amoco Corporation. His date of birth is January 1, 1932. WILLIAM G. BURNS -- Trustee; Retired, Former Vice Chairman and Chief Financial Officer, NYNEX. His date of birth is November 2, 1932. ARTHUR C. ESCHENLAUER -- Trustee; Retired; Former Senior Vice President, Morgan Guaranty Trust Company of New York. His date of birth is May 23, 1934. MATTHEW HEALEY1 -- Trustee, Chairman and Chief Executive Officer; Chairman, Pierpont Group, Inc., since prior to 1993. His date of birth is August 23, 1937. MICHAEL P. MALLARDI -- Trustee; Retired; Prior to April 1996, Senior Vice President, Capital Cities/ABC, Inc. and President, Broadcast Group. His date of birth is March 17, 1934. A majority of the disinterested Trustees have adopted written procedures reasonably appropriate to deal with potential conflicts of interest arising from the fact that the same individuals are Trustees of the Trust, each of the Portfolios and the J.P. Morgan Institutional Funds, up to and including creating a separate board of trustees. Each Trustee is currently paid an annual fee of $75,000 (adjusted as of April 1, 1997) for serving as Trustee of the Trust, each of the Master Portfolios (as defined below), J.P. Morgan Institutional Funds and J.P. Morgan Series Trust and is reimbursed for expenses incurred in connection with service as a Trustee. The Trustees may hold various other directorships unrelated to these funds. --------------------- 1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the Trust. Trustee compensation expenses paid by the Trust for the calendar year ended December 31, 1999 are set forth below. - ------------------------------------------------- ----------------------------- - ----------------------------------
TOTAL TRUSTEE COMPENSATION ACCRUED BY THE MASTER PORTFOLIOS (*), J.P. MORGAN FUNDS, J.P. MORGAN SERIES TRUST AND THE TRUST DURING 1999(**) AGGREGATE TRUSTEE NAME OF TRUSTEE COMPENSATION PAID BY THE TRUST DURING 1999 - ------------------------------------------------- ----------------------------- ---------------------------------- - ------------------------------------------------- ----------------------------- ---------------------------------- Frederick S. Addy, Trustee $12,720 $75,000 - ------------------------------------------------- ----------------------------- ---------------------------------- - ------------------------------------------------- ----------------------------- ---------------------------------- William G. Burns, Trustee $12,720 $75,000 - ------------------------------------------------- ----------------------------- ---------------------------------- - ------------------------------------------------- ----------------------------- ---------------------------------- Arthur C. Eschenlauer, Trustee $12,720 $75,000 - ------------------------------------------------- ----------------------------- ---------------------------------- - ------------------------------------------------- ----------------------------- ---------------------------------- Matthew Healey, Trustee (***), $12,720 $75,000 Chairman and Chief Executive Officer - ------------------------------------------------- ----------------------------- ---------------------------------- - ------------------------------------------------- ----------------------------- ---------------------------------- Michael P. Mallardi, Trustee $12,720 $75,000 - ------------------------------------------------- ----------------------------- ----------------------------------
(*) Includes the Portfolios and 16 other Portfolios (collectively the "Master Portfolios") for which JPMIM acts as investment advisor. (**) No investment company within the fund complex has a pension or retirement plan. Currently there are 17 investment companies (14 investment companies comprising the Master Portfolios, the Trust, J.P. Morgan Funds and J.P. Morgan Series Trust) in the fund complex. (***) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman of Pierpont Group, Inc., compensation in the amount of $153,800, contributed $23,100 to a defined contribution plan on his behalf and paid $17,300 in insurance premiums for his benefit. The Trustees decide upon general policies and are responsible for overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios and the Trust has entered into a Fund Services Agreement with Pierpont Group, Inc. to assist the Trustees in exercising their overall supervisory responsibilities over the affairs of the Portfolios and the Trust. Pierpont Group, Inc. was organized in July 1989 to provide services for The Pierpont Family of Funds (now the J.P. Morgan Family of Funds), and the Trustees are the equal and sole shareholders of Pierpont Group, Inc. The Trust and the Portfolios have agreed to pay Pierpont Group, Inc. a fee in an amount representing its reasonable costs in performing these services to the Trust, the Portfolios and certain other registered investment companies subject to similar agreements with Pierpont Group, Inc. These costs are periodically reviewed by the Trustees. The principal offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York 10017. The aggregate fees paid to Pierpont Group, Inc. by each Portfolio during the indicated fiscal years are set forth below: The U.S. Equity Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: $30,613, $18,019 and $12,016, respectively. The U.S. Small Company Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: $36,011, $13,942 and $11,170 respectively. The U.S. Small Company Opportunities Portfolio -- For the period June 16, 1997 (commencement of operations) through May 31, 1998: $3,088. For the fiscal years ended May 31, 1999 and 2000: $5,042 and $8,042. Advisory Board The Trustees determined as of January 26, 2000 to establish an advisory board and appoint four members ("Members of the Advisory Board") thereto. Each member serves at the pleasure of the Trustees. The advisory board is distinct from the Trustees and provides advice to the Trustees as to investment, management and operations of the Trust; but has no power to vote upon any matter put to a vote of the Trustees. The advisory board and the members thereof also serve each of the Trusts and the Master Portfolios. It is also the current intention of the Trustees that the Members of the Advisory Board will be proposed at the next shareholders' meeting, expected to be held within a year from the date hereof, for election as Trustees of each of the Trusts and the Master Portfolios. The creation of the Advisory Board and the appointment of the members thereof was designed so that the Board of Trustees will continuously consist of persons able to assume the duties of Trustees and be fully familiar with the business and affairs of each of the Trusts and the Master Portfolios, in anticipation of the current Trustees reaching the mandatory retirement age of seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for serving in this capacity for the Trust, each of the Master Portfolios, the J.P. Morgan Funds and the J.P. Morgan Series Trust and is reimbursed for expenses incurred in connection for such service. The members of the Advisory Board may hold various other directorships unrelated to these funds. The mailing address of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal occupations during the past five years and dates of birth are set forth below: Ann Maynard Gray - President, Diversified Publishing Group and Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945. John R. Laird -- Retired; Former Chief Executive Officer, Shearson Lehman Brothers and The Boston Company. His date of birth is June 21, 1942. Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley Group and President and Chief Operating Officer, Morgan Stanley Services, Inc. His date of birth is October 5, 1936. James J. Schonbachler -- Retired; Prior to September, 1998, Managing Director, Bankers Trust Company and Chief Executive Officer and Director, Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January 26, 1943. Officers The Trust's and Portfolios' executive officers (listed below), other than the Chief Executive Officer and the officers who are employees of the Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group, Inc. The officers conduct and supervise the business operations of the Trust and the Portfolios. The Trust and the Portfolios have no employees. The officers of the Trust and the Portfolios, their principal occupations during the past five years and dates of birth are set forth below. Unless otherwise specified, each officer holds the same position with the Trust, each Portfolio and the other Master Portfolios. The business address of each of the officers unless otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts 02109. MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, since prior to 1993. His address is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017. His date of birth is August 23, 1937. MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President and General Counsel of FDI since April, 1998. From August 1996 to March 1998, Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an associate with the law firm of Ropes & Gray. Her date of birth is October 12, 1959. MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President, Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an officer of certain investment companies distributed or administered by FDI. Her date of birth is August 1, 1957. DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice President and Assistant Department Manager of Treasury Services and Administration of FDI and an officer of certain investment companies distributed or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of Treasury Services and Administration of FDI. From April 1993 to January 1995, Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His date of birth is March 31, 1969. JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the Portfolios only. Managing Director, State Street Cayman Trust Company, Ltd. since October 1994. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI. Her date of birth is March 27, 1942. KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President and Senior Counsel of FDI and an officer of certain investment companies distributed or administered by FDI. From June 1994 to January 1996, Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc. Her date of birth is December 29, 1966. CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice President and Senior Associate General Counsel of FDI and Premier Mutual and an officer of certain investment companies distributed or administered by FDI. From April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. His date of birth is December 24, 1964. KATHLEEN K. MORRISEY; Vice President and Assistant Secretary. Vice President and Assistant Secretary of FDI. Manager of Treasury Services Administration and an officer of certain investment companies advised or administered by Montgomery Asset Management, L.P. and Dresdner RCM Global Investors, Inc., and their respective affiliates. From July 1994 to November 1995, Ms. Morrisey was a Fund Accountant II for Investors Bank & Trust Company. Her date of birth is July 5, 1972. MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and Manager of Treasury Services and Administration of FDI and Premier Mutual and an officer of certain investment companies distributed or administered by FDI. Her date of birth is April 22, 1964. MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust Company of New York. Ms. Pace serves in the Funds Administration group as a Manager for the Budgeting and Expense Processing Group. Prior to September 1995, Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company of New York. Her address is 60 Wall Street, New York, New York 10260. Her date of birth is March 13, 1966. ELBA VASQUEZ; Vice President and Assistant Secretary. Vice President since February 1999, Assistant Vice President (since June 1997), and Sales Associate (since May 1996) of FDI. Formerly (March 1990 - May 1996), employed in various mutual fund sales and marketing positions by U.S. Trust Company of New York. Address: 200 Park Avenue, New York, New York 10166. Her date of birth is December 14, 1961. GEORGE A. RIO; President and Treasurer. Executive Vice President and Client Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development for First Data Corporation. His date of birth is January 2, 1955. CHRISTINE ROTUNDO; Assistant Treasurer. Vice President, Morgan Guaranty Trust Company of New York. Ms. Rotundo serves in the Funds Administration group as Head of Infrastructure and is responsible for special projects. She was formerly the Manager of the Tax Group and was responsible for U.S. mutual fund tax matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in the Investment Company Services Group of Deloitte & Touche LLP. Her address is 60 Wall Street, New York, New York 10260. Her date of birth is September 26, 1965. CODE OF ETHICS The Funds, the Advisor and FDI 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 Portfolios. Such purchases, however, are subject to preclearance and other procedures reasonably necessary to prevent Access Persons from engaging in any unlawful conduct set forth in Rule 17j-1. INVESTMENT ADVISOR The Funds have not retained the services of an investment adviser because each Fund seeks to achieve its investment objective by investing all of its investable assets in a corresponding Portfolio. Subject to the supervision of each Portfolio's Trustees, the Advisor makes each Portfolio's day-to-day investment decisions, arranges for the execution of portfolio transactions and generally manages each Portfolio's investments. Effective October 1, 1998 each Portfolio's Investment Advisor is JPMIM. Prior to that date, Morgan was the Investment Advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the Investment Advisers Act of 1940, as amended, and manages employee benefit funds of corporations, labor unions and state and local governments and the accounts of other institutional investors, including investment companies. Certain of the assets of employee benefit accounts under its management are invested in commingled pension trust funds for which Morgan serves as trustee. J.P. Morgan, through the Advisor and other subsidiaries, acts as investment advisor to individuals, governments, and corporations, employee benefit plans, mutual funds and other institutional investors with combined assets under management of approximately $369 billion. J.P. Morgan has a long history of service as adviser, underwriter and lender to an extensive roster of major companies and as a financial advisor to national governments. The firm, through its predecessor firms, has been in business for over a century and has been managing investments since 1913. The basis of the Advisor's investment process is fundamental investment research as the firm believes that fundamentals should determine an asset's value over the long term. J.P. Morgan currently employs approximately 420 research analysts, capital market researchers, portfolio managers and traders among the largest research staffs in the money management industry. The Advisor has investment management divisions located in New York, London, Tokyo, Frankfurt and Singapore to cover companies, industries and countries on site. The conclusions of the equity analysts' fundamental research is quantified into a set of projected returns for individual companies through the use of a dividend discount model. These returns are projected for 2 to 5 years to enable analysts to take a longer term view. These returns, or normalized earnings, are used to establish relative values among stocks in each industrial sector. These values may not be the same as the markets' current valuations of these companies. This provides the basis for ranking the attractiveness of the companies in an industry according to five distinct quintiles or rankings. This ranking is one of the factors considered in determining the stocks purchased and sold in each sector. The investment advisory services the Advisor provides to the Portfolios are not exclusive under the terms of the Advisory Agreements. The Advisor is free to and does render similar investment advisory services to others. The Advisor serves as investment advisor to personal investors and other investment companies and acts as fiduciary for trusts, estates and employee benefit plans. Certain of the assets of trusts and estates under management are invested in common trust funds for which the Advisor serves as trustee. The accounts, which are managed or advised by the Advisor, have varying investment objectives and the Advisor invests assets of such accounts in investments substantially similar to, or the same as, those, which are expected to constitute the principal investments of the Portfolios. Such accounts are supervised by officers and employees of the Advisor who may also be acting in similar capacities for the Portfolios. See "Portfolio Transactions." Sector weightings are generally similar to a benchmark with the emphasis on security selection as the method to achieve investment performance superior to the benchmark. The benchmarks for the Portfolios in which the Funds invest are currently: The U.S. Equity Portfolio -- S&P 500 Index; The U.S. Small Company Portfolio -- Russell 2000 Index; and The U.S. Small Company Opportunities Portfolio -- Russell 2000 Growth Index. Morgan, whose principal offices are at 60 Wall Street, New York, New York 10260, is a New York trust company, which conducts a general banking and trust business. Morgan is subject to regulation by the New York State Banking Department and is a member bank of the Federal Reserve System. Through offices in New York City and abroad, Morgan offers a wide range of services, primarily to governmental, institutional, corporate and high net worth individual customers in the United States and throughout the world. Morgan is also a wholly owned subsidiary of J.P. Morgan, a bank holding company organized under the laws of the State of Delaware. The Portfolios are managed by employees of the Advisor who, in acting for their customers, including the Portfolios, do not discuss their investment decisions with any personnel of J.P. Morgan or any personnel of other divisions of the Advisor or with any of its affiliated persons, with the exception of certain investment management affiliates of J.P. Morgan. As compensation for the services rendered and related expenses such as salaries of advisory personnel borne by the Advisor under the Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay the Advisor a fee, which is computed daily and may be paid monthly, equal to the annual rates of each Portfolio's average daily net assets shown below. U.S. Equity: 0.40% U.S. Small Company: 0.60% U.S. Small Company Opportunities : 0.60% The table below sets forth for each Fund listed the advisory fees paid by its corresponding Portfolio to Morgan and JPMIM, as applicable, for the fiscal periods indicated. See also the Fund's financial statements which are incorporated herein by reference. The U.S. Equity Portfolio (U.S. Equity Fund) -- For the fiscal years ended May 31, 1998, 1999 and 2000: $3,534,791, $2,911,314 and $2,767,011, respectively. The U.S. Small Company Portfolio (U.S. Small Company Fund) -- For the fiscal years ended May 31, 1998, 1999 and 2000: $5,424,514, $6,161,868, $3,367,503 and $3,918,665, respectively. The U.S. Small Company Opportunities Portfolio (U.S. Small Company Opportunities Fund) -- For the period June 16, 1997 (commencement of operations) through May 31, 1998: $596,695. For the fiscal years ended May 31, 1999 and 2000 $1,260,259 and $2,866,705, respectively. The Investment Advisory Agreements provide that they will continue in effect for a period of two years after execution only if specifically approved thereafter annually in the same manner as the Distribution Agreement. See "Distributor" below. Each of the Investment Advisory Agreements will terminate automatically if assigned and is terminable at any time without penalty by a vote of a majority of the Portfolio's Trustees, or by a vote of the holders of a majority of the Portfolio's outstanding voting securities, on 60 days' written notice to the Advisor and by the Advisor on 90 days' written notice to the Portfolio. See "Additional Information." Under separate agreements, Morgan provides certain financial, fund accounting and administrative services to the Trust and the Portfolios and shareholder services for the Trust. See "Services Agent" and "Shareholder Servicing" below. DISTRIBUTOR FDI serves as the Trust's exclusive Distributor and holds itself available to receive purchase orders for each of the Fund's shares. In that capacity, FDI has been granted the right, as agent of the Trust, to solicit and accept orders for the purchase of each of the Fund's shares in accordance with the terms of the Distribution Agreement between the Trust and FDI. Under the terms of the Distribution Agreement between FDI and the Trust, FDI receives no compensation in its capacity as the Trust's distributor. FDI is a wholly owned indirect subsidiary of Boston Institutional Group, Inc. FDI also serves as exclusive placement agent for each Portfolio. FDI currently provides administration and distribution services for a number of other investment companies. The Distribution Agreement shall continue in effect with respect to each of the Funds for a period of two years after execution only if it is approved at least annually thereafter (i) by a vote of the holders of a majority of each Fund's outstanding shares or by its Trustees and (ii) by a vote of a majority of the Trustees of the Trust who are not "interested persons" (as defined by the 1940 Act) of the parties to the Distribution Agreement, cast in person at a meeting called for the purpose of voting on such approval (see "Trustees and Members of the Advisory Board" and "Officers"). The Distribution Agreement will terminate automatically if assigned by either party thereto and is terminable at any time without penalty by a vote of a majority of the Trustees of the Trust, a vote of a majority of the Trustees who are not "interested persons" of the Trust, or by a vote of the holders of a majority of the Fund's outstanding shares as defined under "Additional Information," in any case without payment of any penalty on 60 days' written notice to the other party. The principal offices of FDI are located at 60 State Street, Suite 1300, Boston, Massachusetts 02109. CO-ADMINISTRATOR Under Co-Administration Agreements with the Trust and the Portfolios dated August 1, 1996, FDI also serves as the Trust's and the Portfolios' Co-Administrator. The Co-Administration Agreements may be renewed or amended by the respective Trustees without a shareholder vote. The Co-Administration Agreements are terminable at any time without penalty by a vote of a majority of the Trustees of the Trust or the Portfolios, as applicable, on not more than 60 days' written notice nor less than 30 days' written notice to the other party. The Co-Administrator may subcontract for the performance of its obligations, provided, however, that unless the Trust or the Portfolios, as applicable, expressly agrees in writing, the Co-Administrator shall be fully responsible for the acts and omissions of any subcontractor as it would for its own acts or omissions. See "Services Agent" below. FDI (i) provides office space, equipment and clerical personnel for maintaining the organization and books and records of the Trust and the Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii) prepares and files documents required for notification of state securities administrators; (iv) reviews and files marketing and sales literature; (v) files Portfolio regulatory documents and mails Portfolio communications to Trustees, Members of the Advisory Board and investors; and (vi) maintains related books and records. For its services under the Co-Administration Agreements, each Fund and Portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to each Fund or Portfolio is based on the ratio of its net assets to the aggregate net assets of the Trust, the Master Portfolios and other investment companies subject to similar agreements with FDI. The table below sets forth for each Portfolio listed the administrative fees paid to FDI for the fiscal periods indicated. The U.S. Equity Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: $18,971, $11,075 and $6,803 respectively. The U.S. Small Company Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: $22,248, $8,564 and 6,159 respectively. The U.S. Small Company Opportunities Portfolio -- For the period June 16, 1997 (commencement of operations) through May 31, 1998: $2,036. For the fiscal years ended May 31, 1999 and 2000: $3,103 and $4,343 respectively. SERVICES AGENT The Trust, on behalf of each Fund, and the Portfolios have entered into Administrative Services Agreements (the "Services Agreements") with Morgan effective December 29, 1995, as amended August 1, 1996, pursuant to which Morgan is responsible for certain administrative and related services provided to each Fund and its corresponding Portfolio. The Services Agreements may be terminated at any time, without penalty, by the Trustees or Morgan, in each case on not more than 60 days' nor less than 30 days' written notice to the other party. Under the Services Agreements, Morgan provides certain administrative and related services to the Funds and the Portfolios, including services related to tax compliance, preparation of financial statements, calculation of performance data, oversight of service providers and certain regulatory and Board of Trustee matters. Under the amended Services Agreements, the Funds and the Portfolios have agreed to pay Morgan fees equal to its allocable share of an annual complex-wide charge. This charge is calculated daily based on the aggregate net assets of the Master Portfolios and J.P. Morgan Series Trust in accordance with the following annual schedule: 0.09% of the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion, less the complex-wide fees payable to FDI. The portion of this charge payable by each Fund and Portfolio is determined by the proportionate share that its net assets bear to the total net assets of the Trust, the Master Portfolios, the other investors in the Master Portfolios for which Morgan provides similar services and J.P. Morgan Series Trust. The U.S. Equity Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: $265,956, $198,407, and $172,419 respectively. The U.S. Small Company Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: $309,695, $153,123 and $162,199 respectively. The U.S. Small Company Opportunities Portfolio -- For the period June 16, 1997 (commencement of operations) through May 31, 1998: $29,566. For the fiscal years ended May 31, 1999 and 2000: $56,809 and $118,303 respectively. CUSTODIAN AND TRANSFER AGENT The Bank of New York ("BONY"), One Wall Street, New York, New York 10286, serves as the Trust's and each of the Portfolio's custodian and fund accounting agent. Pursuant to the Custodian Contract and Fund Accounting Agreement with the Trust,BONY is responsible for holding portfolio securities and cash and maintaining the books of account and records of portfolio transactions. In the case of foreign assets held outside the United States, the custodian employs various subcustodians in accordance with the regulations of the SEC. State Street Bank and Trust Company ("State Street"), 225 Franklin Street, Boston, Massachusetts 02110, serves as each Fund's transfer and dividend disbursing agent. As transfer agent and dividend disbursing agent, State Street is responsible for maintaining account records detailing the ownership of Fund shares and for crediting income, capital gains and other changes in share ownership to shareholder accounts. SHAREHOLDER SERVICING The Trust on behalf of each of the Funds has entered into a Shareholder Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder servicing agent for its customers and for other Fund investors who are customers of a service organization. Under this agreement, Morgan is responsible for performing shareholder account, administrative and servicing functions, which include but are not limited to, answering inquiries regarding account status and history, the manner in which purchases and redemptions of Fund shares may be effected, and certain other matters pertaining to a Fund; assisting customers in designating and changing dividend options, account designations and addresses; providing necessary personnel and facilities to coordinate the establishment and maintenance of shareholder accounts and records with the Funds' transfer agent; transmitting purchase and redemption orders to the Funds' transfer agent and arranging for the wiring or other transfer of funds to and from customer accounts in connection with orders to purchase or redeem Fund shares; verifying purchase and redemption orders, transfers among and changes in accounts; informing the Distributor of the gross amount of purchase orders for Fund shares; monitoring the activities of the Fund's transfer agent; and providing other related services. Under the Shareholder Servicing Agreement, each Fund has agreed to pay Morgan for these services at an annual rate of 0.05% (expressed as a percentage of the average daily net assets of Fund shares owned by or for shareholders for whom Morgan is acting as Shareholder Servicing Agent). Morgan acts as Shareholder Servicing Agent for all shareholders. SERVICE ORGANIZATIONS The Trust, on behalf of the Fund, has adopted a service plan (the "Plan") with respect to the shares which authorizes the Fund to compensate Service Organizations for providing certain account administration and other services to their customers who are beneficial owners of such shares. Pursuant to the Plan, the Trust, on behalf of the Fund, enters into agreements with Service Organizations, which purchase shares on behalf of their customers ("Service Agreements"). Under such Service Agreements, the Service Organizations may: (a) act, directly or through an agent, as the sole shareholder of record and nominee for all customers, (b) maintain or assist in maintaining account records for each customer who beneficially owns shares, and (c) process or assist in processing customer orders to purchase, redeem and exchange shares, and handle or assist in handling the transmission of funds representing the customers' purchase price or redemption proceeds. As compensation for such services, the Trust on behalf of the Fund pays each Service Organization a service fee in an amount up to 0.25% (on an annualized basis) of the average daily net assets of the shares of the Fund attributable to or held in the name of such Service Organization for its customers. Conflicts of interest restrictions (including the Employee Retirement Income Security Act of 1974) may apply to a Service Organization's receipt of compensation paid by the Trust in connection with the investment of fiduciary funds in shares. Service Organizations, including banks regulated by the Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit Insurance Corporation, and investment advisers and other money managers subject to the jurisdiction of the Securities and Exchange Commission, the Department of Labor or state securities commissions, are urged to consult legal advisors before investing fiduciary assets in shares. In addition, under some state securities laws, banks and other financial institutions purchasing shares on behalf of their customers may be required to register as dealers. The Trustees of the Trust, including a majority of Trustees who are not interested persons of the Trust and who have no direct or indirect financial interest in the operation of such Plan or the related Service Agreements, initially voted to approve the Plan and Service Agreements at a meeting called for the purpose of voting on such Plan and Service Agreements on June 12, 2000. The Plan may not be amended to increase materially the amount to be spent for the services described therein without approval of the shareholders of the affected Fund, and all material amendments of the Plan must also be approved by the Trustees in the manner described above. The Plan may be terminated at any time by a majority of the Trustees as described above or by vote of a majority of the outstanding shares of the affected Fund. The Service Agreements may be terminated at any time, without payment of any penalty, by vote of a majority of the disinterested Trustees as described above or by a vote of a majority of the outstanding shares of the affected Fund on not more than 60 days' written notice to any other party to the Service Agreements. The Service Agreements shall terminate automatically if assigned. So long as the Plans are in effect, the selection and nomination of those Trustees who are not interested persons shall be determined by the non-interested members of the Board of Trustees. DISTRIBUTION PLAN Rule 12b-1 (the "Rule") under the 1940 Act provides, among other things, that an investment company may bear expenses of distributing its shares only pursuant to a plan adopted in accordance with the Rule. On June 12, 2000, the Trustees have adopted such a plan on behalf of the Fund (the "Distribution Plan") pursuant to which the Fund pays for distributing its shares at an annual rate not to exceed 0.25% of the value of the average daily net assets of the Fund. Under the Distribution Plan, the Fund may make payments to certain financial institutions, securities dealers, and other industry professionals that have entered into written agreements with the Fund in respect of these services. The amounts to be paid to such institutions are based on the daily value of shares owned by their clients. The fees payable under the Distribution Plan for advertising, marketing and distributing are payable without regard to actual expenses incurred. The Trustees believe that there is a reasonable likelihood that the Distribution Plan will benefit the Fund and its shareholders. Quarterly reports of the amounts expended under the Distribution Plan, and the purposes, for which such expenditures were incurred, will be made to the Trustees for their review. In addition, the Distribution Plan provides that it may not be amended to increase materially the costs which holders of the Fund's shares may bear for distribution without approval of such shareholders and that all material amendments of the Distribution Plan must be approved by the Trustees, and by the Trustees who are neither "interested persons" (as defined in the 1940 Act) of the Trust nor have any direct or indirect financial interest in the operation of the Distribution Plan or in the related Distribution Plan agreements, by vote cast in person at a meeting called for the purpose of considering such amendments. The Distribution Plan provides reasonable assistance in connection with the sale of Shares of the Funds, which assistance may include distributing sales literature, marketing and advertising. The Funds do not participate in any joint distribution activities. The Distribution Plan and related agreements are subject to annual approval by such vote of the Trustees cast in person at a meeting called for the purpose of voting on the Distribution Plan and related agreements. The Distribution Plan is terminable at any time by vote of a majority of the Trustees who are not "interested persons" and who have no direct or indirect financial interest in the operation of the Distribution Plan or in the related agreements or by vote of the holders of a majority of shares, as the case may be. A related Distribution Plan agreement is terminable without penalty, at any time, by such vote of the Trustees or by vote of the holders of a majority of the Fund's shares upon not more than 60 days' written notice to any other party to such agreement. A Distribution Plan agreement will terminate automatically in the event of its assignment (as defined in the 1940 Act). INDEPENDENT ACCOUNTANTS The independent accountants of the Trust and the Portfolios are PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, New York 10036. PricewaterhouseCoopers LLP conducts an annual audit of the financial statements of each of the Funds and the Portfolios, assists in the preparation and/or review of each of the Fund's and the Portfolio's federal and state income tax returns and consults with the Funds and the Portfolios as to matters of accounting and federal and state income taxation. EXPENSES In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan and FDI under various agreements discussed under "Trustees and Members of the Advisory Board," "Officers," "Investment Advisor," "Co-Administrator," "Distributor," "Services Agent" and "Shareholder Servicing" above, the Funds and the Portfolios are responsible for usual and customary expenses associated with their respective operations. Such expenses include organization expenses, legal fees, accounting and audit expenses, insurance costs, the compensation and expenses of the Trustees and Members of the Advisory Board, registration fees under federal securities laws and extraordinary expenses applicable to the Funds or the Portfolios. For the Funds, such expenses also include transfer, registrar and dividend disbursing costs, the expenses of printing and mailing reports, notices and proxy statements to Fund shareholders and filing fees under state securities laws. For the Portfolios, such expenses also include applicable registration fees under foreign securities laws, custodian fees and brokerage expenses. Under fee arrangements prior to September 1, 1995, Morgan as Services Agent was responsible for reimbursements to the Trust and certain Portfolios and the usual and customary expenses described above (excluding organization and extraordinary expenses, custodian fees and brokerage expenses). J.P. Morgan has agreed that it will reimburse the U.S. Small Company Fund and the U.S. Small Company Opportunities Fund as described in the Prospectus until September 30, 2001 to the extent necessary to maintain the Fund's total operating expenses (which include expenses of the Fund and the Portfolio) at 1.25% of average daily net assets, and will reimburse the U.S. Equity Fund as described in the Prospectus until September 30, 2001 to the extent necessary to maintain the Fund's total operating expenses (which include expenses of the Fund and the Portfolio) at 1.05% of average daily net assets. This limit does not cover extraordinary expenses. The table below sets forth for each Fund listed the fees and other expenses J.P. Morgan reimbursed under the expense reimbursement arrangements described above or pursuant to prior expense reimbursement arrangements for the fiscal periods indicated. U.S. Equity Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: N/A, N/A and N/A, respectively. U.S. Small Company Fund -- For the fiscal years ended May 31, 1998, 1999 and 2000: $164,771, N/A and N/A, respectively. U.S. Small Company Portfolio -- For the fiscal years ended May 31, 1998, 1999 and 2000: N/A, N/A and N/A, respectively. The U.S. Small Company Opportunities Portfolio -- For the period June 16, 1997 (commencement of operations) through May 31, 1998: $3,597. For the fiscal years ended May 31, 1999 and 2000: N/A and N/A. PURCHASE OF SHARES Additional Minimum Balance Information. If your account balance falls below the minimum for 30 days as a result of selling shares (and not because of performance), the Fund reserves the right to request that you buy more shares or close your account. If your account balance is still below the minimum 60 days after notification, the Fund reserves the right to close out your account and send the proceeds to the address of record. Method of Purchase. Investors may open accounts with a Fund only through Service Organizations. All purchase transactions in Fund accounts received by the service organization are processed by Morgan as shareholder servicing agent and the Fund is authorized to accept any instructions relating to a Fund account from Morgan as shareholder servicing agent for the customer. All purchase orders must be accepted by the Distributor. The Trust reserves the right to determine the purchase orders that it will accept. References in the Prospectus and this Statement of Additional Information to customers of Morgan or a service organization include customers of their affiliates and references to transactions by customers with Morgan or a service organization include transactions with their affiliates. Only Fund investors who are using the services of a financial institution acting as shareholder servicing agent pursuant to an agreement with the Trust on behalf of a Fund may make transactions in shares of a Fund. Each Fund may, at its own option, accept securities in payment for shares. The securities delivered in such transactions are valued by the method described in "Net Asset Value" as of the day the Fund receives the securities. This is a taxable transaction to the shareholder. Securities may be accepted in payment for shares only if they are, in the judgment of the Advisor, appropriate investments for a Fund's corresponding Portfolio. In addition, securities accepted in payment for shares must: (i) meet the investment objective and policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by the applicable Fund for investment and not for resale (other than for resale to the Fund's corresponding Portfolio); (iii) be liquid securities which are not restricted as to transfer either by law or liquidity of market; and (iv) if stock, have a value which is readily ascertainable as evidenced by a listing on a stock exchange, OTC market or by readily available market quotations from a dealer in such securities. Each Fund reserves the right to accept or reject at its own option any and all securities offered in payment for its shares. Service organizations may establish their own minimums and charge the investor a fee for this service and other services they provide to their customers. J.P. Morgan may pay fees to service organizations for services in connection with fund investments. See "Service Organizations. REDEMPTION OF SHARES If the Trust on behalf of a Fund and its corresponding Portfolio determine that it would be detrimental to the best interest of the remaining shareholders of a Fund to make payment wholly or partly in cash, payment of the redemption price may be made in whole or in part by a distribution in kind of securities from a Fund, in lieu of cash, in conformity with the applicable rule of the SEC. If shares are redeemed in kind, the redeeming shareholder might incur transaction costs in converting the assets into cash. The method of valuing portfolio securities is described under "Net Asset Value," and such valuation will be made as of the same time the redemption price is determined. The Trust on behalf of all of the Funds and their corresponding Portfolios have elected to be governed by Rule 18f-1 under the 1940 Act pursuant to which the Funds and their corresponding Portfolios are obligated to redeem shares solely in cash up to the lesser of $250,000 or one percent of the net asset value of a Fund during any 90 day period for any one shareholder. The Trust will redeem Fund shares in kind only if it has received a redemption in kind from a corresponding Portfolio and therefore shareholders of a Fund that receive redemptions in kind will receive securities of a Portfolio. The Portfolios have advised the Trust that the Portfolios will not redeem in kind except in circumstances in which a Fund is permitted to redeem in kind. Further Redemption Information. Investors should be aware that redemptions from a Fund may not be processed by the service organization if a redemption request is not submitted in proper form to the service organization. The Trust, on behalf of a Fund, and the Portfolios reserve the right to suspend the right of redemption and to postpone the date of payment upon redemption as follows: (i) for up to seven days, (ii) during periods when the New York Stock Exchange is closed for other than weekends and holidays or when trading on such Exchange is restricted as determined by the SEC by rule or regulation, (iii) during periods in which an emergency, as determined by the SEC, exists that causes disposal by a Portfolio of, or evaluation of the net asset value of, its portfolio securities to be unreasonable or impracticable, or (iv) for such other periods as the SEC may permit. Please call your service organization for more details on what constitutes proper form and on the availability of redemption of proceeds. EXCHANGE OF SHARES An investor may exchange shares from any J.P. Morgan Advisor Fund into any other J.P. Morgan Advisor Fund without charge. An exchange may be made so long as after the exchange the investor has shares, in each fund in which he or she remains an investor, with a value of at least that fund's minimum investment amount. Shareholders should read the prospectus of the fund into which they are exchanging and may only exchange between fund accounts that are registered in the same name, address and taxpayer identification number. Shares are exchanged on the basis of relative net asset value per share. Exchanges are in effect redemptions from one fund and purchases of another fund and the usual purchase and redemption procedures and requirements are applicable to exchanges. The Funds generally intend to pay redemption proceeds in cash, however, since they reserve the right at their sole discretion to pay redemptions over $250,000 in-kind as a portfolio of representative stocks rather than in cash, each Fund reserves the right to deny an exchange request in excess of that amount. See "Redemption of Shares". Shareholders subject to federal income tax who exchange shares in one fund for shares in another fund may recognize capital gain or loss for federal income tax purposes. Shares of a fund to be acquired are purchased for settlement when the proceeds from redemption become available. In the case of investors in certain states, state securities laws may restrict the availability of the exchange privilege. The Trust reserves the right to discontinue, alter or limit the exchange privilege at any time. DIVIDENDS AND DISTRIBUTIONS Each Fund declares and pays dividends and distributions as described under "Dividends and Distribution" in the Prospectus. Dividends and capital gains distributions paid by the Fund are reinvested in additional shares of a Fund unless the shareholder has elected to have them paid in cash. Dividends and distributions to be paid in cash are credited to the shareholder's account at his or her service organization. The Fund reserves the right to discontinue, alter or limit the automatic reinvestment privilege at any time. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option may be held pursuant to your service organization's procedures regarding lost shareholders, which could include automatically investing all dividend and other distributions in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. NET ASSET VALUE Each of the Funds computes its net asset value once daily on Monday through Friday at the time described in the prospectus. The net asset value will not be computed on the day the following legal holidays are observed: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. On days when U.S. trading markets close early in observance of these holidays, the Fund will close for purchases and redemptions at the same time. The Funds and the Portfolios may also close for purchases and redemptions at such other times as may be determined by the Board of Trustees to the extent permitted by applicable law. The days on which net asset value is determined are the Funds' business days. The net asset value of each Fund is equal to the value of a Fund's investment in its corresponding Portfolio (which is equal to a Fund's pro rata share of the total investment of a Fund and of any other investors in a Portfolio less a Fund's pro rata share of a Portfolio's liabilities) less a Fund's liabilities. The following is a discussion of the procedures used by the Portfolio corresponding to each Fund in valuing its assets. The value of investments listed on a domestic or foreign securities exchange, including National Association of Securities Dealers Automated Quotations ("NASDAQ"), other than options on stock indexes, is based on the last sale prices on the exchange on which the security is principally traded (the "primary exchange"). If there has been no sale on the primary exchange on the valuation date, and the spread between bid and asked quotations on the primary exchange is less than or equal to 10% of the bid price for the security, the security shall be valued at the average of the closing bid and asked quotations on the primary exchange. Under all other circumstances (e.g. there is no last sale on the primary exchange, there are no bid and asked quotations on the primary exchange, or the spread between bid and asked quotations is greater than 10% of the bid price), the value of the security shall be the last sale price on the primary exchange up to ten days prior to the valuation date unless, in the judgment of the portfolio manager, material events or conditions since such last sale necessitate fair valuation of the security. The value of each security for which readily available market quotations exist is based on a decision as to the broadest and most representative market for such security. For purposes of calculating net asset value all assets and liabilities initially expressed in foreign currencies will be converted into U.S. dollars at the prevailing currency rate average on the valuation date. Options on stock indexes traded on national securities exchanges are valued at the close of options trading on such exchanges which is currently 4:10 p.m. New York time. Stock index futures and related options, which are traded on commodities exchanges, are valued at their last sales price as of the close of such commodities exchanges which is currently 4:15 p.m., New York time. Options and futures traded on foreign exchanges are valued at the last sale price available prior to the calculation of the Fund's net asset value. Securities or other assets for which market quotations are not readily available (including certain restricted and illiquid securities) are valued at fair value in accordance with procedures established by and under the general supervision and responsibility of the Trustees. Such procedures include the use of independent pricing services which use prices based upon yields or prices of securities of comparable quality, coupon, maturity and type; indications as to values from dealers; and general market conditions. 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 Portfolio was more than 60 days, unless this is determined not to represent fair value by the Trustees. Trading in securities on most foreign markets is normally completed before the close of trading in U.S. markets and may also take place on days on which the U.S. markets are closed. If events materially affecting the value of securities occur between the time when the market in which they are traded closes and the time when the Fund's net asset value is calculated, such securities will be valued at fair value in accordance with procedures established by and under the general supervision of the Trustees. PERFORMANCE DATA From time to time, the Funds may quote performance in terms of actual distributions, total return or capital appreciation in reports, sales literature and advertisements published by the Trust. Shareholders may obtain current performance information by calling the number provided on the cover page of this Statement of Additional Information. See also the Prospectus. Total Return Quotations. As required by regulations of the SEC, the annualized total return of the Funds for a period is computed by assuming a hypothetical initial payment of $1,000. It is then assumed that all of the dividends and distributions by the Fund over the period are reinvested. It is then assumed that at the end of the period, the entire amount is redeemed. The annualized total return is then calculated by determining the annual rate required for the initial payment to grow to the amount, which would have been received upon redemption. Aggregate total returns, reflecting the cumulative percentage change over a measuring period, may also be calculated. Historical performance information for periods prior to the establishment of the U.S. Equity and U.S. Small Company Funds will be that of their respective predecessor free-standing and/or corresponding feeder funds and will be presented in accordance with applicable SEC staff interpretations. General. A Fund's performance will vary from time to time depending upon market conditions, the composition of its corresponding Portfolio, and its operating expenses. Consequently, any given performance quotation should not be considered representative of a Fund's performance for any specified period in the future. In addition, because performance will fluctuate, it may not provide a basis for comparing an investment in a Fund with certain bank deposits or other investments that pay a fixed yield or return for a stated period of time. Comparative performance information may be used from time to time in advertising the Funds' shares, including appropriate market indices including the benchmarks indicated under "Investment Advisor" above or data from Lipper Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar Inc., the Dow Jones Industrial Average and other industry publications. From time to time, the Funds may, in addition to any other permissible information, include the following types of information in advertisements, supplemental sales literature and reports to shareholders: (1) discussions of general economic or financial principles (such as the effects of compounding and the benefits of dollar-cost averaging); (2) discussions of general economic trends; (3) presentations of statistical data to supplement such discussions; (4) descriptions of past or anticipated portfolio holdings for one or more of the Funds; (5) descriptions of investment strategies for one or more of the Funds; (6) descriptions or comparisons of various savings and investment products (including, but not limited to, qualified retirement plans and individual stocks and bonds), which may or may not include the Funds; (7) comparisons of investment products (including the Funds) with relevant markets or industry indices or other appropriate benchmarks; (8) discussions of Fund rankings or ratings by recognized rating organizations; and (9) discussions of various statistical methods quantifying the Fund's volatility relative to its benchmark or to past performance, including risk adjusted measures. The Funds may also include calculations, such as hypothetical compounding examples, which describe hypothetical investment results in such communications. Such performance examples will be based on an express set of assumptions and are not indicative of the performance of any of the Funds. PORTFOLIO TRANSACTIONS The Advisor places orders for all Portfolios for all purchases and sales of portfolio securities, enters into repurchase agreements, and may enter into reverse repurchase agreements and execute loans of portfolio securities on behalf of all the Portfolios. See "Investment Objectives and Policies." Fixed income and debt securities and municipal bonds and notes are generally traded at a net price with dealers acting as principal for their own accounts without a stated commission. The price of the security usually includes profit to the dealers. In underwritten offerings, securities are purchased at a fixed price, which includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount. On occasion, certain securities may be purchased directly from an issuer, in which case no commissions or discounts are paid. The Advisor intends to seek best execution on a competitive basis for both purchases and sales of securities. In selecting a broker, the Advisor considers a number of factors including: the price per unit of the security; the broker's reliability for prompt, accurate confirmations and on-time delivery of securities; the firm's financial condition; as well as the commissions charged. A broker may be paid a brokerage commission in excess of that which another broker might have charged for effecting the same transaction if, after considering the foregoing factors, the Advisor decides that the broker chosen will provide the best execution. he Advisor monitors the reasonableness of the brokerage commissions paid in light of the execution received. The Trustees of each Portfolio review regularly the reasonableness of commissions and other transaction costs incurred by the Portfolios in light of facts and circumstances deemed relevant from time to time, and, in that connection, will receive reports from the Advisor and published data concerning transaction costs incurred by institutional investors generally. Research services provided by brokers to whom the Advisor has allocated brokerage business in the past include economic statistics and forecasting services, industry and company analyses, portfolio strategy services, quantitative data, and consulting services from economists and political analysts. Research services furnished by brokers are used for the benefit of all the Advisor's clients and not solely or necessarily for the benefit of an individual Portfolio. The Advisor believes that the value of research services received is not determinable and does not significantly reduce its expenses. The Portfolios do not reduce their fee to the Advisor by any amount that might be attributable to the value of such services. The Portfolios corresponding to the Funds paid the following approximate brokerage commissions for the indicated periods: U.S. Equity - For the fiscal years ended May 31, 1998, 1999 and 2000: $1,614,293, $1,163,432 and $1,149,804, respectively. U.S. Small Company for the fiscal years ended May 31, 1998, 1999 and 2000: $1,662,968, $979,033 and $475,461, respectively. U.S. Small Company Opportunities For the period June 16, 1997 (commencement of operations) through May 31, 1998: $126,261. For the fiscal years ended May 31, 1999 and 2000: $93,960 and $410,368, respectively. Subject to the overriding objective of obtaining the best execution of orders, the Advisor may allocate a portion of a Portfolio's brokerage transactions to affiliates of the Advisor. Under the 1940 Act, persons affiliated with the Portfolio and persons who are affiliated with such persons are prohibited from dealing with the Portfolio as principal in the purchase and sale of securities unless a permissive order allowing such transactions is obtained from the SEC. However, affiliated persons of the Portfolio may serve as its broker in listed or over-the-counter transactions conducted on an agency basis provided that, among other things, the fee or commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated brokers in connection with comparable transactions. In addition, the Portfolio may no purchase securities during the existence of any underwriting syndicate for such securities of which Morgan or an affiliate is a member or in a private placement in which Morgan or an affiliate serves as placement agent except pursuant to procedures adopted by the Board of Trustees of the Portfolio that either comply with rules adopted by the SEC or with interpretations of the SEC's staff. On those occasions when the Advisor deems the purchase or sale of a security to be in the best interests of a Portfolio as well as other customers including other Portfolios, the Advisor to the extent permitted by applicable laws and regulations, may, but is not obligated to, aggregate the securities to be sold or purchased for a Portfolio with those to be sold or purchased for other customers in order to obtain best execution, including lower brokerage commissions if appropriate. In such event, allocation of the securities so purchased or sold as well as any expenses incurred in the transaction will be made by the Advisor in the manner it considers to be most equitable and consistent with its fiduciary obligations to a Portfolio. In some instances, this procedure might adversely affect a Portfolio. If a Portfolio that writes options effects a closing purchase transaction with respect to an option written by it, normally such transaction will be executed by the same broker-dealer who executed the sale of the option. The writing of options by a Portfolio will be subject to limitations established by each of the exchanges governing the maximum number of options in each class which may be written by a single investor or group of investors acting in concert, regardless of whether the options are written on the same or different exchanges or are held or written in one or more accounts or through one or more brokers. The number of options, which a Portfolio may write, may be affected by options written by the Advisor for other investment advisory clients. An exchange may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions. MASSACHUSETTS TRUST The Trust is a trust fund of the type commonly known as a "Massachusetts business trust" of which each Fund is a separate and distinct series. A copy of the Declaration of Trust for the Trust is on file in the office of the Secretary of The Commonwealth of Massachusetts. The Declaration of Trust and the by-laws of the Trust are designed to make the Trust similar in most respects to a Massachusetts business corporation. The principal distinction between the two forms concerns shareholder liability described below. Effective October 10, 1996, the name of the Trust was changed from "The Pierpont Funds" to "The JPM Pierpont Funds," and each Fund's name changed accordingly. Effective May 12, 1997, the name of the U.S. Equity Fund was changed from "The JPM Pierpont Equity Fund" to "The JPM Pierpont U.S. Equity Fund", and the Fund's corresponding Portfolio changed its name accordingly. Effective May 12, 1997, the name of the U.S. Small Company Fund was changed from "The JPM Pierpont Capital Appreciation Fund" to "The JPM Pierpont U.S. Small Company Fund". Effective January 1, 1998, the name of the Trust was changed from "The JPM Pierpont Funds" to "J.P. Morgan Funds", and each Fund's name changed accordingly. Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally liable as partners for the obligations of the trust which is not the case for a corporation. However, the Trust's Declaration of Trust provides that the shareholders shall not be subject to any personal liability for the acts or obligations of any Fund and that every written agreement, obligation, instrument or undertaking made on behalf of any Fund shall contain a provision to the effect that the shareholders are not personally liable thereunder. No personal liability will attach to the shareholders under any undertaking containing such provision when adequate notice of such provision is given, except possibly in a few jurisdictions. With respect to all types of claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where the provision referred to is omitted from the undertaking, (iii) claims for taxes, and (iv) certain statutory liabilities in other jurisdictions, a shareholder may be held personally liable to the extent that claims are not satisfied by the Fund. However, upon payment of such liability, the shareholder will be entitled to reimbursement from the general assets of the Fund. The Trustees intend to conduct the operations of the Trust in such a way so as to avoid, as far as possible, ultimate liability of the shareholders for liabilities of the Funds. The Trust's Declaration of Trust further provides that the name of the Trust refers to the Trustees collectively as Trustees, not as individuals or personally, that no Trustee, Member of the Advisory Board, officer, employee or agent of a Fund is liable to a Fund or to a shareholder, and that no Trustee, Member of the Advisory Board, officer, employee, or agent is liable to any third persons in connection with the affairs of a Fund, except as such liability may arise from his or its own bad faith, willful misfeasance, gross negligence or reckless disregard of his or its duties to such third persons. It also provides that all third persons shall look solely to Fund property for satisfaction of claims arising in connection with the affairs of a Fund. With the exceptions stated, the Trust's Declaration of Trust provides that a Trustee, Member of the Advisory Board, officer, employee, or agent is entitled to be indemnified against all liability in connection with the affairs of a Fund. The Trust shall continue without limitation of time subject to the provisions in the Declaration of Trust concerning termination by action of the shareholders or by action of the Trustees upon notice to the shareholders. The Trust is an open-end management investment company organized as a Massachusetts business trust in which each Fund represents a separate series of shares of beneficial interest. See "Massachusetts Trust." DESCRIPTION OF SHARES The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares ($0.001 par value) of one or more series and classes within any series and to divide or combine the shares (of any series, if applicable) without changing the proportionate beneficial interest of each shareholder in a Fund (or in the assets of other series, if applicable). Each share represents an equal proportional interest in a Fund with each other share. Upon liquidation of a Fund, holders are entitled to share pro rata in the net assets of a Fund available for distribution to such shareholders. See "Massachusetts Trust." Shares of a Fund have no preemptive or conversion rights and are fully paid and nonassessable. The rights of redemption and exchange are described in the Prospectus and elsewhere in this Statement of Additional Information. The shareholders of the Trust are entitled to one full or fractional vote for each dollar or fraction of a dollar invested. Subject to the 1940 Act, the Trustees themselves have the power to alter the number and the terms of office of the Trustees, to lengthen their own terms, or to make their terms of unlimited duration subject to certain removal procedures, and appoint their own successors, provided, however, that immediately after such appointment the requisite majority of the Trustees have been elected by the shareholders of the Trust. The voting rights of shareholders are not cumulative so that holders of more than 50% of the shares voting can, if they choose, elect all Trustees being selected while the shareholders of the remaining shares would be unable to elect any Trustees. It is the intention of the Trust not to hold meetings of shareholders annually. The Trustees may call meetings of shareholders for action by shareholder vote as may be required by either the 1940 Act or the Trust's Declaration of Trust. Shareholders of the Trust have the right, upon the declaration in writing or vote of more than two-thirds of its outstanding shares, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on removal of a Trustee upon the written request of the record holders of 10% of the Trust's shares. In addition, whenever ten or more shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least 1% of the Trust's outstanding shares, whichever is less, shall apply to the Trustees in writing, stating that they wish to communicate with other shareholders with a view to obtaining signatures to request a meeting for the purpose of voting upon the question of removal of any Trustee or Trustees and accompanied by a form of communication and request which they wish to transmit, the Trustees shall within five business days after receipt of such application either: (1) afford to such applicants access to a list of the names and addresses of all shareholders as recorded on the books of the Trust; or (2) inform such applicants as to the approximate number of shareholders of record, and the approximate cost of mailing to them the proposed communication and form of request. If the Trustees elect to follow the latter course, the Trustees, upon the written request of such applicants, accompanied by a tender of the material to be mailed and of the reasonable expenses of mailing, shall, with reasonable promptness, mail such material to all shareholders of record at their addresses as recorded on the books, unless within five business days after such tender the Trustees shall mail to such applicants and file with the SEC, together with a copy of the material to be mailed, a written statement signed by at least a majority of the Trustees to the effect that in their opinion either such material contains untrue statements of fact or omits to state facts necessary to make the statements contained therein not misleading, or would be in violation of applicable law, and specifying the basis of such opinion. After opportunity for hearing upon the objections specified in the written statements filed, the SEC may, and if demanded by the Trustees or by such applicants shall, enter an order either sustaining one or more of such objections or refusing to sustain any of them. If the SEC shall enter an order refusing to sustain any of such objections, or if, after the entry of an order sustaining one or more of such objections, the SEC shall find, after notice and opportunity for hearing, that all objections so sustained have been met, and shall enter an order so declaring, the Trustees shall mail copies of such material to all shareholders with reasonable promptness after the entry of such order and the renewal of such tender. The Trustees have authorized the issuance and sale to the public of shares of 33 series of the Trust. The Trustees have no current intention to create any classes within the initial series or any subsequent series. The Trustees may, however, authorize the issuance of shares of additional series and the creation of classes of shares within any series with such preferences, privileges, limitations and voting and dividend rights as the Trustees may determine. The proceeds from the issuance of any additional series would be invested in separate, independently managed portfolios with distinct investment objectives, policies and restrictions, and share purchase, redemption and net asset valuation procedures. Any additional classes would be used to distinguish among the rights of different categories of shareholders, as might be required by future regulations or other unforeseen circumstances. All consideration received by the Trust for shares of any additional series or class, and all assets in which such consideration is invested, would belong to that series or class, subject only to the rights of creditors of the Trust and would be subject to the liabilities related thereto. Shareholders of any additional series or class will approve the adoption of any management contract or distribution plan relating to such series or class and of any changes in the investment policies related thereto, to the extent required by the 1940 Act. For information relating to mandatory redemption of Fund shares or their redemption at the option of the Trust under certain circumstances, see "Redemption of Shares". SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE Unlike other mutual funds which directly acquire and manage their own portfolio of securities, each Fund is an open-end management investment company which seeks to achieve its investment objective by investing all of its investable assets in a corresponding Master Portfolio, a separate registered investment company with the same investment objective and policies as the Fund. Generally when a corresponding Master Portfolio seeks a vote to change a fundamental investment restriction, its feeder fund(s) will hold a shareholder meeting and cast its vote proportionately, as instructed by its shareholders. The shareholders of the Trust are entitled to a full or fractional vote for each dollar or fraction of a dollar invested. In addition to selling a beneficial interest to a Fund, a Portfolio may sell beneficial interests to other mutual funds or institutional investors. Such investors will invest in the Portfolio on the same terms and conditions and will bear a proportionate share of the Portfolio's expenses. However, the other investors investing in the Portfolio may sell shares of their own fund using a different pricing structure than the Fund. Such different pricing structures may result in differences in returns experienced by investors in other funds that invest in the Portfolio. Such differences in returns are not uncommon and are present in other mutual fund structures. Information concerning other holders of interests in the Portfolio is available from Morgan at (800) 766-7722. The Trust may withdraw the investment of a Fund from a Portfolio at any time if the Board of Trustees of the Trust determines that it is in the best interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees would consider what action might be taken, including the investment of all the assets of the Fund in another pooled investment entity having the same investment objective and restrictions in accordance with the investment policies with respect to the Portfolio described above and in each Fund's Prospectus. Certain changes in a Portfolio's fundamental investment policies or restrictions, or a failure by a Fund's shareholders to approve such change in a Portfolio's investment restriction, may require withdrawal of a Fund's interest in the Portfolio. Any such withdrawal could result in a distribution in-kind of portfolio securities (as opposed to a cash distribution) from a Portfolio, which may or may not be readily marketable. The distribution in-kind may result in a Fund having a less diversified portfolio of investments or adversely affect a Fund's liquidity, and a Fund could incur brokerage, tax or other charges in converting the securities to cash. Notwithstanding the above, there are other means for meeting shareholder redemption requests, such as borrowing. Smaller funds investing in a Portfolio may be materially affected by the actions of larger funds investing in a Portfolio. For example, if a large fund withdraws from a Portfolio, the remaining funds may subsequently experience higher pro rata operating expenses, thereby producing lower returns. Additionally, because a Portfolio would become smaller, it may become less diversified, resulting in potentially increased portfolio risk (however, these possibilities also exist for traditionally structured funds which have large or institutional investors who may withdraw from a fund). Also, funds with a greater pro rata ownership in a Portfolio could have effective voting control of the operations of a Portfolio. Whenever a Fund is requested to vote on matters pertaining to its corresponding Portfolio (other than a vote by a Fund to continue the operation of its corresponding Portfolio upon the withdrawal of another investor in a Portfolio), the Trust will hold a meeting of shareholders of a Fund and will cast all of its votes proportionately as instructed by a Fund's shareholders. The Trust will vote the shares held by Fund shareholders who do not give voting instructions in the same proportion as the shares of Fund shareholders who do give voting instructions. Shareholders of a Fund who do not vote will have no effect on the outcome of such matters. TAXES The following discussion of tax consequences is based on U.S. federal tax laws in effect on the date of this Statement of Additional Information. These laws and regulations are subject to change by legislative or administrative action, possibly on a retroactive basis. Each Fund intends to continue to qualify as a regulated investment company under Subchapter M of the Code. As a regulated investment company, a Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to loans of stock and securities, gains from the sale or other disposition of stock, securities or foreign currency and other income (including but not limited to gains from options, futures, and forward contracts) derived with respect to its business of investing in such stock, securities or foreign currency; and (b) diversify its holdings so that, at the end of each quarter of its taxable year, (i) at least 50% of the value of the Fund's total assets is represented by cash, cash items, U.S. Government securities, securities of other regulated investment companies, and other securities limited, in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets, and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or securities of other regulated investment companies). As a regulated investment company, a Fund (as opposed to its shareholders) will not be subject to federal income taxes on the net investment income and capital gain that it distributes to its shareholders, provided that at least 90% of its net investment income and realized net short-term capital gain in excess of net long-term capital loss for the taxable year is distributed in accordance with the Code's requirements. Under the Code, a Fund will be subject to a 4% excise tax on a portion of its undistributed taxable income and capital gains if it fails to meet certain distribution requirements by the end of the calendar year. Each Fund intends to make distributions in a timely manner and accordingly does not expect to be subject to the excise tax. For federal income tax purposes, dividends that are declared by a Fund in October, November or December as of a record date in such month and actually paid in January of the following year will be treated as if they were paid on December 31 of the year declared. Therefore, such dividends will be taxable to a shareholder in the year declared rather than the year paid. Distributions of net investment income, certain foreign currency gains, and realized net short-term capital gain in excess of net long-term capital loss are generally taxable to shareholders of the Funds as ordinary income whether such distributions are taken in cash or reinvested in additional shares. The Funds expect that a portion of these distributions to corporate shareholders will be eligible for the dividends-received deduction, subject to applicable limitations under the Code. If dividend payments exceed income earned by a Fund, the over distribution would be considered a return of capital rather than a dividend payment. The Funds intend to pay dividends in such a manner so as to minimize the possibility of a return of capital. Distributions of net long-term capital gain (i.e., net long-term capital gain in excess of net short-term capital loss) are taxable to shareholders of a Fund as long-term capital gain, regardless of whether such distributions are taken in cash or reinvested in additional shares and regardless of how long a shareholder has held shares in the Fund. In general, long-term capital gain of an individual shareholder will be subject to a 20% rate of tax. Gains or losses on sales of portfolio securities will be treated as long-term capital gains or losses if the securities have been held for more than one year except in certain cases where a put option is acquired or a call option is written thereon or the straddle rules described below are otherwise applicable. Other gains or losses on the sale of securities will be short-term capital gains or losses. Gains and losses on the sale, lapse or other termination of options on securities will be treated as gains and losses from the sale of securities. Except as described below, if an option written by a Portfolio lapses or is terminated through a closing transaction, such as a repurchase by the Portfolio of the option from its holder, the Portfolio will realize a short-term capital gain or loss, depending on whether the premium income is greater or less than the amount paid by the Portfolio in the closing transaction. If securities are purchased by a Portfolio pursuant to the exercise of a put option written by it, the Portfolio will subtract the premium received from its cost basis in the securities purchased. Any distribution of net investment income or capital gains will have the effect of reducing the net asset value of Fund shares held by a shareholder by the same amount as the distribution. If the net asset value of the shares is reduced below a shareholder's cost as a result of such a distribution, the distribution, although constituting a return of capital to the shareholder, will be taxable as described above. Investors should consider the consequences of purchasing shares in a Fund shortly before the Fund declares a sizable dividend distribution. Any gain or loss realized on the redemption or exchange of Fund shares by a shareholder who is not a dealer in securities will be treated as long-term capital gain or loss if the shares have been held for more than one year, and otherwise as short-term capital gain or loss. Long-term capital gain of an individual holder is subject to maximum tax rate of 20%. However, any loss realized by a shareholder upon the redemption or exchange of shares in the Fund held for six months or less will be treated as a long-term capital loss to the extent of any long-term capital gain distributions received by the shareholder with respect to such shares. In addition, no loss will be allowed on the redemption or exchange of shares of the Fund, if within a period beginning 30 days before the date of such redemption or exchange and ending 30 days after such date, the shareholder acquires (such as through dividend reinvestment) securities that are substantially identical to shares of the Fund. Investors are urged to consult their tax advisors concerning the limitations on the deductibility of capital losses. Under the Code, gains or losses attributable to disposition of foreign currency or to certain foreign currency contracts, or to fluctuations in exchange rates between the time a Portfolio accrues income or receivables or expenses or other liabilities denominated in a foreign currency and the time a Portfolio actually collects such income or pays such liabilities, are generally treated as ordinary income or ordinary loss. Similarly, gains or losses on the disposition of debt securities held by a Portfolio, if any, denominated in foreign currency, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates are also treated as ordinary income or loss. Forward currency contracts, options and futures contracts entered into by a Portfolio may create "straddles" for U.S. federal income tax purposes and this may affect the character and timing of gains or losses realized by the Portfolio on forward currency contracts, options and futures contracts or on the underlying securities. Certain options, futures and foreign currency contracts held by a Portfolio at the end of each taxable year will be required to be "marked to market" for federal income tax purposes -- i.e., treated as having been sold at market value. For options and futures contracts, 60% of any gain or loss recognized on these deemed sales and on actual dispositions will be treated as long-term capital gain or loss, and the remainder will be treated as short-term capital gain or loss regardless of how long the Portfolio has held such options or futures. However, gain or loss recognized on certain foreign currency contracts will be treated as ordinary income or loss. The Funds may invest in Equity Securities of foreign issuers. If a Portfolio purchases shares in certain foreign corporations (referred to as passive foreign investment companies ("PFICs") under the Code), the corresponding fund may be subject to federal income tax on a portion of an "excess distribution" from such foreign corporation, including any gain from the disposition of such shares, even though a portion of such income may have to be distributed as a taxable dividend by the Fund to its shareholders. In addition, certain interest charges may be imposed on a Fund as a result of such distributions. Alternatively, a Fund may in some cases be permitted to include each year in its income and distribute to shareholders a pro rata portion of the foreign investment fund's income, whether or not distributed to the Fund. The Portfolios will be permitted to "mark to market" any marketable stock held by a Portfolio in a PFIC. If a Portfolio made such an election, the corresponding Fund would include in income each year an amount equal to its share of the excess, if any, of the fair market value of the PFIC stock as of the close of the taxable year over the adjusted basis of such stock. The Fund would be allowed a deduction for its share of the excess, if any, of the adjusted basis of the PFIC stock over its fair market value as of the close of the taxable year, but only to the extent of any net mark-to-market gains with respect to the stock included by the Fund for prior taxable years. If a correct and certified taxpayer identification number is not on file, the Fund is required, subject to certain exemptions, to withhold 31% of certain payments made or distributions declared to non-corporate shareholders. Foreign Shareholders. Dividends of net investment income and distributions of realized net short-term gain in excess of net long-term loss to a shareholder who, as to the United States, is a nonresident alien individual, fiduciary of a foreign trust or estate, foreign corporation or foreign partnership (a "foreign shareholder") will be subject to U.S. withholding tax at the rate of 30% (or lower treaty rate) unless the dividends are effectively connected with a U.S. trade or business of the shareholder, in which case the dividends will be subject to tax on a net income basis at the graduated rates applicable to U.S. individuals or domestic corporations. Distributions treated as long term capital gains to foreign shareholders will not be subject to U.S. tax unless the distributions are effectively connected with the shareholder's trade or business in the United States or, in the case of a shareholder who is a nonresident alien individual, the shareholder was present in the United States for more than 182 days during the taxable year and certain other conditions are met. In the case of a foreign shareholder who is a nonresident alien individual or foreign entity, a Fund may be required to withhold U.S. federal income tax as "backup withholding" at the rate of 31% from distributions treated as long-term capital gains and from the proceeds of redemptions, exchanges or other dispositions of Fund shares unless IRS Form W-8BEN (or any successor form) is provided. Transfers by gift of shares of a Fund by a foreign shareholder who is a nonresident alien individual will not be subject to U.S. federal gift tax, but the value of shares of the Fund held by such a shareholder at his or her death will be includible in his or her gross estate for U.S. federal estate tax purposes. Foreign Taxes. It is expected that the Funds may be subject to foreign withholding taxes or other foreign taxes with respect to income (possibly including, in some cases, capital gains) received from sources within foreign countries. State and Local Taxes. Each Fund may be subject to state or local taxes in jurisdictions in which the Fund is deemed to be doing business. In addition, the treatment of a Fund and its shareholders in those states, which have income tax laws, might differ from treatment under the federal income tax laws. Shareholders should consult their own tax advisors with respect to any state or local taxes. Other Taxation. The Trust is organized as a Massachusetts business trust and, under current law, neither the Trust nor any Fund is liable for any income or franchise tax in The Commonwealth of Massachusetts, provided that each Fund continues to qualify as a regulated investment company under Subchapter M of the Code. The Portfolios are organized as New York trusts. The Portfolios are not subject to any federal income taxation or income or franchise tax in the State of New York or The Commonwealth of Massachusetts. The investment by a Fund in its corresponding Portfolio does not cause the Fund to be liable for any income or franchise tax in the State of New York. ADDITIONAL INFORMATION As used in this Statement of Additional Information and the Prospectus, the term "majority of the outstanding voting securities" means the vote of (i) 67% or more of the Fund's shares or the Portfolio's outstanding voting securities present at a meeting, if the holders of more than 50% of a Fund's outstanding shares or the Portfolio's outstanding voting securities are present or represented by proxy, or (ii) more than 50% of a Fund's outstanding shares or the Portfolio's outstanding voting securities, whichever is less. Telephone calls to the Funds, J.P. Morgan or Financial Professionals as shareholder servicing agent may be tape recorded. With respect to the securities offered hereby, this Statement of Additional Information and the Prospectus do not contain all the information included in the Trust's registration statement filed with the SEC under the 1933 Act and the 1940 Act and the Portfolios' registration statements filed under the 1940 Act. Pursuant to the rules and regulations of the SEC, certain portions have been omitted. The registration statements including the exhibits filed therewith may be examined at the office of the SEC in Washington, D.C. Statements contained in this Statement of Additional Information and the Prospectus concerning the contents of any contract or other document are not necessarily complete, and in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the applicable Registration Statements. Each such statement is qualified in all respects by such reference. No dealer, salesman or any other person has been authorized to give any information or to make any representations, other than those contained in the Prospectus and this Statement of Additional Information, in connection with the offer contained therein and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the Trust, the Funds or the Distributor. The Prospectus and this Statement of Additional Information do not constitute an offer by any Fund or by the Distributor to sell or solicit any offer to buy any of the securities offered hereby in any jurisdiction to any person to whom it is unlawful for the Fund or the Distributor to make such offer in such jurisdictions. FINANCIAL STATEMENTS The following financial statements of the Portfolios and the report thereon of PricewaterhouseCoopers LLP are incorporated herein by reference from their respective annual report filings made with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial reports are available without charge upon request by calling J.P. Morgan Institutional Funds Services at (800) 766-7722.
- ----------------------------------------------------------- ---------------------------------------------------------- Date of Annual Report; Name of Portfolio Date Annual Report Filed; Accession Number - ----------------------------------------------------------- ---------------------------------------------------------- - ----------------------------------------------------------- ---------------------------------------------------------- J.P. Morgan U.S. Equity Portfolio 5/31/00; 07/26/00 0000912057-00-033179 - ----------------------------------------------------------- ---------------------------------------------------------- - ----------------------------------------------------------- ---------------------------------------------------------- J.P. Morgan U.S. Small Company Portfolio 5/31/00; 07/26/00; 0000912057-00-033200 - ----------------------------------------------------------- ---------------------------------------------------------- - ----------------------------------------------------------- ---------------------------------------------------------- J.P. Morgan U.S. Small Company Opportunities Portfolio 5/31/00; 07/26/00; 0000912057-00-033184 - ----------------------------------------------------------- ----------------------------------------------------------
3 A- S:\Funds Legal\DSFNDLGL\INSTITUT\2000.pea\0600.485a\domeqsai.doc APPENDIX A Description of Security Ratings STANDARD & POOR'S Corporate and Municipal Bonds AAA - Debt rated AAA have the highest ratings assigned by Standard & Poor's to a debt obligation. Capacity to pay interest and repay principal is extremely strong. AA - Debt rated AA have a very strong capacity to pay interest and repay principal and differ from the highest rated issues only in a small degree. A - Debt rated A have a strong capacity to pay interest and repay principal although they are somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher rated categories. BBB - Debt rated BBB are regarded as having an adequate capacity to pay interest and repay principal. Whereas they normally exhibit adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for debt in higher rated categories. BB - Debt rated BB are regarded as having less near-term vulnerability to default than other speculative issues. However, they face major ongoing uncertainties or exposure to adverse business, financial or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments. B - An obligation rated B is more vulnerable to nonpayment than obligations rated BB, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation. CCC - An obligation rated CCC is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation. CC - An obligation rated CC is currently highly vulnerable to nonpayment. C - The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action has been taken, but payments on this obligation are being continued. Commercial Paper, including Tax Exempt A - Issues assigned this highest rating are regarded as having the greatest capacity for timely payment. Issues in this category are further refined with the designations 1, 2, and 3 to indicate the relative degree of safety. A-1 - This designation indicates that the degree of safety regarding timely payment is very strong. short-term tax-exempt Notes SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating assigned by Standard & Poor's and has a very strong or strong capacity to pay principal and interest. Those issues determined to possess overwhelming safety characteristics are given a "plus" (+) designation. SP-2 - The short-term tax-exempt note rating of SP-2 has a satisfactory capacity to pay principal and interest. MOODY'S Corporate and Municipal Bonds Aaa - Bonds, which are rated Aaa, are judged to be of the best quality. They carry the smallest degree of investment risk and are generally referred to as "gilt edge." Interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues. Aa - Bonds, which are rated Aa, are judged to be of high quality by all standards. Together with the Aaa group they comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long term risks appear somewhat larger than in Aaa securities. A - Bonds which are rated A possess many favorable investment attributes and are to be considered as upper medium grade obligations. Factors giving security to principal and interest are considered adequate but elements may be present which suggest a susceptibility to impairment sometime in the future. Baa - Bonds which are rated Baa are considered as medium grade obligations, i.e., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well. Ba - Bonds which are rated Ba are judged to have speculative elements; their future cannot be considered as well-assured. Often the protection of interest and principal payments may be very moderate, and thereby not well safeguarded during both good and bad times over the future. Uncertainty of position characterizes bonds in this class. B - Bonds, which are rated B generally, lack characteristics of the desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small. Caa - Bonds, which are rated Caa, are of poor standing. Such issues may be in default or there may be present elements of danger with respect to principal or interest. Ca - Bonds, which are rated Ca, represent obligations which are speculative in a high degree. Such issues are often in default or have other marked shortcomings. C - Bonds which are rated C are the lowest rated class of bonds and issues so rated can be regarded as having extremely poor prospects of ever attaining any real investment standing. Commercial Paper, including Tax Exempt Prime-1 - Issuers rated Prime-1 (or related supporting institutions) have a superior capacity for repayment of short-term promissory obligations. Prime-1 repayment capacity will normally be evidenced by the following characteristics: - Leading market positions in well established industries. - High rates of return on funds employed. - Conservative capitalization structures with moderate reliance on debt and ample asset protection. - Broad margins in earnings coverage of fixed financial charges and high internal cash generation. - Well established access to a range of financial markets and assured sources of alternate liquidity. short-term Tax Exempt Notes MIG-1 - The short-term tax-exempt note rating MIG-1 is the highest rating assigned by Moody's for notes judged to be the best quality. Notes with this rating enjoy strong protection from established cash flows of funds for their servicing or from established and broad-based access to the market for refinancing, or both. MIG-2 - MIG-2 rated notes are of high quality but with margins of protection not as large as MIG-1. EX-99.17(F) 7 a2043521zex-99_17f.txt EXHIBIT 99.17(F) LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND July 1, 2000 Dear Shareholder, For the 12 months ended May 31, 2000, the J.P. Morgan Institutional U.S. Equity Fund posted a 2.45% return, underperforming both the 10.47% return of the S&P 500 and the 13.69% return of the Lipper Multi-Cap Core Fund Average. The fund's net asset value declined to $12.79 on May 31, 2000, from $15.08 on May 31, 1999. During the year, the fund made distributions of approximately $0.11 per share from ordinary income, approximately $0.84 per share from short-term capital gains, and approximately $1.71 per share from long-term capital gains. On May 31, 2000, the net assets of the fund were approximately $241.5 million, while the assets of The U.S. Equity Portfolio, in which the fund invests, amounted to approximately $628.2 million. This report includes a discussion with Henry D. Cavanna, the portfolio manager primarily responsible for The U.S. Equity Portfolio. In this interview, Henry talks about the events of the previous year that had the greatest effect on the portfolio and discusses his investment strategy. As chairman and president of Asset Management Services, we appreciate your investment in the fund. If you have any comments or questions, please call your Morgan representative or J.P. Morgan Funds Services at (800) 766-7722. Sincerely yours, /s/ Ramon de Oliveira /s/ Keith M. Schappert Ramon de Oliveira Keith M. Schappert Chairman of Asset Management Services President of Asset Management Services J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------- TABLE OF CONTENTS LETTER TO THE SHAREHOLDERS......... 1 FUND FACTS AND HIGHLIGHTS....... 8 FUND PERFORMANCE................... 2 FINANCIAL STATEMENTS........... 10 PORTFOLIO MANAGER Q&A.............. 3 - -------------------------------------------------------------------------------- 1 Fund performance EXAMINING PERFORMANCE There are several ways to evaluate a mutual fund's historical performance record. One approach is to look at the growth of a hypothetical investment of $3,000,000 (the minimum investment in the fund). The chart at right shows that $3,000,000 invested on May 31, 1990*, would have grown to $13,369,350 on May 31, 2000. Another way to look at performance is to review a fund's average annual total return. This figure takes the fund's actual (or cumulative) return and shows what would have happened if the fund had achieved that return by performing at a constant rate each year. Average annual total returns represent the average yearly change of a fund's value over various time periods, typically one, five, or ten years (or since inception). Total returns for periods of less than one year are not annualized and provide a picture of how a fund has performed over the short term. GROWTH OF $3,000,000 OVER 10 YEARS* MAY 31, 1990 - MAY 31, 2000 [CHART] [EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC]
LIPPER MULTI-CAP CORE INST US EQUITY FUNDS AVERAGE S&P 500 5/31/90 3,000,000 3,000,000 3,000,000 6/30/90 3,012,744 2,960,400 2,979,750 7/31/90 3,038,668 2,700,477 2,970,185 8/31/90 2,803,500 2,553,031 2,701,710 9/30/90 2,656,359 2,493,801 2,570,218 10/31/90 2,652,625 2,655,399 2,559,269 11/30/90 2,805,697 2,739,309 2,724,700 12/31/90 2,884,116 2,894,354 2,800,610 1/31/91 2,983,893 3,101,301 2,922,576 2/28/91 3,187,211 3,193,409 3,131,600 3/31/91 3,273,933 3,201,393 3,207,447 4/30/91 3,275,824 3,336,812 3,215,048 5/31/91 3,444,155 3,181,984 3,353,745 6/30/91 3,300,483 3,330,582 3,200,111 7/31/91 3,462,005 3,430,833 3,349,268 8/31/91 3,549,577 3,388,977 3,428,613 9/30/91 3,485,369 3,451,334 3,371,252 10/31/91 3,579,357 3,316,732 3,416,562 11/30/91 3,446,208 3,676,266 3,278,908 12/31/91 3,868,136 3,693,176 3,653,917 1/31/92 3,859,862 3,749,313 3,585,845 2/29/92 3,944,672 3,662,704 3,632,281 3/31/92 3,859,796 3,672,593 3,561,633 4/30/92 3,895,074 3,697,566 3,666,203 5/31/92 3,946,953 3,599,951 3,684,167 6/30/92 3,849,329 3,729,189 3,629,347 7/31/92 3,960,132 3,658,707 3,777,606 8/31/92 3,887,002 3,707,734 3,700,278 9/30/92 3,924,243 3,767,799 3,743,756 10/31/92 3,946,528 3,948,277 3,756,672 11/30/92 4,129,258 4,018,161 3,884,587 12/31/92 4,205,740 4,064,772 3,932,251 1/31/93 4,275,312 4,046,074 3,965,125 2/28/93 4,239,404 4,152,890 4,019,169 3/31/93 4,331,372 4,049,899 4,103,974 4/30/93 4,218,869 4,179,495 4,004,781 5/31/93 4,342,622 4,186,601 4,111,909 6/30/93 4,349,680 4,175,297 4,123,956 7/31/93 4,354,310 4,359,010 4,107,378 8/31/93 4,511,722 4,392,574 4,263,212 9/30/93 4,453,908 4,458,902 4,230,513 10/31/93 4,570,210 4,389,789 4,318,043 11/30/93 4,578,825 4,514,020 4,276,892 12/31/93 4,670,995 4,659,372 4,328,599 1/31/94 4,873,894 4,590,879 4,475,772 2/28/94 4,770,286 4,382,453 4,354,254 3/31/94 4,574,436 4,406,995 4,164,409 4/30/94 4,682,528 4,431,674 4,217,797 5/31/94 4,730,088 4,304,042 4,287,011 6/30/94 4,583,084 4,421,542 4,181,936 7/31/94 4,737,580 4,613,879 4,319,271 8/31/94 4,904,273 4,526,677 4,496,361 9/30/94 4,790,220 4,578,733 4,386,425 10/31/94 4,834,086 4,404,284 4,484,988 11/30/94 4,610,367 4,447,446 4,321,645 12/31/94 4,656,055 4,493,699 4,385,735 1/31/95 4,759,623 4,667,156 4,499,457 2/28/95 4,962,256 4,799,703 4,674,800 3/31/95 5,142,374 4,896,177 4,812,754 4/30/95 5,254,948 5,043,063 4,954,489 5/31/95 5,448,575 5,221,587 5,152,520 6/30/95 5,534,131 5,443,504 5,272,213 7/31/95 5,705,243 5,493,585 5,447,040 8/31/95 5,747,341 5,656,744 5,460,712 9/30/95 5,904,297 5,578,115 5,691,154 10/31/95 5,751,958 5,812,396 5,670,837 11/30/95 6,075,101 5,868,195 5,919,786 12/31/95 6,184,698 6,001,403 6,033,802 1/31/96 6,345,784 6,129,233 6,239,192 2/29/96 6,477,581 6,193,590 6,297,029 3/31/96 6,599,615 6,363,294 6,357,670 4/30/96 6,741,175 6,496,287 6,451,382 5/31/96 6,833,921 6,430,025 6,617,763 6/30/96 6,755,819 6,107,881 6,642,977 7/31/96 6,399,479 6,319,214 6,349,490 8/31/96 6,622,307 6,640,230 6,483,401 9/30/96 6,926,419 6,729,209 6,848,287 10/31/96 7,026,042 7,153,149 7,037,162 11/30/96 7,623,780 7,085,194 7,569,101 12/31/96 7,496,976 7,406,153 7,419,158 1/31/97 7,928,653 7,361,716 7,882,706 2/28/97 7,961,439 7,070,929 7,944,507 3/31/97 7,693,690 7,324,775 7,618,067 4/30/97 8,010,617 7,852,891 8,072,872 5/31/97 8,557,044 8,164,651 8,564,347 6/30/97 8,819,329 8,821,905 8,948,030 7/31/97 9,589,791 8,552,837 9,660,024 8/31/97 9,249,167 9,029,230 9,118,870 9/30/97 9,666,602 8,706,887 9,618,311 10/31/97 9,284,947 8,874,059 9,297,059 11/30/97 9,499,628 8,994,746 9,727,420 12/31/97 9,639,729 9,003,741 9,894,439 1/31/98 9,698,788 9,689,826 10,003,872 2/28/98 10,420,619 10,112,302 10,725,351 3/31/98 10,873,298 10,198,257 11,274,596 4/30/98 11,103,385 9,919,844 11,388,018 5/31/98 10,998,202 10,148,001 11,192,258 6/30/98 11,149,485 9,876,034 11,646,887 7/31/98 10,905,816 8,295,869 11,522,848 8/31/98 9,165,690 8,733,891 9,856,875 9/30/98 9,904,221 9,411,641 10,488,306 10/31/98 10,642,751 9,936,810 11,341,425 11/30/98 11,473,598 10,531,032 12,028,829 12/31/98 12,029,400 10,802,732 12,721,930 1/31/99 12,392,617 10,398,710 13,253,961 2/28/99 11,899,679 10,746,027 12,842,028 3/31/99 12,435,851 11,222,076 13,355,837 4/30/99 13,188,752 11,090,778 13,873,109 5/31/99 13,050,287 11,671,934 13,545,565 6/30/99 13,803,996 11,395,310 14,297,344 7/31/99 13,275,074 11,181,078 13,850,981 8/31/99 12,945,489 10,923,913 13,781,726 9/30/99 12,407,540 11,436,244 13,403,969 10/31/99 12,945,489 11,841,087 14,252,172 11/30/99 13,266,524 12,742,194 14,541,918 12/31/99 13,818,828 12,266,910 15,398,437 1/31/00 13,243,914 12,618,971 14,624,820 2/29/00 12,909,419 13,464,442 14,347,972 3/31/00 14,320,570 12,987,801 15,751,634 4/30/00 13,662,033 12,650,118 15,277,667 5/31/00 13,369,350 12,486,931 14,964,170
LIPPER PERFORMANCE AVERAGES ARE CALCULATED BY TAKING AN ARITHMETIC AVERAGE OF THE RETURNS OF THE FUNDS IN THE GROUP. THE AVERAGE ANNUALIZED RETURNS THAT RESULT FROM THIS METHODOLOGY WILL DIFFER FROM ANNUALIZING THE GROWTH OF THE MINIMUM INITIAL INVESTMENT.
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS - -------------------------------------------------------------------------------------------------------------------- THREE SIX ONE THREE FIVE TEN AS OF MAY 31, 2000 MONTHS MONTHS YEAR YEARS YEARS YEARS* - -------------------------------------------------------------------------------------------------------------------- J.P. Morgan Institutional U.S. Equity Fund 3.56% 0.78% 2.45% 16.04% 19.66% 16.12% S&P 500 Index** 4.29% 2.90% 10.47% 20.44% 23.77% 17.43% Lipper Multi-Cap Core Fund Average*** 0.53% 6.43% 13.69% 16.65% 19.53% 15.24% AS OF MARCH 31, 2000 - -------------------------------------------------------------------------------------------------------------------- J.P. Morgan Institutional U.S. Equity Fund 3.63% 15.42% 15.16% 23.01% 22.73% 17.81% S&P 500 Index** 2.29% 17.51% 17.94% 27.40% 26.76% 18.84% Lipper Multi-Cap Core Fund Average*** 5.39% 23.41% 25.51% 23.13% 21.96% 16.36%
*J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND'S RETURNS PRIOR TO JULY 19, 1993 (COMMENCEMENT OF OPERATIONS), INCLUDE HISTORICAL RETURNS OF THE U.S. EQUITY FUND, WHICH HAD A HIGHER EXPENSE RATIO. **S&P 500 INDEX IS AN UNMANAGED INDEX USED TO PORTRAY THE PATTERN OF COMMON STOCK MOVEMENT BASED ON THE AVERAGE PERFORMANCE OF 500 WIDELY HELD COMMON STOCKS. IT DOES NOT INCLUDE FEES OR OPERATING EXPENSES AND IS NOT AVAILABLE FOR ACTUAL INVESTMENT. ***DESCRIBES THE AVERAGE TOTAL RETURNS FOR ALL FUNDS IN THE INDICATED LIPPER CATEGORY, AS DEFINED BY LIPPER, INC., AND DOES NOT TAKE INTO ACCOUNT APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF FEES, ASSUME THE REINVESTMENT OF FUND DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. 2 PORTFOLIO MANAGER Q&A [PHOTO] The following is an interview with HENRY D. CAVANNA, managing director and member of the portfolio management team for The U.S. Equity Portfolio. Henry joined Morgan in 1971 and is a senior U.S. equity portfolio manager in the U.S. Equity and Balanced Accounts Group. Prior to joining Morgan, Henry was with Harris Upham & Co. He received his B.A. from Boston College and his L.L.B. from the University of Pennsylvania. This interview took place on June 11, 2000, and reflects Henry's views on that date. THE U.S. ECONOMY HAS BEEN QUITE VOLATILE OVER THE PAST 12 MONTHS. WHAT WOULD YOU SAY WERE THE MAJOR HIGHLIGHTS DURING THIS PERIOD? HDC: It's been an unusually volatile year, to be sure, one driven by several significant occurrences. First, there was the exceptional strength of the U.S. economy, which grew at an annual rate of over 7% in the fourth quarter of 1999 and over 5% during the first quarter of this year - all with virtually no signs of inflationary growth. This rapid growth rate combined with a still very strong stock market and unrelenting consumer consumption prompted the Federal Reserve Board to begin raising rates last June. Since then, we've experienced five consecutive quarter-point rate increases capped, at least thus far, with a half-point increase in May of this year. The first couple of moves in this regard were designed to take away the stimulus that the Fed had provided to the global economy following the Asian currency crises of 1997 and the Russian debt crisis of 1998. Lately, it has shifted into a more aggressive tightening mode, with the distinct promise of further increases yet to come, at least until there are unambiguous indications that our economy is slowing. Late in this reporting period, we began to see signs of creeping inflationary growth for the first time in the present economic cycle. All along there have been signs of labor shortages and associated upward pressure on wages, but lately we've seen the prices of goods and raw materials come under pressure as well. Much higher energy prices have led the way, but we've also seen price pressures on a broad basket of basic materials, like paper, resin, and other commodities. Should these signs of inflation translate into actual inflationary growth, the Fed may have no choice but to tighten even further. Another major event of the last year was a sharp division in the stock market, one that pitted so-called old economy stocks against their new economy counterparts. In the latter case, the telecommunications-media-technology stocks that investors defined as THE new economy equities were driven to extremes of valuation that have only recently begun to relent. They were driven so largely by investors who recognized the Internet as a transforming global event and wanted to get their share of the companies that were perceived to be on the cutting edge of its development. Their virtually unrestrained affection for such stocks was such that they abandoned more basic industries in pursuit of them, along the way helping to drive down the prices of old economy companies to levels that were, and in some cases still are, well below what we believe to be any reasonable measure of their true valuation. This unusual period of time ended, at least for the moment, in the middle of March 2000 when the tech-heavy NASDAQ peaked and subsequently corrected, with many of the names that had previously driven the 3 market falling by the wayside in what was just short of a wholesale rout. The market is now waffling as investors try to come to grips with Fed policy and their own sometimes radically altered fortunes. In capsule form, these were among the more significant events of the past twelve months. There were others, to be sure. WHAT IS YOUR TAKE ON THE NEW ECONOMY? HDC: I think it's for real. Broadly speaking, on a secular basis, there is legitimacy to the concept of our being in the midst of a new economy, one that is able to grow on a sustainable basis for a longer period and at somewhat higher rates than in the past, all without triggering underlying inflation. This is very good for capital markets, the stock market, P/Es, corporate profits, and so on. There are basically two reasons why this new economy developed and is possibly here to stay. One is that corporate America has become much more competitive and leaner over the past decade, the result of downsizing, cost reductions and a strong focus on becoming globally competitive. Second is the impact of technology on the way that everyone, particularly corporate America, does business. Technology has led to major improvements in productivity, which in turn has led to virtually unprecedented price stability and very low inflation over the past several years. I think it's fair to say that U.S. companies as a group have been on the forefront of embracing technology a little faster than the rest of the world, both on the telecommunications side and the data processing side. This is for real and is sustainable and long term in nature. It's a good development that underpins valuations in the U.S. market longer term. But, at the same time, and at this point in time, we have peaked from an economic perspective. As noted, we're seeing a little inflation creep into the system and the economy has begun to slow. Whether this is due to the weight of its own excess, or the Fed's actions, or a combination of the two is anyone's guess. I, for one, side with the Fed and its virtually unimpeachable record in managing the economy over the aggressive expansionary period of the last 9-10 years. I would stress that when I say the economy is slowing, I don't mean slowing down and entering a recession, as has been the case in certain years past. Rather, I mean slowing from the unsustainable levels of growth in the 5%-7% range, to growth in the 3% range, which is still quite good. We're hopeful that this moderation of growth will relieve some of the pressures on labor and material prices and cut inflation off before it gets a head start. This isn't disturbing to us. It's what we need right now. YOU SAID THAT INVESTORS HAD DEFINED NEW ECONOMY STOCKS AS THE TRI-SECTORS: TELECOMMUNICATIONS, MEDIA, AND TECHNOLOGY. HOW DO YOU DIFFERENTIATE BETWEEN OLD AND NEW ECONOMY STOCKS, AND HOW HAS THE MARKETPLACE TREATED THEM LATELY? HDC: For the most part, I'd have to agree with the market's definition of new economy equities as being all technology-related enterprises, including Internet-focused companies, telecommunications, and some media. However, I'd say we're talking principally about technology and the Internet offshoots of it. The old economy is everything else. 4 Technology as a group has risen to comprise some 30% of the S&P 500 and was selling at something like 60X 2000 earnings on average at its peak. By extension, the market continued to include in its valuation glow some pretty well-established, high quality growth companies that were not technology driven, such as GE, Wal-Mart, and other companies like them. These companies traded at around 40X 2000 earnings, so they weren't being penalized, but were being treated somewhat like new economy companies. The rest of the market, including drug companies, utilities, banks, consumer durable and non-durable companies, and other perceived old economy stocks were being priced as a group in a range of 8X-25X 2000 earnings. Even the drug companies, which traditionally are classified as growth companies, were selling at multiples that were cheap in terms of their earnings potential. These did very poorly last year when there was enormous enthusiasm for technology and technology alone. If you looked just at the 1999 calendar year, the S&P 500 was up 21%. But, you wouldn't have found this increase across the board. It was really driven by the technology sector, which was up 75%. In fact, among S&P 500 companies, only half were up last year, while the rest declined. So, the big returns came in a very concentrated form, with 25 stocks in the S&P 500 accounting for over 90% of its return for the year. This unusually narrow market carried over into the first quarter of 2000, got carried away with itself, became unsustainable, and has since adjusted to more realistic valuations, with technology correcting 30% from its peak. It is now coming back. The NASDAQ is still off year-to-date through May, and the rest of the market is more or less flat as it continues to adjust to the valuation bubble created late last year through the first quarter of this one. A number of Internet stocks have been marked down to reality. The good ones still command premium values, but the peripheral ones have taken it on the chin, the victims of unrealistic business models. And, of course, the market is reacting to a slowing economy, one that will negatively impact quite a few companies as well, like those in the auto, finance and retail sectors, which tend to suffer when interest rates rise. So, it's been a swirling market, one lacking direction in the face of these and other issues. It's truly been an amazing time for U.S. equities, old or new economy. NOT TOO LONG AGO, ALL ANYONE COULD TALK ABOUT WAS THE DOMINANCE OF LARGE- AND SUPER LARGE-CAP GROWTH STOCKS OVER ALL OTHER INVESTMENTS. WHAT HAPPENED TO THIS INVESTMENT THEME? HDC: This major trend morphed into the new economy/technology theme. The dominance of big caps was true for the last couple of years, when we called the small group of standout large-cap growth stocks the "Nifty 50." At that time, it appeared that they could do no wrong. Lately, however, a number of the Nifty 50 companies haven't proven to be so nifty, after all. These companies, like the P&Gs of the world, have had real difficulty growing their top line revenues at a level that will produce double-digit earnings growth on a consistent basis. A number of these more traditional companies are fortunate to achieve even 4%-8% revenue growth. By comparison, look on the other side of the ledger and see how the new economy companies compare with their old economy counterparts. I could list the Ciscos, EMCs, Sun Microsystems on one side, and you would see top line revenue growth of 25%-50%. And this is for very large companies, with $10-$20 billion in annual revenues. On the other side, I could list more traditional consumer products companies, like Coca Cola and Pepsico, and solid financial companies, like BankAmerica, where you might see annual revenue growth of 4%-6%. 5 So, the market has gotten part of this investment argument very right. There IS a revolution in technology, and there are a number of companies that are benefiting from producing and using it to enhance revenues. Their revenues are exploding, and not just for a quarter or two. We think this is a longer-term phenomenon that is poised to accelerate as U.S. businesses increasingly incorporate the Internet into their day-to-day operations. While consumers have been buying over the Internet for a couple of years, the business community has just begun to use it as a way of doing business with their customers and suppliers. This means that they will have to make major ongoing investments in better computer equipment, faster memory, more bandwidth and so on. You don't see the Duponts and the General Motors slowing their investments in telecommunications equipment, wireless infrastructure, wireless equipment, and other essential tools of the Internet Age. They're accelerating such investments. As a consequence, those new economy companies that can provide these capabilities are all but certain to continue to enjoy stellar revenue growth. There is a limit, of course, but I see this trend continuing for many years to come. GIVEN THAT BACKDROP, HOW DID YOUR PORTFOLIO DO OVER THE PAST YEAR? HDC: We underperformed the benchmark as well as the competition. The main reason was that the narrow, tech-driven market of the early part of this period was not one that favored stock picking, or broadly diversified portfolios. Active management is not going to outperform a market that is dominated by 25 stocks, or one sector. It's just not going to happen. Our investment process stresses internal, proprietary research, and valuation methodologies that capture this research in our stock selection. Our focus is long term, and we don't tend to do well in markets that are driven by momentum, rather than underlying fundamentals. WHAT WERE SOME OF YOUR STANDOUT STOCKS OVER THE PAST 12 MONTHS ENDING MAY 31? HDC: Holdings in a variety of sectors helped performance. Tyco International, a very large holding and a diversified industrial company with good earnings growth, did very well over the 12 months, a period in which the overall market was flat. Another good performer was Pharmacia Corp., a large drug company that merged with Monsanto and, by doing so, acquired an excellent drug business with substantial growth potential. Both benefited from expected synergies between the two. We also made some good choices in the energy sector over the last year, including holding Anadarko Petroleum, which was up strongly during the period. Seagram's has also been a winner for us over this period of time and has benefited lately from speculation that it will be acquired by French conglomerate Vivendi. Within technology, Texas Instruments has been a winner, owing largely to its dominance in the development and production of digital signal processing (DSP) chips, which are essential to cell phones. Another is Sun Microsystems, which has grown with increasing use of the Internet. Almost all major Internet companies use Sun servers and software for their most mission critical applications, and that's been a phenomenal growth business for the company. WHICH WERE YOUR DISAPPOINTMENTS? HDC: Motorola has been a disappointment. It's really a very good company, and getting better, but it hasn't delivered the earnings growth and the earnings profit margins we would like to see on the cell phone and cellular infrastructure sides of its business. We also own Smurfit-Stone Container, a paper company in the 6 linerboard area, which has been very disappointing. It's a cyclical stock that trades on expectations about the economy. Even though earnings have been quite good, it has traded off a great deal as the market has rotated out of this sector. We think it's a cheap stock that is well managed and improving, but so far the market hasn't agreed with us. We also own some Global Crossing, a telecom company that has been building a global high speed telecom network. Its cash flow growth has been good, but it really hurt us when it fell victim to the second-quarter backlash against new economy companies. Microsoft hurt us, as well. We've been adding to it during the Department of Justice proceedings, but the stock has really underperformed the technology sector and the market quite a bit during this period of time. We think it's unusually attractive from an investment/valuation standpoint, but it's going through a difficult period. Even so, we are still comfortable with these and other companies from a valuation standpoint and look for them to improve as investors come down to earth and begin to value fundamentals over price momentum. WHAT DO YOU SEE HAPPENING OVER THE NEXT FEW MONTHS? HDC: Our best guess is that we're in a period where the market marks time, moving in a range of plus or minus 5%, as two events play out. One, the economy settles into a period of moderate growth and the Fed begins to back off. Two, the valuation bubble of the past year or so continues to correct, along the way creating enormous volatility. I think the message of the valuation bubble is that price does matter, that a lot of stocks continue to carry very big prices and that investors are trying to deal with a technology sector that is still priced at around 50X 2000 earnings. Hopefully, what supports the market over the near term will be reasonable economic growth, reasonable profit growth and dissipating inflationary expectations. Going forward over the next year, we are positive on the market, but shorter term it will be difficult for it to march forward until the Fed signals that it's finished with interest rates for the time being and the aforementioned valuation bubble is deflated. 7 FUND FACTS INVESTMENT OBJECTIVE J.P. Morgan Institutional U.S. Equity Fund seeks to provide a high total return from a portfolio of selected equity securities. It is designed for investors who want an actively managed portfolio of selected equity securities that seeks to outperform the S&P 500 Index. - ------------------------------------------------------------------------------- COMMENCEMENT OF INVESTMENT OPERATIONS 7/19/93 - -------------------------------------------------------------------------------- FUND NET ASSETS AS OF 5/31/00 $241,490,140 - -------------------------------------------------------------------------------- PORTFOLIO NET ASSETS AS OF 5/31/00 $628,219,383 - -------------------------------------------------------------------------------- DIVIDEND PAYABLE DATES 7/28/00, 10/27/00, 12/20/00 - -------------------------------------------------------------------------------- CAPITAL GAIN PAYABLE DATE (IF APPLICABLE) 12/20/00 EXPENSE RATIO The fund's current annualized expense ratio of 0.60% covers shareholders' expenses for custody, tax reporting, investment advisory and shareholder services after reimbursement. The fund is no-load and does not charge any sales, redemption, or exchange fees. There are no additional charges for buying, selling, or safekeeping fund shares, or for wiring redemption proceeds from the fund. FUND HIGHLIGHTS ALL DATA AS OF MAY 31, 2000 PORTFOLIO ALLOCATION (PERCENTAGE OF TOTAL INVESTMENTS) [CHART] [EDGAR REPRESENTATION OF PLOT POINTS USED IN PRINTED GRAPHIC] TECHNOLOGY 30.0% CONSUMER GOODS & SERVICES 17.7% FINANCE 15.0% HEALTHCARE 9.7% INDUSTRIAL PRODUCTS & SERVICES 9.4% ENERGY 6.7% UTILITIES 5.3% BASIC INDUSTRIES 4.4% SHORT-TERM AND OTHER INVESTMENTS 1.1% TRANSPORTATION 0.7%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS - - ---------------------------------------------------------------- CISCO SYSTEMS, INC. (TECHNOLOGY) 3.9% INTEL CORP. (TECHNOLOGY) 3.8% GENERAL ELECTRIC CO. 3.6% (INDUSTRIAL PRODUCTS & SERVICES) EXXON MOBIL CORP. (ENERGY) 3.5% TYCO INTERNATIONAL LTD. 3.2% (INDUSTRIAL PRODUCTS & SERVICES) MICROSOFT CORP. (TECHNOLOGY) 3.0% SUN MICROSYSTEMS, INC. (TECHNOLOGY) 2.5% U.S. BANCORP (FINANCE) 2.1% WAL-MART STORES, INC. 2.0% (CONSUMER GOODS & SERVICES) PHARMACIA CORP. (HEALTHCARE) 1.9%
8 DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. Opinions expressed herein and other fund data presented are based on current market conditions and are subject to change without notice. The fund invests in a master portfolio (another fund with the same objective). CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. 9 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2000 - -------------------------------------------------------------------------------- ASSETS Investment in The U.S. Equity Portfolio ("Portfolio"), at value $241,479,653 Receivable for Shares of Beneficial Interest Sold 51,743 Receivable for Expense Reimbursements 19,701 Prepaid Trustees' Fees 3,098 Prepaid Expenses and Other Assets 1,526 ------------ Total Assets 241,555,721 ------------ LIABILITIES Shareholder Servicing Fee Payable 20,711 Administrative Services Fee Payable 5,049 Administration Fee Payable 215 Fund Services Fee Payable 211 Accrued Expenses 39,395 ------------ Total Liabilities 65,581 ------------ NET ASSETS Applicable to 18,885,202 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $241,490,140 ============ Net Asset Value, Offering and Redemption Price Per Share $12.79 ----- ----- ANALYSIS OF NET ASSETS Paid-in Capital $193,479,087 Undistributed Net Investment Income 532,095 Accumulated Net Realized Gain on Investment 3,176,463 Net Unrealized Appreciation of Investment 44,302,495 ------------ Net Assets $241,490,140 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 10 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED MAY 31, 2000 - -------------------------------------------------------------------------------- INVESTMENT INCOME ALLOCATED FROM PORTFOLIO Allocated Dividend Income (Net of Foreign Withholding Tax of $8,908) $ 3,309,517 Allocated Interest Income 334,511 Allocated Portfolio Expenses (1,230,667) ------------ Net Investment Income Allocated from Portfolio 2,413,361 FUND EXPENSES Shareholder Servicing Fee $267,241 Administrative Services Fee 66,606 Registration Fees 18,881 Transfer Agent Fees 18,637 Professional Fees 12,291 Printing Expenses 5,669 Fund Services Fee 4,651 Administration Fee 3,434 Trustees' Fees and Expenses 3,305 Insurance Expense 689 Miscellaneous 36,399 -------- Total Fund Expenses 437,803 Less: Reimbursement of Expenses (64,994) -------- NET FUND EXPENSES 372,809 ------------ NET INVESTMENT INCOME 2,040,552 NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 15,597,704 NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENT ALLOCATED FROM PORTFOLIO (10,166,090) ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 7,472,166 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 11 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE FISCAL FOR THE FISCAL YEAR ENDED YEAR ENDED MAY 31, 2000 MAY 31, 1999 -------------- -------------- DECREASE IN NET ASSETS FROM OPERATIONS Net Investment Income $ 2,040,552 $ 2,716,018 Net Realized Gain on Investment Allocated from Portfolio 15,597,704 57,170,588 Net Change in Unrealized Depreciation of Investment Allocated from Portfolio (10,166,090) (16,516,308) ------------- ------------- Net Increase in Net Assets Resulting from Operations 7,472,166 43,370,298 ------------- ------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (1,950,993) (3,063,014) Net Realized Gain (45,835,171) (65,670,213) ------------- ------------- Total Distributions to Shareholders (47,786,164) (68,733,227) ------------- ------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 44,908,943 58,287,913 Reinvestment of Dividends and Distributions 45,796,002 63,800,611 Cost of Shares of Beneficial Interest Redeemed (87,153,932) (197,460,645) ------------- ------------- Net Increase (Decrease) from Transactions in Shares of Beneficial Interest 3,551,013 (75,372,121) ------------- ------------- Total Decrease in Net Assets (36,762,985) (100,735,050) NET ASSETS Beginning of Fiscal Year 278,253,125 378,988,175 ------------- ------------- End of Fiscal Year (including undistributed net investment income of $532,095 and $442,536, respectively) $ 241,490,140 $ 278,253,125 ============= =============
The Accompanying Notes are an Integral Part of the Financial Statements. 12 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- Selected data for a share outstanding throughout each year is as follows:
FOR THE FISCAL YEAR ENDED MAY 31, ------------------------------------------------------------------------------ 2000 1999 1998 1997 1996 --------- --------- ------------ ---------------- ---------------- NET ASSET VALUE, BEGINNING OF YEAR $ 15.08 $ 16.73 $ 15.66 $ 14.00 $ 12.10 -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.11 0.16 0.15 0.17 0.27 Net Realized and Unrealized Gain on Investments 0.26 2.39 3.81 3.02 2.66 -------- -------- -------- -------- -------- Total from Investment Operations 0.37 2.55 3.96 3.19 2.93 -------- -------- -------- -------- -------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.11) (0.17) (0.18) (0.25) (0.20) Net Realized Gain (2.55) (4.03) (2.71) (1.28) (0.83) -------- -------- -------- -------- -------- Total Distributions to Shareholders (2.66) (4.20) (2.89) (1.53) (1.03) -------- -------- -------- -------- -------- NET ASSET VALUE, END OF YEAR $ 12.79 $ 15.08 $ 16.73 $ 15.66 $ 14.00 ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA Total Return 2.45% 18.66% 28.53% 25.21% 25.43% Net Assets, End of Year (in thousands) $241,490 $278,253 $378,988 $329,776 $221,368 Ratios to Average Net Assets Net Expenses 0.60% 0.60% 0.60% 0.60% 0.60% Net Investment Income 0.76% 0.89% 0.89% 1.33% 2.08% Expenses Without Reimbursement 0.63% 0.63% 0.63% 0.65% 0.62%
The Accompanying Notes are an Integral Part of the Financial Statements. 13 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The J.P. Morgan Institutional U.S. Equity Fund (the "fund") is a separate series of J.P. Morgan Institutional Funds, a Massachusetts business trust (the "trust"). The trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The fund commenced operations on July 19, 1993. The fund invests all of its investable assets in The U.S. Equity Portfolio (the "portfolio"), a diversified open-end management investment company having the same investment objective as the fund. The value of such investment included in the Statement of Assets and Liabilities reflects the fund's proportionate interest in the net assets of the portfolio (38% at May 31, 2000). The performance of the fund is directly affected by the performance of the portfolio. The financial statements of the portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the fund's financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the fund: a) Valuation of securities by the portfolio is discussed in Note 1a of the portfolio's Notes to Financial Statements which are included elsewhere in this report. b) The fund records its share of net investment income, realized and unrealized gain and loss and adjusts its investment in the portfolio each day. All the net investment income and realized and unrealized gain and loss of the portfolio is allocated pro rata among the fund and other investors in the portfolio at the time of such determination. c) Distributions to shareholders of net investment income are declared as dividends and paid quarterly. Distributions to shareholders of net realized capital gain, if any, are declared and paid annually. d) Expenses incurred by the trust with respect to any two or more funds in the trust are allocated in proportion to the net assets of each fund in the trust, except where allocations of direct expenses to each fund can otherwise be made fairly. Expenses directly attributable to a fund are charged to that fund. e) The fund is treated as a separate entity for federal income tax purposes and intends to comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income, including net realized capital gains, if any, within the prescribed time periods. Accordingly, no provision for federal income or excise tax is necessary. f) The fund accounts for and reports distributions to shareholders in accordance with Statement of Position 93-2 "Determination, Disclosure, and Financial Statement Presentation of Income, Capital Gain, and Return of Capital Distributions by Investment Companies." The effect of applying this statement as of May 31, 2000 was to increase accumulated net realized gain on investment by $91,681 and decrease paid-in-capital by $91,681. The adjustments are primarily attributable to the application of tax allocation rules and a basis adjustment as a result of asset migration at the portfolio level. Net investment income, net realized gains and net assets were not affected by this change. 14 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 2000 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES a) The trust, on behalf of the fund, has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as co-administrator and distributor for the fund. Under a Co-Administration Agreement between FDI and the trust on behalf of the fund, FDI provides administrative services necessary for the operations of the fund, furnishes office space and facilities required for conducting the business of the fund and pays the compensation of the fund's officers affiliated with FDI. The fund has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to the fund is based on the ratio of the fund's net assets to the aggregate net assets of the trust and certain other investment companies subject to similar agreements with FDI. For the fiscal year ended May 31, 2000, the fee for these services amounted to $3,434. b) The trust, on behalf of the fund, has an Administrative Services Agreement (the "Services Agreement") with Morgan under which Morgan is responsible for certain aspects of the administration and operation of the fund. Under the Services Agreement, the fund has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the portfolio and other portfolios in which the trust and the J.P. Morgan Funds, invest (the "master portfolios") and J.P. Morgan Series Trust, in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to FDI. The portion of this charge payable by the fund is determined by the proportionate share that its net assets bear to the net assets of the trust, the master portfolios, other investors in the master portfolios for which Morgan provides similar services, and J.P. Morgan Series Trust. For the fiscal year ended May 31, 2000, the fee for these services amounted to $66,606. In addition, J.P. Morgan has agreed to reimburse the fund to the extent necessary to maintain the total operating expenses of the fund, including the expenses allocated to the fund from the portfolio, at no more than 0.60% of the average daily net assets of the fund through May 31, 2000. This reimbursement arrangement can be changed or terminated at any time at the option of J.P. Morgan. For the fiscal year ended May 31, 2000, J.P. Morgan has agreed to reimburse the fund $64,994 for expenses under this agreement. c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement with Morgan to provide account administration and personal account maintenance service to fund shareholders. The agreement provides for the fund to pay Morgan a fee for these services which is computed daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the fund. For the fiscal year ended May 31, 2000, the fee for these services amounted to $267,241. d) The trust, on behalf of the fund, has a Fund Services Agreement with Pierpont Group, Inc. ("Group") to assist the trustees in exercising their overall supervisory responsibilities for the trust's affairs. The trustees of the trust represent all the existing shareholders of Group. The fund's allocated portion of Group's costs in performing its services amounted to $4,651 for the fiscal year ended May 31, 2000. e) An aggregate annual fee of $75,000 is paid to each trustee for serving as a trustee of the trust, the J.P. Morgan Funds, the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the financial statements represent the fund's allocated portion of the total fees and expenses. 15 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 2000 - -------------------------------------------------------------------------------- The trust's Chairman and Chief Executive Officer also serves as Chairman of Group and receives compensation and employee benefits from Group in his role as Group's Chairman. The allocated portion of such compensation and benefits included in the Fund Services Fee shown in the financial statements was $900. 3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the trustees to issue an unlimited number of full and fractional shares of beneficial interest of one or more series. Transactions in shares of beneficial interest of the fund were as follows:
FOR THE FISCAL FOR THE FISCAL YEAR ENDED YEAR ENDED MAY 31, 2000 MAY 31, 1999 ------------------- ------------------- Shares of Beneficial Interest Sold............... 3,181,303 3,894,976 Reinvestment of Dividends and Distributions...... 3,574,395 4,782,771 Shares of Beneficial Interest Redeemed........... (6,326,942) (12,873,795) ------------------ ------------------ Net Increase (Decrease).......................... 428,756 (4,196,048) ================== ==================
From time to time, the fund may have a concentration of several shareholders holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the fund. 4. CREDIT AGREEMENT The trust, on behalf of the fund, together with other affiliated investment companies (the "funds"), entered into a revolving line of credit agreement (the "Agreement") on May 26, 1999, with unaffiliated lenders. The maximum borrowing under the Agreement was $150,000,000. The Agreement expired on May 23, 2000, however, the fund as party to the Agreement has extended the Agreement and continues its participation therein for an additional 364 days until May 21, 2001. The maximum borrowing under the new Agreement is $150,000,000. The purpose of the Agreement is to provide another alternative for settling large fund shareholder redemptions. Interest on any such borrowings outstanding will approximate market rates. Under the Agreement, the commitment fee is at an annual rate of 0.085% on the unused portion of the committed amount. The commitment fee is allocated to the funds in accordance with the procedures established by their respective trustees or directors. There were no outstanding borrowings pursuant to the Agreement at May 31, 2000. * * * * 5. TAX INFORMATION NOTICE (UNAUDITED) For corporate taxpayers 42.50% of the ordinary income distributions paid during the fiscal year ended May 31, 2000 qualify for the corporate dividends received deductions. 16 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Shareholders of J.P. Morgan Institutional U.S. Equity Fund In our opinion, the accompanying statement of assets and liabilities and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of J.P. Morgan Institutional U.S. Equity Fund (one of the series constituting part of the J.P. Morgan Institutional Funds, hereafter referred to as the "fund") at May 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the fund's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCooper LLP New York, New York July 14, 2000 17 The U.S. Equity Portfolio Annual Report May 31, 2000 (The following pages should be read in conjunction with J.P. Morgan Institutional U.S. Equity Fund Annual Financial Statements) 18 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS MAY 31, 2000 - --------------------------------------------------------------------------------
SECURITY DESCRIPTION SHARES VALUE - -------------------------------------------------- ------------- ------------- COMMON STOCKS (98.5%) BASIC INDUSTRIES (4.4%) CHEMICALS (2.6%) Air Products and Chemicals, Inc.................. 225,600 $ 7,811,400 Rohm & Haas Co................................... 242,200 8,265,075 ------------ 16,076,475 ------------ FOREST PRODUCTS & PAPER (0.9%) Smurfit-Stone Container Corp.+................... 414,700 5,883,556 ------------ METALS & MINING (0.9%) Alcoa, Inc....................................... 34,132 1,994,589 Allegheny Technologies, Inc...................... 121,086 2,732,003 Phelps Dodge Corp................................ 17,900 803,262 ------------ 5,529,854 ------------ TOTAL BASIC INDUSTRIES......................... 27,489,885 ------------ CONSUMER GOODS & SERVICES (17.5%) AUTOMOTIVE (1.4%) Dana Corp........................................ 73,000 1,884,312 Ford Motor Co.................................... 72,600 3,525,637 Lear Corp.+...................................... 138,400 3,243,750 ------------ 8,653,699 ------------ BROADCASTING & PUBLISHING (1.8%) AT&T Corp. - Liberty Media Group, Class A+....... 112,600 4,989,587 Comcast Corp., Class A+.......................... 103,100 3,904,912 MediaOne Group, Inc.+............................ 41,000 2,739,312 ------------ 11,633,811 ------------ ENTERTAINMENT, LEISURE & MEDIA (4.1%) America Online, Inc.+............................ 173,100 9,174,300 News Corp. Ltd. (Spons. ADR)(i).................. 175,400 7,991,662 Seagram Company Ltd.(i).......................... 73,200 3,490,725 Time Warner, Inc................................. 62,300 4,917,806 ------------ 25,574,493 ------------ SECURITY DESCRIPTION SHARES VALUE - ------------------------------------------------- ------------- ------------- FOOD, BEVERAGES & TOBACCO (2.9%) Coca-Cola Co..................................... 104,400 $ 5,572,350 Philip Morris Companies, Inc..................... 357,200 9,331,850 Quaker Oats Co................................... 47,400 3,486,862 ------------ 18,391,062 ------------ HOUSEHOLD PRODUCTS (1.2%) Clorox Co........................................ 58,300 2,310,137 Procter & Gamble Co.............................. 79,660 5,297,390 ------------ 7,607,527 ------------ PERSONAL CARE (1.0%) Estee Lauder Companies, Inc., Class A............ 43,100 1,931,419 Gillette Co...................................... 140,000 4,672,500 ------------ 6,603,919 ------------ RETAIL (5.1%) Abercrombie & Fitch Co., Class A+................ 177,500 1,741,719 Circuit City Stores-Circuit City Group........... 80,800 4,024,850 Gap, Inc......................................... 72,400 2,538,525 Home Depot, Inc.................................. 61,700 3,011,731 Target Corp...................................... 80,500 5,046,344 TJX Companies, Inc............................... 159,200 3,442,700 Wal-Mart Stores, Inc............................. 211,300 12,176,162 ------------ 31,982,031 ------------ TOTAL CONSUMER GOODS & SERVICES................ 110,446,542 ------------ ENERGY (6.6%) GAS-PIPELINES (0.7%) Dynegy, Inc., Class A............................ 56,100 4,326,712 ------------ OIL-PRODUCTION (5.4%) Anadarko Petroleum Corp.......................... 94,400 5,009,100 Baker Hughes, Inc................................ 120,800 4,379,000 Chevron Corp..................................... 31,200 2,884,050 Exxon Mobil Corp................................. 263,248 21,931,849 ------------ 34,203,999 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 19 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 2000 - --------------------------------------------------------------------------------
SECURITY DESCRIPTION SHARES VALUE - ------------------------------------------------- ------------- ------------- OIL-SERVICES (0.5%) Global Marine, Inc.+............................. 119,400 $ 3,380,512 ------------ TOTAL ENERGY................................... 41,911,223 ------------ FINANCE (15.0%) BANKING (5.5%) Astoria Financial Corp........................... 107,730 2,935,642 Bank One Corp.................................... 110,200 3,643,487 Citigroup, Inc................................... 105,600 6,567,000 First Union Corp................................. 147,900 5,204,231 KeyCorp.......................................... 148,500 3,118,500 U.S. Bancorp..................................... 492,000 12,792,000 ------------ 34,260,860 ------------ FINANCIAL SERVICES (5.3%) Capital One Financial Corp....................... 173,100 8,178,975 CIT Group, Inc., Class A......................... 139,700 2,558,256 E*TRADE Group, Inc.+............................. 417,900 6,503,569 Freddie Mac...................................... 133,600 5,945,200 Goldman Sachs Group, Inc......................... 136,600 10,048,638 ------------ 33,234,638 ------------ INSURANCE (4.2%) Ambac Financial Group, Inc....................... 193,500 9,747,563 American International Group, Inc................ 30,700 3,455,669 CIGNA Corp....................................... 50,000 4,440,625 MetLife, Inc.+................................... 218,400 4,477,200 XL Capital Ltd., Class A(i)...................... 70,500 4,194,750 ------------ 26,315,807 ------------ TOTAL FINANCE.................................. 93,811,305 ------------ HEALTH CARE (9.7%) MEDICAL SUPPLIES (0.5%) PE Corp. - PE Biosystems Group................... 53,300 2,958,150 ------------ PHARMACEUTICALS (9.2%) ALZA Corp.+...................................... 221,300 11,244,806 American Home Products Corp...................... 68,900 3,711,988 Bristol-Myers Squibb Co.......................... 116,300 6,403,769 Eli Lilly & Co................................... 118,500 9,020,813 Merck & Co., Inc................................. 44,400 3,313,350 Pharmacia Corp................................... 224,475 11,658,670 SECURITY DESCRIPTION SHARES VALUE - ------------------------------------------------- ------------- ------------- PHARMACEUTICALS (CONTINUED) Schering-Plough Corp............................. 133,300 $ 6,448,388 Warner-Lambert Co................................ 46,800 5,715,450 ------------ 57,517,234 ------------ TOTAL HEALTH CARE.............................. 60,475,384 ------------ INDUSTRIAL PRODUCTS & SERVICES (9.4%) COMMERCIAL SERVICES (0.4%) Cendant Corp.+................................... 204,100 2,704,325 ------------ DIVERSIFIED MANUFACTURING (8.5%) Cooper Industries, Inc........................... 78,600 2,633,100 General Electric Co.............................. 427,200 22,481,400 Honeywell International, Inc..................... 144,500 7,902,344 Tyco International Ltd.(i)....................... 428,992 20,189,436 ------------ 53,206,280 ------------ POLLUTION CONTROL (0.5%) Waste Management, Inc............................ 153,457 3,126,686 ------------ TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 59,037,291 ------------ TECHNOLOGY (29.9%) COMPUTER PERIPHERALS (2.4%) EMC Corp.+....................................... 57,400 6,676,338 Quantum Corp.- DLT & Storage Systems+............ 222,400 2,307,400 Seagate Technology, Inc.+........................ 101,000 5,858,000 ------------ 14,841,738 ------------ COMPUTER SOFTWARE (6.5%) Citrix Systems, Inc.+............................ 73,600 3,873,200 Computer Associates International, Inc........... 151,900 7,822,850 Microsoft Corp.+................................. 313,000 19,582,063 Oracle Corp.+.................................... 77,600 5,577,500 Parametric Technology Corp.+..................... 148,600 1,578,875 Siebel Systems, Inc.+............................ 20,900 2,445,300 ------------ 40,879,788 ------------ COMPUTER SYSTEMS (5.6%) Compaq Computer Corp............................. 198,200 5,202,750 Dell Computer Corp.+............................. 113,400 4,890,375 Hewlett-Packard Co............................... 48,600 5,838,075
The Accompanying Notes are an Integral Part of the Financial Statements. 20 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (CONTINUED) MAY 31, 2000 - --------------------------------------------------------------------------------
SECURITY DESCRIPTION SHARES VALUE - ------------------------------------------------- ------------- ------------- COMPUTER SYSTEMS (CONTINUED) International Business Machines Corp............. 31,800 $ 3,412,538 Sun Microsystems, Inc.+.......................... 205,300 15,731,113 ------------ 35,074,851 ------------ ELECTRONICS (4.2%) Cisco Systems, Inc.+............................. 425,900 24,249,681 Micron Technology, Inc.+......................... 32,600 2,279,963 ------------ 26,529,644 ------------ SEMICONDUCTORS (5.2%) Intel Corp....................................... 189,700 23,653,219 Texas Instruments, Inc........................... 127,000 9,175,750 ------------ 32,828,969 ------------ TELECOMMUNICATION SERVICES (2.8%) Allegiance Telecom, Inc.+........................ 24,500 1,295,438 Global Crossing Ltd.+(i)......................... 140,500 3,521,281 Sprint Corp. (PCS Group)+........................ 71,500 3,968,250 WorldCom, Inc.+.................................. 234,750 8,832,469 ------------ 17,617,438 ------------ TELECOMMUNICATIONS-EQUIPMENT (3.2%) Lucent Technologies, Inc......................... 102,400 5,875,200 Motorola, Inc.................................... 67,900 6,365,625 Nortel Networks Corp............................. 71,000 3,856,188 QUALCOMM, Inc.+.................................. 20,700 1,373,963 Tellabs, Inc.+................................... 41,800 2,714,388 ------------ 20,185,364 ------------ TOTAL TECHNOLOGY............................... 187,957,792 ------------ TRANSPORTATION (0.7%) RAILROADS (0.7%) Union Pacific Corp............................... 97,800 4,138,163 ------------ UTILITIES (5.3%) ELECTRIC (0.8%) Allegheny Energy, Inc............................ 71,100 2,199,656 PG&E Corp........................................ 99,000 2,567,813 ------------ 4,767,469 ------------ PIPELINES (0.5%) Columbia Energy Group............................ 48,550 3,140,578 ------------ SECURITY DESCRIPTION SHARES VALUE - ------------------------------------------------- ------------- ------------- TELEPHONE (4.0%) AT&T Corp........................................ 161,100 $ 5,588,156 Bell Atlantic Corp............................... 45,600 2,411,100 GTE Corp......................................... 90,000 5,692,500 Level 3 Communications, Inc.+.................... 53,900 4,113,244 SBC Communications, Inc.......................... 172,300 7,527,356 ------------ 25,332,356 ------------ TOTAL UTILITIES................................ 33,240,403 ------------ TOTAL COMMON STOCKS (COST $510,143,799)........................... 618,507,988 ------------
PRINCIPAL AMOUNT ------------- FIXED INCOME SECURITIES (0.2%) U.S. TREASURY OBLIGATIONS (0.2%) Notes, 5.625% due 02/28/01(s) (cost $1,143,644).............................. $ 1,150,000 1,141,019 ------------ SHORT-TERM INVESTMENTS (0.9%) OTHER INVESTMENT COMPANIES (0.9%) J.P. Morgan Institutional Prime Money Market Fund* (cost $5,750,959).............................. $ 5,750,959 5,750,959 ------------ TOTAL INVESTMENTS (COST $517,038,402) (99.6%)................................... 625,399,966 OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%).................... 2,819,417 ------------ NET ASSETS (100.0%)............................................. $628,219,383 ============
- ------------------------------ Note: Based on the cost of investments of $520,910,192 for federal income tax purposes at May 31, 2000 the aggregate gross unrealized appreciation and depreciation was $140,958,375 and $36,468,601, respectively, resulting in net unrealized appreciation of $104,489,774. + Non-income producing security. (i) Foreign security. (s) Security is partially segregated with custodian as collateral for futures contracts or with broker as initial margin for futures contracts. Spon. ADR - Sponsored American Depositary Receipt. * Money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc. The Accompanying Notes are an Integral Part of the Financial Statements. 21 THE U.S. EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES MAY 31, 2000 - -------------------------------------------------------------------------------- ASSETS Investments at Value (Cost $517,038,402) $625,399,966 Cash 1,144,405 Receivable for Investments Sold 4,349,045 Dividends Receivable 820,859 Interest Receivable 63,807 Variation Margin Receivable 7,981 Receivable for Expense Reimbursement 1,469 Prepaid Trustees' Fees 5,064 Prepaid Expenses and Other Assets 3,391 ------------ Total Assets 631,795,987 ------------ LIABILITIES Payable for Investments Purchased 3,254,641 Advisory Fee Payable 214,636 Custody Fee Payable 65,141 Administrative Services Fee Payable 13,082 Administration Fee Payable 891 Fund Services Fee Payable 544 Accrued Expenses 27,669 ------------ Total Liabilities 3,576,604 ------------ NET ASSETS Applicable to Investors' Beneficial Interests $628,219,383 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 22 THE U.S. EQUITY PORTFOLIO STATEMENT OF OPERATIONS FOR THE FISCAL YEAR ENDED MAY 31, 2000 - -------------------------------------------------------------------------------- INVESTMENT INCOME Dividend Income (Net of Foreign Withholding Tax of $22,818) $ 8,561,065 Interest Income 865,011 ----------- Investment Income 9,426,076 EXPENSES Advisory Fee $ 2,748,787 Custodian Fees and Expenses 180,628 Administrative Services Fee 172,419 Professional Fees and Expenses 45,426 Fund Services Fee 12,016 Trustees' Fees and Expenses 7,171 Administration Fee 6,803 Miscellaneous 9,587 ----------- Total Expenses 3,182,837 ----------- NET INVESTMENT INCOME 6,243,239 NET REALIZED GAIN ON Investments 37,972,209 Futures Contracts 166,859 ----------- Net Realized Gain 38,139,068 NET CHANGE IN UNREALIZED DEPRECIATION OF Investments (24,714,604) Futures Contracts (66,221) ----------- Net Change in Unrealized Depreciation (24,780,825) ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,601,482 ===========
The Accompanying Notes are an Integral Part of the Financial Statements. 23 THE U.S. EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE FISCAL FOR THE FISCAL YEAR ENDED YEAR ENDED MAY 31, 2000 MAY 31, 1999 -------------- -------------- DECREASE IN NET ASSETS FROM OPERATIONS Net Investment Income $ 6,243,239 $ 7,489,950 Net Realized Gain on Investments and Futures Contracts 38,139,068 124,444,147 Net Change in Unrealized Depreciation of Investments and Futures Contracts (24,780,825) (20,064,046) ------------- ------------- Net Increase in Net Assets Resulting from Operations 19,601,482 111,870,051 ------------- ------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS Contributions 207,425,150 137,233,705 Withdrawals (318,237,694) (356,977,035) ------------- ------------- Net Decrease from Investors' Transactions (110,812,544) (219,743,330) ------------- ------------- Total Decrease in Net Assets (91,211,062) (107,873,279) NET ASSETS Beginning of Fiscal Year 719,430,445 827,303,724 ------------- ------------- End of Fiscal Year $ 628,219,383 $ 719,430,445 ============= =============
- -------------------------------------------------------------------------------- SUPPLEMENTARY DATA - --------------------------------------------------------------------------------
FOR THE FISCAL YEAR ENDED MAY 31, --------------------------------- 2000 1999 1998 1997 1996 ----- ----- ----- ----- ----- RATIOS TO AVERAGE NET ASSETS Expenses 0.46% 0.47% 0.47% 0.47% 0.46% Net Investment Income 0.90% 1.03% 1.01% 1.44% 2.20% Portfolio Turnover 89% 84% 106% 99% 85%
The Accompanying Notes are an Integral Part of the Financial Statements. 24 THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS MAY 31, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The U.S. Equity Portfolio (the "portfolio") is registered under the Investment Company Act of 1940, as amended, as a no-load, diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The portfolio commenced operations on July 19, 1993. The portfolio's investment objective is to provide a high total return from a portfolio of selected equity securities. The Declaration of Trust permits the trustees to issue an unlimited number of beneficial interests in the portfolio. The preparation of financial statements in accordance with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the portfolio: a) The portfolio values securities that are listed on an exchange using prices supplied daily by an independent pricing service that are based on the last traded price on a national securities exchange or in the absence of recorded trades, at the readily available mean of the bid and asked prices on such exchange, if such exchange or market constitutes the broadest and most representative market for the security. Securities listed on a foreign exchange are valued at the last traded price or in the absence of recorded trades, at the readily available mean of the bid and asked prices on such exchange available before the time when net assets are valued. Independent pricing service procedures may also include the use of prices based on yields or prices of securities of comparable quality, coupon, maturity and type, indications as to the values from dealers, operating data, and general market conditions. Unlisted securities are valued at the average of the quoted bid and asked prices in the over-the-counter market provided by a principal market maker or dealer. If prices are not supplied by the portfolio's independent pricing service or principal market maker or dealer, such securities are priced using fair values in accordance with procedures adopted by the portfolio's trustees. All short-term securities with a remaining maturity of sixty days or less are valued using the amortized cost method. b) The portfolio's custodian (or designated subcustodians, as the case may be under tri-party repurchase agreements) takes possession of the collateral pledged for investments in repurchase agreements on behalf of the portfolio. It is the policy of the portfolio to value the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to the repurchase price plus accrued interest. In the event of default of the obligation to repurchase, the portfolio has the right to liquidate the collateral and apply the proceeds in satisfaction of the obligation. Under certain circumstances, in the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. c) Securities transactions are recorded on a trade date basis. Dividend income is recorded on the ex-dividend date or as of the time that the relevant ex-dividend date and amount becomes known. Interest income, which includes the amortization of premiums and discounts, if any, is recorded on an accrual basis. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. d) A futures contract is an agreement to purchase/sell a specified quantity of an underlying instrument at a specified future date or to make/receive a cash payment based on the value of a securities index. The price at which the purchase and sale will take place is fixed when the portfolio enters into the contract. Upon entering into such a contract, the portfolio is required to pledge to the broker an amount of cash 25 THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 2000 - -------------------------------------------------------------------------------- and/or liquid securities equal to the minimum "initial margin" requirements of the exchange. Pursuant to the contract, the portfolio agrees to receive from, or pay to, the broker an amount of cash equal to the daily fluctuation in value of the contract. Such receipts or payments are known as "variation margin" and are recorded by the portfolio as unrealized gains or losses. When the contract is closed, the portfolio records a realized gain or loss equal to the difference between the value of the contract at the time it was opened and the value at the time when it was closed. The portfolio invests in futures contracts for the purpose of hedging its existing portfolio securities, or securities the portfolio intends to purchase, against fluctuations in value caused by changes in prevailing market interest rates or securities movement. The use of futures transactions involves the risk of imperfect correlation in movements in the price of futures contracts, interest rates and the underlying hedged assets, and the possible inability of counterparties to meet the terms of their contracts. e) The portfolio intends to be treated as a partnership for federal income tax purposes. As such, each investor in the portfolio will be taxed on its share of the portfolio's ordinary income and capital gains. It is intended that the portfolio's assets will be managed in such a way that an investor in the portfolio will be able to satisfy the requirements of Subchapter M of the Internal Revenue Code. The portfolio earns foreign income which may be subject to foreign withholding taxes at various rates. 2. TRANSACTIONS WITH AFFILIATES a) The portfolio has an Investment Advisory Agreement with J.P. Morgan Investment Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the portfolio pays Morgan at an annual rate of 0.40% of the portfolio's average daily net assets. For the fiscal year ended May 31, 2000, such fees amounted to $2,767,011. The fund may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the fund in an amount to offset any doubling of investment advisory and shareholder servicing fees. For the fiscal year ended May 31, 2000, J.P. Morgan has agreed to reimburse the fund $18,224 under this agreement. Interest income included in the Statement of Operations for the year ended May 31, 2000 includes $460,527 of interest income from investments in affiliated Money Market Funds. b) The trust, on behalf of the portfolio, has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and exclusive placement agent. Under a Co-Administration Agreement between FDI and the portfolio, FDI provides administrative services necessary for the operations of the portfolio, furnishes office space and facilities required for conducting the business of the portfolio and pays the compensation of the portfolio's officers affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to the portfolio is based on the ratio of the portfolio's net assets to the aggregate net assets of the portfolio and certain other investment companies subject to similar agreements with FDI. For the fiscal year ended May 31, 2000, the fee for these services amounted to $6,803. 26 THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (CONTINUED) MAY 31, 2000 - -------------------------------------------------------------------------------- c) The trust, on behalf of the portfolio, has an Administrative Services Agreement (the "Services Agreement") with Morgan, under which Morgan is responsible for certain aspects of the administration and operation of the portfolio. Under the Services Agreement, the portfolio has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the portfolio and certain other portfolios for which the Morgan acts as advisor (the "master portfolios") and J.P. Morgan Series Trust in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion, less the complex-wide fees payable to FDI. The portion of this charge payable by the portfolio is determined by the proportionate share that its net assets bear to the net assets of the portfolio, other investors in the master portfolios for which Morgan provides similar services, and J.P. Morgan Series Trust. For the fiscal year ended May 31, 2000, the fee for these services amounted to $172,419. d) The trust, on behalf of the portfolio, has a Fund Services Agreement with Pierpont Group, Inc. ("Group") to assist the trustees in exercising their overall supervisory responsibilities for the portfolio's affairs. The trustees of the portfolio represent all the existing shareholders of Group. The portfolio's allocated portion of Group's costs in performing its services amounted to $12,016 for the fiscal year ended May 31, 2000. e) An aggregate annual fee of $75,000 is paid to each trustee for serving as a trustee of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the financial statements represents the portfolio's allocated portion of the total fees and expenses. The portfolio's Chairman and Chief Executive Officer also serves as Chairman of Group and received compensation and employee benefits from Group in his role as Group's Chairman. The allocated portion of such compensation and benefits included in the Fund Services Fee shown in the financial statements was $2,300. 3. INVESTMENT TRANSACTIONS Investment transactions (excluding short-term investments) for the fiscal year ended May 31, 2000 were as follows:
COST OF PROCEEDS PURCHASES FROM SALES - - --------- ------------ $601,219,097 $694,056,543
Futures transactions as of May 31, 2000 are summarized as follows:
NET UNREALIZED CURRENT MARKET CONTRACTS LONG APPRECIATION VALUE OF CONTRACTS -------------- -------------- ------------------ S&P 500, expiring June 2000...................... 8 $7,981 $2,844,400 ============= ============= =================
4. CREDIT AGREEMENT The portfolio is party to a revolving line of credit agreement (the "Agreement") as discussed more fully in Note 4 of the fund's Notes to the Financial Statements which are included elsewhere in this report. 27 REPORT OF INDEPENDENT ACCOUNTANTS To the Trustees and Investors of The U.S. Equity Portfolio In our opinion, the accompanying statement of assets and liabilities, including the schedule of investments, and the related statements of operations and of changes in net assets and the supplementary data present fairly, in all material respects, the financial position of The U.S. Equity Portfolio (the "portfolio") at May 31, 2000, the results of its operations for the year then ended, the changes in its net assets for each of the two years in the period then ended and its supplementary data for each of the five years in the period then ended, in conformity with accounting principles generally accepted in the United States. These financial statements and supplementary data (hereafter referred to as "financial statements") are the responsibility of the portfolio's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at May 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP New York, New York July 14, 2000 28 J.P. MORGAN INSTITUTIONAL FUNDS PRIME MONEY MARKET FUND TREASURY MONEY MARKET FUND FEDERAL MONEY MARKET FUND TAX EXEMPT MONEY MARKET FUND TAX AWARE ENHANCED INCOME FUND: INSTITUTIONAL SHARES SHORT TERM BOND FUND BOND FUND GLOBAL STRATEGIC INCOME FUND TAX EXEMPT BOND FUND NEW YORK TAX EXEMPT BOND FUND CALIFORNIA BOND FUND: INSTITUTIONAL SHARES DIVERSIFIED FUND DISCIPLINED EQUITY FUND LARGE CAP GROWTH FUND: INSTITUTIONAL SHARES U.S. EQUITY FUND U.S. SMALL COMPANY FUND TAX AWARE DISCIPLINED EQUITY FUND: INSTITUTIONAL SHARES INTERNATIONAL EQUITY FUND EUROPEAN EQUITY FUND INTERNATIONAL OPPORTUNITIES FUND EMERGING MARKETS EQUITY FUND SMARTINDEX-TM- FUND: INSTITUTIONAL SHARES MARKET NEUTRAL FUND: INSTITUTIONAL SHARES FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722. IMAR382 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND ANNUAL REPORT MAY 31, 2000 EX-99.17(G) 8 a2043521zex-99_17g.txt EXHIBIT 99.17(G) [front cover] J.P. Morgan Institutional U.S. Equity Fund Semi-annual Report November 30, 2000 LETTER TO THE SHAREHOLDERS - -------------------------------------------------------------------------------- January 8, 2001 Dear Shareholder, The volatility that rattled technology stocks rippled across many equity sectors, and made the six months ended November 30, 2000 a rough time for investors. For the period, the J.P. Morgan Institutional U.S. Equity Fund had a total return of -4.48%. The Fund, however, was able to preserve capital to a greater degree than its benchmark, the Standard & Poor's 500 Index, and peer group, as measured by the Lipper Multi-Cap Core Funds Average. The S&P 500 Index had a total return of - -6.92% for the six months ended November 30, 2000, while the Fund's peer group had a total return of -5.96% for the same time period. The Fund's net asset value on November 30, 2000 was $12.19 per share, decreasing from $12.79 per share at the start of the fiscal period. During the period, the Fund made distributions of approximately $0.03 per share from ordinary income. The Fund's net assets were approximately $183 million on November 30, 2000, while the total net assets of The U.S. Equity Portfolio, in which the Fund invests, totaled $528 million. This report includes an interview with Henry Cavanna, the lead portfolio manager for The U.S. Equity Portfolio. Henry discusses the U.S. equity market in detail, and explains the factors that influenced Fund performance during the fiscal period. Henry also provides insight in regard to positioning the Portfolio for the coming months. As chairman and president of Asset Management Services, we thank you for investing with J.P. Morgan. Should you have any comments or questions, please contact your Morgan representative, or call J.P. Morgan Funds Services at (800) 766-7722. Sincerely yours, /signature/ /signature/ Ramon de Oliveira Keith M. Schappert Chairman of Asset Management Services President of Asset Management Services J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter to the Shareholders 1 Fund Performance 2 Portfolio Manager Q&A 3 Fund Facts & Highlights 5 Financial Statements 6 1 FUND PERFORMANCE - -------------------------------------------------------------------------------- EXAMINING PERFORMANCE One way is to review a fund's average annual total return. This calculation takes the Fund's actual return and shows what would have happened if the Fund had achieved that return by performing at a constant rate each year. Average annual total returns represent the average yearly change of a fund's value over various time periods, typically one, five, and ten years, (or since inception). Total returns for periods of less than one year are not annualized and provide a picture of how a fund has performed over the short-term. PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS TOTAL RETURNS ----------------------- -------------------------------- SIX ONE THREE FIVE TEN MONTHS YEAR YEARS YEARS YEARS* AS OF NOVEMBER 30, 2000 J.P. Morgan Institutional U.S. Equity Fund (4.48)% (3.74)% 10.37% 16.02% 16.36% S&P 500 Index** (6.92)% (4.22)% 12.71% 18.66% 17.72% Lipper Multi-Cap Core Funds Average*** (5.96)% 1.03% 10.35% 15.52% 16.34% AS OF SEPTEMBER 30, 2000 J.P. Morgan Institutional U.S. Equity Fund (2.04)% 13.06% 13.22% 18.90% 18.11% S&P 500 Index** (3.60)% 13.28% 16.44% 21.69% 19.44% Lipper Multi-Cap Core Funds Average*** (1.36)% 21.45% 12.84% 17.66% 17.68%
* The J.P. Morgan Institutional U.S. Equity Fund's returns include historical returns of the J.P. Morgan U.S. Equity Fund, a separate feeder fund investing in the same master portfolio, which had a higher expense ratio, from June 27, 1985 (the inception date of the J.P. Morgan U.S. Equity Fund), through July 19, 1993 (the inception date of the J.P. Morgan Institutional U.S. Equity Fund). Therefore, the Fund's returns would have been higher had it existed during the same period. For the purposes of comparison, the "since inception" returns are calculated from June 30, 1985, the first date when data for the Fund, its benchmark, and it's Lipper category were all available. The J.P. Morgan Institutional U.S. Equity Fund's total return since its commencement of operations on July 19, 1993 is 15.86%. ** The S&P 500 Index is an unmanaged index that measures U.S. stock market performance. It does not include fees or operating expenses and is not available for actual investment. *** Describes the average total return for all funds in the indicated Lipper category, as defined by Lipper Inc., and does not take into account applicable sales charges. Lipper Analytical Services, Inc. is a leading source for mutual fund data. Past performance is no guarantee of future results. Fund returns are net of fees, assume the reinvestment of distributions, and reflect reimbursement of Fund expenses as described in the prospectus. Had expenses not been subsidized, returns would have been lower. 2 PORTFOLIO MANAGER Q&A - -------------------------------------------------------------------------------- [photo of Henry D. Cavanna] Following is an interview with HENRY D. CAVANNA, managing director and senior U.S. equity portfolio manager in J.P. Morgan Investment Management's U.S. Equity Group. Henry has been a J.P. Morgan employee for the past 28 years, and has been a portfolio manager since 1979. He is currently responsible for several major institutional and sub-advisory clients, as well as having overall investment responsibility for Morgan's own retirement and defined contribution funds. Before joining Morgan, Henry worked at Harris Upham & Co. He holds a B.A. from Boston College and a L.L.B. from the University of Pennsylvania. This interview was conducted on December 15, 2000, and reflects Henry's views on that date. IT HAS CERTAINLY BEEN AN INTERESTING TIME FOR U.S. EQUITIES DURING THIS REPORTING PERIOD. WHAT WERE SOME OF THE HIGHLIGHTS? This six-month period captured two worlds. On one side, there was an ending of a rapidly expanding economy. On the other, there was the beginning of a slowing economy, with investors growing increasingly concerned about corporate profits. As it turned out, these concerns were more than justified, as company after company, in sector after sector, started reporting disappointing earnings. This helped to bring about a substantial reallocation of capital from new economy growth sectors to more defensive value sectors, such as insurance, utilities, and energy. At the end of the period, the lack of closure in our presidential election also served as a destabilizing factor. As a result, stock market volatility was extraordinarily high over the six months ended November 30. We also saw the end of the Federal Reserve's interest rate tightening cycle, and the probable success of its efforts to engineer a soft landing for our economy. Still, we did not see an end to its tightening bias, which unnerved some investors and contributed in part to market instability. HOW WAS THE PORTFOLIO POSITIONED OVER THIS PERIOD? Our strategy is to be well diversified across almost all sectors, and to own companies that we believe represent the best mix of fundamentals and attractive valuations over the longer-term, be they old or new economy stocks. During this period of time, however, investors were focused on short-term results, not long-term opportunities, and they proved more than willing to punish any company that did not meet their somewhat elevated earnings expectations. Not too infrequently, even companies with satisfactory results were brought down alongside their lesser performing brethren. Within this sometime incendiary marketplace, the S&P 500 Index, our benchmark, declined by almost 7%. HOW HAS MARKET VOLATILITY AFFECTED THE WAY YOU MANAGE THE PORTFOLIO, IF AT ALL? It hasn't specifically affected our management, but we were certainly cognizant of and sensitive to the market's short-term focus. In particular, we were able to identify several longer-term opportunities created by investors who overreacted to short-term concerns. From that standpoint, market volatility was good for the strategy. On the other side, we have also had to be more careful in our approach to the market. Timing became critical, as a desirable stock could be way up one day and way down the next. We definitely wanted to exercise the discipline of adding to attractive long-term positions, but we were a little more measured and patient about when to jump in. HOW IS YOUR PROCESS GEARED TO TAKE ADVANTAGE OF THIS MARKET ENVIRONMENT? Our process combines the advantages of two strong internal capabilities. One is our depth in research. Our analysts are sector specialists who develop estimates of what companies are worth and which companies represent good longer-term investments. On the other side is our highly experienced trading desk. Our traders are very sensitive to short-term fluctuations in stock prices and, with 3 PORTFOLIO MANAGER Q&A - -------------------------------------------------------------------------------- (Continued) their access to timely trading information, we feel they can usually get us the stock we want at the price we want. Thus, even though we have a longer-term perspective, we can operate in a more tactical fashion when we think it makes sense. WHICH STOCKS WERE AMONG YOUR BEST INVESTMENTS OVER THE SIX-MONTH REPORTING PERIOD? Alza, a mid-sized drug company, was up substantially over this period, owing to accelerating earnings growth and the introduction of two new drugs. One helps incontinence among seniors, and one is a once-a-day remedy for attention deficit disorder (ADD). Both are beginning to capture notable market share, with the ADD drug expected to achieve a 10% market share in its category by year's end. Another substantial performer was Philip Morris, which had been deeply undervalued in the wake of numerous liability issues. Investors, however, came to the conclusion that most of the bad news was behind, and saw it as an attractive value play. Aiding its resurgence were good earnings, a great yield, and a very capable management team that has continued to manage its business well. HOW ABOUT THE DOWN SIDE? E*trade, the on-line discount broker, has been punished by concerns about a decline in on-line trading and the consequent impact on the company's profit margins. We still have confidence that it has a real business, that it will be competitive, and that it will recover. Our long-term confidence is such that we have elected to maintain our position during a period when the company's profit margins will be under short-term pressure. Another disappointment was Level-3 Communications, a telecommunications company that has built one of the newest fiber optic telephone networks. As a relatively new company, Level-3's positive cash flow and earnings are still a couple of years out, so the results-oriented market in which we find ourselves has taken its stock to task. You have to have patience to own it and believe that the company will achieve an attractive return on its investments, which we do. We think Level-3 has a competitive advantage and good management, and, importantly, it has already secured the funding needed to build out its network. HOW DO YOU EXPECT THE MARKET TO DEVELOP OVER THE NEXT FEW MONTHS? We remain cautious about the market's prospects over the next few months. The economy is in a decelerating mode, and that means there will continue to be earnings risk and accompanying volatility. It's also still too early for the Fed to come to the rescue and lower interest rates. This said, we think the stock market is in the process of bottoming out, so we are not overly concerned. Further out, a number of developments would help its recovery. The Fed, for example, has the option of lowering interest rates several times in order to help the economy, especially in light of the expectation that inflation will remain fairly moderate over the coming year. We also anticipate that the price of oil will decline to more reasonable levels later next year, thereby providing a boost to consumer confidence. In sum, there are a number of catalysts that could re-ignite the market going forward, but, in the meantime, we are still reasonably wary about its near-term direction. 4 FUND FACTS - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE J.P. Morgan Institutional U.S. Equity Fund seeks to provide a high total return from a portfolio of select equity securities. It is designed for investors who want an actively managed portfolio of select equity securities that seeks to outperform the S&P 500 Index. - -------------------------------------------------------------------------------- Inception Date: 7/19/1993 - -------------------------------------------------------------------------------- Fund Net Assets as of 11/30/2000: $183,470,628 - -------------------------------------------------------------------------------- Portfolio Net Assets as of 11/30/2000: $528,133,867 - -------------------------------------------------------------------------------- Dividend Payable Dates (if applicable): 12/20/2000, 3/23/2001, 6/22/2001, 9/14/2001, 12/21/2001 - -------------------------------------------------------------------------------- Capital Gain Payable Dates (if applicable): 12/20/2000, 12/21/2001 EXPENSE RATIOS The Fund's current annualized expense ratio of 0.62% covers shareholders' expenses for custody, tax reporting, investment advisory, and shareholder services, after reimbursement. The Fund is no-load and does not charge any sales, redemption, or exchange fees. There are no additional charges for buying, selling or safekeeping fund shares, or for wiring redemption proceeds from the Fund. FUND HIGHLIGHTS - -------------------------------------------------------------------------------- All data as of November 30, 2000 PORTFOLIO ALLOCATION (As a percentage of total investment securities) [data from pie chart] Finance 11.4% Pharmaceuticals 11.3% Industrial Cyclical 10.0% Computer Hardware 10.0% Software & Services 9.0% Energy 6.1% Consumer Stable 6.1% Telecommunications 5.1% Retail 5.0% Insurance 4.9% Semiconductors 4.4% Short-Term Investments 3.9% Utilities 3.3% Consumer Services 2.9% Consumer Cyclical 2.6% Capital Markets 2.5% Health Services & Systems 1.5%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS - ------------------------------------------------------------- Cisco Systems Inc. 3.8% Exxon Mobil Corp. 3.6% General Electric Co. 3.1% Microsoft Corp. 3.0% Tyco International Ltd. 2.8% Sun Microsystems, Inc. 2.7% Pfizer, Inc. 2.3% Firstar Corp. 2.2% Philip Morris Companies Inc. 2.1% Pharmacia Corp. 2.1%
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY THE FDIC, ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL INSTITUTION AND ARE NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES OF THE FUND ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell securities. Opinions expressed herein and other Fund data presented are based on current market conditions and are subject to change without notice. The Fund invests through a master portfolio (another Fund with the same objective). CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. 5 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 ASSETS Investment in The U.S. Equity Portfolio ("Portfolio"), at value $183,522,572 Prepaid Trustees' Fees and Expenses 3,445 Prepaid Expenses and Other Assets 709 ------------- TOTAL ASSETS 183,526,726 ------------- LIABILITIES Shareholder Servicing Fee Payable 15,837 Administrative Services Fee Payable 3,757 Fund Services Fee Payable 128 Accrued Expenses and Other Liabilities 36,376 ------------- TOTAL LIABILITIES 56,098 ------------- NET ASSETS Applicable to 15,051,872 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $183,470,628 ============= Net Asset Value, Offering and Redemption Price Per Share $12.19 ============= ANALYSIS OF NET ASSETS Paid-in Capital $141,861,487 Undistributed Net Investment Income 597,017 Accumulated Net Realized Gain on Investment 6,324,567 Net Unrealized Appreciation of Investment 34,687,557 ------------- NET ASSETS $183,470,628 =============
6 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 INVESTMENT INCOME INCOME Allocated Investment Income from Portfolio $ 1,285,500 Allocated Portfolio Expenses (515,808) ----------------- Investment Income 769,692 ----------------- FUND EXPENSES Shareholder Servicing Fee 111,332 Administrative Services Fee 26,709 Financial and Fund Accounting Services Fee 15,041 Transfer Agent Fees 10,027 Registration Fees 9,808 Professional Fees 7,572 Printing Expenses 6,424 Fund Services Fee 1,587 Administration Fee 1,181 Trustees' Fees and Expenses 952 Miscellaneous 3,394 ----------------- Total Fund Expenses 194,027 Less: Reimbursement of Expenses (28,212) ----------------- Net Fund Expenses 165,815 ----------------- NET INVESTMENT INCOME 603,877 ----------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 3,148,104 ----------------- NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENT ALLOCATED FROM PORTFOLIO (9,614,938) ----------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(5,862,957) =================
The Accompanying Notes are an Integral Part of the Financial Statements. 7 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED) AND THE YEAR ENDED MAY 31, 2000 DECREASE IN NET ASSETS NOVEMBER 30, 2000 MAY 31, 2000 FROM OPERATIONS Net Investment Income $ 603,877 $ 2,040,552 Net Realized Gain on Investment Allocated from Portfolio 3,148,104 15,597,704 Net Change in Unrealized Appreciation (Depreciation) on Investment Allocated from Portfolio (9,614,938) (10,166,090) ------------------ ------------------ Net Increase (Decrease) in Net Assets Resulting from Operations (5,862,957) 7,472,166 ------------------ ------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (538,955) (1,950,993) Net Realized Gain - (45,835,171) ------------------ ------------------ Total Distributions to Shareholders (538,955) (47,786,164) ------------------ ------------------ TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 12,480,196 44,908,943 Reinvestment of Distributions 525,920 45,796,002 Cost of Shares of Beneficial Interest Redeemed (64,623,716) (87,153,932) ------------------ ------------------ Net Increase (Decrease) from Transactions in Shares of Beneficial Interest (51,617,600) 3,551,013 ------------------ ------------------ Total Decrease in Net Assets (58,019,512) (36,762,985) ------------------ ----------------- NET ASSETS Beginning of Period 241,490,140 278,253,125 ------------------ ------------------ End of Period $183,470,628 $241,490,140 ================== ================== Undistributed Net Investment Income $597,017 $532,095 ================== ================== TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Shares of Beneficial Interest Sold 941,047 3,181,303 Shares of Beneficial Interest Reinvested 39,743 3,574,395 Shares of Beneficial Interest Redeemed (4,814,120) (6,326,942) ------------------ ------------------ Net Increase (Decrease) in Shares of Beneficial Interest (3,833,330) 428,756 ================== ==================
8 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD ARE AS FOLLOWS:
FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED MAY 31 NOVEMBER 30, 2000 - --------------------------------------------------------- (UNAUDITED) 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, BEGINNING OF PERIOD $12.79 $15.08 $16.73 $15.66 $14.00 $12.10 - ------------------------------------------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.04 0.11 0.16 0.15 0.17 0.27 Net Realized and Unrealized Gain (Loss) on Investment (0.61) 0.26 2.39 3.81 3.02 2.66 - ------------------------------------------------------------------------------------------------------------------------- Total From Investment Operations (0.57) 0.37 2.55 3.96 3.19 2.93 - ------------------------------------------------------------------------------------------------------------------------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.03) (0.11) (0.17) (0.18) (0.25) (0.20) Net Realized Gain - (2.55) (4.03) (2.71) (1.28) (0.83) - ------------------------------------------------------------------------------------------------------------------------- Total Distributions to Shareholders (0.03) (2.66) (4.20) (2.89) (1.53) (1.03) - ------------------------------------------------------------------------------------------------------------------------- NET ASSET VALUE, END OF PERIOD $12.19 $12.79 $15.08 $16.73 $15.66 $14.00 ========================================================================================================================= RATIOS AND SUPPLEMENTAL DATA Total Return (4.48)%(a) 2.45% 18.66% 28.53% 25.21% 25.43% Net Assets, End of Period (in thousands) $183,471 $241,490 $278,253 $378,988 $329,776 $221,368 Ratios to Average Net Assets Net Expenses 0.62%(b) 0.60% 0.60% 0.60% 0.60% 0.60% Net Investment Income 0.54%(b) 0.76% 0.89% 0.89% 1.33% 2.08% Expenses without Reimbursement 0.64%(b) 0.63% 0.63% 0.63% 0.65% 0.62%
(a) Not annualized (b) Annualized The Accompanying Notes are an Integral Part of the Financial Statements. 9 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--The J.P. Morgan Institutional U.S. Equity Fund (the "Fund") is a separate series of J.P. Morgan Institutional Funds, a Massachusetts business trust (the "Trust"). The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund commenced operations on July 19, 1993. The Fund invests all of its investable assets in The U.S. Equity Portfolio (the "Portfolio"), a diversified open-end management investment company having the same investment objective as the Fund. The value of such investment included in the Statement of Assets and Liabilities reflects the Fund's proportionate interest in the net assets of the Portfolio (approximately 35% at November 30, 2000). The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the Fund: SECURITY VALUATION--Valuation of securities by the Portfolio is discussed in Note 1 of the Portfolio's Notes to Financial Statements that are included elsewhere in this report. INVESTMENT INCOME--The Fund earns income, net of expenses, daily on its investment in the Portfolio. All net investment income, realized and unrealized gains and losses of the Portfolio are allocated pro-rata among the Fund and other investors in the Portfolio at the time of such determination. EXPENSES--Expenses incurred by the Trust with respect to any two or more Funds in the Trust are allocated in proportion to the net assets of each Fund in the Trust, except where allocations of direct expenses to each Fund can otherwise be made fairly. INCOME TAX STATUS--It is the Fund's policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded on the ex-dividend date. Distributions from net investment income are declared and paid quarterly. Distributions from net realized gains, if any, are paid annually. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES ADMINISTRATIVE SERVICES--The Trust has an Administrative Services Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of New York ("Morgan") under which Morgan is responsible for certain aspects of the administration and operation of the Fund. Under the Services Agreement, the Fund has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Trust and certain other registered investment companies for which J.P. Morgan Investment Management, Inc. ("JPMIM") acts as investment advisor in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. The portion of this charge payable by the Fund is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which Morgan provides similar services. Morgan had agreed to reimburse the Fund to the extent the total operating expenses (excluding interest, taxes and extraordinary expenses) of the Fund, including the expenses allocated to the Fund from the Portfolio, exceeded 0.60% of the Fund's average daily net assets. This agreement was terminated October 1, 2000. ADMINISTRATION--The Trust has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and distributor for the Fund. Under a Co-Administration Agreement between FDI and the Trust, FDI provides administrative services necessary for the operations of the Fund, furnishes office space and facilities required for conducting the business of the Fund and pays the compensation of the Fund's officers affiliated with FDI. The Fund has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Fund is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. 10 J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with Morgan under which Morgan provides account administration and personal account maintenance service to Fund shareholders. The agreement provides for the Fund to pay Morgan a fee for these services that is computed daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Fund. FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Trust's affairs. The Trustees of the Trust represent all the existing shareholders of PGI. TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for serving on the boards of the Trust, the J.P. Morgan Funds, and other registered investment companies in which they invest. The Trustees' fees and expenses shown in the financial statements represent the Fund's allocated portion of the total Trustees' fees and expenses. The Trust's Chairman and Chief Executive Officer also serves as Chairman of PGI and receives compensation and employee benefits from PGI. The allocated portion of such compensation and benefits included in the Fund Services Fee shown on the Statement of Operations was $300. - -------------------------------------------------------------------------------- 3. BANK LOANS The Fund may borrow money for temporary or emergency purposes, such as funding shareholder redemptions. Effective May 23, 2000, the Fund, along with certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of credit agreement with DeutscheBank. Borrowings under the agreement will bear interest at approximate market rates. A commitment fee is charged at an annual rate of 0.085% on the unused portion of the committed amount. - -------------------------------------------------------------------------------- 4. CONCENTRATIONS OF RISK From time to time, the Fund may have a concentration of several shareholders holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the Fund. - -------------------------------------------------------------------------------- 5. SUBSEQUENT EVENTS The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Fund's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P. Morgan Chase & Co. will be the new parent company of JPMIM, which will continue to serve as the Fund's adviser. 11 THE U.S. EQUITY PORTFOLIO Semi-annual Report November 30, 2000 (The following pages should be read in conjunction with J.P. Morgan Institutional U.S. Equity Fund Semi-annual Financial Statements) 12 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000
SHARES VALUE - ----------------------------------------------------------------------------------------- COMMON STOCKS - 96.1% CAPITAL MARKETS - 2.5% SECURITIES & ASSET MANAGEMENT - 2.5% 119,700 Goldman Sachs Group, Inc. (The) $ 9,830,363 253,400 TD Waterhouse Group, Inc.(+) 3,357,550 -------------------------- 13,187,913 -------------------------- COMPUTER HARDWARE - 10.0% COMPUTER HARDWARE & BUSINESS MACHINES - 10.0% 7,300 Avaya Inc.(+) 85,319 414,800 Cisco Systems Inc.(s)(+) 19,858,550 232,400 Compaq Computer Corp. 4,996,600 47,100 Dell Computer Corp.(+) 906,675 104,500 EMC Corp. (Mass.)(+) 7,772,188 69,600 Hewlett-Packard Co. 2,201,100 202,500 Quantum Corp. - DLT & Storage Systems(+) 2,733,750 186,900 Sun Microsystems, Inc.(s)(+) 14,216,081 -------------------------- 52,770,263 -------------------------- CONSUMER CYCLICAL - 2.6% HOTELS - 0.5% 58,700 Marriott International, Inc. 2,432,381 -------------------------- MOTOR VEHICLES & PARTS - 1.8% 66,400 Dana Corp. 1,112,200 167,500 Delphi Automotive Systems 2,313,594 93,492 Ford Motor Company 2,126,943 23,800 General Motors Corp. 1,178,100 129,800 Lear Corp.(+) 2,839,375 -------------------------- 9,570,212 -------------------------- RESTAURANTS - 0.3% 57,000 McDonald's Corp. 1,816,875 -------------------------- 13,819,468 -------------------------- CONSUMER SERVICES - 2.9% ENTERTAINMENT - 0.7% 76,900 Viacom, Inc. Cl B(+) 3,931,512 -------------------------- MEDIA - 2.2% 104,200 AT&T Corp. - Liberty Media Group Cl A(+) 1,413,213 40,758 Charter Communications, Inc.(+) 804,971 93,800 Comcast Corp. Cl A(+) 3,605,438 106,400 News Corp. Ltd. (The) ADR(i) 3,710,699 27,700 Time Warner Inc. 1,717,400 -------------------------- 11,251,721 -------------------------- 15,183,233 -------------------------- CONSUMER STABLE - 6.1% HOME PRODUCTS - 4.0% 52,800 Clorox Company 2,359,500 62,700 Estee Lauder Companies, Inc. 2,715,694 SHARES VALUE - ----------------------------------------------------------------------------------------- 153,400 Gillette Company $ 5,196,425 142,000 Procter & Gamble Co. (The) 10,632,250 -------------------------- 20,903,869 -------------------------- TOBACCO - 2.1% 295,300 Philip Morris Companies Inc. 11,276,769 -------------------------- 32,180,638 -------------------------- ENERGY - 6.1% ENERGY RESERVES & PRODUCTION - 4.7% 44,500 Anadarko Petroleum Corp. 2,647,750 37,900 Chevron Corp. 3,103,063 217,548 Exxon Mobil Corp.(s) 19,144,223 -------------------------- 24,895,036 -------------------------- OIL REFINING - 0.3% 24,100 Texaco Inc. 1,399,306 -------------------------- OIL SERVICES - 1.1% 109,900 Baker Hughes Inc. 3,633,569 108,600 Global Marine Inc.(+) 2,382,413 -------------------------- 6,015,982 -------------------------- 32,310,324 -------------------------- FINANCE - 11.4% BANKS - 4.1% 223,100 Amsouth Bancorporation 3,318,613 81,566 Citigroup Inc. 4,063,006 103,000 First Union Corp. 2,587,875 608,000 Firstar Corp.(s) 11,780,000 -------------------------- 21,749,494 -------------------------- FINANCIAL SERVICES - 6.8% 219,900 Associates First Capital Corp. 7,765,219 69,900 Capital One Financial Corp. 3,901,294 95,900 Countrywide Credit Industries, Inc. 3,560,288 43,100 Federal Home Loan Mortgage Corp. 2,604,856 331,700 General Electric Co. (U.S.)(s) 16,439,880 14,700 Providian Financial Corp. 1,323,000 -------------------------- 35,594,537 -------------------------- THRIFTS - 0.5% 56,300 Washington Mutual, Inc. 2,558,131 -------------------------- 59,902,162 -------------------------- HEALTH SERVICES & SYSTEMS - 1.5% MEDICAL PRODUCTS & SUPPLIES - 1.5% 38,700 Bard (C.R.), Inc. 1,905,975 89,100 Becton Dickinson & Co. 3,029,400 53,200 Medtronic, Inc. 2,832,900 -------------------------- 7,768,275 -------------------------- INDUSTRIAL CYCLICAL - 10.0% CHEMICALS - 2.0% 205,300 Air Products & Chemicals, Inc. 7,070,019
The Accompanying Notes are an Integral Part of the Financial Statements. 13 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000
SHARES VALUE - ----------------------------------------------------------------------------------------- 112,700 Rohm and Haas Co. $ 3,352,825 ------------------------- 10,422,844 ------------------------- DEFENSE/AEROSPACE - 0.7% 74,600 Honeywell Inc. 3,636,750 ------------------------- ELECTRICAL EQUIPMENT - 2.2% 36,000 Corning Inc. 2,106,000 9,900 Corvis Corp.(+) 285,244 100,200 Level 3 Communications, Inc.(+) 2,692,875 142,400 Nortel Networks Corp. 5,375,600 12,500 QUALCOMM Inc.(+) 1,003,125 ------------------------- 11,462,844 ------------------------- ENVIRONMENTAL SERVICES - 0.6% 139,757 Waste Management, Inc. 3,345,433 ------------------------- HEAVY ELECTRICAL EQUIPMENT - 0.6% 71,600 Cooper Industries, Inc. 2,922,175 ------------------------- INDUSTRIAL PARTS - 2.7% 281,092 Tyco International Ltd.(i)(s) 14,827,602 ------------------------- MINING & METALS - 0.7% 61,764 Alcoa Inc. 1,740,973 110,186 Allegheny Technologies Inc. 2,189,947 ------------------------- 3,930,920 ------------------------- RAILROADS - 0.5% 51,900 Union Pacific Corp. 2,413,350 ------------------------- 52,961,918 ------------------------- INSURANCE - 4.9% LIFE & HEALTH INSURANCE - 1.8% 45,100 CIGNA Corp. 5,941,925 118,600 MetLife, Inc.(+) 3,513,525 ------------------------- 9,455,450 ------------------------- PROPERTY AND CASUALTY INSURANCE - 3.1% 137,800 Allstate Corp. 5,270,850 83,400 Ambac Financial Group, Inc. 6,369,675 57,300 XL Capital Ltd. Cl A(i) 4,573,256 ------------------------- 16,213,781 ------------------------- 25,669,231 ------------------------- PHARMACEUTICALS - 11.3% DRUGS - 11.3% 125,200 Alza Corp.(+) 5,555,750 62,300 American Home Products Corp. 3,745,788 61,700 Bristol-Myers Squibb Co. 4,276,581 88,500 Lilly (Eli) & Co. 8,291,344 64,900 Merck & Co., Inc. 6,015,419 269,800 Pfizer, Inc.(s) 11,955,512 181,675 Pharmacia Corp. 11,082,175 153,600 Schering-Plough Corp. 8,611,200 ------------------------- 59,533,769 ------------------------- SHARES VALUE - ----------------------------------------------------------------------------------------- RETAIL - 5.0% CLOTHING STORES - 1.5% 102,400 Abercrombie & Fitch Co. Cl A(+) $ 2,137,600 110,400 Gap, Inc. (The) 2,753,100 110,300 TJX Companies, Inc. (The) 2,826,438 -------------------------- 7,717,138 -------------------------- DEPARTMENT STORES - 1.9% 110,000 Target Corp. 3,306,875 136,800 Wal-Mart Stores, Inc. 7,139,249 -------------------------- 10,446,124 -------------------------- SPECIALTY STORES - 1.6% 56,100 Best Buy Co., Inc.(+) 1,444,575 175,300 Home Depot, Inc. 6,869,569 -------------------------- 8,314,144 -------------------------- 26,477,406 -------------------------- SEMICONDUCTORS - 4.4% SEMICONDUCTORS - 4.4% 39,500 Altera Corp.(+) 945,531 6,200 Broadcom Corp.(+) 604,500 243,500 Intel Corp.(s) 9,268,219 2,400 Lattice Semiconductor Corp.(+) 39,900 36,700 Linear Technology Corp.(+) 1,736,369 35,000 Maxim Integrated Products, Inc.(+) 1,785,000 55,000 Micron Technology, Inc.(+) 1,732,500 17,200 SDL, Inc.(+) 3,126,100 59,500 Texas Instruments Inc. 2,220,094 40,000 Xilinx, Inc.(+) 1,560,000 -------------------------- 23,018,213 -------------------------- SOFTWARE & SERVICES - 9.0% COMPUTER SOFTWARE - 7.7% 40,200 BEA Systems, Inc.(+) 2,354,213 85,100 Gemstar International Group Ltd.(+) 3,462,506 23,800 International Business Machines Corp. 2,225,300 276,000 Microsoft Corp.(s)(+) 15,835,500 160,400 NCR Corp.(+) 7,578,900 141,400 Oracle Corp.(+) 3,747,100 135,200 Parametric Technology Corp.(+) 1,504,100 41,078 Veritas Software Corp.(+) 4,007,672 -------------------------- 40,715,291 -------------------------- INTERNET - 1.3% 21,900 Akamai Technologies, Inc.(+) 629,625 61,800 America Online, Inc.(+) 2,509,698 380,400 E*trade Group Inc.(+) 3,043,200 18,000 eBay Inc.(+) 617,625 -------------------------- 6,800,148 -------------------------- 47,515,439 --------------------------
14 The Accompanying Notes are an Integral Part of the Financial Statements. THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000
SHARES/PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------- TELECOMMUNICATIONS - 5.1% TELEPHONE - 4.2% 109,290 Qwest Communications International Inc.(+) $ 4,125,698 189,600 SBC Communications Inc.(s) 10,416,149 103,300 Verizon Communications 5,804,169 113,450 WorldCom, Inc.(+) 1,694,659 ------------------------- 22,040,675 ------------------------- WIRELESS TELECOMMUNICATIONS - 0.9% 72,500 Nextel Communications, Inc.(+) 2,247,500 114,600 Sprint Corp. (PCS Group)(+) 2,599,988 ------------------------- 4,847,488 ------------------------- 26,888,163 ------------------------- UTILITIES - 3.3% ELECTRICAL UTILITY - 3.3% 95,100 Ameren Corp. 4,220,062 70,900 C P & L Energy Inc. 3,061,994 72,800 DTE Energy Company 2,761,850 68,300 Dynegy Inc. Cl A 3,022,275 100,200 Entergy Corp. 4,120,725 ------------------------- 17,186,906 ------------------------- TOTAL COMMON STOCKS 506,373,321 ------------------------- (Cost $426,829,334) SHORT-TERM INVESTMENTS - 3.9% INVESTMENT COMPANIES - 3.4% 18,245,417 J.P. Morgan Institutional Prime Money Market Fund(a) 18,245,416 ------------------------- U.S. TREASURY SECURITIES - 0.5% $2,450,000 U.S. Treasury Notes, 5.25%, 5/31/01(s) 2,438,510 ------------------------- TOTAL SHORT-TERM INVESTMENTS 20,683,926 ------------------------- (Cost $20,676,924) TOTAL INVESTMENT SECURITIES - 100.0% $527,057,247 ========================= (Cost $447,506,258)
FUTURES CONTRACTS UNDERLYING FACE AMOUNT UNREALIZED PURCHASED EXPIRATION DATE AT VALUE DEPRECIATION - -------------------------------------------------------------------------------- 45 S&P 500 Index December 2000 $14,866,875 $(1,006,998) =======================================
ADR - American Depositary Receipt (a) Money Market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc. (i) Foreign security (s) Security is fully or partially segregated with custodian as collateral for futures or with brokers as initial margin for futures contracts. (+) Non-income producing security. The Accompanying Notes are an Integral Part of the Financial Statements. 15 THE U.S. EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 ASSETS Investments at Value (Cost $447,506,258) $527,057,247 Cash 844,092 Dividend and Interest Receivable 659,002 Prepaid Trustees' Fees and Expenses 5,536 Prepaid Expenses and Other Assets 2,558 ---------------- TOTAL ASSETS 528,568,435 ---------------- LIABILITIES Advisory Fee Payable 183,688 Variation Margin Payable 155,250 Administrative Service Fees Payable 10,894 Administration Fee Payable 621 Fund Services Fee Payable 373 Accrued Expenses and Other Liabilities 83,742 ---------------- TOTAL LIABILITIES 434,568 ---------------- NET ASSETS Applicable to Investors' Beneficial Interests $528,133,867 ================
16 The Accompanying Notes are an Integral Part of the Financial Statements. THE U.S. EQUITY PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 INVESTMENT INCOME INCOME Dividend Income (Net of Foreign Withholding Tax of $2,313) $ 3,149,536 Interest Income 383,715 Dividend Income from Affiliated Investments (includes reimbursement from affiliate of $6,496) 9,096 ------------- Investment Income 3,542,347 ------------- EXPENSES Advisory Fee 1,223,277 Custodian Fees and Expenses 82,972 Administrative Services Fee 73,354 Professional Fee 22,417 Printing Expenses 4,590 Fund Services Fee 4,344 Trustees' Fees and Expenses 2,985 Administration Fee 1,862 Miscellaneous 833 ------------- Total Expenses 1,416,634 ------------- NET INVESTMENT INCOME 2,125,713 ------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON Investment Transactions 8,768,267 Futures Contracts (826,470) ------------- Net Realized Gain 7,941,797 ------------- NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON Investments (28,810,550 Futures Contracts (1,014,979) ------------- Net Change in Unrealized Appreciation (Depreciation) (29,825,529) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(19,758,019) =============
The Accompanying Notes are an Integral Part of the Financial Statements. 17 THE U.S. EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED) AND THE YEAR ENDED MAY 31, 2000
DECREASE IN NET ASSETS NOVEMBER 30, 2000 MAY 31, 2000 FROM OPERATIONS Net Investment Income $ 2,125,713 $ 6,243,239 Net Realized Gain on Investment and Futures Transactions 7,941,797 38,139,068 Net Change in Unrealized Appreciation on Investments and Futures Contracts. (29,825,529) (24,780,825) ------------------- ------------------ Net Increase (Decrease) in Net Assets Resulting from Operations (19,758,019) 19,601,482 ------------------- ------------------ TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS Contributions 35,551,555 207,425,150 Withdrawals (115,879,052) (318,237,694) ------------------- ------------------ Net Decrease from Transactions in Investors' Beneficial Interests (80,327,497) (110,812,544) ------------------- ------------------ Total Decrease in Net Assets (100,085,516) (91,211,062) ------------------- ------------------ NET ASSETS Beginning of Period 628,219,383 719,430,445 ------------------- ------------------ End of Period $528,133,867 $628,219,383 =================== ==================
SUPPLEMENTARY DATA FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED MAY 31 NOVEMBER 30, 2000 ------------------------------------------------------------ (UNAUDITED) 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS Net Expenses 0.47%(a) 0.46% 0.47% 0.47% 0.47% 0.46% Net Investment Income 0.70%(a) 0.90% 1.03% 1.01% 1.44% 2.20% Portfolio Turnover 38%(b) 89% 84% 106% 99% 85%
(a) Annualized (b) Not annualized 18 The Accompanying Notes are an Integral Part of the Financial Statements. THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--The U.S. Equity Portfolio (the "Portfolio") is registered under the Investment Company Act of 1940, as amended, as a no-load, diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The Portfolio commenced operations on July 19, 1993. The Portfolio's investment objective is to provide a high total return from a portfolio of selected equity securities. The Declaration of Trust permits the Trustees to issue an unlimited number of beneficial interests in the Portfolio. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the Portfolio: SECURITY VALUATIONS--Securities traded on principal securities exchanges are valued at the last reported sales price, or mean of the latest bid and asked prices when no last sales price is available. Securities traded over-the-counter and certain foreign securities are valued at the quoted bid price from a market maker or dealer. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Trustees. All short-term securities, with a remaining maturity of sixty days or less are valued using the amortized cost method. SECURITY TRANSACTIONS--Security transactions are accounted for as of the trade date. Realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is recorded as of the ex-dividend date or as of the time that the relevant ex-dividend and amount becomes known. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. FUTURES CONTRACTS--The Portfolio may enter into futures contracts in order to hedge existing portfolio securities, or securities the Portfolio intends to purchase, against fluctuations in value caused by changes in prevailing market interest rates or securities movements and to manage exposure to changing interest rates and securities prices. The risks of entering into futures contracts include the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the Portfolio. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gain or loss. The Portfolio will recognize a gain or loss when the contract is closed or expires. INCOME TAX STATUS--The Portfolio intends to be treated as a partnership for federal income tax purposes. As such, each investor in the Portfolio will be taxed on its share of the Portfolio's ordinary income and capital gains. It is intended that the Portfolio's assets will be managed in such a way that an investor in the Portfolio will be able to satisfy the requirements of Subchapter M of the Internal Revenue Code. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES ADVISORY--The Portfolio has an Investment Advisory Agreement with J.P. Morgan Investment Management, Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the Portfolio pays JPMIM at an annual rate of 0.40% of the Portfolio's average daily net assets. The Portfolio may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the Portfolio in an amount to offset any investment advisory, administrative fee and shareholder servicing fees related to a Portfolio investment in an affiliated money market fund. The amount listed on the Statement of Operations as Dividend Income from Affiliated Investment is the amount the Fund earned. ADMINISTRATIVE SERVICES--The Portfolio has an Administrative Services Agreement (the "Services Agreement") with Morgan under which Morgan is responsible for certain aspects of the administration and operation of the Portfolio. Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee equal to its 19 THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Portfolio and certain other registered investment companies for which JPMIM acts as investment advisor in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which Morgan provides similar services. ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and distributor for the Fund. Under a Co-Administration Agreement between FDI and the Portfolio, FDI provides administrative services necessary for the operations of the Portfolio, furnishes office space and facilities, required for conducting the business of the Portfolio and pays the compensation of the Portfolio's officers affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Portfolio's affairs. The Trustees of the Portfolio represent all the existing shareholders of PGI. TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for serving on the boards of the Portfolio, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, and other registered investment companies in which they invest. The Trustees' fees and expenses shown in the financial statements represent the Fund's allocated portion of the total Trustees' fees and expenses. The Trust's Chairman and Chief Executive Officer also serves as Chairman of PGI and receives compensation and employee benefits from PGI. The allocated portion of such compensation and benefits included in the Fund Services Fee shown on the Statement of Operations was $800. - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS During the six months ended November 30, 2000, the Portfolio purchased $226,149,460 of investment securities and sold $342,282,348 of investment securities other than U.S. government securities and short-term investments. - -------------------------------------------------------------------------------- 4. CREDIT AGREEMENT The Portfolio is party to a revolving line of credit agreement (the "Agreement") as discussed more fully in Note 3 of the Fund's Notes to the Financial Statements, which are included elsewhere in this report. - -------------------------------------------------------------------------------- 5. SUBSEQUENT EVENTS The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Fund's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P. Morgan Chase & Co. will be the new parent company of JPMIM, which will continue to serve as the Fund's adviser. 20 [back cover] J.P. MORGAN INSTITUTIONAL FUNDS Federal Money Market Fund --------------------------------------------------------------------- Prime Money Market Fund --------------------------------------------------------------------- Treasury Money Market Fund --------------------------------------------------------------------- Tax Aware Enhanced Income Fund: Institutional Shares --------------------------------------------------------------------- Tax Exempt Money Market Fund --------------------------------------------------------------------- Short Term Bond Fund --------------------------------------------------------------------- Bond Fund --------------------------------------------------------------------- Global Strategic Income Fund --------------------------------------------------------------------- Tax Exempt Bond Fund --------------------------------------------------------------------- California Bond Fund: Institutional Shares --------------------------------------------------------------------- New York Tax Exempt Bond Fund --------------------------------------------------------------------- Diversified Fund --------------------------------------------------------------------- Disciplined Equity Fund --------------------------------------------------------------------- Large Cap Growth Fund: Institutional Shares --------------------------------------------------------------------- Market Neutral Fund: Institutional Shares --------------------------------------------------------------------- Tax Aware U.S. Equity Fund: Institutional Shares --------------------------------------------------------------------- Tax Aware Disciplined Equity Fund: Institutional Shares --------------------------------------------------------------------- U.S. Equity Fund --------------------------------------------------------------------- U.S. Small Company Fund --------------------------------------------------------------------- Emerging Markets Equity Fund --------------------------------------------------------------------- European Equity Fund --------------------------------------------------------------------- International Equity Fund --------------------------------------------------------------------- International Opportunities Fund --------------------------------------------------------------------- SmartIndex(tm) Fund: Institutional Shares --------------------------------------------------------------------- For more information on the J.P. Morgan Institutional Funds, call J.P. Morgan Funds Services at (800) 766-7722. --------------------------------------------------------------------- Morgan Guaranty Trust Company MAILING 500 Stanton Christiana Road INFORMATION Newark, Delaware 19713-2107 IN-SAN-24246 0101 EX-99.17(I) 9 a2043521zex-99_17i.txt EXHIBIT 99.17(I) [front cover] J.P. Morgan U.S. Equity Fund - Advisor Series Semi-annual Report November 30, 2000 LETTER TO THE SHAREHOLDERS - -------------------------------------------------------------------------------- January 8, 2001 Dear Shareholder, We are pleased to present the inaugural shareholder report for the J.P. Morgan U.S. Equity Fund - Advisor Series. The Fund began operations on September 15, 2000, amid mounting volatility in the U.S. stock market. This was a rough time for investors, and for the Fund provided a total return of -10.6% from its inception through November 30, 2000. The Fund's benchmark index, the Standard & Poor's 500 Index, and peer group, the Lipper Multi-Cap Core Funds Average, fared a little better. For the same time period, the S&P 500 and Lipper average each finished in negative territory The Fund's net asset value on November 30, 2000 was $8.94 per share, decreasing from its initial net asset value of $10.00 on September 15, 2000. The Fund's net assets were approximately $475,000 on November 30, 2000, while the total net assets of The U.S. Equity Portfolio, in which the Fund invests, totaled $528 million. This report includes an interview with Henry Cavanna, lead portfolio manager for The U.S. Equity Portfolio. Henry discusses the U.S. equity market in detail, and explains the factors that influenced Fund performance during the fiscal period. Henry also provides insight in regard to positioning the Portfolio for the coming months. As chairman and president of Asset Management Services, we thank you for investing with J.P. Morgan. Should you have any comments or questions, please contact your Morgan representative, or call J.P. Morgan Funds Services at (800) 766-7722. Sincerely yours, /signature/ /signature/ Ramon de Oliveira Keith M. Schappert Chairman of Asset Management Services President of Asset Management Services J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated TABLE OF CONTENTS - -------------------------------------------------------------------------------- Letter to the Shareholders 1 Fund Performance 2 Portfolio Manager Q&A 3 Fund Facts & Highlights 5 Financial Statements 6 1 FUND PERFORMANCE - -------------------------------------------------------------------------------- EXAMINING PERFORMANCE One way is to review a fund's average annual total return. This calculation takes the Fund's actual return and shows what would have happened if the Fund had achieved that return by performing at a constant rate each year. Average annual total returns represent the average yearly change of a fund's value over various time periods, typically one, five, and ten years, (or since inception). Total returns for periods of less than one year are not annualized and provide a picture of how a fund has performed over the short-term. PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS* TOTAL RETURNS* ------------------------- ---------------------------------- SIX ONE THREE FIVE TEN MONTHS YEAR YEARS YEARS YEARS AS OF NOVEMBER 30, 2000 J.P. Morgan U.S. Equity Fund - Advisor Series (4.63)% (4.06)% 10.13% 15.79% 16.18% S&P 500 Index** (6.92)% (4.22)% 12.71% 18.66% 17.72% Lipper Multi-Cap Core Funds Average*** (5.96)% 1.03% 10.35% 15.52% 16.34% AS OF SEPTEMBER 30, 2000 J.P. Morgan U.S. Equity Fund - Advisor Series (2.16)% 12.76% 12.98% 18.66% 17.93% S&P 500 Index** (3.60)% 13.28% 16.44% 21.69% 19.44% Lipper Multi-Cap Core Funds Average*** (1.36)% 21.45% 12.84% 17.66% 17.68%
* The Fund commenced operations on September 15, 2000. The Fund's returns include historical returns of the J.P. Morgan U.S. Equity Fund, a separate feeder fund investing in the same master portfolio, which had a lower expense ratio, from June 27, 1985 (the inception date of the J.P. Morgan U.S. Equity Fund), through September 15, 2000 (the inception date of the J.P. Morgan U.S. Equity Fund - Advisor Series). Therefore, the Fund's returns would have been lower had it existed during the same period. For the purposes of comparison, the "since inception" returns are calculated from June 30, 1985, the first date when data for the Fund, its benchmark, and its Lipper category were all available. The J.P. Morgan U.S. Equity Fund - Advisor Series' return from September 15, 2000 through November 30, 2000 was (10.60)%. ** The S&P 500 Index is an unmanaged index that measures U.S. stock market performance. It does not include fees or operating expenses and is not available for actual investment. *** Describes the average total return for all funds in the indicated Lipper category, as defined by Lipper Inc., and does not take into account applicable sales charges. Lipper Analytical Services, Inc. is a leading source for mutual fund data. Past performance is no guarantee of future results. Fund returns are net of fees, assume the reinvestment of distributions, and reflect reimbursement of Fund expenses as described in the prospectus. Had expenses not been subsidized, returns would have been lower. 2 PORTFOLIO MANAGER Q&A - -------------------------------------------------------------------------------- [photo of Henry D. Cavanna] Following is an interview with HENRY D. CAVANNA, managing director and senior U.S. equity portfolio manager in J.P. Morgan Investment Management's U.S. Equity Group. Henry has been a J.P. Morgan employee for the past 28 years, and has been a portfolio manager since 1979. He is currently responsible for several major institutional and sub-advisory clients, as well as having overall investment responsibility for Morgan's own retirement and defined contribution funds. Before joining Morgan, Henry worked at Harris Upham & Co. He holds a B.A. from Boston College and a L.L.B. from the University of Pennsylvania. This interview was conducted on December 15, 2000, and reflects Henry's views on that date. IT HAS CERTAINLY BEEN AN INTERESTING TIME FOR U.S. EQUITIES DURING THIS REPORTING PERIOD. WHAT WERE SOME OF THE HIGHLIGHTS? This six-month period captured two worlds. On one side, there was an ending of a rapidly expanding economy. On the other, there was the beginning of a slowing economy, with investors growing increasingly concerned about corporate profits. As it turned out, these concerns were more than justified, as company after company, in sector after sector, started reporting disappointing earnings. This helped to bring about a substantial reallocation of capital from new economy growth sectors to more defensive value sectors, such as insurance, utilities, and energy. At the end of the period, the lack of closure in our presidential election also served as a destabilizing factor. As a result, stock market volatility was extraordinarily high over the six months ended November 30. We also saw the end of the Federal Reserve's interest rate tightening cycle, and the probable success of its efforts to engineer a soft landing for our economy. Still, we did not see an end to its tightening bias, which unnerved some investors and contributed in part to market instability. HOW WAS THE PORTFOLIO POSITIONED OVER THIS PERIOD? Our strategy is to be well diversified across almost all sectors, and to own companies that we believe represent the best mix of fundamentals and attractive valuations over the longer-term, be they old or new economy stocks. During this period of time, however, investors were focused on short-term results, not long-term opportunities, and they proved more than willing to punish any company that did not meet their somewhat elevated earnings expectations. Not too infrequently, even companies with satisfactory results were brought down alongside their lesser performing brethren. Within this sometime incendiary marketplace, the S&P 500 Index, our benchmark, declined by almost 7%. HOW HAS MARKET VOLATILITY AFFECTED THE WAY YOU MANAGE THE PORTFOLIO, IF AT ALL? It hasn't specifically affected our management, but we were certainly cognizant of and sensitive to the market's short-term focus. In particular, we were able to identify several longer-term opportunities created by investors who overreacted to short-term concerns. From that standpoint, market volatility was good for the strategy. On the other side, we have also had to be more careful in our approach to the market. Timing became critical, as a desirable stock could be way up one day and way down the next. We definitely wanted to exercise the discipline of adding to attractive long-term positions, but we were a little more measured and patient about when to jump in. HOW IS YOUR PROCESS GEARED TO TAKE ADVANTAGE OF THIS MARKET ENVIRONMENT? Our process combines the advantages of two strong internal capabilities. One is our depth in research. Our analysts are sector specialists who develop estimates of what companies are worth and which companies represent good longer-term investments. On the other side is our highly experienced trading desk. Our traders are very sensitive to short-term fluctuations in stock prices and, with their access to timely trading information, 3 PORTFOLIO MANAGER Q&A - -------------------------------------------------------------------------------- (Continued) we feel they can usually get us the stock we want at the price we want. Thus, even though we have a longer-term perspective, we can operate in a more tactical fashion when we think it makes sense. WHICH STOCKS WERE AMONG YOUR BEST INVESTMENTS OVER THE SIX-MONTH REPORTING PERIOD? Alza, a mid-sized drug company, was up substantially over this period, owing to accelerating earnings growth and the introduction of two new drugs. One helps incontinence among seniors, and one is a once-a-day remedy for attention deficit disorder (ADD). Both are beginning to capture notable market share, with the ADD drug expected to achieve a 10% market share in its category by year's end. Another substantial performer was Philip Morris, which had been deeply undervalued in the wake of numerous liability issues. Investors, however, came to the conclusion that most of the bad news was behind, and saw it as an attractive value play. Aiding its resurgence were good earnings, a great yield, and a very capable management team that has continued to manage its business well. HOW ABOUT THE DOWN SIDE? E*trade, the on-line discount broker, has been punished by concerns about a decline in on-line trading and the consequent impact on the company's profit margins. We still have confidence that it has a real business, that it will be competitive, and that it will recover. Our long-term confidence is such that we have elected to maintain our position during a period when the company's profit margins will be under short-term pressure. Another disappointment was Level-3 Communications, a telecommunications company that has built one of the newest fiber optic telephone networks. As a relatively new company, Level-3's positive cash flow and earnings are still a couple of years out, so the results-oriented market in which we find ourselves has taken its stock to task. You have to have patience to own it and believe that the company will achieve an attractive return on its investments, which we do. We think Level-3 has a competitive advantage and good management, and, importantly, it has already secured the funding needed to build out its network. HOW DO YOU EXPECT THE MARKET TO DEVELOP OVER THE NEXT FEW MONTHS? We remain cautious about the market's prospects over the next few months. The economy is in a decelerating mode, and that means there will continue to be earnings risk and accompanying volatility. It's also still too early for the Fed to come to the rescue and lower interest rates. This said, we think the stock market is in the process of bottoming out, so we are not overly concerned. Further out, a number of developments would help its recovery. The Fed, for example, has the option of lowering interest rates several times in order to help the economy, especially in light of the expectation that inflation will remain fairly moderate over the coming year. We also anticipate that the price of oil will decline to more reasonable levels later next year, thereby providing a boost to consumer confidence. In sum, there are a number of catalysts that could re-ignite the market going forward, but, in the meantime, we are still reasonably wary about its near-term direction. 4 FUND FACTS - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE J.P. Morgan U.S. Equity Fund - Advisor Series seeks to provide a high total return from a portfolio of selected equity securities. It is designed for investors who want an actively managed portfolio of selected equity securities that seeks to outperform the S&P 500 Index. - -------------------------------------------------------------------------------- Inception Date: 9/15/2000 - -------------------------------------------------------------------------------- Fund Net Assets as of 11/30/2000: $475,351 - -------------------------------------------------------------------------------- Portfolio Net Assets as of 11/30/2000: $528,133,867 - -------------------------------------------------------------------------------- Dividend Payable Dates (if applicable): 12/20/2000, 3/23/2001, 6/22/2001, 9/14/2001, 12/21/2001 - -------------------------------------------------------------------------------- Capital Gain Payable Dates (if applicable): 12/20/2000, 12/21/2001 EXPENSE RATIOS The Fund's current annualized expense ratio of 1.05% covers shareholders' expenses for custody, tax reporting, investment advisory, and shareholder services, after reimbursement. The Fund is no-load and does not charge any sales, redemption, or exchange fees. There are no additional charges for buying, selling or safekeeping fund shares, or for wiring redemption proceeds from the Fund. FUND HIGHLIGHTS - -------------------------------------------------------------------------------- All data as of November 30, 2000 PORTFOLIO ALLOCATION (As a percentage of total investment securities) [data from pie chart] Finance 11.4% Pharmaceuticals 11.3% Industrial Cyclical 10.0% Computer Hardware 10.0% Software & Services 9.0% Energy 6.1% Consumer Stable 6.1% Telecommunications 5.1% Retail 5.0% Insurance 4.9% Semiconductors 4.4% Short-Term Investments 3.9% Utilities 3.3% Consumer Services 2.9% Consumer Cyclical 2.6% Capital Markets 2.5% Health Services & Systems 1.5%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS - ------------------------------------------------------------- Cisco Systems Inc. 3.8% Exxon Mobil Corp. 3.6% General Electric Co. 3.1% Microsoft Corp. 3.0% Tyco International Ltd. 2.8% Sun Microsystems, Inc. 2.7% Pfizer, Inc. 2.3% Firstar Corp. 2.2% Philip Morris Companies Inc. 2.1% Pharmacia Corp. 2.1%
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY THE FDIC, ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL INSTITUTION AND ARE NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES OF THE FUND ARE SUBJECT TO INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED. References to specific securities and their issuers are for illustrative purposes only and are not intended to be, and should not be interpreted as, recommendations to purchase or sell securities. Opinions expressed herein and other Fund data presented are based on current market conditions and are subject to change without notice. The Fund invests through a master portfolio (another Fund with the same objective). CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. 5 J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 ASSETS Investment in The U.S. Equity Portfolio ("Portfolio"), at value $493,577 Receivable for Expense Reimbursements 12,235 ------------- TOTAL ASSETS 505,812 ------------- LIABILITIES Accrued Expenses and Other Liabilities 30,461 ------------- TOTAL LIABILITIES 30,461 ------------- NET ASSETS Applicable to 53,157 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $475,351 ============= Net Asset Value, Offering and Redemption Price Per Share $8.94 ============= ANALYSIS OF NET ASSETS Paid-in Capital $500,225 Undistributed Net Investment Income 261 Accumulated Net Realized Loss on Investment (6,149) Net Unrealized Depreciation on Investment (18,986) ------------- NET ASSETS $475,351 =============
6 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES STATEMENT OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- FOR THE PERIOD SEPTEMBER 15, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH NOVEMBER 30, 2000 INVESTMENT INCOME INCOME Allocated Investment Income from Portfolio $ 768 Allocated Portfolio Expenses (229) ------------- Investment Income 539 ------------- FUND EXPENSES Registration Fees 11,042 Financial and Fund Accounting Services Fee 6,095 Transfer Agent Fees 4,914 Professional Fees 3,285 Printing Expenses 2,421 Shareholder Servicing Fee 175 Trustees' Fees and Expenses 124 Distribution Fee 120 Miscellaneous 2,323 ------------- Total Fund Expenses 30,499 Less: Reimbursement of Expenses (30,221) ------------- Net Fund Expenses 278 ------------- NET INVESTMENT INCOME 261 ------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM PORTFOLIO (6,149) ------------- NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) INVESTMENT ALLOCATED FROM PORTFOLIO (18,986) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(24,874) =============
The Accompanying Notes are an Integral Part of the Financial Statements. 7 J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED) - -------------------------------------------------------------------------------- FOR THE PERIOD SEPTEMBER 15, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH NOVEMBER 30, 2000 INCREASE IN NET ASSETS FROM OPERATIONS Net Investment Income $ 261 Net Realized Loss on Investment Allocated from Portfolio (6,149) Net Change in Unrealized Appreciation (Depreciation) on Investment Allocated from Portfolio (18,986) ------------- Net Decrease in Net Assets Resulting from Operations (24,874) ------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 500,225 ------------- Total Increase in Net Assets 475,351 ------------- NET ASSETS Beginning of Period - ------------- End of Period $475,351 ============= Undistributed Net Investment Income $261 ============= TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Shares of Beneficial Interest Sold 53,157 =============
8 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT THE PERIOD IS AS FOLLOWS:
FOR THE PERIOD SEPTEMBER 15, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH NOVEMBER 30, 2000 (UNAUDITED) -------------------- NET ASSET VALUE, BEGINNING OF PERIOD $10.00 -------------------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.00(a)(b) Net Realized and Unrealized Gain (Loss) on Investment (1.06) -------------------- Total From Investment Operations (1.06) -------------------- NET ASSET VALUE, END OF PERIOD $8.94 ==================== RATIOS AND SUPPLEMENTAL DATA Total Return (10.60)%(c) Net Assets, End of Period (in thousands) $475 Ratios to Average Net Assets Net Expenses 1.05%(d) Net Investment Income 0.56%(d) Expenses without Reimbursement 1.18%(d)(e)
(a) Based on the average number of shares outstanding throughout the period. (b) Less than $0.005 (c) Not annualized (d) Annualized (e) Reflects the ratio of expenses without reimbursement to average net assets for the current period adjusted for the effects of rounding due to a relatively low level of assets from inception. The actual ratio of expenses without reimbursement to average net assets for the current period was 65.71%. The Accompanying Notes are an Integral Part of the Financial Statements. 9 J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--J.P. Morgan U.S. Equity Fund - Advisor Series (the "Fund") is a separate series of J.P. Morgan Funds, a Massachusetts business trust (the "Trust") which was organized on November 4, 1992. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund commenced operations on September 15, 2000. The Fund invests all of its investable assets in The U.S. Equity Portfolio (the "Portfolio"), a diversified open-end management investment company having the same investment objective as the Fund. The value of such investment included in the Statement of Assets and Liabilities reflects the Fund's proportionate interest in the net assets of the Portfolio (less than 1% at November 30, 2000). The performance of the Fund is directly affected by the performance of the Portfolio. The financial statements of the Portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the Fund's financial statements. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the Fund: SECURITY VALUATION--Valuation of securities by the Portfolio is discussed in Note 1 of the Portfolio's Notes to Financial Statements that are included elsewhere in this report. INVESTMENT INCOME--The Fund earns income, net of expenses, daily on its investment in the Portfolio. All net investment income, realized and unrealized gains and losses of the Portfolio are allocated pro-rata among the Fund and other investors in the Portfolio at the time of such determination. EXPENSES--Expenses incurred by the Trust with respect to any two or more Funds in the Trust are allocated in proportion to the net assets of each Fund in the Trust, except where allocations of direct expenses to each Fund can otherwise be made fairly. INCOME TAX STATUS--It is the Fund's policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded on the ex-dividend date. Distributions from net investment income are declared and paid semi-annually. Distributions from net realized gains, if any, are paid annually. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES ADMINISTRATIVE SERVICES--The Trust has an Administrative Services Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of New York ("Morgan") under which Morgan is responsible for certain aspects of the administration and operation of the Fund. Under the Services Agreement, the Fund has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Trust and certain other registered investment companies for which J.P. Morgan Investment Management, Inc. ("JPMIM") acts as investment advisor in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. The portion of this charge payable by the Fund is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which Morgan provides similar services. Morgan has agreed to reimburse the Fund to the extent the total operating expenses (excluding interest, taxes and extraordinary expenses) of the Fund, including the expenses allocated to the Fund from the Portfolio, exceed 1.05% of the Fund's average daily net assets through September 30, 2001. ADMINISTRATION--The Trust has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and distributor for the Fund. Under a Co-Administration Agreement between FDI and the Trust, FDI provides administrative services necessary for the operations of the Fund, furnishes office space and facilities required for conducting the business of the Fund and pays the compensation of the Fund's officers affiliated with FDI. The Fund has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Fund is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. 10 J.P. MORGAN U.S. EQUITY FUND - ADVISOR SERIES NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with Morgan under which Morgan provides account administration and personal account maintenance service to Fund shareholders. The agreement provides for the Fund to pay Morgan a fee for these services that is computed daily and paid monthly at an annual rate of 0.05% of the average daily net assets of the Fund. DISTRIBUTION PLAN--The Trust, on behalf of the Fund, has a Distribution Plan with respect to services related to distributing fund shares, which authorizes it to compensate certain financial institutions, securities dealers, and other industry professionals that have entered into written agreements with the Fund in respect to these services. The agreement provides for the Fund to pay a fee for these services which is computed daily and paid monthly at an annual rate not to exceed 0.25% of the value of the average daily net assets of the Fund. The amount paid to such institutions is based on the daily value of shares owned by their clients. SERVICE PLAN--The Trust on behalf of the Fund has a Service Plan with respect to fund shares which authorizes it to compensate Service Organizations for providing account administration and other services to their customers who are beneficial owners of such shares. The Fund will enter into agreements with Service Organizations that purchase shares on behalf of their customers ("Service Agreements"). The Service Agreements provide that the Fund pay Service Organizations a fee which is computed daily and paid monthly at an annual rate of up to 0.25% of the average daily net assets of the Fund with respect to the shares of the Fund attributable to or held in the name of the Service Organization for its customers. FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Trust's affairs. The Trustees of the Trust represent all the existing shareholders of PGI. TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for serving on the boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, and other registered investment companies in which they invest. The Trustees' fees and expenses shown in the financial statements represent the Fund's allocated portion of the total Trustees' fees and expenses. The Trust's Chairman and Chief Executive Officer also serves as Chairman of PGI and receives compensation and employee benefits from PGI. There was no allocated portion of such compensation and benefits. - -------------------------------------------------------------------------------- 3. BANK LOANS The Fund may borrow money for temporary or emergency purposes, such as funding shareholder redemptions. Effective May 23, 2000, the Fund, along with certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of credit agreement with DeutscheBank. Borrowings under the agreement will bear interest at approximate market rates. A commitment fee is charged at an annual rate of 0.085% on the unused portion of the committed amount. - -------------------------------------------------------------------------------- 4. CONCENTRATIONS OF RISK From time to time, the Fund may have a concentration of several shareholders holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the Fund. - -------------------------------------------------------------------------------- 5. SUBSEQUENT EVENTS The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Fund's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P. Morgan Chase & Co. will be the new parent company of JPMIM, which will continue to serve as the Fund's adviser. 11 THE U.S. EQUITY PORTFOLIO Semi-annual Report November 30, 2000 (The following pages should be read in conjunction with J.P. Morgan U.S. Equity Fund - Advisor Series Semi-annual Financial Statements) 12 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000
SHARES VALUE - ----------------------------------------------------------------------------------------- COMMON STOCKS - 96.1% CAPITAL MARKETS - 2.5% SECURITIES & ASSET MANAGEMENT - 2.5% 119,700 Goldman Sachs Group, Inc. (The) $ 9,830,363 253,400 TD Waterhouse Group, Inc.(+) 3,357,550 -------------------------- 13,187,913 -------------------------- COMPUTER HARDWARE - 10.0% COMPUTER HARDWARE & BUSINESS MACHINES - 10.0% 7,300 Avaya Inc.(+) 85,319 414,800 Cisco Systems Inc.(s)(+) 19,858,550 232,400 Compaq Computer Corp. 4,996,600 47,100 Dell Computer Corp.(+) 906,675 104,500 EMC Corp. (Mass.)(+) 7,772,188 69,600 Hewlett-Packard Co. 2,201,100 202,500 Quantum Corp. - DLT & Storage Systems(+) 2,733,750 186,900 Sun Microsystems, Inc.(s)(+) 14,216,081 -------------------------- 52,770,263 -------------------------- CONSUMER CYCLICAL - 2.6% HOTELS - 0.5% 58,700 Marriott International, Inc. 2,432,381 -------------------------- MOTOR VEHICLES & PARTS - 1.8% 66,400 Dana Corp. 1,112,200 167,500 Delphi Automotive Systems 2,313,594 93,492 Ford Motor Company 2,126,943 23,800 General Motors Corp. 1,178,100 129,800 Lear Corp.(+) 2,839,375 -------------------------- 9,570,212 -------------------------- RESTAURANTS - 0.3% 57,000 McDonald's Corp. 1,816,875 -------------------------- 13,819,468 -------------------------- CONSUMER SERVICES - 2.9% ENTERTAINMENT - 0.7% 76,900 Viacom, Inc. Cl B(+) 3,931,512 -------------------------- MEDIA - 2.2% 104,200 AT&T Corp. - Liberty Media Group Cl A(+) 1,413,213 40,758 Charter Communications, Inc.(+) 804,971 93,800 Comcast Corp. Cl A(+) 3,605,438 106,400 News Corp. Ltd. (The) ADR(i) 3,710,699 27,700 Time Warner Inc. 1,717,400 -------------------------- 11,251,721 -------------------------- 15,183,233 -------------------------- CONSUMER STABLE - 6.1% HOME PRODUCTS - 4.0% 52,800 Clorox Company 2,359,500 62,700 Estee Lauder Companies, Inc. 2,715,694 SHARES VALUE - ----------------------------------------------------------------------------------------- 153,400 Gillette Company $ 5,196,425 142,000 Procter & Gamble Co. (The) 10,632,250 -------------------------- 20,903,869 -------------------------- TOBACCO - 2.1% 295,300 Philip Morris Companies Inc. 11,276,769 -------------------------- 32,180,638 -------------------------- ENERGY - 6.1% ENERGY RESERVES & PRODUCTION - 4.7% 44,500 Anadarko Petroleum Corp. 2,647,750 37,900 Chevron Corp. 3,103,063 217,548 Exxon Mobil Corp.(s) 19,144,223 -------------------------- 24,895,036 -------------------------- OIL REFINING - 0.3% 24,100 Texaco Inc. 1,399,306 -------------------------- OIL SERVICES - 1.1% 109,900 Baker Hughes Inc. 3,633,569 108,600 Global Marine Inc.(+) 2,382,413 -------------------------- 6,015,982 -------------------------- 32,310,324 -------------------------- FINANCE - 11.4% BANKS - 4.1% 223,100 Amsouth Bancorporation 3,318,613 81,566 Citigroup Inc. 4,063,006 103,000 First Union Corp. 2,587,875 608,000 Firstar Corp.(s) 11,780,000 -------------------------- 21,749,494 -------------------------- FINANCIAL SERVICES - 6.8% 219,900 Associates First Capital Corp. 7,765,219 69,900 Capital One Financial Corp. 3,901,294 95,900 Countrywide Credit Industries, Inc. 3,560,288 43,100 Federal Home Loan Mortgage Corp. 2,604,856 331,700 General Electric Co. (U.S.)(s) 16,439,880 14,700 Providian Financial Corp. 1,323,000 -------------------------- 35,594,537 -------------------------- THRIFTS - 0.5% 56,300 Washington Mutual, Inc. 2,558,131 -------------------------- 59,902,162 -------------------------- HEALTH SERVICES & SYSTEMS - 1.5% MEDICAL PRODUCTS & SUPPLIES - 1.5% 38,700 Bard (C.R.), Inc. 1,905,975 89,100 Becton Dickinson & Co. 3,029,400 53,200 Medtronic, Inc. 2,832,900 -------------------------- 7,768,275 -------------------------- INDUSTRIAL CYCLICAL - 10.0% CHEMICALS - 2.0% 205,300 Air Products & Chemicals, Inc. 7,070,019
The Accompanying Notes are an Integral Part of the Financial Statements. 13 THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000
SHARES VALUE - ----------------------------------------------------------------------------------------- 112,700 Rohm and Haas Co. $ 3,352,825 ------------------------- 10,422,844 ------------------------- DEFENSE/AEROSPACE - 0.7% 74,600 Honeywell Inc. 3,636,750 ------------------------- ELECTRICAL EQUIPMENT - 2.2% 36,000 Corning Inc. 2,106,000 9,900 Corvis Corp.(+) 285,244 100,200 Level 3 Communications, Inc.(+) 2,692,875 142,400 Nortel Networks Corp. 5,375,600 12,500 QUALCOMM Inc.(+) 1,003,125 ------------------------- 11,462,844 ------------------------- ENVIRONMENTAL SERVICES - 0.6% 139,757 Waste Management, Inc. 3,345,433 ------------------------- HEAVY ELECTRICAL EQUIPMENT - 0.6% 71,600 Cooper Industries, Inc. 2,922,175 ------------------------- INDUSTRIAL PARTS - 2.7% 281,092 Tyco International Ltd.(i)(s) 14,827,602 ------------------------- MINING & METALS - 0.7% 61,764 Alcoa Inc. 1,740,973 110,186 Allegheny Technologies Inc. 2,189,947 ------------------------- 3,930,920 ------------------------- RAILROADS - 0.5% 51,900 Union Pacific Corp. 2,413,350 ------------------------- 52,961,918 ------------------------- INSURANCE - 4.9% LIFE & HEALTH INSURANCE - 1.8% 45,100 CIGNA Corp. 5,941,925 118,600 MetLife, Inc.(+) 3,513,525 ------------------------- 9,455,450 ------------------------- PROPERTY AND CASUALTY INSURANCE - 3.1% 137,800 Allstate Corp. 5,270,850 83,400 Ambac Financial Group, Inc. 6,369,675 57,300 XL Capital Ltd. Cl A(i) 4,573,256 ------------------------- 16,213,781 ------------------------- 25,669,231 ------------------------- PHARMACEUTICALS - 11.3% DRUGS - 11.3% 125,200 Alza Corp.(+) 5,555,750 62,300 American Home Products Corp. 3,745,788 61,700 Bristol-Myers Squibb Co. 4,276,581 88,500 Lilly (Eli) & Co. 8,291,344 64,900 Merck & Co., Inc. 6,015,419 269,800 Pfizer, Inc.(s) 11,955,512 181,675 Pharmacia Corp. 11,082,175 153,600 Schering-Plough Corp. 8,611,200 ------------------------- 59,533,769 ------------------------- SHARES VALUE - ----------------------------------------------------------------------------------------- RETAIL - 5.0% CLOTHING STORES - 1.5% 102,400 Abercrombie & Fitch Co. Cl A(+) $ 2,137,600 110,400 Gap, Inc. (The) 2,753,100 110,300 TJX Companies, Inc. (The) 2,826,438 -------------------------- 7,717,138 -------------------------- DEPARTMENT STORES - 1.9% 110,000 Target Corp. 3,306,875 136,800 Wal-Mart Stores, Inc. 7,139,249 -------------------------- 10,446,124 -------------------------- SPECIALTY STORES - 1.6% 56,100 Best Buy Co., Inc.(+) 1,444,575 175,300 Home Depot, Inc. 6,869,569 -------------------------- 8,314,144 -------------------------- 26,477,406 -------------------------- SEMICONDUCTORS - 4.4% SEMICONDUCTORS - 4.4% 39,500 Altera Corp.(+) 945,531 6,200 Broadcom Corp.(+) 604,500 243,500 Intel Corp.(s) 9,268,219 2,400 Lattice Semiconductor Corp.(+) 39,900 36,700 Linear Technology Corp.(+) 1,736,369 35,000 Maxim Integrated Products, Inc.(+) 1,785,000 55,000 Micron Technology, Inc.(+) 1,732,500 17,200 SDL, Inc.(+) 3,126,100 59,500 Texas Instruments Inc. 2,220,094 40,000 Xilinx, Inc.(+) 1,560,000 -------------------------- 23,018,213 -------------------------- SOFTWARE & SERVICES - 9.0% COMPUTER SOFTWARE - 7.7% 40,200 BEA Systems, Inc.(+) 2,354,213 85,100 Gemstar International Group Ltd.(+) 3,462,506 23,800 International Business Machines Corp. 2,225,300 276,000 Microsoft Corp.(s)(+) 15,835,500 160,400 NCR Corp.(+) 7,578,900 141,400 Oracle Corp.(+) 3,747,100 135,200 Parametric Technology Corp.(+) 1,504,100 41,078 Veritas Software Corp.(+) 4,007,672 -------------------------- 40,715,291 -------------------------- INTERNET - 1.3% 21,900 Akamai Technologies, Inc.(+) 629,625 61,800 America Online, Inc.(+) 2,509,698 380,400 E*trade Group Inc.(+) 3,043,200 18,000 eBay Inc.(+) 617,625 -------------------------- 6,800,148 -------------------------- 47,515,439 --------------------------
14 The Accompanying Notes are an Integral Part of the Financial Statements. THE U.S. EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000
SHARES/PRINCIPAL AMOUNT VALUE - ----------------------------------------------------------------------------------------- TELECOMMUNICATIONS - 5.1% TELEPHONE - 4.2% 109,290 Qwest Communications International Inc.(+) $ 4,125,698 189,600 SBC Communications Inc.(s) 10,416,149 103,300 Verizon Communications 5,804,169 113,450 WorldCom, Inc.(+) 1,694,659 ------------------------- 22,040,675 ------------------------- WIRELESS TELECOMMUNICATIONS - 0.9% 72,500 Nextel Communications, Inc.(+) 2,247,500 114,600 Sprint Corp. (PCS Group)(+) 2,599,988 ------------------------- 4,847,488 ------------------------- 26,888,163 ------------------------- UTILITIES - 3.3% ELECTRICAL UTILITY - 3.3% 95,100 Ameren Corp. 4,220,062 70,900 C P & L Energy Inc. 3,061,994 72,800 DTE Energy Company 2,761,850 68,300 Dynegy Inc. Cl A 3,022,275 100,200 Entergy Corp. 4,120,725 ------------------------- 17,186,906 ------------------------- TOTAL COMMON STOCKS 506,373,321 ------------------------- (Cost $426,829,334) SHORT-TERM INVESTMENTS - 3.9% INVESTMENT COMPANIES - 3.4% 18,245,417 J.P. Morgan Institutional Prime Money Market Fund(a) 18,245,416 ------------------------- U.S. TREASURY SECURITIES - 0.5% $2,450,000 U.S. Treasury Notes, 5.25%, 5/31/01(s) 2,438,510 ------------------------- TOTAL SHORT-TERM INVESTMENTS 20,683,926 ------------------------- (Cost $20,676,924) TOTAL INVESTMENT SECURITIES - 100.0% $527,057,247 ========================= (Cost $447,506,258)
FUTURES CONTRACTS UNDERLYING FACE AMOUNT UNREALIZED PURCHASED EXPIRATION DATE AT VALUE DEPRECIATION - -------------------------------------------------------------------------------- 45 S&P 500 Index December 2000 $14,866,875 $(1,006,998) ======================================
ADR - American Depositary Receipt (a) Money Market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc. (i) Foreign security (s) Security is fully or partially segregated with custodian as collateral for futures or with brokers as initial margin for futures contracts. (+) Non-income producing security. The Accompanying Notes are an Integral Part of the Financial Statements. 15 THE U.S. EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 ASSETS Investments at Value (Cost $447,506,258) $527,057,247 Cash 844,092 Dividend and Interest Receivable 659,002 Prepaid Trustees' Fees and Expenses 5,536 Prepaid Expenses and Other Assets 2,558 ---------------- TOTAL ASSETS 528,568,435 ---------------- LIABILITIES Advisory Fee Payable 183,688 Variation Margin Payable 155,250 Administrative Service Fees Payable 10,894 Administration Fee Payable 621 Fund Services Fee Payable 373 Accrued Expenses and Other Liabilities 83,742 ---------------- TOTAL LIABILITIES 434,568 ---------------- NET ASSETS Applicable to Investors' Beneficial Interests $528,133,867 ================
16 The Accompanying Notes are an Integral Part of the Financial Statements. THE U.S. EQUITY PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) - -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 INVESTMENT INCOME INCOME Dividend Income (Net of Foreign Withholding Tax of $2,313) $ 3,149,536 Interest Income 383,715 Dividend Income from Affiliated Investments (includes reimbursement from affiliate of $6,496) 9,096 ------------- Investment Income 3,542,347 ------------- EXPENSES Advisory Fee 1,223,277 Custodian Fees and Expenses 82,972 Administrative Services Fee 73,354 Professional Fee 22,417 Printing Expenses 4,590 Fund Services Fee 4,344 Trustees' Fees and Expenses 2,985 Administration Fee 1,862 Miscellaneous 833 ------------- Total Expenses 1,416,634 ------------- NET INVESTMENT INCOME 2,125,713 ------------- REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED GAIN (LOSS) ON Investment Transactions 8,768,267 Futures Contracts (826,470) ------------- Net Realized Gain 7,941,797 ------------- NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON Investments (28,810,550 Futures Contracts (1,014,979) ------------- Net Change in Unrealized Appreciation (Depreciation) (29,825,529) ------------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(19,758,019) =============
The Accompanying Notes are an Integral Part of the Financial Statements. 17 THE U.S. EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED NOVEMBER 30, 2000 (UNAUDITED) AND THE YEAR ENDED MAY 31, 2000 DECREASE IN NET ASSETS NOVEMBER 30, 2000 MAY 31, 2000 FROM OPERATIONS Net Investment Income $ 2,125,713 $ 6,243,239 Net Realized Gain on Investment and Futures Transactions 7,941,797 38,139,068 Net Change in Unrealized Appreciation on Investments and Futures Contracts. (29,825,529) (24,780,825) ------------------- ------------------ Net Increase (Decrease) in Net Assets Resulting from Operations (19,758,019) 19,601,482 ------------------- ------------------ TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS Contributions 35,551,555 207,425,150 Withdrawals (115,879,052) (318,237,694) ------------------- ------------------ Net Decrease from Transactions in Investors' Beneficial Interests (80,327,497) (110,812,544) ------------------- ------------------ Total Decrease in Net Assets (100,085,516) (91,211,062) ------------------- ------------------ NET ASSETS Beginning of Period 628,219,383 719,430,445 ------------------- ------------------ End of Period $528,133,867 $628,219,383 =================== ==================
SUPPLEMENTARY DATA FOR THE SIX MONTHS ENDED FOR THE YEARS ENDED MAY 31 NOVEMBER 30, 2000 ------------------------------------------------------------ (UNAUDITED) 2000 1999 1998 1997 1996 ------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS Net Expenses 0.47%(a) 0.46% 0.47% 0.47% 0.47% 0.46% Net Investment Income 0.70%(a) 0.90% 1.03% 1.01% 1.44% 2.20% Portfolio Turnover 38%(b) 89% 84% 106% 99% 85%
(a) Annualized (b) Not annualized 18 The Accompanying Notes are an Integral Part of the Financial Statements. THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--The U.S. Equity Portfolio (the "Portfolio") is registered under the Investment Company Act of 1940, as amended, as a no-load, diversified, open-end management investment company which was organized as a trust under the laws of the State of New York. The Portfolio commenced operations on July 19, 1993. The Portfolio's investment objective is to provide a high total return from a portfolio of selected equity securities. The Declaration of Trust permits the Trustees to issue an unlimited number of beneficial interests in the Portfolio. The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the Portfolio: SECURITY VALUATIONS--Securities traded on principal securities exchanges are valued at the last reported sales price, or mean of the latest bid and asked prices when no last sales price is available. Securities traded over-the-counter and certain foreign securities are valued at the quoted bid price from a market maker or dealer. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Trustees. All short-term securities, with a remaining maturity of sixty days or less are valued using the amortized cost method. SECURITY TRANSACTIONS--Security transactions are accounted for as of the trade date. Realized gains and losses are determined on the identified cost basis, which is also used for federal income tax purposes. INVESTMENT INCOME--Dividend income less foreign taxes withheld (if any) is recorded as of the ex-dividend date or as of the time that the relevant ex-dividend and amount becomes known. Interest income is recorded on the accrual basis and includes accretion of discounts and amortization of premiums. FUTURES CONTRACTS--The Portfolio may enter into futures contracts in order to hedge existing portfolio securities, or securities the Portfolio intends to purchase, against fluctuations in value caused by changes in prevailing market interest rates or securities movements and to manage exposure to changing interest rates and securities prices. The risks of entering into futures contracts include the possibility that the change in value of the contract may not correlate with the changes in value of the underlying securities. Upon entering into a futures contract, the Portfolio is required to deposit either cash or securities in an amount equal to a certain percentage of the contract value (initial margin). Subsequent payments (variation margin) are made or received daily, in cash, by the Portfolio. The variation margin is equal to the daily change in the contract value and is recorded as unrealized gain or loss. The Portfolio will recognize a gain or loss when the contract is closed or expires. INCOME TAX STATUS--The Portfolio intends to be treated as a partnership for federal income tax purposes. As such, each investor in the Portfolio will be taxed on its share of the Portfolio's ordinary income and capital gains. It is intended that the Portfolio's assets will be managed in such a way that an investor in the Portfolio will be able to satisfy the requirements of Subchapter M of the Internal Revenue Code. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES ADVISORY--The Portfolio has an Investment Advisory Agreement with J.P. Morgan Investment Management, Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company of New York ("Morgan") and a wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the agreement, the Portfolio pays JPMIM at an annual rate of 0.40% of the Portfolio's average daily net assets. The Portfolio may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the Portfolio in an amount to offset any investment advisory, administrative fee and shareholder servicing fees related to a Portfolio investment in an affiliated money market fund. The amount listed on the Statement of Operations as Dividend Income from Affiliated Investment is the amount the Fund earned. ADMINISTRATIVE SERVICES--The Portfolio has an Administrative Services Agreement (the "Services Agreement") with Morgan under which Morgan is responsible for certain aspects of the administration and operation of the Portfolio. Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee equal to its 19 THE U.S. EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Portfolio and certain other registered investment companies for which JPMIM acts as investment advisor in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which Morgan provides similar services. ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and distributor for the Fund. Under a Co-Administration Agreement between FDI and the Portfolio, FDI provides administrative services necessary for the operations of the Portfolio, furnishes office space and facilities, required for conducting the business of the Portfolio and pays the compensation of the Portfolio's officers affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Portfolio's affairs. The Trustees of the Portfolio represent all the existing shareholders of PGI. TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for serving on the boards of the Portfolio, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, and other registered investment companies in which they invest. The Trustees' fees and expenses shown in the financial statements represent the Fund's allocated portion of the total Trustees' fees and expenses. The Trust's Chairman and Chief Executive Officer also serves as Chairman of PGI and receives compensation and employee benefits from PGI. The allocated portion of such compensation and benefits included in the Fund Services Fee shown on the Statement of Operations was $800. - -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS During the six months ended November 30, 2000, the Portfolio purchased $226,149,460 of investment securities and sold $342,282,348 of investment securities other than U.S. government securities and short-term investments. - -------------------------------------------------------------------------------- 4. CREDIT AGREEMENT The Portfolio is party to a revolving line of credit agreement (the "Agreement") as discussed more fully in Note 3 of the Fund's Notes to the Financial Statements, which are included elsewhere in this report. - -------------------------------------------------------------------------------- 5. SUBSEQUENT EVENTS The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Fund's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P. Morgan Chase & Co. will be the new parent company of JPMIM, which will continue to serve as the Fund's adviser. 20 [back cover] J.P. MORGAN FUNDS - ADVISOR SERIES Disciplined Equity Fund --------------------------------------------------------------------- International Equity Fund --------------------------------------------------------------------- International Opportunities Fund --------------------------------------------------------------------- U.S. Small Company Fund --------------------------------------------------------------------- U.S. Small Company Opportunities Fund --------------------------------------------------------------------- U.S. Equity Fund --------------------------------------------------------------------- Diversified Fund --------------------------------------------------------------------- Bond Fund --------------------------------------------------------------------- For more information on the J.P. Morgan Funds - Advisor Series, call J.P. Morgan Funds Services at (800) 766-7722. --------------------------------------------------------------------- Morgan Guaranty Trust Company MAILING 500 Stanton Christiana Road INFORMATION Newark, Delaware 19713-2107 IN-SAN-24245 0101 -----END PRIVACY-ENHANCED MESSAGE-----