-----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, G/QzvsOGWhsSmyfaLSTyHpg6kI9Zpk4ljYckAYNW94nJZXhwzdwEu4dr+H0OFyEL 9KIKwnMc6w3th/oVH0I2xg== 0000912057-01-508522.txt : 20010416 0000912057-01-508522.hdr.sgml : 20010416 ACCESSION NUMBER: 0000912057-01-508522 CONFORMED SUBMISSION TYPE: N-14 PUBLIC DOCUMENT COUNT: 8 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: 333-58858 FILM NUMBER: 1601882 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 a2043519zn-14.txt N-14 As filed with the Securities and Exchange Commission on April 13, 2001 Registration No. 333-___/811-5151 ================================================================================ U.S. Securities and Exchange Commission Washington, DC 20549 FORM N-14 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Pre-Effective Amendment No. ___ Post-Effective Amendment No.___ (Check appropriate box or boxes) Exact Name of Registrant as Specified in Charter: MUTUAL FUND GROUP Area Code and Telephone Number: (212) 492-1600 Address of Principal Executive Offices: 1211 Avenue of the Americas, 41st Floor New York, New York 10036 Name and Address of Agent for Service: Lisa Hurley c/o BISYS Fund Services, Inc. 3435 Stelzer Road Columbus, Ohio 43219 Copies to: JOSEPH J. BERTINI, ESQ. SARAH E. COGAN, ESQ. JOHN E. BAUMGARDNER, JR., ESQ. PETER B. ELDRIDGE, ESQ. Simpson Thacher & Bartlett Sullivan & Cromwell J.P. Morgan Fleming Asset 425 Lexington Avenue 125 Broad Street Management (USA) Inc. New York, NY 10017-3954 New York, NY 10004 522 Fifth Avenue 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. 033-14196/811-5151) 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 October 31, 2000 was filed on January 25, 2001. Pursuant to Rule 429, this Registration Statement relates to the aforesaid Registration Statement on Form N-1A. J.P. MORGAN EUROPEAN EQUITY FUND A SERIES OF J.P. MORGAN FUNDS 60 STATE STREET, SUITE 1300 BOSTON, MASSACHUSETTS 02109 May 12, 2001 Dear Shareholder: A special meeting of the shareholders of J.P. Morgan European Equity Fund (the "Merging Fund"), a series of J.P. Morgan 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, J.P. Morgan & Co. Incorporated, the former corporate parent of the investment adviser of the Merging Fund's assets, recently completed a merger with The Chase Manhattan Corporation to form J.P. Morgan Chase & Co. ("JPMC"). As a result of this merger, JPMC is seeking to reorganize parts of its investment management business in order to provide better service for shareholders of funds advised by its subsidiaries. At the special meeting (the "Meeting"), shareholders will be asked to consider and vote upon the proposed Reorganization of the Merging Fund into JPMorgan Fleming European Fund (formerly, Chase Vista European Fund) (the "Surviving Fund"), a series of Mutual Fund Group ("MFG") (the "Reorganization"). After the Reorganization, shareholders of the Merging Fund would hold shares of the Surviving Fund. The investment objective and policies of the Surviving Fund generally are similar to those of the Merging Fund. After the proposed Reorganization, your investment will be in a larger combined fund with similar investment policies. The Surviving Fund has also entered into agreements and plans of Reorganization with J.P. Morgan Institutional European Equity Fund, a fund whose assets are managed by J.P. Morgan Investment Management Inc. ("JPMIM") and which has identical investment objectives and policies to the Merging Fund (the "Concurrent Reorganization"). If the Concurrent Reorganization is approved by the shareholders of J.P. Morgan Institutional European Equity Fund and certain other conditions are met, this other fund will be reorganized into the Surviving Fund. The consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. At the Meeting, you will also be asked to consider and vote upon the election of Trustees of JPMF. The investment adviser for the assets of the Merging Fund is JPMIM. The investment adviser for the Surviving Fund is J.P. Morgan Fleming Asset Management (USA) Inc. ("JPMFAM") and the sub-adviser is Chase Fleming Asset Management (London) Limited ("CFAML"). After the Reorganization, JPMFAM and CFAML, the same investment adviser and sub-adviser that currently are responsible for the Surviving Fund, will make the day-to-day investment decisions for your portfolio. Please see the enclosed Combined Prospectus/Proxy Statement for detailed information regarding the proposed Reorganization, the Concurrent Reorganization and a comparison of the Merging Fund and JPMF to the Surviving Fund and MFG. The cost and expenses associated with the Reorganization, including costs of soliciting proxies, will be borne by JPMC and not by the Merging Fund, JPMF, the Surviving Fund, MFG or their shareholders. If approval of the Reorganization is obtained, you will automatically receive shares of the Surviving Fund. The Proposals have been carefully reviewed by the Board of Trustees of JPMF, which has approved the Proposals. THE BOARD OF TRUSTEES OF JPMF UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" EACH OF THE PROPOSALS. Attached to this letter is a list of commonly asked questions. If you have any additional questions on voting of proxies and/or the meeting agenda, please call us at 1-800-766-7722. A proxy card is enclosed for your use in the shareholder meeting. This card represents shares you held as of the record date, __________, 2001. IT IS IMPORTANT THAT YOU COMPLETE, SIGN, AND RETURN YOUR PROXY CARD IN THE ENVELOPE PROVIDED OR CALL ____________ AS SOON AS POSSIBLE. This will ensure that your shares will be represented at the Meeting to be held on July 3, 2001. Please read the enclosed materials carefully. You may, of course, attend the meeting in person if you wish, in which case the proxy can be revoked by you at the Meeting. Sincerely, Matthew Healey Chairman SPECIAL NOTE: Certain Shareholders may receive a telephone call from our proxy solicitor, D.F. King & Co., Inc., or us to answer any questions you may have or to provide assistance in voting. Remember, your vote is important! Please sign, date and promptly mail your proxy card(s) in the return envelope provided or call ___________________ in order to vote. WHY IS THE REORGANIZATION BEING PROPOSED? The Reorganization is being proposed because each Fund's board believes it is in the best interest of shareholders to combine funds that have similar investment objectives and policies and each board believes that the Reorganization should result in a more diversified fund and in better service for shareholders, including a wider variety of investment options. IF THE REORGANIZATION IS APPROVED, WHAT WILL HAPPEN? In connection with the Reorganization, the Merging Fund will transfer all of its assets and liabilities to the Surviving Fund and will receive, in exchange, shares of the Surviving Fund. The Merging Fund will then be liquidated and those shares of the Surviving Fund will be distributed pro rata to shareholders such as you. After the Reorganization, you will own shares of the Surviving Fund rather than shares of the Merging Fund. The Surviving Fund invests directly in portfolio securities rather than in a master portfolio. WHAT WILL BE THE EFFECT ON THE INVESTMENT STRATEGIES ASSOCIATED WITH MY INVESTMENT IF THE PROPOSED CHANGES ARE APPROVED? The Surviving Fund generally has similar investment objectives and policies to those of the Merging Fund. The principal differences are as follows:
Surviving Fund Merging Fund -------------- ------------ - Investment objective is to seek total - Investment objective is to provide return from long-term capital growth. Total high total return from a portfolio of return consists of capital growth and European company equity securities. current income. - May invest up to 8% of its total assets - Generally does not invest in in equity securities of emerging market securities of emerging market issuers. European issuers. - May invest in investment-grade debt - Generally does not invest in debt securities and under normal market securities or money market instruments, conditions is permitted to invest up to 35% but during severe market downturns may of its total assets in high-quality money invest up to 100% of its assets in market instruments and repurchase agreements. investment-grade short-term securities.
The Reorganization is not intended to have any immediate significant impact on the investment strategy implemented in respect of your investment. However, please note that while the Merging Fund invests all of its assets in The European Equity Portfolio (the "Master Portfolio") (which in turn invests in portfolio securities), the Surviving Fund invests 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) and 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. If an increase does occur, The Chase Manhattan Bank has contractually agreed to waive fees payable to it and reimburse expenses so that the total expense ratio will remain the same for at least THREE YEARS after the Reorganization. WILL THERE BE ANY CHANGE IN WHO MANAGES MY INVESTMENT? Yes. JPMFAM, the investment adviser and CFAML, the sub-adviser that currently manage the day-to-day investment activities of the Surviving Fund, will continue to manage that fund after the Reorganization. WHO WILL PAY FOR THE REORGANIZATION? The cost and expenses associated with the Reorganization, including costs of soliciting proxies, will be borne by JPMC and not by either the Merging Fund or the Surviving Fund (or shareholders of either fund). WHAT IF I DO NOT VOTE OR VOTE AGAINST THE REORGANIZATION, YET APPROVAL OF THE REORGANIZATION IS OBTAINED? You will automatically receive shares of the Surviving Fund. HOW WILL THE PROPOSED CONCURRENT REORGANIZATION AFFECT MY INVESTMENT IF IT IS APPROVED BY THE SHAREHOLDERS OF THE OTHER FUND? If the Concurrent Reorganization is approved and certain other conditions are met, the assets and liabilities of the other merging fund will become the assets and liabilities of the Surviving Fund. The consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. WHY AM I BEING ASKED TO VOTE ON THE ELECTION OF TRUSTEES FOR JPMF IF AFTER THE REORGANIZATION I WILL OWN SHARES IN THE SURVIVING FUND, A SERIES OF MFG? Even if the Reorganization is approved, other mutual funds that are series of JPMF will continue to exist and operate. All shareholders of any series of JPMF as of the record date (April 6, 2001) are required to be given a vote on proposal regarding Trustees. Because as of the record date you are still a shareholder in JPMF, you are entitled to vote on this proposal. Shareholders of MFG are being asked to approve the same Trustees that are proposed for JPMF. 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. J.P. MORGAN EUROPEAN EQUITY FUND, A SERIES OF J.P. MORGAN FUNDS 60 STATE STREET, SUITE 1300 BOSTON, MASSACHUSETTS 02109 NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 3, 2001 To the Shareholders of J.P. Morgan European Equity Fund: NOTICE IS HEREBY GIVEN THAT a Special Meeting of the shareholders ("Shareholders") of J.P. Morgan European Equity Fund (the "Merging Fund"), a series of J.P. Morgan 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, Mutual Fund Group ("MFG"), on behalf of JPMorgan Fleming European Fund (formerly, Chase Vista European 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 Select Class shares of the Surviving Fund (the "Surviving Fund Shares"); and (b) the distribution of such Surviving Fund Shares to the Shareholders of the Merging Fund in connection with the liquidation of the Merging Fund. ITEM 2. To elect __ Trustees to serve as members of the Board of Trustees of 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 COMBINED PROSPECTUS/PROXY STATEMENT DATED MAY 12, 2001 ACQUISITION OF THE ASSETS AND LIABILITIES OF J.P. MORGAN EUROPEAN EQUITY FUND, A SERIES OF J.P. MORGAN FUNDS 60 STATE STREET, SUITE 1300 BOSTON, MASSACHUSETTS 02109 (617) 557-0700 BY AND IN EXCHANGE FOR SHARES OF JPMORGAN FLEMING EUROPEAN FUND (FORMERLY, CHASE VISTA EUROPEAN FUND), A SERIES OF MUTUAL FUND GROUP 1211 AVENUE OF THE AMERICAS, 41ST FLOOR NEW YORK, NEW YORK 10036 (800) 348-4782 This Combined Prospectus/Proxy Statement relates to the proposed reorganization of J.P. Morgan European Equity Fund (the "Merging Fund"), a series of J.P. Morgan ("JPMF"), into JPMorgan Funds Fleming European Fund (formerly, Chase Vista European Fund) (the "Surviving Fund"), a series of Mutual Fund Group ("MFG"). If approved by shareholders of the Merging Fund, the proposed Reorganization will be effected by transferring all of the assets and liabilities of the Merging Fund to the Surviving Fund, which has generally similar investment objectives and policies to those of the Merging Fund, in exchange for shares of the Surviving Fund (the "Reorganization"). Therefore, as a result of the proposed Reorganization, current shareholders of the Merging Fund (the "Merging Fund Shareholders") will become shareholders of the Surviving Fund ("Surviving Fund Shareholders"). JPMF and MFG are both open-end management investment companies offering shares in several portfolios. If the proposed Reorganization is approved by Merging Fund Shareholders, each Merging Fund Shareholder will receive Select Class shares (the "Surviving Fund Shares") of the Surviving Fund with a value equal to such Merging Fund Shareholder's holdings in the Merging Fund. The Surviving Fund currently has a multi-class structure under which it offers Class A, Class B and Class C shares. In connection with the Reorganization, the Surviving Fund will introduce Select Class and Institutional Class shares. At the Meeting, you also will be asked to consider and vote upon the election of Trustees of JPMF. The terms and conditions of these transactions are more fully described in this Combined Prospectus/Proxy Statement and in the Agreement and Plan of Reorganization (the "Reorganization Plan") among JPMF, on behalf of the Merging Fund, MFG, 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 MFG's prospectus for Surviving Fund Shares that have been registered with the Securities and Exchange Commission (the "Commission") and are to be issued in connection with the Reorganization. This Combined Prospectus/Proxy Statement, which should be retained for future reference, sets forth concisely the information about JPF and 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 are incorporated herein by reference, and the current Prospectus and Annual Report (including the Annual Report of The European Equity Portfolio) for the Surviving Fund are enclosed with this Combined Prospectus/Proxy Statement. A Statement of Additional Information relating to this Combined Prospectus/Proxy Statement dated May 12, 2001 containing additional information about JPF and 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, and Annual Report of the Merging Fund (including the Annual Report for the European 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 MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY MFG OR 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, 2 ANY BANK AND ARE NOT FEDERALLY INSURED BY, OBLIGATIONS OF, OR OTHERWISE SUPPORTED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. 3 TABLE OF CONTENTS PAGE ---- INTRODUCTION................................................................. 1 PROPOSAL 1: REORGANIZATION PLAN..............................................1 SUMMARY .....................................................................1 COMPARATIVE FEE AND EXPENSE TABLES............................................5 RISK FACTORS..................................................................8 INFORMATION RELATING TO THE PROPOSED REORGANIZATION..........................10 INVESTMENT POLICIES..........................................................14 PURCHASES, REDEMPTIONS AND EXCHANGES.........................................22 DISTRIBUTIONS AND TAXES .....................................................26 COMPARISON OF THE MERGING FUND'S AND THE SURVIVING FUND'S ORGANIZATION STRUCTURE...........................................................27 INFORMATION RELATING TO THE ADVISORY CONTRACTS AND OTHER SERVICES............29 PROPOSAL 2: ELECTION OF TRUSTEES.............................................33 INFORMATION RELATING TO VOTING MATTERS.......................................38 ADDITIONAL INFORMATION ABOUT MFG.............................................40 ADDITIONAL INFORMATION ABOUT JPMF............................................41 FINANCIAL STATEMENTS AND EXPERTS.............................................41 OTHER BUSINESS...............................................................41 LITIGATION...................................................................41 SHAREHOLDER INQUIRIES........................................................41 APPENDIX A AGREEMENT AND PLAN OF REORGANIZATION............................A-1 i INTRODUCTION GENERAL This Combined Prospectus/Proxy Statement is being furnished to the shareholders of the Merging Fund, an open-end management investment company, in connection with the solicitation by the Board of Trustees of 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 among JPMF, on behalf of the Merging Fund, MFG, on behalf of the Surviving Fund (the Merging Fund and the Surviving Fund are collectively defined as the "Funds") and J. P. Morgan Chase & Co. ("JPMC"), pursuant to which all of the assets and liabilities of the Merging Fund will be transferred to the Surviving Fund in exchange for Surviving Fund Shares. As a result of the Reorganization, Merging Fund Shareholders will become shareholders of the Surviving Fund and will receive Surviving Fund Shares equal in value to their holdings in the Merging Fund on the date of the Reorganization. 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. 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 of each of the Surviving Fund and the Merging Fund (including the Annual Report of The European Equity Portfolio), and the Reorganization Plan attached to this Combined Prospectus/Proxy Statement as Appendix A. PROPOSED REORGANIZATION Pursuant to the proposed Reorganization, the Merging Fund will transfer all of its assets and liabilities to the Surviving Fund in exchange for shares of the Surviving Fund. Under the proposed Reorganization, each Merging Fund Shareholder will receive a number of Select Class shares of the Surviving Fund with an aggregate net asset value equal on the date of the exchange to the aggregate net asset value of such shareholder's Merging Fund Shares on such date. Therefore, following the proposed Reorganization, Merging Fund Shareholders will be Surviving Fund Shareholders. Merging Fund Shareholders will not pay a sales charge in connection with the Reorganization. See "Information Relating to the Proposed Reorganization." The Surviving Fund has investment objectives, policies and restrictions generally similar to the Merging Fund. Based upon their evaluation of the relevant information presented to them, including an analysis of the operation of the Surviving Fund both before and after the Reorganization, the terms of the Reorganization Plan, the opportunity to combine the two Funds with generally similar investment objectives and policies, and the fact that the Reorganization will be tax-free, and in light of their fiduciary duties under federal and state law, the MFG Board and 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 it is in the best interest of shareholders to combine funds that have similar investment objectives and policies and each board believes that the Reorganization should result in a more diversified fund and in better service for shareholders, including a wider variety of investment options. CONCURRENT REORGANIZATION The Merging Fund currently invests all of its investable assets in The European Equity Portfolio (the "Master Portfolio"), which has identical investment objectives and policies as the Merging Fund and which is advised by J.P. Morgan Investment Management Inc. ("JPMIM"). J.P. Morgan Institutional European Equity Fund, a series of J.P. Morgan Institutional Funds with identical investment objectives and policies as the Merging Fund (the "Feeder Portfolio") also currently invests all of its investable assets in the Master Portfolio. The Surviving Fund has entered into a substantially similar agreement and plan of Reorganization with the Feeder Portfolio (the "Concurrent 2 Reorganization"). If each of the Reorganization and the Concurrent Reorganization is approved by the shareholders of the Merging Fund and the Feeder Portfolio, respectively, and certain other conditions are met, the Merging Fund and the Master Portfolio will be reorganized into the Surviving Fund. The Surviving Fund will no longer invest its assets in the Master Portfolio. The consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. FEDERAL INCOME TAX CONSEQUENCES Simpson Thacher & Bartlett will issue an opinion (based on certain assumptions) as of the effective time of the Reorganization to the effect that the transaction will not give rise to the recognition of income, gain or loss for federal income tax purposes to the Merging Fund, the Surviving Fund or the shareholders of the Merging Fund. A shareholder's holding period and tax basis of Surviving Fund Shares received by a shareholder of the Merging Fund will be the same as the holding period and tax basis of such shareholder's shares of the Merging Fund. In addition, the holding period and tax basis of those assets owned by the Merging Fund and transferred to the Surviving Fund will be identical for the Surviving Fund. See "Information Relating to the Proposed Reorganization - Federal Income Tax Consequences." INVESTMENT ADVISERS The investment adviser for the Master Portfolio (and therefore the assets of the Merging Fund and the Feeder Portfolio) is JPMIM. The investment adviser for the Surviving Fund is J.P. Morgan Fleming Asset Management (USA) Inc. ("JPMFAM") and the sub-adviser for the Surviving Fund is Chase Fleming Asset Management (London) Limited ("CFAML"). JPMFAM, CFAML and JPMIM are each wholly-owned subsidiaries of JPMC. JPMFAM will continue to service as investment adviser for the Surviving Fund following the Reorganization. INVESTMENT OBJECTIVES AND POLICIES The investment objective of the Surviving Fund is to seek total return from long-term capital growth. Total return consists of capital growth and current income. The investment objective of the Merging Fund is to provide high total return from a portfolio of European company equity securities. See "Risk Factors" and "Investment Policies." The investment policies of the Surviving Fund are generally similar to those of the Merging Fund. However, there are certain important differences. The Surviving Fund invests its assets directly in portfolio securities, while the Merging Fund invests its assets in the Master Portfolio, which in turn invests in portfolio securities. The Surviving Fund invests primarily in equity securities issued by companies with principal business activities in Western Europe. Under normal market conditions the Surviving Fund invests at least 65% of its total assets in equity securities of European issuers. The Merging Fund invests primarily in equity securities from the 14 countries included in the Morgan Stanley Capital International (MSCI) Europe Index, which is the Merging Fund's benchmark. The 3 Merging Fund generally keeps its industry weightings similar to such index, although it does not seek to mirror the index in its choice of individual securities. The Surviving Fund may invest up to 8% of its total assets in equity securities of emerging market European issuers. The Merging Fund generally does not invest in securities of emerging market issuers. While the Surviving Fund invests primarily in equities, it may also invest in investment-grade debt securities. Up to 25% of the Surviving Fund's net assets may be invested in debt securities denominated in a currency other than the U.S. dollar. Up to 25% of the Surviving Fund's net assets may be invested in debt securities issued by a single foreign government or international organization, such as the World Bank. While the Surviving Fund intends to invest primarily in stocks and investment-grade debt securities, under normal market conditions it is permitted to invest up to 35% of its total assets in high-quality money market instruments and repurchase agreements. The Merging Fund generally does not invest in debt securities or money market instruments, but during severe market downturns the Merging Fund may invest up to 100% of its assets in investment-grade short-term securities. 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 international 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. In general, international investing involves higher risks than investing in U.S. markets. Foreign markets tend to be more volatile than those of the U.S., and changes in currency exchange rates could reduce market performance. In addition, the Surviving Fund may invest up to 8% of its total assets in equity securities of emerging market European issuers and up to 35% of its total assets in debt securities, including up to 25% of its net assets in debt securities denominated in a currency other than the U.S. dollar and up to 25% of its net assets in debt securities issued by a single foreign government or international organization, all of which are subject to certain special risks. See "Risk Factors." CERTAIN ARRANGEMENTS WITH SERVICE PROVIDERS ADVISORY SERVICES The investment adviser for the Surviving Fund is JPMFAM, and the sub-adviser for the Surviving Fund is CFAML. JPMFAM oversees the asset management of the Surviving Fund. As compensation for its services, JPMFAM receives a management fee indirectly from the Surviving Fund at an annual rate of 1.00% of average daily net assets. JPMFAM delegates certain of its investment advisory responsibilities for the Surviving Fund to CFAML. For subadvisory services rendered to the Surviving Fund, CFAML is entitled to receive from JPMFAM an annual fee of 0.50% of the Fund's average net assets. The Merging Fund currently pays a management fee indirectly at an annual rate of 0.65% of average daily net assets. Following the Reorganization, JPMFAM will manage the 4 Surviving Fund's assets and will receive a fee at an annual rate of 0.65% of average daily net assets. OTHER SERVICES J.P. Morgan Fund Distributors, Inc. (the "Distributor") is the Distributor for the Surviving Fund. The Chase Manhattan Bank ("Chase") serves as shareholder servicing agent, administrator, fund accountant and custodian, the Distributor serves as sub-administrator and DST Systems, Inc. ("DST") serves as transfer agent and dividend disbursing agent for the Surviving Fund. PricewaterhouseCoopers LLP serves as the Surviving Fund's independent accountants. ADMINISTRATOR As administrator, Chase receives a fee of 0.15% of average daily net assets. It is anticipated that, in connection with the Reorganization, the administration fee will be amended to reduce the fee to 0.075% for complex wide non-money market Fund assets in excess of $26 billion. ORGANIZATION Each of MFG and JPMF is organized as a Massachusetts business trust. The Merging Fund is organized as a series of JPMF and the Surviving Fund is organized as a series of MFG. PURCHASES, REDEMPTIONS AND EXCHANGES After the Reorganization, the procedures for making purchases, redemptions and exchanges of shares of the Surviving Fund will be similar to those with respect to shares of the Merging Fund, as described in this Combined Prospectus/Proxy Statement and in the Surviving Fund's Prospectus and Statement of Additional Information. COMPARATIVE FEE AND EXPENSE TABLES The table below shows (i) information regarding the fees and expenses paid by each of the Merging Fund and the Surviving Fund that reflect current expense arrangements; and (ii) estimated fees and expenses on a pro forma basis for the Surviving Fund after giving effect to the proposed Reorganization and the Concurrent Reorganization. Under the proposed Reorganization, holders of shares of the Merging Fund will receive Select Class shares of the Surviving Fund. Please note that the Surviving Fund currently has three classes of shares: Class A, Class B and Class C. In connection with the Reorganization and the Concurrent Reorganization, two additional classes, the Select Class and the Institutional Class, will be introduced. The table indicates that both contractual (pre-waiver) and 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. In addition, Chase has agreed to waive certain fees and/or reimburse certain expenses to ensure that actual total operating expenses do not increase for at least three years. 5
THE MERGING FUND THE SURVIVING FUND ------------ ------------------------------------- CLASS A CLASS B CLASS C SHARES SHARES SHARES SHARES ------ ------ ------ ------ SHAREHOLDER FEES * (FEES PAID DIRECTLY FROM YOUR INVESTMENT)-Maximum Sales Charge (Load) when you buy shares, shown as % of the offering price (B) ............. None 5.75% None None Maximum Deferred Sales Charge (Load) shown as lower of original purchase price or redemption proceeds........... None None 5.00% 1.00% ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees................... 0.65% 1.00% 1.00% 1.00% Distribution (12b-1) Fees......... None 0.25% 0.75% 0.75% Other Expenses.................... 1.48% 0.60%# 0.85%# 0.85%# Total Annual Fund Operating Expenses....................... 2.13% 1.85% # 2.60% # 2.60% # Contractual Fee Waivers and Expense Reimbursements (A)..... 0.63% None None None Net Expenses*..................... 1.50% 1.85% 2.60% 2.60%
(A) Reflects an agreement dated 3/1/01 by Morgan, an affiliate of JPMC, to reimburse the Fund to the extent operating expenses (which exclude interest, taxes, and extraordinary expenses) exceed 1.50% of average daily net assets with respect to the Merging Fund through 2/28/02. Morgan may terminate this agreement after 2/28/02. (B) The offering price is the net asset value of the shares purchased plus any sale charges. * The table is based on estimated expenses for current fiscal year. # Restated from the most recent fiscal year to reflect current expense arrangement. With respect to the Surviving Fund, the actual Management Fee is currently expected to be .90% and Total Annual Fund Operating Expenses are not expected to exceed 1.75% for Class A shares and 2.50% for Class B and Class C shares. That is because Chase, a wholly owned subsidiary of JPMC, and some of the Fund's other service providers have volunteered not to collect a portion of its fees and to reimburse others. Chase and these other service providers may terminate this arrangement at any time. 6 THE SURVIVING FUND ------------------ PRO FORMA WITH CONCURRENT REORGANIZATION ---------------------------------------- SELECT CLASS --------------- SHARES SHAREHOLDER FEES (FEES PAID DIRECTLY FROM YOUR INVESTMENT) -Maximum Sales Charge (Load) when you buy shares, shown as % of the offering price................... None Maximum Deferred Sales Charge (Load) Shown as lower of original purchase price or redemption proceeds....................... None ANNUAL FUND OPERATING EXPENSES (EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS) Management Fees..................... 0.65% Distribution (12b-1) Fees........... None Other Expenses...................... 0.95% Total Annual Fund Operating Expenses......................... 1.60% Fee Waivers and Expense Reimbursements 0.10% Net Expenses........................ 1.50%(A) (A) Reflects an agreement by Chase, a wholly owned subsidiary of JPMC, to reimburse the Fund to the extent operating expenses (which exclude interest, taxes, and extraordinary expenses) exceed 1.50% of average daily net assets with respect to Select 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....................................... $ 153 $ 606 $1,086 $2,412 THE SURVIVING FUND Class A Shares *................................. $ 752 $1,123 $1,518 $2,619 Class B Shares **................................ $ 763 $1,108 $1,580 $2,752 Class B Shares (without sale) *** ............... $ 263 $ 808 $1,380 $2,752 Class C Shares**................................. $ 363 $ 808 $1,380 $2,934 Class C Shares (without sale).................... $ 263 $ 808 $1,380 $2,934 PRO FORMA THE SURVIVING FUND WITH CONCURRENT REORGANIZATION Select Shares.................................... $ 153 $ 474 $ 841 $1,873
- ---------- * Assumes sales charge is deducted when shares are purchased. Shareholders who receive Select Class shares as a result of the proposed reorganization will not be charged a sales load. ** Assumes applicable deferred sales charge is deducted when shares are sold. *** Reflects conversion of Class B shares to Class A shares after they have been owned for eight years. 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 generally similar to those of the Merging Fund. Therefore, there should be similarities between the risk factors associated with the Surviving Fund and the Merging Fund. This discussion is qualified in its entirety by the more extensive discussion of risk factors set forth in the Prospectus and Statement of Additional Information of the Surviving Fund, which are incorporated herein by reference. All mutual funds carry a certain amount of risk. You may lose money on your investment in the Surviving Fund. The Surviving Fund may not achieve its objective if CFAML's expectations regarding particular securities or markets are not met. Adverse market conditions may from time to time cause the Fund to take temporary defensive positions that are inconsistent with its principal investment strategies and may hinder the Fund from achieving its investment objective. Investments in foreign securities may be riskier than investments in the United States. Because foreign securities are usually denominated in foreign currencies, the value of the Surviving Fund's portfolio may be influenced by currency exchange rates and exchange control regulations. Foreign securities may be affected by political, social and economic instability. Some securities may be harder to trade without incurring a loss and may be difficult to convert into cash. There may be less public information available, differing settlement procedures, or regulations and standards that don't match U.S. 8 standards. Some countries may nationalize or expropriate assets or impose exchange controls. These risks increase when investing in issuers located in developing countries. The Surviving Fund's investments in developing countries could result in increased volatility in the value of the Fund's shares. In addition, the small size of securities markets in these countries and the low trading volume may result in a lack of liquidity, which could increase volatility. Also, developing countries may not provide adequate legal protection for private or foreign investment or private property. THE MERGING FUND GENERALLY DOES NOT INVEST IN DEVELOPING COUNTRIES. The Surviving Fund's performance will be affected by political, social and economic conditions in Europe, such as growth of the economic output (the Gross National Product), the rate of inflation, the rate at which capital is reinvested into European economies, the resource self-sufficiency of European countries and interest and monetary exchange rates in European countries. In early 1999, the European Monetary Union implemented a new currency called the "euro," which is expected to replace national currencies by July 1, 2002. Full implementation of the euro may be delayed and difficulties with the conversion may significantly impact European capital markets. It is possible that the euro could increase volatility in financial markets, which could have a negative effect on the value of shares of the Surviving Fund. The Surviving Fund is not diversified. It may invest a greater percentage of its assets in a particular issuer or group of issuers than a diversified fund would. That makes the value of its shares more sensitive to economic problems among those issuing the securities. THE MERGING FUND IS DIVERSIFIED. Because the Surviving Fund may invest in small companies, the value of your investment may fluctuate more dramatically than an investment in a fund which does not invest in small companies. That's because small companies trade less frequently and in smaller volumes, which may lead to more volatility in the prices of their securities. They may have limited product lines, markets or financial resources, and they may depend on a small management group. The market value of convertible securities and other debt securities tends to fall when prevailing interest rates rise. The value of convertible securities also tends to change whenever the market value of the underlying common or preferred stock fluctuates. Securities which are rated Baa by Moody's or BBB by Standard & Poor's may have fewer protective provisions than higher rated securities. The issuer may have trouble making principal and interest payments when difficult economic conditions exist. If the Surviving Fund invests in closed-end investment companies, it may incur added expenses such as additional management fees and trading costs. If the Surviving Fund invests a substantial portion of its assets in money market instruments, repurchase agreements and debt securities, including where the Fund is 9 investing for temporary defensive purposes, it could reduce the Surviving Fund's potential return. Derivatives may be more risky than other types of investments because they may respond more to changes in economic conditions than other types of investments. If they are used for non-hedging purposes, they could cause losses that exceed the Surviving Fund's original investment. Unsponsored depositary receipts may not provide as much information about the underlying issuer and may not carry the same voting privileges as sponsored depositary receipts. 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. 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 In connection with the Reorganization and the Concurrent Reorganization, the Merging Fund will cease investing in the Merging Fund Master Portfolio. The Reorganization Plan provides that at the Effective Time (as defined in the Reorganization Plan) of the Reorganization, the assets and liabilities of the Merging Fund will be transferred to and assumed by the Surviving Fund. In exchange for the transfer of the assets and the assumption of the liabilities of the Merging Fund, MFG will issue at the Effective Time of the Reorganization full and fractional Select Class shares of the Surviving Fund equal in aggregate dollar value to the aggregate net asset value of full and fractional outstanding shares of the Merging Fund as determined at the valuation time specified in the Reorganization Plan. The Reorganization Plan provides that the Merging Fund will declare a dividend or dividends prior to the Effective Time of the Reorganization which, together with all previous dividends, will have the effect of distributing to Merging Fund Shareholders all undistributed net investment income earned and net capital gain realized up to and including the Effective Time of the Reorganization. Following the transfer of assets to, and the assumption of the liabilities of the Merging Fund by, the Surviving Fund, the Merging Fund will distribute Select Class Shares received by it to the Merging Fund Shareholders in liquidation of the Merging Fund. Each Merging Fund Shareholder at the Effective Time of the Reorganization will receive an amount of Select Class Shares with a total net asset value equal to the net asset 10 value of their Merging Fund Shares plus the right to receive any dividends or distributions which were declared before the Effective Time of the Reorganization but that remained unpaid at that time with respect to the shares of the Merging Fund. The Surviving Fund expects to maintain most of the portfolio investments of the Merging Fund in light of the similar investment policies of the Merging Fund and the Surviving Fund. After the Reorganization, all of the issued and outstanding shares of the Merging Fund shall be canceled on the books of the Merging Fund and the stock transfer books of the Merging Fund will be permanently closed. The Reorganization is subject to a number of conditions, including without limitation: approval of the Reorganization Plan and the transactions contemplated thereby described in this Combined Prospectus/Proxy Statement by the Merging Fund Shareholders; the receipt of a legal opinion from Simpson Thacher & Bartlett with respect to certain tax issues, as more fully described in "Federal Income Tax Consequences" below; and the parties' performance in all material respects of their respective agreements and undertakings in the Reorganization Plan. Assuming satisfaction of the conditions in the Reorganization Plan, the Effective Time of the Reorganization will be on August 11, 2001 or such other date as is agreed to by the parties. In addition, the consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. The expenses of the Funds in connection with the Reorganization will be borne by JPMC. The Reorganization Plan and the Reorganization described herein may be abandoned at any time prior to the Effective Time of the Reorganization by either party if a material condition to the performance of such party under the Reorganization Plan or a material covenant of the other party is not fulfilled by the date specified in the Reorganization Plan or if there is a material default or material breach of the Reorganization Plan by the other party. In addition, either party may terminate the Reorganization Plan if its trustees determine that proceeding with the Reorganization Plan is not in the best interests of their Fund's shareholders. BOARD CONSIDERATIONS The JPMF Board met on March 26 and 27, 2001 and the MFG Board met on April 3, 2001, and each considered and discussed the proposed Reorganization. The Trustees of each Board discussed the advantages of reorganizing the Merging Fund into the Surviving Fund. The Board of each trust has determined that it is in the best interests of the Fund's shareholders to combine the Merging Fund with the Surviving Fund. This Reorganization is part of the general integration of the J.P. Morgan and former Chase Vista funds into a single mutual fund complex. In reaching the conclusion that the Reorganization is in the 11 best interests of Fund shareholders, each Board considered a number of factor including, among others: The terms of the Reorganization Plan; a comparison of each Fund's historical and projected expense ratios; the comparative investment performance of the Merging Fund and the Surviving Fund; the anticipated effect of such Reorganization on the relevant Fund and its shareholders; the investment advisory services supplied by the Surviving Fund's investment adviser; the management and other fees payable by the Surviving Fund; the similarities and differences in the investment objectives and policies of the Merging Fund and the Surviving Fund; and the recommendations of the relevant Fund's current investment adviser with respect to the proposed Reorganization. Each Board determined that the Funds have generally similar investment objectives and policies. They noted that the Reorganization could permit the shareholders of the Merging Fund to pursue similar investment goals in a larger fund that has generally had better historical performance. A larger fund should enhance the ability of the investment advisor to effect portfolio transactions on more favorable terms and provide greater flexibility and the ability to select a larger number of portfolio securities. This could result in increased diversification for shareholders. In addition, the larger aggregate asset base could, over time, result in lower overall expense ratios for shareholders through the spreading of both fixed and variable costs of operations over a larger asset base. As a general rule, economies of scale may be realized with respect to fixed expenses, such as costs of printing and fees for professional services, although expenses that are based on the value of assets or the number of shareholder accounts, such as custody fees, would be largely unaffected by the Reorganization. Each Board also considered benefits expected to arise as a result of the Reorganization. Among these benefits, the Board noted that Surviving Fund Shareholders would be able to exchange into a larger number and greater variety of funds and the Surviving Fund would also benefit from the administrator's overall intent to enhance its ability effectively to monitor and oversee the quality of all service providers to the fund, including the investment adviser. Finally, the Board considered the expenses related to the Reorganization. The Board noted the administrator's undertaking to waive fees or reimburse the Surviving Fund's expenses so that the total expense ratio of each share class of the Merging Fund does not increase during the period specified in the expense table. Additional important factors were that all costs and expenses of the Reorganization would be borne by JPMC and the fact that the Board was advised that Reorganization would constitute a tax-free reorganization. After considering the foregoing factors, together with such information as it believed to be relevant, and in light of its fiduciary duties under federal and state law, Board determined that the proposed Reorganization is in the best interests of the Fund and its shareholders, determined the interests of the shareholders would not be diluted as a result of the Reorganization, approved the Reorganization Plan and directed that the Reorganization Plan be submitted to the Merging Fund Shareholders for approval. 12 THE JPMF BOARD UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL. 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 CONCURRENT REORGANIZATION The terms and conditions under which the Concurrent Reorganization may be consummated are set forth in a Reorganization plan which is substantially similar to the Reorganization Plan you are considering. Concurrently with the Reorganization and the Concurrent Reorganization, the Merging Fund and the Feeder Portfolio will no longer invest their assets in the Master Portfolio. The consummation of the Reorganization is contingent upon the consummation of the Concurrent Reorganization. FEDERAL INCOME TAX CONSEQUENCES Consummation of the Reorganization is subject to the condition that 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 Surviving Fund Shares and the liquidating distributions to Shareholders of the Surviving Fund Shares so received, as described in the Reorganization Plan, will constitute a Reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and with respect to the Reorganization, the Merging Fund and the Surviving Fund will each be considered "a party to a Reorganization" within the meaning of Section 368(b) of the Code; (ii) no gain or loss will be recognized by the Merging Fund as a result of such transaction; (iii) no gain or loss will be recognized by the Surviving Fund as a result of such transaction; (iv) no gain or loss will be recognized by the Merging Fund Shareholders on the distribution to the Merging Fund Shareholders of the Surviving Fund Shares solely in exchange for their Merging Fund Shares; (v) the aggregate basis of shares of the Surviving Fund received by a shareholder of the Merging Fund will be the same as the aggregate basis of such Merging Fund Shareholder's Merging Fund Shares immediately prior to the Reorganization; (vi) the basis of the Surviving Fund in the assets of the Merging Fund received pursuant to such transaction will be the same as the basis of such assets in the hands of the Merging Fund immediately before such transaction; (vii) a Merging Fund Shareholder's holding period for the Surviving Fund Shares will be determined by including the period for which such Merging Fund Shareholder held the Merging Fund Shares exchanged therefor, provided that the Merging Fund Shareholder held such Merging Fund Shares as a capital asset; and (viii) the Surviving Fund's holding period with respect to the assets received in the Reorganization will include the period for which such assets were held by the Merging Fund. 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. 13 That opinion is not binding on the IRS and does not preclude the IRS from adopting a contrary position. Shareholders should consult their own advisers concerning the potential tax consequences to them, including state and local income taxes. CAPITALIZATION Because the Merging Fund will be combined with the Surviving Fund in the Reorganization as well as another fund as a result of the Concurrent Reorganization, the total capitalization of the Surviving Fund after the Reorganization and the Concurrent Reorganization is expected to be greater than the current capitalization of the Merging Fund. The following table sets forth as of _____, 2001: (i) the capitalization of the Merging Fund; (ii) the capitalization of the Surviving Fund; and (iii) the pro forma capitalization of the Surviving Fund as adjusted to give effect to the Reorganization and the Concurrent Reorganization. There is, of course, no assurance that the Reorganization and the Concurrent Reorganization will be consummated. Moreover, if consummated, the capitalizations of the Surviving Fund and the Merging Fund are likely to be different at the Effective Time of the Reorganization as a result of fluctuations in the value of portfolio securities of each Fund and daily share purchase and redemption activity in each Fund. The Surviving Fund currently has three classes of shares: Class A, Class B and Class C. In connection with the Reorganization and the Concurrent Reorganization, the Institutional Class and the Select Class will be introduced. CAPITALIZATION PRO FORMA WITH CONCURRENT REORGANIZATION (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ---------------------------------------------------------- BENEFICIAL NET ASSET INTEREST SHARES VALUE PER OUTSTANDING OUTSTANDING NET ASSETS SHARE ----------- ----------- ---------- ----- J.P. MORGAN FUNDS J.P. Morgan European Equity Fund (Merging Fund) 784 - 12,256 15.62 J.P. Morgan Institutional 573 - 8,354 14.58 European Equity Fund CHASE VISTA EUROPEAN FUND Class A - 4,243 75,800 17.87 Class B - 1,067 18,547 17.38 Class C - 243 4,228 17.37 PRO FORMA COMBINED WITH CONCURRENT REORGANIZATION Class A - 4,243 75,800 17.87 Class B - 1,067 18,547 17.38 Class C - 243 4,228 17.37 Select - 686 12,256 17.87 Institutional - 468 8,354 17.87 INVESTMENT POLICIES The following discussion summarizes some of the investment policies of the Surviving Fund. Except as noted below, the Merging Fund generally has similar investment policies to those of the Surviving Fund. This section is qualified in its entirety by the discussion in the Prospectus and Statement of Additional Information of the Surviving Fund, which are incorporated herein by reference. 14 OBJECTIVE The investment objective of the Surviving Fund is to seek total return from long-term capital growth. Total return consists of capital growth and current income. The Surviving Fund may not change its objective without shareholder approval. THE INVESTMENT OBJECTIVE OF THE MERGING FUND IS TO PROVIDE HIGH TOTAL RETURN FROM A PORTFOLIO OF EUROPEAN COMPANY EQUITY SECURITIES. THE MERGING FUND MAY CHANGE ITS OBJECTIVE WITHOUT SHAREHOLDER APPROVAL. SHAREHOLDERS OF THE SURVIVING FUND CURRENTLY ARE CONSIDERING A PROPOSAL THAT, IF PASSED AT A SHAREHOLDER MEETING TO BE HELD THE SAME DAY AS THE MEETING OF THE MERGING FUND, WOULD ALLOW THE SURVIVING FUND TO CHANGE ITS OBJECTIVE WITHOUT SHAREHOLDER APPROVAL. MAIN INVESTMENT STRATEGIES The Surviving Fund invests its assets directly in portfolio securities. THE MERGING FUND INVESTS ITS ASSETS IN THE MASTER PORTFOLIO, WHICH IN TURN INVESTS IN PORTFOLIO SECURITIES. The Surviving Fund invests primarily in equity securities issued by companies with principal business activities in Western Europe. Under normal market conditions, the Surviving Fund invests at least 65% of its total assets in equity securities of European issuers. Equity securities include common stocks, preferred stocks, securities that are convertible into common stocks and warrants to buy common stocks. These investments may take the form of depositary receipts. The Surviving Fund may invest in Austria, Belgium, Denmark, Germany, Finland, France, Greece, Ireland, Italy, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom, as well as other Western European countries which its advisers think are appropriate. In addition, the Surviving Fund may invest up to 8% of its total assets in equity securities of emerging market European issuers. These countries may include Poland, the Czech Republic, Hungary and other similar countries which the advisers think are appropriate. THE MERGING FUND PRIMARILY INVESTS IN EQUITY SECURITIES FROM THE 14 COUNTRIES INCLUDED IN THE MORGAN STANLEY CAPITAL INTERNATIONAL (MSCI) EUROPE INDEX, WHICH IS THE FUND'S BENCHMARK. THE MERGING FUND GENERALLY DOES NOT INVEST IN SECURITIES OF EMERGING MARKET ISSUERS. The Surviving Fund may invest in securities denominated in U.S. dollars, major reserve currencies and currencies of other countries in which it can invest. The advisers may adjust the Fund's exposure to each currency based on their view of the markets and issuers. They will decide how much to invest in the securities of a particular currency or country by evaluating the yield and potential growth of an investment, as well as the relationship between the currency and the U.S. dollar. They may increase or decrease the emphasis on a type of security, industry, country or currency based on their analysis of a variety of economic factors, including fundamental economic strength, earnings growth, quality of management, industry growth, credit quality and interest rate trends. The 15 Surviving Fund may purchase securities where the issuer is located in one country but the security is denominated in the currency of another. While the Surviving Fund's assets will usually be invested in a number of different Western European countries, the Surviving Fund's advisers may at times invest most or all of the assets in a limited number of these countries. The Fund will, however, try to choose a wide range of industries and companies of varying sizes. While the Surviving Fund invests primarily in equities, it may also invest in investment-grade debt securities. No more than 25% of the Surviving Fund's net assets will be invested in debt securities denominated in a currency other than the U.S. dollar. No more than 25% of the Surviving Fund's net assets will be invested in debt securities issued by a single foreign government or international organization, such as the World Bank. While the Surviving Fund intends to invest primarily in stocks and investment-grade securities, under normal market conditions it is permitted to invest up to 35% of its total assets in high quality money market instruments and repurchase agreements. To temporarily defend its assets, the Surviving Fund may invest any amount of its assets in these instruments and in debt securities issued by supranational organizations and companies and governments of countries in which the Surviving Fund can invest and short-term debt instruments issued or guaranteed by the government of any member of the Organization for Economic Cooperation and Development. These debt securities may be denominated in various currencies. During unusual market conditions, the Surviving Fund may invest up to 20% of its assets in U.S. Government debt securities. THE MERGING FUND GENERALLY DOES NOT INVEST IN DEBT SECURITIES OR MONEY MARKET INSTRUMENTS, BUT DURING SEVERE MARKET DOWNTURNS THE MERGING FUND MAY INVEST UP TO 100% OF ITS ASSETS IN INVESTMENT-GRADE SHORT-TERM SECURITIES. Where the capital markets in certain countries are either less developed or not easy to access, the Surviving Fund may invest in these countries by investing in closed-end investment companies which are authorized to invest in those countries. The Surviving Fund may invest in derivatives, which are financial instruments whose values is based on another security, index or exchange rate. The Surviving Fund may use derivatives to hedge various market risks or to increase the fund's income or gain. The Surviving Fund may change any of these investment policies (but not its investment objective) without shareholder approval. The Surviving Fund may trade securities actively, which could increase transaction costs (and lower performance) and increase your taxable dividends. 16 INVESTMENT RESTRICTIONS The Surviving Fund and the Merging Fund have each adopted the following investment restrictions which may not be changed without approval by a "majority of the outstanding shares" of a Fund, which means the vote of the lesser of (i) 67% or more of the shares of a Fund present at a meeting, if the holders of more than 50% of the outstanding shares of a Fund are present or represented by proxy, and (ii) more than 50% of the outstanding shares of a Fund. SURVIVING FUND MERGING FUND -------------- ------------ The Surviving Fund is not The Merging Fund may not make any diversified. investment inconsistent with its classification as a diversified investment company under the 1940 Act. The Surviving Fund may not The Merging Fund may not purchase any purchase the securities of any security which would cause it to issuer (other than securities concentrate its investments in the issued or guaranteed by the U.S. securities of issuers primarily engaged government or any of its in any particular industry except as agencies or instrumentalities, or permitted by the Commission. repurchase agreements secured thereby) if, as a result, more than 25% of the Surviving Fund's total assets would be invested in the securities of companies whose principal business activities are in the same industry. Notwithstanding the foregoing, with respect to the Surviving Fund's permissible futures and options transactions in U.S. Government securities, positions in such options and futures shall not be subject to this restriction. The Surviving Fund may not borrow The Merging Fund may not borrow money, except for temporary or money, except to the extent permitted emergency purposes, or by engaging in by applicable law. reverse repurchase transactions, in an amount not exceeding 33-1/3% of the value of its total assets at the time when the loan is made and may pledge, mortgage or hypothecate no more than 1/3 of its net assets to secure such borrowings. Any borrowings representing more than 5% of the Surviving Fund's total assets must be repaid before the Surviving Fund may make additional investments. 17 The Surviving Fund may not purchase The Merging Fund may not purchase or or sell physical commodities unless sell commodities or commodity acquired as a result of ownership of contracts unless acquired as a result securities or other instruments but of ownership of securities or other this shall not prevent the Fund from instruments issued by persons that (i) purchasing or selling options and purchase or sell commodities or futures contracts or from investing commodities contracts; but this shall in securities or other instruments not prevent the Merging Fund from backed by physical commodities or purchasing, selling and entering into (ii) engaging in forward purchases or financial futures contracts sales of foreign currencies or (including futures contracts on securities. indices of securities, interest rates and currencies), options on financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), warrants, swaps, forward contracts, foreign currency spot and forward contracts or other derivative instruments that are not related to physical commodities. The Surviving Fund may not make The Merging Fund may make loans to loans, except that the Surviving Fund other persons, in accordance with the may: (i) purchase and hold debt Fund's investment objective and instruments (including without policies and to the extent permitted limitation, bonds, notes, debentures by applicable law. or other obligations and certificates of deposit, bankers' acceptances and fixed time deposits) in accordance with its investment objectives and policies; (ii) enter into repurchase agreements with respect to portfolio securities; and (iii) lend portfolio securities with a value not in excess of one-third of the value of its total assets. SHAREHOLDERS OF THE SURVIVING FUND CURRENTLY ARE CONSIDERING A PROPOSAL THAT, IF PASSED AT A SHAREHOLDER MEETING TO BE HELD THE SAME DAY AS THE MEETING OF THE MERGING FUND, WOULD ADOPT A FUNDAMENTAL INVESTMENT RESTRICTION REGARDING LOANS THAT IS IDENTICAL TO THE MERGING FUND'S RESTRICTION. The Surviving Fund may not make or guarantee loans to any person or otherwise become liable for or in connection with any obligation or indebtedness of any person without the prior written consent of the Trustees, provided that for purposes of this restriction the acquisition of bonds, 18 debentures, or other corporate debt securities and investments in government bonds, short-term commercial paper, certificates of deposit and bankers' acceptances shall not be deemed to be the making of a loan. The Surviving Fund may not invest in The Merging Fund is not subject to a securities which are not traded or similar fundamental restriction. have not sought a listing on a stock exchange, over-the-counter market or other organized securities market that is open to the international public and on which securities are regularly traded if, regarding all such securities, more than 10% of its total net assets would be invested in such securities immediately after and as a result of such transaction. The Surviving Fund may not deal in The Merging Fund is not subject to a put options, write or purchase call similar fundamental restriction. options, including warrants, unless such options or warrants are covered and are quoted on a stock exchange or dealt in on a recognized market, and, at the date of the relevant transaction: (i) call options written do not involve more than 25%, calculated at the exercise price, of the market value of the securities within the fund's portfolio excluding the value of any outstanding call options purchased, and (ii) the cost of call options or warrants purchased does not exceed, in terms of premium, 2% of the value of the net assets of the Fund. The Surviving Fund may not purchase The Merging Fund is not subject to a securities of any issuer if such similar fundamental restriction. purchase at the time thereof would cause more than 10% of the voting securities of such issuer to be held by the Fund. Neither Fund may issue senior securities, except as permitted under the 1940 Act or any rule, order or interpretation thereunder. 19 Neither Fund may underwrite securities of other issuers, except to the extent that the Fund, in disposing of portfolio securities, may be deemed an underwriter within the meaning of the Securities Act of 1933, as amended. Neither Fund may purchase or sell real estate (including, for the Surviving Fund, real estate limited partnerships), except that, to the extent permitted by applicable law, each Fund may (a) invest in securities or other instruments directly or indirectly secured by real estate and (b) invest in securities or other instruments issued by issuers that invest in real estate. Notwithstanding any other investment policy or restriction, the Surviving Fund may seek to achieve its investment objective by investing all of its investable assets in another investment company having substantially the same investment objective and policies as the Surviving Fund. Although the Merging Fund currently invests all of its assets in the Master Portfolio, following the Reorganization the Surviving Fund will invest directly in portfolio securities. NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions described below are not fundamental policies of the Surviving Fund and/or the Merging Fund and may be changed by their respective Trustees. SURVIVING FUND MERGING FUND -------------- ------------ The Surviving Fund may not invest The Merging Fund may not acquire any more than 15% of its net assets in illiquid securities, such as illiquid securities. repurchase agreements with more than seven days to maturity or fixed time deposits with a duration of over seven calendar days, if as a result thereof, more than 15% of the market value of the Merging Fund's net assets would be in investments which are illiquid. The Surviving Fund may not make short The Merging Fund may not purchase sales of securities, other than short securities on margin, make short sales "against the box," or purchase sales of securities, or maintain a securities on margin except for short position, provided that this short-term credits necessary for restriction shall not be deemed to be clearance of portfolio transactions, applicable to the purchase or sale of provided that this restriction will when-issued or delayed delivery not be applied to limit the use of securities, or to short sales that options, futures contracts and are covered in accordance with related options, in the manner Commission rules. otherwise permitted by the investment restrictions, policies and investment program of the Fund. The Surviving Fund does not have the current intention of making short sales against the box. 20 Except as otherwise specified The Merging Fund may not acquire herein, the Surviving Fund may securities of other investment invest in securities of other companies, except as permitted by the investment companies to the extent 1940 Act or any order pursuant thereto. permitted by the applicable federal securities law. The Surviving Fund may not purchase The Merging Fund is not subject to a or sell interests in oil, gas or similar non-fundamental restriction. mineral leases. The Surviving Fund may not write, The Merging Fund is not subject to a purchase or sell any put or call similar non-fundamental restriction. option or any combination thereof, provided that this shall not prevent (i) the writing, purchasing or selling of puts, calls or combinations thereof with respect to portfolio securities or (ii) with respect to the Surviving Fund's permissible futures and options transactions, the writing, purchasing, ownership, holding or selling of futures and options positions or of puts, calls or combinations thereof with respect to futures. The value of the Surviving Fund's The Merging Fund is not subject to a investment in holdings of options similar non-fundamental restriction. and warrants (other than those held for hedging purposes) may not exceed 15% of the total net asset value of the Fund. The Surviving Fund may not make any The Merging Fund is not subject to a investment in assets that involve similar non-fundamental restriction. assumption of any liability that is unlimited, or acquire any investments that are for the time being not paid or partly paid, unless according to the terms of the issue thereof any call to be made thereon could be met in full out of cash by the Fund's portfolio. The Surviving Fund may not sell, The Merging Fund is not subject to a purchase or loan securities similar non-fundamental restriction. (excluding shares in the Fund) or grant or receive a loan or loans to or from the adviser, corporate and domiciliary agent, or paying agent, the Distributor and the authorized agents or any of their directors, officers or employees or any of their major shareholders (meaning a shareholder who holds, in his own or other 21 name (as well as a nominee's name), more than 10% of the total issued and outstanding shares of stock of such company) acting as principal, or for their own account, unless the transaction is made within the other restrictions set forth above and either (i) at a price determined by current publicly available quotations, or (ii) at competitive prices or interest rates prevailing from time to time on internationally recognized securities markets or internationally recognized money markets. There will be no violation of any investment restriction if that restriction is complied with at the time the relevant action is taken notwithstanding a later change in market value of an investment, in net or total assets, in the securities rating of the investment, or any other later change. PURCHASES, REDEMPTIONS AND EXCHANGES Following the Reorganization, the procedures for purchases, redemptions and exchanges of shares will be those of the Surviving Fund, which are generally similar to those of the Merging Fund. Please note that the Surviving Fund currently has three classes of shares: Class A, Class B and Class C. In connection with the Reorganization and the Concurrent Reorganization, two additional classes, the Select Class and the Institutional Class, will be introduced. The following discussion applies to Select Class shares. This section is qualified in its entirety by the discussion in the Prospectus and Statement of Additional Information of the Surviving Fund, which are incorporated herein by reference. SALES CHARGES There is no sales charge to buy or sell Select Class shares. 12b-1 FEES There is no Rule 12b-1 distribution plan for Select Class shares of the Surviving Fund. BUYING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO PURCHASES OF SELECT CLASS SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION. The price shareholders pay for their shares is the net asset value per share (NAV). NAV is the value of everything the Surviving Fund owns, minus everything it owes, 22 divided by the number of shares held by investors. The Surviving Fund generally values its assets at fair market values but may use fair value if market prices are unavailable. The NAV of each class of the Surviving Fund's shares is generally calculated once each day at the close of regular trading on the New York Stock Exchange. A shareholder will pay the next NAV calculated after the JPMorgan Funds Service Center (the "Center") receives that shareholder's order in proper form. An order is in proper form only after payment is converted into federal funds. The Center accepts purchase orders on any business day that the New York Stock Exchange is open. If an order is received in proper form by the close of regular trading on the New York Stock Exchange, it will be processed at that day's price and the purchaser will be entitled to all dividends declared on that day. If an order is received after the close of regular trading on the New York Stock Exchange, it will generally be processed at the next day's price. If a purchaser pays by check for Surviving Fund shares before the close of regular trading on the New York Stock Exchange, it will generally be processed the next day the Surviving Fund is open for business. If a shareholder buys through an agent and not directly from the Center, the agent could set earlier cut-off times. Each shareholder must provide a Social Security Number or Taxpayer Identification Number when opening an account. The Surviving Fund has the right to reject any purchase order for any reason. All purchases of Select Class Shares of the Surviving Fund must be paid for by federal funds wire. They may be purchased generally only through financial service firms, such as broker-dealers and banks that have an agreement with the Fund or the Fund's distributor. The investment minimum for Select Class Shares is $1,000,000. However, shareholders who receive Select Class Shares as a result of the Reorganization may purchase new shares without regard to such investment minimum. For Select Class shares, checks should be made out to JPMorgan Funds in U.S. dollars. Credit cards, cash, or checks from a third party will not be accepted. Shares bought by check may not be sold for 15 calendar days. Shares bought through an automated clearing house cannot be sold until the payment clears. This could take more than seven business days. Purchase orders will be canceled if a check does not clear and the investor will be responsible for any expenses and losses to the Surviving Fund. Orders by wire will be canceled if the Center does not receive payment by 4:00 p.m., Eastern time, on the day the shareholder buys. Shareholders seeking to buy Select Class Shares through an investment representative should instruct their representative to contact the Surviving Fund. Such representatives may charge investors a fee and may offer additional services, such as special purchase and redemption programs, "sweep" programs, cash advances and redemption checks. Such representative may set different minimum investments and earlier cut-off times. 23 A systematic investment plan is available for Select Class Shares. SELLING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO SALES OF THE SELECT CLASS SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION. Shares of the Surviving Fund may be sold on any day the Center is open for trading, either directly to the Fund or through an investment representative. Shareholders of the Surviving Fund will receive the next NAV calculated after the Center accepts his or her sale order. Under normal circumstances, if a request is received before the close of regular trading on the New York Stock Exchange, the Surviving Fund will send the proceeds the next business day. An order to sell shares will not be accepted if the 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 Select Class Shares. If a shareholder's address of record has changed within the 30 days prior to the sale request or if more than $25,000 of shares is sold by phone, proceeds will be sent only to the bank account on the Surviving Fund's records. For Select Class Shares, a shareholder will need to have his or her signature guaranteed if he or she wants payment to be sent to an address other than the one in the Surviving Fund's records. Additional documents or a letter from a surviving joint owner may also be needed. A shareholder who purchased through an investment representative or through a financial service firm, should contact that representative, who will send the necessary documents to the Center. The representative might charge a fee for this service. Shareholders may also sell their shares by contacting the Center directly by calling _______________. A systematic withdrawal plan is available for Select Class Shares. EXCHANGING SURVIVING FUND SHARES THE FOLLOWING DISCUSSION APPLIES TO EXCHANGES OF SELECT CLASS SHARES THAT YOU MIGHT MAKE AFTER THE REORGANIZATION. Select Class shares of the Surviving Fund may be exchanged for Select Class Shares in certain other JPMorgan Funds. For tax purposes, an exchange is treated as a sale of those shares. Shareholders should carefully read the prospectus of the fund into which they want to exchange. 24 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 Select Class shares, the Surviving Fund may close an account if the balance falls below $___________. The Surviving Fund may also close the account if an investor is in the Systematic Investment Plan and fails to meet investment minimums over a 12-month period. At least 60 days' notice will be given before closing the account. Unless a shareholder indicates otherwise on his or her account application, the Surviving Fund is authorized to act on redemption and transfer instructions received by phone. If someone trades on an account by phone, the Surviving Fund will ask that person to confirm the account registration and address to make sure they match those in the Surviving Fund records. If they do correspond, the Surviving Fund is generally authorized to follow that person's instructions. The Surviving Fund will take all reasonable precautions to confirm that the instructions are genuine. Investors agree that they will not hold the Surviving Fund liable for any loss or expenses from any sales request, if the Surviving Fund takes reasonable precautions. The Surviving Fund will be liable for any losses to a shareholder from an unauthorized sale or fraud against such shareholder if the Surviving Fund does not follow reasonable procedures. It may not always be possible to reach the Center by telephone. This may be true at times of unusual market changes and shareholder activity. In that event, shareholders can mail instructions to the Surviving Fund or contact their investment representative or agent. The Surviving Fund may modify or cancel the sale of shares by phone without notice. MFG, on behalf of the Surviving Fund, has entered into agreements with certain shareholder servicing agents (including Chase) under which the shareholder servicing agents agree to provide certain support services to their customers. For performing these services, each shareholder servicing agent will receive an annual fee of up to 0.25% of the average daily net assets of the Select Class shares held by investors serviced by the shareholder servicing agent. JPMFAM and/or the Distributor may, at their own expense, make additional payments to certain selected dealers or other shareholder servicing agents for performing administrative services for their customers. The Surviving Fund issues multiple classes of shares. Each class may have different requirements for who may invest, and may have different sales charges and expense levels. A person who gets compensated for selling Surviving Fund shares may receive a different amount for each class. 25 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 annually. 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 Fund shares; - take distributions of net investment income in cash or as a deposit in a pre-assigned bank account and reinvest distributions of net capital gain in additional shares; or - take all distributions in cash or as a deposit in a pre-assigned bank account. If you 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. 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. The Surviving Fund expects that its distributions will consist primarily of capital gains. Investment income received by the Surviving Fund from sources in foreign countries may be subject to foreign taxes withheld at the source. Since it is anticipated that more than 50% of the Fund's assets at the close of its taxable year will be in securities of foreign corporations, the Fund may elect to "pass through" to its shareholders the foreign taxes that it paid. Early in each calendar year, 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. 26 COMPARISON OF THE MERGING FUND'S AND THE SURVIVING FUND'S ORGANIZATION STRUCTURE There are no material differences in the organizational structure of the Merging Fund and the Surviving Fund. Set forth below are descriptions of the structure, voting rights, shareholder liability and the liability of Trustees. STRUCTURE OF THE MERGING FUND The Merging Fund is organized as a series of 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. STRUCTURE OF THE SURVIVING FUND The Surviving Fund is organized as a series of MFG, which is organized under the law of the Commonwealth of Massachusetts. As a Massachusetts business trust, MFG's operations are governed by MFG's Declaration of Trust and By-Laws and applicable Massachusetts law. The operations of the Surviving Fund are also subject to the provisions of the 1940 Act and the rules and regulations thereunder. TRUSTEES AND OFFICERS Subject to the provisions of its trust documents, the business of the Merging Fund is managed by JPMF's Trustees and the business of the Surviving Fund is managed by MFG'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 MFG and JPMF is set forth in the Funds' respective Statements of Additional Information, which are incorporated herein by reference. SHARES OF FUNDS Each of MFG and JPMF is a trust with an unlimited number of authorized shares of beneficial interest which may be divided into series and classes thereof. Each Fund is one series of a trust and may issue multiple classes of shares. Each share of a series or class of a trust represents an equal proportionate interest in that series or class with each other share of that series or class. The shares of each series or class of either MFG or JPMF participate equally in the earnings, dividends and assets of the particular series or class. Fractional shares have proportionate rights to full shares. Expenses of MFG or 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 27 approve a distribution plan, but shares of all series and classes vote together, to the extent required by the 1940 Act, including for the election of Trustees. Neither MFG nor JPMF is required to hold regular annual meetings of shareholders, but may hold special meetings from time to time. There are no conversion or preemptive rights in connection with shares of either MFG or JPMF. SHAREHOLDER VOTING RIGHTS A vacancy in the Board of either MFG or 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 either MFG or JPMF could, under certain circumstances, be held personally liable as partners for the obligations of that trust. However, the Declaration of Trust of each of MFG and 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. Each of MFG and 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 each of MFG and 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 each of MFG and 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 of the Declaration of Trust and By-Laws of each of MFG and JPMF are available without charge upon written request to that trust. 28 INFORMATION RELATING TO THE ADVISORY CONTRACTS AND OTHER SERVICES GENERAL INFORMATION As noted above, the investment adviser of the Master Portfolio (and therefore the Merging Fund's assets) is JPMIM. Pursuant to an Advisory Agreement, the investment adviser of the Surviving Fund is JPMFAM. JPMFAM has delegated most of its responsibilities with respect to the Surviving Fund to CFAML pursuant to a Subadvisory Agreement between JPMFAM and CFAML. As a result, CFAML is responsible for most of the day-to-day management of the Surviving Fund. DESCRIPTION OF JPMFAM JPMFAM, a registered investment adviser, is an indirect wholly-owned subsidiary of JPMC incorporated under the laws of Delaware. JPMFAM's principal executive offices are located at 522 Fifth Avenue, New York, New York 10036. As of _______ __, 2001, JPMFAM and certain of its affiliates (including JPMIM and CFAML) provided investment management services with respect to assets of approximately $___ billion. Under the Advisory Agreement, JPMFAM is responsible for making decisions with respect to, and placing orders for, all purchases and sales of the portfolio securities of the Surviving Fund. JPMFAM's responsibilities under the Advisory Agreement include supervising the Surviving Fund's investments and maintaining a continuous investment program, placing purchase and sale orders and paying costs of certain clerical and administrative services involved in managing and servicing the Surviving Fund's investments and complying with regulatory reporting requirements. JPMFAM delegates certain of these responsibilities to CFAML. Under the Advisory Agreement, JPMFAM is obligated to furnish employees, office space and facilities required for the operation of the Surviving Fund. The services provided to the Surviving Fund by JPMFAM are substantially similar to the services currently provided to the Master Portfolio and, therefore, indirectly to the Merging Fund by JPMIM. EXPENSES AND MANAGEMENT FEES. The Advisory Agreement provides that the Surviving Fund will pay JPMFAM a monthly management fee based upon the net assets of the Surviving Fund. The annual rate of this management fee is 1.00%. The Master Portfolio and, therefore, indirectly the Merging Fund also currently pays 0.65% of average net assets with respect to its assets in the Master Portfolio to JPMIM for its advisory services. JPMFAM may waive fees from time to time. Under the Advisory Agreement, except as indicated above, the Surviving Fund is responsible for its operating expenses including, but not limited to, taxes; interest; fees (including fees paid to its Trustees who are not affiliated with JPMFAM or any of its affiliates); fees payable to the Commission; state securities qualification fees; association membership dues; costs of preparing and printing prospectuses for regulatory purposes and for distribution to existing shareholders; advisory and administrative fees; charges of the custodian and transfer agent; insurance premiums; auditing and legal expenses; costs of 29 shareholders' reports and shareholder meetings; any extraordinary expenses; and brokerage fees and commissions, if any, in connection with the purchase or sale of portfolio securities. SUBCONTRACTING. JPMFAM is authorized by the Advisory Agreement to employ or associate with such other persons or entities as it believes to be appropriate to assist it in the performance of its duties. Any such person is required to be compensated by JPMFAM, not by the Surviving Fund, and to be approved by the shareholders of that Fund as required by the 1940 Act. LIMITATION ON LIABILITY. The Advisory Agreement provides that JPMFAM will not be liable for any error of judgment or mistake of law or for any act or omission or loss suffered by MFG 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 MFG 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 MFG Board or by vote of the majority of the Surviving Fund's outstanding voting securities upon 60 days' written notice to JPMFAM, and by JPMFAM on 60 days' written notice to MFG. DESCRIPTION OF CFAML CFAML is a wholly-owned indirect subsidiary of JPMC. CFAML is located at Colvile House, 32 Curzon Street, London W1Y8AL. DESCRIPTION OF THE SUBADVISORY AGREEMENT Pursuant to the Subadvisory Agreement, JPMFAM delegates to CFAML portfolio management duties. With respect to the day-to-day management of the Surviving Fund, CFAML makes decisions concerning, and places all orders for, purchases and sales of securities and helps maintain the records relating to such purchases and sales. CFAML may, in its discretion, provide such services through its own employees or the employees of one or more affiliated companies that are qualified to act as an investment adviser to the Fund under applicable laws and are under the common control of JPMC; PROVIDED that (i) all persons, when providing services under the Subadvisory Agreement, are functioning as 30 part of an organized group of persons, and (ii) such organized group of persons is managed at all times by authorized officers of CFAML. JPMFAM and CFAML bear all expenses in connection with the performance of their respective services under the Subadvisory Agreement. As investment adviser, JPMFAM oversees the management of the Surviving Fund under the Subadvisory Agreement, and, subject to the general supervision of the MFG Board, makes recommendations and provides guidelines to CFAML based on general economic trends and macroeconomic factors. Among the recommendations that may be provided by JPMFAM to CFAML are guidelines and benchmarks against which the Surviving Fund would be managed. From the fee paid by the Surviving Fund under the Advisory Agreement to JPMFAM, JPMFAM bears responsibility for payment of subadvisory fees to CFAML. Therefore, the Surviving Fund does not bear any increase in management fee rates resulting from the Subadvisory Agreement. SUBADVISORY FEE. As compensation for its services, CFAML receives a fee from JPMFAM. The fee is at the annual rate of 0.50% of the current value of the net assets of the Surviving Fund. The fee, which is accrued daily and payable monthly, is calculated for each day by multiplying the fraction of one over the number of calendar days in the year by the annual subadvisory fee percentage rate and multiplying this product by the value of the net assets of the Surviving Fund at the close of business on the previous business day. Confirm DURATION AND TERMINATION. The Subadvisory Agreement will continue for successive one-year periods, provided that such continuation is specifically approved at least annually (i) by the MFG Board, or by a majority of the outstanding voting securities of the Surviving Fund and (ii) by a majority of the Trustees who are not interested persons of the Fund, JPMFAM or CFAML, by vote cast in person at a meeting called for such purposes. The Subadvisory Agreement is terminable at any time, without penalty, by vote of the MFG Board, by JPMFAM or by the majority of the outstanding voting securities of the Surviving Fund, or by CFAML upon 60 days' written notice. The Subadvisory Agreement will terminate automatically in the event of its assignment, as defined under the 1940 Act. PORTFOLIO MANAGER The portfolio management team for the Surviving Fund is led by James Elliot and Ajay Gambhir. Messrs. Elliot and Gambhir are both assistant directors of the European Equity Group. Mr. Elliot joined CFAML in June of 1995 as an executive in the European Investment Banking group. He was appointed a portfolio manager in 1998 and Assistant Director in 1999. Mr. Gambhir joined CFAML in December of 1997 as a Fund manager in the European Equity Group. Prior to that he worked as a Fund manager at NM Rothschild & Sons Limited. Mr. Gambhir was appointed Assistant Director in April of 2000. Both have managed the Surviving Fund since August of 2000. 31 PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS JPMFAM, as the investment adviser to the Surviving Fund, has responsibilities with respect to the Fund's portfolio transactions and brokerage arrangements pursuant to the Fund's policies, subject to the overall authority of the MFG Board. In addition, the Subadvisory Agreement with CFAML currently provides that CFAML's responsibilities with respect to portfolio transactions and brokerage arrangements will be equivalent to those of JPMFAM under the Advisory Agreement. Accordingly, the description below of JPMFAM's responsibilities under the Advisory Agreement would also apply to CFAML's responsibilities under the Subadvisory Agreement. Under the Advisory Agreement, JPMFAM, subject to the general supervision of the Board, is responsible for the placement of orders for the purchase and sale of portfolio securities for the Surviving Fund with brokers and dealers selected by JPMFAM. These brokers and dealers may include brokers or dealers affiliated with JPMFAM to the extent permitted by the 1940 Act and MFG's policies and procedures applicable to the Fund. JPMFAM shall use its best efforts to seek to execute portfolio transactions at prices which, under the circumstances, result in total costs or proceeds being the most favorable to such Fund. In assessing the best overall terms available for any transaction, JPMFAM shall consider all factors it deems relevant, including the breadth of the market in the security, the price of the security, the financial condition and execution capability of the broker or dealer, research services provided to JPMFAM, and the reasonableness of the commission, if any, both for the specific transaction and on a continuing basis. In no event shall JPMFAM be under any duty to obtain the lowest commission or the best net price for the Fund on any particular transaction, nor shall JPMFAM be under any duty to execute any order in a fashion either preferential to such Fund relative to other accounts managed by JPMFAM or otherwise materially adverse to such other accounts. In selecting brokers or dealers qualified to execute a particular transaction, brokers or dealers may be selected who also provide brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934) to JPMFAM, the Fund and/or the other accounts over which JPMFAM exercises investment discretion. JPMFAM is authorized to pay a broker or dealer who provides such brokerage and research services a commission for executing a portfolio transaction for the Fund which is in excess of the amount of commission another broker or dealer would have charged for effecting that transaction if JPMFAM determines in good faith that the total commission is reasonable in relation to the value of the brokerage and research services provided by such broker or dealer, viewed in terms of either that particular transaction or the overall responsibilities of JPMFAM with respect to accounts over which it exercises investment discretion. JPMFAM shall report to the Board regarding overall commissions paid by the Fund and their reasonableness in relation to the benefits to such Fund. In executing portfolio transactions for the Fund, JPMFAM may, to the extent permitted by applicable laws and regulations, but shall not be obligated to, aggregate the securities to be sold or purchased with those of other funds or its other clients if, in JPMFAM's reasonable judgment, such aggregation (i) will result in an overall economic benefit to such fund, taking into consideration the advantageous selling or purchase price, 32 brokerage commission and other expenses, and trading requirements, and (ii) is not inconsistent with the policies set forth in MFG's registration statement, as the case may be, and the Fund's Prospectus and Statement of Additional Information. In such event, JPMFAM will allocate the securities so purchased or sold, and the expenses incurred in the transaction, in an equitable manner, consistent with its fiduciary obligations to such Fund and such other clients. It is possible that certain of the brokerage and research services received will primarily benefit one or more other investment companies or other accounts for which JPMFAM exercises investment discretion. Conversely, MFG or any of its portfolios may be the primary beneficiary of the brokerage or research services received as a result of portfolio transactions effected for such other accounts or investment companies. OTHER SERVICES The Distributor, a wholly owned, indirect subsidiary of BISYS Fund Services, Inc., which currently serves as the Merging Fund's distributor and sub-administrator, is the distributor and sub-administrator for the Surviving Fund. The Distributor is unaffiliated with JPMC or any of its subsidiaries. Chase serves as administrator, shareholder servicing agent, fund accountant and custodian, and DST serves as transfer agent and dividend disbursing agent, for the Surviving Fund. The services provided by Chase include day-to-day maintenance of certain books and records, calculation of the offering price of the shares and preparation of reports. In its role as custodian, Chase is responsible for the daily safekeeping of securities and cash held by the Surviving Fund. As administrator, Chase receives a fee of 0.15% of average daily net assets. It is anticipated that, in connection with the Reorganization, the administration fee will be amended to reduce the fee to 0.075% for complex wide non-money market Fund assets in excess of $26 billion. PROPOSAL 2: ELECTION OF TRUSTEES -------------------- It is proposed that shareholders of the Merging Fund consider the election of the individuals listed below (the "Nominees") to the Board of Trustees of JPMF, which is currently organized as a Massachusetts business trust. Even if the Reorganization described in Proposal 1 is approved, other mutual funds that are series of JPMF will continue to exist and operate. All shareholders of any series of JPMF as of the record date (April 6, 2001) are required to be given a vote on the proposal regarding Trustees. Because as of the record date you are still a shareholder in JPMF, you are entitled to vote on this proposal. Shareholders of MFG are being asked to approve the same Trustees as are being proposed for JPMF. In connection with the merger of J.P. Morgan & Co. Incorporated and The Chase Manhattan Corporation, it has been proposed, subject to shareholder approval, that the Boards of Trustees of the investment companies managed by JPMFAM, JPMIM and their affiliates be rationalized in order to obtain additional operating efficiencies by having the same Board of Trustees for all of the funds. Therefore, the Nominees include certain current Trustees of MFG and certain current Trustees of JPMF, including certain members 33 of JPMF's Advisory Board. Each Nominee has consented to being named in this Proxy Statement and has agreed to serve as a Trustee if elected. Shareholders of MFG are concurrently considering the election of the same individuals to the Board of Trustees of MFG. Biographical information about the Nominees and other relevant information is set forth below. More information regarding the current Trustees of MFG and JPMF is contained in the Funds' Statements of Additional Information, which are incorporated herein by reference. The persons named in the accompanying form of proxy intend to vote each such proxy "FOR" the election of the Nominees, unless shareholders specifically indicate on their proxies the desire to withhold authority to vote for elections to office. It is not contemplated that any Nominee will be unable to serve as a Board member for any reason, but if that should occur prior to the Meeting, the proxy holders reserve the right to substitute another person or persons of their choice as nominee or nominees. THE 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: ================================================================================ The Board of Trustees of JPMF met 4 times during the fiscal year ended November 30, 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. _____. 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 November 30, 2001. 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 JPMF, the Master Portfolio and certain other investment companies in the Fund Complex, up to and including creating a separate board of trustees. *Interested Trustee, as defined by the 1940 Act. 34 REMUNERATION OF TRUSTEES AND CERTAIN EXECUTIVE OFFICERS Each Trustee is currently paid an annual fee of $75,000 for serving as Trustee of the investment companies in the Fund Complex, which is allocated among all Investment Companies for when the Trustee service and is reimbursed for expenses incurred in connection with service as a Trustee. The Trustees may hold various other directorships unrelated to these funds. Trustee compensation expenses paid for the calendar year ended December 31, 2000 are set forth below.
Aggregate Trustee Compensation Paid by the Total Trustee Compensation Accrued Name of Trustee Trust During 2000 by Fund Complex(1) During 2000(2) --------------- ----------------- --------------------------------- Frederick S. Addy, Trustee $ 11,238 $ 75,000 William G. Burns, Trustee $ 11,238 $ 75,000 Arthur C. Eschenlauer, Trustee $ 11,238 $ 75,000 Matthew Healey, Trustee(3) Chairman and Chief Executive Officer $ 11,238 $ 75,000 Michael P. Mallardi, Trustee $ 11,238 $ 75,000
- ---------- (1.) A Fund Complex means two or more investment companies that hold themselves out to investors as related companies for purposes of investment and investment services, or have a common investment adviser or have an investment adviser that is an affiliated person of the investment adviser of any of the other investment companies. (2.) No investment company within the Fund Complex has a pension or retirement plan. (3.) During 2000, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman of Pierpont Group, Inc., compensation in the amount of $200,000, contributed $25,500 to a defined contribution plan on his behalf and paid $18,400 in insurance premiums for his benefit. The Trustees decide upon general policies and are responsible for overseeing 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. 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 Merging Fund will terminate its agreement with Pierpont Group, Inc. in connection with Reorganization. The aggregate fees paid to Pierpont Group, Inc. by the Merging Fund and the Master Portfolio during the indicated fiscal periods are set forth below: 35 MERGING FUND-- For the fiscal year ended December 31, 1997: $117. For the period January 1, 1998 through November 30, 1998: $336. For the fiscal year ended November 30, 1999: $274. For the fiscal year ended November 30, 2000: $216. MASTER PORTFOLIO-- For the fiscal year ended December 31, 1997: $21,837. For the period January 1, 1998 through November 30, 1998: $738. For the fiscal year ended November 30, 1999: $498. For the fiscal year ended November 30, 2000: $384. 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 -- Former President, Diversified Publishing Group and Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945. John R. Laird-- Retired; Former Chief Executive Officer, Shearson Lehman Brothers and The Boston Company. His date of birth is June 21, 1942. Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley Group and President and Chief Operating Officer, Morgan Stanley Services, Inc. His date of birth is October 5, 1936. James J. Schonbachler -- Retired; Prior to September, 1998, Managing Director, Bankers Trust Company and Chief Executive Officer and Director, Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January 26, 1943. PRINCIPAL EXECUTIVE OFFICERS: JPMF's and the Master Portfolio's principal executive officers (listed below), other than the Chief Executive Officer and the officers who are employees of JPMIM, are provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group, Inc. The officers conduct and supervise the 36 business operations of JPMF and the Master Portfolio. JPMF and the Master Portfolio have no employees. The business address of each of the officers unless otherwise noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts 02109. The principal executive officers of 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 Vice President and Secretary. Senior Vice President and General Counsel of the Distributor 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 the Distributor since April 1998. From June 1995 to March 1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development for First Data Corporation. ACCOUNTANTS PricewaterhouseCoopers LLP serves as the Merging Fund's, the 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 MFG or 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 $47,500. FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES. The aggregate fees billed for financial information systems design and implementation services rendered by PricewaterhouseCoopers LLP to the Merging Fund, 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 $11,032,400. 37 The Audit Committee has considered whether the provision of non-audit services is compatible with maintaining the independence of PricewaterhouseCoopers LLP. INFORMATION RELATING TO VOTING MATTERS GENERAL INFORMATION This Combined Prospectus/Proxy Statement is being furnished in connection with the solicitation of proxies by the 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). 38 PROXIES All Merging Fund Shares represented by each properly signed proxy received prior to the Meeting will be voted at the Meeting. If a Merging Fund Shareholder specifies how the proxy is to be voted on any of the business to come before the Meeting, it will be voted in accordance with such specifications. If a Merging Fund Shareholder returns its proxy but no direction is made on the proxy, the proxy will be voted FOR each Proposal described in this Combined Prospectus/Proxy Statement. The Merging Fund Shareholders voting to ABSTAIN on the Proposals will be treated as present for purposes of achieving a quorum and in determining the votes cast on the Proposals, but not as having voted FOR the Proposals. A properly signed proxy on which a broker has indicated that it has no authority to vote on the Proposals on behalf of the beneficial owner (a "broker non-vote") will be treated as present for purposes of achieving a quorum but will not be counted in determining the votes cast on the Proposals. A proxy granted by any Merging Fund Shareholder may be revoked by such Merging Fund Shareholder at any time prior to its use by written notice to 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 shares of the Surviving Fund or any class thereof that would be owned by such persons upon 39 consummation of the Reorganization and the Concurrent Reorganization based upon their holdings at _______, 2001 are as follows: Percentage of Percentage of Amount of Merging Fund Surviving Fund Shares Owned on Record Owned Upon Name and Address Owned Date Consummation - -------------------------------------------------------------------------------- On the record date, the Trustees and officers of MFG as a group owned less than 1% of the outstanding shares of the Surviving Fund. On the record date, the name, address and percentage ownership of the persons who owned beneficially more than 5% of the shares of the Surviving Fund or any class thereof and the percentage of 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 and the Concurrent Reorganization based upon their holdings at _______, 2001 are as follows: Percentage of Amount of Surviving Fund Percentage of Surviving Shares Owned on Record Fund Owned Upon Name and Address Owned Date Consummation - -------------------------------------------------------------------------------- ADDITIONAL INFORMATION ABOUT MFG Information about the Surviving Fund is included in its Prospectus, which is incorporated by reference and enclosed herein. Additional information about the Surviving Fund is also included in MFG's Statement of Additional Information, which has been filed with the Commission and which is incorporated herein by reference. Copies of the Statement of Additional information may be obtained without charge by calling 1-800-348-4782. MFG 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. 40 ADDITIONAL INFORMATION ABOUT JPMF Information about the Merging Fund is included in its Prospectus, which is incorporated by reference herein. Additional information about the Merging Fund is also included in JPMF's Statement of Additional Information which has been filed with the Commission and which is incorporated herein by reference. Copies of the Statement of Additional information may be obtained without charge by calling 1-800-766-7722. 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 the Merging Fund and the Master Portfolio for the fiscal year ended November 30, 2000 and the Surviving Fund for the fiscal year ended October 31, 2000 are incorporated by reference herein and into the Statement of Additional Information related to this Combined Prospectus/Proxy Statement. The financial highlights, financial statements, notes thereto and supplementary data, as applicable, of the Merging Fund, the Master Portfolio and the Surviving Fund 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. 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 that proxies that do not contain specific restrictions to the contrary will be voted on such matters in accordance with the judgment of the persons named in the enclosed form of proxy. LITIGATION Neither MFG nor JPMF is involved in any litigation that would have any material adverse effect upon either the Merging Fund or the Surviving Fund. SHAREHOLDER INQUIRIES Shareholder inquiries may be addressed to JPMF in writing at the address on the cover page of this Combined Prospectus/Proxy Statement or by telephoning 1-800-766-7722. 41 * * * 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. 42 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 Funds (the "Transferor Trust"), a Massachusetts business trust, on behalf of the J.P. Morgan European Equity Fund (the "Transferor Portfolio"), Mutual Fund Group (the "Acquiring Trust"), a Massachusetts business trust, on behalf of JPMorgan Fleming European Fund (formerly, Chase Vista European 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 Select Class share class in exchange for shares of the Transferor Portfolio, with the amounts of shares of each share class to be A-1 determined by the parties. Any shares of beneficial interest (if any) of the Transferor Portfolio ("Transferor Portfolio Shares") held in the treasury of the Transferor Trust at the Effective Time of the Reorganization shall thereupon be retired. Such transactions shall take place on the date provided for in Section 1(b) hereof (the "Exchange Date"). All computations for the Transferor Portfolio and the Acquiring Portfolio shall be performed by The Chase Manhattan Bank (the "Custodian"), as custodian and pricing agent for the Transferor Portfolio and the Acquiring Portfolio. The determination of said Custodian shall be conclusive and binding on all parties in interest. (ii) As of the Effective Time of the Reorganization, the Transferor Trust will liquidate and distribute pro rata to its shareholders of record ("Transferor Portfolio Shareholders") as of the Effective Time of the Reorganization the Acquiring Portfolio Shares received by such Transferor Portfolio pursuant to Section 1(a)(i) in actual or constructive exchange for the shares of the Transferor Portfolio held by the Transferor Portfolio shareholders. Such liquidation and distribution will be accomplished by the transfer of the Acquiring Portfolio Shares then credited to the account of the Transferor Portfolio on the books of the Acquiring Portfolio, to open accounts on the share records of the Acquiring Portfolio in the names of the Transferor Portfolio Shareholders and representing the respective pro rata number of the Acquiring Portfolio Shares due such shareholders. The Acquiring Portfolio will not issue certificates representing the Acquiring Portfolio Shares in connection with such exchange. (iii) As soon as practicable after the Effective Time of the Reorganization, the Transferor Trust shall take all the necessary steps under Massachusetts law, the Transferor Trust's Declaration of Trust and any other applicable law to effect a complete termination of the Transferor Portfolio. (b) EXCHANGE DATE AND EFFECTIVE TIME OF THE REORGANIZATION. (i) Subject to the satisfaction of the conditions to the Reorganization specified in this Plan, the Reorganization shall occur as of the close of regularly scheduled trading on the New York Stock Exchange (the "Effective Time of the Reorganization") on August 11, 2001, or such later date as may be agreed upon by the parties (the "Exchange Date"). (ii) All acts taking place on the Exchange Date shall be deemed to take place simultaneously as of the Effective Time of the Reorganization unless otherwise provided. (iii) In the event that on the proposed Exchange Date (A) the New York Stock Exchange shall be closed to trading or trading thereon shall be restricted, or (B) trading or the reporting of trading on said Exchange or elsewhere shall be disrupted so that accurate valuation of the net assets of the Acquiring Portfolio or the Transferor Portfolio is impracticable, the Exchange Date shall be postponed until the first business day after the day when trading shall have been fully resumed and reporting shall have been restored. (iv) On the Exchange Date, portfolio securities of the Transferor Portfolio shall be transferred by the Custodian to the accounts of the Acquiring Portfolio duly endorsed in proper form for transfer, in such condition as to constitute good delivery thereof in accordance with the A-2 custom of brokers, and shall be accompanied by all necessary federal and state stock transfer stamps or a check for the appropriate purchase price thereof. (c) VALUATION. (i) The net asset value of the shares of the Acquiring Portfolio and the net value of the assets of the Transferor Portfolio to be transferred in exchange therefore shall be determined as of the Effective Time of the Reorganization. The net asset value of the Acquiring Portfolio Shares shall be computed by the Custodian in the manner set forth in the Acquiring Trust's Declaration of Trust or By-laws and then current prospectus and statement of additional information and shall be computed to not less than two decimal places. The net value of the assets of the Transferor Portfolio to be transferred shall be computed by the Custodian by calculating the value of the assets transferred by the Transferor Portfolio and by subtracting therefrom the amount of the liabilities assigned and transferred to the Acquiring Portfolio, said assets and liabilities to be valued in the manner set forth in the Transferor Trust's Declaration of Trust or By-laws and then current prospectus and statement of additional information. (ii) The number of Select Class Shares of the Acquiring Portfolio to be issued (including fractional shares, if any) by the Acquiring Portfolio in exchange for the Transferor Portfolio's assets attributable to the Transferor Portfolio's shares shall be determined by an exchange ratio computed by dividing the net value of the Transferor Portfolio's assets attributable to its shares by the net asset value per share of the Select Class shares of the Acquiring Portfolio, both as determined in accordance with Section 1(c)(i). (iii) All computations of value shall be made by the Custodian in accordance with its regular practice as pricing agent for the Acquiring Portfolio and the Transferor Portfolio. 2. REPRESENTATIONS AND WARRANTIES OF THE ACQUIRING TRUST The Acquiring Trust represents and warrants as follows: (a) ORGANIZATION, EXISTENCE, ETC. The Acquiring Trust is a business trust that is duly organized, validly existing and in good standing under the laws of the Commonwealth of Massachusetts and has the power to carry on its business as it is now being conducted. The Acquiring Portfolio is a validly existing series of shares of such business trust representing interests therein under the laws of Massachusetts. Each of the Acquiring Portfolio and the Acquiring Trust have all necessary federal, state and local authorization to own all of its properties and assets and to carry on its business as now being conducted. (b) REGISTRATION AS INVESTMENT COMPANY. The Acquiring Trust is registered under the Investment Company Act of 1940, as amended (the "Act") as an open-end investment company of the management type; such registration has not been revoked or rescinded and is in full force and effect. (c) CURRENT OFFERING DOCUMENTS. The current prospectus and statement of additional information of the Acquiring Trust, as amended, included in the Acquiring Trust's registration A-3 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 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 October 31, 2000 there were outstanding 573,000 shares of the Acquiring Portfolio, and no shares of such Portfolio were held in the treasury of the Acquiring Trust. All of the outstanding shares of the Acquiring Trust have been duly authorized and are validly issued, fully paid and nonassessable (except as disclosed in the Acquiring Trust's prospectus and recognizing that under Massachusetts law, shareholders of an Acquiring Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such Acquiring Trust portfolio). Because the Acquiring Trust is an open-end investment company engaged in the continuous offering and redemption of its shares, the number of outstanding shares may change prior to the Effective Time of the Reorganization. All of the issued and outstanding shares of the Acquiring Portfolio have been offered and sold in compliance in all material respects with applicable registration requirements of the Securities Act and applicable state securities laws. (e) FINANCIAL STATEMENTS. The financial statements of the Acquiring Trust with respect to the Acquiring Portfolio for the fiscal year ended October 31, 2000, which have been audited by PricewaterhouseCoopers LLP, fairly present the financial position of the Acquiring Portfolio as of the dates thereof and the respective results of operations and changes in net assets for each of the periods indicated in accordance with generally accepted accounting principles ("GAAP"). (f) SHARES TO BE ISSUED UPON REORGANIZATION. The Acquiring Portfolio Shares to be issued in connection with the Reorganization will be duly authorized and upon consummation of the Reorganization will be validly issued, fully paid and nonassessable (except as disclosed in the Trust's prospectus and recognizing that under Massachusetts law, shareholders of an Acquiring Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such portfolio). (g) AUTHORITY RELATIVE TO THIS PLAN. The Acquiring Trust, on behalf of the Acquiring Portfolio, has the power to enter into this Plan and to carry out its obligations hereunder. The execution and delivery of this Plan and the consummation of the transactions contemplated hereby have been duly authorized by the Acquiring Trust's Board of Trustees and no other proceedings by the Acquiring Trust other than those contemplated under this Plan are necessary to authorize its officers to effectuate this Plan and the transactions contemplated hereby. The Acquiring Trust is not a party to or obligated under any provision of its Declaration of Trust or By-laws, or under any indenture or contract provision or any other commitment or obligation, or subject to any order or decree, which would be violated by or which would prevent its execution and performance of this Plan in accordance with its terms. (h) LIABILITIES. There are no liabilities of the Acquiring Portfolio, whether actual or contingent and whether or not determined or determinable, other than liabilities disclosed or A-4 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 October 31, 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 October 31, 2000, there has been no material adverse change in the financial condition, results of operations, business, properties or assets of the Acquiring Portfolio, other than those occurring in the ordinary course of business (for these purposes, a decline in net asset value and a decline in net assets due to redemptions do not constitute a material adverse change). (j) LITIGATION. There are no claims, actions, suits or proceedings pending or, to the knowledge of the Acquiring Trust, threatened which would adversely affect the Acquiring Trust or the Acquiring Portfolio's assets or business or which would prevent or hinder consummation of the transactions contemplated hereby, there are no facts which would form the basis for the institution of administrative proceedings against the Acquiring Trust or the Acquiring Portfolio and, to the knowledge of the Acquiring Trust, there are no regulatory investigations of the Acquiring Trust or the Acquiring Portfolio, pending or threatened, other than routine inspections and audits. (k) CONTRACTS. No default exists under any material contract or other commitment to which the Acquiring Trust, on behalf of the Acquiring Portfolio, is subject. (l) TAXES. The federal income tax returns of the Acquiring Trust with respect to the Acquiring Portfolio, and all other income tax returns required to be filed by the Acquiring Trust with respect to the Acquiring Portfolio, have been filed, and all taxes payable pursuant to such returns have been paid. To the knowledge of the Acquiring Trust, no such return is under audit and no assessment has been asserted in respect of any such return. All federal and other taxes owed by the Acquiring Trust with respect to the Acquiring Portfolio have been paid so far as due. The Acquiring Portfolio has elected to qualify as a "regulated investment company" under Subchapter M of the Code, as of and since its first taxable year and intends to continue to so qualify. (m) NO APPROVALS REQUIRED. Except for the Registration Statement (as defined in Section 4(a) hereof) and the approval of the Transferor Portfolio's shareholders (referred to in Section 6(a) hereof), no consents, approvals, authorizations, registrations or exemptions under federal or state laws are necessary for the consummation by the Acquiring Trust of the Reorganization, except such as have been obtained as of the date hereof. 3. REPRESENTATIONS AND WARRANTIES OF THE TRANSFEROR TRUST The Transferor Trust represents and warrants as follows: (a) ORGANIZATION, EXISTENCE, ETC. The Transferor Trust is a business trust that is duly organized, validly existing and in good standing under the laws of the Commonwealth of A-5 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 October 31, 2000 there were outstanding 784,000 shares of the Transferor Portfolio, and no shares of such Portfolio were held in the treasury of the Transferor Trust. All of the outstanding shares of the Transferor Trust have been duly authorized and are validly issued, fully paid and nonassessable (except as disclosed in the Transferor Trust's prospectus and recognizing that under Massachusetts law, shareholders of a Trust portfolio could, under certain circumstances, be held personally liable for the obligations of such Trust portfolio). Because the Transferor Trust is an open-end investment company engaged in the continuous offering and redemption of its shares, the number of outstanding shares may change prior to the Effective Time of the Reorganization. All such shares will, at the Exchange Date, be held by the shareholders of record of the Transferor Portfolio as set forth on the books and records of the Transferor Trust in the amounts set forth therein, and as set forth in any list of shareholders of record provided to the Acquiring Portfolio for purposes of the Reorganization, and no such shareholders of record will have any preemptive rights to purchase any Transferor Portfolio shares, and the Transferor Portfolio does not have outstanding any options, warrants or other rights to subscribe for or purchase any Transferor Portfolio shares (other than any existing dividend reinvestment plans of the Transferor Portfolio or as set forth in this Plan), nor are there outstanding any securities convertible into any shares of the Transferor Portfolio (except pursuant to any existing exchange privileges described in the current prospectus and statement of additional information of the Transferor Trust). All of the Transferor Portfolio's issued and outstanding shares have been offered and sold in compliance in all material respects with applicable registration requirements of the Securities Act and applicable state securities laws. (e) FINANCIAL STATEMENTS. The financial statements for the Transferor Trust with respect to the Transferor Portfolio and The European Equity Portfolio for the fiscal year ended November 30, 2000 which have been audited by PricewaterhouseCoopers LLP fairly present the financial position of the Transferor Portfolio and The European 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. A-6 (f) AUTHORITY RELATIVE TO THIS PLAN. The Transferor Trust, on behalf of the Transferor Portfolio, has the power to enter into this Plan and to carry out its obligations hereunder. The execution and delivery of this Plan and the consummation of the transactions contemplated hereby have been duly authorized by the Transferor Trust's Board of Trustees and no other proceedings by the Transferor Trust other than those contemplated under this Plan are necessary to authorize its officers to effectuate this Plan and the transactions contemplated hereby. The Transferor Trust is not a party to or obligated under any provision of its Declaration of Trust or By-laws, or under any indenture or contract provision or any other commitment or obligation, or subject to any order or decree, which would be violated by or which would prevent its execution and performance of this Plan in accordance with its terms. (g) LIABILITIES. There are no liabilities of the Transferor Portfolio, whether actual or contingent and whether or not determined or determinable, other than liabilities disclosed or provided for in the Transferor Trust's Financial Statements with respect to the Transferor Portfolio and liabilities incurred in the ordinary course of business subsequent to 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 respect to the Transferor Portfolio without liability to the Transferor Trust or the Transferor Portfolio as of or prior to the Effective Time of the Reorganization. (k) TAXES. The federal income tax returns of the Transferor Trust with respect to the Transferor Portfolio, and all other income tax returns required to be filed by the Transferor Trust with respect to the Transferor Portfolio, have been filed, and all taxes payable pursuant to such returns have been paid. To the knowledge of the Transferor Trust, no such return is under audit and no assessment has been asserted in respect of any such return. All federal and other taxes owed by the Transferor Trust with respect to the Transferor Portfolio have been paid so far as due. The Transferor Portfolio has elected to qualify as a "regulated investment company" under A-7 Subchapter M of the Code, as of and since its first taxable year; and shall continue to so qualify until the Effective Time of the Reorganization. (l) NO APPROVALS REQUIRED. Except for the Registration Statement (as defined in Section 4(a) hereof) and the approval of the Transferor Portfolio's shareholders referred to in Section 6(a) hereof, no consents, approvals, authorizations, registrations or exemptions under federal or state laws are necessary for the consummation by the Transferor Trust of the Reorganization, except such as have been obtained as of the date hereof. 4. COVENANTS OF THE ACQUIRING TRUST The Acquiring Trust covenants to the following: (a) REGISTRATION STATEMENT. On behalf of the Acquiring Portfolio, the Acquiring Trust shall file with the Commission a Registration Statement on Form N-14 (the "Registration Statement") under the Securities Act relating to the Acquiring Portfolio Shares issuable hereunder and the proxy statement of the Transferor Portfolio relating to the meeting of the Transferor Portfolio's shareholders referred to in Section 5(a) herein. At the time the Registration Statement becomes effective, the Registration Statement (i) will comply in all material respects with the provisions of the Securities Act and the rules and regulations of the Commission thereunder (the "Regulations") and (ii) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at the time the Registration Statement becomes effective, at the time of the Transferor Portfolio shareholders' meeting referred to in Section 5(a) hereof, and at the Effective Time of the Reorganization, the prospectus/proxy statement (the "Prospectus") and statement of additional information (the "Statement of Additional Information") included therein, as amended or supplemented by any amendments or supplements filed by the Trust, will not contain an untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (b) COOPERATION IN EFFECTING REORGANIZATION. The Acquiring Trust agrees to use all reasonable efforts to effectuate the Reorganization, to continue in operation thereafter, and to obtain any necessary regulatory approvals for the Reorganization. The Acquiring Trust shall furnish such data and information relating to the Acquiring Trust as shall be reasonably requested for inclusion in the information to be furnished to the Transferor Portfolio shareholders in connection with the meeting of the Transferor Portfolio's shareholders for the purpose of acting upon this Plan and the transactions contemplated herein. (c) OPERATIONS IN THE ORDINARY COURSE. Except as otherwise contemplated by this Plan, the Acquiring Trust shall conduct the business of the Acquiring Portfolio in the ordinary course until the consummation of the Reorganization, it being understood that such ordinary course of business will include the declaration and payment of customary dividends and distributions. A-8 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 on behalf of the Transferor Portfolio. At least five (5) business days prior to the Exchange Date, the Transferor Portfolio will provide the Acquiring Trust, for the benefit of the Acquiring Portfolio, with a list of its assets and a list of its stated liabilities. The Transferor Portfolio shall have the right to sell any of the securities or other assets shown on the list of assets prior to the Exchange Date but will not, without the prior approval of the Acquiring Trust, on behalf of the Acquiring Portfolio, acquire any additional securities other than securities which the Acquiring Portfolio is permitted to purchase, pursuant to its investment objective and policies or otherwise (taking into consideration its own portfolio composition as of such date). In the event that the Transferor Portfolio holds any investments that the Acquiring Portfolio would not be permitted to hold, the Transferor Portfolio will dispose of such securities prior to the Exchange Date to the extent practicable, to the extent permitted by its investment objective and policies and to the extent that its shareholders would not be materially affected in an adverse manner by such a disposition. In addition, the Transferor Trust will prepare and deliver immediately prior to the Effective Time of the Reorganization, a Statement of Assets and Liabilities of the Transferor Portfolio, prepared in accordance with GAAP (each, a "Schedule"). All securities to be listed in the Schedule for the Transferor Portfolio as of the Effective Time of the Reorganization will be owned by the Transferor Portfolio free and clear of any liens, claims, charges, options and encumbrances, except as indicated in such Schedule, and, except as so indicated, none of such securities is or, after the Reorganization as contemplated hereby, will be subject to any restrictions, legal or contractual, on the disposition thereof (including restrictions as to the public offering or sale thereof under the Securities Act) and, except as so indicated, all such securities are or will be readily marketable. (c) REGISTRATION STATEMENT. In connection with the preparation of the Registration Statement, the Transferor Trust will cooperate with the Acquiring Trust and will furnish to the Acquiring Trust the information relating to the Transferor Portfolio required by the Securities Act and the Regulations to be set forth in the Registration Statement (including the Prospectus and Statement of Additional Information). At the time the Registration Statement becomes effective, the Registration Statement, insofar as it relates to the Transferor Portfolio, (i) will comply in all material respects with the provisions of the Securities Act and the Regulations and (ii) will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading; and at the time the Registration Statement becomes effective, at the time of the Transferor Portfolio's shareholders' meeting referred to in Section 5(a) and at the Effective Time of the A-9 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 adverse change (as described in Section 2(i)) in the financial condition, results of operations, business, properties or assets of the Acquiring Portfolio since October 31, 2000. (c) REGULATORY APPROVAL. The Registration Statement shall have been declared effective by the Commission and no stop orders under the Securities Act pertaining thereto shall have been issued, and all other approvals, registrations, and exemptions under federal and state A-10 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 Institutional European Equity Fund, a series of J.P. Morgan Institutional Funds, into the Acquiring Portfolio shall have been consummated. 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE ACQUIRING TRUST The obligations of the Acquiring Trust with respect to the consummation of the Reorganization are subject to the satisfaction of the following conditions: (a) APPROVAL BY THE TRANSFEROR PORTFOLIO'S SHAREHOLDERS. The Transferor Shareholder Approval shall have been obtained. (b) COVENANTS, WARRANTIES AND REPRESENTATIONS. The Transferor Trust shall have complied with each of its covenants contained herein, each of the representations and warranties contained herein shall be true in all material respects as of the Effective Time of the A-11 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 Fleming Asset Management (USA) Inc. ("JPMFAM"), in its capacity as investment adviser to the Acquiring Portfolio, as consistent with the investment policies of the Acquiring Portfolio. (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 deductions 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 Institutional European Equity Fund, a series of J.P. Morgan Institutional Funds, into the Acquiring Portfolio shall have been consummated. 8. AMENDMENTS; TERMINATIONS; NO SURVIVAL OF COVENANTS, WARRANTIES AND REPRESENTATIONS (a) AMENDMENTS. The parties hereto may, by agreement in writing authorized by their respective Boards of Trustees amend this Plan at any time before or after approval hereof by the shareholders of the Transferor Portfolio, but after such approval, no amendment shall be made which substantially changes the terms hereof. (b) WAIVERS. At any time prior to the Effective Time of the Reorganization, either the Transferor Trust or the Acquiring Trust may by written instrument signed by it (i) waive any inaccuracies in the representations and warranties made to it contained herein and (ii) waive compliance with any of the covenants or conditions made for its benefit contained herein, except that conditions set forth in Sections 6(c) and 7(d) may not be waived. (c) TERMINATION BY THE TRANSFEROR TRUST. The Transferor Trust, on behalf of the Transferor Portfolio, may terminate this Plan with respect to the Transferor Portfolio at any time prior to the Effective Time of the Reorganization by notice to the Acquiring Trust and JPMFAM if (i) a material condition to the performance of the Transferor Trust hereunder or a material covenant of the Acquiring Trust contained herein shall not be fulfilled on or before the date specified for the fulfillment thereof or (ii) a material default or material breach of this Plan shall be made by the Acquiring Trust. In addition, this Plan may be terminated by the Transferor Trust at any time prior to the Effective Time of the Reorganization, whether before or after A-12 approval of this Plan by the shareholders of the Transferor Portfolio, without liability on the part of any party hereto, its Trustees, officers or shareholders or J.P. Morgan Investment Management Inc. ("JPMIM") on notice to the other parties in the event that the Board of Trustees determines that proceeding with this Plan is not in the best interests of the shareholders of the Transferor Portfolio. (d) TERMINATION BY THE ACQUIRING TRUST. The Acquiring Trust, on behalf of the Acquiring Portfolio, may terminate this Plan with respect to the Acquiring Portfolio at any time prior to the Effective Time of the Reorganization by notice to the Transferor Trust and JPMIM if (i) a material condition to the performance of the Acquiring Trust hereunder or a material covenant of 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 for a period of three years after the Exchange Date. 10. NOTICES Any notice, report, statement or demand required or permitted by any provision of this Plan shall be in writing and shall be given by hand, certified mail or by facsimile transmission, shall be deemed given when received and shall be addressed to the parties hereto at their respective addresses listed below or to such other persons or addresses as the relevant party shall designate as to itself from time to time in writing delivered in like manner: if to the Acquiring Trust (for itself or on behalf of the Acquiring Portfolio): A-13 1211 Avenue of the Americas, 41st Floor New York, New York 10036 with a copy to: Simpson Thacher & Bartlett 425 Lexington Avenue New York, New York 10017 Attention: Sarah E. Cogan, Esq. if to the Transferor Trust (for itself or on behalf of the Transferor Portfolio): 60 State Street Suite 1300 Boston, Massachusetts 02109 with a copy to: Sullivan & Cromwell 125 Broad Street New York, New York 10004 Attention: John E. Baumgardner, Jr., Esq. 11. RELIANCE All covenants and agreements made under this Plan shall be deemed to have been material and relied upon by the Transferor Trust and the Acquiring Trust notwithstanding any investigation made by such party or on its behalf. 12. HEADINGS; COUNTERPARTS; GOVERNING LAW; ASSIGNMENT (a) The section and paragraph headings contained in this Plan are for reference purposes only and shall not affect in any way the meaning or interpretation of this Plan. (b) This Plan may be executed in any number of counterparts, each of which shall be deemed an original. (c) This Plan shall be governed by and construed in accordance with the laws of The State of New York. (d) This Plan shall bind and inure to the benefit of the Transferor Trust, the Transferor Portfolio, the Acquiring Trust and the Acquiring Portfolio and their respective successors and assigns, but no assignment or transfer hereof or of any rights or obligations hereunder shall be made by any party without the written consent of the other parties. Nothing herein expressed or implied is intended or shall be construed to confer upon or give any person, firm or corporation, other than the parties hereto and their respective successors and assigns, any rights or remedies under or by reason of this Plan. A-14 (e) The name "J.P. Morgan Funds" is the designation of its Trustees under a Declaration of Trust dated November 4, 1992, as amended, and all persons dealing with the Transferor Trust must look solely to the Transferor Trust's property for the enforcement of any claims against the Transferor Trust, as none of the Transferor Trustees, officers, agents or shareholders assumes any personal liability for obligations entered into on behalf of the Transferor Trust. No series of the Transferor Trust shall be liable for claims against any other series of the Transferor Trust. (f) The name "Mutual Fund Group" is the designation of its Trustees under a Declaration of Trust dated May 11, 1987, 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 FUNDS on behalf of J.P. Morgan European Equity Fund By: -------------------------------------------------- Name: Title: MUTUAL FUND GROUP on behalf of JPMorgan Fleming European Fund By: -------------------------------------------------- Name: Title: Agreed and acknowledged with respect to Section 9: J.P. MORGAN CHASE & CO. By: -------------------------------------------------- Name: Title: A-16 STATEMENT OF ADDITIONAL INFORMATION (SPECIAL MEETING OF SHAREHOLDERS OF J.P. MORGAN EUROPEAN EQUITY FUND, A SERIES OF J.P. MORGAN FUNDS) This Statement of Additional Information is not a prospectus but should be read in conjunction with the Combined Prospectus/Proxy Statement dated May 12, 2001 for the Special Meeting of Shareholders of J.P. Morgan European Equity Fund (the "Merging Fund"), a series of J.P. Morgan Funds ("JPMF"), to be held on July 3, 2001. Copies of the Combined Prospectus/Proxy Statement may be obtained at no charge by calling the Merging Fund at 1-800-766-7722. Unless otherwise indicated, capitalized terms used herein and not otherwise defined have the same meanings as are given to them in the Combined Prospectus/Proxy Statement. Further information about the Surviving Fund and the Merging Fund is contained in each of MFG's and JPMF's Statements of Additional Information, which are incorporated herein by reference. The date of this Statement of Additional Information is May 12, 2001. GENERAL INFORMATION The Shareholders of the Merging Fund are being asked to consider and vote on two proposals. With respect to an Agreement and Plan of Reorganization (the "Reorganization Plan") dated as of __________, 2001 by and among JPMF, on behalf of the Merging Fund, MFG, on behalf of the Surviving Fund and J.P. Morgan Chase & Co., 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 MFG 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 Select Class shares of the Surviving Fund of equal value, plus the right to receive any unpaid dividends and distributions that were declared before the Effective Time of the Reorganization. At the Meeting, shareholders will also be asked to consider and vote upon the election of Trustees. A Special Meeting of Shareholders of the Merging Fund to consider the proposals and the related transaction will be held at the offices of J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st Floor, New York, NY, on July 3, 2001 at 9:00 a.m., Eastern time. For further information about the transaction, see the Combined Prospectus/Proxy Statement. -2- FINANCIAL STATEMENTS The audited financial highlights, financial statements and notes thereto of the Surviving Fund contained in its Annual Report dated October 31, 2000 and of the Merging Fund contained in its Annual Report dated November 30, 2000, and the audited financial statements, notes thereto and supplementary data of the Master Portfolio contained in its Annual Report dated October 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 Surviving Fund and the Master Portfolio for the fiscal year ended October 31, 2000 and the Merging Fund for the fiscal year ended November 30, 2000 have been incorporated herein by reference in reliance on the report of PricewaterhouseCoopers LLP, independent accountants, given on their authority as experts in auditing and accounting. -3- PRO FORMA FINANCIAL STATEMENTS THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PROFORMA COMBINING SCHEDULUE OF PORTFOLIO INVESTMENTS (UNAUDITED) OCTOBER 31, 2000 (AMOUNTS IN THOUSANDS)
SHARES --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- LONG-TERM INVESTMENTS - 98.4% COMMON STOCKS - 96.6% BELGIUM - 1.8% AGFA-Gevaert NV 33,100 33,100 Barco NV 8,216 8,216 Ubizen (*) 24,420 24,420 DENMARK - 3.5% GN Store Nord A/S (GN Great Nordic) 42,102 42,102 ISS A/S 801 801 NKT Holding A/S 4,409 4,409 Novo-Nordisk A/S 4,250 597 4,847 Vestas Wind Systems AS 23,325 23,325 FINLAND - 2.9% Amer Group LTD 37,851 37,851 Nokia OYJ 24,871 15,386 40,257 Sampo Insurance Co., LTD 21,000 21,000 Stora Enso Oyj 8,724 8,724 FRANCE - 13.1% Alcatel SA 37,800 6,822 44,622 Aventis SA 11,981 1,585 13,566 AXA-UAP 1,775 1,775 BNP Paribas 2,106 2,106 Carrefour 2,082 2,082 Christian Dior SA 1,080 1,080 CNP Assurances 29,981 29,981 Coflexip Stena Offshore 800 800 Compagnie Francaise d'Etudes et de Construction SA 6,870 6,870 Credit Lyonnais SA 29,290 29,290 Fimatex 2,391 2,391 Groupe Danone 1,714 1,714 Lagardere S.C.A. 1,620 1,620 Lafarge 1,141 1,141 Ilog SA (*) 7,201 7,201 L.V.M.H. (Louis Vuitton Moet Hennessy) 1,210 1,210 PSA Peugeot Citroen 2,686 2,686 Remy Cointreau 26,400 26,400 Renault SA 1,110 1,110 Sanofi-Synthelabo SA 18,592 18,592 Societe Generale 14,843 14,843 Suez Lyonnaise DES Eaux 835 835 MARKET VALUE --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- LONG-TERM INVESTMENTS - 98.4% COMMON STOCKS - 96.6% BELGIUM - 1.8% AGFA-Gevaert NV $ 685 $ 685 Barco NV 921 921 Ubizen (*) 517 517 ------------------------------------------------- 2,123 - 2,123 ------------------------------------------------- DENMARK - 3.5% GN Store Nord A/S (GN Great Nordic) 815 815 ISS A/S $ 49 49 NKT Holding A/S 1,042 1,042 Novo-Nordisk A/S 900 126 1,027 Vestas Wind Systems AS 1,262 1,262 ------------------------------------------------- 4,019 176 4,195 ------------------------------------------------- FINLAND - 2.9% Amer Group LTD 841 841 Nokia OYJ 1,022 632 1,655 Sampo Insurance Co., LTD 854 854 Stora Enso Oyj 89 89 ------------------------------------------------- 2,717 722 3,439 ------------------------------------------------- FRANCE - 13.1% Alcatel SA 2,304 416 2,719 Aventis SA 863 114 977 AXA-UAP 235 235 BNP Paribas 181 181 Carrefour 140 140 Christian Dior SA 55 55 CNP Assurances 930 930 Coflexip Stena Offshore 93 93 Compagnie Francaise d'Etudes et de Construction SA 878 878 Credit Lyonnais SA 1,001 1,001 Fimatex 26 26 Groupe Danone 239 239 Lagardere S.C.A. 92 92 Lafarge 84 84 Ilog SA (*) 231 231 L.V.M.H. (Louis Vuitton Moet Hennessy) 88 88 PSA Peugeot Citroen 494 494 Remy Cointreau 882 882 Renault SA 55 55 Sanofi-Synthelabo SA 977 977 Societe Generale 842 842 Suez Lyonnaise DES Eaux 127 127
See notes to financial statements. -4- PRO FORMA FINANCIAL STATEMENTS THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PROFORMA COMBINING SCHEDULUE OF PORTFOLIO INVESTMENTS (UNAUDITED) OCTOBER 31, 2000 (AMOUNTS IN THOUSANDS)
SHARES --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- Total Fina SA, Class B 19,274 3,107 22,381 Vinci 1,380 1,380 Vivendi SA 5,278 5,278 Wavecom SA (*) 7,263 7,263 GERMANY - 6.3% Allevard 797 797 Altana AG 12,339 12,339 Basf Ag 3,252 3,252 Bayer AG 4,092 4,092 Commerzbank AG 33,800 33,800 Consors Discount Broker -AG 700 700 Deutsche Telekom 7,016 7,016 Deutsche Bank AG 4,169 4,169 Dresdner Bank AG 1,613 1,613 E.ON AG 4,796 4,796 FJA AG 4,825 4,825 Heidelberger Druckmaschinen 1,000 1,000 Intershop Communications Ag 680 680 Kontron Embedded Computers (*) 2,006 2,006 MG Technologies AG 4,600 4,600 Muenchener Rueckversicher 206 206 SAP AG 1,063 1,063 Schering AG 2,099 2,099 Siemens AG 5,439 1,979 7,418 Volkswagen AG 20,206 1,170 21,376 Wella AG 16,202 16,202 IRELAND - 2.1% CRH Plc 3,665 3,665 Fyffes Plc 1,000 1,000 Green Property PLC 73,443 73,443 IONA Technologies PLC (*) 14,813 14,813 Irish Life & Permanent Plc 10,808 10,808 Kerry Group PLC 70,930 70,930 Smurfit (Jefferson) Group Plc 40,992 40,992 Trintech Group PLC ADR 2,202 2,202 ITALY - 7.2% Autogrill SPA 82,193 82,193 Banca Fideuram SPA 88,848 5,400 94,248 Banca Popolare Di Milano 6,350 6,350 Banca Popolare di Verona 68,915 68,915 Benetton Group SPA 482,408 482,408 Bipop-Carire SpA 9,000 9,000 Bulgari SPA 75,522 75,522 MARKET VALUE --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- Total Fina SA, Class B 2,755 444 3,199 Vinci 69 69 Vivendi SA 379 379 Wavecom SA (*) 614 614 ------------------------------------------------- 12,771 2,837 15,608 ------------------------------------------------- GERMANY - 6.3% Allevard 270 270 Altana AG 1,496 1,496 Basf Ag 127 127 Bayer AG 177 177 Commerzbank AG 953 953 Consors Discount Broker -AG 56 56 Deutsche Telekom 263 263 Deutsche Bank AG 341 341 Dresdner Bank AG 67 67 E.ON AG 243 243 FJA AG 178 178 Heidelberger Druckmaschinen 53 53 Intershop Communications Ag 30 30 Kontron Embedded Computers (*) 216 216 MG Technologies AG 49 49 Muenchener Rueckversicher 65 65 SAP AG 175 175 Schering AG 117 117 Siemens AG 692 252 943 Volkswagen AG 1,009 58 1,067 Wella AG 607 607 ------------------------------------------------- 5,149 2,345 7,494 ------------------------------------------------- IRELAND - 2.1% CRH Plc 56 56 Fyffes Plc 1 1 Green Property PLC 437 437 IONA Technologies PLC (*) 974 974 Irish Life & Permanent Plc 108 108 Kerry Group PLC 884 884 Smurfit (Jefferson) Group Plc 73 73 Trintech Group PLC ADR 24 24 ------------------------------------------------- 2,296 261 2,557 ------------------------------------------------- ITALY - 7.2% Autogrill SPA 906 906 Banca Fideuram SPA 1,365 83 1,448 Banca Popolare Di Milano 40 40 Banca Popolare di Verona 760 760 Benetton Group SPA 875 875 Bipop-Carire SpA 71 71 Bulgari SPA 888 888
See notes to financial statements. -5- PRO FORMA FINANCIAL STATEMENTS THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PROFORMA COMBINING SCHEDULUE OF PORTFOLIO INVESTMENTS (UNAUDITED) OCTOBER 31, 2000 (AMOUNTS IN THOUSANDS)
SHARES --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- ENI-Ente Nazionale Idrocarburi SPA 144,723 35,009 179,732 Fiat SpA 3,000 3,000 Saipem S.p.A. 13,700 13,700 San Paolo - IMI S.p.A. 4,900 4,900 Telecom Italia Mobile SPA 101,000 21,530 122,530 Telecom Italia SpA 12,659 12,659 Unicredito Italiano SPA 195,305 36,760 232,065 NETHERLAND - 7.4% Akzo Nobel NV 21,674 ASM Lithography Holding NV 1,572 1,572 Buhrmann NV 41,190 1,736 42,926 CSM NV 42,940 42,940 Heineken NV 1,172 1,172 ING Groep NV 14,152 4,206 18,358 Koninklijke KPN NV 4,603 4,603 Koninklijke Philips Electronics NV 10,682 10,682 Numico NV 18,352 2,109 20,461 Nutreco Holding NV (*) 20,675 20,675 Randstad Holding N.V. 1,300 1,300 Royal Dutch Petroleum Co. 24,385 5,119 29,504 United Pan Europe Communication Inc 6,071 6,071 VersaTel Telecom International NV (*) 1,446 1,446 VNU NV 1,616 1,616 NORWAY - 2.1% InFocus Corp. (*) 18,554 18,554 Norsk Hydro ASA 21,605 21,605 Tandberg ASA (*) 30,005 30,005 PORTUGAL - 2.0% Banco Espirito Santo SA 43,969 43,969 Brisa-Auto Estradas de Portugal SA 109,205 109,205 Novabase SGPS SA (*) 71,398 71,398 SPAIN - 3.6% Amadeus Global Travel Distribution 4,200 4,200 Banco Bilboa Vizcaya Argentaria, S.A. 7,322 7,322 Banco Santander Central Hisp 13,178 13,178 Endesa S.A. 12,698 12,698 Grupo Dragados SA 160,861 160,861 MARKET VALUE --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- ENI-Ente Nazionale Idrocarburi SPA 783 189 972 Fiat SpA 70 70 Saipem S.p.A. 71 71 San Paolo - IMI S.p.A. 79 79 Telecom Italia Mobile SPA 858 183 1,041 Telecom Italia SpA 146 146 Unicredito Italiano SPA 993 187 1,180 ------------------------------------------------- 7,428 1,120 8,548 ------------------------------------------------- NETHERLAND - 7.4% Akzo Nobel NV 986 986 ASM Lithography Holding NV 43 43 Buhrmann NV 1,124 47 1,172 CSM NV 979 979 Heineken NV 64 64 ING Groep NV 971 288 1,259 Koninklijke KPN NV 93 93 Koninklijke Philips Electronics NV 419 419 Numico NV 857 98 956 Nutreco Holding NV (*) 890 890 Randstad Holding N.V. 29 29 Royal Dutch Petroleum Co. 1,445 303 1,748 United Pan Europe Communication Inc 106 106 VersaTel Telecom International NV (*) 28 28 VNU NV 76 76 ------------------------------------------------- 7,280 1,568 8,847 ------------------------------------------------- NORWAY - 2.1% InFocus Corp. (*) 798 798 Norsk Hydro ASA 857 857 Tandberg ASA (*) 794 794 ------------------------------------------------- 2,449 - 2,449 ------------------------------------------------- PORTUGAL - 2.0% Banco Espirito Santo SA 667 667.13 Brisa-Auto Estradas de Portugal SA 843 843.29 Novabase SGPS SA (*) 847 846.68 ------------------------------------------------- 2,357 - 2,357 ------------------------------------------------- SPAIN - 3.6% Amadeus Global Travel Distribution 34 34 Banco Bilboa Vizcaya Argentaria, S.A. 97 97 Banco Santander Central Hisp - 128 128 Endesa S.A. 207 207 Grupo Dragados SA 1,561 1,561
See notes to financial statements. -6- PRO FORMA FINANCIAL STATEMENTS THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PROFORMA COMBINING SCHEDULUE OF PORTFOLIO INVESTMENTS (UNAUDITED) OCTOBER 31, 2000 (AMOUNTS IN THOUSANDS)
SHARES --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- NH Hoteles SA 75,065 75,065 Telefonica SA 47,931 24,296 72,227 Union Electrica Fenosa Sa 4,266 4,266 SWEDEN - 3.4% Autoliv, Inc. SDR 6,566 6,566 Ericsson LM Cl B 10,428 10,428 Micronic Laser Systems AB (*) 34,140 34,140 Nordic Baltic Holding AB 96,887 96,887 Om Gruppen Ab 1,400 1,400 Skandia Forsakrings AB 8,961 8,961 Skandinaviska ENSKILDA-A 5,049 5,049 Skandinaviska Enskilda Banken, Class C 82,610 82,610 Svenska Handelsbanken, Class A 60,434 60,434 SWITZERLAND - 8.8% Abb LTD. 669 669 Baloise Holdings 940 940 Compagnie Financiere Richemont, Class A (*) 329 59 388 Cs Holding - Registered 839 839 Julius Baer Holding AG 201 201 Kudelski SA (*) 842 842 Nestle SA 946 258 1,204 Novartis AG 624 286 910 Roche Holding AG 35 35 SGS Societe Generale de Surveillance Holding SA 48 48 Sia Abrasives Holding AG (*) 1,974 1,974 Swatch Group AG 260 260 Swiss Re 498 498 Usb Ag Registered 1,834 1,834 Zurich Financial Services 568 568 UNITED KINGDOM - 32.5% 3I Group Plc 5,400 5,400 Aggreko PLC 134,226 134,226 Amvescap PLC 42,534 42,534 Anite Group PLC 243,254 243,254 ARM Holdings PLC (*) 92,776 9,000 101,776 Astrazeneca Plc N/C From Zeneca Group Pl 2,604 2,604 BAA PLC 116,392 116,392 Bae Systems Plc 14,544 14,544 Barclays PLC 107,452 107,452 BG Group plc 15,422 15,422 MARKET VALUE --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- NH Hoteles SA 846 846 Telefonica SA 913 463 1,376 Union Electrica Fenosa Sa 79 79 ------------------------------------------------- 3,320 1,007 4,328 ------------------------------------------------- SWEDEN - 3.4% Autoliv, Inc. SDR 144 144 Ericsson LM Cl B 138 138 Micronic Laser Systems AB (*) 1,015 1,015 Nordic Baltic Holding AB 725 725 Om Gruppen Ab 50 50 Skandia Forsakrings AB 152 152 Skandinaviska ENSKILDA-A 59 59 Skandinaviska Enskilda Banken, Class C 878 878 Svenska Handelsbanken, Class A 947 947 ------------------------------------------------- 3,566 543 4,108 ------------------------------------------------- SWITZERLAND - 8.8% Abb LTD. 59 59 Baloise Holdings 930 930 Compagnie Financiere Richemont, Class A (*) 915 164 1,079 Cs Holding - Registered 157 157 Julius Baer Holding AG 995 995 Kudelski SA (*) 1,133 1,133 Nestle SA 1,960 534 2,494 Novartis AG 946 434 1,380 Roche Holding AG 320 320 SGS Societe Generale de Surveillance Holding SA 59 59 Sia Abrasives Holding AG (*) 242 242 Swatch Group AG 71 71 Swiss Re 982 982 Usb Ag Registered 254 254 Zurich Financial Services 275 275 ------------------------------------------------- 8,102 2,327 10,429 ------------------------------------------------- UNITED KINGDOM - 32.5% 3I Group Plc 123 123 Aggreko PLC 719 719 Amvescap PLC 951 951 Anite Group PLC 636 636 ARM Holdings PLC (*) 916 89 1,005 Astrazeneca Plc N/C From Zeneca Group Pl 122 122 BAA PLC 968 968 Bae Systems Plc 83 83 Barclays PLC 3,077 3,077 BG Group plc 62 62
See notes to financial statements. -7- PRO FORMA FINANCIAL STATEMENTS THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PROFORMA COMBINING SCHEDULUE OF PORTFOLIO INVESTMENTS (UNAUDITED) OCTOBER 31, 2000 (AMOUNTS IN THOUSANDS)
SHARES --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- Billiton Plc 19,600 19,600 Bioglan Pharma PLC 27,036 27,036 BP Amoco PLC 356,611 80,603 437,214 British Airways Plc 4,000 4,000 British American Tobacco 7,415 7,415 British SKY Broadcasting Plc 8,589 8,589 British Telecommunications Plc 16,800 16,800 Bunzl PLC 175,242 175,242 Cable & Wireless Plc 16,788 16,788 Capita Group PLC 107,402 107,402 Celltech Group Plc 3,000 3,000 Centrica PLC 285,416 285,416 CMG Plc 2,400 2,400 Dixons Group PLC 1 12,981 12,982 Exel Plc 3,400 3,400 Fibernet Group PLC (*) 25,976 25,976 Firstgroup PLC 257,002 257,002 Fitness First PLC (*) 44,106 44,106 Glaxo Wellcome Plc 14,426 14,426 Granada Compass PLC. 9,628 9,628 Great Universal Stores Plc 9,200 9,200 Hanson Plc 13,400 13,400 Hays Plc 12,400 12,400 Hilton Group PLC. 13,000 13,000 HSBC Holdings PLC 143,577 22,157 165,734 Iceland Group PLC 212,048 212,048 Innogy Holdings Plc 8,790 8,790 Innovation Group PLC (*) 65,913 65,913 International Power Plc 8,790 8,790 Johnson Matthey PLC 61,706 3,430 65,136 Kingfisher Plc 6,600 6,600 Lattice Group Plc 15,422 15,422 Legal & General Group PLC 430,044 430,044 Lloyds Tsb Group Plc 25,508 25,508 Marconi Electronic Systems PLC 77,095 10,930 88,025 MFI Furniture Group plc 27,470 27,470 Morrison (WM.) Supermarkets 360,491 360,491 Morse Holdings PLC 107,084 107,084 NDS Group PLC (*) 8,181 8,181 Northern Rock PLC 150,554 150,554 Nycomed Amersham Plc 13,004 13,004 Pearson Plc 3,309 3,309 Pilkington PLC 582,601 582,601 Psion PLC 131,741 131,741 Reckitt Benckiser Plc 17,223 17,223 Reuters Group Plc 5,884 5,884 Royal & Sun Alliance Grp 30,127 30,127 Royal Bank Of Scotland 7,617 7,617 Royal Bank of Scotland Group Plc 1,000 1,000 ScottishPower plc 11,300 11,300 MARKET VALUE --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- Billiton Plc 75 75 Bioglan Pharma PLC 255 255 BP Amoco PLC 3,027 684 3,711 British Airways Plc 18 18 British American Tobacco 52 52 British SKY Broadcasting Plc 124 124 British Telecommunications Plc 197 197 Bunzl PLC 1,003 1,003 Cable & Wireless Plc 238 238 Capita Group PLC 819 819 Celltech Group Plc 60 60 Centrica PLC 982 982 CMG Plc 40 40 Dixons Group PLC 1 39 40 Exel Plc 58 58 Fibernet Group PLC (*) 603 603 Firstgroup PLC 870 870 Fitness First PLC (*) 727 727 Glaxo Wellcome Plc 416 416 Granada Compass PLC. 83 83 Great Universal Stores Plc 64 64 Hanson Plc 71 71 Hays Plc 68 68 Hilton Group PLC. 36 36 HSBC Holdings PLC 2,047 316 2,363 Iceland Group PLC 1,008 1,008 Innogy Holdings Plc 26 26 Innovation Group PLC (*) 995 995 International Power Plc 35 35 Johnson Matthey PLC 963 54 1,017 Kingfisher Plc 39 39 Lattice Group Plc 33 33 Legal & General Group PLC 1,071 1,071 Lloyds Tsb Group Plc 260 260 Marconi Electronic Systems PLC 974 138 1,112 MFI Furniture Group plc 22 22 Morrison (WM.) Supermarkets 937 937 Morse Holdings PLC 902 902 NDS Group PLC (*) 614 614 Northern Rock PLC 940 940 Nycomed Amersham Plc 117 117 Pearson Plc 89 89 Pilkington PLC 831 831 Psion PLC 798 798 Reckitt Benckiser Plc 227 227 Reuters Group Plc 115 115 Royal & Sun Alliance Grp 215 215 Royal Bank Of Scotland 171 171 Royal Bank of Scotland Group Plc 1 1 ScottishPower plc 85 85
See notes to financial statements. -8- PRO FORMA FINANCIAL STATEMENTS THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PROFORMA COMBINING SCHEDULUE OF PORTFOLIO INVESTMENTS (UNAUDITED) OCTOBER 31, 2000 (AMOUNTS IN THOUSANDS)
SHARES --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- Severn Trent Plc 2,975 2,975 Shell Transport & Trading Co., PLC 74,431 74,431 SmithKline Beecham PLC 180,355 20,606 200,961 Spirent PLC 133,451 133,451 Standard Chartered 5,800 5,800 Tesco Plc 41,406 41,406 Trinity Mirror Plc 3,000 3,000 Viridian Group PLC 49,025 49,025 Vodafone Airtouch Plc 235,052 235,052 WPP Group Plc 5,400 5,400 TOTAL COMMON STOCK (Cost Chase $113,781) PREFERRED STOCK - 1.8% GERMANY Hugo Boss AG 4,008 4,008 Marschollek Lautenschlaeger und Partner AG 7,018 1,284 8,302 TOTAL PREFERRED STOCK (Cost $1,854) WARRANT - 0.0% GERMANY Muenchener Rueckversicherungs- Gesellschaft AG, Expires 06/03/02 71 71 (Cost $0) CONVERTIBLE BOND - 0.0% GERMANY DaimlerChrysler AG, 5.57%, 06/15/02 6,240 6,240 (Cost $4) TOTAL LONG-TERM INVESTMENTS (Cost $118,161) PRINCIPAL SHORT-TERM INVESTMENTS - 0.9% AMOUNT --------- U.S. TREASURY SECURITIES - 0.0% U.S. Treasury Bills, 5.77%, 3/22/01 20,000 20,000 MARKET VALUE --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- Severn Trent Plc 32 32 Shell Transport & Trading Co., PLC 599 599 SmithKline Beecham PLC 2,331 266 2,597 Spirent PLC 1,238 1,238 Standard Chartered 84 84 Tesco Plc 158 158 Trinity Mirror Plc 20 20 Viridian Group PLC 534 534 Vodafone Airtouch Plc 979 979 WPP Group Plc 73 73 ------------------------------------------------- 32,338 6,351 38,689 ------------------------------------------------- TOTAL COMMON STOCK (Cost Chase $113,781) 95,915 19,256 115,170 ------------------------------------------------- PREFERRED STOCK - 1.8% GERMANY Hugo Boss AG 1,012 1,012 Marschollek Lautenschlaeger und Partner AG 946 174 1,119 ------------------------------------------------- TOTAL PREFERRED STOCK (Cost $1,854) 1,958 174 2,132 ------------------------------------------------- WARRANT - 0.0% GERMANY Muenchener Rueckversicherungs- Gesellschaft AG, Expires 06/03/02 6 6 (Cost $0) CONVERTIBLE BOND - 0.0% GERMANY DaimlerChrysler AG, 5.57%, 06/15/02 2 2 (Cost $4) ------------------------------------------------- TOTAL LONG-TERM INVESTMENTS 97,881 19,429 117,311 (Cost $118,161) ------------------------------------------------- MARKET SHORT-TERM INVESTMENTS - 0.9% VALUE ------- U.S. TREASURY SECURITIES - 0.0% U.S. Treasury Bills, 5.77%, 3/22/01 20 20
See notes to financial statements. -9- PRO FORMA FINANCIAL STATEMENTS THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PROFORMA COMBINING SCHEDULUE OF PORTFOLIO INVESTMENTS (UNAUDITED) OCTOBER 31, 2000 (AMOUNTS IN THOUSANDS)
SHARES --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- INVESTMENT COMPANIES - 0.9% Hamilton Money Fund Premier 1,107,967 1,107,967 TOTAL SHORT-TERM INVESTMENTS (Cost $1,127) TOTAL INVESTMENTS 99.4% (Cost $116,766) MARKET VALUE --------------------------------------------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING THE EUROPEAN FLEMING EUROPEAN EQUITY PRO FORMA EUROPEAN FUND (1) PORTFOLIO ADJUSTMENTS FUND ----------- ----------- ----------- ---------- INVESTMENT COMPANIES - 0.9% Hamilton Money Fund Premier 1,107 1,107 ------------------------------------------------- TOTAL SHORT-TERM INVESTMENTS - 1,126 1,126 (Cost $1,127) ------------------------------------------------- TOTAL INVESTMENTS 99.4% $ 97,881 $ 20,556 $ 118,437 (Cost $116,766) =================================================
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - ------------------------------------------------------ -------------------------------------------- PRO FORMA COMBINED THE EUROPEAN EQUITY PORTFOLIO JPMORGAN FLEMING EUROPEAN FUND ------------------------------------------------------ -------------------------------------------- CONTRACTUAL VALUE AT UNREALIZED CONTRACTS TO SELL SETTLEMENT DATE VALUE 10/31/00 APPRECIATION 1,056,578 CHF 11/24/2000 $ 605 $ 589 $ 16 873,324 CHF 11/25/2000 515 487 28 ------------------------------------------- 1,120 1,076 44 ------------------------------------------- 9,202,312 EUR 11/24/2000 7,989 7,809 180 2,753,000 EUR 11/25/2000 2,518 2,336 182 ------------------------------------------- 10,507 10,145 362 ------------------------------------------- 2,902,925 GBP 11/24/2000 4,111 4,115 (5) 701,000 GBP 11/25/2000 1,151 1,120 31 ------------------------------------------- 5,262 5,236 26 ------------------------------------------- 1,852,351 SEK 11/24/2000 191 185 6 1,497,465 SEK 11/25/2000 163 150 13 ------------------------------------------- 354 335 19 ------------------------------------------- 13,473,562 USD 11/24/2000 13,474 13,474 - 5,079,584 USD 11/25/2000 5,080 5,080 - ------------------------------------------- 18,553 18,553 - ------------------------------------------- $ 35,796 $ 35,345 $ 451 =========================================== ------------------------------------------------------ -------------------------------------------- PRO FORMA COMBINED THE EUROPEAN EQUITY PORTFOLIO JPMORGAN FLEMING EUROPEAN FUND ------------------------------------------------------ -------------------------------------------- CONTRACTUAL VALUE AT UNREALIZED CONTRACTS TO BUY SETTLEMENT DATE VALUE 10/31/00 DEPRECIATION 875,745 CHF 11/24/2000 $ 500 $ 488 $ (11) 9,395,000 EUR 11/24/2000 8,146 7,972 (174) 4,220,051 EUR 11/25/2000 3,871 3,581 (290) ------------------------------------------- 12,017 11,554 (463) ------------------------------------------- 2,946,000 GBP 11/24/2000 4,276 4,280 3 752,690 GBP 11/25/2000 1,122 1,093 (29) ------------------------------------------- 5,399 5,373 (26) ------------------------------------------- 765,027 NOK 11/25/2000 86 82 (4)
See notes to financial statements. -10- PRO FORMA FINANCIAL STATEMENTS THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PROFORMA COMBINING SCHEDULUE OF PORTFOLIO INVESTMENTS (UNAUDITED) OCTOBER 31, 2000 (AMOUNTS IN THOUSANDS)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS - ------------------------------------------------------ -------------------------------------------- PRO FORMA COMBINED THE EUROPEAN EQUITY PORTFOLIO JPMORGAN FLEMING EUROPEAN FUND ------------------------------------------------------ -------------------------------------------- CONTRACTUAL VALUE AT UNREALIZED CONTRACTS TO BUY SETTLEMENT DATE VALUE 10/31/00 DEPRECIATION 6,567,631 SEK 11/24/2000 676 657 (20) 12,770,999 USD 11/24/2000 12,771 12,771 - 4,346,746 USD 11/25/2000 4,347 4,347 - -------------------------------------- 17,118 17,118 - -------------------------------------- -------------------------------------- $ 35,796 $ 35,272 $ (524) ======================================
UNDERLYING UNREALIZED PURCHASED EXPIRATION DATE FACE AMOUNT APPRECIATION FUTURES CONTRACTS - % AT VALUE (DEPRECIATION) 1 DJ Euro Stoxx 50 December 2000 664 13 1 FTSE 100 Index Fut December 2000 325 6
ADR - American Depository Receipt CHF - Swiss Franc EUR - Euro GBP - British Pound NOK - Norwegian Krone SEK - Swedish Krona (*) Non-income producing security (1) Formerly Chase Vista European Fund See notes to financial statements. -11- J.P. MORGAN EUROPEAN EQUITY FUND / J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND/ THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PRO FORM COMBINING STATEMENT OF ASSETS AND LIABILITIES AS OF OCTOBER 31, 2000 (UNAUDITED) (AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
J.P. MORGAN THE EUROPEAN J.P. MORGAN INSTITUTIONAL EQUITY EUROPEAN EUROPEAN PORTFOLIO EQUITY FUND EQUITY FUND ASSETS: Investments in the Portfolio $ 12,235 $ 8,301 - Investments at value $ 20,556 Cash 15 Currency at value 43 Other assets 66 92 19 Receivables: Investment securities sold Interest and dividends Forward exchange receivable 35,272 Fund Shares sold Accrued income receivable 14 Variation margin receivable 45 Reclaim receivable 28 Other receivables 5 --------------- --------------- ----------------- Total Assets 12,301 8,393 55,997 --------------- --------------- ----------------- LIABILITIES: Payables: Investment securities purchased Open forward foreign currency contracts 35,345 Fund shares redeemed Accrued liabilities: Investment advisory fees Administration fees - - Shareholder servicing fees 3 1 Distribution Fee Custodian fees Transfer agent fees 5 5 Variation margin payable 22 Other 37 33 94 --------------- --------------- ----------------- Total Liabilities 45 39 35,461 --------------- --------------- ----------------- NET ASSETS: Paid-in capital 11,267 8,075 Distributions in excess of net investment income (440) (976) Accumulated net realized gain 340 777 Net unrealized appreciation of investment 1,089 478 --------------- --------------- ----------------- Net Assets $ 12,256 $ 8,354 $ 20,536 =============== =============== ================= Shares of beneficial interest outstanding 784 573 - Shares outstanding Net Asset Value per share $ 15.62 $ 14.58 PRO FORMA WITH CONCURRENT REORGANIZATION JPMORGAN FLEMING EUROPEAN 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 $ 18,941 --------------- --------------- ----------------- PRO FORMA COMBINED JPMORGAN JPMORGAN FLEMING FLEMING EUROPEAN PRO FORMA EUROPEAN FUND (1) ADJUSTMENTS FUND ----------- ASSETS: Investments in the Portfolio (20,536)(a) $ - Investments at value $ 97,881 $ 118,437 Cash 5,442 5,457 Currency at value 43 Other assets 1 178 Receivables: Investment securities sold 2,366 2,366 Interest and dividends 162 162 Forward exchange receivable 2 35,274 Fund Shares sold 998 998 Accrued income receivable 14 Variation margin receivable 45 Reclaim receivable 28 Other receivables 5 ------------------ ---------------- ------------- Total Assets 106,852 (20,536) 163,007 ------------------ ---------------- ------------- LIABILITIES: Payables: Investment securities purchased 7,913 7,913 Open forward foreign currency contracts 3 35,348 Fund shares redeemed 96 96 Accrued liabilities: Investment advisory fees 73 73 Administration fees 12 12 Shareholder servicing fees 5 9 Distribution Fee 30 30 Custodian fees 35 35 Transfer agent fees 10 Variation margin payable 22 Other 110 274 ------------------ ---------------- ------------- Total Liabilities 8,277 - 43,822 ------------------ ---------------- ------------- NET ASSETS: Paid-in capital 90,683 110,025 Distributions in excess of net investment income (3) (1,419) Accumulated net realized gain 7,854 8,971 Net unrealized appreciation of investment 41 1,608 ------------------ ---------------- ------------- Net Assets $ 98,575 (20,536) 119,185 ================== ================ ============= Shares of beneficial interest outstanding - (1,357)(b) - Shares outstanding 5,554 (5,554)(d) - Class A Class B Class C Net Asset Value per share $ 17.87 $ 17.38 $ 17.37 PRO FORMA WITH CONCURRENT REORGANIZATION JPMORGAN FLEMING EUROPEAN FUND Shares outstanding Class A 4,243(c) 4,243 Class B 1,067(c) 1,067 Class C 243(c) 243 Select 686(c) 686 Institutional 468(c) 468 Net Asset Value per share Class A $ 17.87 Class B $ 17.38 Class C $ 17.37 Select $ 17.87 Institutional $ 17.87 ------------------ ---------------- ------------- Cost of investments $ 97,825 $116,766 ------------------ ---------------- -------------
(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. (c) Reflects the additional number of shares outstanding due to the Concurrent Reorganization. (d) Reallocation of shares outstanding to Class A, Class B, Class C, Select, and Institutional Shares due to the Concurrent Reorganization (1) Formerly Chase Vista European Fund. See Notes to Pro Forma Financial Statements. -12- J. P. MORGAN EUROPEAN EQUITY FUND / J. P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND / THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN FUND (1) PRO FORMA COMBINING STATEMENT OF OPERATIONS FOR THE TWELVE MONTHS ENDED OCTOBER 31, 2000 (UNAUDITED) (AMOUNTS IN THOUSANDS)
J.P. MORGAN JPMORGAN J.P. MORGAN INSTITUTIONAL THE EUROPEAN FLEMING EUROPEAN EUROPEAN EQUITY EUROPEAN EQUITY FUND EQUITY FUND PORTFOLIO FUND (1) -------------------------------------------------------------------------- INCOME: Allocated Investment Income From Portfolio $ 234 $ 187 $ - $ - Interest Income - - 51 161 Dividend income - - 431 958 Foreign Taxes Withheld (61) (50) Allocated Portfolio Expenses (138) (112) - - --------------------------------------------------------------------- Investment Income 96 75 421 1,069 --------------------------------------------------------------------- EXPENSES: Shareholder Servicing Fee 35 11 - 51 Registration Fees 16 15 - 39 Financial and Fund Accounting Services Fee 39 39 - - Administrative Services Fee 3 3 7 140 Transfer Agent Fees 26 16 - 220 Professional Fees 14 12 50 40 Printing Expenses 8 5 10 50 Trustees' Fees and Expenses 1 - - 5 Distribution Fee - - - 335 Other Expenses - - 1 2 Advisory Fee - - 161 934 Custodian Fees and Expenses - - 149 160 Amortization of Organizational Expenses - 2 1 - Miscellaneous 28 19 - - --------------------------------------------------------------------- Total Expenses 170 122 379 1,976 --------------------------------------------------------------------- Less: Amounts Waived Less: Reimbursement of Expenses 90 111 129 190 --------------------------------------------------------------------- Net Expenses 80 11 250 1,786 --------------------------------------------------------------------- Net Investment Gain (Loss) 16 64 171 (717) --------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: NET REALIZED GAIN (LOSS) ON Investments 293 307 433 7,988 Futures Transactions - - 265 - Foreign Exchange Transactions - - (98) 62 -------------------------------------------------------------------------- Net Realized Gain 293 307 600 8,050 NET CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON (237) (418) (655) (5,959) --------------------------------------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 72 $ (47) $ 116 $ 1,374 ===================================================================== PRO FORMA PRO FORMA ADJUSTMENTS COMBINED --------------------------------------------- INCOME: Allocated Investment Income From Portfolio $ (421)(c) $ - Interest Income - 212 Dividend income - 1,389 Foreign Taxes Withheld - (111) Allocated Portfolio Expenses 250(b) - ----------------------------------------- Investment Income (171) 1,490 ----------------------------------------- EXPENSES: Shareholder Servicing Fee - 97 Registration Fees - 70 Financial and Fund Accounting Services Fee (78)(e) - Administrative Services Fee 25 (a) 178 Transfer Agent Fees - 262 Professional Fees (52)(f) 64 Printing Expenses (17)(f) 56 Trustees' Fees and Expenses - 6 Distribution Fee - 335 Other Expenses - 3 Advisory Fee (324)(a) 771 Custodian Fees and Expenses (79)(f) 230 Amortization of Organizational Expenses (3) - Miscellaneous (1) 46 ----------------------------------------- Total Expenses (529) 2,118 ----------------------------------------- Less: Amounts Waived 529 (a) 529 Less: Reimbursement of Expenses 234 (a) 754 ----------------------------------------- Net Expenses 234 835 ----------------------------------------- Net Investment Gain (Loss) 63 655 ----------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: NET REALIZED GAIN (LOSS) ON Investments (600)(d) 8,421 Futures Transactions - 265 Foreign Exchange Transactions - (36) ----------------------------------------- Net Realized Gain (600) 8,650 NET CHANGE IN NET UNREALIZED APPRECIATION (DEPRECIATION) ON 655(d) (6,614) ----------------------------------------- NET INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS $ 118 $ 2,691 =========================================
(a) Reflects adjustments to investment advisory fee, administrative fees and shareholder servicing fees and/or related waivers, expense reimbursements based on the surviving Fund's revised fee schedule. (b) Reflects the elimination of master portfolio expenses which have been disclosed under feeder expenses. (c) Reallocation of investments income to feeder funds (d) Reallocation of realized and unrealized loss to feeder funds. (e) Reclassification of fund accounting into Custody charge. (f) Reduction reflects expected benefits of combined operations. (1) Formerly Chase Vista European Fund. See Notes to Pro Forma Financial Statements. -13- J. P. MORGAN EUROPEAN EQUITY FUND / J. P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND / THE EUROPEAN EQUITY PORTFOLIO / JPMORGAN FLEMING EUROPEAN 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 European Equity Portfolio ("Master Portfolio"), J.P. Morgan Institutional European Equity Fund ("Institutional Fund"), J.P. Morgan European Equity Fund ("European Equity Fund") (collectively the "feeder funds" of the Master Portfolio) and JPMorgan Fleming European Fund ("JPMFEF") as if the proposed Concurrent Reorganization occurred as of and for the twelve months ended October 31, 2000. Under the Concurrent Reorganization, the Pro Forma Statements give effect to the proposed transfer of all assets and liabilities of the Master Portfolio and the feeder funds in exchange for shares in JPMFEF. The Pro Forma Statements should be read in conjunction with the historical financial statements of each Fund, which have been incorporated by reference in their respective Statements of Additional Information. 2. SHARES OF BENEFICIAL INTEREST: Immediately prior to the Concurrent Reorganization, JPMFEF would commence offering Select Shares and Institutional Shares. The net asset value per share for Select and Institutional Shares at the commencement of offering would be identical to the closing net asset value per share for Class A Shares immediately prior to Concurrent Reorganization. Under the Concurrent Reorganization, the existing shares of Institutional Fund, European Equity Fund, Chase Class A Shares, Chase Class B Shares and Chase Class C Shares would be renamed Institutional, Select, Class A, Class B and Class C respectively. The net asset values per share for Institutional Class Shares and Select Class Shares at the commencement of offering would be identical to the closing net asset value per share for the Class A Shares immediately prior to the organization. In addition, the net asset value per share for Class B Shares and Class C Shares at the commencement of offering would be identical to the closing net asset value per share for Chase Class B Shares and Chase Class C Shares respectively. Under the proposed Concurrent Reorganization, each shareholder of Institutional Fund and European Equity Fund would receive shares of JPMFEF with a value equal to their holding in their respective funds. Holders of the Institutional Fund will receive Institutional Class Shares in JPMFEF and holders of the European Equity Fund will receive Select Class Shares in JPMFEF. Therefore, as a result of the proposed Concurrent Reorganization, current shareholders of European Equity Fund and Institutional Equity Fund will become shareholders of JPMFEF. The Pro Forma net asset value per share assumes the issuance of additional shares of JPMFEF which would have been issued on October 31, 2000 in connection with the Proposed Reorganization. The amount of additional shares assumed to be issued was calculated based on the October 31, 2000 net assets of Institutional Fund and European Equity Fund and the net asset value per share of JPMFEF - Class A Shares. -14- JPMORGAN FLEMING EUROPEAN FUND WITH CONCURRENT REORGANIZATION SELECT INSTITUTIONAL Increase in Shares Issued 686 468 Pro Forma Net Assets 10/31/00 $12,256 $8,354 Pro Forma Net Asset Value 10/31/00 $17.87 $17.87 3. PRO FORMA OPERATIONS: The Pro Forma Statement of Operations assumes similar rates of gross investment income for the investments of each Fund. Accordingly, the combined gross investment income is equal to the sum of each Fund's gross investment income. Certain expenses have been adjusted to reflect the expected expenses of the combined entity. The pro forma investment advisory, administration, shareholder servicing and distribution fees of the combined Fund and/or the related waivers are based on the fee schedule in effect for the Surviving Fund at the combined level of average net assets for the twelve months ended February 28, 2001. -15- FORM N-14 PART C - OTHER INFORMATION Item 15. Indemnification. --------------- Reference is hereby made to Article V of the Registrant's Declaration of Trust. The Trustees and officers of the Registrant and the personnel of the Registrant's investment adviser, administrator and distributor are insured under an errors and omissions liability insurance policy. The Registrant and its officers are also insured under the fidelity bond required by Rule 17g-1 under the Investment Company Act of 1940. Under the terms of the Registrant's Declaration of Trust, the Registrant may indemnify any person who was or is a Trustee, officer or employee of the Registrant to the maximum extent permitted by law; provided, however, that any such indemnification (unless ordered by a court) shall be made by the Registrant only as authorized in the specific case upon a determination that indemnification of such persons is proper in the circumstances. Such determination shall be made (i) by the Trustees, by a majority vote of a quorum which consists of Trustees who are neither described in Section 2(a)(19) of the Investment Company Act of 1940 nor parties to the proceeding, or (ii) if the required quorum is not obtainable or, if a quorum of such Trustees so directs, by independent legal counsel in a written opinion. No indemnification will be provided by the Registrant to any Trustee or officer of the Registrant for any liability to the Registrant or shareholders to which he would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of duty. Insofar as the conditional advancing of indemnification monies for actions based upon the Investment Company Act of 1940 may be concerned, such payments will be made only on the following conditions: (i) the advances must be limited to amounts used, or to be used, for the preparation or presentation of a defense to the action, including costs connected with the preparation of a settlement; (ii) advances may be made only upon receipt of a written promise by, or on behalf of, the recipient to repay that amount of the advance which exceeds that amount to which it is ultimately determined that he is entitled to receive from the Registrant by reason of indemnification; and (iii) (a) such promise must be secured by a surety bond, other suitable insurance or an equivalent form of security which assures that any repayments may be obtained by the Registrant without delay or litigation, which bond, insurance or other form of security must be provided by the recipient of the advance, or (b) a majority of a quorum of the Registrant's disinterested, non-party Trustees, or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts, that the recipient of the advance ultimately will be found entitled to indemnification. Insofar as indemnification for liability arising under the Securities Act of 1933 may be permitted to trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Part C-1 Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. Item 16. Exhibits. ------------------ Declaration of Trust. 1(a) Declaration of Trust, as amended. (1) 1(b) Certificate of Amendment to Declaration of Trust dated December 14, 1995.(6) 1(c) Certificate of Amendment to Declaration of Trust dated October 19, 1995.(6) 1(d) Certificate of Amendment to Declaration of Trust dated July 25, 1993.(6) 1(e) Certificate of Amendment to Declaration of Trust dated November 1997.(10) 1(f) Certificate of Amendment to Declaration of Trust dated June 5, 1998.(12) 2 By-laws, as amended. (1) 3 None. 4 Agreement and Plan of Reorganization filed herewith as Appendix A to the Combined Prospectus/Proxy Statement. 5 None. 6 Form of Investment Advisory Agreement.(6) 7 Distribution and Sub-Administration Agreement dated August 21, 1995.(6) 8(a) Retirement Plan for Eligible Trustees.(6) 8(b) Deferred Compensation Plan for Eligible Trustees.(6) 9 Custodian Agreement. (1) Part C-2 10(a) Rule 12b-1 Distribution Plan of Mutual Funds including Selected Dealer Agreement and Shareholder Service Agreement. (1) 10(b) Rule 12b-1 Distribution Plan - Class B Shares (including forms of Selected Dealer Agreement and Shareholder Servicing Agreement).(6) 10(c) Form of Rule 12b-1 Distribution Plan - Class C Shares (including forms of Shareholder Servicing Agreements).(9) 10(d) Form of Rule 18f-3 Multi-Class Plan.(6) 11 Opinion and Consent of Nixon Peabody LLP as to the Legality of Shares to be filed by Amendment. 12 Opinion and Consent of Simpson Thacher & Bartlett as to Tax Consequences to be filed by Amendment. 13(a) Transfer Agency Agreement. (1) 13(b) Form of Shareholder Servicing Agreement. (6) 13(c) Form of Administration Agreement.(6) 14 Consent of PricewaterhouseCoopers LLP. 15 None. 16(a) Powers of Attorney for: Fergus Reid, III, H. Richard Vartabedian, William J. Armstrong, John R.H. Blum, Stuart W. Cragin, Jr., Roland R. Eppley, Jr., Joseph J. Harkins, W.D. MacCallan, W. Perry Neff, Richard E. Ten Haken, Irving L. Thode. 16(b) Powers of Attorney for: Sarah E. Jones and Leonard M. Spalding, Jr. 16(c) Form of Administration Agreement (to be filed by Amendment). 16(d) Form of Sub-Administration Agreement (to be filed by Amendment) 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. Part C-3 17 (e) Statement of Additional Information for the Merging Fund. 17(f) Annual Report of the Surviving Fund dated October 31, 2000. 17(g) Annual Report of the Merging Fund (including the Annual Report of the Master Portfolio) dated November 30, 2000. --------------- 1 Filed as an exhibit to Amendment No. 6 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) as filed with the Securities and Exchange Commission on March 23, 1990. 2 Filed as an exhibit to Amendment No. 15 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) as filed with the Securities and Exchange Commission on October 30, 1992. 3 Filed as an Exhibit to Amendment No. 26 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) on June 30, 1994. 4 Filed as an Exhibit to Amendment No. 27 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) on October 3, 1994. 5 Filed as an Exhibit to Amendment No. 31 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) on November 13, 1995. 6 Filed as an Exhibit to Amendment No. 32 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) on December 28, 1995. 7 Filed as an Exhibit to Amendment No. 42 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) on February 28, 1997. 8 Incorporated by reference to Post-Effective Amendment No. 7 to the Registration Statement on Form N-1A of Mutual Fund Trust (File No. 33-75250) as filed with the Securities and Exchange Commission on September 6, 1996. 9 Filed as an Exhibit to Amendment No. 45 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) filed on October 28, 1997. 10 Filed as an Exhibit to Amendment No. 46 to the Registration Statement on Form N-1A of the Registrant (File No. 33-14196) filed on December 1, 1997. 11 Filed as an Exhibit to Amendment No. 50 to the Registration Statement on Form N-1A on February 27, 1998. Part C-4 12 Filed as an Exhibit to Amendment No. 53 to the Registration Statement on Form N-1A on June 29, 1998. 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 12th day of April, 2001. MUTUAL FUND GROUP Registrant By: /s/ H. Richard Vartabedian ----------------------------------------- H. Richard Vartabedian President Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities indicated on April 12, 2001. * Chairman and Trustee - ------------------------------------ Fergus Reid, III /s/ H. Richard Vartabedian President - ------------------------------------ H. Richard Vartabedian and Trustee * Trustee - ------------------------------------ William J. Armstrong * Trustee - ------------------------------------ John R.H. Blum * Trustee - ------------------------------------ Stuart W. Cragin, Jr. * Trustee - ------------------------------------ Roland R. Eppley, Jr. * Trustee - ------------------------------------ Joseph J. Harkins * Trustee - ------------------------------------ Sarah E. Jones * Trustee - ------------------------------------ W.D. MacCallan * Trustee - ------------------------------------ W. Perry Neff * Trustee - ------------------------------------ Leonard M. Spalding, Jr. * Trustee - ------------------------------------ Irv Thode * Trustee - ------------------------------------ Richard E. Ten Haken /s/ Martin R. Dean Treasurer and - ------------------------------------ Martin R. Dean Principal Financial Officer /s/ H. Richard Vartabedian Attorney in Fact - ------------------------------------ H. Richard Vartabedian EXHIBITS ITEM DESCRIPTION - ---- ----------- (14) Consent of PricewaterhouseCoopers LLP. (16) Powers of Attorney (17) (a) Form of Proxy Card. (c) Prospectus for J.P. Morgan European Equity Fund. (e) Statement of Additional Information for J.P. Morgan European Equity Fund. (f) Annual Report of JPMorgan Fleming European Fund (formerly, Chase Vista European Fund) dated October 31, 2000. (g) Annual Report of J.P. Morgan European Equity Fund (including the Annual Report of The European Equity Portfolio) dated November 30, 2000.
EX-99.14 2 a2043519zex-99_14.txt EXHIBIT 99.14 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Prospectus/Proxy Statement and Statement of Additional Information constituting parts of this registration statement on Form N-14 (the "N-14 Registration Statement") of our report dated December 11, 2000, relating to the October 31, 2000 financial statements and financial highlights of JPMorgan Fleming European Fund (formerly, Chase Vista European Fund), which appear in the October 31, 2000 Annual Report to Shareholders, which are also incorporated by reference into the N-14 Registration Statement. We also consent to the references to us under the headings "Certain Arrangements with Service Providers- Other Services," "Accountants," "Financial Statements and Experts" and "Financial Statements" in such Registration Statement. We also consent to the references to us under the headings "Financial Highlights," "Independent Accountants" and "Financial Statements" in JPMorgan Fleming European Fund's registration statement on Form N-1A, dated February 28, 2001, which is incorporated by reference into this N-14 Registration Statement. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, NY 10036 April 12, 2001 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Combined Prospectus/Proxy Statement and Statement of Additional Information constituting parts of this registration statement on Form N-14 (the "N-14 Registration Statement") of our reports dated January 16, 2001, relating to the November 30, 2000 financial statements and financial highlights of J.P. Morgan European Equity Fund and the financial statements and supplemental data of The European Equity Portfolio, which appear in the November 30, 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 European 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 EX-99.16 3 a2043519zex-99_16.txt EXHIBIT 99.16 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Fergus Reid, III, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Fergus Reid III ------------------- Fergus Reid, III Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY William J. Armstrong, whose signature appears below, hereby constitutes and appoints Martin D. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ William J. Armstrong ------------------------ William J. Armstrong Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY John R. H. Blum, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ John R. H. Blum -------------------------- John R. H. Blum Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Stuart W. Cragin, Jr., whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Stuart W. Cragin, Jr. ------------------------- Stuart W. Cragin, Jr. Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Roland R. Eppley, Jr., whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabdian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Roland R. Eppley, Jr. ------------------------- Roland R. Eppley, Jr. Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Joseph J. Harkins, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Joseph J. Harkins --------------------- Joseph J. Harkins Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Sarah E. Jones, whose signature appears below, hereby constitutes and appoints Martin D. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, her true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Sarah E. Jones ------------------ Sarah E. Jones Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY W.D. MacCallan, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ W.D. MacCallan ------------------ W.D. MacCallan Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY W. Perry Neff, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ W. Perry Neff ----------------- W. Perry Neff Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Leonard M. Spalding, Jr., whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabdian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Leonard M. Spalding, Jr. ---------------------------- Leonard M. Spalding, Jr. Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Irving L.Thode, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabedian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Irving L. Thode ------------------- Irving L. Thode Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY Richard E. Ten Haken, whose signature appears below, hereby constitutes and appoints Martin R. Dean, Peter B. Eldridge and H. Richard Vartabdian, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ Richard E. Ten Haken ------------------------ Richard E. Ten Haken Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY H. Richard Vartabedian, whose signature appears below, hereby constitutes and appoints Martin R. Dean and Peter B. Eldridge, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ H. Richard Vartabedian -------------------------- H. Richard Vartabedian Date: April 3, 2001 Exhibit 16 MUTUAL FUND GROUP MUTUAL FUND TRUST MUTUAL FUND VARIABLE ANNUITY TRUST MUTUAL FUND SELECT GROUP MUTUAL FUND SELECT TRUST MUTUAL FUND INVESTMENT TRUST MUTUAL FUND MASTER INVESTMENT TRUST CAPITAL GROWTH PORTFOLIO GROWTH AND INCOME PORTFOLIO INTERNATIONAL EQUITY PORTFOLIO POWER OF ATTORNEY George E. McDavid, whose signature appears below, hereby constitutes and appoints Martin R. Dean and Peter B. Eldridge, and each of them, his true and lawful attorneys and agents, with full power and authority of substitution and resubstitution, to do any and all acts and things and to execute any and all instruments which said attorneys and agents, or any of them, may deem necessary or advisable or which may be required to enable any of the investment companies listed above (each, a "Company") to comply with the Investment Company Act of 1940, as amended, and the Securities Act of 1933, as amended (collectively, the "Acts"), and any rules, regulations or requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing and effectiveness of any and all amendments (including post-effective amendments) to a Company's Registration Statement on Form N-1A and any other registration statements pursuant to said Acts, including specifically, but without limiting the generality of the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a trustee and/or officer of a Company any and all such amendments and registration statements filed with the Securities and Exchange Commission under said Acts, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that said attorneys and agents, or any of them, shall do or cause to be done by virtue hereof. /s/ George E. McDavid --------------------- George E. McDavid Date: April 3, 2001 EX-99.17(A) 4 a2043519zex-99_17a.txt EXHIBIT 99.17(A) FORM OF PROXY Preliminary Proxy Material J.P. MORGAN FUNDS J.P. MORGAN EUROPEAN EQUITY FUND This proxy is solicited on behalf of the Board of Trustees of J.P. Morgan Funds for the Special Meeting of the Shareholders to be held on July 3, 2001. The undersigned hereby appoints ___, ___ AND ___, and each of them, attorneys and proxies for the undersigned, with full power of substitution, and revocation to represent the undersigned and to vote on behalf of the undersigned all shares of J.P. Morgan European Equity Fund which the undersigned is entitled to vote at the Special Meeting of Shareholders to be held at J.P. Morgan Chase & Co., 1211 Avenue of the Americas, 41st Floor, New York, NY, on July 3, 2001, at 9:00 a.m., and at any adjournments thereof. The undersigned hereby acknowledges receipt of the Notice of the Special Meeting of Shareholders and hereby instructs said attorneys and proxies to vote said shares as indicated hereon. In their discretion, the proxies are authorized to vote upon such other business as may properly come before the Special Meeting of Shareholders in person or by substitute (or, if only one shall be so present, then that one) shall have and may exercise all of the power and authority of said proxies hereunder. The undersigned hereby revokes any proxy previously given. NOTE: Please sign exactly as your name appears on this proxy. If joint owners, EITHER may sign this proxy. When signing as attorney, executor, administrator, trustee, guardian or corporate officer, please give your full title. DATE __________ ___, _______ ---------------------------- ---------------------------- Signature(s), Title(s) (if applicable) PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE OR YOU CAN VOTE BY CALLING ______________________. J.P. MORGAN FUNDS J.P. MORGAN EUROPEAN EQUITY FUND PLEASE INDICATE YOUR VOTE BY AN "X" ON THE APPROPRIATE LINE BELOW. This proxy, if properly executed, will be voted in the manner directed by the shareholder. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH PROPOSAL. Please refer to the Combined Prospectus/Proxy Statement for a discussion of each Proposal. THE BOARD OF TRUSTEES UNANIMOUSLY RECOMMENDS A VOTE "FOR" EACH FOLLOWING PROPOSAL. Proposal 1: To approve or disapprove of the Reorganization. For_____ Against_____ Abstain_____ Proposal 2: To approve or disapprove the election of each of the Nominees . For_____ Against_____ Abstain_____ To withhold authority to vote for any individual Nominee, write that Nominee's name here: - ---------------------------------------------------------------------- EX-99.17(C) 5 a2043519zex-99_17c.txt EXHIBIT 99.17(C) - -------------------------------------------------------------------------------- MARCH 1, 2001 | PROSPECTUS - -------------------------------------------------------------------------------- J.P. MORGAN INTERNATIONAL EQUITY FUNDS International Equity Fund European Equity Fund International Opportunities Fund Emerging Markets Equity Fund ---------------------------------------- Seeking high total return primarily from stocks outside the United States This prospectus contains essential information for anyone investing in these funds. Please read it carefully and keep it for reference. As with all mutual funds, the fact that these shares are registered with the Securities and Exchange Commission does not mean that the commission approves them or guarantees that the information in this prospectus is correct or adequate. It is a criminal offense to state or suggest otherwise. Distributed by Funds Distributor, Inc. JPMorgan CONTENTS - -------------------------------------------------------------------------------- 2 | J.P. MORGAN INTERNATIONAL EQUITY FUNDS Each fund's goal, principal strategies, principal risks, performance and expenses J.P. Morgan International Equity Fund .............................2 J.P. Morgan European Equity Fund ..................................4 J.P. Morgan International Opportunities Fund ......................6 J.P. Morgan Emerging Markets Equity Fund ..........................8 10 | INTERNATIONAL EQUITY MANAGEMENT APPROACH Principles and techniques common to the funds in this prospectus J.P. Morgan ......................................................10 J.P. Morgan international equity funds ...........................10 The spectrum of international equity funds .......................10 Who may want to invest ...........................................10 International equity investment process ..........................11 12 | YOUR INVESTMENT Investing in the J.P. Morgan International Equity Funds Investing through a financial professional .......................12 Investing through an employer-sponsored retirement plan ..........12 Investing through an IRA or rollover IRA .........................12 Investing directly ...............................................12 Opening your account .............................................12 Adding to your account ...........................................12 Selling shares ...................................................13 Account and transaction policies .................................13 Dividends and distributions ......................................14 Tax considerations ...............................................14 15 | FUND DETAILS More about risk and the funds' business operations Master/Feeder structure ..........................................15 Management and administration ....................................15 Risk and reward elements .........................................16 Financial highlights .............................................18 FOR MORE INFORMATION .....................................back cover J.P. MORGAN INTERNATIONAL EQUITY FUND TICKER SYMBOL: PPIEX - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN FUNDS (J.P. MORGAN INTERNATIONAL EQUITY FUND) RISK/RETURN SUMMARY [GRAPHIC] For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 16-17. [GRAPHIC] GOAL The fund's goal is to provide high total return from a portfolio of foreign company equity securities. This goal can be changed without shareholder approval. INVESTMENT APPROACH [GRAPHIC] Principal Strategies The fund invests primarily in equity securities from developed countries included in the Morgan Stanley Capital International Europe, Australasia, and Far East Index (EAFE), which is the fund's benchmark. The fund typically does not invest in U.S. companies. The fund's industry weightings generally approximate those of the EAFE Index, although it does not seek to mirror the index in its choice of individual securities, and may overweight or underweight countries relative to the EAFE Index. In choosing stocks, the fund emphasizes those that are ranked as undervalued according to J.P. Morgan's proprietary research, while underweighting or avoiding those that appear overvalued. The fund makes its currency management decisions as described on pages 11 and 16. Principal Risks The value of your investment in the fund will fluctuate in response to movements in international stock markets and currency exchange rates. Fund performance will also depend on the effectiveness of J.P. Morgan's research and the management team's stock picking and currency management decisions. In general, international investing involves higher risks than investing in U.S. markets but offers attractive opportunities for diversification. Foreign markets tend to be more volatile than those of the U.S., and changes in currency exchange rates could reduce market performance. To the extent that the fund hedges its currency exposure into the U.S. dollar, it may reduce the effects of currency fluctuations. The fund may also hedge from one foreign currency to another. Foreign stocks are generally riskier than their domestic counterparts. You should be prepared to ride out periods of underperformance. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase which currently manages over $700 billion, including approximately $____ billion using similar strategies as the fund. The portfolio management team is led by Paul A. Quinsee, managing director, who joined the team in April of 1993 and has been at J.P. Morgan since 1992, by Nigel F. Emmett, vice president, who has been on the team since joining J.P. Morgan in August of 1997, and by Jenny C. Sicat, vice president, who joined the team in August 2000 and has been at J.P. Morgan since 1995. Previously, Mr. Emmett was an assistant manager at Brown Brothers Harriman and Co. and a portfolio manager at Gartmore Investment Management. Prior to joining the team, Ms. Sicat was a portfolio manager in Emerging Markets focusing on currencies and derivatives. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o There is no assurance that the fund will meet its investment goals. o The fund does not represent a complete investment program. 2 | J.P. MORGAN INTERNATIONAL EQUITY FUND - -------------------------------------------------------------------------------- PERFORMANCE (unaudited) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan International Equity Fund. The bar chart indicates some of the risks by showing changes in the performance of the fund's shares from year to year for each of the last 10 calendar years. The table indicates some of the risks by showing how the fund's average annual returns for the past one, five years and ten years compare to those of the EAFE Index. This is an unmanaged index used to track the average performance of over 900 securities listed on the stock exchanges of countries in Europe, Australasia and the Far East. The fund's past performance does not necessarily indicate how the fund will perform in the future. [The following table was depicted as a bar chart in the printed material.] - ----------------------------- Year-by-year total return (%) Shows changes in returns by calendar year(1) - -------------------------------------------------------------------------------- 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- ---- ---- ---- ---- ---- 10.58 (10.77) 24.37 5.65 7.59 8.41 1.17 13.48 29.92 (18.05) o J.P. Morgan International Equity Fund For the period covered by this year-by-year total return chart, the fund's highest quarterly return was 20.23% (for the quarter ended 12/31/98); and the lowest quarterly return was -18.05% (for the quarter ended 9/30/98). - ------------------------------- Shows performance over time, for periods ended Average annual total return (%) December 31, 2000(2) - --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs. J.P. Morgan International Equity Fund (after expenses) -18.05 5.79 5.01 - -------------------------------------------------------------------------------------------------- EAFE Index (no expenses) -14.17 7.13 6.29 - --------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(3) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.60 Distribution (Rule 12b-1) fees none Other expenses 0.70 ================================================================================ Total annual fund operating expenses 1.30 ================================================================================ - -------------------------------------------------------------------------------- Expense example - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, total operating expenses unchanged, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 132 412 713 1,568 - -------------------------------------------------------------------------------- (1) The fund's fiscal year end is 10/31. (2) The fund commenced operations on 6/1/90 and performance is calculated as of 6/30/90. (3) The fund has a master/feeder structure as described on page 15. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year expressed as a percentage of the fund's average net assets. J.P. MORGAN INTERNATIONAL EQUITY FUND | 3 J.P. MORGAN EUROPEAN EQUITY FUND - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN FUNDS (J.P. MORGAN EUROPEAN EQUITY FUND) RISK/RETURN SUMMARY [GRAPHIC] For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 16-17. [GRAPHIC] GOAL The fund's goal is to provide high total return from a portfolio of European company equity securities. This goal can be changed without shareholder approval. INVESTMENT APPROACH [GRAPHIC] Principal Strategies The fund invests primarily in equity securities from the 14 countries included in the Morgan Stanley Capital International (MSCI) Europe Index, which is the fund's benchmark. The fund typically does not invest in U.S. companies. The fund focuses on stock picking, emphasizing those stocks that are ranked as undervalued according to J.P. Morgan's proprietary research, while underweighting or avoiding those that appear overvalued. The fund generally keeps its industry weightings similar to those of the MSCI Europe Index, although it does not seek to mirror the index in its choice of individual securities. The fund makes its country allocation and currency management decisions as described on pages 11 and 16. Principal Risks The value of your investment in the fund will fluctuate in response to movements in European stock markets and currency exchange rates. Fund performance will also depend on the effectiveness of J.P. Morgan's research and the management team's stock picking and currency management decisions. In general, international investing involves higher risks than investing in U.S. markets but offers attractive opportunities for diversification. Foreign markets tend to be more volatile than those of the U.S., and changes in currency exchange rates could reduce market performance. To the extent that the fund hedges its currency exposure into the U.S. dollar, it may reduce the effects of currency fluctuations. The fund may also hedge from one foreign currency to another. Foreign stocks are generally riskier than their domestic counterparts. You should be prepared to ride out periods of underperformance. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase currently manages approximately $700 billion, including more than $____ billion using similar strategies as the fund. The portfolio management team is led by Paul A. Quinsee, managing director, who has been at J.P. Morgan since 1992, by Nigel F. Emmett, vice president, who has been on the team since August of 1997, and by Jenny C. Sicat, vice president, who joined the team in August 2000 and has been at J.P. Morgan since 1995. Previously, Mr. Emmett was an assistant manager at Brown Brothers Harriman and Co. and a portfolio manager at Gartmore Investment Management. Prior to joining the team, Ms. Sicat was a portfolio manager in Emerging Markets focusing on currencies and derivatives. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: O There is no assurance that the fund will meet its investment goals. O The fund does not represent a complete investment program. 4 | J.P. MORGAN EUROPEAN EQUITY FUND - -------------------------------------------------------------------------------- PERFORMANCE (unaudited) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan European Equity Fund. The bar chart indicates some of the risks by showing changes in the performance of the fund's shares from year to year for each of the last 4 calendar years. The table indicates some of the risks by showing how the fund's average annual returns for the past one year and life of the fund compare to those of the MSCI Europe Index. This is an unmanaged index comprised of more than 600 companies in 14 European countries. The 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) - -------------------------------------------------------------------------------- 1997 1998 1999 2000 22.10 19.70 20.27 (15.96) o J.P. Morgan European Equity Fund For the period covered by this year-by-year total return chart, the fund's highest quarterly return was 18.61% (for the quarter ended 12/31/99); and the lowest quarterly return was -18.16% (for the quarter ended 9/30/98). - ------------------------------- Shows performance over time, for periods ended Average annual total return (%) December 31, 2000(2) - -------------------------------------------------------------------------------- Past 1 yr. Life of fund J.P. Morgan European Equity Fund (after expenses) -15.96 12.12 - -------------------------------------------------------------------------------- MSCI Europe Index (no expenses) -8.39 15.37 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund before and after reimbursement are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses after reimbursement are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(3) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.65 Distribution (Rule 12b-1) fees none Other expenses 1.48 ================================================================================ Total operating expenses 2.13 Fee waiver and expense reimbursement(4) 0.63 ================================================================================ Net expenses(4) 1.50 ================================================================================ - -------------------------------------------------------------------------------- Expense example(4) - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, net expenses for the period 3/1/01 through 2/28/02 and total operating expenses thereafter, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 153 606 1,086 2,412 - -------------------------------------------------------------------------------- (1) The fund's fiscal year end is 11/30. Prior to 1998, the fund's fiscal year end was 12/31. (2) The fund commenced operations on 5/13/96. For the period 2/29/96 through 5/31/96 returns reflect performance of J.P. Morgan Institutional European Equity Fund (a separate feeder fund investing in the same master portfolio) which commenced operations on 2/29/96. These returns reflect lower operating expenses than those of the fund. Therefore, these returns may be higher than the fund's would have been had it existed during the same period. (3) The fund has a master/feeder structure as described on page 15. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year expressed as a percentage of the fund's average net assets. (4) Reflects an agreement dated 3/1/01 by Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), an affiliate of J.P. Morgan, to reimburse the fund to the extent total operating expenses exceed 1.50% (excluding interest, taxes and extraordinary expenses) of the fund's average daily net assets through 2/28/02. J.P. MORGAN EUROPEAN EQUITY FUND | 5 J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND TICKER SYMBOL: PPIOX - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN FUNDS (J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND) RISK/RETURN SUMMARY [GRAPHIC] For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 16-17. [GRAPHIC] GOAL The fund's goal is to provide high total return from a portfolio of equity securities of foreign companies in developed and, to a lesser extent, emerging markets. This goal can be changed without shareholder approval. INVESTMENT APPROACH [GRAPHIC] Principal Strategies The fund's assets are invested primarily in companies from developed markets other than the U.S. The fund's assets may also be invested to a limited extent in companies from emerging markets. Developed countries include Australia, Canada, Japan, New Zealand, the United Kingdom, and most of the countries of western Europe; emerging markets include most other countries in the world. The fund focuses on stock picking, emphasizing those stocks that are ranked as undervalued according to J.P. Morgan's proprietary research, while underweighting or avoiding those that appear overvalued. While the fund generally follows the process described on page 11, its country allocations and sector weightings may differ significantly from those of the MSCI All Country World Index Free (ex-U.S.), the fund's benchmark. The fund makes its currency management decisions as described on pages 11 and 16. Principal Risks The value of your investment in the fund will fluctuate in response to movements in international stock markets and currency exchange rates. Fund performance will also depend on the effectiveness of J.P. Morgan's research and the management team's stock picking and currency management decisions. In general, international investing involves higher risks than investing in U.S. markets but offers attractive opportunities for diversification. Foreign markets tend to be more volatile than those of the U.S., and changes in currency exchange rates could reduce market performance. These risks are higher in emerging markets. To the extent that the fund hedges its currency exposure into the U.S. dollar, it may reduce the effects of currency fluctuations. The fund may also hedge from one foreign currency to another. However, the fund does not typically use this strategy for its emerging markets currency exposure. Foreign stocks are generally riskier than their domestic counterparts. You should be prepared to ride out periods of under-performance. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase currently manages approximately $700 billion, including approximately $___ billion using similar strategies as the fund. The portfolio management team is led by Paul A. Quinsee, managing director, who joined the team in April 1993 and has been at J.P. Morgan since 1992, by Andrew C. Cormie, managing director, who has been an international equity portfolio manager since 1997 and employed by J.P. Morgan since 1984, by Nigel F. Emmett, vice president, who has been on the team since joining J.P. Morgan in August 1997, and by Jenny C. Sicat, vice president, who joined the team in August 2000 and has been at J.P. Morgan since 1995. Previously, Mr. Emmett was an assistant manager at Brown Brothers Harriman Company and a portfolio manager at Gartmore Investment Management. Prior to joining the team, Ms. Sicat was a portfolio manager in Emerging Markets focusing on currencies and derivatives. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o There is no assurance that the fund will meet its investment goals. o The fund does not represent a complete investment program. 6 | J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND - -------------------------------------------------------------------------------- PERFORMANCE (UNAUDITED) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan International Opportunities Fund. The bar chart indicates some of the risks by showing changes in the performance of the fund's shares from year to year for each of the last 3 calendar years. The table indicates some of the risks by showing how the fund's average annual return for the past one year and life of the fund compare to that of the MSCI All Country World Index Free (ex.-U.S.). This is an unmanaged index that measures developed and emerging foreign stock market performance. The 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) - -------------------------------------------------------------------------------- 1998 1999 2000 3.47 40.05 (16.40) o J.P. Morgan International Opportunities Fund For the period covered by this total return chart, the fund's highest quarterly return was 21.81% (for the quarter ended 12/31/98); and the lowest quarterly return was -21.38% (for the quarter ended 9/30/98). - ------------------------------- Shows performance over time, for periods ended Average annual total return (%) December 31, 2000(2) - --------------------------------------------------------------------------------
Past 1 yr. Life of fund J.P. Morgan International Opportunities Fund (after expenses) -16.40 5.64 - ------------------------------------------------------------------------------------------------- MSCI All Country World Index Free (ex-U.S.) (no expenses) -15.09 6.85 - -------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(3) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 0.60 Distribution (Rule 12b-1) fees none Other expenses 0.61 ================================================================================ Total annual fund operating expenses 1.21 ================================================================================ - -------------------------------------------------------------------------------- Expense example - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, total operating expenses unchanged, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 123 384 665 1,466 - -------------------------------------------------------------------------------- (1) The fund's fiscal year end is 11/30. (2) The fund commenced operations on 2/26/97 and performance is calculated as of 2/28/97. (3) The fund has a master/feeder structure as described on page 15. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year expressed as a percentage of the fund's average net assets J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND | 7 J.P. MORGAN EMERGING MARKETS EQUITY FUND TICKER SYMBOL: PPEEX - -------------------------------------------------------------------------------- REGISTRANT: J.P. MORGAN FUNDS (J.P. MORGAN EMERGING MARKETS EQUITY FUND) RISK/RETURN SUMMARY [GRAPHIC] For a more detailed discussion of the fund's investments and their main risks, as well as fund strategies, please see pages 16-17. [GRAPHIC] GOAL The fund's goal is to provide high total return from a portfolio of equity securities from emerging markets issuers. This goal can be changed without shareholder approval. INVESTMENT APPROACH [GRAPHIC] Principal Strategies The fund invests primarily in equity securities from countries whose economies or stock markets are less developed. The fund may also invest to a lesser extent in debt securities of these countries. This designation currently includes most countries in the world except Australia, Canada, Japan, New Zealand, the United Kingdom, the U.S., and most of the countries of western Europe. The fund makes its country allocation decisions as described on page 11 and may overweight or underweight countries relative to its benchmark, the Morgan Stanley Capital International (MSCI) Emerging Markets Free Index. The fund emphasizes stocks that are ranked as undervalued, while underweighting or avoiding stocks that appear overvalued. The fund typically maintains full currency exposure to those markets in which it invests. However, the fund may from time to time hedge a portion of its foreign currency exposure into the U.S. dollar. Principal Risks The value of your investment in the fund will fluctuate in response to movements in international stock and bond markets, interest rates and currency exchange rates. Fund performance will also depend on the effectiveness of J.P. Morgan's research and the management team's country allocation and stock picking decisions. In general, international investing involves higher risks than investing in U.S. markets but offers attractive opportunities for diversification. Because emerging markets carry higher risks than developed markets, the fund's performance is likely to be more volatile than that of many other international equity funds. To the extent that the fund hedges its currency exposure into the U.S. dollar, it may reduce the effects of currency fluctuations. Foreign securities are generally riskier than their domestic counterparts. You should be prepared to ride out periods of underperformance. By emphasizing undervalued stocks, the fund has the potential to produce returns that exceed those of the fund's benchmark. At the same time, the fund seeks to limit its volatility to that of the benchmark. An investment in the fund is not a deposit of any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. You could lose money if you sell when the fund's share price is lower than when you invested. PORTFOLIO MANAGEMENT The fund's assets are managed by J.P. Morgan Investment Management Inc., a subsidiary of J.P. Morgan Chase & Co. J.P. Morgan Chase currently manages approximately $700 billion, including more than $___ billion using similar strategies as the fund. The management team is led by Satyen Mehta, managing director, who has been at J.P. Morgan since 1984, and Peter Clark, vice president, who has been at J.P. Morgan since 1968. Mr. Mehta has been on the team since the fund's inception. Mr. Clark joined the team in 1999. - -------------------------------------------------------------------------------- Before you invest Investors considering the fund should understand that: o There is no assurance that the fund will meet its investment goals. o The fund does not represent a complete investment program. 8 | J.P. MORGAN EMERGING MARKETS EQUITY FUND - -------------------------------------------------------------------------------- PERFORMANCE (unaudited) The bar chart and table shown below provide some indication of the risks of investing in J.P. Morgan Emerging Markets Equity Fund. The bar chart indicates some of the risks by showing changes in the performance of the fund's shares from year to year for each of the last 7 calendar years. The table indicates some of the risks by showing how the fund's average annual returns for the past one and five years and life of the fund compare to those of the MSCI Emerging Markets Free Index. This is a widely recognized, unmanaged index of emerging markets stocks used as a measure of overall emerging market equity performance. The fund's past performance does not necessarily indicate how the fund will perform in the future. - ----------------------- Year-by-year return (%) Shows changes in returns by calendar year(1) - -------------------------------------------------------------------------------- 1994 1995 1996 1997 1998 1999 2000 (7.58) (10.03) 8.50 (7.63) (30.79) 59.10 (30.36) o J.P. Morgan Emerging Markets Equity Fund For the period covered by this year-by-year total return chart, the fund's highest quarterly return was 25.83% (for the quarter ended 12/31/99); and the lowest quarterly return was -23.69% (for the quarter ended 6/30/98). - ------------------------------- Shows performance over time, for periods ended Average annual total return (%) December 31, 2000(2) - --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund J.P. Morgan Emerging Markets Equity Fund (after expenses) -30.36 -5.13 -4.26 - ------------------------------------------------------------------------------------------------------------ MSCI Emerging Markets Equity Free (no expenses) -30.61 -4.17 -2.64 - ------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------- INVESTOR EXPENSES The expenses of the fund before and after reimbursement are shown at right. The fund has no sales, redemption, exchange, or account fees, although some institutions may charge you a fee for shares you buy through them. The annual fund expenses after reimbursement are deducted from fund assets prior to performance calculations. - -------------------------------------------------------------------------------- Annual fund operating expenses(3) (%) (expenses that are deducted from fund assets) - -------------------------------------------------------------------------------- Management fees 1.00 Distribution (Rule 12b-1) fees none Other expenses 0.96 Total operating expenses 1.96 Fee waiver and expense reimbursement(4) 0.21 Net expenses(4) 1.75 - -------------------------------------------------------------------------------- Expense example(4) - -------------------------------------------------------------------------------- The example below is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The example assumes: $10,000 initial investment, 5% return each year, net expenses for the period 3/1/01 through 2/28/02 and total operating expenses thereafter, and all shares sold at the end of each time period. The example is for comparison only; the fund's actual return and your actual costs may be higher or lower. - -------------------------------------------------------------------------------- 1 yr. 3 yrs. 5 yrs. 10 yrs. Your cost($) 178 595 1,038 2,268 - -------------------------------------------------------------------------------- (1) The fund's fiscal year end is 10/31. (2) The fund commenced operations on 11/15/93 and performance calculated as of 11/30/93. (3) The fund has a master/feeder structure as described on page 15. This table shows the fund's expenses and its share of master portfolio expenses for the past fiscal year expressed as a percentage of the fund's average net assets. (4) Reflects an agreement dated 3/1/01 by Morgan Guaranty Trust Company of New York ("Morgan Guaranty"), an affiliate of J.P. Morgan, to reimburse the fund to the extent total operating expenses exceed 1.75% (excluding interest, taxes and extraordinary expenses) of the fund's average daily net assets through 2/28/02. J.P. MORGAN EMERGING MARKETS EQUITY FUND | 9 INTERNATIONAL EQUITY MANAGEMENT APPROACH - -------------------------------------------------------------------------------- J.P. MORGAN Known for its commitment to proprietary research and its disciplined investment strategies, J.P. Morgan Chase is the asset management choice for many of the world's most respected corporations, financial institutions, governments, and individuals. J.P. Morgan Chase employs over ___ analysts and portfolio managers around the world and has more than $700 billion in assets under management. J.P. MORGAN INTERNATIONAL EQUITY FUNDS These funds invest primarily in stocks and other equity securities of companies outside the U.S. through a master portfolio (another fund with the same goal). As a shareholder, you should anticipate risks and rewards beyond those of a typical U.S. stock fund. THE SPECTRUM OF INTERNATIONAL 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 the parts of the world in which they invest o how closely they follow the weightings of their benchmarks o how many securities they typically maintain in their portfolios o the relative weighting of stocks in developed vs. emerging markets The table below shows degrees of the relative risk and return that these funds potentially offer. These and other distinguishing features of each international equity fund were described on the preceding pages. - -------------------------------------------------------------------------------- Potential risk and return - -------------------------------------------------------------------------------- The positions of the funds in this graph reflect long-term performance goals only and are relative, not absolute. [Potential risk and return graph omitted.] - -------------------------------------------------------------------------------- Who May Want to Invest The funds are designed for investors who: o are pursuing a long-term goal o want to add a non-U.S. investment with growth potential to further diversify a portfolio o want funds that seek to consistently outperform the markets in which they invest The funds are not designed for investors who: o are uncomfortable with the risks of international investing o are looking for a less aggressive stock investment o require regular income or stability of principal o are pursuing a short-term goal or investing emergency reserves 10 | INTERNATIONAL EQUITY MANAGEMENT APPROACH - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY INVESTMENT PROCESS 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 allocating assets by country, selecting stocks and managing currency exposure. The funds largely avoid using sector or market-timing strategies. Through its extensive global equity research and analytical systems, J.P. Morgan seeks to generate an information advantage. Using fundamental analysis as well as macro-economic models, J.P. Morgan develops proprietary research on countries, companies, and currencies. In these processes, the analysts focus on a relatively long period rather than on near-term expectations alone. The team of analysts dedicated to international equities includes more than 90 members around the world, with an average of nearly ten years of experience. In managing the funds described in this prospectus, J.P. Morgan employs a three-step process that combines country allocation, fundamental research for identifying portfolio securities, and currency management decisions: [GRAPHIC] J.P. Morgan uses top-down analysis in determining which countries to emphasize Country allocation J.P. Morgan takes an in-depth look at the relative valuations and economic prospects of different countries, ranking the attractiveness of their markets. Using these rankings, a team of strategists establishes a country allocation for each fund. Country allocation may vary either significantly or moderately from the benchmark, depending on the fund. J.P. Morgan considers the developed countries of Europe, excluding the U.K., as a whole while monitoring the fund's exposure to any one country. [GRAPHIC] Stocks in each industry are ranked with the help of models, then selected for investment Stock selection Various models are used to quantify J.P. Morgan's fundamental stock research, producing a ranking of companies in each industry group according to their relative value. Each fund's management team then buys and sells stocks, using the research and valuation rankings as well as its assessment of other factors, including: o catalysts that could trigger a change in a stock's price o potential reward compared to potential risk o temporary mispricings caused by market overreactions [GRAPHIC] In some funds, J.P. Morgan may adjust currency exposure to seek to manage risks and enhance returns Currency management The funds have access to J.P. Morgan's currency specialists in determining the extent and nature of each fund's exposure to various foreign currencies. (The Emerging Markets Equity fund typically maintains full currency exposure to those markets in which it invests.) INTERNATIONAL EQUITY MANAGEMENT APPROACH | 11 YOUR INVESTMENT - -------------------------------------------------------------------------------- For your convenience, the J.P. Morgan Funds offer several ways to start and add to fund investments. INVESTING THROUGH A FINANCIAL PROFESSIONAL If you work with a financial professional, either at J.P. Morgan or elsewhere, he or she is prepared to handle your planning and transaction needs. Your financial professional will be able to assist you in establishing your fund account, executing transactions, and monitoring your investment. If your fund investment is not held in the name of your financial professional and you prefer to place a transaction order yourself, please use the instructions for investing directly. INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN Your fund investments are handled through your plan. Refer to your plan materials or contact your benefits office for information on buying, selling, or exchanging fund shares. INVESTING THROUGH AN IRA OR ROLLOVER IRA Please contact a J.P. Morgan Retirement Services Specialist at 1-800-521-5411 for information on J.P. Morgan's comprehensive IRA services, including lower minimum investments. INVESTING DIRECTLY Investors may establish accounts without the help of an intermediary by using the instructions below and at right: o Choose a fund (or funds) and determine the amount you are investing. The minimum amount for initial investments in a fund is $2,500 and for additional investments $500, although these minimums may be less for some investors. For more information on minimum investments, call 1-800-521-5411. o Complete the application, indicating how much of your investment you want to allocate to which fund(s). Please apply now for any account privileges you may want to use in the future, in order to avoid the delays associated with adding them later on. o Mail in your application, making your initial investment as shown at right. For answers to any questions, please speak with a J.P. Morgan Funds Services Representative at 1-800-521-5411. OPENING YOUR ACCOUNT By wire o Mail your completed application to the Shareholder Services Agent. o Call the Shareholder Services Agent to obtain an account number and to place a purchase order. Funds that are wired without a purchase order will be returned uninvested. o After placing your purchase order, instruct your bank to wire the amount of your investment to: State Street Bank & Trust Company Routing number: 031-100-238 Credit: J.P. Morgan Funds Account number: 0073836 FFC: your account number, name of registered owner(s) and fund name By check o Make out a check for the investment amount payable to J.P. Morgan Funds. o Mail the check with your completed application to the Transfer Agent. By exchange o Call the Shareholder Services Agent to effect an exchange. ADDING TO YOUR ACCOUNT By wire o Call the Shareholder Services Agent to place a purchase order. Funds that are wired without a purchase order will be returned uninvested. o Once you have placed your purchase order, instruct your bank to wire the amount of your investment as described above. By check o Make out a check for the investment amount payable to J.P. Morgan Funds. o Mail the check with a completed investment slip to the Transfer Agent. If you do not have an investment slip, attach a note indicating your account number and how much you wish to invest in which fund(s). By exchange o Call the Shareholder Services Agent to effect an exchange. 12 | YOUR INVESTMENT SELLING SHARES By phone -- wire payment o Call the Shareholder Services Agent to verify that the wire redemption privilege is in place on your account. If it is not, a representative can help you add it. o Place your wire request. If you are transferring money to a non-Morgan account, you will need to provide the representative with the personal identification number (PIN) that was provided to you when you opened your fund account. By phone -- check payment o Call the Shareholder Services Agent and place your request. Once your request has been verified, a check for the net amount, payable to the registered owner(s), will be mailed to the address of record. For checks payable to any other party or mailed to any other address, please make your request in writing (see below). In writing o Write a letter of instruction that includes the following information: The name of the registered owner(s) of the account; the account number; the fund name; the amount you want to sell; and the recipients name and address or wire information, if different from those of the account registration. o Indicate whether you want the proceeds sent by check or by wire. o Make sure the letter is signed by an authorized party. The Shareholder Services Agent may require additional information, such as a signature guarantee. o Mail the letter to the Shareholder Services Agent. By exchange o Call the Shareholder Services Agent to effect an exchange. Redemption in kind o Each fund reserves the right to make redemptions of over $250,000 in securities rather than in cash. ACCOUNT AND TRANSACTION POLICIES Telephone orders The funds accept telephone orders from all shareholders. The funds require that telephone orders be placed by pre-authorized individuals only. The funds will tape record telephone orders or take other reasonable precautions. However, if a fund does take such steps to ensure the authenticity of an order, you may bear any loss if the order later proves fraudulent. Exchanges You may exchange shares in these funds for shares in any other J.P. Morgan or J.P. Morgan Institutional mutual fund at no charge (subject to the securities laws of your state). When making exchanges, it is important to observe any applicable minimums. Keep in mind that, for tax purposes, an exchange is considered a sale. A fund may alter, limit, or suspend its exchange policy at any time. Business hours and NAV calculations The funds' regular business days and hours are the same as those of the New York Stock Exchange (NYSE). Each fund calculates its net asset value per share (NAV) every business day as of the close of trading on the NYSE (normally 4:00 p.m. eastern time). The fund's 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 on a foreign exchange after the close of trading on that exchange that would materially impact a security's value at the time the fund calculates its NAV), the security is valued in accordance with the fund's fair valuation procedures. Timing of orders Orders to buy or sell shares are executed at the next NAV calculated after the order has been accepted. Orders are accepted until the close of trading on the NYSE every business day and are executed the same day, at that day's NAV. A fund has the right to suspend redemption of shares as permitted by law and to postpone payment of proceeds for up to seven days. Transfer Agent State Street Bank and Trust Company P.O. Box 8411 Boston, MA 02266-8411 Attention: J.P. Morgan Funds Services Shareholder Services Agent Morgan Christiana Center J.P. Morgan Funds Services - 2/OPS3 500 Stanton Christiana Road Newark, DE 19713 1-800-521-5411 Representatives are available 8:00 a.m. to 6:00 p.m. eastern time on fund business days. YOUR INVESTMENT | 13 - -------------------------------------------------------------------------------- Timing of settlements When you buy shares, you will become the owner of record when a fund receives your payment, generally the day following execution. When you sell shares, proceeds are generally available the day following execution and will be forwarded according to your instructions. In-kind redemptions (described on page 13) will be available as promptly as is feasible. When you sell shares that you recently purchased by check, your order will be executed at the next NAV but the proceeds will not be available until your check clears. This may take up to 15 days. Statements and reports The funds send monthly account statements as well as confirmations after each purchase or sale of shares (except reinvestments). Every six months, each fund sends out an annual or semi-annual report containing information on its holdings and a discussion of recent and anticipated market conditions and fund performance. Accounts with below-minimum balances If your account balance falls below the minimum for 30 days as a result of selling shares (and not because of performance), 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. DIVIDENDS AND DISTRIBUTIONS Each fund typically pays income dividends and makes capital gains distributions, if any, once a year. A fund may declare an additional income dividend in a given year, depending on its tax situation. However, a fund may also make fewer payments in a given year, depending on its investment results. 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 financial professional or J.P. Morgan Funds Services to have them sent to you by check, credited to a separate account, or invested in another J.P. Morgan Fund. TAX CONSIDERATIONS In general, selling shares, exchanging shares, and receiving distributions (whether reinvested or taken in cash) are all taxable events. These transactions typically create the following tax liabilities for taxable accounts: - -------------------------------------------------------------------------------- Transaction Tax status Income dividends 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. 14 | YOUR INVESTMENT FUND DETAILS - -------------------------------------------------------------------------------- MASTER/FEEDER STRUCTURE As noted earlier, each fund is a series of J.P. Morgan Funds, a Massachusetts business trust, and is a "feeder" fund that invests in a master portfolio. (Except where indicated, this prospectus uses the term "the fund" to mean the feeder fund and its master portfolio taken together.) Each master portfolio accepts investments from other feeder funds, and all the feeders of a given master portfolio bear the portfolio's expenses in proportion to their assets. However, each feeder can set its own transaction minimums, fund-specific expenses, and other conditions. This means that one feeder could offer access to the same master portfolio on more attractive terms, or could experience better performance, than another feeder. Information about other feeders is available by calling 1-800-521-5411. 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 feeder fund and its master portfolio expect to maintain consistent goals, but if they do not, the feeder fund will withdraw from the master portfolio, receiving its assets either in cash or securities. Each feeder fund's trustees would then consider whether the feeder fund should hire its own investment adviser, invest in a different master portfolio, or take other action. MANAGEMENT AND ADMINISTRATION The feeder funds described in this prospectus, their corresponding master portfolios and J.P. Morgan Series Trust are all governed by the same trustees. The trustees are responsible for overseeing all business activities. The trustees are assisted by Pierpont Group, Inc., which they own and operate on a cost basis; costs are shared by all funds governed by these trustees. Funds Distributor, Inc., as co-administrator, along with J.P. Morgan, provides fund officers. J.P. Morgan, as co-administrator, oversees each fund's other service providers. J.P. Morgan, subject to the expense reimbursements described earlier in this prospectus, receives the following fees for investment advisory and other services: Advisory services Percentage of the master portfolio's average net assets International Equity 0.60% European Equity 0.65% International Opportunities 0.60% Emerging Markets Equity 1.00% Administrative services Master portfolio's and fund's (fee shared with Funds pro-rata portions of 0.09% of Distributor, Inc.) the first $7 billion of average net assets in J.P. Morgan-advised portfolios, plus 0.04% of aver- age net assets over $7 billion Shareholder services 0.25% of the fund's average net assets J.P. Morgan may pay fees to certain firms and professionals for providing recordkeeping or other services in connection with investments in a fund. FUND DETAILS | 15 RISK AND REWARD ELEMENTS This table identifies 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. - -------------------------------------------------------------------------------- Policies to balance risk Potential risks Potential rewards and reward - -------------------------------------------------------------------------------- Foreign and other market conditions o Each fund's share o Stocks have o Under normal price and generally circumstances the funds performance will outperformed more plan to remain fully fluctuate in stable investments invested, with at least response to stock (such as bonds and 65% in stocks; stock and bond market cash equivalents) investments may include movements over the long term convertible securities, preferred stocks, o The value of most o Foreign investments, depository receipts bonds will fall when which represent a (such as ADRs and EDRs), interest rates rise; major portion of the trust or partnership the longer a bond's world's securities, interests, warrants, maturity and the offer attractive rights, and investment lower its credit potential company securities quality, the more performance and its value typically opportunities for o The funds seek to limit falls diversification risk and enhance performance through o A fund could lose o Most bonds will rise active management, money because of in value when country allocation and foreign government interest rates fall diversification actions, political instability, or lack o Foreign bonds, which o During severe market of adequate and/or represent a major downturns, the funds accurate information portion of the have the option of world's fixed income investing up to 100% of o Investment risks securities, offer assets in tend to be higher in attractive potential investment-grade emerging markets. performance and short-term securities These markets also opportunities for present higher diversification o The Emerging Markets liquidity and Equity Fund will invest valuation risks o Emerging markets can up to 20% of assets in offer higher returns debt securities when o Adverse market J.P. Morgan believes the conditions may from potential total return time to time cause exceeds potential total the fund to take return in emerging temporary defensive markets equity positions that are securities inconsistent with its principal investment strategies and may hinder the fund from achieving its investment objective Management choices o A fund could o A fund could o J.P. Morgan focuses its underperform its outperform its active management on benchmark due to its benchmark due to securities selection, securities choices these same choices the area where it and other management believes its commitment decisions to research can most enhance returns Foreign currencies o Currency exchange o Favorable exchange o Except as noted earlier rate movements could rate movements could in this prospectus, each reduce gains or generate gains or fund manages the create losses reduce losses currency exposure of its foreign investments o Currency risks tend relative to its to be higher in benchmark and may hedge emerging markets a portion of its foreign currency exposure into the U.S. dollar from time to time (see also "Derivatives") When-issued and delayed delivery securities o When a fund buys o A fund can take o Each fund uses securities before advantage of segregated accounts to issue or for delayed attractive offset leverage risk delivery, it could transaction be exposed to opportunities leverage risk if it does not use segregated accounts 16 | FUND DETAILS - -------------------------------------------------------------------------------- Policies to balance risk Potential risks Potential rewards and reward - -------------------------------------------------------------------------------- Derivatives o Derivatives such as o Hedges that o The funds use futures, options, correlate well with derivatives, such as swaps, and forward underlying positions futures, options, swaps, foreign currency can reduce or and forward foreign contracts(1) that eliminate losses at currency contracts, for are used for hedging low cost hedging and for risk the portfolio or management (i.e., to specific securities o A fund could make establish or adjust may not fully offset money and protect exposure to particular the underlying against losses if securities, markets or positions and this the investment currencies); risk could result in analysis proves management may include losses to the fund correct management of a fund's that would not have exposure relative to its otherwise occurred o Derivatives that benchmark involve leverage o Derivatives used for could generate o The funds only establish risk management may substantial gains at hedges that they expect not have the low cost will be highly intended effects and correlated with may result in losses underlying positions or missed opportunities o While the funds may use derivatives that o The counterparty to incidentally involve a derivatives leverage, they do not contract could use them for the default specific purposes of leveraging their o Derivatives that portfolios involve leverage could magnify losses o Certain types of derivatives involve costs to a fund which can reduce returns Securities lending o When a fund lends a o A fund may enhance o J.P. Morgan maintains a security, there is a income through the list of approved risk that the loaned investment of the borrowers securities may not collateral received be returned if the from the borrower o The fund receives borrower defaults collateral equal to at least 100% of the o The collateral will current value of be subject to the securities loaned risks of the securities in which o The lending agents it is invested indemnify a fund against 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 o These holdings may o No fund may invest more difficulty valuing offer more than 15% of net assets these holdings attractive yields or in illiquid holdings precisely potential growth than comparable o To maintain adequate o A fund could be widely traded liquidity, each fund may unable to sell these securities hold investment-grade holdings at the time short-term securities or price it desired (including repurchase agreements and reverse repurchase agreements) and, for temporary or extraordinary purposes, may borrow from banks up to 331/3% of the value of its total assets Short-term trading o Increased trading o A fund could realize o The funds generally could raise a fund's gains in a short avoid short-term brokerage and period of time trading, except to take related costs advantage of attractive o A fund could protect or unexpected o Increased short-term against losses if a opportunities or to meet capital gains stock is overvalued demands generated by distributions could and its value later shareholder activity. raise shareholders' falls The turnover rate for income tax liability each portfolio for its most recent fiscal year Policies to balance risk and reward is as follows: International Equity (80%); European Equity (86%); International Opportunities (86%); and Emerging Markets Equity (65%). (1) A futures contract is an agreement to buy or sell a set quantity of an underlying instrument at a future date, or to make or receive a cash payment based on changes in the value of a securities index. An option is the right to buy or sell a set quantity of an underlying instrument at a predetermined price. A swap is a privately negotiated agreement to exchange one stream of payments for another. A forward foreign currency contract is an obligation to buy or sell a given currency on a future date and at a set price. FUND DETAILS | 17 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS The financial highlights tables are intended to help you understand each fund's financial performance for the past one through five fiscal years or periods, as applicable. Certain information reflects financial results for a single fund share. The total returns in the tables represent the rate that an investor would have earned (or lost) on an investment in a fund (assuming reinvestment of all dividends and distributions). This information has been audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's financial statements, are included in the representative fund's annual report, which are available upon request. J.P. MORGAN INTERNATIONAL EQUITY FUND
- -------------- Per-share data For fiscal years ended October 31 - ---------------------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 Net asset value, beginning of year ($) 10.68 11.38 10.97 10.56 12.41 - ---------------------------------------------------------------------------------------------- Income from investment operations: Net investment income ($) 0.12 0.15 0.34 0.16 0.18 Net realized and unrealized gain (loss) on investment and foreign currency transactions and translations ($) 1.16 0.23 0.14 2.30 (0.71) - ---------------------------------------------------------------------------------------------- Total from investment operations ($) 1.28 0.38 0.48 2.46 (0.53) - ---------------------------------------------------------------------------------------------- Less distributions to shareholders from: Net investment income ($) (0.24) (0.25) (0.42) (0.31) (0.16) Net realized gain ($) (0.34) (0.54) (0.47) (0.30) (1.05) - ---------------------------------------------------------------------------------------------- Total distributions to shareholders ($) (0.58) (0.79) (0.89) (0.61) (1.21) - ---------------------------------------------------------------------------------------------- Net asset value, end of year ($) 11.38 10.97 10.56 12.41 10.67 - ---------------------------------------------------------------------------------------------- - ---------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------------- Total return (%) 12.31 3.46 4.87 24.41 (5.49) - ---------------------------------------------------------------------------------------------- Net assets, end of year ($ thousands) 200,720 146,659 76,472 64,860 55,445 - ---------------------------------------------------------------------------------------------- Ratio to average net assets: Net expenses (%) 1.14 1.12 1.17 1.21 1.30 ------------------------------------------------------------------------------------------- Net investment income (%) 1.00 1.11 0.73 0.55 0.15 ------------------------------------------------------------------------------------------- Expenses without reimbursement (%) 1.14 1.12 1.17 1.21 1.30 ------------------------------------------------------------------------------------------- Interest expense (%) -- -- 0.01 -- -- ------------------------------------------------------------------------------------------- Portfolio turnover rate (%)(1) 57 67 74 70 80 - ----------------------------------------------------------------------------------------------
(1) Represents the turnover of The International Equity Portfolio. 18 | J.P. MORGAN INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- J.P MORGAN EUROPEAN EQUITY FUND
- -------------- Per-share data For fiscal periods ended - ---------------------------------------------------------------------------------------------------------- 12/31/96(1) 12/31/97 For the eleven months 11/30/99 11/30/00 ended 11/30/98 Net asset value, beginning of period ($) 10.00 11.61 13.35 15.42 17.06 - ---------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income (loss) ($) 0.01 0.10 0.12 0.17 (0.09) Net realized and unrealized gain (loss) on investment and foreign currency transactions ($) 1.60 2.45 1.95 1.74 (2.08) - ---------------------------------------------------------------------------------------------------------- Total from investment operations ($) 1.61 2.55 2.07 1.91 (2.17) - ---------------------------------------------------------------------------------------------------------- Less distributions to shareholders from: Net investment income ($) -- (0.07) -- (0.20) (0.10) Net realized gain ($) 0.00(2) (0.74) -- (0.01) (0.11) In excess of realized gain ($) -- -- -- (0.06) -- - ---------------------------------------------------------------------------------------------------------- Total distributions to shareholders ($) 0.00(2) (0.81) -- (0.27) (0.21) - ---------------------------------------------------------------------------------------------------------- Net asset value, end of period ($) 11.61 13.35 15.42 17.06 14.68 - ---------------------------------------------------------------------------------------------------------- - ---------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------------------------- Total return (%) 16.10(3) 22.10 15.51(3) 12.61 (12.75) - ---------------------------------------------------------------------------------------------------------- Net assets, end of period ($ thousands) 2,072 4,832 14,902 13,262 10,267 - ---------------------------------------------------------------------------------------------------------- Ratio to average net assets: Net expenses (%) 1.42(4) 1.42 1.42(4) 1.48 1.50 ------------------------------------------------------------------------------------------------------- Net investment income (%) 0.29(4) 0.91 0.91(4) 0.57 0.22 ------------------------------------------------------------------------------------------------------- Expenses without reimbursement (%) 2.50 3.78 2.03(4) 2.38 2.13 ------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%)(5) 57 65 99 68 86 - ----------------------------------------------------------------------------------------------------------
(1) The fund commenced operations on 5/13/96. (2) Less than 0.01. (3) Not annualized. (4) Annualized. (5) Represents the turnover of The European Equity Portfolio. - -------------------------------------------------------------------------------- J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND
- -------------- Per-share data For fiscal periods ended November 30 - ---------------------------------------------------------------------------------------------------- 1997(1) 1998 1999 2000 Net asset value, beginning of period ($) 10.00 9.92 10.04 12.88 - ---------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income ($) 0.06 0.23 0.21 0.13 Net realized and unrealized gain (loss) on investment and foreign currency transactions ($) (0.14) (0.01) 2.93 (1.51) - ---------------------------------------------------------------------------------------------------- Total from investment operations ($) (0.08) 0.22 3.14 (1.38) - ---------------------------------------------------------------------------------------------------- Less distributions to shareholders from Net investment income ($) -- (0.10) (0.30) (0.15) Net realized gain ($) -- (0.00)(4) -- -- - ---------------------------------------------------------------------------------------------------- Total distributions to shareholders ($) -- (0.10) (0.30) -- - ---------------------------------------------------------------------------------------------------- Net asset value, end of period ($) 9.92 10.04 12.88 11.35 - ---------------------------------------------------------------------------------------------------- - ---------------------------- Ratios and supplemental data - ---------------------------------------------------------------------------------------------------- Total return (%) (0.80)(2) 2.30 32.13 (10.87) - ---------------------------------------------------------------------------------------------------- Net assets, end of period ($ thousands) 62,939 55,050 67,543 79,408 - ---------------------------------------------------------------------------------------------------- Ratio to average net assets: Net expenses (%) 1.20(3) 1.20 1.18 1.21 ------------------------------------------------------------------------------------------------- Net investment income (%) 1.08(3) 0.96 0.47 0.55 ------------------------------------------------------------------------------------------------- Expenses without reimbursement and including interest expense (%) 1.51(3) 1.24 1.24 1.21 ------------------------------------------------------------------------------------------------- Interest expense (%) -- -- 0.01 -- ------------------------------------------------------------------------------------------------- Portfolio turnover rate (%)(5) 72 143 80 86 - ----------------------------------------------------------------------------------------------------
(1) The fund commenced operations on 2/26/97. (2) Not annualized. (3) Annualized. (4) Less than 0.01. (5) Represent the turnover of The International Opportunities Portfolio. J.P. MORGAN INTERNATIONAL EQUITY FUNDS | 19 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- J.P. MORGAN EMERGING MARKETS EQUITY FUND
- -------------- Per-share data For fiscal years ended October 31 - -------------------------------------------------------------------------------- 1996 1997 1998 1999 2000 Net asset value, beginning of year ($) 9.65 10.18 9.78 6.25 7.74 - ----------------------------------------------------------------------------------------------------------- Income from investment operations: Net investment income ($) 0.08 0.08 0.12(1) 0.08 0.02 Net realized and unrealized gain (loss) on investment and foreign currency transactions ($) 0.53 (0.42) (3.57)(1) 1.84 (0.57) - ----------------------------------------------------------------------------------------------------------- Total from investment operations ($) 0.61 (0.34) (3.45) 1.92 (0.55) - ----------------------------------------------------------------------------------------------------------- Less distributions to shareholders from: Net investment income ($) (0.08) (0.06) (0.08) (0.31) (0.01) Net realized gain ($) -- -- -- -- -- In excess of net investment income ($) -- -- -- (0.12) (0.03) - ----------------------------------------------------------------------------------------------------------- Total distributions to shareholders ($) (0.08) (0.06) (0.08) (0.43) (0.04) - ----------------------------------------------------------------------------------------------------------- Net asset value, end of year ($) 10.18 9.78 6.25 7.74 7.15 - ----------------------------------------------------------------------------------------------------------- - ---------------------------- Ratios and supplemental data - ----------------------------------------------------------------------------------------------------------- Total return (%) 6.31 (3.34) (35.54) 33.00 (7.12) - ----------------------------------------------------------------------------------------------------------- Net assets, end of year ($ thousands) 59,107 45,444 23,387 35,786 34,204 - ----------------------------------------------------------------------------------------------------------- Ratio to average net assets: Expenses (%) 1.69 1.65 1.76 1.75 1.75 -------------------------------------------------------------------------------------------------------- Net investment income (%) 0.68 0.62 1.24 0.73 0.15 -------------------------------------------------------------------------------------------------------- Expenses without reimbursement (%) 1.69 1.65 1.82 1.87 1.96 -------------------------------------------------------------------------------------------------------- Portfolio turnover rate (%)(2) 31 55 44 87 65 - -----------------------------------------------------------------------------------------------------------
(1) Based on amounts prior to Statement of Position 93-2 adjustments. (2) Represents the turnover of The Emerging Markets Equity Portfolio. 20 | J.P. MORGAN INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- (THIS PAGE IS INTENTIONALLY LEFT BLANK) - -------------------------------------------------------------------------------- FOR MORE INFORMATION - -------------------------------------------------------------------------------- For investors who want more information on these funds, the following documents are available free upon request: Annual/Semi-annual Reports Contain financial statements, performance data, information on portfolio holdings, and a written analysis of market conditions and fund performance for a fund's most recently completed fiscal year or half-year. Statement of Additional Information (SAI) Provides a fuller technical and legal description of a fund's policies, investment restrictions, and business structure. This prospectus incorporates each fund's SAI by reference. Copies of the current versions of these documents, along with other information about these funds, may be obtained by contacting: J.P. Morgan Funds Morgan Christiana Center J.P. Morgan Funds Services - 2/OPS3 500 Stanton Christiana Road Newark, DE 19713 Telephone: 1-800-521-5411 Hearing impaired: 1-888-468-4015 Email: JPM_Mutual_Funds@JPMorgan.com Text-only versions of these documents and this prospectus are available, upon payment of a duplicating fee, from the Public Reference Room of the Securities and Exchange Commission in Washington, D.C. (1-202-942-8090) (publicinfo@sec.gov), or by writing the Public Reference Section of the SEC; Washington, DC 20549-0102, and may be viewed on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The funds' investment company and 1933 Act registration numbers are: J.P. Morgan International Equity Fund ...................811-07340 and 033-54632 J.P. Morgan European Equity Fund ........................811-07340 and 033-54632 J.P. Morgan International Opportunities Fund ............811-07340 and 033-54632 J.P. Morgan Emerging Markets Equity Fund ................811-07340 and 033-54632 J.P. MORGAN FUNDS AND THE MORGAN TRADITION The J.P. Morgan 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 Funds offer a broad array of distinctive opportunities for mutual fund investors. JPMorgan - -------------------------------------------------------------------------------- J.P. Morgan Funds Advisor J.P. Morgan Investment Management Inc. 522 Fifth Avenue New York, NY 10036 1-800-521-5411 Distributor Funds Distributor, Inc. 60 State Street Boston, MA 02109 1-800-221-7930
EX-99.17(E) 6 a2043519zex-99_17e.txt EXHIBIT 99.17(E) J.P. MORGAN FUNDS J.P. MORGAN INTERNATIONAL EQUITY FUND J.P. MORGAN EMERGING MARKETS EQUITY FUND J.P. MORGAN INTERNATIONAL OPPORTUNITIES FUND J.P. MORGAN EUROPEAN EQUITY FUND STATEMENT OF ADDITIONAL INFORMATION MARCH 1, 2001 THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS DATED MARCH 1, 2001 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS RELATING TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 2000 (FOR THE INTERNATIONAL EQUITY AND EMERGING MARKETS EQUITY FUNDS) AND NOVEMBER 30, 2000 (FOR THE INTERNATIONAL OPPORTUNITIES AND EUROPEAN EQUITY FUNDS). THE PROSPECTUS AND THE FINANCIAL STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORTS THEREON, ARE AVAILABLE, WITHOUT CHARGE UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN FUNDS (800)221-7930. Table of Contents Page General....................................................................1 Investment Objective and Policies..........................................1 Investment Restrictions....................................................21 Trustees and Advisory Board................................................22 Officers...................................................................25 Codes of Ethics............................................................26 Investment Advisor.........................................................26 Distributor................................................................30 Co-Administrator...........................................................29 Services Agent.............................................................30 Custodian and Transfer Agent...............................................31 Shareholder Servicing......................................................31 Financial Professionals....................................................32 Independent Accountants....................................................33 Expenses...................................................................33 Purchase of Shares.........................................................34 Redemption of Shares.......................................................35 Exchange of Shares.........................................................35 Dividends and Distributions................................................36 Net Asset Value............................................................36 Performance Data...........................................................37 Portfolio Transactions.....................................................39 Massachusetts Trust........................................................41 Description of Shares......................................................42 Special Information Concerning Investment Structure........................44 Taxes......................................................................45 Additional Information.....................................................50 Financial Statements.......................................................51 Appendix A - Description of Security Ratings..............................A-1 GENERAL This Statement of Additional Information relates only to the J.P. Morgan International Equity Fund, the J.P. Morgan Emerging Markets Equity Fund, the J.P. Morgan International Opportunities Fund and the J.P. Morgan European Equity Fund (collectively, the "Funds"). Each of the Funds is a separate series of shares of beneficial interest of the J.P. Morgan 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 Fund"). The other J.P. Morgan 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 J.P. Morgan Funds operate through a two-tier master-feeder investment fund structure. Formerly, the J.P. Morgan International Equity Fund operated as a free-standing mutual fund and not through the master-feeder structure. Where indicated in this Statement of Additional Information, historical information for this Fund includes information for its predecessor entity. 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." Each Portfolio is 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, Morgan Guaranty Trust Company of New York ("Morgan"), an affiliate of the Advisor, or any other 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 OBJECTIVE AND POLICIES The following discussion supplements the information regarding the investment objective of each Fund and the policies to be employed to achieve the objective by each Portfolio as set forth in the applicable Prospectus. The investment objectives of each Fund and the investment objectives of its corresponding Portfolio are identical. Accordingly, references below to a Portfolio also include the corresponding Fund; similarly, references to a Fund also include the corresponding Portfolio unless the context requires otherwise. The J.P. Morgan International Equity Fund (the "International Equity Fund") is designed for investors with a long term investment horizon who want to diversify their portfolios by investing in an actively managed portfolio of non-U.S. securities that seeks to outperform the Morgan Stanley Capital International ("MSCI") Europe, Australasia and Far East Index (the "EAFE Index"). The International Equity Fund's investment objective is to provide high total return from a portfolio of equity securities of foreign corporations. The International Equity Fund attempts to achieve its investment objective by investing all of its investable assets in The International Equity Portfolio (the "International Equity Portfolio"), a diversified open-end management investment company having the same investment objective as the International Equity Fund. The International Equity Portfolio seeks to achieve its investment objective by investing primarily in the equity securities of foreign corporations. Equity securities consist of common stocks and other securities with equity characteristics such as preferred stocks, depository receipts, warrants, rights, convertible securities, trust or limited partnership interests and equity participations (collectively, "Equity Securities"). Under normal circumstances, the International Equity Portfolio expects to invest at least 65% of its total assets in such securities. The International Equity Portfolio does not intend to invest in U.S. securities (other than money market instruments), except temporarily, when extraordinary circumstances prevailing at the same time in a significant number of developed foreign countries render investments in such countries inadvisable. Investment Process for the International Equity Portfolio Country allocation: JPMIM's country allocation decision begins with a forecast of equity risk premiums, which provide a valuation signal by measuring the relative attractiveness of stocks. Using a proprietary approach, JPMIM calculates this risk premium for each of the nations in the International Equity Portfolio's universe, determines the extent of its deviation -- if any -- from its historical norm, and then ranks countries according to the size of those deviations. Countries with high (low) rankings are overweighted (underweighted) in comparisons to the EAFE Index to reflect the above-average (below-average) attractiveness of their stock markets. In determining weightings, JPMIM analyzes a variety of qualitative factors as well, including the liquidity, earnings momentum and interest rate climate of the market at hand. These qualitative assessments can change the magnitude but not the direction of the country allocations called for by the risk premium forecast. JPMIM places limits on the total size of the International Equity Portfolio's country over- and under-weightings relative to the EAFE Index. Stock selection: JPMIM's more than 90 international equity analysts, each an industry and country specialist with an average of nearly ten years of experience, forecast normalized earnings and dividend payouts for roughly 1,200 non-U.S. companies -- taking a long-term perspective rather than the short time frame common to consensus estimates. These forecasts are converted into comparable expected returns by a dividend discount model, and then companies are ranked from most to least attractive by industry and country. A diversified portfolio is constructed using disciplined buy and sell rules. The portfolio manager's objective is to concentrate the purchases in the stocks deemed most undervalued, and to keep sector weightings close to those of the EAFE Index, the International Equity Portfolio's benchmark. Once a stock falls into the bottom half of the rankings, it generally becomes a candidate for sale. Where available, warrants and convertibles may be purchased instead of common stock if they are deemed a more attractive means of investing in an undervalued company. 2 Currency management: Currency is actively managed, in conjunction with country and stock allocation, with the goal of protecting and possibly enhancing the International Equity Portfolio's return. JPMIM's currency decisions are supported by a proprietary tactical model which forecasts currency movements based on an analysis of four fundamental factors -- trade balance trends, purchasing power parity, real short-term interest differentials and real bond yields -- plus a technical factor designed to improve the timing of transactions. Combining the output of this model with a subjective assessment of economic, political and market factors, JPMIM's currency specialists recommend currency strategies that are implemented in conjunction with the International Equity Portfolio's investment strategy. The J.P. Morgan Emerging Markets Equity Fund (the "Emerging Markets Equity Fund") is designed for investors with a long term investment horizon who want exposure to the rapidly growing emerging markets. The Emerging Markets Equity Fund's investment objective is to achieve a high total return from a portfolio of equity securities of companies in emerging markets. The Fund attempts to achieve its investment objective by investing all of its investable assets in The Emerging Markets Equity Portfolio (the "Emerging Markets Equity Portfolio"), a diversified open-end management investment company having the same investment objective as the Emerging Markets Equity Fund. The Emerging Markets Equity Portfolio seeks to achieve its investment objective by investing primarily in Equity Securities of emerging markets issuers. Under normal circumstances, the Emerging Markets Equity Portfolio expects to invest at least 65% of its total assets in such securities. The fund may also invest up to 20% in debt securities of emerging markets issuers. The Emerging Markets Equity Portfolio does not intend to invest in U.S. securities (other than money market instruments), except temporarily, when extraordinary circumstances prevailing at the same time in a significant number of emerging markets countries render investments in such countries inadvisable. Investment Process for the Emerging Markets Equity Portfolio Country allocation: JPMIM's country allocation decision begins with a forecast of the expected return of each market in the Emerging Markets Equity Portfolio's universe. These expected returns are calculated using a proprietary valuation method that is forward looking in nature rather than based on historical data. JPMIM then evaluates these expected returns from two different perspectives: first, it identifies those countries that have high real expected returns relative to their own history and other nations in their universe. Second, it identifies those countries that it expects will provide high returns relative to their currency risk. Countries that rank highly on one or both of these scores are overweighted relative to the Emerging Markets Equity Portfolio's benchmark, the MSCI Emerging Markets Free Index, while those that rank poorly are underweighted. Stock selection: JPMIM's 25 emerging markets equity analysts, each an industry specialist, monitor a universe of approximately 325 companies in these countries, developing forecasts of earnings and cash flows for the most attractive among them. Companies are ranked from most to least attractive based on this research, and then a diversified portfolio is constructed using disciplined buy and sell rules. The portfolio manager's objective is to concentrate the Emerging Markets Equity Portfolio's holdings in the stocks deemed most undervalued, and to keep sector weightings relatively close to those of the index. Stocks are generally held until they fall into the bottom half of JPMIM's rankings. 3 J.P. Morgan International Opportunities Fund (the "International Opportunities Fund") is designed for long-term investors who want to invest in an actively managed portfolio of common stocks and other equity securities of non-U.S. companies, including companies located in emerging markets. The International Opportunities Fund's investment objective is to provide high total return from a portfolio of equity securities of foreign companies in developed and, to a lesser extent, developing markets. The International Opportunities Fund attempts to achieve its investment objective by investing all of its investable assets in The International Opportunities Portfolio (the "International Opportunities Portfolio"), a diversified open-end management investment company having the same investment objective as the International Opportunities Fund. The International Opportunities Portfolio seeks to achieve its investment objective by investing primarily in Equity Securities of non-U.S. issuers in developed and developing countries. Under normal circumstances, the International Opportunities Portfolio expects to invest at least 65% of its total assets in such securities. The International Opportunities Portfolio does not intend to invest in U.S. securities (other than money market instruments), except temporarily, when extraordinary circumstances prevailing at the same time in a significant number of foreign countries render investments in such countries inadvisable. Investment Process for the International Opportunities Portfolio Stock selection: JPMIM's approximately 90 international equity analysts and 23 emerging markets equity analysts, each an industry and country specialist, forecast normalized earnings, dividend payouts and cash flows for roughly 1,200 non-U.S. companies, taking a long-term perspective rather than the short time frame common to consensus estimates. These forecasts are converted into comparable expected returns by a dividend discount model, and then companies are ranked from most to least attractive by industry. A diversified portfolio is constructed using disciplined buy and sell rules. The portfolio manager's objective is to concentrate the International Opportunities Portfolio's purchases in the stocks deemed most undervalued. Stocks generally become a candidate for sale when they fall into the bottom half of JPMIM's rankings. Where available, warrants and convertibles may be purchased instead of common stock if they are deemed a more attractive means of investing in an undervalued company. Currency management: JPMIM actively manages the currency exposure of the International Opportunities Portfolio's investments in developed countries, in conjunction with country and stock allocation, with the goal of protecting and possibly enhancing the International Opportunities Portfolio's return. JPMIM's currency decisions are supported by a proprietary tactical model which forecasts currency movements based on an analysis of four fundamental factors -- trade balance trends, purchasing power parity, real short-term interest differentials and real bond yields -- plus a technical factor designed to improve the timing of transactions. Combining the output of this model with a subjective assessment of economic, political and market factors, JPMIM's currency specialists recommend currency strategies that are implemented in conjunction with the International Opportunities Portfolio's investment strategy. Country allocation (developed countries): The International Opportunities Portfolio's country weightings primarily result from its stock selection decisions and may vary significantly from the MSCI All Country World Index Free (ex-U.S.), the International Opportunities Portfolio's benchmark. 4 The J.P. Morgan European Equity Fund (the "European Equity Fund") is designed for investors who want an actively managed portfolio of European Equity Securities that seeks to outperform the MSCI Europe Index which is comprised of more than 600 companies in 14 European countries. The European Equity Fund's investment objective is to provide high total return from a portfolio of European company stocks. The European Equity Fund attempts to achieve its investment objective by investing all of its investable assets in The European Equity Portfolio (the "European Equity Portfolio"), a diversified open-end management investment company having the same investment objective as the European Equity Fund. The European Equity Portfolio seeks to achieve its investment objective by investing primarily in Equity Securities of European companies. Under normal circumstances, the European Equity Portfolio expects to invest at least 65% of its total assets in Equity Securities. The European Equity Portfolio does not intend to invest in U.S. securities (other than money market instruments), except temporarily, when extraordinary circumstances prevailing at the same time in a significant number of European countries render investments in such countries inadvisable. Investment Process for the European Equity Portfolio Stock selection: Various models are used to quantify JPMIM's fundamental stock research, producing a ranking of companies in each industry group according to their relative value. The European Equity Portfolio's management team then buys and sells stocks, using the research and valuation rankings as well as its assessment of other factors including: catalysts that could trigger a change in a stock's price, potential reward compared to potential risk and temporary mispricings caused by market overreactions. Country allocation: The European Equity Portfolio's country weightings primarily result from its stock selection decisions and may vary significantly from the MSCI Europe Index, the European Equity Portfolio's benchmark. In addition, JPMIM makes active allocations to certain countries. For example, currently country weightings in continental Europe result from individual stock selection decisions. With regards to the United Kingdom, the Advisor makes an active country allocation decision. The Advisor, based on changing market conditions and experienced judgment, may from time to time adjust the extent to which country weighting is based on stock selection and active country allocation. Equity Investments The Portfolios invest primarily in Equity Securities. The Equity Securities in which the Portfolios 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 Portfolios 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 Portfolios 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. 5 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 Portfolios 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 Portfolios make substantial investments in foreign countries. Investors should realize that the value of the Portfolios' 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 Portfolios' 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 Portfolios must be made in compliance with U.S. and foreign currency restrictions and tax laws restricting the amounts and types of foreign investments. Generally, investment in securities of foreign issuers involves somewhat different investment risks from those affecting securities of U.S. domestic issuers. There may be limited publicly available information with respect to foreign issuers, and foreign issuers are not generally subject to uniform accounting, auditing and financial standards and requirements comparable to those applicable to domestic companies. Dividends and interest paid by foreign issuers may be subject to withholding and other foreign taxes which may decrease the net return on foreign investments as compared to dividends and interest paid to a Portfolio by domestic companies. 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 Portfolio'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 6 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 Depositary Receipts ("ADRs"), European Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other similar securities of foreign issuers. ADRs are securities, typically issued by a U.S. financial institution (a "depositary"), that evidence ownership interests in a security or a pool of securities issued by a foreign issuer and deposited with the depositary. ADRs include American Depositary Shares and New York Shares. EDRs are receipts issued by a European financial institution. GDRs, which are sometimes referred to as Continental Depositary 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 depositary, whereas an unsponsored facility may be established by a depositary without participation by the issuer of the receipt's underlying security. Holders of an unsponsored depositary receipt generally bear all costs of the unsponsored facility. The depositary 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 Portfolio'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 Portfolios 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 Portfolios' currency exposure related to foreign investments. The Portfolios may also invest in countries with emerging economies or securities markets. Political and economic structures in many of such countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristic of more developed countries. Certain of such countries may have in the past failed to recognize private property rights and have at times nationalized or expropriated the assets of private companies. As a result, the risks described above, including the risks of nationalization or expropriation of assets, may be heightened. In addition, unanticipated political or social developments may affect the values of the Portfolios investments in those countries and the availability to a Portfolio of additional investments in those countries. The small size and inexperience of the securities markets in certain of such countries and the limited volume of trading in securities in those countries may make the Portfolios investments in such countries illiquid and more volatile than investments in more developed countries, and a Portfolio may be required to establish special custodial or other arrangements before making certain investments in those countries. There may be little financial or accounting information available with respect to issuers located in certain of such countries, and it may be 7 difficult as a result to assess the value or prospects of an investment in such issuers. Foreign Currency Exchange Transactions. Because the Portfolios buy and sell securities and receive interest and dividends in currencies other than the U.S. dollar, the Portfolios may enter from time to time into foreign currency exchange transactions. The Portfolios either enter into these transactions on a spot (i.e., cash) basis at the spot rate prevailing in the foreign currency exchange market, or use forward contracts to purchase or sell foreign currencies. The cost of a Portfolio'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 a Portfolio 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 contracts. 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 the Portfolio's securities or in foreign exchange rates, or prevent loss if the prices of these securities should decline. The Portfolios may enter into forward foreign currency exchange contracts in connection with settlements of securities transactions and other anticipated payments or receipts. In addition, from time to time, the Advisor may reduce a Portfolio's foreign currency exposure by entering into forward foreign currency exchange contracts to sell a foreign currency in exchange for the U.S. dollar. The Portfolios may also enter into forward foreign currency exchange contracts to adjust their currency exposure relative to their benchmarks. Forward foreign currency exchange contracts may involve the purchase or sale of a foreign currency in exchange for U.S. dollars or may involve two foreign currencies. 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 the Portfolio 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. Sovereign and Corporate Debt Obligations. The Emerging Markets Equity Fund may invest in sovereign debt obligations. Investment in sovereign debt obligations involves special risks not present in corporate debt obligations. The issuer of the sovereign debt or the governmental authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and the Fund may have limited recourse in the event of a default. During periods of economic uncertainty, the market prices of 8 sovereign debt, and the Fund's net asset value, may be more volatile than prices of U.S. debt obligations. In the past, certain emerging markets have encountered difficulties in servicing their debt obligations, withheld payments of principal and interest and declared moratoria on the payment of principal and interest on their sovereign debts. A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by, among other factors, its cash flow situation, the extent of its foreign currency reserves, the availability of sufficient foreign exchange, the relative size of the debt service burden, the sovereign debtor's policy toward principal international lenders and local political constraints. Sovereign debtors may also be dependent on expected disbursements from foreign governments, multilateral agencies and other entities to reduce principal and interest arrearages on their debt. The failure of a sovereign debtor to implement economic reforms, achieve specified levels of economic performance or repay principal or interest when due may result in the cancellation of third-party commitments to lend funds to the sovereign debtor, which may further impair such debtor's ability or willingness to service its debts. Corporate debt obligations, including obligations of industrial, utility, banking and other financial issuers, are subject to the risk of an issuer's inability to meet principal and interest payments on the obligations and may also be subject to price volatility due to such factors as market interest rates, market perception of the creditworthiness of the issuer and general market liquidity. Brady Bonds. The Emerging Markets Equity Fund may invest in Brady bonds. Brady bonds are securities created through the exchange of existing commercial bank loans to public and private entities in certain emerging markets for new bonds in connection with debt restructurings. Brady bonds have been issued since 1989 and do not have a long payment history. In light of the history of defaults of countries issuing Brady bonds on their commercial bank loans, investments in Brady bonds may be viewed as speculative. Brady bonds may be fully or partially collateralized or uncollateralized, are issued in various currencies (but primarily the dollar) and are actively traded in over-the-counter ("OTC") secondary markets. Incomplete collateralization of interest or principal payment obligations results in increased credit risk. Dollar-denominated collateralized Brady bonds, which may be either fixed-rate or floating-rate bonds, are generally collateralized by U.S. Treasury zero coupon bonds having the same maturity as the Brady bonds. Obligations of Supranational Entities. The Emerging Markets Equity Fund may invest in obligations of supranational entities designated or supported by governmental entities to promote economic reconstruction or development and of international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (the "World Bank"), the European Coal and Steel Community, the Asian Development Bank and the Inter-American Development Bank. Each supranational entity's lending activities are limited to a percentage of its total capital (including "callable capital" contributed by its governmental members at the entity's call), reserves and net income. There is no assurance that participating governments will be able or willing to honor their commitments to make capital contributions to a supranational entity. 9 Investment in Lower Rated Obligations. While generally providing higher coupons or interest rates than investments in higher quality securities, lower quality debt securities involve greater risk of loss of principal and income, including the possibility of default or bankruptcy of the issuers of such securities, and have greater price volatility, especially during periods of economic uncertainty or change. These lower quality debt obligations tend to be affected by economic changes and short-term corporate and industry developments to a greater extent than higher quality securities, which react primarily to Fund invests in such lower quality securities, the achievement of its investment objective may be more dependent on the Advisor's credit analysis. Lower quality debt obligations are affected by the market's perception of their credit quality, especially during time of adverse publicity, and the outlook for economic growth. Economic downturns or an increase in interest rates may cause a higher incidence of default by the issuers of these securities, especially issuers that are highly leveraged. The market for these lower quality fixed income securities is generally less liquid than the market for investment grade fixed income securities. It may be more difficult to sell these lower rated securities to meet redemption requests, to respond to changes in the market, or to value accurately the Fund's portfolio holdings for purposes of determining the Fund's net asset value. Money Market Instruments Although the Portfolios intend under normal circumstances and to the extent practicable, to be fully invested in Equity Securities, each Portfolio may invest in money market instruments to the extent consistent with its investment objective and policies. The Portfolios 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 Portfolios appears below. Also see "Quality and Diversification Requirements." U.S. Treasury Securities. Each of the Portfolios 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 Portfolios 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 Portfolio must look principally to the federal agency issuing or guaranteeing the obligation for ultimate repayment and may not be able to assert a claim against the United States itself in the event the agency or instrumentality does not meet its commitments. Securities in which each Portfolio may invest that are not backed by the full faith and credit of the United States include, but are not limited to: (i) obligations of the Tennessee Valley Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan Bank 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 10 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 Portfolios, 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 Portfolios may invest in negotiable certificates of deposit, time deposits and bankers' acceptances of (i) banks, savings and loan associations and savings banks which have more than $2 billion in total assets and are organized under the laws of the United States or any state, (ii) foreign branches of these banks or of foreign banks of equivalent size (Euros) and (iii) U.S. branches of foreign banks of equivalent size (Yankees). The Portfolios 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 Portfolios may also invest in 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 Portfolios may invest in commercial paper, including master demand obligations. Master demand obligations are obligations that provide for a periodic adjustment in the interest rate paid and permit daily changes in the amount borrowed. Master demand obligations are governed by agreements between the issuer and Morgan acting as agent, for no additional fee. The monies loaned to the borrower come from accounts managed by Morgan or its affiliates, pursuant to arrangements with such accounts. Interest and principal payments are credited to such accounts. Morgan 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 Portfolio's quality restrictions. See "Quality and Diversification Requirements." Although there is no secondary market for master demand obligations, such obligations are considered by the Portfolios to be liquid because they are payable upon demand. The Portfolios do not have any specific percentage limitation on investments in master demand obligations. It is possible that the issuer of a master demand obligation could be a client of Morgan to whom Morgan, in its capacity as a commercial bank, has made a loan. Repurchase Agreements. Each of the Portfolios may enter into repurchase agreements with brokers, dealers or banks that meet the Advisor's credit guidelines. In a repurchase agreement, a Portfolio buys a security from a seller that has agreed to repurchase the same security at a mutually agreed upon date and price. The resale price normally is in excess of the purchase price, reflecting an agreed upon interest rate. This interest rate is effective for the period of time the Portfolio is invested in the agreement 11 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 Portfolio to the seller. The period of these repurchase agreements will usually be short, from overnight to one week, and at no time will the Portfolios 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 Portfolios 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 Portfolios in each agreement plus accrued interest, and the Portfolios 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 Portfolio might incur a loss if the value of the collateral securing the repurchase agreement declines and might incur disposition costs in connection with liquidating the collateral. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, realization upon disposal of the collateral by a Portfolio may be delayed or limited. Each of the Portfolios 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. Corporate Bonds and Other Debt Securities. Each of the Portfolios may invest in bonds and other debt securities of domestic and foreign issuers to the extent consistent with its investment objective and policies. A description of these investments appears below. See "Quality and Diversification Requirements." For information on short-term investments in these securities, see "Money Market Instruments." Asset-backed Securities. Asset-backed securities directly or indirectly represent a participation interest in, or are secured by and payable from, a stream of payments generated by particular assets such as motor vehicle or credit card receivables or other asset-backed securities collateralized by such assets. Payments of principal and interest may be guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution unaffiliated with the entities issuing the securities. The asset-backed securities in which a Portfolio may invest are subject to the Portfolio's overall credit requirements. However, asset-backed securities, in general, are subject to certain risks. Most of these risks are related to limited interests in applicable collateral. For example, credit card debt receivables are generally unsecured and the debtors are entitled to the protection of a number of state and federal consumer credit laws, many of which give such debtors the right to set off certain amounts on credit card debt thereby reducing the balance due. Additionally, if the letter of credit is exhausted, holders of asset-backed securities may also experience delays in payments or losses if the full amounts due on underlying sales contracts are not realized. Because asset-backed securities are relatively new, the market experience in these securities is limited and the market's ability to sustain liquidity through all phases of the market cycle has not been tested. 12 Additional Investments When-Issued and Delayed Delivery Securities. Each of the Portfolios may purchase securities on a when-issued or delayed delivery basis. For example, delivery of and payment for these securities can take place a month or more after the date of the purchase commitment. The purchase price and the interest rate payable, if any, on the securities are fixed on the purchase commitment date or at the time the settlement date is fixed. The value of such securities is subject to market fluctuation and for money market instruments and other fixed income securities no interest accrues to a Portfolio until settlement takes place. At the time a Portfolio makes the commitment to purchase securities on a when-issued or delayed delivery basis, it will record the transaction, reflect the value each day of such securities in determining its net asset value and 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 Portfolio will maintain with the Custodian a segregated account with liquid assets, consisting of cash, U.S. Government securities or other appropriate securities, in an amount at least equal to such commitments. On delivery dates for such transactions, each Portfolio will meet its obligations from maturities or sales of the securities held in the segregated account and/or from cash flow. If a Portfolio chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as with the disposition of any other portfolio obligation, incur a gain or loss due to market fluctuation. Also, a Portfolio 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 Portfolio to the extent permitted under the 1940 Act or any order pursuant thereto. These limits currently require that, as determined immediately after a purchase is made, (i) not more than 5% of the value of 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 Portfolio an exemptive order permitting it to invest its uninvested cash in any of the following affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The order sets forth the following conditions: (1) the Portfolio may invest in one or more of the permitted money market funds up to an aggregate limit of 25% of its assets; and (2) the Advisor will waive and/or reimburse its advisory fee from the Portfolio in an amount sufficient to offset any doubling up of investment advisory, shareholder servicing and administrative fees. Reverse Repurchase Agreements. 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 13 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. All forms of borrowing (including reverse repurchase agreements and securities lending are limited in the aggregate and many not exceed 33-1/3% of a Fund's total assets. Loans of Portfolio Securities. Each of the Portfolios may lend its securities if such loans are secured continuously by cash or equivalent collateral or by a letter of credit in favor of the Portfolio at least equal at all times to 100% of the market value of the securities loaned, plus accrued interest. While such securities are on loan, the borrower will pay the Portfolio any income accruing thereon. Loans will be subject to termination by the Portfolio in the normal settlement time, generally three business days after notice, or by the borrower on one day's notice. Borrowed securities must be returned when the loan is terminated. Any gain or loss in the market price of the borrowed securities which occurs during the term of the loan inures to a Portfolio and its respective investors. The Portfolios may pay reasonable finders' and custodial fees in connection with a loan. In addition, a Portfolio will consider all facts and circumstances before entering into such an agreement, including the creditworthiness of the borrowing financial institution, and no Portfolio will make any loans in excess of one year. The Portfolios will not lend their securities to any officer, Trustee, Director, Member of the Advisory Board, employee or other affiliate of the Portfolios, the Advisor or the Distributor, unless otherwise permitted by applicable law. All forms of borrowing (including reverse repurchase agreements and securities lending are limited in the aggregate and many not exceed 33-1/3% of a Fund's total assets. Privately Placed and Certain Unregistered Securities. A Portfolio may not acquire any illiquid securities if, as a result thereof, more than 15% of the Portfolio's net assets would be in illiquid investments. Subject to this non-fundamental policy limitation, the Portfolios may acquire investments that are illiquid or have limited liquidity, such as private placements or investments that are not registered under 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 Portfolio. The price a Portfolio pays for illiquid securities or receives upon resale may be lower than the price paid or received for similar securities with a more liquid market. Accordingly the valuation of these securities will reflect any limitations on their liquidity. The Portfolios 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. 14 As to illiquid investments, a Portfolio is subject to a risk that should the Portfolio decide to sell them when a ready buyer is not available at a price the Portfolio deems representative of their value, the value of the Portfolio's net assets could be adversely affected. Where an illiquid security must be registered under the 1933 Act, before it may be sold, a Portfolio may be obligated to pay all or part of the registration expenses, and a considerable period may elapse between the time of the decision to sell and the time the Portfolio may be permitted to sell a holding under an effective registration statement. If, during such a period, adverse market conditions were to develop, a Portfolio might obtain a less favorable price than prevailed when it decided to sell. Quality and Diversification Requirements Each of the Portfolios intends to meet the diversification requirements of the 1940 Act. Current 1940 Act diversification requirements require that with respect to 75% of the assets of the Portfolio: (1) the Portfolio may not invest more than 5% of its total assets in the securities of any one issuer, except obligations of the U.S. Government, its agencies and instrumentalities, and (2) the Portfolio may not own more than 10% of the outstanding voting securities of any one issuer. As for the other 25% of the Portfolio's assets not subject to the limitation described above, there is no limitation on investment of these assets under the 1940 Act, so that all of such assets may be invested in securities of any one issuer. Investments not subject to the limitations described above could involve an increased risk to the Portfolio should an issuer, or a state or its related entities, be unable to make interest or principal payments or should the market value of such securities decline. The Portfolios 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 Portfolios may invest in convertible debt securities, for which there are no specific quality requirements. In addition, at the time a Portfolio invests in any commercial paper, bank obligation or repurchase agreement, the issuer must have outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's parent corporation, if any, must have outstanding commercial paper rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the investment must be of comparable quality in the Advisor's opinion. At the time a Portfolio 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 Exchange Traded and OTC Options. All options purchased or sold by the Portfolios will be traded on a securities exchange or will be purchased or sold by securities dealers (OTC options) that meet creditworthiness standards approved by the Trustees. While exchange-traded options are obligations of the Options Clearing Corporation, in the case of OTC options, a Portfolio relies on the dealer from which it purchased the option to perform if the 15 option is exercised. Thus, when a Portfolio purchases an OTC option, it relies on the dealer from which it purchased the option to make or take delivery of the underlying securities. Failure by the dealer to do so would result in the loss of the premium paid by the Portfolio as well as loss of the expected benefit of the transaction. Provided that a Portfolio has arrangements with certain qualified dealers who agree that the Portfolio may repurchase any option it writes for a maximum price to be calculated by a predetermined formula, a Portfolio may treat the underlying securities used to cover written OTC options as liquid. In these cases, the OTC option itself would only be considered illiquid to the extent that the maximum repurchase price under the formula exceeds the intrinsic value of the option. Futures Contracts and Options on Futures Contracts. The Portfolios may purchase or sell (write) futures contracts and may purchase and sell (write) put and call options, including put and call options on futures contracts. Futures contracts obligate the buyer to take and the seller to make delivery at a future date of a specified quantity of a financial instrument or an amount of cash based on the value of a securities index. Currently, futures contracts are available on various types of fixed income securities, including but not limited to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and on indexes of fixed income securities 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 Portfolio are paid by the Portfolio 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 Portfolios may purchase and write options in combination with each other, or in combination with futures or forward contracts, to adjust the risk and return characteristics of the overall position. For example, a Portfolio may purchase a put option and write a call option on the same underlying instrument, in order to construct a combined position whose risk and return characteristics are similar to selling a futures contract. Another possible combined position would involve writing a call option at one strike price and buying a call option at a lower price, in order to reduce the risk of the written call option in the event of a substantial price increase. Because combined options positions involve multiple trades, they result in higher transaction costs and may be more difficult to open and close out. 16 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 Portfolio's current or anticipated investments exactly. A Portfolio may invest in options and futures contracts based on securities with different issuers, maturities, or other characteristics from the securities in which it typically invests, which involves a risk that the options or futures position will not track the performance of the Portfolio's other investments. Options and futures contracts prices can also diverge from the prices of their underlying instruments, even if the underlying instruments match the Portfolio's investments well. Options and futures contracts prices are affected by such factors as current and anticipated short term interest rates, changes in volatility of the underlying 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 Portfolio may purchase or sell options and futures contracts with a greater or lesser value than the securities it wishes to hedge or intends to purchase in order to attempt to compensate for differences in volatility between the contract and the securities, although this may not be successful in all cases. If price changes in a Portfolio's options or futures positions are poorly correlated with its other investments, the positions may fail to produce anticipated gains or result in losses that are not offset by gains in other investments. Liquidity of Options and Futures Contracts. There is no assurance 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 Portfolio to enter into new positions or close out existing positions. If the market for a contract is not liquid because of price fluctuation limits or otherwise, it could prevent prompt liquidation of unfavorable positions, and could potentially require a Portfolio to continue to hold a position until delivery or expiration regardless of changes in its value. As a result, the Portfolio's access to other assets held to cover its options or futures positions could also be impaired. (See "Exchange Traded and OTC Options" above for a discussion of the liquidity of options not traded on an exchange.) Position Limits. Futures exchanges can limit the number of futures and options on futures contracts that can be held or controlled by an entity. If an adequate exemption cannot be obtained, a Portfolio or the Advisor may be required to reduce the size of its futures and options positions or may not be able to trade a certain futures or options contract in order to avoid exceeding such limits. Asset Coverage for Futures Contracts and Options Positions. Although the Portfolios will not be commodity pools, certain derivatives subject the Portfolios to the rules of the Commodity Futures Trading Commission which limit the extent to which the Portfolio can invest in such derivatives. Each Portfolio may invest in futures contracts and options with respect thereto for hedging purposes without limit. However, the Portfolio 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 17 contracts, other than for bona fide hedging purposes, exceeds 5% of the liquidation value of the Portfolio'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 Portfolios will comply with guidelines established by the SEC with respect to coverage of options and futures contracts by mutual funds, and if the guidelines so require, will set aside appropriate liquid assets in a segregated custodial account in the amount prescribed. Securities held in a segregated account cannot be sold while the futures contract or option is outstanding, unless they are replaced with other suitable assets. As a result, there is a possibility that segregation of a large percentage of the Portfolio's assets could impede portfolio management or the Portfolio's ability to meet redemption requests or other current obligations. Swaps and Related Swap Products Each of the Portfolios 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 Portfolio may enter into swap transactions for any legal purpose consistent with its investment objective and policies, such as for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than obtaining that return or spread through purchases and/or sales of instruments in cash markets, to protect against currency fluctuations, as a duration management technique, to protect against any increase in the price of securities a Portfolio anticipates purchasing at a later date, or to gain exposure to certain markets in the most economical way possible. A Portfolio 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. 18 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 Portfolio is obligated to make payments more frequently than it receives payments from the other party, it will incur incremental credit exposure to that swap counterparty. This risk may be mitigated somewhat by the use of swap agreements which call for a net payment to be made by the party with the larger payment obligation when the obligations of the parties fall due on the same date. Under most swap agreements entered into by a Portfolio, payments by the parties will be exchanged on a "net basis", and a Portfolio will receive or pay, as the case may be, only the net amount of the two payments. The amount of a Portfolio's potential gain or loss on any swap transaction is not subject to any fixed limit. Nor is there any fixed limit on a Portfolio's potential loss if it sells a cap or collar. If the Portfolio buys a cap, floor or collar, however, the Portfolio's potential loss is limited to the amount of the fee that it has paid. When measured against the initial amount of cash required to initiate the transaction, which is typically zero in the case of most conventional swap transactions, swaps, caps, floors and collars tend to be more volatile than many other types of instruments. The use of swap transactions, caps, floors and collars involves investment techniques and risks which are different from those associated with portfolio security transactions. If the Advisor is incorrect in its forecasts of market values, interest rates, and other applicable factors, the investment performance of a Portfolio will be less favorable than if these techniques had not been used. These instruments are typically not traded on exchanges. Accordingly, there is a risk that the other party to certain of these instruments will not perform its obligations to a Portfolio or that a Portfolio may be unable to enter into offsetting positions to terminate its exposure or liquidate its position under certain of these instruments when it wishes to do so. Such occurrences could result in losses to a Portfolio. The Advisor will, however, consider such risks and will enter into swap and other derivatives transactions only when it believes that the risks are not unreasonable. Each Portfolio will maintain cash or liquid assets in a segregated account with its custodian in an amount sufficient at all times to cover its current obligations under its swap transactions, caps, floors and collars. If a Portfolio 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 Portfolio's accrued obligations under the swap agreement over the accrued amount a Fund is entitled to receive under the agreement. If a Portfolio enters into a swap agreement on other than a net basis, or sells a cap, floor or collar, it will segregate assets with a daily value at least equal to the full amount of a Portfolio's accrued obligations under the agreement. Each Portfolio will not enter into any swap transaction, cap, floor, or collar, unless the counterparty to the transaction is deemed creditworthy by the Advisor. If a counterparty defaults, a Portfolio may have contractual remedies pursuant to the agreements related to the transaction. The swap markets in which many types of swap transactions are traded have grown substantially in recent years, with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized 19 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 Portfolio's rights and obligations relating to the instrument). Such determination will govern whether the instrument will be deemed within the 15% restriction on investments in securities that are not readily marketable. During the term of a swap, cap, floor or collar, changes in the value of the instrument are recognized as unrealized gains or losses by marking to market to reflect the market value of the instrument. When the instrument is terminated, a Portfolio will record a realized gain or loss equal to the difference, if any, between the proceeds from (or cost of) the closing transaction and a Portfolio's basis in the contract. The federal income tax treatment with respect to swap transactions, caps, floors, and collars may impose limitations on the extent to which a Portfolio may engage in such transactions. Risk Management The Portfolios may employ non-hedging risk management techniques. Examples of risk management strategies include synthetically altering a portfolio's exposure to the equity markets of particular countries by purchasing futures contracts on the stock indices of those countries to increase exposure to their equity markets. 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 Portfolios corresponding to the Funds. A rate of 100% indicates that the equivalent of all of the Portfolio's assets have been sold and reinvested in a year. High portfolio turnover may result in the realization of substantial net capital gains or losses. To the extent net short term capital gains are realized, any distributions resulting from such gains are considered ordinary income for federal income tax purposes. See "Taxes" below. The International Equity Portfolio (International Equity Fund) For the fiscal years ended October 31, 1998, 1999 and 2000: 74%, 70% and 80%, respectively. The Emerging Markets Equity Portfolio (Emerging Markets Equity Fund) For the fiscal years ended October 31, 1998, 1999 and 2000: 44%, 87% and 65%, respectively. 20 The International Opportunities Portfolio (International Equity Fund) For the fiscal years ended November 30, 1998, 1999 and 2000: 143%, 80% and 86%, respectively. The European Equity Portfolio (European Equity Fund) For the period January 1, 1998 through November 30, 1998: 99%. For the fiscal years ended November 30, 1999 and 2000: 68% and 86%, 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. Each Fund and its corresponding Portfolio: 1. May not make any investment inconsistent with the Fund's classification as a diversified investment company under the Investment Company Act of 1940. 2. May not purchase any security which would cause the Fund to concentrate its investments in the securities of issuers primarily engaged in any particular industry except as permitted by the SEC; 3. May not issue senior securities, except as permitted under the Investment Company Act of 1940 or any rule, order or interpretation thereunder; 4. May not borrow money, except to the extent permitted by applicable law; 5. May not underwrite securities of other issuers, except to the extent that the Fund, in disposing of portfolio securities, may be deemed an underwriter within the meaning of the 1933 Act; 6. May not purchase or sell real estate, except that, to the extent permitted by applicable law, the Fund may (a) invest in securities or other instruments directly or indirectly secured by real estate, 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 the Fund from purchasing, selling and entering into financial futures contracts (including futures contracts on indices of securities, interest rates and currencies), options on financial futures contracts (including 21 futures contracts on indices of securities, interest rates and currencies), warrants, swaps, forward contracts, foreign currency spot and forward contracts or other derivative instruments that are not related to physical commodities; and 8. May make loans to other persons, in accordance with the Fund's investment objective and policies and to the extent permitted by applicable law. Non-Fundamental Investment Restrictions. The investment restrictions described below are not fundamental policies of the Funds and their corresponding Portfolios and may be changed by their Trustees. These non-fundamental investment policies require that the Funds and their corresponding Portfolios: (i) May not acquire any illiquid securities, such as repurchase agreements with more than seven days to maturity or fixed time deposits with a duration of over seven calendar days, if as a result thereof, more than 15% of the market value of the 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, JPMIM may classify issuers by industry in accordance with classifications set forth in the Directory of Companies Filing Annual Reports With The Securities and Exchange Commission or other sources. In the absence of such classification or if JPMIM determines in good faith based on its own information that the economic characteristics affecting a particular issuer make it more appropriately considered to be engaged in a different industry, JPMIM may classify an issuer accordingly. For instance, personal credit finance companies and business credit finance companies are deemed to be separate industries and wholly owned finance companies are considered to be in the industry of their parents if their activities are primarily related to financing the activities of their parents. TRUSTEES AND ADVISORY BOARD Trustees The mailing address of the Trustees of the Trust, who are also the Trustees of each of the Portfolios and the other Master Portfolios, as defined below, 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: 22 Frederick S. Addy -- Trustee; Retired; Former Executive Vice President and Chief Financial Officer, Amoco Corporation. His date of birth is January 1, 1932. William G. Burns -- Trustee; Retired; Former Vice Chairman and Chief Financial Officer, NYNEX. His date of birth is November 2, 1932. Arthur C. Eschenlauer -- Trustee; Retired; Former Senior Vice President, Morgan Guaranty Trust Company of New York. His date of birth is May 23, 1934. Matthew Healey * -- Trustee; Chairman and Chief Executive Officer; Chairman, Pierpont Group, Inc. ("Pierpont Group") since prior to 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), the 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. Trustee compensation expenses paid by the Trust for the calendar year ended December 31, 2000 set forth below. TOTAL TRUSTEE AGGREGATE COMPENSATION ACCRUED BY TRUSTEE THE MASTER PORTFOLIOS (1), COMPENSATION J.P. MORGAN INSTITUTIONAL PAID BY THE FUNDS, J.P. MORGAN SERIES TRUST DURING TRUST AND THE TRUST NAME OF TRUSTEE 2000 DURING 2000 (2) - --------------- ------------ -------------- Frederick S. Addy, Trustee $11,238 $75,000 William G. Burns, Trustee $11,238 $75,000 Arthur C. Eschenlauer, Trustee $11,238 $75,000 Matthew Healey, Trustee (3) Chairman and Chief Executive Officer $11,238 $75,000 Michael P. Mallardi, Trustee $11,238 $75,000 - ---------- (1) Includes the Portfolios and 15 other portfolios (collectively, the "Master Portfolios") for which JPMIM acts as investment advisor. - ---------- * Mr. Healey is an "interested person" (as defined in the 1940 Act) of the Trust. 23 ** 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, J.P. Morgan Institutional Funds, the Trust and J.P. Morgan Series Trust) in the fund complex. *** During 2000, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman of Pierpont Group, Inc., compensation in the amount of $200,000, contributed $25,500 to a defined contribution plan on his behalf and paid $18,400 in insurance premiums for his benefit. The Trustees decide upon general policies and are responsible for overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios and the Trust has entered into a Fund Services Agreement with Pierpont Group 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 J.P. Morgan Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are the equal and sole shareholders of Pierpont Group, Inc. 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. These costs are periodically reviewed by the Trustees. The principal offices of Pierpont Group are located at 461 Fifth Avenue, New York, New York 10017. The aggregate fees paid to Pierpont Group by each Fund and its corresponding Portfolio during the indicated fiscal periods are set forth below: International Equity Fund -- For the fiscal years ended October 31, 1998, 1999 and 2000: $3,379, $1,398 and $966, respectively. International Equity Portfolio -- For the fiscal years ended October 31, 1998 1999 and 2000: $18,453, $9,765 and $8,841, respectively. Emerging Markets Equity Fund -- For the fiscal years ended October 31, 1998 1999 and 2000: $1,387, $622 and $645, respectively. Emerging Markets Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $11,566, $3,334 and $2,806, respectively. International Opportunities Fund -- For the fiscal years ended November 30, 1998, 1999 and 2000: $2,225, $1,073 and $1,282, respectively. International Opportunities Portfolio -- For the fiscal years ended November 30, 1998 1999 and 2000: $13,264, $6,949 and $8,347, respectively. European Equity Fund --For fiscal year ended December 31, 1997: $117. For the period January 1, 1998 through November 30, 1998: $336. For the fiscal years ended November 30, 1999 and 2000: $274 and $216, respectively. European Equity Portfolio --For the fiscal year ended December 31, 1997: $21,837.period January 1, 1998 through November 30, 1998: $738. For the fiscal years ended November 30, 1999 and 2000: $498 and $384, 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 24 investment, management and operations of the Trust; but has no power to vote upon any matter put to a vote of the Trustees. The advisory board and the members thereof also serve each of the Trusts and the Master Portfolios. The creation of the Advisory Board and the appointment of the members thereof was designed 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 Institutional Funds and the J.P. Morgan Series Trust and is reimbursed for expenses incurred in connection for such service. The members of the Advisory Board may hold various other directorships unrelated to these funds. The mailing address of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal occupations during the past five years and dates of birth are set forth below: Ann Maynard Gray - Former President, Diversified Publishing Group and Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945. John R. Laird -- Retired; Former Chief Executive Officer, Shearson Lehman Brothers and The Boston Company. His date of birth is June 21, 1942. Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley Group and President and Chief Operating Officer, Morgan Stanley Services, Inc. His date of birth is October 5, 1936. James J. Schonbachler -- Retired; Prior to September, 1998, Managing Director, Bankers Trust Company and Chief Executive Officer and Director, Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January 26, 1943. OFFICERS The Trust's and Portfolios' executive officers (listed below), other than the Chief Executive Officer and the officers who are employees of the Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned indirect subsidiary of Boston Institutional Group, Inc. The officers conduct and supervise the business operations of the Trust and the Portfolio. The Trust and the Portfolios have no employees. The officers of the Trust and the Portfolios, their principal occupations during the past five years and dates of birth are set forth below. Unless otherwise specified, each officer holds the same position with the Trust and the 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 Pine Tree Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937. MARGARET W. CHAMBERS; Executive 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. 25 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. Vice President, New Business Development of FDI and an officer of certain investment companies distributed or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of Treasury Services and Administration of FDI. His date of birth is March 31, 1969. KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President and Senior Counsel of FDI and an officer of certain investment companies distributed or administered by FDI. From June 1994 to January 1996, Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc. Her date of birth is December 29, 1966. CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice President and Senior Associate General Counsel of FDI and Premier Mutual and an officer of certain investment companies distributed or administered by FDI. From April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial Group. His date of birth is December 24, 1964. KATHLEEN K. MORRISEY. Vice President of FDI. Manager of Treasury Services Administration and an officer of certain investment companies advised or administered by Montgomery Asset Management, L.P. and Dresdner RCM Global Investors, Inc., and their respective affiliates. Her date of birth is July 5, 1972. MARY A. NELSON; Vice President and Assistant Treasurer. Senior Vice President and Director of Financial Services at 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. 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 of FDI since February 1999. Ms. Vasquez served as National Sales Associate for FDI from May 1996. 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. 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. Prior to January 2000, she served as the Manager of the Tax Group and was responsible for U.S. mutual fund tax matters. Her address is 60 Wall Street, New York, New York 10260. Her date of birth is September 26, 1965. 26 As of the date of this Statement of Additional Information, the officers, Trustees and Members of the Advisory Board as a group owned less than 1% of the shares of each Fund. CODES OF ETHICS The 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 advisor 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 the Portfolios' Trustees, the Advisor makes each Portfolio's day-to-day investment decisions, arranges for the execution of portfolio transactions and generally manages the Portfolio's investments. Prior to October 1, 1998, Morgan was each Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan Chase & Co. Incorporated ("J.P. Morgan Chase"), is a registered investment adviser under the Investment Advisers Act of 1940, as amended, 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 Chase, through the Advisor and other subsidiaries, acts as investment advisor to individuals, governments, corporations, employee benefit plans, mutual funds and other institutional investors. J.P. Morgan Chase, a bank holding company organized under the laws of the State of Delaware was formed from the merger of J.P. Morgan & Co. Incorporated with and into The Chase Manhattan Corporation. J.P. Morgan Chase has a long history of offering a wide range of banking and investment services to customers throughout the United States and the world. The firm, through its predecessor firms, has been in business for over a century. 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 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 benchmark for the Portfolios in which the Funds invest are currently: The International Equity Portfolio -- EAFE; The Emerging Markets Equity Portfolio -- MSCI Emerging Markets Free Index; The 27 International Opportunities Portfolio -- MSCI All Country World Index Free (ex-U.S.); The European Equity Portfolio - MSCI Europe Index. 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 Chase or any personnel of other divisions of the Advisor or with any of its affiliated persons, with the exception of certain other investment management affiliates of J.P. Morgan Chase that execute transactions on behalf of the Fund. As compensation for the services rendered and related expenses such as salaries of advisory personnel borne by the Advisor under the Investment Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay the Advisor a fee, which is computed daily and may be paid monthly, equal to the annual rates of each Portfolio's average daily net assets shown below. International Equity: .60% Emerging Markets Equity: 1.00% International Opportunities: .60% European Equity: .65% The table below sets forth for each Fund listed the advisory fees paid by its corresponding Portfolio to JPMIM, for the fiscal periods indicated. See the Funds' financial statements, which are incorporated herein by reference. International Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $3,581,301, $2,881,754 and $3,312,702, respectively. Emerging Markets Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $3,584,676, $1,648,556 and $1,771,982, respectively. International Opportunities Portfolio -- For the fiscal years ended November 30, 1998, 1999 and 2000: $2,687,804, $2,133,208 and $3,268,904, respectively. European Equity Portfolio -- For the period January 1, 1998 through November 30, 1998: $166,971. For the fiscal years ended November 30, 1999 and 2000: $163,353 and $158,680, 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. 28 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 the Portfolio. FDI currently provides administration and distribution services for a number of other investment companies. The Distribution Agreement shall continue in effect with respect to each of the Funds for a period of two years after execution only if it is approved at least annually thereafter (i) by a vote of the holders of a majority of the Fund's outstanding shares or by its Trustees and (ii) by a vote of a majority of the Trustees of the Trust who are not "interested persons" (as defined by the 1940 Act) of the parties to the Distribution Agreement, cast in person at a meeting called for the purpose of voting on such approval (see "Trustees 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 29 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 Fund and its corresponding Portfolio the administrative fees paid to FDI for the fiscal periods indicated. International Equity Fund -- For the fiscal years ended October 31, 1998, 1999 and 2000: $2,482, $1,009 and $674, respectively. International Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $11,630, $6,065 and $4,108, respectively. Emerging Markets Equity Fund -- For the fiscal years ended October 31, 1998, 1999 and 2000: $997, $463 and $461, respectively. Emerging Markets Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $7,255, $2,073 and $1,321, respectively. International Opportunities Fund -- For the fiscal years ended November 30, 1998, 1999 and 2000: $1,626, $810 and $912, respectively. International Opportunities Portfolio -- For the fiscal years ended November 30, 1998, 1999 and 2000: $8,417, $4,338 and $3,736, respectively. European Equity Fund -- For the period January 1, 1998 through November 30, 1998: $246. For the fiscal years ended November 30, 1999 and 2000: $201 and $150, respectively. European Equity Portfolio -- For the period January 1, 1998 through November 30, 1998: $468. For the fiscal years ended November 30, 1999 and 2000: $308 and $172, respectively. SERVICES AGENT The Trust, on behalf of each Fund, and each Fund's corresponding Portfolio 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 Fund and the Portfolio, including services related to tax compliance, preparation of financial statements, calculation of performance data, oversight of service providers and certain regulatory and Board of Trustee matters. Under the 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 30 for which Morgan provides similar services and J.P. Morgan Series Trust. The table below sets forth for each Fund and its corresponding Portfolio the fees paid to Morgan, as Services Agent. International Equity Fund -- For the fiscal years ended October 31, 1998, 1999 and 2000: $31,866, $17,391 and $14,478, respectively. International Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $174,789, $124,528 and $134,468, respectively. Emerging Markets Equity Fund -- For the fiscal years ended October 31, 1998, 1999 and 2000: $12,828, $8,070 and $9,933, respectively. Emerging Markets Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $106,124, $42,701 and $43,197, respectively. International Opportunities Fund -- For the fiscal years ended November 30, 1998, 1999 and 2000: $21,655, $14,351 and $20,074, respectively. International Opportunities Portfolio -- For the fiscal years ended November 30, 1998, 1999 and 2000: $129,873, $91,386 and $132,072, respectively. European Equity Fund -- For the fiscal year ended December 31, 1997: $1,095. For the period January 1, 1998 through November 30, 1998: $3,400. For the fiscal year ended November 30, 1999 and 2000: $3,546 and $3,307, respectively. European Equity Portfolio -- For the period January 1, 1998 through November 30, 1998: $7,380. For the fiscal years ended November 30, 1999 and 2000: $6,472 and $5,929, 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 Contracts, 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. 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 financial professional. Under this agreement, Morgan is responsible for performing shareholder account, administrative and servicing functions, which include but are not limited to, answering inquiries regarding account status and history, the manner in which purchases and redemptions of Fund shares may be effected, and certain other matters pertaining to a Fund; assisting customers in designating and changing dividend options, account 31 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; and providing other related services. Under the Shareholder Servicing Agreement, each Fund has agreed to pay Morgan for these services a fee at the following annual rate of 0.25% (expressed as a percentage of the average daily net asset values of Fund shares owned by or for shareholders for whom Morgan is acting as shareholder servicing agent). Morgan acts as shareholder servicing agent for all shareholders. The table below sets forth for each Fund listed the shareholder servicing fees paid by each Fund to Morgan for the fiscal periods indicated. International Equity Fund -- For the fiscal years ended October 31, 1998, 1999 and 2000: $271,861, $167,059 and $148,427, respectively. Emerging Markets Equity Fund -- For the fiscal years ended October 31, 1998, 1999 and 2000: $109,292, $77,984 and $102,479, respectively. International Opportunities Fund -- For the fiscal years ended November 30, 1998, 1999 and 2000: $186,424, $139,554 and $206,746, respectively. European Equity Fund --For the period January 1, 1998 through November 30, 1998: $29,634. For the fiscal years ended November 30, 1999 and 2000: $34,421 and $34,048, respectively. The Funds may be sold to or through financial intermediaries who are customers of J.P. Morgan ("financial professionals"), including financial institutions and broker-dealers, that may be paid fees by J.P. Morgan Chase or its affiliates for services provided to their clients that invest in the Funds. See "Financial Professionals" below. Organizations that provide recordkeeping or other services to certain employee benefit or retirement plans that include the Funds as an investment alternative may also be paid a fee. FINANCIAL PROFESSIONALS The services provided by financial professionals may include establishing and maintaining shareholder accounts, processing purchase and redemption transactions, arranging for bank wires, performing shareholder subaccounting, answering client inquiries regarding the Trust, assisting clients in changing dividend options, account designations and addresses, providing periodic statements showing the client's account balance and integrating these statements with those of other transactions and balances in the client's other accounts serviced by the financial professional, transmitting proxy statements, periodic reports, updated prospectuses and other communications to shareholders and, with respect to meetings of shareholders, collecting, tabulating and forwarding executed proxies and obtaining such other information and performing such other services as Morgan or the financial professional's clients may reasonably request and agree upon with the financial professional. 32 Although there is no sales charge levied directly by a Fund, financial professionals may establish their own terms and conditions for providing their services and may charge investors a transaction-based or other fee for their services. Such charges may vary among financial professionals but in all cases will be retained by the financial professional and not be remitted to the Fund or J.P. Morgan Chase. Each Fund has authorized one or more brokers to accept purchase and redemption orders on its behalf. Such brokers are authorized to designate other intermediaries to accept purchase and redemption orders on a Fund's behalf. A Fund will be deemed to have received a purchase or redemption order when an authorized broker or, if applicable, a broker's authorized designee, accepts the order. These orders will be priced at the Fund's net asset value next calculated after they are so accepted. INDEPENDENT ACCOUNTANTS The independent accountants of the Trust and the 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 Fund's and 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. Morgan Guaranty Trust Company, an affiliate of J.P. Morgan Chase has agreed that it will reimburse the Funds noted below until February 28, 2002 to the extent necessary to maintain the Fund's total operating expenses (which include expenses of the Fund and the Portfolio) at the following annual rates of the Fund's average daily net assets. European Equity Fund: 1.50% Emerging Markets Equity Fund: 1.75% These limits do not cover extraordinary expenses. These reimbursement/waiver arrangements will continue through at least February 28, 2002. The table below sets forth for each Fund listed the fees and other expenses J.P. Morgan & Co. Incorporated or its affiliates reimbursed under the expense reimbursement arrangements described above or pursuant to prior expense reimbursement arrangements for the fiscal periods indicated. 33 Emerging Markets Equity Fund -- For the fiscal years ended October 31, 1998, 1999 and 2000: $28,944, $36,814 and $84,466, respectively. Emerging Markets Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: N/A, N/A, and N/A, respectively International Opportunities Fund -- For the fiscal years ended November 30, 1998, 1999 and 2000: $34,643, $31,228 and $127, respectively. International Opportunities Portfolio -- For the fiscal years ended November 30, 1998, 1999 and 2000: $2,053, N/A, and N/A, respectively. European Equity Fund --For the period January 1, 1998 through November 30, 1998: $72,575. For the fiscal years ended November 30, 1999 and 2000: $122,165 and $86,591, respectively. European Equity Portfolio --For the period January 1, 1998 through November 30, 1998: $62,269. For the fiscal years ended November 30, 1999 and 2000: $147,071 and $124,861, respectively. PURCHASE OF SHARES Additional Minimum Balance Information. If your account balance falls below the minimum for 30 days as a result of selling shares (and not because of performance), each Fund reserves the right to request that you 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 the Distributor. All purchase transactions in Fund accounts are processed by Morgan as shareholder servicing agent and the Fund is authorized to accept any instructions relating to a Fund account from Morgan as shareholder servicing agent for the customer. All purchase orders must be accepted by the Distributor. Prospective investors who are not already customers of Morgan may apply to become customers of Morgan for the sole purpose of Fund transactions. There are no charges associated with becoming a Morgan customer for this purpose. Morgan reserves the right to determine the customers that it will accept, and the Trust reserves the right to determine the purchase orders that it will accept. References in the Prospectus and this Statement of Additional Information to customers of Morgan or a financial professional include customers of their affiliates and references to transactions by customers with Morgan or a financial professional include transactions with their affiliates. Only Fund investors who are using the services of a financial institution acting as shareholder servicing agent pursuant to an agreement with the Trust on behalf of 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 a transaction are valued by the method described in "Net Asset Value" as of the day the Fund receives the securities. This is a taxable transaction to the shareholder. Securities may be accepted in payment for shares only if they are, in the judgment of the Advisor, appropriate investments for the Fund's corresponding Portfolio. In addition, securities accepted in payment for shares must: (i) meet the investment objective and policies of the acquiring Fund's corresponding Portfolio; (ii) be acquired by the applicable Fund for investment and not for 34 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. Prospective investors may purchase shares with the assistance of a financial professional, and the financial professional may establish its own minimums and charge the investor a fee for this service and other services it provides to its customers. Morgan may pay fees to financial professionals for services in connection with fund investments. See "Financial Professionals" above. 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 the Portfolio, 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 the Fund during any 90 day period for any one shareholder. The Trust will redeem Fund shares in kind only if it has received a redemption in kind from the corresponding Portfolio and therefore shareholders of the Fund that receive redemptions in kind will receive securities of the Portfolio. The Portfolios have advised the Trust that the Portfolios will not redeem in kind except in circumstances in which a Fund is permitted to redeem in kind. Further Redemption Information. Investors should be aware that redemptions from the Fund may not be processed if a redemption request is not submitted in proper form. To be in proper form, the Fund must have received the shareholder's taxpayer identification number and address. In addition, if a shareholder sends a check for the purchase of fund shares and shares are purchased before the check has cleared, the transmittal of redemption proceeds from the shares will occur upon clearance of the check which may take up to 15 days. The Trust, on behalf of a Fund, and the Portfolios reserve the right to suspend the right of redemption and to postpone the date of payment upon redemption as follows: (i) for up to seven days, (ii) during periods when the New York Stock Exchange is closed for other than weekends and holidays or when trading on such Exchange is restricted as determined by the SEC by rule or regulation, (iii) during periods in which an emergency, as determined by the SEC, exists that causes disposal by the Portfolio of, or evaluation of the net asset value of, its portfolio securities to be unreasonable or impracticable, or (iv) for such other periods as the SEC may permit. For information regarding redemption orders placed through a financial professional, please see "Financial Professionals" above. EXCHANGE OF SHARES 35 An investor may exchange shares from any Fund into shares of any other J.P. Morgan Fund or J.P. Morgan Institutional Fund without charge. An exchange may be made so long as after the exchange the investor has shares, in each fund in which he or she remains an investor, with a value of at least that fund's minimum investment amount. Shareholders should read the prospectus of the fund into which they are exchanging and may only exchange between fund accounts that are registered in the same name, address and taxpayer identification number. Shares are exchanged on the basis of relative net asset value per share. Exchanges are in effect redemptions from one fund and purchases of another fund and the usual purchase and redemption procedures and requirements are applicable to exchanges. Each Fund generally intends to pay redemption proceeds in cash, however, since it reserves the right at its sole discretion to pay redemptions over $250,000 in-kind as a portfolio of representative securities rather than in cash, the Fund reserves the right to deny an exchange request in excess of that amount. See "Redemption of Shares." Shareholders subject to federal income tax who exchange shares in one fund for shares in another fund may recognize capital gain or loss for federal income tax purposes. Shares of the Fund to be acquired are purchased for settlement when the proceeds from redemption become available. 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 Distributions" in the Prospectus. Dividends and capital gains distributions paid by a Fund are automatically reinvested in additional shares of the Fund unless the shareholder has elected to have them paid in cash. Dividends and distributions to be paid in cash are credited to the shareholder's account at Morgan or at his financial professional or, in the case of certain Morgan customers, are mailed by check in accordance with the customer's instructions. The Funds reserve the right to discontinue, alter or limit the automatic reinvestment privilege at any time. If a shareholder has elected to receive dividends and/or capital gain distributions in cash and the postal or other delivery service is unable to deliver checks to the shareholder's address of record, such shareholder's distribution option will automatically be converted to having all dividend and other distributions reinvested in additional shares. No interest will accrue on amounts represented by uncashed distribution or redemption checks. NET ASSET VALUE Each of the Funds computes its net asset value once daily on Monday through Friday at the time 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. 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 the Fund's investment in its corresponding Portfolio (which is equal to the Fund's pro rata share of the total investment of the Fund and of any other investors in the Portfolio less the Fund's pro rata share of the Portfolio's liabilities) 36 less the Fund's liabilities. The following is a discussion of the procedures used by the Portfolios corresponding to each Fund in valuing their assets. The value of investments listed on a domestic or foreign securities exchange, including National Association of Securities Dealers Automated Quotations ("NASDAQ") 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, except under certain circumstances, when the average of the closing bid and asked price is less than the last sales price of the foreign local shares, the security shall be valued at the last sales price of the local shares. 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. With respect to securities otherwise traded in the over-the-counter market, the value shall be equal to the quoted bid price. 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 exchange rate 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 37 From time to time, the Funds may quote performance in terms of actual distributions, average annual and aggregate annual total returns 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. Total Return Quotations. As required by regulations of the SEC, the average annual 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 European Equity Fund will be that of the J.P. Morgan Institutional European Equity Fund (another investor in the same master portfolio) and will be presented in accordance with applicable SEC staff interpretations. Below is set forth historical return information for the Funds or their predecessors for the periods indicated: International Equity Fund: 10/31/00: Average annual total return, 1 year: (5.49%)%; average annual total return, 5 years: 7.46%; average annual total return, 10 years: 5.22%; aggregate total return, 1 year: (5.49%); aggregate total return, 5 years: 43.27%; aggregate total return, 10 years: 69.83%. Emerging Markets Equity Fund: 10/31/00: Average annual total return, 1 year: (7.12)%; average annual total return, 5 years: (3.93)%; average annual total return, commencement of operations** to period end: (3.49)%; aggregate total return, 1 year: (7.12)%; aggregate total return, 5 years: (18.17)%; aggregate total return, commencement of operations* to period end: (19.80)%. International Opportunities Fund: 11/30/00: Average annual total return, 1 year: (10.87)%; average annual total return, 5 years: N/A; average annual total return, commencement of operations ** to period end: 4.98%; aggregate total return, 1 year: (10.87)%; aggregate total return, 5 years: N/A; aggregate total return, commencement of operations ** to period end: 19.51%. European Equity Fund: 11/30/00: Average annual total return, 1 year: (12.75)%; average annual total return, 5 years: N/A; average annual total return, commencement of operations **** to period end: 10.86%; aggregate total return, 1 year: (12.75)%; aggregate total return, 5 years: N/A; aggregate total return, commencement of operations *** to period end: 62.34%. - ---------- * Emerging Markets Equity Fund commenced operations on November 15, 1993. ** International Opportunities Fund commenced operations on February 26, 1997. *** European Equity Fund commenced operations on May 13, 1996. 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 38 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 Portfolios. See "Investment Objectives and Policies." Portfolio transactions for a Portfolio will be undertaken principally to accomplish the Portfolio's objective in relation to expected movements in the general level of interest rates. The Portfolios may engage in short-term trading consistent with their objectives. See "Investment Objectives and Policies -- Portfolio Turnover". In connection with portfolio transactions, the overriding objective is to obtain the best execution of purchase and sales orders. 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. The 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 39 receive reports from the Advisor and published data concerning transaction costs incurred by institutional investors generally. Research services provided by brokers to which 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 or their predecessors corresponding to the International Equity, Emerging Markets Equity, International Opportunities and European Equity Funds paid the following brokerage commissions for the indicated fiscal periods: International Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $1,920,469, $1,073,526 and $1,460,249, respectively. Emerging Markets Equity Portfolio -- For the fiscal years ended October 31, 1998, 1999 and 2000: $1,089,000, $866,867 and $470,666, respectively. International Opportunities Portfolio -- For the fiscal years ended November 30, 1998, 1999 and 2000: $2,294,676, $982,901 and $1,645,894, respectively. European Equity Portfolio -- For the period January 1, 1998 through November 30, 1998: $104,556. For the fiscal years ended November 30, 1999 and 2000: $63,209 and $65,930, 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 not purchase securities during the existence of any underwriting syndicate for such securities of which Morgan or an affiliate is a member or in a private placement in which Morgan or an affiliate serves as placement agent except pursuant to procedures adopted by the Board of Trustees of the Portfolio that either comply with rules adopted by the SEC or with interpretations of the SEC's staff. On those occasions when the Advisor deems the purchase or sale of a security to be in the best interests of a Portfolio as well as other customers including other Portfolios, the Advisor to the extent permitted by applicable laws and regulations, may, but is not obligated to, aggregate the securities to be sold or purchased for a Portfolio with those to be sold or purchased for other customers in order to obtain best execution, including lower brokerage commissions if appropriate. In such event, allocation of the securities so purchased or sold as well as any expenses incurred in the transaction will be made by the Advisor in the manner it considers to be most equitable and 40 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 January 1, 1998, the name of the Trust was changed from "The JPM Pierpont Funds" to "J.P. Morgan Funds". Effective January 1, 1998, the name of the funds were changed from "The JPM Pierpont International Equity Fund" to the "J.P. Morgan International Equity Fund", "The JPM Pierpont Emerging Markets Equity Fund" to the "J.P. Morgan Emerging Markets Equity Fund", the "JPM Pierpont International Opportunities Fund" to the "J.P. Morgan International Opportunities Fund" and "The JPM Pierpont European Equity Fund" to the "J.P. Morgan European Equity Fund." 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 41 or agent of a Fund is liable to a Fund or to a shareholder, and that no Trustee, Member of the Advisory Board, officer, employee, or agent is liable to any third persons in connection with the affairs of a Fund, except as such liability may arise from his or its own bad faith, willful misfeasance, gross negligence or reckless disregard of his or its duties to such third persons. It also provides that all third persons shall look solely to Fund property for satisfaction of claims arising in connection with the affairs of a Fund. With the exceptions stated, the Trust's Declaration of Trust provides that a Trustee, Member of the Advisory Board, officer, employee, or agent is entitled to be indemnified against all liability in connection with the affairs of a Fund. The Trust shall continue without limitation of time subject to the provisions in the Declaration of Trust concerning termination by action of the shareholders or by action of the Trustees upon notice to the shareholders. DESCRIPTION OF SHARES The Trust is an open-end management investment company organized as a Massachusetts business trust in which each Fund represents a separate series of shares of beneficial interest. See "Massachusetts Trust." The Declaration of Trust permits the Trustees to issue an unlimited number of full and fractional shares ($0.001 par value) of one or more series and classes within any series and to divide or combine the shares (of any series, if applicable) without changing the proportionate beneficial interest of each shareholder in a Fund (or in the assets of other series, if applicable). Each share represents an equal proportional interest in a Fund with each other share. Upon 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 non-assessable. The rights of redemption and exchange are described in the Prospectus and elsewhere in this Statement of Additional Information. The shareholders of the Trust are entitled to one vote for each dollar of net asset value (or a proportionate fractional vote in respect of a fractional dollar amount), on matters on which shares of the Fund shall be entitled to vote. Subject to the 1940 Act, the Trustees themselves have the power to alter the number and the terms of office of the Trustees, to lengthen their own terms, or to make their terms of unlimited duration subject to certain removal procedures, and appoint their own successors, provided, however, that immediately after such appointment the requisite majority of the Trustees have been elected by the shareholders of the Trust. The voting rights of shareholders are not cumulative so that holders of more than 50% of the shares voting can, if they choose, elect all Trustees being selected while the shareholders of the remaining shares would be unable to elect any Trustees. It is the intention of the Trust not to hold meetings of shareholders annually. The Trustees may call meetings of shareholders for action by shareholder vote as may be required by either the 1940 Act or the Trust's Declaration of Trust. Shareholders of the Trust have the right, upon the declaration in writing or vote of more than two-thirds of its outstanding shares, to remove a Trustee. The Trustees will call a meeting of shareholders to vote on removal of a Trustee upon the written request of the record holders of 10% of the Trust's shares. In addition, whenever ten or more shareholders of record who have been such for at least six months preceding the date of application, and who hold in the aggregate either shares having a net asset value of at least $25,000 or at least 1% of the Trust's outstanding shares, whichever is less, 42 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 18 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 43 Unlike other mutual funds which directly acquire and manage their own portfolio of securities, each Fund is an open-end management investment company which seeks to achieve its investment objective by investing all of its investable assets in a corresponding Master Portfolio, a separate registered investment company with the same investment objective and policies as the Fund. Generally, when a Master Portfolio seeks a vote to change a fundamental investment restriction, its feeder fund(s) will hold a shareholder meeting and cast its vote proportionately, as instructed by its shareholders. Fund shareholders are entitled to one vote for each dollar of net asset value (or a proportionate fractional vote in respect of a fractional dollar amount), on matters on which shares of the Fund shall be entitled to vote. In addition to selling a beneficial interest to a Fund, a Portfolio may sell beneficial interests to other mutual funds or institutional investors. Such investors will invest in the Portfolio on the same terms and conditions and will bear a proportionate share of the Portfolio's expenses. However, the other investors investing in the Portfolio may sell shares of their own fund using a different pricing structure than the Fund. Such different pricing structures may result in differences in returns experienced by investors in other funds that invest in the Portfolio. Such differences in returns are not uncommon and are present in other mutual fund structures. Information concerning other holders of interests in the Portfolio is available from Morgan at (800) 521-5411. The Trust may withdraw the investment of a Fund from a Portfolio at any time if the Board of Trustees of the Trust determines that it is in the best interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees would consider what action might be taken, including the investment of all the assets of the Fund in another pooled investment entity having the same investment objective and restrictions in accordance with the investment policies described below with respect to the Portfolio. Certain changes in a Portfolio's fundamental investment policies or restrictions, or a failure by a Fund's shareholders to approve such change in the Portfolio's investment restrictions, may require withdrawal of the Fund's interest in the Portfolio. Any such withdrawal could result in a distribution in kind of portfolio securities (as opposed to a cash distribution) from the Portfolio which may or may not be readily marketable. The distribution in kind may result in the Fund having a less diversified portfolio of investments or adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax or other charges in converting the securities to cash. Notwithstanding the above, there are other means for meeting shareholder redemption requests, such as borrowing. Smaller funds investing in a Portfolio may be materially affected by the actions of larger funds investing in the Portfolio. For example, if a large fund withdraws from the Portfolio, the remaining funds may subsequently experience higher pro rata operating expenses, thereby producing lower returns. Additionally, because a Portfolio would become smaller, it may become less diversified, resulting in potentially increased portfolio risk (however, these possibilities also exist for traditionally structured funds which have large or institutional investors who may withdraw from a fund). Also, funds with a greater pro rata ownership in the Portfolio could have effective voting control of the operations of the Portfolio. Whenever the Fund is requested to vote on matters pertaining to the Portfolio (other than a vote by the Fund to continue the operation of the Portfolio upon the withdrawal of another investor in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and will cast all of its votes proportionately as instructed by the 44 Fund's shareholders. The Trust will vote the shares held by Fund shareholders who do not give voting instructions in the same proportion as the shares of Fund shareholders who do give voting instructions. Shareholders of the Fund who do not vote will have no effect on the outcome of such matters. As of January 31, 2001, no one owned of record or was known by the Fund to own beneficially more than 5% of the outstanding shares of the Trust. TAXES The following discussion of tax consequences is based on U.S. federal tax laws in effect on the date of this Statement of Additional Information. These laws and regulations are subject to change by legislative or administrative action, possibly on a retroactive basis. Each Fund intends to qualify and remain qualified as a regulated investment company under Subchapter M of the Code. As a regulated investment company, a Fund must, among other things, (a) derive at least 90% of its gross income from dividends, interest, payments with respect to loans of stock and securities, gains from the sale or other disposition of stock, securities or foreign currency and other income (including but not limited to gains from options, futures, and forward contracts) derived with respect to its business of investing in such stock, securities or foreign currency; and (b) diversify its holdings so that, at the end of each fiscal quarter of its taxable year, (i) at least 50% of the value of the Fund's total assets is represented by cash, cash items, U.S. Government securities, investments in other regulated investment companies, and other securities limited, in respect of any one issuer, to an amount not greater than 5% of the Fund's total assets, and 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government securities or securities of other regulated investment companies). As a regulated investment company, a Fund (as opposed to its shareholders) will not be subject to federal income taxes on the net investment income and capital gains that it distributes to its shareholders, provided that at least 90% of its net investment income and realized net short-term capital gains in excess of net long-term capital losses for the taxable year is distributed in accordance with the Code's timing requirements. Under the Code, a Fund will be subject to a 4% excise tax on a portion of its undistributed taxable income and capital gains if it fails to meet certain distribution requirements by the end of the calendar year. Each Fund intends to make distributions in a timely manner and accordingly does not expect to be subject to the excise tax. For federal income tax purposes, dividends that are declared by a Fund in October, November or December as of a record date in such month and actually paid in January of the following year will be treated as if they were paid on December 31 of the year declared. Therefore, such dividends generally will be taxable to a shareholder in the year declared rather than the year paid. For federal income tax purposes, the following fund had capital loss carryforwards for the periods indicated: Emerging Markets Equity Fund: For the fiscal year ended October 31, 2000, $22,123,291, of which $1,159,298 will expire in the year 2004, $15,741,713 will expire in 2006, and $5,146,180 will expire in 2007, and $76,100 will expire in 2008. 45 To the extent that this capital loss is used to offset future capital gains, it is probable that gains so offset will not be distributed to shareholders. Distributions of net investment income, certain foreign currency gains, and realized net short-term capital gains in excess of net long-term capital losses are generally taxable to shareholders of the Funds as ordinary income whether such distributions are taken in cash or reinvested in additional shares. 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, if applicable, a put is acquired or a call option is written thereon or the straddle rules described below are otherwise applicable. Other gains or losses on the sale of securities will be short-term capital gains or losses. Gains and losses on the sale, lapse or other termination of options on securities will be treated as gains and losses from the sale of securities. If an option written by a Portfolio lapses or is terminated through a closing transaction, such as a repurchase by the Portfolio of the option from its holder, the Portfolio will realize a short-term capital gain or loss, depending on whether the premium income is greater or less than the amount paid by the Portfolio in the closing transaction. If securities are purchased by a Portfolio pursuant to the exercise of a put option written by it, the Portfolio will subtract the premium received from its cost basis in the securities purchased. Any distribution of net investment income or capital gains will have the effect of reducing the net asset value of Fund shares held by a shareholder by the same amount as the distribution. If the net asset value of the shares is reduced below a shareholder's cost as a result of such a distribution, the distribution, although constituting a return of capital to the shareholder, will be taxable as described above. Investors should thus consider the consequences of purchasing shares in a Fund shortly before the Fund declares a sizable dividend distribution. Any gain or loss realized on the redemption or exchange of Fund shares by a shareholder who is not a dealer in securities will be treated as long-term capital gain or loss if the shares have been held for more than one year, and otherwise as short-term capital gain or loss. Long-term capital gain of an individual holder generally is subject to a maximum tax rate of 20%. However, if Fund shares are acquired after December 31, 2000 and held for more than five years, the maximum long-term capital gain tax rate will be reduced to 18%. Any loss realized by a shareholder upon the redemption or exchange of shares in the Fund held for six months or less 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 46 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 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 47 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-8 (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. So long as more than 50% in value of the total assets of a Fund (including its share of the assets of the corresponding Portfolio) at the close of any taxable year consists of stock or securities of foreign corporations, the Fund may elect to treat any foreign income taxes deemed paid by it as paid directly by its shareholders. A Fund will make such an election only if it deems it to be in the best interest of its shareholders. A Fund will notify its shareholders in writing each year if it makes the election and of the amount of foreign income taxes, if any, to be treated as paid by the shareholders and the amount of foreign taxes, if any, for which shareholders of the Fund will not be eligible to claim a foreign tax credit because the holding period requirements (described below) have not been satisfied. If a Fund makes the election, each shareholder will be required to include in his income (in addition to the dividends and distributions he receives) his proportionate share of the amount of foreign income taxes deemed paid by the Fund and will be entitled to claim either a credit (subject to the limitations discussed below) or, if he itemizes deductions, a deduction for his share of the foreign income taxes in computing federal income tax liability. (No deduction will be permitted in computing an individual's alternative minimum tax liability.) Effective for dividends paid after September 5, 1997, shareholders of a Fund will not be eligible to claim a foreign tax credit with respect to taxes paid by the Fund (notwithstanding that the Fund elects to treat the foreign taxes deemed paid by it as paid directly by its shareholders) unless certain holding period requirements are met. A shareholder who is a nonresident alien individual or a foreign corporation may be subject to U.S. withholding tax on the income resulting from the election described in this paragraph, but may not be able to claim a credit or deduction against such U.S. tax for the foreign taxes treated as having been paid by such shareholder. A tax-exempt shareholder will not ordinarily benefit from this election. Shareholders who choose to utilize a credit (rather than a deduction) for foreign taxes will be subject to the limitation that the credit may not exceed the shareholder's U.S. tax (determined without regard to the availability of the credit) attributable to his or her total foreign source taxable income. For this purpose, the portion of dividends and distributions paid by a Fund from its foreign source net investment income 48 will be treated as foreign source income. A Fund's gains and losses from the sale of securities will generally be treated as derived from U.S. sources, however, and certain foreign currency gains and losses likewise will be treated as derived from U.S. sources. The limitation on the foreign tax credit is applied separately to foreign source "passive income," such as the portion of dividends received from the Fund which qualifies as foreign source income. In addition, the foreign tax credit is allowed to offset only 90% of the alternative minimum tax imposed on corporations and individuals. Because of these limitations, if the election is made, shareholders may nevertheless be unable to claim a credit for the full amount of their proportionate shares of the foreign income taxes paid by a Fund. Effective for taxable years of a shareholder beginning after December 31, 1997, individual shareholders of the Fund with $300 or less of creditable foreign taxes ($600 in the case of an individual shareholder filing jointly) may elect to be exempt from the foreign tax credit limitation rules described above (other than the 90% limitation applicable for purposes of the alternative minimum tax), provided that all of such individual shareholder's foreign source income is "qualified passive income" (which generally includes interest, dividends, rents, royalties and certain other types of income) and further provided that all of such foreign source income is shown on one or more payee statements furnished to the shareholder. Shareholders making this election will not be permitted to carry over any excess foreign taxes to or from a tax year to which such an election applies. State and Local Taxes. Each Fund may be subject to state or local taxes in jurisdictions in which the Fund is deemed to be doing business. In addition, the treatment of a Fund and its shareholders in those states which have income tax laws might differ from treatment under the federal income tax laws. Shareholders should consult their own tax advisors with respect to any state or local taxes. Other Taxation. The Trust is organized as a Massachusetts business trust and, under current law, neither the Trust nor any Fund is liable for any income or franchise tax in The Commonwealth of Massachusetts, provided that each Fund continues to qualify as a regulated investment company under Subchapter M of the Code. The Portfolios are organized as New York trusts. The Portfolios are not subject to any federal income taxation or income or franchise tax in the State of New York or The Commonwealth of Massachusetts. The investment by a Fund in its corresponding Portfolio does not cause the Fund to be liable for any income or franchise tax in the State of New York. ADDITIONAL INFORMATION As used in this Statement of Additional Information and the Prospectus, the term "majority of the outstanding voting securities" means the vote of (i) 67% or more of the Fund's shares or the Portfolio's outstanding voting securities present at a meeting, if the holders of more than 50% of the Fund's outstanding shares or the Portfolio's outstanding voting securities are present or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares or the Portfolio's outstanding voting securities, whichever is less. Telephone calls to the Funds, J.P. Morgan Chase or a Financial Professional as shareholder servicing agent may be tape recorded. With respect to the securities offered hereby, this Statement of Additional Information and the Prospectus do not contain all the information included in the Trust's registration statement filed with the SEC under the 1933 Act and the 1940 Act and the Portfolios' registration statements filed under the 1940 Act. Pursuant to the rules and regulations of the SEC, certain portions have 49 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. 50 FINANCIAL STATEMENTS The following financial statements and the reports thereon of PricewaterhouseCoopers LLP of the International Equity, Emerging Markets Equity, International Opportunities and European Equity Funds are incorporated herein by reference to their respective annual report filings made with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial reports are available without charge upon request by calling JP Morgan Funds Services at (800) 521-5411. Each Fund's financial statements include the financial statements of the Fund's corresponding Portfolio. - -------------------------------------------------------------------------------- Date of Annual Report; Date Annual Name of Fund Report Filed; and Accession Number - ------------------------------------------------------------------------------- J.P. Morgan International Equity Fund 10/31/00; 12/27/00; 0000894089-00-000021 - -------------------------------------------------------------------------------- J.P. Morgan Emerging Markets Equity 10/31/00; 12/27/00; 0000894089-00-000022 Fund - -------------------------------------------------------------------------------- J.P. Morgan International 11/30/00; 2/2/01; 0000894089-01-000008 Opportunities Fund - -------------------------------------------------------------------------------- J.P. Morgan European Equity Fund 11/30/00; 2/2/01; 0000894089-01-00009 - -------------------------------------------------------------------------------- 51 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. A-1 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. A-2 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. A-3 EX-99.17(F) 7 a2043519zex-99_17f.txt EXHIBIT 99.17(F) OCTOBER 31, 2000 Chase Vista International Equity Funds EUROPEAN FUNDS JAPAN FUNDS INTERNATIONAL EQUITY [Chase Logo] CHASE THE RIGHT RELATIONSHIP IS EVERYTHING(RegTM) SAIE-2-1200 - -------------------------------------------------------------------------------- Contents - -------------------------------------------------------------------------------- Chairman's Letter 1 Chase Vista European Fund 2 Fund Commentary Chase Vista Japan Fund 6 Fund Commentary Chase Vista International Equity Fund 10 Fund Commentary Portfolios of Investments 14 Fund Financial Statements 20 International Equity Portfolio 42 Portfolio Financial Statements 46 Highlights o Market attention shifted towards "old economy" companies during the reporting period. o Continental Europe had to contend with a weak Euro. o Japan's commitment to restructuring contributed to the nation's struggles. - -------------------------------------------------------------------------------- NOT FDIC INSURED | May lose value / No bank guarantee - -------------------------------------------------------------------------------- Chase Vista Funds are distributed by Vista Fund Distributors, Inc. - -------------------------------------------------------------------------------- CHASE VISTA INTERNATIONAL EQUITY FUNDS - -------------------------------------------------------------------------------- Chairman's Letter December 4, 2000 Dear Shareholder: We are pleased to present this annual report for the Chase Vista International Equity Funds for the year ended October 31, 2000. Inside, you'll find information on the performance of each Fund along with a report from the portfolio management team. Period of Extreme Divergence Favors "New Economy" Sectors From the beginning of the reporting period through March 10, 2000, the story in world equity markets was the growing divergence in performance between stocks in the telecommunications, technology and Internet-related sectors and those of traditional "old economy" companies. This was as true in Europe and Japan as it was in the United States. And like most periods of market divergence, this one began on a logical foundation, one that saw the global economy as being in the midst of a period of profound change that would disproportionately benefit companies tied to the technology and communications revolution. But as valuations in the new economy sectors became stretched to levels never seen before, the investment landscape changed amid tighter interest rate conditions in the United States and a recognition that stock prices had gotten ahead of themselves. The first to crack was the U.S. Nasdaq index, which began a rolling descent in March. From then on, foreign markets were very sensitive to the Nasdaq, giving away most of the returns they'd gotten early in the reporting year. As investors turned away from the previously favored sectors, more traditional value-oriented "old economy" sectors came back into favor, at least on a relative basis. This favored countries such as the U.K. and Switzerland with more traditional economies and larger financial sectors. Euro Confounds Central Bankers; Japanese Growth Stalls While the stunning rise and fall of many TMT (technology, media and telecommunications) stocks and the rising price of oil were the big stories in global markets, local concerns did play a significant role. In continental Europe, investors and central bankers alike were focused on the continuing weakness of the Euro, which had fallen to an all-time low below 85 cents by the end of the reporting period, down from $1.18 when it was introduced on January 1, 1999. As the period progressed, the European Central Bank was forced to confront the combined challenges of the weak currency, above-target inflation and then signs of slowing growth, particularly in Germany. In Japan, the positive effects of foreign investors bringing their portfolios up from formerly underweight positions ended and net flows turned negative. Additionally, many investors began to question the Japanese commitment to restructuring, and growth remained tepid at best. It was against this volatile backdrop that your portfolio management team worked to deliver generally good returns. On behalf of them and everyone at Chase, we thank you for your continued investment and look forward to serving your investment needs for many years to come. Sincerely yours, /s/ Fergus Reid Fergus Reid Chairman 1 - -------------------------------------------------------------------------------- CHASE VISTA EUROPEAN FUND As of October 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- How the Fund Performed Chase Vista European Fund had a total return of 10.13% (Class A Shares, without sales charges) for the year ended October 31, 2000. This compares to a return of 1.21% for its benchmark, the MSCI Europe Index. How the Fund Was Managed The Fund was well-positioned to capitalize on the market divergence favoring TMT (technology, media and telecommunications) stocks at the end of 1999 and into 2000. The Fund was overweight with the large incumbent telecom companies (France Telecom, Deutsche Telekom) as these issues soared, and it was generally avoiding financials and other old-economy sectors that investors were ignoring. However, the same TMT stocks that helped the Fund early in the period began to hurt performance in the spring as investors bid down valuations. Specific factors in Europe included the re-rating of Internet stocks and concerns about the costs of 3rd Generation mobile licenses after investors had already priced in the promise of wireless data services. The Fund did begin to cut back on TMT holdings and become more defensive, upping its weighting in consumer staples and, in general, aligning more closely with its benchmark. In the summer, a new management team took over the Fund and its strategy of investing in defensive growth names was helpful. The team continued to de-emphasize media and telecommunications issues given the negative earnings momentum and, within the TMT sectors, focused on stocks with visible earnings growth such as Alcatel. As the period came to an end, the management team eliminated the defensive bias in the portfolio and increased its growth profile, led by larger positions in information technology hardware and software. The Fund was underweight in telecommunications stocks and overweight in banking issues. Looking Ahead Moving ahead, the management team is closely monitoring the overall economic growth picture in Europe and will adjust the Fund's portfolio accordingly. European investors are clearly concerned that the European Central Bank will snuff out Euro-zone economic growth in its effort to keep inflation under control. The problem seems to be that the combined effect of chronic currency weakness and rising fuel prices have negated the impact of monetary tightening on inflation and, as a result, the team expects interest rates to continue to rise. The short-term outlook in the United Kingdom is better as slowing second- quarter economic growth increases the likelihood of a future interest rate cut from the Bank of England, which should be especially helpful to the financials- heavy London markets; it is expected that banks in the U.K. should gain initial market leadership from the improving interest rate outlook. 2 CHASE VISTA EUROPEAN FUND As of October 31, 2000 (Unaudited) Average Annual Total Returns+
Since Inception 1 Year 3 Years (11/2/95) Class A Shares Without Sales Charge 10.13% 14.76% 18.53% With Sales Charge* 3.78% 12.52% 17.14% Class B Shares Without CDSC 9.40% 13.93% 17.69% With CDSC** 4.40% 13.15% 17.48% Class C Shares Without CDSC 9.27% 13.91% 17.68% With CDSC*** 8.27% 13.91% 17.68%
Source: Lipper Analytical Services. Past performance is not indicative of future results. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. The Fund is currently waiving certain fees. This waiver may be terminated, which would reduce performance. * Sales charge on Class A Shares is 5.75%. ** Assumes 5% CDSC (contingent deferred sales charge) for the one year period, 3% for the three-year period and a 2% CDSC for the period since inception. *** Assumes 1% CDSC for the one year period and 0% thereafter. International investing involves a greater degree of risk and increased volatility. The fund may be also subject to the additional risk of non-diversified "regional" fund investing. + The Fund commenced operations on 11/2/95. Class B and C Shares were introduced on 11/3/95 and 11/1/98 respectively. Performance prior to introduction is based upon historical expenses of the predecessor Class A Shares, which are lower than the actual expenses of the B and C Shares. 3 CHASE VISTA EUROPEAN FUND As of October 31, 2000 (Unaudited) Percentage of Total Portfolio Investments [Begin Pie Chart] United Kingdom (33.0%) France (13.0%) Switzerland (8.3%) Italy (7.6%) Netherlands (7.4%) Germany (7.3%) Denmark (4.1%) Sweden (3.6%) Spain (3.4%) Finland (2.8%) Norway (2.5%) Portugal (2.4%) Ireland (2.3%) Belgium (2.3%) [End Pie Chart] Top Ten Equity Holdings of the Portfolio 1. Barclays PLC (3.1%) Offers commercial and investment banking, insurance, financial and related services. Its subsidiary, Barclays Bank plc, operates over 1,900 branches in the United Kingdom. Overall, the Company operates branches in over 60 countries. 2. BP Amoco PLC (3.1%) An oil and petrochemicals company which explores for and produces oil and natural gas; refines, markets and supplies petroleum products; and manufactures and markets chemicals. 3. Total Fina SA, Class B (2.8%) Explores for, produces, refines, transports and markets oil and natural gas. The Company also operates a chemical division which produces rubber, paint, ink, adhesives and resins. 4. SmithKline Beecham PLC (2.4%) Discovers, develops, manufactures and markets pharmaceuticals, vaccines, over-the-counter medicines and health-related consumer products. Also provides health-care services, including clinical laboratory testing, disease management and pharmaceutical benefit management. 5. Alcatel SA (2.4%) Develops, produces and distributes telecommunications equipment and cables and offers telecommunications services. The Company manufactures and markets mobile telephones, microwave radio systems, switching equipment and underwater networks, printed circuit boards, inductive components, converters and optronics and solutions for utilities, cable TV operators and the Internet. 6. HSBC Holdings (2.1%) An international banking and financial services organization. Services provided include retail and corporate banking, trade, trustee, securities, custody and treasury services. 7. Nestle SA (2.0%) Processing food, the Company's subsidiaries produce and sell beverages, milk products, culinary products, frozen food, chocolate, ready-to-eat dishes, refrigerated products, food service products, pet food, pharmaceuticals and cosmetics. 8. Grupo Dragados SA (1.6%) A construction company that builds infrastructure projects and industrial facilities, constructs and operates toll roads and offers water management, cleaning, solid waste treatment and parking management and traffic control services. Dragados operates worldwide. 9. Altana AG (1.5%) Develops and manufactures pharmaceutical, diagnostic and chemical products. The Company markets prescription and over-the-counter drugs for respiratory, stomach, cardiovascular and nervous system disorders, as well as contrast media for imaging and laboratory diagnostic agents. It also produces chemical additives, coating lacquers and surface coating measuring equipment. 10. Royal Dutch Petroleum Co. (1.5%) Involved in all phases of the petroleum and petrochemicals industries from exploration to final processing, delivery and marketing. Top 10 equity holdings comprised 22.5% of the Portfolio's market value of investments. Portfolio holdings are subject to change at any time. 4 CHASE VISTA EUROPEAN FUND As of October 31, 2000 (Unaudited) Life of Fund Performance (11/2/95 to 10/31/00) [START LINE CHART]
Chase Vista Lipper European European Fund MSCI Europe Index Funds Index 10/31/1995 9,425.00 10,000.00 10,000.00 10/31/1996 11,395.88 11,795.83 11.803.84 10/31/1997 14,606.23 14,909.74 14,503.30 10/31/1998 17,340.39 17,591.05 16,726.33 10/31/1999 20,043.87 19,850.02 19,534.51 10/31/2000 22,053 20,090 22,589
[END LINE CHART] Source: Lipper Analytical Services, Inc. Past performance is not indicative of the future results. Investment return and principal value will fluctuate with market conditions. When shares are redeemed, they may be worth more or less than their original cost. This chart illustrates comparative performance for $10,000 invested in Class A Shares of Chase Vista European Fund, the Lipper European Funds Index and the MSCI Europe Index from November 2, 1995 to October 31, 2000. The performance of the Fund assumes the reinvestment of all dividends and capital gains and includes a 5.75% sales charge. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains on the securities included in the benchmark. The performance of the benchmarks reflect an initial investment at the end of the month preceding the Fund's commencement of operations. The Fund is currently waiving certain fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Lipper European Funds Index represents the performance of the 30 largest European funds. Lipper is an independent mutual fund performance monitor whose results are based on total return and do not reflect a sales charge. The MSCI Europe Index is a replica (or model) of the performance of the European markets. The index is unmanaged and reflects the reinvestment of dividends. An individual cannot invest directly in the index. International investing involves a greater degree of risk and increased volatility. Changes in currency and exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. The Fund may also be subject to the additional risk of non-diversified "Regional" fund investing. 5 - -------------------------------------------------------------------------------- CHASE VISTA JAPAN FUND As of October 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- How the Fund Performed Chase Vista Japan Fund had a total return of -17.48% (Class A shares, without sales charges) for the year ended October 31, 2000. This compares to a return of -11.11% for the MSCI Japan Index. How the Fund Was Managed Early in the reporting year, the Fund trailed its index largely because it avoided overweighting the technology and Internet-related stocks that led the market higher. However, it did invest in some of these companies and captured gains in early 2000. The Fund struggled along with the overall market in April and May as foreign selling pressure drove equity prices down. However, with the Japanese equity market remaining very sensitive to the Nasdaq, the Fund recovered in June along with U.S. equity prices. In the spring, the management team shifted its bias towards defensive growth names and select technology themes. In the summer months, the Fund's emphasis on mobile over fixed line telecommunications companies and its participation in some strong initial public offerings (IPOs) contributed to performance while exposure to companies whose performance was highly correlated with the Nasdaq detracted. As the period ended, the management team was following a growth bias that was overweight in the technology, telecommunications and services sector where earnings growth is most evident. The Fund also continued to add to holdings in companies which should benefit from the upturn in the domestic economy and also added select value stocks. Looking Ahead In the view of the management team, the Japanese Topix Index appears to be significantly oversold at current levels, and is overdue a technical rally. Most of the hype from 1999's extraordinary rally has now evaporated, and sentiment is unlikely to fall much further given the improving outlook for the Japanese economy and corporate earnings. The economy is recovering, albeit slowly, and this should help sentiment, as should a marked improvement in company profits. On the downside, foreign confidence is unlikely to improve while corporate restructuring proceeds at its current slow pace, and the merger activity that was seen in October disappointed with its timidity. The Fund is positioned to take advantage of the strong earnings of many names in the belief that the market will ultimately reward earnings. 6 CHASE VISTA JAPAN FUND As of October 31, 2000 (Unaudited) Average Annual Total Returns+
Since Inception 1 Year 3 Years (11/2/95) Class A Shares Without Sales Charge -17.48% -3.46% -2.59% With Sales Charge* -22.22% -5.35% -3.74% Class B Shares Without CDSC -17.82% -4.02% -3.22% With CDSC** -21.93% -4.94% -3.58%
Source: Lipper Analytical Services. Past performance is not indicative of future results. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. The Fund is currently waiving certain fees. This waiver may be terminated, which would reduce performance. * Sales charge on Class A Shares is 5.75%. ** Assumes 5% CDSC (contingent deferred sales charge) for the one year period, 3% for the three-year period and a 2% CDSC for the period since inception. International investing involves a greater degree of risk and increased volatility. The fund may be also subject to the additional risk of non-diversified "regional" fund investing. + The Fund commenced operations on 11/2/95. Class B Shares were introduced on 11/3/95. Performance prior to introduction is based upon historical expenses of the predecessor Class A Shares, which are lower than the actual expenses of the B Shares. 7 CHASE VISTA JAPAN FUND As of October 31, 2000 (Unaudited) Percentage of Total Portfolio Investments [Begin Pie Chart] Technology (31.2%) Consumer Cyclicals (27.3%) Utilities (12.9%) Financial (10.5%) Health Care (9.6%) Capital Goods (5.3%) Basic Materials (1.3%) Transportation (1.1%) Real Estate (0.8%) [End Pie Chart] Top Ten Equity Holdings of the Portfolio 1. NTT DoCoMo, Inc. (7.6%) Provides various telecommunications services including cellular phones, car phones, pagers and packet communication services. 2. Toyota Motor Corp. (5.7%) Produces, sells, leases and repairs passenger cars, trucks, buses, boats and airplanes in Japan and overseas. 3. Takeda Chemical Industries (5.1%) Produces and sells health-care related products. It specializes in pharmaceuticals, cosmetics, food supplements, vitamins, chemicals and environmental materials, which includes pesticides and other agrochemicals. It researches and develops new drugs using its own biotechnology. 4. Nippon Telegraph & Telephone Corp (3.9%) Provides a variety of telecommunication services, including telephone, telegraph, leased circuits, data communication, terminal equipment sales and related services. The Company provides both local and long distance telephone services within Japan. 5. Sony Corp. (3.1%) Develops and manufactures consumer and industrial electronic equipment. The Company's products include audio and video equipment, televisions, displays, semiconductors, electronic components, computers and computer peripherals and telecommunication equipment. 6. Canon, Inc. (3.1%) Manufactures office automation, camera and video equipment. The Company produces electronics such as color laser and high speed copiers, mid-range copiers, 35 mm cameras and optical devices. The Company also produces and markets broadcasting lenses, medical instruments and computer peripherals and aligners for semiconductor manufacturing equipment. 7. Fuji Photo Film Co., LTD (2.9%) Manufactures film for general, medical, printing, office and movie production uses. The Company also manufactures photographic paper, audio cassettes, video tapes, floppy disc, cameras, lenses and chemicals for darkroom use. 8. Bank of Tokyo-Mitsubishi LTD (2.8%) Provides a broad range of financial services to governments, corporations and individuals in Japan and throughout the world. The Bank, through its commercial subsidiaries, offers commercial, investment and trust banking products and services. 9. Honda Motor Co., LTD. (2.7%) Develops, manufactures and distributes motorcycles, automobiles and power products such as generators and farm machinery. The Company also operates a financial credit business. Honda Motor has manufacturing facilities in the United States, Canada, the United Kingdom, France, Italy and Brazil. 10. Dai Nippon Printing Co., LTD. (2.4%) Offers printing services for commercial and industrial use, such as books, periodicals, paper and plastic cards, securities and business forms. The Company also produces paper containers and other packaging products. Top 10 equity holdings comprised 39.3% of the Portfolio's market value of investments. Portfolio holdings are subject to change at any time. 8 CHASE VISTA JAPAN FUND As of October 31, 2000 (Unaudited) Life of Fund Performance (11/2/95 to 10/31/00) [START LINE CHART]
Chase Vista Lipper Japan Equity Tokyo SE (Topix) MSCI Japan Fund Funds Average 1st Section Index Japan Index 10/31/95 9,425.00 10,000.00 10,000.00 10,000.00 10/31/96 8,878.74 9,933.21 9,877.45 9,930.59 10/31/97 9,187.15 8,952.67 7,911.80 8,139.68 10/31/98 6,525.91 7,837.10 5,908.47 6,980.05 10/31.99 10,018.10 15,103.79 8,516.80 11,075.98 10/31/00 8,266 12,881 7,625 9,804
[END LINE CHART] Source: Lipper Analytical Services, Inc. Past performance is not indicative of the future results. Investment return and principal value will fluctuate with market conditions. When shares are redeemed, they may be worth more or less than their original cost. This chart illustrates comparative performance for $10,000 invested in Class A Shares of Chase Vista Japan Fund, the Lipper Japan Equity Funds Average, the MSCI Japan Index and the Tokyo SE (Topix) 1st Section from November 2, 1995 to October 31, 2000. The performance of the Fund assumes the reinvestment of all dividends and capital gains and includes a 5.75% sales charge. The performance of the average and the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains on the securities included in the benchmark. The performance of the benchmarks reflect an initial investment at the end of the month preceding the Fund's commencement of operations. The Fund is currently waiving fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Lipper Japan Equity Funds Average represents the average performance of a universe of actively managed mutual funds that invest primarily in Japanese stocks. Lipper is an independent mutual fund performance monitor whose results are based on total return and do not reflect a sales charge. The Tokyo SE (Topix) 1st Section Index also known as the Tokyo Price Index, is an unmanaged capitalization-weighted index of all the companies listed on the First Section of the Tokyo Stock Exchange. The index is unmanaged and reflects reinvestment of dividends. MSCI Japan Index is a replica (or model) of the performance of the Japan Equity Markets. This index is unmanaged and reflects the reinvestment of dividends. An individual cannot invest directly in the Index. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the Unites States and other nations. The Fund may be also subject to the additional risk of non-diversified "regional" fund investing. 9 - -------------------------------------------------------------------------------- CHASE VISTA INTERNATIONAL EQUITY FUND As of October 31, 2000 (Unaudited) - -------------------------------------------------------------------------------- How the Fund Performed Chase Vista International Equity Fund had a total return of 1.71% (Class A Shares, without sales charges) for the year ended October 31, 2000. This compares to a return of -2.66% for its benchmark, the MSCI Europe, Australia and Far East Index (EAFE). How the Fund Was Managed In the first half of the reporting year, the management team took an overweight position in the technology, media and telecommunications (TMT) sectors. This proved highly beneficial to performance as these areas of the market clearly dominated around the world. Within Europe, the Fund also benefited from a combination of well-known industry leaders as well as many smaller, lesser-known new economy names. As valuations became extreme in some of its favorite holdings, the management team chose to pare back a bit, reducing its TMT overweight and shifting some assets from the Pacific Rim to Latin America. Additionally, the Fund's slight emphasis on Europe was reduced, leading to a more neutral regional and sector weighting in the second half of the reporting year along with a more risk-averse bias. A change in the management team in the summer led to a new strategy, one that emphasized defensive growth names in Europe. The team continued to reduce exposure to the technology and telecommunications sectors, but they remained a drag on performance in the second half of the year, as was an underweight position in financials as investors began to look to the end of the rising interest rate cycle. As the period came to an end, the management team eliminated the defensive bias in the European portion of the portfolio and increased its growth profile, led by larger positions in information technology hardware and software. The Fund was underweight in European telecommunications stocks and overweight in banking issues. This growth bias was also evident in Japan, where the team has continued to add to holdings in companies which will benefit from an upturn in the domestic economy. Looking Ahead Three factors were very much on the minds of investors as the reporting period ended: the price of oil, the persistent weakness of the Euro and corporate profits, particularly in the U.S. While non-U.S. equities suffered along with the Nasdaq post-March, Europe did seem to break free of that correlation in October. A major point to remember is that profits have continued to expand overseas, helping to create more attractive valuations, especially relative to global bonds. Should the markets anticipate interest rate cuts in light of slower global growth, and should the oil crisis wane, equities could rally strongly. Moving forward, the management team continues to favor the U.K. and, to a lesser degree, continental Europe, given better growth prospects in the former. 10 CHASE VISTA INTERNATIONAL EQUITY FUND As of October 31, 2000 (Unaudited) Average Annual Total Returns+
Since Inception 1 Year 5 Years (12/31/92) Class A Shares Without Sales Charge 1.71% 5.84% 6.30% With Sales Charge* -4.14% 4.59% 5.50% Class B Shares Without CDSC 1.20% 5.34% 5.83% With CDSC** -3.61% 5.01% 5.83%
Source: Lipper Analytical Services. Past performance is not indicative of future results. Investment return and principal value will fluctuate, so that shares, when redeemed, may be worth more or less than their original cost. The Fund is currently waiving certain fees. This waiver may be terminated, which would reduce performance. * Sales charge for Class A Shares is 5.75%. ** Assumes 5% CDSC (contingent deferred sales charge) for the one year period, 2% CDSC for the five-year period and 0% since inception. International investing involves a greater degree of risk and increased volatility. The fund may be also subject to the additional risk of non-diversified "regional" fund investing. + The Fund commenced operations on 12/31/92. Class B shares were introduced on 11/4/93. Performance prior to introduction is based upon historical expenses of the predecessor Class A Shares, which are lower than the actual expenses of the Class B Shares. 11 CHASE VISTA INTERNATIONAL EQUITY FUND As of October 31, 2000 (Unaudited) Percentage of Total Portfolio Investments [Begin Pie Chart] United Kingdom (26.5%) Japan (19.7%) France (11.5%) Germany (6.7%) Netherlands (6.5%) Italy (6.3%) Switzerland (6.2%) Sweden (3.5%) Finland (3.4%) Australia (2.8%) Hong Kong (2.5%) Spain (1.7%) Other (1.6%) Belgium (1.1%) [End Pie Chart] Top Ten Equity Holdings of the Portfolio 1. Vodafone AirTouch PLC (5.0%) Provides mobile telecommunications services. It supplies customers with digital and analog cellular telephone, paging and personal communications services. 2. Nokia OYJ (2.5%) An international telecommunications company which develops and manufactures mobile phone, networks and systems for cellular and fixed networks. 3. Total Fina SA, Class B (2.3%) Explores for, produces, refines, transports and markets oil and natural gas. The Company also operates a chemical division which produces rubber, paint, ink, adhesives and resins. 4. Telefonaktiebolaget LM Ericson, Class B (2.2%) Develops and produces advanced systems and products for wired and mobile communications in public and private networks. Its product line includes digital and analog systems for telephones and networks, microwave radio links, radar surveillance systems and business systems. 5. Deutsche Bank AG (2.2%) Provides a broad range of banking, investment, fund management, securities, credit card, mortgage, leasing and insurance services worldwide. The Company provides its services to retail and private clients, corporations and financial institutions and multi-national conglomerates. It also offers a variety of financial consulting and advisory services. 6. ENI-Ente Nazionale Idrocarburi SPA (2.2%) An integrated oil and gas company. The Company is based in Italy and has operations in over 70 countries. ENI explores for, distributes, refines and markets petroleum products. The Company manufactures petrochemicals, such as ethylene and provides off-shore oil and gas pipelaying services. 7. AXA (2.1%) Offers life and non-life insurance, reinsurance and asset management services. The Company operates in Europe, Asia, Africa and the Americas. 8. Koninklijke Philips Electronics NV (2.1%) Manufactures lighting, consumer electronics, multimedia devices, domestic appliances and personal care items, semiconductors, medical devices, communication systems and industrial electronics. The Company sells its products worldwide. 9. Alcatel SA (2.1%) Develops, produces and distributes telecommunications equipment and cables and offers telecommunications services. The Company manufactures and markets mobile telephones, microwave radio systems, switching equipment and underwater networks, printed circuit boards, inductive components, converters and optronics and solutions for utilities, cable TV operators and the Internet. 10. BAE Systems PLC (2.0%) Manufactures products for the military defense sector, in addition to the civil aircraft market. The Group's military products include aircraft, submarines and assorted ships, electronics, sensors and assorted ammunition and weapons systems. Their civil aircraft operations include the manufacture of various planes, jet wings and various engineering services. Top 10 equity holdings comprised 24.7% of the Portfolio's market value of investments. Portfolio holdings are subject to change at any time. 12 CHASE VISTA INTERNATIONAL EQUITY FUND As of October 31, 2000 (Unaudited) Life of Fund Performance (12/31/92 to 10/31/00) [START LINE CHART]
Chase Vista Lipper International International Equity Fund Funds Index MSCI EAFE Index 12/31/92 9,425.00 10,000.00 10,000.00 10/31/93 11,140.87 13,171.77 13,580.78 10/31/94 11,655.32 14,687.38 14,989.93 10/31/95 11,450.02 14,618.46 14,980.53 10/31/96 11,926.75 16,463.29 16,594.66 10/31/97 12,200.16 18,664.80 17,410.08 10/31/98 12,559.85 19,531.27 19,142.67 10/31/99 14,957.90 24,031.84 23,618.08 10/31/00 15,207 24,861 22,991
[END LINE CHART] Source: Lipper Analytical Services, Inc. Past performance is not indicative of the future results. Investment return and principal value will fluctuate with market conditions. When shares are redeemed, they may be worth more or less than their original cost. This chart illustrates comparative performance for $10,000 invested in Class A Shares of Chase Vista International Equity Fund, the Lipper International Funds Index and the MSCI EAFE Index from December 31, 1992 to October 31, 2000. The performance of the Fund assumes reinvestment of all dividends and capital gains and includes a 5.75% sales charge. The performance of the indices does not include a sales charge and has been adjusted to reflect reinvestment of all dividends and capital gains on the securities included in the benchmark. The Fund is currently waiving fees. This voluntary waiver may be modified or terminated at any time, which would reduce performance. The Lipper International Funds Index represents the performance of the 30 largest international stock funds. Lipper is an independent mutual fund performance monitor whose results are based on total return and do not reflect a sales charge. The MSCI EAFE (Europe, Australia, Far East) Index is a replica (or model) of the performance of the world's equity markets, excluding the U.S. and Canada. The Index is unmanaged and reflects the reinvestment of dividends. An individual cannot invest directly in the Index. International investing involves a greater degree of risk and increased volatility. Changes in currency exchange rates and differences in accounting and taxation policies outside the U.S. can raise or lower returns. Also, some overseas markets may not be as politically and economically stable as the United States and other nations. 13 - -------------------------------------------------------------------------------- CHASE VISTA EUROPEAN FUND Portfolio of Investments - -------------------------------------------------------------------------------- As of October 31, 2000
Shares Issuer Value - -------------------------------------------------------------------------------- Long-Term Investments -- 97.3% - -------------------------------------------------------------------------------- Common Stock -- 97.3% --------------------- Belgium -- 2.2% 33,100 AGFA-Gevaert NV $ 684,592 8,216 Barco NV 920,673 24,420 Ubizen * 517,487 ---------- 2,122,752 Denmark -- 4.1% 42,102 GN Store Nord 815,119 4,409 NKT Holding A/S 1,041,903 4,250 Novo-Nordisk A/S 900,267 23,325 Vestas Wind Systems AS 1,261,783 ---------- 4,019,072 Finland -- 2.8% 37,851 Amer Group LTD 840,606 24,871 Nokia OYJ 1,022,255 21,000 Sampo Insurance Co., LTD 854,426 ---------- 2,717,287 France -- 13.0% 37,800 Alcatel SA 2,303,744 11,981 Aventis SA 863,228 29,981 CNP Assurances 929,870 6,870 Compagnie Francaise d'Etudes et de Construction SA 878,156 29,290 Credit Lyonnais SA 1,000,797 7,201 Ilog SA * 231,337 2,686 PSA Peugeot Citroen 494,060 26,400 Remy Cointreau 881,686 18,592 Sanofi-Synthelabo SA 977,083 14,843 Societe Generale 841,708 19,274 Total Fina SA, Class B 2,754,502 7,263 Wavecom SA * 614,483 ---------- 12,770,654 Germany -- 5.2% 12,339 Altana AG 1,495,649 33,800 Commerzbank AG 952,625 4,825 FJA AG 177,501 2,006 Kontron Embedded Computers * 216,288 5,439 Siemens AG 691,551 20,206 Volkswagen AG 1,008,810 16,202 Wella AG 607,022 ---------- 5,149,446 Ireland -- 2.3% 73,443 Green Property PLC 437,251 14,813 IONA Technologies PLC * 973,955 70,930 Kerry Group PLC 884,415 ---------- 2,295,621 Italy -- 7.5% 82,193 Autogrill SPA 906,412 88,848 Banca Fideuram SPA 1,364,644 68,915 Banca Popolare di Verona 759,985 482,408 Benetton Group SPA 875,068 75,522 Bulgari SPA 887,899 144,723 ENI-Ente Nazionale Idrocarburi SPA 782,658
See notes to financial statements. 14 - -------------------------------------------------------------------------------- CHASE VISTA EUROPEAN FUND Portfolio of Investments (Continued) - -------------------------------------------------------------------------------- As of October 31, 2000
Shares Issuer Value - -------------------------------------------------------------------------------- Long-Term Investments -- Continued - -------------------------------------------------------------------------------- Italy -- Continued 101,000 Telecom Italia Mobile SPA $ 857,833 195,305 Unicredito Italiano SPA 993,295 --------- 7,427,794 Netherlands -- 7.4% 21,674 Akzo Nobel NV 985,649 41,190 Buhrmann NV 1,124,246 42,940 CSM NV 979,102 14,152 ING Groep NV 970,705 18,352 Numico NV 857,134 20,675 Nutreco Holding NV * 889,974 24,385 Royal Dutch Petroleum Co. 1,444,613 1,446 VersaTel Telecom International NV * 28,191 --------- 7,279,614 Norway -- 2.5% 18,554 InFocus Corp. * 798,006 21,605 Norsk Hydro ASA 857,213 30,005 Tandberg ASA * 793,665 --------- 2,448,884 Portugal -- 2.4% 43,969 Banco Espirito Santo SA 667,134 109,205 Brisa-Auto Estradas de Portugal SA 843,285 71,398 Novabase SGPS SA * 846,676 --------- 2,357,095 Spain -- 3.4% 160,861 Grupo Dragados SA 1,561,241 75,065 NH Hoteles SA 846,258 47,931 Telefonica SA 912,921 --------- 3,320,420 Sweden -- 3.6% 34,140 Micronic Laser Systems AB * 1,015,372 96,887 Nordic Baltic Holding AB 725,224 82,610 Skandinaviska Enskilda Banken, Class C 878,067 60,434 Svenska Handelsbanken, Class A 946,949 --------- 3,565,612 Switzerland -- 8.2% 940 Baloise Holdings 930,022 329 Compagnie Financiere Richemont, Class A * 914,863 201 Julius Baer Holding AG 994,891 842 Kudelski SA * 1,133,227 946 Nestle SA 1,959,779 624 Novartis AG 946,366 1,974 Sia Abrasives Holding AG * 241,523 498 Swiss Re 981,827 --------- 8,102,498 United Kingdom -- 32.7% 134,226 Aggreko PLC 719,216 42,534 Amvescap PLC 951,160 243,254 Anite Group PLC 635,812 92,776 ARM Holdings PLC * 916,096 116,392 BAA PLC 968,443 107,452 Barclays PLC 3,076,932 27,036 Bioglan Pharma PLC 255,183
See notes to financial statements. 15 CHASE VISTA EUROPEAN FUND Portfolio of Investments (Continued) As of October 31, 2000 Shares Issuer Value - -------------------------------------------------------------------------------- Long-Term Investments -- Continued - -------------------------------------------------------------------------------- United Kingdom -- Continued 356,611 BP Amoco PLC $ 3,026,744 175,242 Bunzl PLC 1,002,607 107,402 Capita Group PLC 818,782 285,416 Centrica PLC 982,252 1 Dixons Group PLC 3 25,976 Fibernet Group PLC * 603,516 257,002 Firstgroup PLC 870,472 44,106 Fitness First PLC * 726,926 143,577 HSBC Holdings PLC 2,047,353 212,048 Iceland Group PLC 1,008,421 65,913 Innovation Group PLC * 995,408 61,706 Johnson Matthey PLC 963,235 430,044 Legal & General Group PLC 1,070,960 77,095 Marconi Electronic Systems PLC 973,962 360,491 Morrison (WM.) Supermarkets 937,009 107,084 Morse Holdings PLC 901,880 8,181 NDS Group PLC * 613,575 150,554 Northern Rock PLC 940,063 582,601 Pilkington PLC 831,190 131,741 Psion PLC 797,725 74,431 Shell Transport & Trading Co., PLC 599,310 180,355 SmithKline Beecham PLC 2,330,852 133,451 Spirent PLC 1,238,281 49,025 Viridian Group PLC 533,919 ----------- 32,337,287 ----------- Total Common Stock 95,914,036 (Cost $96,090,548) ------------------------------------------------------------- Preferred Stock -- 2.0% ----------------------- Germany -- 2.0% 4,008 Hugo Boss AG 1,012,413 7,018 Marschollek Lautenschlaeger und Partner AG 945,854 ------------------------------------------------------------- Total Preferred Stock 1,958,267 (Cost $1,730,864) ------------------------------------------------------------- Warrant -- 0.0% -------------- Germany -- 0.0% 71 Muenchener Rueckversicherungs-Gesellschaft AG, Expires 06/03/02 6,289 (Cost $0) Principal Amount (DEM) Convertible Bond -- 0.0% ------------------------ Germany -- 0.0% 6,240 DaimlerChrysler AG, 5.75%, 06/15/02 2,340 (Cost $3,675) ------------------------------------------------------------- Total Investments -- 99.3% $97,880,932 (Cost $97,825,087) -------------------------------------------------------------
See notes to financial statements. 16 CHASE VISTA EUROPEAN FUND Portfolio of Investments (Continued) As of October 31, 2000 Summary of Investments by Industry, October 31, 2000
Industry % of Investment Securities - -------------------------------------------------------- Banking 15.2% Telecommunications Equipment 9.1% Oil & Gas 8.8% Food/Beverage Products 8.6% Pharmaceuticals 7.9% Business Services 4.9% Insurance 4.8% Financial Services 4.5% Electronics/Electrical Equipment 4.3% Manufacturing 3.5% Telecommunications 2.5% Construction 2.5% Computer Software 2.0% Other (below 2%) 21.4% - ------------------------------------------------------- Total 100.0% - -------------------------------------------------------
See notes to financial statements. 17 - -------------------------------------------------------------------------------- CHASE VISTA JAPAN FUND Portfolio of Investments - -------------------------------------------------------------------------------- As of October 31, 2000
Shares Issuer Value - -------------------------------------------------------------------------------- Long-Term Investments -- 93.3% - -------------------------------------------------------------------------------- Common Stock -- 93.3% --------------------- Automotive -- 9.2% 2,000 Honda Motor Co., LTD $ 69,056 3,700 Toyota Motor Corp. 147,747 5,000 Yamaha Motor Co., LTD 38,879 ------- 255,682 Banking -- 4.7% 6,000 Bank of Tokyo-Mitsubishi LTD 71,932 3 Mizuho Holdings, Inc. * 23,052 3,000 Sumitomo Bank LTD 36,406 ------- 131,390 Chemicals -- 1.2% 2,000 Kurita Water Industries LTD 32,513 Computer Networks -- 1.8% 2 Future System Consulting Corp. 21,981 1 NET One Systems Co., LTD 29,674 ------- 51,655 Computer Software -- 1.7% 500 Trend Micro, Inc. * 47,167 Consumer Products -- 5.5% 6 Japan Tobacco, Inc. 41,214 2,000 KAO Corp. 59,897 4,000 Shiseido Co., LTD 51,655 ------- 152,766 Electronics/Electrical Equipment -- 24.2% 300 Fanuc LTD 26,926 2,000 Fujitsu LTD 35,609 100 Keyence Corp. 31,048 2,000 Matsushita Electric Industrial Co., LTD 58,066 5,000 Matsushita Electric Works LTD 58,844 6,000 Minebea Co., LTD 59,898 500 Murata Manufacturing Co., LTD 59,806 2,000 NEC Corp. 38,100 2,000 Omron Corp. 49,274 2,000 Pioneer Corp. 61,913 200 Rohm Co., LTD 50,391 2,000 Sanyo Electric Co., LTD 15,203 1,000 Sony Corp. 79,864 6,000 Toshiba Corp. 42,863 ------- 667,805 Entertainment/Leisure -- 2.9% 1,500 Namco LTD 38,741 700 Oriental Land Co., LTD 42,313 ------- 81,054 Financial Services -- 4.2% 300 Jafco Co., LTD 31,872 2,000 Nomura Securities Co., LTD 42,404 400 Orix Corp. 41,947 ------- 116,223 Health Care/Health Care Services -- 1.2% 400 Hoya Corp. 33,044
See notes to financial statements. 18 - -------------------------------------------------------------------------------- CHASE VISTA JAPAN FUND Portfolio of Investments (Continued) - -------------------------------------------------------------------------------- As of October 31, 2000 Shares Issuer Value - -------------------------------------------------------------------------------- Long-Term Investments -- Continued - -------------------------------------------------------------------------------- Insurance -- 0.8% 2,000 Tokio Marine & Fire Insurance Co. $ 22,091 Internet Services/Software -- 0.4% 200 Softbank Corp. 11,998 Machinery & Engineering Equipment -- 0.9% 900 Fuji Machine Manufacturing Co., LTD 24,564 Office/Business Equipment -- 4.0% 2,000 Canon, Inc. 79,314 2,000 Ricoh Corp., LTD 30,773 ---------- 110,087 Pharmaceuticals -- 7.7% 2,000 Kissei Pharmaceutical Co., LTD 36,616 2,000 Takeda Chemical Industries 131,702 1,000 Yamanouchi Pharmaceutical Co., LTD 45,244 ---------- 213,562 Photographic Equipment -- 4.2% 2,000 Fuji Photo Film Co., LTD 74,185 3,000 Olympus Optical Co., LTD 41,434 ---------- 115,619 Printing & Publishing -- 2.3% 4,000 Dai Nippon Printing Co., LTD 62,645 Real Estate -- 0.8% 2,000 Mitsubishi Estate Co., LTD 21,248 Retailing -- 1.4% 700 Cawachi LTD * 39,877 Semi-Conductors -- 1.1% 400 Tokyo Electron LTD 31,286 Shipping/Transportation -- 1.0% 5 East Japan Railway Co. 28,712 Telecommunications -- 10.8% 11 Nippon Telegraph & Telephone Corp. 100,040 8 NTT DoCoMo, Inc. 197,094 ---------- 297,134 Utilities -- 1.3% 1,500 Tokyo Electric Power Co. 36,406 - -------------------------------------------------------------------------------- Total Investments -- 93.3% $2,584,528 (Cost $2,816,087) - --------------------------------------------------------------------------------
Index: * -- Non-Income producing security. See notes to financial statements. 19 - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES October 31, 2000 - --------------------------------------------------------------------------------
International European Japan Equity Fund Fund Fund - -------------------------------------------------------------------------------------------- ASSETS: Investment securities, at value (Note 1) ......... $97,880,932 $2,584,528 $42,547,372 Cash ............................................. 5,442,080 -- -- Other assets ..................................... 669 15 145 Receivables: Investment securities sold ...................... 2,366,383 74,229 -- Interest and dividends .......................... 162,525 4,605 -- Open forward foreign currency contracts ......... 1,632 -- -- Fund shares sold ................................ 998,094 183,170 1,364,492 Expense reimbursement from Distributor .......... -- 45,650 -- - --------------------------------------------------------------------------------------------- Total Assets .................................. 106,852,315 2,892,197 43,912,009 - --------------------------------------------------------------------------------------------- LIABILITIES: Payables: To Custodian .................................... -- 72,354 -- Investment securities purchased ................. 7,912,573 8,692 -- Open forward foreign currency contracts ......... 2,505 -- -- Fund shares redeemed ............................ 96,304 20 2,566,656 Accrued liabilities: (Note 2) Investment advisory fees ........................ 72,776 -- -- Administration fees ............................. 12,129 -- 3,489 Shareholder servicing fees ...................... 4,888 -- 8,724 Distribution fees ............................... 29,992 293 11,540 Custodian fees .................................. 35,398 12,742 -- Other ........................................... 110,060 28,517 187,304 - --------------------------------------------------------------------------------------------- Total Liabilities ............................. 8,276,625 122,618 2,777,713 - --------------------------------------------------------------------------------------------- NET ASSETS: Paid in capital .................................. 90,683,276 3,378,350 37,693,967 Accumulated undistributed/(distributions in excess of) net investment income ................. (3,189) (2,160) (24,413) Accumulated net realized gain (loss) on investments and futures .......................... 7,854,189 (375,055) 3,568,287 Net unrealized appreciation (depreciation) of investments and foreign exchange transactions .... 41,414 (231,556) (103,545) - --------------------------------------------------------------------------------------------- Net Assets .................................... $98,575,690 $2,769,579 $41,134,296 - --------------------------------------------------------------------------------------------- Shares of beneficial interest outstanding ($.001 par value; unlimited number of shares authorized): Class A Shares ................................... 4,242,659 301,498 2,592,849 Class B Shares ................................... 1,067,377 40,580 502,283 Class C Shares ................................... 243,498 -- -- Net Asset Value: Class A Shares (and redemption price) ............ $ 17.87 $ 8.12 $ 13.34 Class B Shares* .................................. $ 17.38 $ 7.93 $ 13.01 Class C Shares* .................................. $ 17.37 -- -- Class A Maximum Public Offering Price Per Share (net asset value per share/94.25%) ................ $ 18.96 $ 8.62 $ 14.15 - --------------------------------------------------------------------------------------------- Cost of investments ............................... $97,825,087 $2,816,087 $ -- - ---------------------------------------------------------------------------------------------
* Redemption price may be reduced by contingent deferred sales charge. See notes to financial statements. 20 - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the year ended October 31, 2000 - --------------------------------------------------------------------------------
International European Japan Equity Fund Fund Fund - -------------------------------------------------------------------------------------- INVESTMENT INCOME: Dividend ................................. $ 958,268 $ 10,725 $ -- Interest ................................. 160,805 -- -- Investment income from Portfolio ......... -- -- 557,976 Foreign taxes withheld ................... (49,638) (2,246) (70,753) Expenses from Portfolio after fee waivers .................................. -- -- (312,512) - -------------------------------------------------------------------------------------- Total investment income ................ 1,069,435 8,479 174,711 - -------------------------------------------------------------------------------------- EXPENSES: (Note 2) Investment advisory fees ................. 933,790 35,177 -- Administration fees ...................... 140,069 5,277 42,676 Shareholder servicing fees ............... 50,913 1,948 106,691 Distribution fees ........................ 335,274 12,691 146,789 Accounting fees .......................... -- -- 41,573 Custodian fees ........................... 160,377 73,689 -- Printing and postage ..................... 49,391 3,307 30,909 Professional fees ........................ 40,230 24,151 11,001 Registration expenses .................... 38,928 11,476 44,940 Transfer agent fees ...................... 220,218 29,478 166,255 Trustees' fees ........................... 4,669 176 1,151 Other .................................... 2,301 -- 23,235 - -------------------------------------------------------------------------------------- Total expenses ......................... 1,976,160 197,370 615,220 - -------------------------------------------------------------------------------------- Less amounts waived (Note 2E) ............. 189,245 49,248 33,230 Less expense reimbursements (Note 2F) ..... -- 80,098 -- Less earnings credits (Note 2F) ........... 693 89 -- - -------------------------------------------------------------------------------------- Net expenses ........................... 1,786,222 67,935 581,990 - -------------------------------------------------------------------------------------- Net investment loss ................... (716,787) (59,456) (407,279) - -------------------------------------------------------------------------------------- REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments ............................. 7,988,358 1,006,857 3,730,735 Futures transactions .................... -- (22,836) 235,749 Foreign exchange transactions ........... 61,580 (33,302) (225,961) Change in net unrealized appreciation/depreciation of: Investments ............................. (5,950,029) (1,305,944) (4,081,243) Futures contracts ....................... -- -- 23,325 Foreign exchange transactions ........... (9,155) 188 100,508 - -------------------------------------------------------------------------------------- Net realized and unrealized gain (loss) on investments, futures and foreign exchange transactions ..................... 2,090,754 (355,037) (216,887) - -------------------------------------------------------------------------------------- Net increase (decrease) in net assets from operations ........................... $1,373,967 $ (414,493) $ (624,166) - --------------------------------------------------------------------------------------
See notes to financial statements. 21 - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS For the periods indicated - -------------------------------------------------------------------------------- Statement of Changes in Net Assets For the periods indicated
European Fund ----------------------------- Year Ended 10/31/00 10/31/99 - --------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment loss ................................................. $ (716,787) $ (303,953) Net realized gain on investments, futures and foreign exchange transactions ............................................... 8,049,938 1,736,458 Change in unrealized appreciation/depreciation of investments, futures contracts and foreign exchange transactions ........................................................ (5,959,184) 5,751,776 - ---------------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations ................. 1,373,967 7,184,281 - ---------------------------------------------------------------------------------------------------- DISTRIBUTIONS TO SHAREHOLDERS FROM: (Note 1) Net investment income ............................................... -- (251,426) Net realized gain on investment transactions ........................ (1,395,439) (363,917) - ---------------------------------------------------------------------------------------------------- Total distributions to shareholders ................................ (1,395,439) (615,343) - ---------------------------------------------------------------------------------------------------- Increase (decrease) from capital share transactions (Note 9) ......... 39,340,263 9,487,635 - ---------------------------------------------------------------------------------------------------- Total increase (decrease) in net assets ........................... 39,318,791 16,056,573 NET ASSETS: Beginning of period ................................................. 59,256,899 43,200,326 - ---------------------------------------------------------------------------------------------------- End of period ....................................................... $98,575,690 $59,256,899 - ---------------------------------------------------------------------------------------------------- International Japan Fund Equity Fund ------------------------------------------- Year Ended Year Ended 10/31/00 10/31/99 10/31/00 - -------------------------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment loss ................................................. $ (59,456) $ (36,098) $ (407,279) Net realized gain on investments, futures and foreign exchange transactions ............................................... 950,719 634,851 3,740,523 Change in unrealized appreciation/depreciation of investments, futures contracts and foreign exchange transactions ........................................................ (1,305,756) 985,305 (3,957,410) - ------------------------------------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations ................. (414,493) 1,584,058 (624,166) - ------------------------------------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: (Note 1) Net investment income ............................................... -- -- -- Net realized gain on investment transactions ........................ -- -- (1,817,835) - ------------------------------------------------------------------------------------------------------------------ Total distributions to shareholders ................................ -- -- (1,817,835) - ------------------------------------------------------------------------------------------------------------------ Increase (decrease) from capital share transactions (Note 9) ......... (2,164,449) 1,603,523 9,744,944 - ------------------------------------------------------------------------------------------------------------------ Total increase (decrease) in net assets ........................... (2,578,942) 3,187,581 7,302,943 NET ASSETS: Beginning of period ................................................. 5,348,521 2,160,940 33,831,353 - ------------------------------------------------------------------------------------------------------------------ End of period ....................................................... $2,769,579 $5,348,521 $41,134,296 - ------------------------------------------------------------------------------------------------------------------ See notes to financial statements. International Equity Fund -------------- Year Ended 10/31/99 - ------------------------------------------------------------------------------------ INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment loss ................................................. $ (228,439) Net realized gain on investments, futures and foreign exchange transactions ............................................... 2,069,876 Change in unrealized appreciation/depreciation of investments, futures contracts and foreign exchange transactions ........................................................ 2,887,054 - ------------------------------------------------------------------------------------ Increase (decrease) in net assets from operations ................. 4,728,491 - ------------------------------------------------------------------------------------ DISTRIBUTIONS TO SHAREHOLDERS FROM: (Note 1) Net investment income ............................................... -- Net realized gain on investment transactions ........................ (1,077,930) - ------------------------------------------------------------------------------------ Total distributions to shareholders ................................ (1,077,930) - ------------------------------------------------------------------------------------ Increase (decrease) from capital share transactions (Note 9) ......... 4,778,630 - ------------------------------------------------------------------------------------ Total increase (decrease) in net assets ........................... 8,429,191 NET ASSETS: Beginning of period ................................................. 25,402,162 - ------------------------------------------------------------------------------------ End of period ....................................................... $33,831,353 - ------------------------------------------------------------------------------------
See notes to financial statements. 22 - -------------------------------------------------------------------------------- CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies Mutual Fund Group (the "Trust") was organized on May 11, 1987 as a Massachusetts Business Trust, and is registered under the Investment Company Act of 1940, as amended, (the "1940 Act") as an open-end management investment company. European Fund ("EF"), Japan Fund ("JF") and International Equity Fund ("IEF"), collectively, the "Funds", are three separate series of the Trust. The Funds (except for EF) each offer two classes of shares. EF offers three classes of shares. Class A shares generally provide for a front-end sales charge while Class B and Class C shares provide for a contingent deferred sales charge. All classes of shares have equal rights as to earnings, assets and voting privileges except that each class may bear different distribution and shareholder servicing fees and each class has exclusive voting rights with respect to its distribution plan. The following is a summary of significant accounting policies followed by the Funds: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. A. IEF Since inception, IEF has utilized the Master Feeder Fund Structure. IEF seeks to achieve its investment objective by investing all of its investable assets in the International Equity Portfolio (the "Portfolio"). The Portfolio, like the Fund, is an open-end management investment company having the same investment objectives as the Fund. As of October 31, 2000, IEF owned 99.99% of the Portfolio. The financial statements of the Portfolio, including the portfolio of investments, are included elsewhere in this report and should be read in conjunction with the financial statements of the Fund. 1. Valuation of Investments -- IEF records its investment in the Portfolio at value. Securities of the Portfolio are recorded at value as more fully discussed in the notes to those financial statements. 2. Foreign Currency Translations -- The books and records of the Portfolio are maintained in U.S. dollars. The foreign currency translation policy is more fully discussed in the notes to those financial statements. 3. Investment Income -- IEF records daily its pro-rata share of the Portfolio's income and expenses, and realized and unrealized gains and losses. In addition, the Fund accrues its own expenses daily as incurred. Realized gain/losses and changes in unrealized appreciation/ depreciation represent the Fund's share of such elements allocated from the Portfolio. 23 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) B. EF and JF Investments in international markets may involve certain considerations and risks not typically associated with investments in the United States. Future economic and political developments in foreign countries could adversely affect the liquidity or value, or both, of such securities in which the Fund is invested. 1. Valuation of Investments -- Equity securities, purchased options and futures contracts are valued at the last sale price on the exchange on which they are primarily traded, including the NASDAQ National Market. Securities for which sale prices are not available and other over-the-counter securities are valued at the last quoted bid price. Bonds and other fixed income securities (other than short-term obligations), including listed issues, are valued on the basis of valuations supplied by pricing services or by matrix pricing systems of a major dealer in bonds. Short-term debt securities with 61 days or more to maturity at time of purchase are valued, through the 61st day prior to maturity, at market value based on quotations obtained from market makers or other appropriate sources; thereafter, the value on the 61st day is amortized on a straight-line basis over the remaining number of days to maturity. Short-term investments with 60 days or less to maturity at time of purchase are valued at amortized cost, which approximates market. Portfolio securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Trustees. 2. Repurchase Agreements -- It is each Fund's policy that repurchase agreements are fully collateralized by U.S. Treasury and Government Agency securities. All collateral is held by the Fund's custodian bank, subcustodian, or a bank with which the custodian bank has entered into a subcustodian agreement, or is segregated in the Federal Reserve Book Entry System. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Fund may be delayed or limited. 3. Futures Contracts -- When a fund enters into a futures contract, it makes an initial margin deposit in a segregated account, either in cash or liquid securities. Thereafter, the futures contract is marked to market and the fund makes (or receives) additional cash payments daily to the broker. Changes in the value of the contract are recorded as unrealized appreciation/depreciation until the contract is closed or settled. The Funds may enter into futures contracts only on exchanges or boards of trade. The exchange or board of trade acts as the counterparty to each futures transaction, therefore, the Fund's credit risk is limited to failure of the exchange or board of trade. 24 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) Index futures contracts are used to control the asset mix of the portfolios in the most efficient manner, allowing the Funds to adjust country exposures while incurring minimal transaction costs. Short index futures contracts are used for hedging purposes, i.e. to reduce the exposure to equities. Long index futures contracts are used to gain exposure to equities, when it is anticipated that this will be more efficient than buying stocks directly. Use of long futures contracts subjects the Fund to risk of loss up to the amount of the nominal value of the futures contracts as shown in the Portfolio of Investments. Use of short futures contracts subject the Fund to unlimited risk. None of the Funds held open futures contracts as of October 31, 2000. 4. Written Options -- When a fund writes an option on a futures contract, an equal amount to the premium received by the fund is included in the fund's Statement of Assets and Liabilities as an asset and corresponding liability. The amount of the liability is adjusted daily to reflect the current market value of the written option and the change is recorded in a corresponding unrealized gain or loss account. When a written option expires on its stipulated expiration date, or when a closing transaction is entered into, the related liability is extinguished and the fund realizes a gain or loss if the cost of the closing transaction exceeds the premium received when the option was written. The Funds write options on stock index securities futures. These options are settled for cash and subject the Funds to market risk in excess of the amounts that are reflected in the Statement of Assets and Liabilities. The Funds, however, are not subject to credit risk on written options as the counterparty has already performed its obligation by paying a premium at the inception of the contract. As of October 31, 2000, there were no outstanding written options. 5. Foreign Currency Translation -- The books and records of the Funds are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the prevailing exchange rates, or at the mean of the current bid and asked prices, of such currencies against the U.S. dollar as quoted by a major bank, on the following basis: a. Market value of investment securities and other assets and liabilities: at the rate of exchange at the valuation date. b. Purchases and sales of investment securities, income and expenses: at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets of the Funds are presented at the foreign exchange rates and market values at the close of the periods, the Funds do not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held or sold during the year. Accordingly, such realized foreign currency gains (losses) are included in the reported net realized gains (losses) on investment transactions. 25 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) Reported realized foreign currency gains or losses arise from disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Funds' books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. Unrealized foreign exchange gains and losses arise from changes (due to the changes in the exchange rate) in the value of foreign currency and other assets and liabilities denominated in foreign currencies which are held at period end. 6. Forward Foreign Currency Exchange Contracts -- The Funds may enter into forward foreign currency contracts (obligations to purchase or sell foreign currency in the future on a date and price fixed at the time the contracts are entered into) to hedge the Fund against fluctuations in the value of its assets or liabilities due to change in the value of foreign currencies. Each day the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market". When the forward contract is closed, or the delivery of the currency is made or taken, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. The Funds are subject to off-balance sheet risk to the extent of the value of the contracts for purchases of currency and in an unlimited amount for sales of currency. At October 31, 2000, EF had outstanding forward foreign currency contracts as shown in Note 5. 7. Security Transactions and Investment Income -- Investment transactions are accounted for on the trade date (the date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. 8. Bank Borrowings -- The Funds may borrow money for temporary or emergency purposes. Any borrowings representing more than 5% of a Fund's total assets must be repaid before the Fund may make additional investments. The Funds have entered into an agreement, enabling them to participate with other Chase Vista Funds in an unsecured line of credit with a syndicate of banks, which permits borrowings up to $350 million, collectively. Interest is charged to each Fund based on its borrowings at an annual rate equal to the sum of the Federal Funds Rate plus 0.50%. The Funds also pay a commitment fee of 0.10% per annum on the average daily amount of the available commitment, which is allocated on a pro-rata basis to the funds. The commitment fee is included in Other expenses on the Statement of Operations. Borrowings are payable on demand. The Funds had no borrowings outstanding at October 31, 2000 nor at any time during the year then ended. 26 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) C. General Policies 1. Federal Income Taxes -- Each Fund is treated as a separate taxable entity for Federal income tax purposes. The Fund's policy is to comply with the provisions of the Internal Revenue Code applicable to regulated investment companies and to distribute to shareholders all of its distributable net investment income, and net realized gain on investments. In addition, the Fund intends to make distributions as required to avoid excise taxes. Accordingly, no provision for Federal income or excise tax is necessary. 2. Distributions to Shareholders -- Dividends paid to shareholders are recorded on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains is determined in accordance with Federal income tax regulations, which may differ from generally accepted accounting principles. To the extent these "book/tax" differences are permanent in nature (i.e., that they result from other than timing of recognition -- "temporary differences") such amounts are reclassified within the capital accounts based on their Federal tax-basis treatment. The following amounts were reclassified within the capital accounts:
Accumulated Accumulated undistributed/ net realized Paid-in (overdistributed) gain (loss) capital net investment income on investements - -------------------------------------------------------------------------------- EF ............. $ (653,889) $ 715,469 (61,580) JF ............. (92,646) 71,378 21,268 IEF ............ (225,391) 342,249 (116,858)
The reclassifications for EF, JF and IEF relate primarily to the character for tax purposes of current year net operating losses and foreign currency gains and losses. Dividends and distributions which exceed net investment income or net realized capital gains for financial reporting purposes but not for tax purposes are reported as distributions in excess of net investment income or net realized capital gains. 3. Expenses -- Expenses of the Trust directly attributable to a Fund are charged to that Fund; other expenses are allocated proportionately among each Fund within the trust in relation to the net assets of each Fund or on another reasonable basis. Expenses directly attributable to a particular share class are charged directly to that class. In calculating the net asset value per share of each class, investment income, realized and unrealized gains and losses and expenses other than class specific expenses, are allocated daily to each class of shares based upon the proportion of net assets of each class at the beginning of each day. 2. Fees and Other Transactions with Affiliates A. Investment Advisory Fee -- Pursuant to separate Investment Advisory Agreements, The Chase Manhattan Bank ("Chase" or the "Advisor"), acts as the Investment Advisor to EF and JF. Chase is a direct wholly-- 27 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) owned subsidiary of The Chase Manhattan Corporation. As Investment Advisor, Chase supervises the investments of the Funds and for such services is paid a fee. The fee is computed daily and paid monthly at an annual rate equal to 1.00% of the average daily net assets of each Fund. The Advisor voluntarily waived fees as outlined in Note 2.E below. Chase Fleming Asset Management (London) Limited ("CFAM (London)"), a registered investment advisor, is the sub-investment advisor to each Fund, pursuant to a Sub-Investment Advisory Agreement between CFAM (London) and Chase. CFAM (London), formerly Chase Asset Management (London) Limited, is a wholly owned subsidiary of Chase and is entitled to receive a fee, payable by Chase from its advisory fee, at an annual rate equal to 0.50% of each Fund's average daily net assets. B. Shareholder Servicing Fees -- The Trust has adopted an Administrative Services Plan for the Class B Shares of all of the Funds, the Class A Shares of IEF and the Class C Shares of EF, which, among other things, provides that the Trust on behalf of the Funds may obtain the services of one or more Shareholder Servicing Agents. For its services, the Shareholder Servicing Agent will receive a fee that is computed daily and paid monthly at an annual rate equal to 0.25% of the average daily net assets of the Class B Shares of each Fund, the Class A Shares of IEF and the Class C Shares of EF. The Shareholder Servicing Agents voluntarily waived fees as outlined in Note 2.E. below. Since inception, Chase, and certain affiliates have been the only Shareholder Servicing Agents of the Funds. C. Distribution and Sub-Administration Fees -- Pursuant to a Distribution and Sub-Administration Agreement, Vista Fund Distributors, Inc. (the "Distributor" or "VFD"), a wholly owned subsidiary of The BISYS Group, Inc. ("BISYS"), is the Trust's exclusive underwriter and promotes and arranges for the sale of each Fund's shares. In addition, the Distributor provides certain sub-administration services to the Trust, including providing officers, clerical staff and office space for an annual fee of 0.05% of the average daily net assets of each Fund. The Trustees have adopted Distribution Plans (the "Distribution Plans") for Class A, B and C Shares of the Funds in accordance with Rule 12b-1 under the 1940 Act. The Class A Distribution Plans provide that each Fund shall pay distribution fees, including payments to the Distributor, at annual rates not to exceed 0.25% of the average daily net assets of the Class A Shares of each Fund for distribution services. The Class B and Class C Distribution Plans provide that each Fund shall pay distribution fees, including payments to the Distributor, at an annual rate not to exceed 0.75% of the average daily net assets of the Class B and Class C Shares for distribution services. The Distributor voluntarily waived fees as outlined in Note 2.E. below. D. Administration Fee -- Pursuant to an Administration Agreement, Chase (the "Administrator") provides certain administration services to the Trust. For these services and facilities, the Administrator receives a fee from EF and JF computed at the annual rate equal to 0.10% of the 28 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) respective Fund's average daily net assets, and a fee from IEF at the annual rate equal to 0.05% of the Fund's average daily net assets. The Administrator voluntarily waived fees as outlined in Note 2.E. below. E. Waivers of fees -- For the year ended October 31, 2000, the Fund's vendors voluntarily waived fees for each of the Funds as follows:
Fee Waivers EF JF IEF - ----------------------------------------------------------------------- Investment Advisory ........... $189,245 $35,177 $ -- Administration ................ -- 5,277 9,494 Shareholder Servicing.......... -- 1,948 4,784 Distribution .................. -- 6,846 18,952 -------- ------- ------- Total ....................... $189,245 $49,248 $33,230 ======== ======= =======
F. Other -- Certain officers of the Trust are officers of Vista Fund Distributors, Inc. or of its parent corporation, BISYS. Chase provides portfolio accounting and custody services for EF and JF. Compensation for such services is presented in the Statement of Operations as custodian fees. Custodian fees are subject to reduction by credits earned by each Fund, based on cash balances held by Chase as custodian. Such earnings credits are presented separately in the Statement of Operations. The Funds could have invested the cash balances utilized in connection with the earnings credit arrangements in income producing assets if they had not entered into such arrangements. The Distributor voluntarily reimbursed certain expenses of the Funds in the amounts as shown on the Statement of Operations. 3. Investment Transactions For the year ended October 31, 2000, purchases and sales of investments (excluding short-term investments) were as follows:
EF JF - -------------------------------------------------------------------------------- Purchases (excluding U.S. Government) ..... $181,597,503 $4,093,923 Sales (excluding U.S. Government) ......... (143,142,679) (6,268,271)
4. Federal Income Tax Matters For Federal income tax purposes, the cost and unrealized appreciation (depreciation) in value of the investment securities at October 31, 2000, are as follows:
EF JF - ------------------------------------------------------------------------------------- Aggregate cost ..................................... $ 98,139,509 $2,842,171 ------------ ---------- Gross unrealized appreciation ...................... 4,733,520 73,477 Gross unrealized depreciation ...................... (4,992,097) (331,120) ------------ ---------- Net unrealized appreciation (depreciation) ......... $ (258,577) $ (257,643) ============ ==========
At October 31, 2000, JF had a capital loss carryover of $350,685 which will be available to offset capital gains until October 31, 2006. To the extent that any net capital loss carryovers are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders. During the year ended October 31, 2000, JF utilized capital loss carryforwards of $996,357. 29 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) 5. Open Forward Foreign Currency Contracts EF was party to the following open forward foreign currency contracts at October 31, 2000:
Contract Contract Unrealized Amount Amount Settlement Gain/(Loss) Purchased Currency Sold Currency Date USD - ------------------------------------------------------------------------------------ Unrealized Gain - --------------- 667,857 USD 1,198,937 CHF 11/01/00 $1,072 926,816 USD 1,093,330 EUR 11/02/00 61 151,178 GBP 219,027 USD 11/02/00 499 -------- $1,632 ======== Unrealized Loss - --------------- 61,000 EUR 51,580 USD 11/01/00 $ (144) 189,519 GBP 276,964 USD 11/01/00 (1,762) 104,500 USD 188,979 CHF 11/02/00 (599) -------- $ (2,505) ========
CHF - Swiss Francs EUR - European Currency Unit GBP - British Pound Sterling USD - United States Dollar 6. Concentrations At October 31, 2000, substantially all of the Funds' net assets consist of securities of issuers which are denominated in foreign currencies. Changes in currency exchange rates will affect the value of and investment income from such securities. As of October 31, 2000, EF invested approximately 32.7% of its net assets in issuers in the United Kingdom. JF primarily invested in issuers in Japan. The issuers' abilities to meet their obligations may be affected by economic or political developments in the specific region or country. At October 31, 2000, JF invested 31.2% of its portfolio in securities issued by technology sector companies, such as computer hardware and software companies, internet connectivity providers and telecommunications equipment manufacturers. Valuations of companies in the technology sector are typically subject to greater volatility than other sectors. 7. Retirement Plans The Funds have adopted an unfunded noncontributory defined benefit pension plan covering all independent trustees of the Funds who will have served as independent trustees for at least five years at the time of retirement. Benefits under this plan are based on compensation and years of service. Pension expenses for the year ended October 31, 2000, included in Trustees Fees in the Statement of Operations, and accrued pension liability included in other accrued liabilities, respectively, in the Statement of Assets and Liabilities were as follows: 30 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) Pension Accrued Pension Fund Expenses Liability - ----------------------------------------- EF .......... $1,135 $3,189 JF .......... 86 446 IEF ......... 279 1,539
8. Subsequent Event On September 13, 2000, The Chase Manhattan Corporation and J.P. Morgan & Co. Incorporated announced that they have entered into an agreement and plan of merger. The transaction is expected to close in December 2000 and is subject to approval by shareholders of both companies. 31 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) 9. Capital Share Transactions Capital share transactions were as follows for the periods presented: EUROPEAN FUND
- ------------------------------------------------------------------------------------------------------------------------------------ Class A Class B Class C - ------------------------------------------------------------------------------------------------------------------------------------ Amount Shares Amount Shares Amount Shares - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended October 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Shares sold $152,430,045 7,611,529 $ 13,524,350 648,088 $3,763,724 181,183 Shares issued in reinvestment of distributions 644,441 32,515 187,697 9,670 26,141 1,347 Shares redeemed (126,511,270) (6,291,220) (4,141,614) (210,469) (583,251) (29,129) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in Fund shares outstanding $ 26,563,216 1,352,824 $ 9,570,433 447,289 $3,206,614 153,401 - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended October 31, 1999* - ------------------------------------------------------------------------------------------------------------------------------------ Shares sold $ 35,569,006 2,251,966 $ 7,411,851 474,721 $1,725,302 111,256 Shares issued in reinvestment of distributions 218,038 13,910 81,769 5,314 428 28 Shares redeemed (27,100,315) (1,707,222) (8,088,735) (524,167) (329,709) (21,187) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 8,686,729 558,654 $ (595,115) (44,132) $1,396,021 90,097 - ------------------------------------------------------------------------------------------------------------------------------------
* For Class C shares, from commencement of offering on November 1, 1998. 32 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) JAPAN FUND
- ------------------------------------------------------------------------------------------------------------------------------------ Class A Class B - ------------------------------------------------------------------------------------------------------------------------------------ Amount Shares Amount Shares - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended October 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Shares sold $ 4,116,044 443,154 $ 858,258 89,593 Shares issued in reinvestment of distributions -- -- -- -- Shares redeemed (5,601,150) (574,334) (1,537,601) (161,845) - ------------------------------------------------------------------------------------------------------------------------------------ Net decrease in Fund shares outstanding $ (1,485,106) (131,180) $ (679,343) (72,252) - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended October 31, 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Shares sold $ 3,535,327 428,187 $ 545,856 68,871 Shares issued in reinvestment of distributions -- -- -- -- Shares redeemed (2,332,878) (271,810) (144,782) (17,872) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase in Fund shares outstanding $ 1,202,449 156,377 $ 401,074 50,999 - ------------------------------------------------------------------------------------------------------------------------------------
33 CHASE VISTA FUNDS NOTES TO FINANCIAL STATEMENTS (Continued) INTERNATIONAL EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------------ Class A Class B - ------------------------------------------------------------------------------------------------------------------------------------ Amount Shares Amount Shares - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended October 31, 2000 - ------------------------------------------------------------------------------------------------------------------------------------ Shares sold $80,719,692 5,402,885 $ 3,007,555 190,262 Shares issued in reinvestment of distributions 1,244,561 81,344 343,302 22,917 Shares redeemed (72,296,668) (4,849,552) (3,273,498) (218,570) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 9,667,585 634,677 $ 77,359 (5,391) - ------------------------------------------------------------------------------------------------------------------------------------ Year Ended October 31, 1999 - ------------------------------------------------------------------------------------------------------------------------------------ Shares sold $41,065,896 3,215,748 $ 6,951,949 561,207 Shares issued in reinvestment of distributions 646,590 52,060 292,986 23,956 Shares redeemed (35,456,364) (2,796,866) (8,722,427) (701,350) - ------------------------------------------------------------------------------------------------------------------------------------ Net increase (decrease) in Fund shares outstanding $ 6,256,122 470,942 $(1,477,492) (116,187) - ------------------------------------------------------------------------------------------------------------------------------------
34 - -------------------------------------------------------------------------------- CHASE VISTA FUNDS FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS
European Fund ----------------------- Class A ----------------------- Year Ended ----------------------- 10/31/00 10/31/99 ---------- ---------- Net asset value, beginning of period ............................. $ 16.52 $ 14.47 --------- --------- Income from investment operations: Net investment income ........................................... (0.12)@ (0.06)@ Net gains or losses in securities (both realized and unrealized). 1.83 2.31 --------- --------- Total from investment operations ............................... 1.71 2.25 --------- --------- Distributions to shareholders from: Dividends from net investment income ............................ -- 0.09 Distributions from capital gains ................................ 0.36 0.11 --------- --------- Total dividends and distributions .............................. 0.36 0.20 --------- --------- Net asset value, end of period ................................... $ 17.87 $ 16.52 ========= ========= Total return (1) ................................................. 10.13% 15.60% Ratios/supplemental data: Net assets, end of period (000 omitted) ......................... $75,801 $47,759 Ratios to average net assets #: Expenses ........................................................ 1.74% 1.74% Net investment income ........................................... (0.60%) (0.40%) Expenses without waivers, reimbursements and earnings credits ... 1.95% 2.06% Net investment income without waivers, reimbursements and earnings credits ............................. (0.81%) (0.72%) Portfolio turnover rate .......................................... 161% 149% - -------------------------------------------------------------------------------------------- European Fund ----------------------------------- Class A ----------------------------------- Year Ended 11/02/95* --------------------- Through 10/31/98 10/31/97 10/31/96 -------- -------- -------- Net asset value, beginning of period ............................. $ 14.10 $ 11.99 $ 10.00 -------- -------- --------- Income from investment operations: Net investment income ........................................... 0.15 0.05 0.15 Net gains or losses in securities (both realized and unrealized) 2.16 3.01 1.93 -------- -------- --------- Total from investment operations ............................... 2.31 3.06 2.08 -------- -------- --------- Distributions to shareholders from: Dividends from net investment income ............................ 0.22 0.10 0.09 Distributions from capital gains ................................ 1.72 0.85 -- -------- -------- --------- Total dividends and distributions .............................. 1.94 0.95 0.09 -------- -------- --------- Net asset value, end of period ................................... $ 14.47 $ 14.10 $ 11.99 ======== ======== ========= Total return (1) ................................................. 18.71% 28.19% 20.78% Ratios/supplemental data: Net assets, end of period (000 omitted) ......................... $33,743 $12,965 $ 6,358 Ratios to average net assets #: Expenses ........................................................ 1.74% 1.75% 1.75% Net investment income ........................................... (0.07%) 0.32% 1.44% Expenses without waivers, reimbursements and earnings credits ... 2.38% 2.84% 3.49% Net investment income without waivers, reimbursements and earnings credits ............................. (0.71%) (0.77%) (0.30%) Portfolio turnover rate .......................................... 183% 170% 186% - ---------------------------------------------------------------------------------------------------------
* Commencement of operations. @ Calculated based on average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. # Short periods have been annualized. See notes to financial statements. 35 CHASE VISTA FUNDS FINANCIAL HIGHLIGHTS (Continued) FINANCIAL HIGHLIGHTS (Continued)
European Fund --------------------------------------- Class B -------------------------------------- Year Ended -------------------------------------- 10/31/00 10/31/99 10/31/98 ----------- ---------- --------- Net asset value, beginning of period ............ $ 16.18 $ 14.24 $ 13.93 ---------- --------- --------- Income from investment operations: Net investment income .......................... (0.27)@ (0.18)@ 0.08 Net gains or losses in securities (both realized and unrealized) ................. 1.83 2.26 2.10 ---------- --------- --------- Total from investment operations .............. 1.56 2.08 2.18 ---------- --------- --------- Distributions to shareholders from: Dividends from net investment income ........... -- 0.03 0.15 Distributions from capital gains ............... 0.36 0.11 1.72 ---------- --------- --------- Total dividends and distributions ............. 0.36 0.14 1.87 ---------- --------- --------- Net asset value, end of period .................. $ 17.38 $ 16.18 $ 14.24 ========== ========= ========= Total return (1) ................................ 9.40% 14.66% 17.89% Ratios/supplemental data: Net assets, end of period (000 omitted) ........ $18,546 $10,038 $ 9,457 Ratios to average net assets #: Expenses ....................................... 2.49% 2.51% 2.50% Net investment income .......................... (1.35%) (1.12%) (0.75%) Expenses without waivers, reimbursements and earnings credits ............................... 2.69% 2.83% 2.91% Net investment income without waivers, reimbursements and earnings credits ............ (1.55%) (1.44%) (1.16%) Portfolio turnover rate ......................... 161% 149% 183% Class B Class C ------------------------ -------------------------- Year Ended 11/03/95** Year 11/01/98** ---------- Through Ended Through 10/31/97 10/31/96 10/31/00 10/31/99 ---------- --------- ---------- --------- Net asset value, beginning of period ............ $ 11.93 $ 9.97 $ 16.19 $ 14.24 --------- ----------- ---------- ---------- Income from investment operations: Net investment income .......................... 0.04 0.07 (0.26)@ (0.08)@ Net gains or losses in securities (both realized and unrealized) ................. 2.89 1.96 1.80 2.17 --------- ----------- ---------- ---------- Total from investment operations .............. 2.93 2.03 1.54 2.09 --------- ----------- ---------- ---------- Distributions to shareholders from: Dividends from net investment income ........... 0.08 0.07 -- 0.03 Distributions from capital gains ............... 0.85 -- 0.36 0.11 --------- ----------- ---------- ---------- Total dividends and distributions ............. 0.93 0.07 0.36 0.14 --------- ----------- ---------- ---------- Net asset value, end of period .................. $ 13.93 $ 11.93 $ 17.37 $ 16.19 ========= =========== ========== ========== Total return (1) ................................ 27.25% 20.35% 9.27% 14.73% Ratios/supplemental data: Net assets, end of period (000 omitted) ........ $ 2,218 $ 190 $ 4,229 $ 1,460 Ratios to average net assets #: Expenses ....................................... 2.51% 2.47% 2.49% 2.51% Net investment income .......................... (0.30%) 0.80% (1.33%) (0.61%) Expenses without waivers, reimbursements and earnings credits ............................... 3.58% 3.83% 2.67% 2.83% Net investment income without waivers, reimbursements and earnings credits ............ (1.37%) (0.56%) (1.51%) (0.93%) Portfolio turnover rate ......................... 170% 186% 161% 149%
** Commencement of offering of class of shares. @ Calculated based on average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. # Short periods have been annualized. See notes to financial statements. 36 CHASE VISTA FUNDS FINANCIAL HIGHLIGHTS (Continued) FINANCIAL HIGHLIGHTS (Continued)
Japan Fund ------------------------ Class A ------------------------ Year Ended ----------------------- 10/31/00 10/31/99 ----------- --------- Net asset value, beginning of period .............................. $ 9.84 $ 6.41 ----------- --------- Income from investment operations: Net investment income ............................................ (0.15)@ (0.07)@ Net gains or losses in securities (both realized and unrealized) . (1.57) 3.50 ---------- --------- Total from investment operations ................................ (1.72) 3.43 ---------- --------- Distributions to shareholders from: Dividends from Net Investment Income ............................. -- -- Distributions from capital gains ................................. -- -- Tax return of capital ............................................ -- -- ---------- --------- Total dividends and distributions ............................... -- -- ---------- --------- Net asset value, end of period .................................... $ 8.12 $ 9.84 ========== ========= Total return (1) .................................................. (17.48%) 53.51% Ratios/supplemental data: Net assets, end of period (000 omitted) .......................... $ 2,448 $ 4,260 Ratios to average net assets #: Expenses ......................................................... 1.77% 1.74% Net investment income ............................................ (1.54%) (0.88%) Expenses without waivers, reimbursements and earnings credits .... 5.49% 5.44% Net investment income without waivers, reimbursements and earnings credits reimbursements ........................................... (5.26%) (4.58%) Portfolio turnover rate ........................................... 123% 133% Japan Fund ------------------------------------ Class A ------------------------------------ Year Ended 11/02/95* ---------------------- Through 10/31/98 10/31/97 10/31/96 --------- ---------- ---------- Net asset value, beginning of period .............................. $ 9.52 $ 9.42 $ 10.00 --------- --------- -------- Income from investment operations: Net investment income ............................................ 0.27 0.08 (0.08) Net gains or losses in securities (both realized and unrealized) . (2.91) 0.24 (0.50) --------- --------- -------- Total from investment operations ................................ (2.64) 0.32 (0.58) --------- --------- -------- Distributions to shareholders from: Dividends from Net Investment Income ............................. 0.26 0.22 -- Distributions from capital gains ................................. -- -- -- Tax return of capital ............................................ 0.21 -- -- --------- --------- -------- Total dividends and distributions ............................... 0.47 0.22 -- -------- --------- -------- Net asset value, end of period .................................... $ 6.41 $ 9.52 $ 9.42 ========= ========= ======== Total return (1) .................................................. (28.98%) 3.49% (5.80%) Ratios/supplemental data: Net assets, end of period (000 omitted) .......................... $ 1,770 $ 5,008 $ 4,781 Ratios to average net assets #: Expenses ......................................................... 1.76% 1.75% 1.75% Net investment income ............................................ (0.56%) (0.30%) (0.91%) Expenses without waivers, reimbursements and earnings credits .... 3.79% 2.89% 3.60% Net investment income without waivers, reimbursements and earnings credits reimbursements ........................................... (2.59%) (1.44%) (2.76%) Portfolio turnover rate ........................................... 212% 217% 121%
* Commencement of operations. @ Calculated based on average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. # Short periods have been annualized. See notes to financial statements. 37 CHASE VISTA FUNDS FINANCIAL HIGHLIGHTS (Continued) FINANCIAL HIGHLIGHTS (Continued)
Japan Fund ----------------------- Class B ----------------------- Year Ended ----------------------- 10/31/00 10/31/99 ----------------------- Net asset value, beginning of period .................................. $ 9.65 $ 6.32 --------- --------- Income from investment operations: Net investment income ................................................ (0.22)@ (0.13)@ Net gains or losses in securities (both realized and unrealized) ..... (1.50) 3.46 ---------- --------- Total from investment operations .................................... (1.72) 3.33 ---------- --------- Distributions to shareholders from: Dividends from net investment income ................................. -- -- Distributions from capital gains ..................................... -- -- Tax return of capital ................................................ -- -- ---------- --------- Total dividends and distributions ................................... -- -- ---------- --------- Net asset value, end of period ........................................ $ 7.93 $ 9.65 ========== ========= Total return (1) ...................................................... (17.82%) 52.69% Ratios/supplemental data: Net assets, end of period (000 omitted) .............................. $ 322 $ 1,089 Ratios to average net assets #: Expenses ............................................................. 2.52% 2.49% Net investment income ................................................ (2.29%) (1.67%) Expenses without waivers, reimbursements and earnings credits ........ 6.14% 6.19% Net investment income without waivers, reimbursements and earnings credits .................................. (5.91%) (5.37%) Portfolio turnover rate ............................................... 123% 133% Japan Fund ------------------------------------ Class B ------------------------------------ Year Ended 11/03/95** --------------------- Through 10/31/98 10/31/97 10/31/96 --------- --------- ----------- Net asset value, beginning of period .................................. $ 9.42 $ 9.35 $ 10.00 --------- --------- ---------- Income from investment operations: Net investment income ................................................ 0.23 (0.05) (0.02) Net gains or losses in securities (both realized and unrealized) ..... (2.90) 0.30 (0.63) --------- --------- ---------- Total from investment operations .................................... (2.67) 0.25 (0.65) --------- --------- ---------- Distributions to shareholders from: Dividends from net investment income ................................. 0.22 0.18 -- Distributions from capital gains ..................................... -- -- -- Tax return of capital ................................................ 0.21 -- -- --------- --------- ---------- Total dividends and distributions ................................... 0.43 0.18 -- --------- --------- ---------- Net asset value, end of period ........................................ $ 6.32 $ 9.42 $ 9.35 ========= ========= ========== Total return (1) ...................................................... (29.53%) 2.72% (6.50%) Ratios/supplemental data: Net assets, end of period (000 omitted) .............................. $ 391 $ 1,893 $ 162 Ratios to average net assets #: Expenses ............................................................. 2.51% 2.51% 2.52% Net investment income ................................................ (0.97%) (5.73%) (0.40%) Expenses without waivers, reimbursements and earnings credits ........ 4.52% 3.66% 4.00% Net investment income without waivers, reimbursements and earnings credits .................................. (2.98%) (6.88%) (1.88%) Portfolio turnover rate ............................................... 212% 217% 121%
** Commencement of offering of class of shares. @ Calculated based on average shares outstanding. (1) Total return figures do not include the effect of any front-end or deferred sales load. # Short periods have been annualized. See notes to financial statements. 38 CHASE VISTA FUNDS FINANCIAL HIGHLIGHTS (Continued) FINANCIAL HIGHLIGHTS (Continued)
International Equity Fund --------------------------------------------------------------- Class A --------------------------------------------------------------- Year Ended --------------------------------------------------------------- 10/31/00 10/31/99 10/31/98 10/31/97 10/31/96 -------- -------- -------- ------- ------- Net asset value, beginning of period ............. $ 13.77 $ 12.08 $ 12.11 $ 12.38 $ 12.02 -------- ------- ------- ------- ------- Income from investment operations: Net investment income .......................... (0.11) (0.09) (0.09) (0.05)@ 0.05 Net gains or losses in securities (both realized and unrealized) ................. 0.44 2.34 0.43 0.33 0.37 -------- ------- ------- ------- ------- Total from investment operations ............... 0.33 2.25 0.34 0.28 0.42 -------- ------- ------- ------- ------- Distributions to shareholders from: Dividends from net Investment income ............ -- -- 0.07 0.03 0.06 Distributions from capital gains ................ 0.76 0.56 0.30 0.52 -- -------- ------- ------- ------- ------- Total dividends and distributions .............. 0.76 0.56 0.37 0.55 0.06 -------- ------- ------- ------- ------- Net asset value, end of period ................... $ 13.34 $ 13.77 $ 12.08 $ 12.11 $ 12.38 ======== ======= ======= ======= ------- Total return (1) 1.71% 19.09% 2.96% 2.27% 3.53% Ratios/supplemental data: Net assets, end of period (000 omitted) ......... $ 34,599 $26,973 $ 17,969 $ 23,267 $ 24,904 Ratios to average net assets: Expenses ........................................ 2.01% 1.99% 2.00% 2.01% 2.00% Net investment income ........................... (0.86%) (0.73%) (0.47%) (0.36%) (0.03%) Expenses without waivers and reimbursements .................................. 2.88% 3.53%* 3.39% 2.08% 2.86% Net investment income without waivers and reimbursements .............................. (1.73%) (2.27%)* (1.86%) (0.43%) (0.89%)
(1) Total return figures do not include the effect of any front-end or deferred sales load. @ Calculated based on average shares outstanding. * Restated. See notes to financial statements. 39 CHASE VISTA FUNDS FINANCIAL HIGHLIGHTS (Continued) FINANCIAL HIGHLIGHTS (Continued)
International Equity Fund ---------------------------------------------------------------------- Class B ---------------------------------------------------------------------- Year Ended ---------------------------------------------------------------------- 10/31/00 10/31/99 10/31/98 10/31/97 10/31/96 -------- -------- -------- -------- ------- Net asset value, beginning of period .......... $ 13.51 $ 11.92 $ 11.94 $ 12.24 $ 11.89 ------- ------- ------- ------- ------- Income from investment operations: Net investment income ....................... (0.21) (0.18) (0.13) (0.11)@ 0.01 Net gains or losses in securities (both realized and unrealized) .............. 0.47 2.33 0.42 0.33 0.35 ------- ------- ------- ------- ------- Total from investment operations ............ 0.26 2.15 0.29 0.22 0.36 ------- ------- ------- ------- ------- Distributions to shareholders from: Dividends from net Investment income ......... -- -- 0.01 -- -- Distributions from capital gains ............. 0.76 0.56 0.30 0.52 0.01 ------- ------- ------- ------- ------- Total dividends and distributions ........... 0.76 0.56 0.31 0.52 0.01 ------- ------- ------- ------- ------- Net asset value, end of period ................ $13.01 $ 13.51 $11.92 $11.94 $12.24 ======= ======= ======= ======= ======= Total return (1) 1.20% 18.49% 2.56% 1.74% 3.03% Ratios/supplemental data: Net assets, end of period (000 omitted) ...... $6,535 $ 6,858 $7,433 $7,989 $7,819 Ratios to average net assets: Expenses ..................................... $ 2.51% 2.49% 2.50% 2.51% 2.50% Net investment income ........................ (1.38%) (1.21%) (0.94%) (0.88%) (0.43%) Expenses without waivers and reimbursements ............................... 3.39% 4.03%* 3.90% 2.61% 3.36% Net investment income without waivers and reimbursements ......................... ..... (2.26%) (2.75%)* (2.34%) (0.98%) (1.29%)
(1) Total return figures do not include the effect of any front-end or deferred sales load. @ Calculated based on average shares outstanding. * Restated. See notes to financial statements. 40 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Trustees and Shareholders of Mutual Fund Group In our opinion, the accompanying statements of assets and liabilities, including the portfolios of investments as presented, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of Chase Vista European Fund, Chase Vista Japan Fund and Chase Vista International Equity Fund (separate portfolios of Mutual Fund Group, hereafter referred to as the "Trust") at October 31, 2000, the results of each of their operations for the year then ended, the changes in each of their net assets for each of the two years in the period then ended and the financial highlights for each of the periods presented, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Trust's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 December 11, 2000 41 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY PORTFOLIO Portfolio of Investments - -------------------------------------------------------------------------------- As of October 31, 2000
Shares Issuer Value - -------------------------------------------------------------------------------- Long-Term Investments -- 95.7% - -------------------------------------------------------------------------------- Common Stock -- 95.7% --------------------- Australia -- 2.7% 13,358 Brambles Industries LTD $ 346,338 14,100 Commonwealth Bank of Australia 209,826 24,856 News Corp., LTD 260,001 53,841 Telstra Corp., LTD 175,712 22,124 Woodside Petroleum LTD 161,698 --------- 1,153,575 Belgium -- 1.0% 2,910 Dexia * 443,288 Finland -- 3.2% 24,507 Nokia OYJ 1,008,488 16,124 Sonera OYJ 355,227 --------- 1,363,715 France -- 11.1% 13,860 Alcatel SA 845,709 7,223 Aventis SA 521,033 6,499 AXA 860,399 4,857 BNP Paribas 418,784 3,115 Cap Gemini SA 496,986 3,006 Compagnie de Saint-Gobain 397,707 2,150 Imerys 212,566 6,577 Total Fina SA, Class B 941,053 --------- 4,694,237 Germany -- 6.4% 12,748 Bayer AG 553,371 12,820 Bayerische Motoren Werke AG 424,526 10,899 Deutsche Bank AG 892,386 9,671 Heidelberger Zement AG 459,609 3,079 Siemens AG 392,079 --------- 2,721,971 Hong Kong -- 2.3% 43,000 Cheung Kong Holdings LTD 475,541 37,500 China Mobile (Hong Kong) LTD * 241,618 134,000 China Unicom * 268,893 7,500 MTR Corp. * 11,107 --------- 997,159 Italy -- 6.0% 17,455 Autogrill SPA 193,016 37,796 Banca Fideuram SPA 582,172 61,514 Enel SPA 226,565 163,507 ENI-Ente Nazionale Idrocarburi SPA 879,740 59,451 Telecom Italia SPA 692,216 --------- 2,573,709 Japan -- 18.9% 3,000 Acom Co., LTD 242,838 13,000 Canon, Inc. 516,020 15,000 Chugai Pharmaceutical Co., LTD 254,664 31 DDI Corp. 145,501 18,000 Fujitsu LTD 320,777 2,100 Hirose Electric Co., LTD 242,563 4,400 Hoya Corp. 363,826
See notes to financial statements. 42 INTERNATIONAL EQUITY PORTFOLIO Portfolio of Investments (Continued) As of October 31, 2000 Shares Issuer Value - -------------------------------------------------------------------------------- Long-Term Investments -- Continued - -------------------------------------------------------------------------------- Japan -- Continued 10,000 KAO Corp. $ 299,766 2,900 Kyocera Corp. 377,504 2,700 Mabuchi Motor Co., LTD 288,601 3,000 Murata Manufacturing Co., LTD 359,169 59,000 Nikko Securities Co., LTD 509,493 59 Nippon Telegraph & Telephone Corp. 537,077 29 NTT DoCoMo, Inc. 715,130 1,920 Orix Corp. 201,531 1,700 Rohm Co., LTD 428,721 5,600 Sony Corp. 447,651 20,000 Sumitomo Bank LTD 242,930 30,000 Sumitomo Corp. 264,014 5,000 Takeda Chemical Industries 329,559 2,100 TDK Corp. 211,761 7,300 Terumo Corp. 206,784 2,000 Tokyo Electron LTD 156,575 24,000 Toshiba Corp. 171,609 4,000 Yamanouchi Pharmaceutical Co., LTD 181,143 --------- 8,015,207 Netherlands -- 6.2% 19,360 ABN Amro Holding NV 448,535 31,797 Elsevier NV 406,117 8,700 Fortis (NL) NV 265,797 9,692 ING Groep NV 665,576 21,618 Koninklijke Philips Electronics NV 849,609 --------- 2,635,634 Portugal -- 0.9% 25,034 Brisa-Auto Estradas de Portugal SA 193,543 16,069 Telecel-Comunicacoes Pessoai * 176,189 --------- 369,732 South Korea -- 0.7% 17,800 Pohang Iron & Steel Co., LTD, ADR 280,350 Spain -- 1.6% 21,401 Altadis SA 320,559 12,698 Banco Popular Espanol 379,860 --------- 700,419 Sweden -- 3.3% 67,264 Nordic Baltic Holding AB 504,985 68,694 Telefonaktiebolaget LM Ericson, Class B 914,545 --------- 1,419,530 Switzerland -- 5.9% 189 Nestle SA 391,636 475 Novartis AG 720,566 60 Roche Holding AG 548,049 3,117 UBS AG 431,749 868 Zurich Financial Services AG 420,082 --------- 2,512,082 United Kingdom -- 25.5% 3,502 Autonomy Corp. PLC * 179,869 145,386 BAE Systems PLC 825,832 21,043 Barclays PLC 602,077 27,800 Bass PLC 272,060
See notes to financial statements. 43 INTERNATIONAL EQUITY PORTFOLIO Portfolio of Investments (Continued) As of October 31, 2000
Shares Issuer Value - ----------------------------------------------------------------------------------- Long-Term Investments -- Continued - ----------------------------------------------------------------------------------- United Kingdom -- Continued 108,474 BG Group PLC $ 434,382 69,489 Blue Circle Industries PLC 424,459 10,922 BOC Group PLC 152,129 63,312 BP Amoco PLC 536,918 35,029 British American Tobacco PLC 245,478 51,286 British Land Company PLC 306,573 41,803 CGNU PLC 559,211 31,871 Enterprise Oil PLC 252,017 27,197 Glaxo Wellcome PLC 782,889 42,139 Granada Compass PLC * 363,168 108,474 Lattice Group PLC * 231,356 100,437 Legal & General Group PLC 249,917 20,559 Marconi Electronic Systems PLC 259,513 29,005 Reuters Group PLC 564,759 12,190 Schroders PLC 189,245 2,079 SmithKline Beecham PLC 26,846 158,937 Tesco PLC 605,906 66,233 Unilever PLC 448,054 489,868 Vodafone AirTouch PLC 2,038,075 44,780 Wolseley PLC 247,541 ----------- 10,798,274 ---------------------------------------------------------------- Total Common Stock 40,678,882 (Cost $40,747,842) ---------------------------------------------------------------- Redeemable Unsecured Loan Stock -- 0.0% --------------------------------------- Malaysia -- 0.0% 60,000 Sunway Building Technology, BHD, 3.00%, 07/30/01 15,158 (Cost $24,077) Principal Amount (DEM) Convertible Bond -- 0.0% ------------------------ Germany -- 0.0% 11,440 DaimlerChysler AG, 5.75%, 06/14/02 5,631 (Cost $5,682) - ----------------------------------------------------------------------------------- Total Investments -- 95.7% $40,699,671 (Cost $40,777,601) - -----------------------------------------------------------------------------------
Index: * -- Non-Income producing security. ADR -- American Depositary Receipt. See notes to financial statements. 44 INTERNATIONAL EQUITY PORTFOLIO Portfolio of Investments (Continued) As of October 31, 2000 Summary of Investments by Industry, October 31, 2000
Industry % of Investment Securities - -------------------------------------------------------- Telecommunications 13.2% Banking 10.3% Electronics/Electrical Equipment 9.2% Oil & Gas 8.5% Pharmaceuticals 8.3% Telecommunications Equipment 7.4% Financial Services 6.5% Insurance 6.2% Food/Beverage Products 4.2% Construction Materials 3.1% Diversified 2.3% Consumer Products 2.1% Aerospace 2.0% Multi-Media 2.0% Other (below 2%) 14.7% - -------------------------------------------------------- Total 100.0% - --------------------------------------------------------
See notes to financial statements. 45 - -------------------------------------------------------------------------------- STATEMENT OF ASSETS AND LIABILITIES October 31, 2000 - -------------------------------------------------------------------------------- International Equity Portfolio - -------------------------------------------------------------------------------- ASSETS: Investment securities, at value (Note 1) ........................ $40,699,671 Cash ............................................................ 2,126,034 Foreign cash (Cost $7,368) ...................................... 6,712 Other assets .................................................... 146 Receivables: Open forward currency contracts ................................ 1,580 Investment securities sold ..................................... 333,759 Interest and dividends ......................................... 54,867 - ------------------------------------------------------------------------------ Total Assets ................................................. 43,222,769 - ------------------------------------------------------------------------------ LIABILITIES: Payables: Investment securities purchased ................................ 491,699 Open forward currency contracts ................................ 1,292 Accrued liabilities: (Note 2) Investment advisory fees ....................................... 17,571 Administration fees ............................................ 1,757 Custodian fees ................................................. 15,995 Other .......................................................... 147,083 - ------------------------------------------------------------------------------ Total Liabilities ............................................ 675,397 - ------------------------------------------------------------------------------ NET ASSETS APPLICABLE TO INVESTORS' BENEFICIAL INTERESTS ......... $42,547,372 - ------------------------------------------------------------------------------ Cost of investments .............................................. $40,777,601 - ------------------------------------------------------------------------------
See notes to financial statements. 46 - -------------------------------------------------------------------------------- STATEMENT OF OPERATIONS For the year ended October 31, 2000 - --------------------------------------------------------------------------------
International Equity Portfolio - ------------------------------------------------------------------ INVESTMENT INCOME: Dividend ............................................. $ 457,084 Interest ............................................. 100,892 Foreign taxes withheld ............................... (70,753) - ------------------------------------------------------------------ Total investment income ............................ 487,223 - ------------------------------------------------------------------ EXPENSES: (Note 2) Investment advisory fees ............................. 427,853 Administration fees .................................. 21,393 Accounting fees ...................................... 54,972 Custodian fees ....................................... 71,587 Professional fees .................................... 51,027 Trustees' fees ....................................... 985 Other ................................................ 32,168 - ------------------------------------------------------------------ Total expenses ..................................... 659,985 - ------------------------------------------------------------------ Less amounts waived ................................... 347,473 - ------------------------------------------------------------------ Net expenses ....................................... 312,512 - ------------------------------------------------------------------ Net investment income ............................. 174,711 - ------------------------------------------------------------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized gain (loss) on: Investments ......................................... 3,730,735 Futures transactions ................................ 235,749 Foreign exchange transactions ....................... (225,961) Change in net unrealized appreciation/depreciation of: Investments ......................................... (4,081,243) Futures contracts ................................... 23,325 Foreign exchange transactions ....................... 100,508 - ------------------------------------------------------------------ Net realized and unrealized loss ..................... (216,887) - ------------------------------------------------------------------ Net decrease in net assets from operations ........... $ (42,176) - ------------------------------------------------------------------
See notes to financial statements. 47 - -------------------------------------------------------------------------------- STATEMENT OF CHANGES IN NET ASSETS For the periods indicated - --------------------------------------------------------------------------------
International Equity Portfolio --------------------------------- Year Ended October 31, 2000 1999 - ------------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS: Net investment income ...................................... $ 174,711 $ 143,228 Net realized gain on investments, futures contracts and foreign exchange transactions .......................... 3,740,523 2,069,952 Change in net unrealized appreciation/depreciation of investments, futures contracts and foreign exchange transactions ...................................... (3,957,410) 2,886,581 - ------------------------------------------------------------------------------------------- Increase (decrease) in net assets from operations ......... (42,176) 5,099,761 - ------------------------------------------------------------------------------------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS: Contributions .............................................. 84,084,087 46,633,194 Withdrawals ................................................ (74,062,335) (44,717,716) - ------------------------------------------------------------------------------------------- Net increase from transactions in investors' beneficial interests ..................................... 10,021,752 1,915,478 - ------------------------------------------------------------------------------------------- Net increase in net assets .............................. 9,979,576 7,015,239 NET ASSETS: Beginning of period ........................................ 32,567,796 25,552,557 - ------------------------------------------------------------------------------------------- End of period .............................................. $42,547,372 $32,567,796 - -------------------------------------------------------------------------------------------
See notes to financial statements. 48 - -------------------------------------------------------------------------------- INTERNATIONAL EQUITY PORTFOLIO Notes to Financial Statements - -------------------------------------------------------------------------------- 1. Organization and Significant Accounting Policies International Equity Portfolio (the "Portfolio") ("IEP") is separately registered under the Investment Company Act of 1940, as amended, as a non- diversified, open end management investment company organized as a trust under the Laws of the State of New York. The declaration of trust permits the Trustees to issue beneficial interests in the Portfolio. The following is a summary of significant accounting policies followed by the Portfolio: The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures in the financial statements. Actual results could differ from those estimates. Investments in international markets may involve certain considerations and risks not typically associated with investments in the United States. Future economic and political developments in foreign countries could adversely affect the liquidity or value, or both, of such securities in which the Portfolio is invested. A. Valuation of Investments -- Equity securities, purchased options and futures contracts are valued at the last sale price on the exchange on which they are primarily traded, including the NASDAQ National Market. Securities for which sale prices are not available and other over-the-counter securities are valued at the last quoted bid price. Bonds and other fixed income securities (other than short-term obligations), including listed issues, are valued on the basis of valuations supplied by pricing services or by matrix pricing systems of a major dealer in bonds. Short-term debt securities with 61 days or more to maturity at time of purchase are valued, through the 61st day prior to maturity, at market value based on quotations obtained from market makers or other appropriate sources; thereafter, the value on the 61st day is amortized on a straight-line basis over the remaining number of days to maturity. Short-term investments with 60 days or less to maturity at time of purchase are valued at amortized cost, which approximates market. Portfolio securities for which there are no such quotations or valuations are valued at fair value as determined in good faith by or at the direction of the Trustees. B. Repurchase Agreements -- It is the Portfolio's policy that repurchase agreements are fully collateralized by U.S. Treasury and Government Agency securities. All collateral is held by the Portfolio's custodian bank, subcustodian or a bank with which the custodian bank has entered into a subcustodian agreement, or is segregated in the Federal Reserve Book Entry System. In connection with transactions in repurchase agreements, if the seller defaults and the value of the collateral declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Portfolio may be delayed or limited. C. Forward Foreign Currency Exchange Contracts -- The Portfolio may enter into forward foreign currency contracts (obligations to purchase or sell foreign currency in the future on a date and price fixed at the time the contracts are entered into) to hedge the Portfolio against fluctuations 49 INTERNATIONAL EQUITY PORTFOLIO Notes to Financial Statements (Continued) in the value of its assets or liabilities due to change in the value of foreign currencies. Each day the forward contract is open, changes in the value of the contract are recognized as unrealized gains or losses by "marking to market". When the forward contract is closed, or the delivery of the currency is made or taken, the Fund records a realized gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Fund's basis in the contract. The Portfolio is subject to off-balance sheet risk to the extent of the value of the contracts for purchases of foreign currency and in an unlimited amount for sales of foreign currency. At October 31, 2000, the Portfolio had outstanding forward foreign currency contracts as detailed in Note 5. D. Foreign Currency Translation -- The books and records of the Portfolio are maintained in U.S. dollars. Foreign currency amounts are translated into U.S. dollars at the prevailing exchange rates, or at the mean of the current bid and asked prices, of such currencies against the U.S. dollar as quoted by a major bank, on the following basis: 1. Market value of investment securities and other assets and liabilities: at the rate of exchange at the balance sheet date. 2. Purchases and sales of investment securities, income and expenses: at the rates of exchange prevailing on the respective dates of such transactions. Although the net assets of the Portfolio are presented at the foreign exchange rates and market values at the close of the periods, the Portfolio does not isolate that portion of the results of operations arising as a result of changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held or sold during the year. Accordingly, such realized foreign currency gains (losses) are included in the reported net realized losses on security transactions. Reported realized foreign exchange gains or losses arise from disposition of foreign currency, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest, and foreign withholding taxes recorded on the Portfolio's books on the transaction date and the U.S. dollar equivalent of the amounts actually received or paid. Unrealized foreign exchange gains and losses arise from changes (due to the changes in the exchange rate) in the value of foreign currency and other assets and liabilities denominated in foreign currencies which are held at period end. E. Futures Contracts -- When the Portfolio enters into a futures contract, it makes an initial margin deposit in a segregated account, either in cash or liquid securities. Thereafter, the futures contract is marked to market and the Portfolio makes (or receives) additional cash payments daily to the broker. Changes in the value of the contract are recorded as unrealized appreciation/depreciation until the contract is closed or settled. 50 INTERNATIONAL EQUITY PORTFOLIO Notes to Financial Statements (Continued) Index futures contracts are used to control the asset mix of the Portfolio in the most efficient manner, allowing the Portfolio to adjust country exposures while incurring minimal transaction costs. Short index futures contracts are used for hedging purposes, i.e. to reduce the exposure to equities. Long index futures contracts are used to gain exposure to equities, when it is anticipated that this will be more efficient than buying stocks directly. Use of long futures contracts subjects the Portfolio to risk of loss up to the nominal value of the contract, use of short futures contracts subjects the Portfolio to unlimited losses. The Portfolio may enter into futures contracts only on exchanges or boards of trade. The exchange or board of trade acts as the counterparty to each futures transaction, therefore, the Fund's credit risk is limited to failure of the exchange or board of trade. As of October 31, 2000, the Portfolio had no outstanding futures contracts. F. Security Transactions and Investment Income -- Investment transactions are accounted for on the trade date (the date the order to buy or sell is executed). Securities gains and losses are calculated on the identified cost basis. Interest income is accrued as earned. Dividend income is recorded on the ex-dividend date. G. Federal Income Taxes -- The Portfolio intends to continue to qualify as a partnership and therefore net income and net realized gains are taxed to the partners. Accordingly, no tax provision is recorded by the Portfolio. The investors in the Portfolio must take into account their proportionate share of the Portfolio's income, gains, losses, deductions, credits and tax preference items in computing their federal income tax liability, without regard to whether they have received any cash distributions from the Portfolio. The Portfolio does not intend to distribute to investors its net investment income or its net realized gains, if any. It is intended that the Portfolio will be managed in such a way that investors in the Portfolio will be able to satisfy the requirements of subchapter M of the Internal Revenue Code to be taxed as regulated investment companies. 2. Fees and Other Transactions with Affiliates A. Investment Advisory Fee -- Pursuant to an Investment Advisory Agreement, The Chase Manhattan Bank ("Chase" or the "Advisor") acts as the Investment Advisor to the Portfolio. Chase is a direct wholly-owned subsidiary of The Chase Manhattan Corporation. As Investment Advisor, Chase supervises the investments of the Portfolio and for such services is paid a fee. The fee is computed daily and paid monthly at an annual rate equal to 1.00% of the Portfolio's average daily net assets. For the year ended October 31, 2000, the Advisor voluntarily waived fees of $337,213. 51 INTERNATIONAL EQUITY PORTFOLIO Notes to Financial Statements (Continued) Chase Fleming Asset Management (London) Limited ("CFAM (London)"), a registered investment advisor, is the sub-investment advisor to the Portfolio pursuant to a Sub-Investment Advisory Agreement between CFAM (London) and Chase. CFAM (London), formerly Chase Asset Management (London) Limited, is a wholly owned subsidiary of Chase and is entitled to receive a fee, payable by Chase from its advisory fee, at an annual rate equal to 0.50% of the Portfolio's average daily net assets. B. Custodial Fees -- Chase, as Custodian, provides safekeeping services for the Portfolio's securities. Compensation for such services are presented in the Statement of Operations as custodian fees. C. Administration Fee -- Pursuant to an Administration Agreement, Chase (the "Administrator") provides certain administration services to the Portfolio. For these services and facilities, the Administrator receives from the Portfolio a fee computed at the annual rate equal to 0.05% of the Portfolio's average daily net assets. For the year ended October 31, 2000, the Administrator voluntarily waived fees of $10,260. 3. Investment Transactions For the year ended October 31, 2000, purchases and sales of investments (excluding short-term investments) were as follows: Purchases (excluding U.S. Government)............................ $69,727,973 Sales (excluding U.S. Government)................................ 59,094,923 The portfolio turnover rate of IEP for the year ended October 31, 2000, was 149%. 4. Federal Income Tax Matters For Federal income tax purposes, the cost and unrealized appreciation (depreciation) in value of the investment securities at October 31, 2000, are as follows (in thousands):
IEP - ---------------------------------------------------- Aggregate cost ......................... $ 40,865 -------- Gross unrealized appreciation .......... $3,139 Gross unrealized depreciation .......... (3,304) -------- Net unrealized depreciation ............ $ (165) ========
52 INTERNATIONAL EQUITY PORTFOLIO Notes to Financial Statements (Continued) 5. Open Forward Foreign Currency Contracts The following forward foreign currency contracts were open at October 31, 2000.
Contract Contract Unrealized Amount Amount Settlement Gain/(Loss) Purchased Currency Sold Currency Date USD - ---------------------------------------------------------------------------------- Unrealized Gain - --------------- 332,817 USD 36,143,940 JPY 11/01/00 $ 1,419 74,848 GPB 108,440 USD 11/02/00 161 -------- $ 1,580 ======== Unrealized Loss - --------------- 123,347 GPB 180,260 USD 11/01/00 $ (1,292) ========
GBP - Great Britain Pound JPY - Japanese Yen USD - United States Dollar 6. Foreign Cash Positions
Delivery Net Value Market Unrealized (Local Cost Value Gain (Loss) Currency Currency) (USD) (USD) (USD) - ------------------------------------------------------------------------- EURO ...................... 3,858 $3,203 $ 3,274 $ 71 Indonesian Rupiah.......... 961,005 283 103 (180) Philippine Peso ........... 154,056 3,566 3,012 (554) Swedish Krona ............. 3,218 316 323 7 ------ ------- ----- $7,368 $ 6,712 $(656) ====== ======= =====
7. Retirement Plan The Portfolio has adopted an unfunded noncontributory defined benefit pension plan covering all independent trustees of the Portfolio who will have served as independent trustees for at least five years at the time of retirement. Benefits under this plan are based on compensation and years of service. Pension expenses for the year ended October 31, 2000, included in Trustees Fees in the Statement of Operations, and accrued pension liability included in other accrued liabilities, in the Statement of Assets and Liabilities were $280 and $1,545, respectively. 8. Bank Borrowings The Portfolio may borrow money for temporary or emergency purposes. Any borrowings representing more than 5% of the Portfolio's total assets must be repaid before the Portfolio may make additional investments. The Portfolio has entered into an agreement, enabling it to participate with other Chase Vista Funds in an unsecured line of credit with a syndicate of banks, which permits borrowings up to $350 million, collectively. Interest is charged to the Portfolio based on its borrowings at an annual rate equal to the sum of the Federal Funds Rate plus 0.50%. The Portfolio also pays a commitment fee of 0.10% per annum on the average daily amount of the available commitment, which is allocated, on a pro-rata basis to the 53 INTERNATIONAL EQUITY PORTFOLIO Notes to Financial Statements (Continued) Portfolio. The commitment fee is included in Other expenses on the Statement of Operations. Borrowings are payable on demand. The Portfolio had no borrowings outstanding at October 31, 2000, nor at any time during the year then ended. 9. Concentrations -- At October 31, 2000, substantially all of the Portfolio's net assets consist of securities of issuers which are denominated in foreign currencies. Changes in currency exchange rates will affect the value of and investment income from such securities. At October 31, 2000, the Portfolio invested approximately 18.9% and 25.5% of its net assets in issuers in Japan and the United Kingdom, respectively. The issuers' abilities to meet their obligations may be affected by economic or political developments in the specific region. 54 - -------------------------------------------------------------------------------- REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Trustees and Beneficial Unit Holders of International Equity Portfolio In our opinion, the accompanying statement of assets and liabilities, including the portfolio of investments, and the related statements of operations and of changes in net assets present fairly, in all material respects, the financial position of International Equity Portfolio (the "Portfolio") at October 31, 2000, the results of its operations for the year then ended and the changes in its net assets for each of the two years in the period then ended, in conformity with accounting principles generally accepted in the United States of America. These 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 audit of these financial statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at October 31, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP 1177 Avenue of the Americas New York, New York 10036 December 11, 2000 55 - -------------------------------------------------------------------------------- TAX LETTER (unaudited) - -------------------------------------------------------------------------------- Chase Vista European Fund (EF) Chase Vista Japan Fund (JF) Chase Vista International Equity Fund (IEF) - -------------------------------------------------------------------------------- Certain tax information for the Chase Vista Mutual Funds is required to be provided to shareholders based upon the Funds' income and distributions for the taxable year ended October 31, 2000. The information and distributions reported in this letter may differ from the information and taxable distributions reported to the shareholders for the calendar year ending December 31, 2000. The information necessary to complete your income tax returns for the calendar year ending December 31, 2000 will be received under separate cover. During the fiscal year ended October 31, 2000, the following long-term capital gains were distributed by the Funds:
Long-Term Capital Gains Distribution Per Chase Vista Fund Share - -------------------------------------------- European ..................... $0.12 Japan ........................ -- International Equity ......... 0.42
56 [This page intentionally left blank] CHASE VISTA INTERNATIONAL EQUITY FUNDS ANNUAL REPORT INVESTMENT ADVISER, ADMINISTRATOR, SHAREHOLDER AND FUND SERVICING AGENT AND CUSTODIAN The Chase Manhattan Bank DISTRIBUTOR Vista Fund Distributors, Inc. TRANSFER AGENT DST Systems, Inc. LEGAL COUNSEL Simpson Thacher & Bartlett INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP Chase Vista Funds are distributed by Vista Fund Distributors, Inc., which is unaffiliated with The Chase Manhattan Bank, Chase and its respective affiliates receive compensation from Chase Vista Funds for providing investment advisory and other services. This report is submitted for the general information of the share- holders of the funds. It is not autho- rized for distribution to prospective investors in the funds unless preceded or accompanied by a prospectus. To obtain a prospectus for any of the Chase Vista Funds, call 1-800-348-4782. The prospectus contains more complete information, including charges and expenses. Please read it carefully before you invest or send money. (RegTM)The Chase Manhattan Corporation, 2000. All Rights Reserved. December 2000 [Chase Vista Funds (RegTM) Logo] Chase Vista Funds Fulfillment Center 393 Manley Street West Bridgewater, MA 02379-1039
EX-99.17(G) 8 a2043519zex-99_17g.txt EXHIBIT 99.17(G) [front cover] J.P. Morgan European Equity Fund Annual Report November 30, 2000 LETTER TO THE SHAREHOLDERS - -------------------------------------------------------------------------------- January 8, 2001 Dear Shareholder, It was a difficult year for U.S. investors allocating money overseas. Volatile European equity markets and global economic uncertainty pulled down investment returns. For the twelve months ended November 30, 2000, the J.P. Morgan European Equity Fund had a total return of -12.75%. The Fund's benchmark index, the MSCI Europe Index, and peer group, as measured by the Lipper European Region Funds Average, also finished in negative territory. The Fund's benchmark had a total return of -5.52% for the twelve months ended November 30, 2000, while the Fund's peer group had a total return of -1.71% for the same time period. The Fund's net asset value on November 30, 2000, was $14.68 per share, decreasing from $17.06 per share, after paying dividends of approximately $0.21 per share, including approximately $0.10 in current income and approximately $0.11 in long-term capital gains over the twelve month period. The Fund's net assets were approximately $10 million on November 30, while the total net assets of The European Equity Portfolio, in which the Fund invests, totaled $18 million. This report includes an interview with Nigel Emmett, a member of The European Equity Portfolio management team. Nigel discusses the European equity markets in detail, and explains the factors that influenced Fund performance during the fiscal year. Nigel 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) 521-5411. 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 There are several ways to evaluate a mutual fund's historical performance. One way is to look at the growth of a hypothetical investment. The chart at right shows that $10,000 invested on February 29, 1996,* would have increased to $16,315 on November 30, 2000. Another way is to review a fund's average annual total return. This calculation takes the Fund's actual return and shows what would have happened if the Fund had achieved that return by performing at a constant rate each year. Average annual total returns represent the average yearly change of a fund's value over various time periods, typically one, five, 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. GROWTH OF $10,000 SINCE FUND INCEPTION* February 29, 1996-November 30, 2000 [data from line chart] MSCI Europe Index** $18,672 Lipper European Region Funds Average** $18,232 J.P. Morgan European Equity Fund $16,315
PERFORMANCE
TOTAL AVERAGE ANNUAL RETURNS TOTAL RETURNS ------------ -------------------------------- ONE THREE SINCE YEAR YEARS INCEPTION* AS OF NOVEMBER 30, 2000 J.P. Morgan European Equity Fund (12.75)% 5.68% 10.86% MSCI Europe Index** (5.52)% 9.79% 14.05% Lipper European Region Funds Average** (1.71)% 10.52% 13.30% AS OF SEPTEMBER 30, 2000 J.P. Morgan European Equity Fund 1.64% 7.34% 13.32% MSCI Europe Index** 5.46% 10.22% 15.78% Lipper European Region Funds Average** 19.46% 11.22% 15.75%
* The J.P. Morgan European Equity Fund's returns include returns of the J.P. Morgan Institutional European Equity Fund from February 29, 1996 through May 13, 1996 (the Fund's inception). The Fund's returns since inception is 10.72%. ** The MSCI Europe Index is an unmanaged index which measures European stock market performance. It does not include fees or operating expenses and is not available for actual investment. 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 dividends and reflect the reimbursement of expenses as described in the prospectus. Had expenses not been subsidized, returns would have been lower. 2 PORTFOLIO MANAGER Q&A - -------------------------------------------------------------------------------- [photo of Nigel F. Emmett] The following is an interview with NIGEL F. EMMETt, vice president and portfolio manager with J.P. Morgan Investment Management's International Equity Group since joining Morgan in 1997. Nigel earned a B.A. degree in economics from Manchester University, and is the holder of a CFA designation. This interview was conducted on December 15, 2000, and reflects Nigel's views on that date. HOW WOULD YOU CHARACTERIZE THE EUROPEAN EQUITY MARKETS DURING THE 12-MONTHS ENDED NOVEMBER 30, 2000? The first half was distinguished by economic growth, optimism, and the outperformance of new economy stocks. During much of the second half, however, the opposite was true. New economy stocks dropped deeply out of favor, and there was a much greater focus on some of the previously neglected value names. Toward the end of the period, we also saw signs of a U.S. slowdown, which, in turn, spread to much of the rest of the world, including Europe. The market was impacted negatively as well by a consistently weak euro over much of this period. Although there was a small rally as this reporting period came to a close, the euro was still well down over the 12-months. While a cheaper currency helped large volume exporters, by making their goods cheaper to produce relative to the U.S., it hampered much of the rest of the market, particularly those companies that had to translate euro-denominated revenues into dollars. HOW DID THE PORTFOLIO PERFORM OVER THIS PERIOD? Over the 12-months, the portfolio underperformed both its benchmark and the competition. We added some value from currency management by underweighting the euro earlier in the year, when it was declining, and then overweighing it at the middle of the period, when the euro strengthened relative to the dollar. Performance attributable to country allocation was roughly neutral, although we benefited from being overweight the U.K., relative to continental Europe, near the end of the period. What contributed most to underperformance was stock selection. WHICH COMPANIES HELPED PERFORMANCE THE MOST? A stock that continued to outperform its sector over most of this period was Philips, the Dutch electronics giant. It benefited from a very well managed business, robust sales growth, favorable currency exposure, and a broad catalogue of profitable products. Elsewhere, in the banking sector, our overweight in Woolwich helped performance. This stock was helped by investor enthusiasm when Barclays acquired Woolwich last summer. Our decision to underweight British Telecom also helped over the full 12 months. The company's stock underperformed due to investor concerns about its relatively high valuation and pricing pressure within traditional fixed-line operations, both at the residential and business levels. Investors were also wary about British Telecom's need to raise substantial additional capital in order to continue its overseas expansion plans. Schering, the German pharmaceutical company, helped performance over this period, as well. The stock gained from the company's higher-than-expected sales, which were derived partly from acquisitions, and partly from new products going to market sooner than most investors anticipated. WHICH STOCKS LAGGED OVER THE PAST 12 MONTHS? Our exposure to new economy stocks was particularly detrimental to the portfolio, especially during the second half. In this regard, a stock that underperformed was KTN, the Dutch telecom company. KTN was hurt by a concentration in mobile telecom, and by a need to raise additional capital to continue its roll-out of that business. These issues aside, we think KTN is one of the most attractive telecom companies in continental Europe. We continue to like its business model and feel the company's shares are more reasonably priced than other European telecoms. Also in the U.K., and within the telecom sector, a stock that detracted from performance over this period was Cable & Wireless. Being more of a data carrier/Internet play, its stock declined when this 3 PORTFOLIO MANAGER Q&A - -------------------------------------------------------------------------------- (Continued) sector suffered a major global correction during the second half. For our part, we favor the company's longer-term prospects, and believe it's very attractively priced. Another new economy stock that detracted from performance was UPC, a Dutch owner/operator of European broadband networks. The company's stock declined significantly over the period, due to concerns about financing requirements. UPC's business plan calls for a continuous build-out and upgrade of its networks, which requires new capital. While the overall market was very nervous about UPC's ability to raise this new capital, we were less so, because we were, and are, confident that its minority shareholders, such as Microsoft and Motorola, will satisfy the company's present and future financing requirements. Beyond these, a stock that hurt was the Bank of Scotland. It posted slightly better than expected first half performance, but the bank's stock didn't perform well during the latter half of the fiscal period. This was largely because investors felt the bank was losing its strategic direction and might commit to an overly expensive acquisition. HAS THE EUROPEAN MARKET BEEN AS VOLATILE AS THE U.S. MARKET OVER THIS PERIOD? Yes. In fact, it's been more volatile than the United States. The Morgan Stanley Capital International (MSCI) Europe Index, our benchmark, was down almost 6% for the fiscal period. Most of this underperformance occurred during the period's second half shift from growth to value. In line with this, there were dimming expectations for growth next year, with investors taking a jaundiced view of companies that have costly capital needs. A good deal of the region's anemic dollar-denominated return was also attributable to the weakness of the euro relative to the dollar throughout the period. HOW DO YOU EXPECT EUROPEAN MARKETS TO PERFORM NEXT YEAR? Performance will be driven by a number of future developments. Among those that would help would be continued strength in domestic demand. Among those that would not help would be unsatisfactory results from exporters as they adjust to a strengthening euro. Of course, a good deal of future performance depends on developments within the U.S. economy. If the U.S. economy has a soft landing, almost everyone, everywhere, is going to benefit. If not, and a hard landing ensues, then all markets will decline, at least temporarily. With this qualification, we continue to think that the euro is attractive, with good upside potential going forward. We also expect to see better economic growth next year from the European markets, than from the U.S. markets, in spite of the likelihood that the European Central Bank will raise interest rates slightly next year. LASTLY, IF NEW INVESTORS WERE TO ASK YOU WHY THEY SHOULD PUT THEIR MONEY IN THIS PORTFOLIO, AT THIS POINT IN TIME, HOW WOULD YOU REPLY? First of all, from the perspective of a potential investor in the region, our analysis indicates that European equities are more attractively priced than their U.S. counterparts, and thus have more upside potential. Keep in mind that many continental European companies are still in the early stages of restructuring and have yet to reap the consequent benefits. In this regard, we would expect to see further liberalization in the European market and further margin growth going forward. Why this portfolio? Because, increasingly, the way to make money is to be in the companies with fundamentally strong business franchises, good management, good financials, and the ability to produce growth over the medium- to longer-term. To decide which are the best companies, however, you have to be able to judge them side-by-side, on a global playing field, something that most investors lack the resources to do. We, on the other hand, employ nearly 70 analysts worldwide. Their sole responsibility is to identify the best companies in each industry, at the best share prices relative to their return potential over time. I am confident that we can continue to do so in the months and years ahead. 4 FUND FACTS - -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE J.P. Morgan European Equity Fund seeks to provide a high total return from a portfolio of european equity securities. It is designed for investors who want an actively managed portfolio of European equity securities that seeks to outperform the MSCI Europe Index, which is comprised of more than 500 companies in 14 European countries. As an international investment, the Fund is subject to foreign market, political and currency risks. - -------------------------------------------------------------------------------- Commencement of Investment Operations: 5/13/1996 - -------------------------------------------------------------------------------- Fund Net Assets as of 11/30/2000: $10,267,255 - -------------------------------------------------------------------------------- Portfolio Net Assets as of 11/30/2000: $18,064,200 - -------------------------------------------------------------------------------- Dividend Payable Date (if applicable): 12/20/2000 - -------------------------------------------------------------------------------- Capital Gain Payable Date (if applicable): 12/20/2000 EXPENSE RATIOS The Fund's current annual expense ratio of 1.50% covers shareholders' expenses for custody, tax reporting, investment advisory, and shareholder services, after reimbursement. The Fund is no-load and does not charge any sales, redemption, or exchange fees. There are no additional charges for buying, selling or safekeeping fund shares, or for wiring redemption proceeds from the Fund. FUND HIGHLIGHTS - -------------------------------------------------------------------------------- All data as of November 30, 2000 PORTFOLIO ALLOCATION (As a percentage of total investment securities) [data from pie chart] United Kingdom 31.7% Switzerland 14.0% France 13.8% Germany 11.0% Netherlands 8.9% Spain 5.7% Italy 5.3% Finland 3.7% Sweden 2.9% Ireland 1.4% Denmark 0.8% United States 0.5% Belgium 0.3%
LARGEST EQUITY % OF TOTAL HOLDINGS COUNTRY INVESTMENTS - -------------------------------------------------------------------------------- Vodafone Group Plc United Kingdom 5.0% Glaxo Wellcome Plc United Kingdom 3.7% BP Amoco Plc United Kingdom 2.9% Nokia Oyj Finland 2.7% Allianz AG Germany 2.6% Nestle S.A. Switzerland 2.6% Total Fina Elf S.A. France 2.5% HSBC Holdings Plc United Kingdom 2.4% Zurich Financial Services AG Switzerland 2.3% Novartis AG Switzerland 2.3%
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. WHILE THE FUND SEEKS TO MAINTAIN A STABLE ASSET VALUE OF $1.00 PER SHARE, IT IS POSSIBLE TO LOSE MONEY BY INVESTING IN THIS FUND. 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 in foreign securities which involve special risks including economic and political instability and currency fluctuations; prospective investors should refer to Fund's prospectus for discussion of these risks. 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 EUROPEAN EQUITY FUND STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 ASSETS Investment in The European Equity Portfolio ("Portfolio"), at value $10,256,667 Receivable for Expense Reimbursements 7,606 Receivable for Shares of Beneficial Interest Sold 3,101 Prepaid Expenses and Other Assets 58,056 ------------- TOTAL ASSETS 10,325,430 ------------- LIABILITIES Payable for Shares of Beneficial Interest Redeemed 9,897 Shareholder Servicing Fee Payable 2,445 Administrative Services Fee Payable 233 Accrued Expenses and Other Liabilities 45,600 ------------- TOTAL LIABILITIES 58,175 ------------- NET ASSETS Applicable to 699,208 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $10,267,255 ============= Net Asset Value, Offering and Redemption Price Per Share $14.68 ============= ANALYSIS OF NET ASSETS Paid-in Capital $9,854,898 Distributions in Excess of Net Investment Income (67,904) Accumulated Net Realized Loss on Investment (276,478) Net Unrealized Appreciation on Investment 756,739 ------------- NET ASSETS $10,267,255 =============
6 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN EUROPEAN EQUITY FUND STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED NOVEMBER 30, 2000 INVESTMENT INCOME INCOME Allocated Investment Income from Portfolio $ 235,003 Allocated Portfolio Expenses (136,428) ----------------- Investment Income 98,575 ----------------- FUND EXPENSES Financial and Fund Accounting Services Fee 42,742 Shareholder Servicing Fee 34,048 Transfer Agent Fees 28,396 Registration Fees 14,661 Professional Fees 14,415 Printing Expenses 10,128 Administrative Services Fee 3,307 Fund Services Fee 216 Administration Fee 150 Trustees' Fees and Expenses 138 Miscellaneous 6,745 ------------------ Total Fund Expenses 154,946 Less: Reimbursement of Expenses (86,591) ------------------ Net Fund Expenses 68,355 ------------------ NET INVESTMENT INCOME 30,220 ------------------ REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM PORTFOLIO (306,714) ------------------ NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON INVESTMENT ALLOCATED FROM PORTFOLIO (915,109) ------------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,191,603) ==================
The Accompanying Notes are an Integral Part of the Financial Statements. 7 J.P. MORGAN EUROPEAN EQUITY FUND STATEMENT OF CHANGES IN NET ASSETS - -------------------------------------------------------------------------------- FOR THE YEARS ENDED NOVEMBER 30 INCREASE (DECREASE) IN NET ASSETS 2000 1999 FROM OPERATIONS Net Investment Income $ 30,220 $ 77,031 Net Realized Gain (Loss) on Investment Allocated from Portfolio (306,714) 267,376 Net Change in Unrealized Appreciation (Depreciation) on Investment Allocated from Portfolio (915,109) 1,265,048 ------------------- ----------------- Net Increase (Decrease) in Net Assets Resulting from Operations (1,191,603) 1,609,455 ------------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (76,970) (192,325) Net Realized Gain - (9,673) In Excess of Net Realized Gain (87,783) (58,137) ------------------- ----------------- Total Distributions to Shareholders (164,753) (260,135) ------------------- ----------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 57,135,998 7,234,203 Reinvestment of Distributions 146,850 223,008 Cost of Shares of Beneficial Interest Redeemed (58,920,755) (10,446,563) ------------------ ------------------ Net Decrease from Transactions in Shares of Beneficial Interest (1,637,907) (2,989,352) ------------------ ------------------ Total Decrease in Net Assets (2,994,263) (1,640,032) ------------------ ------------------ NET ASSETS Beginning of Year 13,261,518 14,901,550 ------------------- ------------------ End of Year $10,267,255 $13,261,518 =================== ================= Undistributed Net Investment Income - $68,468 =================== ================= TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Shares of Beneficial Interest Sold 3,381,015 446,971 Shares of Beneficial Interest Reinvested 8,259 14,808 Shares of Beneficial Interest Redeemed (3,467,485) (650,449) ------------------- ----------------- Net Decrease in Shares of Beneficial Interest (78,211) (188,670) =================== =================
8 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN EUROPEAN EQUITY FUND FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD ARE AS FOLLOWS:
FOR THE PERIOD FOR THE MAY 13, 1996 YEARS ENDED FOR THE ELEVEN FOR THE FISCAL (COMMENCEMENT OF NOVEMBER 30 MONTHS ENDED YEAR ENDED OPERATIONS) THROUGH 2000 1999 NOVEMBER 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996 ---------------------------------------------------------------------------- NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $17.06 $15.42 $13.35 $11.61 $10.00 ---------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income (Loss) (0.09) 0.17 0.12 0.10 0.01 Net Realized and Unrealized Gain (Loss) on Investment (2.08) 1.74 1.95 2.45 1.60 ---------------------------------------------------------------------------- Total From Investment Operations (2.17) 1.91 2.07 2.55 1.61 ---------------------------------------------------------------------------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.10) (0.20) - (0.07) - Net Realized Gain - (0.01) - (0.74) -(d) In Excess Net Realized Gain (0.11) (0.06) - 0.00 - ---------------------------------------------------------------------------- Total Distributions to Shareholders (0.21) (0.27) - (0.81) -(d) ---------------------------------------------------------------------------- NET ASSET VALUE PER SHARE, END OF PERIOD $14.68 $17.06 $15.42 $13.35 $11.61 ============================================================================ RATIOS AND SUPPLEMENTAL DATA Total Return (12.75)% 12.61% 15.51%(a) 22.10% 16.10%(a) Net Assets, End of Year (in thousands) $10,267 $13,262 $14,902 $4,832 $2,072 Ratios to Average Net Assets Net Expenses 1.50% 1.48% 1.42%(b) 1.42% 1.42%(b) Net Investment Income 0.22% 0.57% 0.91%(b) 0.91% 0.29%(b) Expenses without Reimbursement 2.13% 2.38% 2.03%(b) 3.78% 2.50%(c)
(a) Not annualized (b) Annualized (c) After consideration of certain state limitations (d) Less than $0.005 The Accompanying Notes are an Integral Part of the Financial Statements. 9 J.P. MORGAN EUROPEAN EQUITY FUND NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--J.P. Morgan European Equity Fund (the "Fund'') is a separate series of the 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 May 13, 1996. The Fund invests all of its investable assets in The European 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 56.7% 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 is 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. ORGANIZATION EXPENSES--The Fund incurred organization expenses in the amount of $5,800 which have been deferred and have been amortized on a straight-line basis over a period not to exceed five years beginning with the commencement of operations of the Fund. 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 and distributions from net realized gains, if any, are paid annually. - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES ADMINISTRATIVE SERVICES--The Trust has an Administrative Services Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of New York ("Morgan") under which Morgan is responsible for certain aspects of the administration and operation of the Fund. Under the Services Agreement, the Trust has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Trust and certain other registered investment companies for which J.P. Morgan Investment Management, Inc. ("JPMIM") acts as investment advisor in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. 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 1.50% of the Fund's average daily net assets through February 28, 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 10 J.P. MORGAN EUROPEAN EQUITY FUND NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) 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. 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 0.25% of the average daily net assets of the Fund. Morgan, Charles Schwab & Co. ("Schwab") and the Trust are parties to separate services and operating agreements (the "Schwab Agreements") whereby Schwab makes Fund shares available to customers of investment advisors and other financial intermediaries who are Schwab's clients. The Fund is not responsible for payments to Schwab under the Schwab Agreements; however, in the event the services agreement with Schwab is terminated for reasons other than a breach by Schwab and the relationship between the Trust and Morgan is terminated, the Fund would be responsible for the ongoing payments to Schwab with respect to pre-termination shares. 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. The allocated portion of such compensation and benefits included in the Fund Services Fee shown on the Statement of Operations was $39. - -------------------------------------------------------------------------------- 3. FEDERAL INCOME TAXES For Federal income tax purposes, the Fund utilized its capital loss carryforward of $22,137. The Fund elected to treat net capital losses of approximately $396,565, foreign currency losses of $50,645 and Passive Foreign Investment Company losses of $15,048 incurred in the one month period ended November 30, 2000 as having been incurred in the next taxable year. Income distributions and capital gain distributions, if any, are determined in accordance with income tax regulations which may differ from generally accepted accounting principles. These differences are primarily due to the differing treatment of net operating losses, foreign currency and tax allocation. Accordingly, these permanent differences in the character of income and distributions between financials statements and tax basis have been reclassified to paid-in-capital. During the year ended November 30, 2000, the following reclassifications were made: Accumulated Net Realized Loss was decreased by $167,362 while Undistributed Net Investment Income and Paid-in Capital were decreased by $89,622 and $77,740 respectively. - -------------------------------------------------------------------------------- 4. 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. - -------------------------------------------------------------------------------- 5. 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. 11 J.P. MORGAN EUROPEAN EQUITY FUND NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 6. SUBSEQUENT EVENT 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. 12 REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Trustees and Shareholders of J.P. Morgan European 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 European Equity Fund (one of the series constituting part of J.P. Morgan Funds, hereafter referred to as the "Fund") at November 30, 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 two years in the period then ended, for the eleven months ended November 30, 1998, for the year ended December 31, 1997 and for the period May 13, 1996 (commencement of operations) through December 31, 1996, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the 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 of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York January 16, 2001 13 THE EUROPEAN EQUITY PORTFOLIO Annual Report November 30, 2000 (The following pages should be read in conjunction with J.P. Morgan European Equity Fund Annual Financial Statements) 14 THE EUROPEAN EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- NOVEMBER 30, 2000
SHARES VALUE - -------------------------------------------------------------------------------------------- COMMON STOCKS - 99.0% BELGIUM - 0.3% 2,493 Agfa Gevaert NV(s) $ 59,678 ----------------------------- DENMARK - 0.8% 730 Novo Nordisk A/S Cl B(s) 141,456 ----------------------------- FINLAND - 3.7% 11,546 Nokia Oyj(s) 483,932 4,849 Sonera Oyj(s) 92,818 8,724 Stora Enso Oyj R Shares(s) 86,118 ----------------------------- 662,868 ----------------------------- FRANCE - 13.8% 885 Alcatel Optronics(s)(+) 44,604 6,822 Alcatel S.A.(s) 338,487 3,039 Aventis S.A.(s) 238,480 967 Axa(s) 135,521 1,643 BNP Paribas S.A.(s) 127,001 2,082 Carrefour S.A.(s) 125,504 2,321 Christian Dior S.A.(s) 103,746 2,391 Fimatex(s)(+) 19,731 1,149 Genset S.A.(s) 54,509 696 Groupe Danone(s) 92,513 1,141 Lafarge S.A.(s) 85,664 1,262 Lagardere S.C.A.(s) 66,242 1,121 Renault S.A.(s) 53,571 616 Technip S.A.(s) 71,423 3,107 Total Fina Elf S.A. B Shares(s) 444,359 5,500 Vivendi Environnement(s) 227,411 3,828 Vivendi S.A.(s) 236,584 ----------------------------- 2,465,350 ----------------------------- GERMANY - 10.5% 1,368 Allianz AG(s) 472,275 5,177 BASF AG(s) 195,354 4,092 Bayer AG(s) 178,989 614 Consors Discount-Broker AG(s)(+) 27,258 1,299 Deutsche Bank AG(s) 93,739 5,453 Deutsche Telekom AG(s) 171,403 3,568 Dresdner Bank AG(s) 131,874 3,080 E.ON AG(s) 174,269 680 Intershop Communications AG(s)(+) 19,350 1,756 Schering AG(s) 95,810 2,269 Siemens AG(s) 258,146 1,170 Volkswagen AG(s) 57,940 ----------------------------- 1,876,407 ----------------------------- IRELAND - 1.4% 3,665 CRH Plc(s) 53,437 1,000 Fyffes Plc(s) 592 10,808 Irish Life & Permanent Plc(s) 118,071 SHARES VALUE - -------------------------------------------------------------------------------------------- 40,992 Smurfit (Jefferson) Group Plc(s) $ 65,299 2,202 Trintech Group Plc ADR(s)(+) 15,449 ----------------------------- 252,848 ----------------------------- ITALY - 5.3% 18,321 Credito Emiliano Spa(s) 78,783 35,009 ENI Spa(s) 210,883 6,215 Mediolanum Spa(s) 74,658 10,888 Saipem Spa(s) 54,971 22,190 Telecom Italia Spa(s) 256,900 52,690 Unicredito Italiano Spa(s) 263,725 ----------------------------- 939,920 ----------------------------- NETHERLANDS - 8.9% 1,572 ASM Lithography Holding NV(s)(+) 32,992 3,000 Heineken Holding NV(s) 109,027 4,206 ING Groep NV(s) 303,075 10,682 Koninklijke (Royal) Philips Electronics NV(s) 353,433 3,111 Numico NV(s) 160,858 5,079 Royal Dutch Petroleum Co.(s) 304,616 16,875 Royal KPN NV(s) 227,389 3,631 United Pan-Europe Communication NV(s)(+) 41,089 1,290 VNU NV(s) 56,370 ----------------------------- 1,588,849 ----------------------------- SPAIN - 5.7% 2,605 ACS, Actividades Construccion y Servicios S.A.(s) 60,568 7,116 Amadeus Global Travel Distribution S.A.(s)(+) 53,890 22,226 Banco Bilbao Vizcaya Argentaria S.A.(s) 297,172 18,943 Iberdrola S.A.(s) 226,728 24,296 Telefonica S.A.(s)(+) 381,740 ----------------------------- 1,020,098 ----------------------------- SWEDEN - 2.9% 10,428 Ericsson LM Cl B(s) 119,055 18,987 Skandia Forsakrings AB(s) 289,661 9,656 Skandinaviska Enskilda Banken Cl A(s) 103,502 ----------------------------- 512,218 ----------------------------- SWITZERLAND - 14.0% 669 ABB Ltd.(s) 60,895 67 Compagnie Financiere Richemont AG A Units(s) 184,927 631 Credit Suisse Group(s) 109,965 216 Nestle S.A.(s) 469,132 256 Novartis AG(s) 415,311 34 Roche Holding AG(s) 336,905 48 SGS Societe Generale de Surveillance Holding S.A.(s) 58,735 52 The Swatch Group AG B Shares(s) 59,915 2,844 UBS AG(s) 393,225 771 Zurich Financial Services AG(s) 415,748 ----------------------------- 2,504,758 -----------------------------
The Accompanying Notes are an Integral Part of the Financial Statements. 15 THE EUROPEAN EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - --------------------------------------------------------------- NOVEMBER 30, 2000
SHARES VALUE - -------------------------------------------------------------------------------------------- UNITED KINGDOM - 31.7% 3,425 3I Group Plc(s) $ 60,781 9,000 ARM Holdings Plc(s)(+) 56,130 1,690 Barclays Plc(s) 47,358 25,931 BG Group Plc(s) 105,213 14,652 Billiton Plc(s) 47,767 2,065 Bookham Technology Plc(s) 25,728 66,315 BP Amoco Plc(s) 515,575 4,000 British Airways Plc(s) 22,679 10,621 British SKY Broadcasting Plc(s)(+) 148,137 5,101 British Telecommunications Plc(s) 44,033 4,293 Cable & Wireless Plc(s) 53,062 2,171 Celltech Group Plc(s)(+) 35,542 34,297 Chubb Plc(s) 107,923 11,985 Gallagher Group Plc(s) 76,446 22,901 Glaxo Wellcome Plc(s) 667,716 11,939 Glynwed International Plc(s) 32,999 15,354 Granada Compass Plc(s)(+) 146,358 13,400 Hanson Plc(s) 72,651 12,400 Hays Plc(s) 61,517 13,000 Hilton Group Plc(s) 34,550 32,402 HSBC Holdings Plc(s) 426,668 4,776 Johnson Matthey Plc(s) 72,435 15,683 Lloyds TSB Group Plc(s) 149,605 1,579 Logica Plc(s) 31,356 7,055 Marconi Plc(s) 67,000 27,470 MFI Furniture Group Plc(s) 26,282 9,237 Nycomed Amersham Plc(s) 72,927 6,696 Pearson Plc(s) 149,771 17,267 QXL.com Ricardo Plc(s) 4,283 10,577 Reckitt Benckiser Plc(s) 134,330 4,450 Reuters Group Plc(s) 65,473 26,942 Royal & Sun Alliance Insurance Group Plc(s) 205,836 7,617 Royal Bank of Scotland Plc(s)(+) 156,551 17,925 ScottishPower Plc(s) 133,898 13,523 Severn Trent Plc(s) 144,335 16,172 SmithKline Beecham Plc(s) 210,775 4,124 Standard Chartered Plc(s) 53,457 58,392 Tesco Plc(s) 234,231 8,900 TI Group Plc(s) 49,451 259,008 Vodafone Group Plc(s) 885,694 ----------------------------- 5,636,523 ----------------------------- TOTAL COMMON STOCKS 17,660,973 ----------------------------- (Cost $15,241,666) PREFERRED STOCKS - 0.5% GERMANY - 0.5% 355 MLP AG(s) 35,222 402 SAP AG(s) 52,579 ----------------------------- TOTAL PREFERRED STOCKS 87,801 ----------------------------- (Cost $79,385) PRINCIPAL AMOUNT VALUE - -------------------------------------------------------------------------------------------- SHORT-TERM INVESTMENTS - 0.5% U.S. TREASURY SECURITIES - 0.5% $100,000 U.S. Treasury Bill, 5.96%, 3/22/01(s)(y) $ 98,147 ----------------------------- (Cost $98,137) TOTAL INVESTMENT SECURITIES - 100.0% $17,846,921 ============================= (Cost $15,419,188)
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS
UNREALIZED CONTRACTS SETTLEMENT CONTRACTUAL VALUE AT APPRECIATION TO BUY DATE VALUE 11/30/00 (DEPRECIATION) - --------------------------------------------------------------------------------------------------------- 263,295 CHF 02/23/01 $ 150,000 $ 152,851 $ 2,851 2,270,134 EUR 02/23/01 1,951,539 1,983,798 32,259 190,000 GBP 02/23/01 272,147 269,833 (2,314) 765,027 NOK 02/23/01 81,149 82,381 1,232 3,217,816 SEK 02/23/01 317,652 322,790 5,138 ------------------------------------------------------------------ $2,772,487 $2,811,653 $39,166 ================================================================== UNREALIZED CONTRACTS SETTLEMENT SETTLEMENT VALUE AT APPRECIATION TO SELL DATE VALUE 11/30/00 (DEPRECIATION) 1,386,794 CHF 02/23/01 $ 779,409 $ 805,079 $(25,670) 1,190,000 EUR 02/23/01 1,027,888 1,039,904 (12,016) 575,506 EUR 12/04/00 500,000 500,963 (963) 460,000 GBP 02/23/01 653,960 653,279 681 605,520 SEK 02/23/01 60,000 60,742 (742) ------------------------------------------------------------------ $3,021,257 $3,059,967 $(38,710) ==================================================================
FUTURES CONTRACTS UNDERLYING FACE UNREALIZED PURCHASED EXPIRATION DATE AMOUNT AT VALUE APPRECIATION - ------------------------------------------------------------------------------------------ 2 FTSE 100 Index December 2000 $174,217 $940 =========================================
16 The Accompanying Notes are an Integral Part of the Financial Statements. THE EUROPEAN EQUITY PORTFOLIO SCHEDULE OF INVESTMENTS - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000
MARKET SECTOR % OF TOTAL INVESTMENTS FINANCE 16.7% INDUSTRIAL CYCLICAL 15.0% PHARMACEUTICALS 12.4% TELECOMMUNICATIONS 12.1% INSURANCE 8.9% ENERGY 8.3% CONSUMER STABLE 5.8% SOFTWARE & SERVICES 5.1% CONSUMER CYCLICAL 4.0% UTILITIES 3.6% CONSUMER SERVICES 3.3% RETAIL 3.2% SEMICONDUCTORS 1.0% SHORT-TERM INVESTMENTS 0.5% CAPITAL MARKETS 0.1%
ADR - American Depositary Receipt CHF - Swiss Franc EUR - Euro GBP - British Pound NOK - Norwegian Krone SEK - Swedish Krona (s) Security is fully or partially segregated with custodian as collateral for futures or with brokers as initial margin for futures contracts. (y) Yield to maturity (+) Non-income producing security The Accompanying Notes are an Integral Part of the Financial Statements. 17 THE EUROPEAN EQUITY PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 ASSETS Investments at Value (Cost $15,419,188) $17,846,921 Receivable for Investments Sold 4,838,652 Foreign Currency at Value (Cost $42,623) 42,997 Unrealized Appreciation of Forward Foreign Currency Contracts 42,161 Foreign Tax Reclaim Receivable 29,208 Dividend and Interest Receivable 22,272 Receivable for Expense Reimbursement 7,423 Variation Margin Receivable 1,833 Prepaid Expenses and Other Assets 90 ------------- TOTAL ASSETS 22,831,557 ------------- LIABILITIES Payable for Investments Purchased 4,293,035 Due to Custodian 351,555 Unrealized Depreciation of Forward Foreign Currency Contracts 41,705 Advisory Fee Payable 10,671 Administrative Services Fee Payable 391 Accrued Expenses and Other Liabilities 70,000 ------------- TOTAL LIABILITIES 4,767,357 ------------- NET ASSETS Applicable to Investors' Beneficial Interests $18,064,200 =============
18 The Accompanying Notes are an Integral Part of the Financial Statements. THE EUROPEAN EQUITY PORTFOLIO STATEMENT OF OPERATIONS - -------------------------------------------------------------------------------- FOR THE YEAR ENDED NOVEMBER 30, 2000 INVESTMENT INCOME INCOME Dividend Income (Net of Foreign Withholding Tax of $60,554) $ 366,220 Interest Income 53,812 ------------------ Investment Income 420,032 ------------------ EXPENSES Advisory Fee 158,680 Custodian Fees and Expenses 142,609 Professional Fee 50,090 Printing Expenses 10,084 Administrative Services Fee 5,929 Organization Expenses 1,392 Fund Services Fee 384 Trustees' Fees and Expenses 274 Administration Fee 172 Miscellaneous 230 ------------------ Total Expenses 369,844 Less: Reimbursement of Expenses (124,861) ------------------ Net Expenses 244,983 ------------------ NET INVESTMENT INCOME 175,049 ------------------ REALIZED AND UNREALIZED GAIN (LOSS) NET REALIZED LOSS ON Investment Transactions (171,175) Futures Contracts (4,789) Foreign Currency Transactions (277,213) ------------------- Net Realized Loss (453,177) ------------------- NET CHANGE IN UNREALIZED APPRECIATION (DEPRECIATION) ON Investment Transactions (1,915,100) Futures Contracts (6,026) Foreign Currency Contracts and Translations 20,211 ------------------ Net Change in Unrealized Appreciation (Depreciation) (1,900,915) ------------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(2,179,043) ==================
The Accompanying Notes are an Integral Part of the Financial Statements. 19 THE EUROPEAN EQUITY PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS - --------------------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30 INCREASE (DECREASE) IN NET ASSETS 2000 1999 FROM OPERATIONS Net Investment Income $ 175,049 $ 222,515 Net Realized Gain (Loss) on Investments, Futures, and Foreign Currency Transactions (453,177) 440,485 Net Change in Unrealized Appreciation on Investments, Futures and Foreign Currency Contracts and Translations (1,900,915) 2,408,676 ------------------ ------------------ Net Increase (Decrease) in Net Assets Resulting from Operations (2,179,043) 3,071,676 ------------------ ------------------ TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS Contributions 59,216,973 14,558,410 Withdrawals (64,403,587) (19,480,002) ------------------ ------------------ Net Decrease from Transactions in Investors' Beneficial Interests (5,186,614) (4,921,592) ------------------ ------------------ Total Decrease in Net Assets (7,365,657) (1,849,916) ------------------ ------------------ NET ASSETS Beginning of Year 25,429,857 27,279,773 ------------------ ------------------ End of Year $18,064,200 $25,429,857 ================== ==================
SUPPLEMENTARY DATA FOR THE FOR THE PERIOD ELEVEN MONTHS MARCH 28, 1995 FOR THE YEARS ENDED FOR THE YEARS (COMMENCEMENT OF ENDED NOVEMBER 30 ENDED DECEMBER 31 DECEMBER 31, OPERATIONS) THROUGH ------------------- NOVEMBER 30, --------------------- December 31, 2000 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------ RATIOS TO AVERAGE NET ASSETS Net Expenses 1.00% 1.00% 0.87%(a) 0.88% 0.84% 0.90%(a) Net Investment Income 0.72% 0.89% 1.17%(a) 1.47% 1.65% 1.67%(a) Expenses without Reimbursement 1.51% 1.59% 1.11%(a) 0.89% 0.84% 0.90%(a) Portfolio Turnover 86% 68% 99%(b) 65% 57% 36%(b)
(a) Annualized (b) Not annualized 20 The Accompanying Notes are an Integral Part of the Financial Statements. THE EUROPEAN EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--The European Equity Portfolio (the "Portfolio") is one of five subtrusts (portfolios) comprising The Series Portfolio (the "Series Portfolio"). The Series Portfolio is registered under the Investment Company Act of 1940, as amended, as a no-load open-end, diversified management investment company, which was organized as a trust under the laws of the State of New York on June 24, 1994. The Portfolio's investment objective is to provide a high total return from a portfolio of equity securities of European companies. The Portfolio commenced operations on March 28, 1995. The Declaration of the 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. Trading in securities on most foreign exchanges and over-the-counter markets is normally completed before the close of the domestic market and may also take place on days when the domestic market is closed. If events materially affecting the value of foreign securities occur between the time when the exchange on which they are traded closes and the time when the Portfolio's net assets are calculated, such securities will be valued at fair value in accordance with procedures adopted by the Trustees. REPURCHASE AGREEMENTS--The Portfolio may enter into repurchase agreements with brokers, dealers or banks that meet the credit guidelines approved by the Trustees. 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 mark-to-market the collateral on a daily 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. In the event of default or bankruptcy by the seller of the agreement, realization and/or retention of the collateral or proceeds may be subject to legal proceedings. 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. ORGANIZATION EXPENSES--The Portfolio incurred organization expenses in the amount of $27,700 which have been deferred and have been amortized on a straight-line basis over a period not to exceed five years beginning with the commencement of operations of the Portfolio. 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. FOREIGN CURRENCY TRANSACTIONS--All assets and liabilities initially expressed in foreign currencies are translated into U.S. dollars at prevailing exchange rates at period end. Purchases and sales of investment securities, dividend and interest income, and certain expenses are translated at the rates of exchange prevailing on the respective dates of such transactions. Realized and unrealized gains and losses from foreign currency translations arise from changes in currency exchange rates and are reported in the Statement of Operations. 21 THE EUROPEAN EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Although the net assets of the Portfolio are presented at the exchange rates and market values prevailing at the end of the period, the Portfolio does not isolate the portion of the results of operations arising from changes in foreign exchange rates from the fluctuations arising from changes in the market prices of securities during the period. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS--The Portfolio may enter into forward foreign currency exchange contracts to facilitate transactions of securities denominated in a foreign currency or to manage the Portfolio's exposure to foreign currency exchange fluctuations or to adjust the Portfolio's exposure relative to the benchmark. The net U.S. dollar value of foreign currency underlying all contractual commitments held by the Portfolio and the resulting unrealized appreciation or depreciation are determined daily using prevailing exchange rates. The Portfolio bears the risk of an unfavorable change in the foreign currency exchange rate underlying the forward contract. Additionally, losses may arise if the counterparties do not perform under the contract terms. 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. FOREIGN TAXES--The Portfolio may be subject to foreign taxes on income, gains on investments or currency repatriation, a portion of which may be recoverable. The Portfolio will accrue such taxes and recoveries as applicable, based upon their current interpretation of tax rules and regulations that exist in the markets in which they invest. - -------------------------------------------------------------------------------- 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 0.65% of the Portfolio's average daily net assets. The Portfolio may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the Portfolio in an amount to offset any investment advisory, administrative fee and shareholder servicing fees related to a Portfolio investment in an affiliated money market fund. ADMINISTRATIVE SERVICES--The Portfolio has an Administrative Services Agreement (the "Services Agreement") with Morgan under which Morgan is responsible for certain aspects of the administration and operation of the Portfolio. Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Portfolio and certain other registered investment companies for which JPMIM acts as investment advisor in accordance with the following annual schedule: 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. Morgan has agreed to reimburse the Portfolio to the extent the total operating expenses (excluding interest, taxes and extraordinary expenses) of the Portfolio exceed 1.00% of the Portfolio's average daily net assets through February 28, 2001. 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 22 THE EUROPEAN EQUITY PORTFOLIO NOTES TO FINANCIAL STATEMENTS - -------------------------------------------------------------------------------- (Continued) NOVEMBER 30, 2000 - -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Portfolio's affairs. The Trustees of the Portfolio represent all the existing shareholders of PGI. TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for serving on the boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, and other registered investment companies in which they invest. The Trustees' fees and expenses shown in the financial statements represent the Fund's allocated portion of the total Trustees' fees and expenses. The Trust's Chairman and Chief Executive Officer also serves as Chairman of PGI and receives compensation and employee benefits from PGI. The allocated portion of such compensation and benefits included in the Fund Services Fee shown on the Statement of Operations was $73. - -------------------------------------------------------------------------------- 3. FEDERAL INCOME TAXES As of November 30, 2000, accumulated net unrealized appreciation was $2,399,730, based on the aggregate cost of investments for federal income tax purposes of $15,447,191, which consisted of unrealized appreciation of $3,019,219 and unrealized depreciation of $619,489. - -------------------------------------------------------------------------------- 4. INVESTMENT TRANSACTIONS During the year ended November 30, 2000, the Portfolio purchased $19,818,019 of investment securities and sold $23,856,360 of investment securities other than short- term investments. - -------------------------------------------------------------------------------- 5. CONCENTRATIONS OF RISK The Portfolio may have elements of risk not typically associated with investments in the United States due to concentrated investments in a limited number of countries or regions which may vary throughout the year. Such concentrations may subject the Portfolio to additional risks resulting from political or economic conditions in such countries or regions and the possible imposition of adverse governmental laws or currency exchange restrictions could cause the securities and their markets to be less liquid and their prices more volatile than those of comparable U.S. securities. - -------------------------------------------------------------------------------- 6. 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. - -------------------------------------------------------------------------------- 7. SUBSEQUENT EVENT The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Portfolio'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 Portfolio's adviser. 23 REPORT OF INDEPENDENT ACCOUNTANTS - -------------------------------------------------------------------------------- To the Trustees and Shareholders of The European 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 European Equity Portfolio (one of the portfolios comprising part of The Series Portfolio, hereafter referred to as the "Portfolio") at November 30, 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 supplementary data for each of the two years in the period then ended, for the eleven months ended November 30, 1998, for each of the two years in the period ended December 31, 1997 and for the period March 28, 1995 (commencement of operations) through December 31, 1995, in conformity with accounting principles generally accepted in the United States of America. 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 of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at November 30, 2000 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion. PricewaterhouseCoopers LLP New York, New York January 16, 2001 24 [back cover] J.P. MORGAN FUNDS Federal Money Market Fund --------------------------------------------------------------------- Prime Money Market Fund --------------------------------------------------------------------- Emerging Market Debt Fund --------------------------------------------------------------------- Tax Aware Enhanced Income Fund: Select Shares --------------------------------------------------------------------- Tax Exempt Money Market Fund --------------------------------------------------------------------- Short Term Bond Fund --------------------------------------------------------------------- Bond Fund --------------------------------------------------------------------- Global Strategic Income Fund --------------------------------------------------------------------- Tax Exempt Bond Fund --------------------------------------------------------------------- California Bond Fund: Select Shares --------------------------------------------------------------------- New York Tax Exempt Bond Fund --------------------------------------------------------------------- Diversified Fund --------------------------------------------------------------------- Disciplined Equity Fund --------------------------------------------------------------------- Tax Aware Small Company Opportunities Fund: Select Shares --------------------------------------------------------------------- Tax Aware U.S. Equity Fund: Select Shares --------------------------------------------------------------------- U.S. Equity Fund --------------------------------------------------------------------- U.S. Small Company Fund --------------------------------------------------------------------- U.S. Small Company Opportunities Fund --------------------------------------------------------------------- Emerging Markets Equity Fund --------------------------------------------------------------------- European Equity Fund --------------------------------------------------------------------- Global 50 Fund: Select Shares --------------------------------------------------------------------- Global Healthcare Fund: Select Shares --------------------------------------------------------------------- International Equity Fund --------------------------------------------------------------------- International Opportunities Fund --------------------------------------------------------------------- For more information on the J.P. Morgan Funds, call J.P. Morgan Funds Services at (800) 521-5411. --------------------------------------------------------------------- Morgan Guaranty Trust Company MAILING 500 Stanton Christiana Road INFORMATION Newark, Delaware 19713-2107 IN-ANN-24239 0101
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