JP MORGAN SERIES TRUST
497, 1999-01-11
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December 31, 1998
PROSPECTUS



J.P. Morgan INSTITUTIONAL
SMARTINDEX FUND


- --------------------------------------------
Seeking to outperform the S&P 500 over
the long term through a disciplined
management approach

This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.

As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense for anyone to state or suggest otherwise.

Distributed by Funds Distributor, Inc.

JPMORGAN
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<PAGE>


CONTENTS
- --------------------------------------------------------------------------------
2
The fund's goal, investment
approach, risks and expenses

J.P. MORGAN INSTITUTIONAL SMARTINDEX FUND                                    
Fund description ............................................................  2
Investor expenses ...........................................................  3

4

U.S. EQUITY MANAGEMENT APPROACH
J.P. Morgan .................................................................  4
J.P. Morgan Institutional SmartIndex Fund ...................................  4
Who may want to invest ......................................................  4
U.S. equity investment process ..............................................  5

6
Investing in the J.P. Morgan 
Institutional SmartIndex Fund

YOUR INVESTMENT
Investing through a financial proffessional .................................  6
Investing through an employer-sponsored retirement plan .....................  6
Investing through an IRA or rollover IRA ....................................  6
Investing directly ..........................................................  6
Opening your account ........................................................  6
Adding to your account ......................................................  6
Selling shares ..............................................................  7
Account and transaction policies ............................................  7
Dividends and distributions .................................................  8
Tax considerations ..........................................................  8

9                             
More about risk and the fund's
business operations           

FUND DETAILS
Business structure ..........................................................  9
Management and administration ...............................................  9
Performance of private accounts .............................................  9
Risk and reward elements .................................................... 10

FOR MORE INFORMATION ...............................................  back cover


<PAGE>

J.P. MORGAN INSTITUTIONAL
SMARTINDEX FUND
- --------------------------------------------------------------------------------
                                     REGISTRANT: J.P. MORGAN SERIES TRUST
                                     (J.P. MORGAN SMARTINDEX FUND: INSTITUTIONAL
                                     SHARES)
[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 10-11. 

[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide a  consistently  high total  return from a broadly
diversified  portfolio of approximately  350 equity securities while maintaining
risk  characteristics  similar to the S&P 500. This goal can be changed  without
shareholder approval.

     [GRAPHIC OMITTED]  INVESTMENT  APPROACH The fund invests primarily in large
and medium  capitalization  U.S. and foreign companies  included in the S&P 500.
While  the  fund  seeks  to  invest  in  a   portfolio   of  stocks   with  risk
characteristics  similar  to the S&P 500,  the fund may  invest a portion of its
assets in stocks  which are not part of the index.  The
fund's  sector  weightings  are  expected to be similar to those of the S&P 500.
Within each  industry,  the fund may  moderately  overweight  stocks that appear
undervalued  or fairly  valued and  underweight  or not hold  stocks that appear
overvalued,   according  to  the  investment   process   described  on  page  5.
Accordingly,  the fund's  performance is expected to differ from that of the S&P
500.  The fund  expects to  ordinarily  hold a portfolio  of  approximately  350
stocks.  The fund generally  considers selling stocks that appear  significantly
overvalued.

By  controlling  the  industry  weightings  of the fund so they can differ  only
moderately from the industry  weightings of the S&P 500, the fund seeks to limit
its volatility to that of the overall market, as represented by this index.

The value of your investment in the fund will fluctuate in response to movements
in the stock market.  Fund performance also will depend on the  effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.

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,  which currently manages over $275
billion, including more than $13 billion using the same strategy as the fund.

     The  portfolio  management  team is led by James C.  Wiess and  Timothy  J.
Devlin, both vice presidents.  Mr. Wiess has been at J.P. Morgan since 1992, and
prior to managing this fund managed other structured  equity portfolios for J.P.
Morgan. Mr. Devlin has been at J.P. Morgan since July of 1996, and prior to that
time was an equity portfolio manager at Mitchell Hutchins Asset Management Inc.

- --------------------------------------------------------------------------------
Before you invest

Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goal.

o The fund does not represent a complete investment program.

2 | J.P. MORGAN INSTITUTIONAL SMARTINDEX FUND



<PAGE>


================================================================================
INVESTOR EXPENSES

The estimated 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(1)(%)
(expenses that are deducted from fund assets)

Management fees                        0.25
Marketing (12b-1) fees                 none
Other expenses(2)                      0.33
- -------------------------------------------
Total annual fund
operating expenses(2)                  0.58
- -------------------------------------------

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:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
                                            1 yr.        3 yrs.
Your cost($)                                 61           192
- --------------------------------------------------------------------------------

(1) This table shows the fund's  estimated  expenses for the current fiscal year
    ending  5/31/99,  before  reimbursement,  expressed as a  percentage  of the
    fund's estimated average net assets.

(2) After  reimbursement,  other expenses and total  operating  expenses will be
    0.10% and 0.35%, respectively. This reimbursement arrangement can be changed
    or terminated at any time after 9/30/99 at the option of J.P. Morgan.

                                  J.P. MORGAN INSTITUTIONAL SMART INDEX FUND | 3

<PAGE>

U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------

J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.

J.P. MORGAN INSTITUTIONAL SMARTINDEX FUND
The fund invests primarily in stocks with characteristics similar to those of
the S&P 500. As a shareholder, you should anticipate risks and rewards beyond
those of a typical bond fund or a typical balanced fund.

- --------------------------------------------------------------------------------
Who may want to invest

The fund is designed for investors who: 

o   are pursuing a long-term goal such as retirement

o want to add an investment with growth potential to further diversify a
  portfolio

o want a fund that seeks to outperform the markets in which it invests over the
  long term

The fund is not designed for investors who:

o want a fund that pursues market trends or focuses only on particular
  industries or sectors

o require regular income or stability of principal

o are pursuing a short-term goal or investing emergency reserves

4 | J.P. MORGAN INSTITUTIONAL SMARTINDEX FUND
<PAGE>
- --------------------------------------------------------------------------------
The fund invests primarily in U.S. stocks. The fund's investment philosophy,
developed by the advisor, focuses on stock picking while largely avoiding sector
or market-timing strategies. Also, under normal market conditions, the fund will
remain fully invested. 

U.S. EQUITY INVESTMENT PROCESS 

In managing the fund, J.P. Morgan employs a three-step process:

Research   J.P. Morgan takes an in-depth look at company prospects over a
relatively long period -- often as much as five years -- rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 120 career analysts. The team of analysts
dedicated to U.S. equities includes more than 20 members, with an average of
over ten years of experience.

Valuation   The research findings allow J.P. Morgan to rank the companies in
each industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.

Stock selection   The fund buys and sells stocks according to its policies,
using the research and valuation rankings as a basis. In general, the management
team buys stocks that are identified as undervalued and considers selling them
when they appear overvalued. Along with attractive valuation, the fund's
managers often consider a number of other criteria:

o catalysts that could trigger a rise in a stock's price 

o high potential reward compared to potential risk

o temporary mispricings caused by market overreactions

                        [GRAPHIC OMITTED]
J.P. Morgan analysts develop proprietary
                    fundamental research

                 [GRAPHIC OMITTED]
Stocks in each industry are ranked
           with the help of models

             [GRAPHIC EMITTED]
Using research and valuations,
   the fund's management team
   chooses stocks for the fund

                                   J.P. MORGAN INSTITUTIONAL SMARTINDEX FUND | 5
<PAGE>
YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the fund offers several ways to start and add to fund
investments. 

INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.

INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.

INVESTING THROUGH AN IRA OR ROLLOVER IRA 
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.

INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by
using the instructions below and at right:

o Determine the amount you are investing. The minimum amount for initial
  investment is $3,000,000 and for additional investments $25,000, although
  these minimums may be less for some investors. For more information on minimum
  investments, call 1-800-766-7722.

o Complete the application, indicating how much of your investment you want to
  allocate to which fund(s). Please apply now for any account privileges you may
  want to use in the future, in order to avoid the delays associated with adding
  them later on.

o Mail in your application, making your initial investment as shown on the
  right.

For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.
<PAGE>

- --------------------------------------------------------------------------------
OPENING YOUR ACCOUNT
  By wire
o Mail your completed application to the Shareholder Services Agent.

o Call the Shareholder Services Agent to obtain an account number and to place a
  purchase order. Funds that are wired without a purchase order will be returned
  uninvested.

o After placing your purchase order, instruct your bank to wire the amount of
  your investment to:
       
  Morgan Guaranty Trust Company of New York - Delaware
  Routing Number: 031-100-238
  Credit: J.P. Morgan Institutional Funds
  Account number: 001-57-689
  FFC: your account number, name of registered owner(s) and fund name
   
  By check
o Make out a check for the investment amount payable to J.P. Morgan
  Institutional Funds.
  
o Mail the check with your completed application to the Shareholder Services
  Agent.
  
  By exchange

o Call the Shareholder Services Agent to effect an exchange.

ADDING TO YOUR ACCOUNT
  
  By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that are
  wired without a purchase order will be returned uninvested.

o Once you have placed your purchase order, instruct your bank to wire the
  amount of your investment as described above.

  By check
 
o Make out a check for the investment amount payable to J.P. Morgan
  Institutional Funds.

o Mail the check with a completed investment slip to the Shareholder Services
  Agent. If you do not have an investment slip, attach a note indicating your
  account number and how much you wish to invest in which fund(s).

  By exchange
 
o Call the Shareholder Services Agent to effect an exchange.

6 | YOUR INVESTMENT

<PAGE>

- --------------------------------------------------------------------------------
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 cash amount, payable to the registered
  owner(s), will be mailed to the address of record. For checks payable to any
  other party or mailed to any other address, please make your request in
  writing (see below).
 
  In writing
o Write a letter of instruction that includes the following information: The
  name of the registered owner(s) of the account; the account number; the fund
  name; the amount you want to sell; and the recipient's name and address or
  wire information, if different from those of the account registration.

o Indicate whether you want any cash 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 The fund reserves the right to make redemptions of over $250,000 in securities
  rather than cash.

<PAGE>

- --------------------------------------------------------------------------------
ACCOUNT AND TRANSACTION POLICIES
Telephone orders   The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the 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 this fund for shares in any other J.P.
Morgan Institutional or J.P. Morgan mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.

The fund may alter, limit, or suspend its exchange policy at any time.

Business hours and NAV calculations   The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The 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 after the close of trading that would materially
impact a security's value) the security is valued in accordance with the fund's
fair valuation procedures.

Timing of orders   Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.
- --------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722

Representatives are available 8:00 a.m. to 5:00 p.m. eastern
time on fund business days.

                                                             YOUR INVESTMENT | 7
<PAGE>
- --------------------------------------------------------------------------------

Timing of settlements   When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, cash proceeds are generally available the day following
execution and will be forwarded according to your instructions.

When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.

Statements and reports   The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the 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
Income dividends are typically paid four times a year. The fund typically makes
capital gains distributions, if any, once per year. However, the fund may make
more or fewer payments in a given year, depending on its investment r esults and
its tax compliance situation. The fund's dividends and distributions consist of
most or all of its net investment income and net realized capital gains.

Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.
<PAGE>

TAX CONSIDERATIONS
In general, selling shares for cash, exchanging shares, and receiving
distributions (whether reinvested or taken in cash) are all taxable events.
These transactions typically create the following tax liabilities for taxable
accounts:

- --------------------------------------------------------------------------------
 Transaction                                Tax status

 Income dividends                           Ordinary income

 Short-term capital gains                   Ordinary income
 distributions

 Long-term capital gains                    Capital gains
 distributions

 Sales or exchanges of shares               Capital gains or losses
 owned for more than one year

 Sales or exchanges of shares              Gains are treated as ordinary
 owned for one year or less                income; losses are subject
                                           to special rules

Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.

Every January, the fund issues tax information on its distributions for the
previous year.

Any investor for whom the 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.

8 | YOUR INVESTMENT
<PAGE>

FUND DETAILS
- --------------------------------------------------------------------------------

BUSINESS STRUCTURE
The fund is a series of J.P. Morgan Series Trust,
a Massachusetts business trust. Information about other series or classes is
available by calling 1-800-766-7722. In the future, the trustees could create
other series or share classes, which would have different expenses.

MANAGEMENT AND ADMINISTRATION
The trustees of J.P. Morgan Series Trust are responsible for overseeing all
business activities of the trust and certain other funds advised by J.P. Morgan.
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                   0.25% of the fund's
                                     average net assets


 Administrative services             Fund's pro-rata portion of
 (fee shared with Funds              0.09% of the first $7 billion
 Distributor, Inc.)                  in J.P. Morgan-advised
                                     portfolios, plus 0.04%
                                     of average net assets over
                                     $7 billion


 Shareholder services                0.10% of the fund's average
                                     net assets

<PAGE>

- --------------------------------------------------------------------------------
J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in the fund.

Year 2000   Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these problems from adversely
impacting fund operations and shareholders. In addition, to the extent that
operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.


PERFORMANCE OF PRIVATE ACCOUNTS


The fund's investment objective and policies are substantially similar to those
used by J.P. Morgan in managing certain discretionary investment management
accounts.The chart below shows the historical investment performance for a
composite of these private accounts.

The performance of the private account composite does not represent the fund's
performance nor should it be interpreted as indicative of the fund's future
performance. The accounts in the private account composite are not subject to
the same limitations imposed on mutual funds. If the accounts included in the
private account composite had been subject to these limitations, their
performance might have been lower.

The performance of the private account composite reflects the deduction of the
fund's total annual operating expenses, after expense reimbursements.
<TABLE>
<CAPTION>
                                                  Annual Total Returns for the Year Ended December 31,
                                      1997      1996     1995   1994     1993    1992    1991      1990     1989
<S>                                   <C>       <C>     <C>     <C>     <C>      <C>     <C>        <C>    <C>   
Private Account Composite             33.98%    23.72%  38.38%  2.27%   10.44%   9.94%   29.76%    -2.43%  30.24%
- -----------------------------------------------------------------------------------------------------------------
S&P 500 Index                         33.36%    22.96%  37.58%  1.32%   10.08%   7.62%   30.47%    -3.11%  31.69%
- -----------------------------------------------------------------------------------------------------------------
</TABLE>

The private account composite currently includes all discretionary accounts
managed by J.P. Morgan using the same investment strategy as the fund. The
inception date for the private account composite was December 31, 1988. Prior to
January 1, 1993, when AIMR requirements went into effect, the composite may not
have included all discretionary accounts.

FUND DETAILS | 9 

<PAGE>

- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS

This table discusses the main elements that make up the fund's overall risk and
reward characteristics. It also out lines the fund's policies toward various
securities, including those that are designed to help the fund manage risk.

- --------------------------------------------------------------------------------
Potential risks
- --------------------------------------------------------------------------------
Market conditions
o The fund's share price and performance will fluctuate in response to stock
  market movements
o 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

Management choices
o The fund could underperform its benchmark due to its securities and asset
  allocation choices

Foreign investments
o The fund could lose money because of foreign government actions, political
  instability, or lack of adequate and accurate information

Derivatives
o Futures contracts(1) may not have the intended effects and may result in
  losses or missed opportunities
o The counterparty to a futures contract could default
o Futures contracts that involve leverage could magnify losses 
o Futures contracts involve costs to the fund which can reduce returns

- --------------------------------------------------------------------------------
Potential rewards
- --------------------------------------------------------------------------------
o Stocks have generally outperformed more stable investments (such as bonds and
  cash equivalents) over the long term


o The fund could outperform its benchmark due to these same choices

o Foreign investments, which represent a major portion of the world's
  securities, offer attractive potential performance and opportunities for
  diversification


o The fund could make money if management's analysis proves correct
o Futures contracts allow the fund to gain equity exposure when investing in
  individual stocks is not practical
o Futures contracts that involve leverage could generate substantial gains at
  low cost


<PAGE>


- --------------------------------------------------------------------------------
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o Under normal circumstances the fund plans to remain fully invested, with at
  least 65% in stocks; stock investments may include U.S. and foreign common
  stocks, convertible securities, preferred stocks, trust or partnership
  interests, warrants, rights, and investment company securities
o The fund seeks to limit risk through diversification
o During severe market downturns, the fund has the option of investing up to
  100% of assets in investment-grade short-term securities

o J.P. Morgan focuses its active management on securities selection, the area
  where it believes its commitment to research can most enhance returns

o The fund anticipates that its total foreign investments will not exceed 20% of
  assets

o The fund uses futures contracts in order to keep the fund fully invested and
  not for speculative purposes. The fund invests in futures contracts on
  recognized security indexes
o While the fund may use futures contracts that incidentally involve leverage,
  it does not use them for the specific purpose of leveraging its portfolio

(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.

10 | FUND DETAILS

<PAGE>
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Potential risks
- --------------------------------------------------------------------------------
Illiquid holdings
o The fund could have difficulty valuing these holdings precisely
o The fund could be unable to sell these holdings at the time or price it
  desires

When-issued and delayed delivery securities
o When the fund buys securities before issue or for delayed delivery, it could
  be exposed to leverage risk if it does not use segregated accounts

Short-term trading
o Increased trading would raise the fund's brokerage and related costs
o Increased short-term capital gains distributions would raise shareholders'
  income tax liability

- --------------------------------------------------------------------------------
Potential rewards
- --------------------------------------------------------------------------------

o These holdings may offer more attractive yields or potential growth than
  comparable widely traded securities


o The fund can take advantage of attractive transaction opportunities


o The fund could realize gains in a short period of time
o The fund could protect against losses if a stock is overvalued and its value
  later falls

- --------------------------------------------------------------------------------
Policies to balance risk and reward
- --------------------------------------------------------------------------------

o The fund may not invest more than 15% of net assets in illiquid holdings 
o To maintain adequate liquidity to meet redemptions, the fund may hold
  investment-grade short-term securities (including repurchase agreements) and,
  for temporary or extraordinary purposes, may borrow from banks up to 331\3% of
  the value of its assets


o The fund uses segregated accounts to offset leverage risk


o The fund anticipates a portfolio turnover rate of approximately 100%
o The funds generally avoids short-term trading, except to take advantage of
  attractive or unexpected opportunities or to meet demands generated by
  shareholder activity

                                                               FUND DETAILS | 11
<PAGE>

(this page is intentionally left blank)


<PAGE>


FOR MORE INFORMATION
- --------------------------------------------------------------------------------

For investors who want more information on the fund, 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 the fund's most recently completed fiscal year or
half-year.

Statement of Additional Information (SAI)  Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.

Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:

J.P. Morgan Institutional Funds 
J.P. Morgan Funds Services 
522 Fifth Avenue 
New York, NY 10036
Telephone: 1-800-766-7722
Hearing impaired: 1-888-468-4015 
Email: [email protected]

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. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are: 811-07795 and
333-11125

J.P. MORGAN INSTITUTIONAL 
FUNDS AND THE MORGAN
TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.

JPMORGAN
- --------------------------------------------------------------------------------
J.P. Morgan Institutional Funds

Advisor                                          Distributor
J.P. Morgan Investment Management Inc.           Funds Distributor, Inc.
522 Fifth Avenue                                 60 State Street
New York, NY 10036                               Boston, MA 02109
1-800-766-7722                                   1-800-221-7930




<PAGE>



December 31, 1998


Prospectus


J.P. MORGAN INSTITUTIONAL MARKET NEUTRAL FUND

- ------------------------------------
Seeking to provide long term capital
appreciation while neutralizing the
risks associated with stock
market investing


This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.

As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense for anyone to state or suggest otherwise.

 Distributed by Funds Distributor, Inc.


<PAGE>

                     (THIS PAGE IS INTENTIONALLY LEFT BLANK)





<PAGE>

CONTENTS
- --------------------------------------------------------------------------------
2
The fund's goal, investment
approach, risks and expenses

J.P. MORGAN INSTITUTIONAL MARKET NEUTRAL FUND
Fund description ............................................................  2
Investor expenses ...........................................................  3

4
U.S. EQUITY MANAGEMENT APPROACH
J.P. Morgan .................................................................  4
J.P. Morgan Institutional Market Neutral Fund ...............................  4
Who may want to invest ......................................................  4
U.S. equity Investment process ..............................................  5

6
Investing in the J.P. Morgan
Institutional Market Neutral Fund
 
YOUR INVESTMENT
Investing through a financial professional ..................................  6
Investing through an employer-sponsored retirement plan .....................  6
Investing through an IRA or rollover IRA ....................................  6
Investing directly ..........................................................  6
Opening your account ........................................................  6
Adding to your account ......................................................  6
Selling shares ..............................................................  7
Account and transaction policies ............................................  7
Dividends and distributions .................................................  8
Tax considerations ..........................................................  8

9
More about risk and the fund's
business operations

FUND DETAILS
Business structure ..........................................................  9
Management and administration ...............................................  9
Risk and reward elements .................................................... 10

FOR MORE INFORMATION ................................................ back cover



<PAGE>


J.P. MORGAN INSTUTUTIONAL
MARKET NEUTRAL FUND
- --------------------------------------------------------------------------------
                         REGISTRANT: J.P. MORGAN SERIES TRUST
                         (J.P. MORGAN MARKET NEUTRAL FUND: INSTITUTIONAL SHARES)

[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 10-11.

[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide long-term capital appreciation from a broadly
diversified portfolio of U.S. stocks while neutralizing the general risks
associated with stock market investing. This goal can be changed without
shareholder approval.

[GRAPHIC OMITTED]
INVESTMENT APPROACH
The fund takes long and short positions in different stocks with characteristics
similar to those of the S&P 500 in an effort to insulate the fund's performance
from the effects of general stock market movements. In rising markets, the fund
expects that the long positions will appreciate more rapidly than the short
positions, and in declining markets, that the short positions will decline
faster than the long positions. The fund expects that this difference in rates
of appreciation, along with any returns on cash generated by short sales, will
generate a positive return; the fund pursues returns exceeding those of 90 day
U.S. Treasury Bills.

The fund purchases securities that it believes are undervalued and sells short
securities that it believes are overvalued. The long and short portfolios are
matched on a variety of risk characteristics in order to limit exposure to
macroeconomic factors. In each sector in which the fund invests, it balances the
dollars invested in long and short positions to remain sector neutral. In
attempting to neutralize market and sector risks, the fund emphasizes stock
picking as the primary means of generating returns.

     While the fund's  market  neutral  approach  seeks to minimize the risks of
investing in the overall stock market, it may involve more risk than other funds
that do not engage in short selling.  The fund's long positions could decline in
value while the value of the securities sold short increases, thereby increasing
the potential for loss. It also is possible that the  combination  of securities
held long and sold short will fail to protect the fund from overall stock market
risk as anticipated.

The fund will have substantial short positions and must borrow the security to
make delivery to the buyer. The fund may not always be able to borrow a security
it wants to sell short. The fund also may be unable to close out an established
short position at an acceptable price, and may have to sell long positions at
disadvantageous times to cover its short positions.

The value of your investment in the fund will fluctuate in response to movements
in the stock market. fund performance also will depend on the effectiveness of
J.P. morgan's research and the management team's stock picking decisions.

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, which currently manages over $275
billion, including approximately $1 billion using the same strategy as the fund.

The portfolio management team is led by James C. Wiess, vice president and Marc
N. Roston, vice president. Mr. Wiess has been at J.P. Morgan since 1992, and
prior to managing this fund managed other structured equity portfolios for J.P.
Morgan. Mr. Roston has been on the equity team since 1996. Prior to 1996, Mr.
Roston was completing his Ph.D.

- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goal.

o The fund does not represent a complete investment program.

2 | J.P. MORGAN INSTITUTIONAL MARKET NEUTRAL FUND




<PAGE>


- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The estimated 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(1)(%)
(expenses that are deducted from fund assets)

Management fees                        1.50
Marketing (12b-1) fees                 none
Other expenses(2)                      0.36
- -------------------------------------------
Total annual fund
operating expenses(2)                  1.86
- -------------------------------------------

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.
Your cost($)             189            585
- ---------------------------------------------

(1) This table shows the fund's estimated expenses for the current fiscal year
    ending 5/31/99, before reimbursement, expressed as a percentage of the
    fund's estimated average net assets.
(2) Although currently estimated to be 1.86% of the fund's average net assets,
    J.P. Morgan will reimburse the fund to the extent necessary to maintain
    total operating expenses at no more than 2.00%. This reimbursement
    arrangement can be changed or terminated at any time after 9/30/99 at the
    option of J.P. Morgan.

                                J.P. MORGAN INSTITUTIONAL MARKET NEUTRAL FUND |3



<PAGE>

U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------

J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.

J.P. MORGAN INSTITUTIONAL MARKET NEUTRAL FUND
The fund takes long and short positions in U.S. stocks with characteristics
similar to those of the S&P 500. As a shareholder, you should anticipate
risks and rewards beyond those of 90-day U.S. Treasury Bills.

- --------------------------------------------------------------------------------
Who May Want To Invest
The fund is designed for investors who:


o are pursuing long-term capital appreciation but want to minimize exposure to
  general stock market risk


o want returns that exceed those of 90-day U.S. Treasury Bills with controlled
  risk

The fund is not designed for investors who:

o want a fund that pursues market trends or focuses only on particular
  industries or sectors
 
o require regular income or stability of principal

o are pursuing a short-term goal or investing emergency reserves


o are seeking returns similar to those of typical stock funds



4 | J.P. MORGAN INSTITUTIONAL MARKET NEUTRAL FUND



<PAGE>

- --------------------------------------------------------------------------------
The fund invests primarily in U.S. stocks. The fund's investment philosophy,
developed by the advisor, focuses on stock picking while largely avoiding sector
or market-timing strategies.

U.S. EQUITY INVESTMENT PROCESS
In managing the fund, J.P. Morgan employs a three-step process:

[GRAPHIC OMITTED]
J.P. Morgan analysts develop proprietary
fundamental research

Research   J.P. Morgan takes an in-depth look at company prospects over a
relatively long period -- often as much as five years -- rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 120 career analysts. The team of analysts
dedicated to U.S. equities includes more than 20 members, with an average of
over ten years of experience.

[GRAPHIC OMITTED]
Stocks in each industry are ranked
with the help of models

Valuation  The research findings allow J.P. Morgan to rank the companies in each
industry group according to their relative value. The greater a company's
estimated worth compared to the current market price of its stock, the more
undervalued the company. The valuation rankings are produced with the help of a
variety of models that quantify the research team's findings.

[GRAPHIC OMITTED]
Using research and valuations,
the fund's management team
chooses stocks for the fund

Stock selection  The fund buys and sells stocks according to its policies, using
the research and valuation rankings as a basis. In general, the management team
buys stocks that are identified as undervalued and considers selling them when
they appear overvalued. Along with attractive valuation, the fund's managers
often consider a number of other criteria:

o catalysts that could trigger a significant change in a stock's price

o high potential reward compared to potential risk

o temporary mispricings caused by market overreactions


                               J.P. MORGAN INSTITUTIONAL MARKET NEUTRAL FUND | 5

<PAGE>

YOUR INVESTMENT
- --------------------------------------------------------------------------------

For your convenience, the fund offers several ways to start and add to fund
investments.

INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.

INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.

INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.

INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:

o Determine the amount you are investing. The minimum amount for initial
  investment is $3,000,000 and for additional investments $25,000, although
  these minimums may be less for some investors. For more information on minimum
  investments, call 1-800-766-7722.

o Complete the application, indicating how much of your investment you want to
  allocate to which fund(s). Please apply now for any account privileges you may
  want to use in the future, in order to avoid the delays associated with
  adding them later on.

o Mail in your application, making your initial investment as shown on the right

For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.

OPENING YOUR ACCOUNT
  By wire
o Mail your completed application to the Shareholder Services Agent.

o Call the Shareholder Services Agent to obtain an account number and to place a
  purchase order. Funds that are wired without a purchase order will be returned
  uninvested.

o After placing your purchase order, instruct your bank to wire the amount of
  your investment to:
  
  Morgan Guaranty Trust Company of New York - Delaware
  Routing number: 031-100-238
  Credit: J.P. Morgan Institutional Funds
  Account number: 001-57-689
  FFC: your account number, name of registered owner(s) and fund name
  
  By check
o Make out a check for the investment amount payable to J.P. Morgan
  Institutional Funds.

o Mail the check with your completed application to the Shareholder Services
  Agent.

  By exchange

o Call the Shareholder Services Agent to effect an exchange.




<PAGE>

 ADDING TO YOUR ACCOUNT
  By wire
o Call the Shareholder Services Agent to place a purchase order. Funds that
  are wired without a purchase order will be returned uninvested.

o Once you have placed your purchase order, instruct your bank to wire the
  amount of your investment as described above.
  
  By check
o Make out a check for the investment amount payable to J.P. Morgan
  Institutional Funds.

o Mail the check with a completed investment slip to the
  Shareholder Services Agent. If you do not have an investment slip, attach a
  note indicating your account number and how much you wish to invest in which
  fund(s).
 
  By exchange
o Call the Shareholder Services Agent to effect an exchange.

6 | YOUR INVESTMENT
  
<PAGE>

- --------------------------------------------------------------------------------
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 cash amount, payable to the
  registered owner(s), will be mailed to the address of record. For checks
  payable to any other party or mailed to any other address, please make your
  request in writing (see below).
 
  In writing
o Write a letter of instruction that includes the following information: The
  name of the registered owner(s) of the account; the account number; the fund
  name; the amount you want to sell; and the recipient's name and address or
  wire information, if different from those of the account registration.

o Indicate whether you want any cash 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 The fund reserves the right to make redemptions of over $250,000 in
  securities rather than cash.

ACCOUNT AND TRANSACTION POLICIES
Telephone orders   The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the 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 this fund for shares in any other J.P.
Morgan Institutional or J.P. Morgan mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.

The fund may alter, limit, or suspend its exchange policy at any time.

Business hours and NAV calculations   The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The 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 after the close of trading that would materially
impact a security's value) the security is valued in accordance with the fund's
fair valuation procedures.

Timing of orders   Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.

- --------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722

Representatives are available 8:00 a.m. to 5:00 p.m. eastern time on fund
business days.

                                                             YOUR INVESTMENT | 7

<PAGE>

- --------------------------------------------------------------------------------
Timing of settlements   When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution.
When you sell shares, cash proceeds are generally available the day following
execution and will be forwarded according to your instructions.

When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.

Statements and reports   The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the 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
Income dividends are typically paid four times a year. The fund typically makes
capital gains distributions, if any, once per year. However, the fund may make
more or fewer payments in a given year, depending on its investment r esults and
its tax compliance situation. The fund's dividends and distributions consist of
most or all of its net investment income and net realized capital gains.

Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.

TAX CONSIDERATIONS
In general, selling shares for cash, exchanging shares, and receiving
distributions (whether reinvested or taken in cash) are all taxable events.
These transactions typically create the following tax liabilities for taxable
accounts:

- --------------------------------------------------------------------------------
Transaction                                        Tax status
- --------------------------------------------------------------------------------
Income dividends                                   Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains                           Ordinary income
distributions
- --------------------------------------------------------------------------------
Long-term capital gains                            Capital gains
distributions
- --------------------------------------------------------------------------------
Sales or exchanges of shares                       Capital gains or losses
owned for more than one year
- --------------------------------------------------------------------------------
Sales or exchanges of shares                       Gains are treated as ordinary
owned for one year or less                         income; losses are subject
                                                   to special rules
- --------------------------------------------------------------------------------

Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.

Every January, the fund issues tax information on its distributions for the
previous year.

Any investor for whom the 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.

8 | YOUR INVESTMENT



<PAGE>

FUND DETAILS
- --------------------------------------------------------------------------------

BUSINESS STRUCTURE
The fund is a series of J.P. Morgan Series Trust,
a Massachusetts business trust. Information about other series or classes is
available by calling 1-800-766-7722. In the future, the trustees could create
other series or share classes, which would have different expenses.

MANAGEMENT AND ADMINISTRATION
The trustees of J.P. Morgan Series Trust are responsible for overseeing all
business activities of the trust and certain other funds advised by J.P. Morgan.
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                                  1.50% of the fund's
                                                   average net assets
- --------------------------------------------------------------------------------
Administrative services                            Fund's pro-rata portion of
(fee shared with Funds                             0.09% of the first $7 billion
Distributor, Inc.)                                 in J.P. Morgan-advised
                                                   portfolios, plus 0.04%
                                                   of average net assets over
                                                   $7 billion
- --------------------------------------------------------------------------------
Shareholder services                               0.10% 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 the fund.

Year 2000   Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these problems from adversely
impacting fund operations and shareholders. In addition, to the extent that
operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.

                                                                FUND DETAILS | 9




<PAGE>


- --------------------------------------------------------------------------------
RISK AND REWARD ELEMENTS
This table discusses the main elements that make up the fund's overall risk and
reward characteristics. It also outlines the fund's policies toward various
securities, including those that are designed to help the fund manage risk.

- --------------------------------------------------------------------------------
Potential risks
- --------------------------------------------------------------------------------
Market conditions
o The fund's share price and performance will fluctuate in response to
  stock market movements
o 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

Management choices
o The fund could underperform its benchmark due to its securities and
  asset allocation choices

Foreign investments
o Currency exchange rate movements could reduce gains or create losses
o The fund could lose money because of foreign government actions,
  political instability, or lack of adequate and accurate information
 
Derivatives
o Derivatives such as futures, options, swaps and forward foreign currency
  contracts that are used for hedging the portfolio or specific securities may
  not fully offset the underlying positions1 and this could result in losses
  to the fund that would not otherwise have occurred
o Derivatives used for risk management may not have the intended effects
  and may result in losses or missed opportunities
o The counterparty to a derivatives contract could default
o Certain types of derivatives involve costs to the fund which can
  reduce returns
o Derivatives that involve leverage could magnify losses

- --------------------------------------------------------------------------------
Potential rewards
- --------------------------------------------------------------------------------
o Stocks have generally outperformed more stable investments (such as bonds
  and cash equivalents) over the long term

o The fund could outperform its benchmark due to these same choices

o Favorable exchange rate movements could generate gains or reduce losses
o Foreign investments, which represent a major portion of the world's
  securities, offer attractive potential performance and opportunities for
  diversification

o Hedges that correlate well with underlying positions can reduce or eliminate
  losses at low cost
o The fund could make money and protect against losses if management's analysis
  proves correct
o Derivatives that involve leverage could generate substantial gains at low cost



<PAGE>


- --------------------------------------------------------------------------------
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o Under normal circumstances the fund plans to remain fully invested, with at
  least 65% in stocks; stock investments may include U.S. and foreign common
  stocks, convertible securities, preferred stocks, trust or partnership
  interests, warrants, rights, and investment company securities
o The fund seeks to limit risk through diversification
o During periods of adverse market conditions, the fund has the option of
  investing up to 100% of assets in investment-grade short-term securities

o J.P. Morgan focuses its active management on securities selection, the area
  where it believes its commitment to research can most enhance returns

o The fund anticipates that its total foreign investments will not exceed 20%
  of assets
o The fund actively manages the currency exposure of its foreign investments
  relative to its benchmark, and may hedge back into the U.S. dollar from time
  to time (see also "Derivatives")

o The fund uses derivatives for hedging and for risk management (i.e., to
  establish or adjust exposure to particular securities, markets or
  currencies); risk management may include management of the fund's exposure
  relative to its benchmark
o The fund only establishes hedges that it expects will be highly correlated
  with underlying positions
o While the fund may use derivatives that incidentally involve leverage, it does
  not use them for the specific purpose of leveraging its portfolio


(1) A futures contract is an agreement to buy or sell a set quantity of an
    underlying instrument at a future date, or to make or receive a cash payment
    based on changes in the value of a securities index. An option is the right
    to buy or sell a set quantity of an underlying instrument at a
    pre-determined price. A swap is a privately negotiated agreement to exchange
    one stream of payments for another. A forward foreign currency contract is
    an obligation to buy or sell a given currency on a future date and at a set
    price.

10 | FUND DETAILS


<PAGE>


- --------------------------------------------------------------------------------
Potential  risks
- --------------------------------------------------------------------------------
Illiquid holdings
o The fund could have difficulty valuing these holdings precisely
o The fund could be unable to sell these holdings at the time or price it
  desires

When-issued and delayed delivery securities
o When the fund buys securities before issue or for delayed delivery, it
  could be exposed to leverage risk if it does not use segregated accounts
 
Short-term trading
o Increased trading would raise the fund's brokerage and related costs
o Increased short-term capital gains distributions would raise shareholders'
  income tax liability

Short selling
o Short sales may not have the intended effects and may result in losses
o The fund may not be able to close out a short position at a particular
  time or at an acceptable price
o The fund may not be able to borrow certain securities to sell short, resulting
  in missed opportunities
o Segregated accounts with respect to short sales may limit the fund's
  investment flexibility
o Short sales involve leverage risk, have no cap on maximum losses, and gains
  are limited to the price of the stock at the time of the short sale

- --------------------------------------------------------------------------------
Potential rewards
- --------------------------------------------------------------------------------
o These holdings may offer more attractive yields or potential growth than
  comparable widely traded securities

o The fund can take advantage of attractive transaction opportunities

o The fund could realize gains in a short period of time

o The fund could make money and protect against losses if management's analysis
  proves correct
o Short selling may allow the fund to generate positive returns in declining
  markets

- --------------------------------------------------------------------------------
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o The fund may not invest more than 15% of net assets in illiquid
  holdings
o To maintain adequate liquidity to meet redemptions, the fund may hold
  investment-grade short-term securities (including repurchase agreements) and,
  for temporary or extraordinary purposes, may borrow from banks up to 33-1\3%
  of the value of its assets

o The fund uses segregated accounts to offset leverage risk

o The fund anticipates a portfolio turnover rate of approximately 100%
o The funds generally avoids short-term trading, except to take advantage of
  attractive or unexpected opportunities or to meet demands generated by
  shareholder activity

o The fund will not engage in short selling if the total market value of all
  securities sold short would exceed 100% of the fund's net assets
o The fund sets aside liquid assets in segregated accounts to cover short
  positions and offset leverage risk

FUND DETAILS | 11

<PAGE>


(THIS PAGE IS INTENTIONALLY LEFT BLANK)

<PAGE>

FOR MORE INFORMATION
- --------------------------------------------------------------------------------

For investors who want more information on the fund, 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 the fund's most recently completed fiscal year or
half-year.

Statement of Additional Information (SAI)   Provides a fuller technical and
legal description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.

Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:

J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036

Telephone: 1-800-766-7722

Hearing impaired: 1-888-468-4015

Email: [email protected]

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. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are: 811-07795 and
333-11125

J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.

JPMorgan
- --------------------------------------------------------------------------------
J.P. Morgan Institutional Funds

Advisor                                         Distributor
J.P. Morgan Investment Management Inc.          Funds Distributor, Inc.
522 Fifth Avenue                                60 State Street
New York, NY 10036                              Boston, MA 02109
1-800-766-7722                                  1-800-221-7930




<PAGE>

December 31, 1998

Prospectus

J.P. MORGAN INSTITUTIONAL
LARGE CAP GROWTH FUND

- --------------------------------------------------------------------------------
Seeking to outperform the Russell 1000 Growth Index over the long term through a
disciplined management approach

This prospectus contains essential information for anyone investing in the fund.
Please read it carefully and keep it for reference.

As with all mutual funds, the fact that these shares are registered with the
Securities and Exchange Commission does not mean that the commission approves
them or guarantees that the information in this prospectus is correct or
adequate. It is a criminal offense for anyone to state or suggest otherwise.

Distributed by Funds Distributor, Inc.

JPMorgan

<PAGE>

CONTENTS
- --------------------------------------------------------------------------------
1
The fund's goal, investment
approach, risks and expenses

J.P. MORGAN INSTITUTIONAL LARGE CAP GROWTH FUND
Fund description ............................................................. 1

2
U.S. GROWTH STOCK MANAGEMENT APPROACH
J.P. Morgan .................................................................. 2
J.P. Morgan Institutional Large Cap Growth Fund .............................. 2
Who may want to invest ....................................................... 2
U.S. growth stock investment process ......................................... 3

4
Investing in the J.P. Morgan
Institutional Large Cap Growth Fund

YOUR INVESTMENT
Investing through a financial professional ................................... 4
Investing through an employer-sponsored retirement plan ...................... 4
Investing through an IRA or rollover IRA ..................................... 4
Investing directly ........................................................... 4
Opening your account ......................................................... 4
Adding to your account ....................................................... 4
Selling shares ............................................................... 5
Account and transaction policies ............................................. 5
Dividends and distributions .................................................. 6
Tax considerations ........................................................... 6

7
More about risk and the fund's
business operations

FUND DETAILS
Business structure ........................................................... 7
Management and administration ................................................ 7
Risk and reward elements ..................................................... 8
FOR MORE INFORMATION ................................................ back cover


<PAGE>


J.P. MORGAN INSTITUTIONAL
LARGE CAP GROWTH FUND
- --------------------------------------------------------------------------------
                       REGISTRANT: J.P. MORGAN SERIES TRUST
                       (J.P. MORGAN LARGE CAP GROWTH FUND: INSTITUTIONAL SHARES)

[GRAPHIC OMITTED]
RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 8-9.

[GRAPHIC OMITTED]
GOAL
The fund's goal is to provide long term growth from a portfolio of large cap
stocks. This goal can be changed without shareholder approval.

[GRAPHIC OMITTED]
INVESTMENT APPROACH
The fund invests primarily in stocks of U.S., and to a lesser extent foreign,
companies with market capitalizations of $8 billion or more. The fund focuses on
stock selection to attempt to achieve superior returns and while it generally
holds stocks in many sectors, it emphasizes industries with higher earnings
growth potential and does not track the sector weightings of the overall large
cap market. Because the stock prices of growth companies are based in part on
future expectations, they may fall sharply if investors believe the prospects
for a stock, industry or the economy in general are weak. Growth stocks also
typically lack the dividend yield that could cushion stock prices in market
downturns.

In searching for companies, the fund uses a growth-oriented approach, as
described on page 3, that focuses on each company's business strategies and its
competitive environment. The fund seeks to buy stocks when they are undervalued
and display potential for long-term earnings growth. Stocks become candidates
for sale when they appear overvalued or fairly valued, but the fund may continue
to hold them if it believes further substantial growth is possible.

The value of your investment in the fund will fluctuate in response to movements
in the stock market. Fund performance also will depend on the effectiveness of
J.P. Morgan's research and the management team's stock picking decisions.

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, which currently manages over $275
billion, including more than $13 billion using the same strategy as the fund.

The portfolio management team is led by Uri D. Landesman, vice president, who
has been with J.P. Morgan since 1993 as an equity analyst and portfolio manager,
Kathleen Tait, CFA, vice president, who has been with J.P. Morgan since 1992 and
has held positions in large cap growth equity portfolio management, new business
development and defined contribution, and Nadav Peles, vice president, who has
been at J.P. Morgan since 1994 as a capital markets researcher. Prior to joining
J.P. Morgan, Mr. Peles was completing his Ph.D.


<PAGE>


- --------------------------------------------------------------------------------
BEFORE YOU INVEST
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goal.

o The fund does not represent a complete investment program.

- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The estimated 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(1)(%)
(expenses that are deducted from fund assets)
Management fees                        0.50
Marketing (12b-1) fees                 none
Other expenses(2)                      0.33
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(2)                  0.83
- --------------------------------------------------------------------------------
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:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
                          1 yr.      3 yrs.
Your cost($)               85         265
- --------------------------------------------------------------------------------
(1) This table shows the fund's estimated expenses for the current fiscal year
    ending 5/31/99, before reimbursement, expressed as a percentage of the
    fund's estimated average net assets.
(2) After reimbursement, other expenses and total operating expenses will be
    0.25% and 0.75%, respectively. This reimbursement arrangement can be changed
    or terminated at any time after 9/30/99 at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL LARGE CAP GROWTH FUND | 1


<PAGE>


U.S. GROWTH STOCK MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
Who may want to invest
The fund is designed for investors who:

o are pursuing a long-term goal such as retirement

o want to add an investment with growth potential to further diversify a
  portfolio

o want a fund that seeks to outperform the markets in which it invests over the
  long term

The fund is not designed for investors who:

o want a fund that pursues market trends or focuses only on particular
  industries or sectors

o require regular income or stability of principal

o are pursuing a short-term goal or investing emergency reserves

J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $275 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.

J.P. MORGAN INSTITUTIONAL LARGE CAP GROWTH FUND
The fund invests primarily in U.S. stocks with market capitalizations of $3
billion or more. As a shareholder, you should anticipate risks and rewards
beyond those of a typical bond fund or a typical balanced fund.

2 | J.P. MORGAN INSTITUTIONAL LARGE CAP GROWTH FUND


<PAGE>


The fund invests primarily in large cap U.S. stocks. The fund's investment
philosophy, developed by the advisor, focuses on stock picking while largely
avoiding sector or market-timing strategies. Also, under normal market
conditions, the fund will remain fully invested.

U.S. GROWTH STOCK INVESTMENT PROCESS
In managing the fund, J.P. Morgan employs a three-step process:

[GRAPHIC OMITTED]
J.P. Morgan analysts develop proprietary
fundamental research

Research   J.P. Morgan takes an in-depth look at company prospects over the
short, intermediate, and longer time periods. This approach is designed to
provide insight into a company's earnings growth potential. J.P. Morgan's
in-house research is developed by an extensive worldwide network of over 120
career analysts. The team of analysts dedicated to U.S. equities has an average
of over ten years of experience.

[GRAPHIC OMITTED]
Stocks in each industry are ranked
with the help of models

Valuation   The research findings allow J.P. Morgan to rank the companies in
each industry group according to their normalized earnings growth projections.
The projected slower growing companies are eliminated from consideration. Then
rankings are produced with the help of a variety of models that quantify the
research teams' findings. Additionally, our analyst's near-term earnings
estimates changes are blended with in-house valuation models to create a growth
stock valuation signal.

[GRAPHIC OMITTED]
Using research and valuations,
the fund's management team
chooses stocks for the fund

Stock selection  The fund buys and sells stocks according to its policies, using
the research and a growth stock valuation signal as a basis for the rankings.
Stocks displaying inferior earnings growth potential relative to peers are
excluded from the selection process. In general, the management team buys stocks
displaying above average earnings growth potential relative to its current stock
price and other companies in its industry. Along with attractive growth
prospects, the fund's managers often consider a number of other criteria:

o catalysts that could trigger a rise in a stock's price

o high potential reward compared to potential risk

o temporary mispricings caused by market overreactions


                             J.P. MORGAN INSTITUTIONAL LARGE CAP GROWTH FUND | 3

<PAGE>

YOUR INVESTMENT
- --------------------------------------------------------------------------------
For your convenience, the fund offers several ways to start and add to fund
investments.

INVESTING THROUGH A FINANCIAL PROFESSIONAL
If you work with a financial professional, either at J.P. Morgan or elsewhere,
he or she is prepared to handle your planning and transaction needs. Your
financial professional will be able to assist you in establishing your fund
account, executing transactions, and monitoring your investment. If your fund
investment is not held in the name of your financial professional and you prefer
to place a transaction order yourself, please use the instructions for investing
directly.

INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN
Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.

INVESTING THROUGH AN IRA OR ROLLOVER IRA
Please contact a J.P. Morgan Retirement Services Specialist at 1-888-576-4472
for information on J.P. Morgan's comprehensive IRA services, including lower
minimum investments.

INVESTING DIRECTLY
Investors may establish accounts without the help of an intermediary by using
the instructions below and at right:

o Determine the amount you are investing. The minimum amount for initial
  investment is $3,000,000 and for additional investments $25,000, although
  these minimums may be less for some investors. For more information on minimum
  investments, call 1-800-766-7722.

o Complete the application, indicating how much of your investment you want to
  allocate to which fund(s). Please apply now for any account privileges you may
  want to use in the future, in order to avoid the delays associated with adding
  them later on.

o Mail in your application, making your initial investment as shown on the
  right.

For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-766-7722.

<PAGE>

OPENING YOUR ACCOUNT

  By wire

o Mail your completed application to the Shareholder Services Agent.

o Call the Shareholder Services Agent to obtain an account number and to place a
  purchase order. Funds that are wired without a purchase order will be returned
  uninvested.

o After placing your purchase order, instruct your bank to wire the amount of
  your investment to:

  Morgan Guaranty Trust Company of New York - Delaware
  Routing number: 031-100-238
  Credit: J.P. Morgan Institutional Funds
  Account number: 001-57-689
  FFC: your account number, name of registered owner(s) and fund name

  By check

o Make out a check for the investment amount payable to J.P. Morgan 
  Institutional Funds.

o Mail the check with your completed application to the Shareholder Services
  Agent.

  By exchange

o Call the Shareholder Services Agent to effect an exchange.

ADDING TO YOUR ACCOUNT

  By wire

o Call the Shareholder Services Agent to place a purchase order. Funds that
  are wired without a purchase order will be returned uninvested.

o Once you have placed your purchase order, instruct your bank to wire the
  amount of your investment as described above.

  By check

o Make out a check for the investment amount payable to J.P. Morgan
  Institutional Funds.

o Mail the check with a completed investment slip to the Shareholder Services
  Agent. If you do not have an investment slip, attach a note indicating your
  account number and how much you wish to invest in which fund(s).

  By exchange

o Call the Shareholder Services Agent to effect an exchange.

4 | YOUR INVESTMENT

<PAGE>

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 cash amount, payable to the registered
  owner(s), will be mailed to the address of record. For checks payable to any
  other party or mailed to any other address, please make your request in
  writing (see below).

  In writing

o Write a letter of instruction that includes the following information: The
  name of the registered owner(s) of the account; the account number; the fund
  name; the amount you want to sell; and the recipient's name and address or
  wire information, if different from those of the account registration.

o Indicate whether you want any cash 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 The fund reserves the right to make redemptions of over $250,000 in securities
  rather than cash.

<PAGE>

ACCOUNT AND TRANSACTION POLICIES

Telephone orders The fund accepts telephone orders from all shareholders. To
guard against fraud, the fund requires shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if the 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 this fund for shares in any other J.P.
Morgan Institutional or J.P. Morgan mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that for tax purposes an exchange
is considered a sale.

The fund may alter, limit, or suspend its exchange policy at any time.

Business hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The 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 after the close of trading that would materially
impact a security's value), the security is valued in accordance with the fund's
fair valuation procedures.

Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Orders are accepted until the
close of trading on the NYSE every business day and are executed the same day,
at that day's NAV. The fund has the right to suspend redemption of shares and to
postpone payment of proceeds for up to seven days or as permitted by law.

- --------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722

Representatives are available 8:00 a.m. to 5:00 p.m. eastern time on fund
business days.


                                                             YOUR INVESTMENT | 5

<PAGE>

Timing of settlements  When you buy shares, you will become the owner of record
when the fund receives your payment, generally the day following execution. When
you sell shares, cash proceeds are generally available the day following
execution and will be forwarded according to your instructions.

When you sell shares that you recently purchased by check, your order will be
executed at the next NAV but the proceeds will not be available until your check
clears. This may take up to 15 days.

Statements and reports  The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the 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
Income dividends are typically paid four times a year. The fund typically makes
capital gains distributions, if any, once per year. However, the fund may make
more or fewer payments in a given year, depending on its investment results and
its tax compliance situation. The fund's dividends and distributions consist of
most or all of its net investment income and net realized capital gains.

Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you by check, credited to a separate account, or
invested in another J.P. Morgan Institutional Fund.

TAX CONSIDERATIONS
In general, selling shares for cash, exchanging shares, and receiving
distributions (whether reinvested or taken in cash) are all taxable events.
These transactions typically create the following tax liabilities for taxable
accounts:

- --------------------------------------------------------------------------------
 Transaction                     Tax status

 Income dividends                Ordinary income

 Short-term capital gains        Ordinary income
 distributions

 Long-term capital gains         Capital gains
 distributions

 Sales or exchanges of shares    Capital gains or losses
 owned for more than one year

 Sales or exchanges of shares    Gains are treated as ordinary
 owned for one year or less      income; losses are subject
                                 to special rules

Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when the fund is about to declare a long-term capital
gains distribution.

Every January, the fund issues tax information on its distributions for the
previous year.

Any investor for whom the 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.


6 | YOUR INVESTMENT

<PAGE>

FUND DETAILS
- --------------------------------------------------------------------------------

BUSINESS STRUCTURE
The fund is a series of J.P. Morgan Series Trust, a Massachusetts business
trust. Information about other series or classes is available by calling
1-800-766-7722. In the future, the trustees could create other series or share
classes, which would have different expenses.

MANAGEMENT AND ADMINISTRATION
The trustees of J.P. Morgan Series Trust are responsible for overseeing all
business activities of the trust and certain other funds advised by J.P. Morgan.
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               0.50% of the fund's
                                 average net assets


 Administrative services         Fund's pro-rata portion
 (fee shared with Funds          of 0.09% of the first
 Distributor, Inc.)              $7 billion in J.P. Morgan-
                                 advised portfolios, plus 0.04%
                                 of average net assets over
                                 $7 billion


 Shareholder services            0.10% 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 the fund.

Year 2000 Fund operations and shareholders could be adversely affected if the
computer systems used by J.P. Morgan, the fund's other service providers and
other entities with computer systems linked to the fund do not properly process
and calculate January 1, 2000 and after date-related information. J.P. Morgan is
working to avoid these problems and to obtain assurances from other service
providers that they are taking similar steps. However, it is not certain that
these actions will be sufficient to prevent these problems from adversely
impacting fund operations and shareholders. In addition, to the extent that
operations of issuers of securities held by the fund are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the fund will decline.

                                                             YOUR INVESTMENT | 7

<PAGE> 

RISK AND REWARD ELEMENTS
This table discusses the main elements that make up the fund's overall risk and
reward characteristics . It also outlines the fund's policies toward various
securities, including those that are designed to help the fund manage risk.

- --------------------------------------------------------------------------------
Potential risks
- --------------------------------------------------------------------------------
Market conditions
o The fund's share price and performance will fluctuate in response to stock
  market movements

o 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

Management choices
o The fund could underperform its benchmark due to its securities and asset
  allocation choices 

Foreign investments                                                      
o The fund could lose money because of foreign government actions, political
  instability, or lack of adequate and accurate information  

Derivatives
o Futures contracts(1) may not have the intended effects and may result in
  losses or missed opportunities

o The counterparty to a futures contract could default

o Futures contracts that involve leverage could magnify losses

o Futures contracts involve costs to the fund which can reduce returns

- --------------------------------------------------------------------------------
Potential rewards
- --------------------------------------------------------------------------------
o Stocks have generally outperformed more stable investments (such as bonds and
  cash equivalents) over the long term

o The fund could outperform its benchmark due to these same choices

o Foreign investments, which represent a major portion of the world's
  securities, offer attractive potential performance and opportunities for
  diversification

o The fund could make money if management's analysis proves correct

o Futures contracts allow the fund to gain equity exposure when investing in
  individual stocks is not practical

o Futures contracts that involve leverage could generate substantial gains at
  low cost

- --------------------------------------------------------------------------------
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o Under normal circumstances the fund plans to remain fully invested, with at
  least 65% in stocks; stock investments may include U.S. and foreign common
  stocks, convertible securities, preferred stocks, trust or partnership
  interests, warrants, rights, and investment company securities

o The fund seeks to limit risk through diversification

o During severe market downturns, the fund has the option of investing up to
  100% of assets in investment-grade short-term securities 

o J.P. Morgan focuses its active management on securities selection, the area
  where it believes its commitment to research can most enhance returns

o The fund anticipates that its total foreign investments will not exceed 20% of
  assets

o The fund uses futures contracts to equitize cash in order to keep the fund
  fully invested and not for speculative purposes. The fund invests in futures
  contracts on recognized security indexes

o While the fund may use futures contracts that incidentally involve leverage,
  it does not use them for the specific purpose of leveraging its portfolio

(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.


8 | FUND DETAILS


<PAGE>


- --------------------------------------------------------------------------------
Potential  risks
- --------------------------------------------------------------------------------
Illiquid holdings
o The fund could have difficulty valuing these holdings precisely
o The fund could be unable to sell these holdings at the time or price it
  desires

When-issued and delayed delivery securities
o When the fund buys securities before issue or for delayed delivery, it could
  be exposed to leverage risk if it does not use segregated accounts

Short-term trading
o Increased trading would raise the fund's brokerage and related costs
o Increased short-term capital gains distributions would raise shareholders'
  income tax liability

- --------------------------------------------------------------------------------
Potential rewards
- --------------------------------------------------------------------------------
o These holdings may offer more attractive yields or potential growth than
  comparable widely traded securities

o The fund can take advantage of attractive transaction opportunities

o The fund could realize gains in a short period of time

o The fund could protect against losses if a stock is overvalued and its value
  later falls

- --------------------------------------------------------------------------------
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o The fund may not invest more than 15% of net assets in illiquid holdings

o To maintain adequate liquidity to meet redemptions, the fund may hold
  investment-grade short-term securities (including repurchase agreements) and,
  for temporary or extraordinary purposes, may borrow from banks up to 33 1\3%
  of the value of its assets

o The fund uses segregated accounts to offset leverage risk

o The fund anticipates a portfolio turnover rate of approximately 100%

o The fund generally avoids short-term trading, except to take advantage of
  attractive or unexpected opportunities or to meet demands generated by
  shareholder activity

                                                                FUND DETAILS | 9


<PAGE>


FOR MORE INFORMATION
- --------------------------------------------------------------------------------

For investors who want more information on the fund, 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 the fund's most recently completed fiscal year or
half-year.

Statement of Additional Information (SAI)  Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.

Copies of the current versions of these documents, along with other information
about the fund, may be obtained by contacting:

J.P. Morgan Institutional Funds
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036

Telephone: 1-800-766-7722

Hearing impaired: 1-888-468-4015

Email: [email protected]

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. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
fund's investment company and 1933 Act registration numbers are: 811-07795 and
333-11125

J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION
The J.P. Morgan Institutional Funds combine a heritage of integrity and
financial leadership with comprehensive, sophisticated analysis and management
techniques. Drawing on J.P. Morgan's extensive experience and depth as an
investment manager, the J.P. Morgan Institutional Funds offer a broad array of
distinctive opportunities for mutual fund investors.


JPMorgan
- --------------------------------------------------------------------------------

J.P. Morgan Institutional Funds

Advisor                                      Distributor
J.P. Morgan Investment Management Inc.       Funds Distributor, Inc.
522 Fifth Avenue                             60 State Street
New York, NY 10036                           Boston, MA 02109
1-800-766-7722                               1-800-221-7930



<PAGE>
 
                           J.P. MORGAN SERIES TRUST



                    J.P. MORGAN INSTITUTIONAL SMARTINDEX FUND



                       STATEMENT OF ADDITIONAL INFORMATION






                                DECEMBER 31, 1998




THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED DECEMBER 31, 1998, AS SUPPLEMENTED FROM TIME TO TIME. THE
FUND'S PROSPECTUS IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., 60 STATE STREET, SUITE 1300, BOSTON, MASSACHUSETTS 02109,
ATTENTION: J.P. MORGAN SERIES TRUST (800) 221-7930.

<PAGE>


                                Table of Contents


                                                                            PAGE


GENERAL.....................................................................1
INVESTMENT OBJECTIVES AND POLICIES..........................................1
INVESTMENT RESTRICTIONS....................................................15
TRUSTEES AND OFFICERS......................................................17
INVESTMENT ADVISOR.........................................................21
DISTRIBUTOR................................................................24
CO-ADMINISTRATOR...........................................................24
SERVICES AGENT.............................................................25
CUSTODIAN AND TRANSFER AGENT...............................................25
SHAREHOLDER SERVICING......................................................26
FINANCIAL PROFESSIONALS....................................................27
INDEPENDENT ACCOUNTANTS....................................................27
EXPENSES...................................................................27
PURCHASE OF SHARES.........................................................28
REDEMPTION OF SHARES.......................................................29
EXCHANGE OF SHARES.........................................................30
DIVIDENDS AND DISTRIBUTIONS................................................30
NET ASSET VALUE............................................................30
PERFORMANCE DATA...........................................................31
PORTFOLIO TRANSACTIONS.....................................................33
MASSACHUSETTS TRUST........................................................34
DESCRIPTION OF SHARES......................................................35
TAXES......................................................................35
ADDITIONAL INFORMATION.....................................................39

<PAGE>

GENERAL

          J.P. Morgan Institutional SmartIndex Fund (the "Fund") is a series of
J.P. Morgan Series Trust, an open-end management investment company organized as
a Massachusetts business trust (the "Trust"). To date, the Trustees of the Trust
have authorized the issuance of two classes of shares--Institutional Shares and
Select Shares. The Fund currently offers Institutional Shares only.

          This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction with the
Fund's current prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings assigned to them in the Prospectus. The Trust's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.

          The Fund is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").

          Shares of the Fund are not deposits or obligations of, or guaranteed
or endorsed by any bank. Shares of the Fund are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency. An investment in the Fund is subject to risk that may cause
the value of the investment to fluctuate, and at the time it is redeemed, be
higher or lower than the amount originally invested.


INVESTMENT OBJECTIVES AND POLICIES


          The following discussion supplements the information in the Prospectus
regarding the investment objective and policies of the Fund.

          The Fund is designed for investors seeking a consistently high total
return from a broadly diversified portfolio of approximately 350 equity
securities with risk characteristics similar to the Standard & Poor's 500 Stock
Index ("S&P 500").

          The various types of securities in which the Fund may invest are
described below.


EQUITY INVESTMENTS


          The Fund invests primarily in equity securities consisting of U.S.
and, to a lesser extent, foreign common stocks and other securities with equity
characteristics which are comprised of preferred stock, warrants, rights,
convertible securities, trust certifications, limited partnership interests and
investment company securities (collectively, "Equity Securities"). The Equity
Securities in which the Fund invests may include exchange-traded,
over-the-counter ("OTC") and unlisted common and preferred stocks. A discussion
of the various types of equity investments that may be purchased by the Fund
appears below. See also "Quality and Diversification Requirements."

<PAGE>

          EQUITY SECURITIES. The Equity Securities in which the Fund 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 Fund may invest include any
debt securities or preferred stock, which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.


          The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.

COMMON STOCK WARRANTS

          The Fund may invest in common stock warrants that entitle the holder
to buy common stock from the issuer 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 prior to the expiration date.

FOREIGN INVESTMENTS

          The Fund may invest up to 20% of its total assets at the time of
purchase, in securities of foreign issuers. This 20% limit is designed to
accommodate the increased globalization of companies as well as the
re-domiciling of companies for tax treatment purposes. It is not currently
expected to be used to increase direct non-U.S. exposure.

          Investors should realize that the value of the Fund's 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 Fund's operations. Furthermore, the economies of 

<PAGE>

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 Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.

          Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities typically issued by a
U.S. financial institution (a "depository") that evidence ownership interests in
a security or a pool of securities issued by a foreign issuer and deposited with
the depository. ADRs include American Depository Shares and New York Shares.
EDRs are receipts issued by a European financial institution. GDRs (sometimes
referred to as Continental Depository Receipts ("CDRs")) are securities
typically issued by a non-U.S. financial institution that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depository, whereas an unsponsored facility may be established by a depository
without participation by the issuer of the receipt's underlying security.

          Holders of an unsponsored depository receipt generally bear all costs
of the unsponsored facility. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of the receipts with respect to the deposited securities.

ADDITIONAL INVESTMENTS

          WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund 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 no interest will accrue to the Fund until settlement takes
place. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction and
reflect the value each day of such securities in determining its net asset
value. At the time of settlement, a when-issued security may be valued at less
than the purchase price. To facilitate such acquisitions, the Fund will maintain
with the custodian a segregated account with liquid assets, consisting of cash
or other liquid assets, in an 

<PAGE>


amount at least equal to such commitments. If the
Fund chooses to dispose of the right to acquire a when-issued security prior to
its acquisition, it could (as with the disposition of any other fund obligation)
incur a gain or loss due to market fluctuation. Also, the Fund may be
disadvantaged if the other party to the transaction defaults.

          INVESTMENT COMPANY SECURITIES. Securities of other investment
companies may be acquired by the Fund to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). These limits
require that, as determined immediately after a purchase is made, (i) not more
than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
the Fund's total assets will be invested in the aggregate in securities of
investment companies as a group, and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund. As a
shareholder of another investment company, the Fund 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 the Fund bears directly in connection with its own
operations.

          REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act, a reverse repurchase agreement may be
deemed to be a borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Fund to be magnified.
The Fund will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, the Fund will enter into a reverse repurchase agreement
only when the expected return to be earned from the investment of the proceeds
is greater than the interest expense of the transaction. The Fund may not enter
into reverse repurchase agreements exceeding in the aggregate one-third of the
market value of its total assets less liabilities (other than reverse repurchase
agreements and other borrowings). See "Investment Restrictions."

          LOANS OF PORTFOLIO SECURITIES. The Fund is permitted to lend its
securities in an amount up to 33-1/3% of the value of the Fund's net assets. The
Fund may lend its securities if such loans are secured continuously by cash or
equivalent collateral or by a letter of credit in favor of the Fund at least
equal at all times to 100% of the market value of the securities loaned, plus
accrued interest. While such securities are on loan, the borrower will pay the
Fund any income accruing thereon. Loans will be subject to termination by the
Fund 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 that occurs during the term of the loan inures to the Fund
and its respective shareholders. The Fund may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Fund will consider
all facts and circumstances before entering into such an agreement, including
the creditworthiness of the borrowing financial institution, and the Fund will
not make any loans in excess of one year. The Fund will not lend 

<PAGE>

its securities
to any officer, Trustee, Director, employee or other affiliate of the Fund, the
Advisor or the Fund's distributor, unless otherwise permitted by applicable law.

          ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. The Fund may not acquire any illiquid securities if, as a result
thereof, more than 15% of its net assets would be in illiquid investments.
Subject to this non-fundamental policy limitation, the Fund may acquire
investments that are illiquid or have limited liquidity, such as certain private
placements or investments that are not registered under the Securities Act of
1933, as amended (the "1933 Act"), and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Fund. The price the Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of these securities will
reflect any limitations on their liquidity.

          As to illiquid investments, these restricted holdings are subject to
the risk that the Fund will not be able to sell them at a price the Fund deems
representative of their value. If a restricted holding must be registered under
the 1933 Act, before it may be sold, the Fund may be obligated to pay all or
part of the registration expenses. Also, a considerable period may elapse
between the time of the decision to sell and the time the Fund is permitted to
sell a holding under an effective registration statement. If during such a
period adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.

MONEY MARKET INSTRUMENTS

     Although the Fund  intends,  under normal  circumstances  and to the extent
practicable,  to be fully invested in equity securities,  the Fund may invest in
money  market  instruments  to  invest  temporary  cash  balances,  to  maintain
liquidity  to  meet  redemptions  or  as  a  defensive  measure  during,  or  in
anticipation of, adverse market  conditions.  A description of the various types
of money market instruments that may be purchased by the Fund appears below. See
"Quality and Diversification Requirements."

          U.S. TREASURY SECURITIES. The Fund may invest in direct obligations of
the U.S. Treasury, including Treasury bills, notes and bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States.

          ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, the Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate

<PAGE>

 repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credit of the issuing agency.

          BANK OBLIGATIONS. Unless otherwise noted below, the Fund 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 Fund will not invest in obligations for which the Advisor,
or any of its affiliated persons, is the ultimate obligor or accepting bank. The
Fund may also invest in obligations of international banking institutions
designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).

     Commercial Paper. The Fund may invest in commercial paper, including master
demand obligations. Master demand obligations are obligations that provide for a
periodic  adjustment  in the interest  rate paid and permit daily changes in the
amount borrowed.  Master demand  obligations are governed by agreements  between
the  issuer  and  Morgan  Guaranty  Trust  Company  of New York  ("Morgan"),  an
affiliate  of the Advisor  acting as agent,  for no  additional  fee. The monies
loaned to the borrower come from accounts  managed by Morgan or its  affiliates,
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such  accounts.  Morgan 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 Fund may invest in such unrated  obligations only if, at the time
of  investment,  the  obligation  is  determined by the Advisor to have a credit
quality  which  satisfies  the Fund's  quality  restrictions.  See  "Quality and
Diversification  Requirements." Although there is no secondary market for master
demand  obligations,  such  obligations  are considered by the Fund to be liquid
because  they are  payable  upon  demand.  The Fund  does 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. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trust's Trustees. In a repurchase agreement, the Fund buys a security from a
seller that has agreed to repurchase the same security at a mutually agreed upon
date and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for the
period of time the agreement is in effect and is not related to the coupon rate
on the underlying security. A repurchase agreement may also be viewed as a fully
collateralized loan of money by the Fund to the seller. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will the Fund 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 Fund 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 Fund in each agreement
plus accrued interest, and the Fund will make payment for such securities only
upon physical delivery or upon evidence of book entry transfer to the account of
the custodian. If the seller defaults, the Fund might incur a loss if the value
of the collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon disposal of the collateral by the Fund may be delayed or
limited.

QUALITY AND DIVERSIFICATION REQUIREMENTS

          The Fund 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 Fund: (1) the Fund may not invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities, and (2) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer. As for the
other 25% of the Fund's assets not subject to the limitation described above,
there is no limitation on investment of these assets under the 1940 Act, so that
all of such assets may be invested in securities of any one issuer. Investments
not subject to the limitations described above could involve an increased risk
to the Fund should an issuer, or a state or its related entities, be unable to
make interest or principal payments or should the market value of such
securities decline.

          The Fund 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 Fund may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time the Fund invests
in any commercial paper, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P"), the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by S&P, or if no such ratings are available, the investment must
be of comparable quality in the Advisor's opinion. At the time the Fund invests
in any other short-term debt securities, they must be rated A or higher by
Moody's or S&P, 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

          The Fund may use futures contracts and options for hedging and risk
management purposes, although it currently intends only to use futures contracts
and only for the purpose of "equitizing" cash as described below. The Fund may
not use futures contracts and options for speculation.

          The Fund intends to use futures contracts to keep the Fund fully
invested and to reduce the transaction costs associated with cash flows into and
out of the Fund. The objective where equity futures are used to "equitize" cash
is to match the notional value of all futures contracts to the Fund's cash
balance. The notional value of futures and of the cash is monitored daily. As
the cash is invested in securities and/or paid out to participants in
redemptions, the Advisor simultaneously adjusts the futures positions. Through
such procedures, the Fund not only gains equity exposure from the use of
futures, but also benefits from increased flexibility in responding to client
cash flow needs. Additionally, because it can be less expensive to trade a list
of securities as a package or program trade rather than as a group of individual
orders, futures provide a means through which transaction costs can be reduced.
Such non-hedging risk management techniques are not speculative, but because
they involve leverage include, as do all leveraged transactions, the possibility
of losses as well as gains that are greater than if these techniques involved
the purchase and sale of the securities themselves rather than their synthetic
derivatives.

          The Fund may use options and futures contracts to manage its exposure
to changing security prices. Some options and futures strategies, including
selling futures contracts and buying puts, tend to hedge the Fund's investments
against price fluctuations. Other strategies, including buying futures
contracts, writing puts and calls, and buying calls, tend to increase market
exposure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
Fund's overall strategy in a manner deemed appropriate to the Advisor and
consistent with the Fund's objective and policies. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close out.

<PAGE>

          The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Fund's return. While the use of these instruments by
the Fund may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Fund's
return. Certain strategies limit the Fund's possibilities to realize gains as
well as limiting its exposure to losses. The Fund could also experience losses
if the prices of its options and futures positions were poorly correlated with
its other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, the Fund will incur transaction costs,
including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Fund's turnover rate.

          The Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets.

OPTIONS

          PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. The Fund also may close out a put option position
by entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, the Fund will lose the entire premium it paid. If
the Fund exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If the Fund exercises an option on an
index, settlement is in cash and does not involve the actual sale of securities.
If an option is American style, it may be exercised on any day up to its
expiration date. A European style option may be exercised on its expiration
date.

          The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).

          The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument

<PAGE>

 underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.

          SELLING (WRITING) PUT AND CALL OPTIONS. When the Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Fund assumes the obligation
to pay the strike price for the instrument underlying the option if the other
party to the option chooses to exercise it. The Fund may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Fund has written, however, the Fund must continue to be prepared to
pay the strike price while the option is outstanding, regardless of price
changes, and must continue to post margin as discussed below.

          If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer also will profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.

          Writing a call option obligates the Fund to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer offsets part of the effect of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.

          The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.

          OPTIONS ON INDEXES. Options on securities indexes are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. The Fund, in purchasing or selling
index options, is subject to the risk that the value of its portfolio securities
may not change as much as an index because the Fund's investments generally will
not match the composition of an index.

<PAGE>

          For a number of reasons, a liquid market may not exist and thus the
Fund may not be able to close out an option position into which it has
previously entered. When the Fund purchases an OTC option (as defined below), it
will be relying on its counterparty to perform its obligations, and the Fund may
incur additional losses if the counterparty is unable to perform.

          EXCHANGE TRADED AND OTC OPTIONS. All options purchased or sold by the
Funds will be traded on a securities exchange or will be purchased or sold by
securities dealers ("OTC options") that meet creditworthiness standards approved
by the Board of Trustees. While exchange traded options are obligations of the
Options Clearing Corporation, in the case of OTC options, the Fund relies on the
dealer from which it purchased the option to perform if the option is exercised.
Thus, when the Fund purchases an OTC option, it relies on the dealer from which
it purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.

          Provided that the Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, the Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.

          FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may
purchase or sell (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. In addition, the
Fund may sell (write) put and call options, including options on futures.
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 an

<PAGE>

d any additional collateral required on any options on
futures contracts sold by the Fund are paid by the Fund into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the interpretations of the Securities and Exchange Commission ("SEC")
thereunder.

          COMBINED POSITIONS. The Fund is permitted to purchase and write
options in combination with other series of the Trust, or in combination with
futures or forward contracts, to adjust the risk and return characteristics of
the overall position. For example, the Fund may purchase a put option and write
a call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to selling a
futures contract. Another possible combined position would involve writing a
call option at one strike price and buying a call option at a lower price, in
order to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.

          CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the Fund's
current or anticipated investments exactly. The Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.

          Options and futures contracts prices also can diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures contracts prices are affected by
such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation also may result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.

          LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation

<PAGE>

limit is reached or a trading halt is imposed, it may be impossible for the Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions also could be impaired.
See "Exchange Traded and OTC Options" above for a discussion of the liquidity of
options not traded on an exchange.

          POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Fund or the Advisor may be required
to reduce the size of its futures and options positions or may not be able to
trade a certain futures or options contract in order to avoid exceeding such
limits.

          ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. Although
the Fund will not be commodity pools, certain derivatives subject the Fund to
the rules of the Commodity Futures Trading Commission which limit the extent to
which the Fund can invest in such derivatives. The Fund may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, the Fund may not invest in such contracts and options for other
purposes if the sum of the amount of initial margin deposits and premiums paid
for unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of the Fund's assets,
after taking into account unrealized profits and unrealized losses on such
contracts and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.

SWAPS AND RELATED SWAP PRODUCTS

          The Fund may engage in swap transactions, including, but not limited
to, interest rate, currency, securities index, basket, specific security and
commodity swaps, interest rate caps, floors and collars and options on interest
rate swaps (collectively defined as "swap transactions").

          The Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date, or to gain exposure
to certain matters in the most economical way possible. The Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that the 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 

<PAGE>

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 specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchase of an option on an interest rate swap, upon payment of a fee
(either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.

          The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., three month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by the Fund, payments by the
parties will be exchanged on a "net basis," and the Fund will receive or pay, as
the case may be, only the net amount of the two payments.

          The amount of the Fund's potential gain or loss on any swap
transaction is not subject to any fixed limit. Nor is there any fixed limit on
the Fund's potential loss if it sells a cap or collar. If the Fund buys a cap,
floor, or collar, however, the Fund's potential loss is limited to the amount of
the fee that it has paid. When measured against the initial amount of cash
required to initiate the transaction, which is typically zero in the case of
most conventional swap transactions, swaps, caps, floors and collars tend to be
more volatile than many other types of instruments.

          The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of the Fund will be less favorable than if these techniques had not
been used. These instruments typically are not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its 

<PAGE>

obligations to the Fund or that the Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to the Fund.

          The Advisor will, however, consider such risks and will enter into
swap and other derivative transactions only when it believes that the risks are
not unreasonable.

          The Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If the Fund
enters into a swap agreement on a net basis, it will segregate assets with daily
value at least equal to the excess, if any, of the Fund's accrued obligations
under the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than a
net basis, or sells a cap, floor or collar, it will segregate assets with a
daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.

          The Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, the Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents using standardized swap documentation. As a result, the
markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.

          The liquidity of swap transactions, caps, floors and collars will be
as set forth in guidelines established by the Advisor and approved by the
Trustees which are based on various factors, including (1) the availability of
dealer quotations and the estimated transaction volume for the instrument, (2)
the number of dealers and end users for the instrument in the marketplace, (3)
the level of market making by dealers in the type of instrument, (4) the nature
of the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset the Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.

          During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, the Fund will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.

          The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which the Fund
may engage in such transactions.

<PAGE>

INVESTMENT RESTRICTIONS

          The investment restrictions set forth below have been adopted by the
Trust with respect to the Fund. Except as 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. 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 purchasing securities to the market value of the Fund's assets.

          The Fund:

          1. May not make any investments inconsistent with the Fund's
classification as a diversified investment company under the 1940 Act;

          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 1940
Act 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 futures contracts on indices of securities, interest rates and
currencies), warrants, 

<PAGE>

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  objectives  and policies and to the extent  permitted by  applicable
law.

          NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Fund and may be changed by
the Trustees. These non-fundamental investment policies require that the Fund:

          (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 acquire securities of other investment companies, except
as permitted by the 1940 Act or any order pursuant thereto; and

          (iii) 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.

          If any percentage restriction described above is adhered to at the
time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of the Fund's assets will not constitute a
violation of the restriction.

          For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.

<PAGE>

TRUSTEES AND OFFICERS

TRUSTEES

          The Trustees of the Trust, their principal occupations during the past
five years, business addresses and dates of birth are set forth below.

          FREDERICK S. ADDY-Trustee; Retired; Prior to April 1994, Executive
Vice President and Chief Financial Officer, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1,
1932.

          WILLIAM G. BURNS-Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and 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 address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.

          MATTHEW HEALEY(1)-Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.

- -----------------
(1)  Mr. Healy is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.

          MICHAEL P. MILLARDI-Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.

          Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P.
Morgan Institutional Funds and J.P. Morgan Funds 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, 1997 is set forth below.

<TABLE>
<CAPTION>
                                                            TOTAL TRUSTEE COMPENSATION
                                                               ACCRUED BY THE MASTER
                                                            PORTFOLIOS(*), J.P. MORGAN
                                 AGGREGATE TRUSTEE           INSTITUTIONAL FUNDS, J.P.
                              COMPENSATION PAID BY THE      MORGAN FUNDS AND THE TRUST
NAME OF TRUSTEE AND TITLE        TRUST DURING 1997                DURING 1997(**)

<PAGE>

<S>                                 <C>                              <C>    
Frederick S. Addy,                  $90.92                           $72,500
Trustee

William G. Burns,                   $90.92                           $72,500
Trustee

Arthur C. Eschenlauer,              $90.92                           $72,500
Trustee

Matthew Healey,                     $90.92                           $72,500
Trustee (***)
Chairman and Chief
Executive  Officer

Michael P. Mallardi,                $90.92                           $72,500
Trustee
</TABLE>


          (*) The J.P. Morgan Funds and J.P. Morgan Institutional Funds are each
multi-series registered investment companies that are part of a two-tier
(master-feeder) investment fund structure. Each series of the J.P. Morgan Funds
and J.P. Morgan Institutional Funds is a feeder fund that invests all of its
investable assets in one of 15 registered investment companies comprised of 22
separate master portfolios (collectively, the "Master Portfolios").

          (**) No investment company within the fund complex has a pension or
retirement plan.

          (***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role
as Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $21,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.

          The Trustees decide upon general policies and are responsible for
overseeing the Trust's business affairs. The Trust has entered into a Fund
Services Agreement with Pierpont Group, Inc. to assist the Trustees in
exercising their overall supervisory responsibilities over the affairs of the
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 has agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services to the Trust and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.

OFFICERS

          The Trust's executive officers (listed below), other than the Chief
Executive Officer and the officers who are employees of the Advisor, are
provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. The Chief Executive
Officer receives no compensation in his capacity as an officer

<PAGE>

 of the Trust. The
officers conduct and supervise the business operations of the Trust. The Trust
has no employees.

          The officers of the Trust, their principal occupations during the past
five years and dates of birth are set forth below. 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-Vice President and Secretary. Senior Vice
President and General Counsel of FDI since April, 1998. From August 1996 to
March 1998, Ms. Chambers was Vice President and Assistant General Counsel for
Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an
associate with the law firm of Ropes & Gray. Her date of birth is October 12,
1959.

          MARIE E. CONNOLLY-Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual"), and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.

          DOUGLAS C. CONROY-Vice President and Assistant Treasurer. Assistant
Vice President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.

          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. Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston
Company Advisors, Inc. ("TBCA"). 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. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.

<PAGE>

          KATHLEEN K. MORRISEY-Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant for Investors Bank & Trust Company.
Prior to July 1994 she was a finance student at Stonehill College. Her date of
birth is July 5, 1972.

          MARY A. NELSON-Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual
and an officer of certain investment companies distributed or administered by
FDI. Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.

          MARY JO PACE-Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Pace serves in the Funds Administration group as
a Manager for the Budgeting and Expense Processing Group. Prior to September
1995, Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company
of New York. Her address is 60 Wall Street, New York, New York 10260. Her date
of birth is March 13, 1966.

          MICHAEL S. PETRUCELLI-Vice President and Assistant Secretary. Senior
Vice President and Director of Strategic Client Initiatives for FDI since
December 1996. From December 1989 through November 1996, Mr. Petrucelli was
employed with GE Investments where he held various financial, business
development and compliance positions. He also served as Treasurer of the GE
Funds and as Director of GE Investment Services. His address is 200 Park Avenue,
New York, New York, 10166. His date of birth is May 18, 1961.

          STEPHANIE D. PIERCE-Vice President and Assistant Secretary. Vice
President and Client Development Manager for FDI since April 1998. From April
1997 to March 1998, Ms. Pierce was employed by Citibank, NA as an officer of
Citibank and Relationship Manager on the Business and Professional Banking team
handling over 22,000 clients. From August 1995 to April 1997, she was an
Assistant Vice President with Hudson Valley Bank, and from September 1990 to
August 1995, she was a Second Vice President with Chase Manhattan Bank. Her
address is 200 Park Avenue, New York, New York 10166. Her date of birth is
August 18, 1968.

          GEORGE A. RIO-President and Assistant Treasurer. Executive Vice
President and Client Service Director of FDI since April 1998. From June 1995 to
March 1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for
Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was Director of
Business Development for First Data Corporation. From September 1983 to May
1994, Mr. Rio was Senior Vice President & Manager of Client Services and
Director of Internal Audit at The Boston Company. His date of birth is January
2, 1955.

<PAGE>

          CHRISTINE ROTUNDO-Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Rotundo serves in the Funds Administration group
as a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.

INVESTMENT ADVISOR

          The Trust has retained JPMIM as Investment Advisor to provide
investment advice and portfolio management services to the Fund. Subject to the
supervision of the Fund's Trustees, the Advisor makes the Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments.

          JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.

          J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of more than $275 billion.

          J.P. Morgan has a long history of service as an advisor, underwriter
and lender to an extensive roster of major companies and as a financial advisor
to national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.

          The basis of the Advisor's investment process is fundamental
investment research because the firm believes that fundamentals should determine
an asset's value over the long term. The Advisor currently employs over 100
full-time research analysts, among the largest research staffs in the money
management industry, in its investment management divisions located in New York,
London, Tokyo, Frankfurt and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research are quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for two to five years to
enable analysts to take a longer term view. These returns, or normalized
earnings, are used to establish relative values among stocks in each industrial
sector. These values may not be the same as the markets' current valuations of
these companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles

<PAGE>

 or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector.

          The investment advisory services the Advisor provides to the Fund are
not exclusive under the terms of the Investment Advisory Agreement. The Advisor
is free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Fund. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Fund. See
"Portfolio Transactions."

          Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Fund is the S&P 500 Index.

          Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.

          The Fund is managed by officers of the Advisor who, in acting for
their clients, including the Fund, do not discuss their investment decisions
with any personnel of J.P. Morgan or any personnel of other divisions of J.P.
Morgan or with any of its affiliated persons, with the exception of certain
investment management affiliates of J.P. Morgan.

          As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Fund has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to 0.25% of the Fund's average daily net
assets.

          The Investment Advisory Agreement between the Advisor and the Trust,
on behalf of the Fund, provides that it will continue in effect for a period of
two years after execution only if specifically approved thereafter annually in
the same manner as the Distribution Agreement. See "Distributor" below. The
Investment Advisory Agreement will terminate automatically if assigned and is
terminable at any time with respect to the Fund without penalty by a vote of a
majority of the Trust's Trustees or by a vote of the holders of a

<PAGE>

majority of
the Fund's outstanding voting securities on 60 days' written notice to the
Advisor and by the Advisor on 90 days' written notice to the Fund. See
"Additional Information."

          The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities. The Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company that continuously issues
shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor,
administrator, shareholder servicing agent or custodian to such an investment
company. The Advisor believes that it may perform the services for the Fund
contemplated by the Investment Advisory Agreement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the Fund.

          If the Advisor were prohibited from acting as investment advisor to
the Fund, it is expected that the Trustees of the Trust would recommend to
shareholders that they approve the Fund's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.

          Under separate agreements, Morgan provides certain financial, fund
accounting, administrative and shareholder services to the Trust. See "Services
Agent" and "Shareholder Servicing" below.

DISTRIBUTOR

          FDI serves as the Trust's exclusive distributor and holds itself
available to receive purchase orders for the Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of the Fund's shares in accordance with the terms of the
Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Fund's distributor.

          The Distribution Agreement will continue in effect with respect to the
Fund for a period of two years after execution and will continue thereafter only
if it is approved at least annually (i) by a vote of the holders of a majority
of the Fund's outstanding voting securities 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

<PAGE>

 at a meeting called for the purpose of voting on such approval (see
"Trustees and Officers"). The Distribution Agreement will terminate
automatically if assigned by either party. The Distribution Agreement is also
terminable with respect to the Fund 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 (i) 67% or more of
the Fund's outstanding voting securities present at a meeting if the holders of
more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (ii) more than 50% of the Fund's outstanding voting
securities, whichever is less. FDI is a wholly owned indirect subsidiary of
Boston Institutional Group, Inc. The principal offices of FDI are located at 60
State Street, Suite 1300, Boston, Massachusetts 02109.

CO-ADMINISTRATOR

          Under a Co-Administration Agreement with the Trust, FDI also serves as
the Trust's Co-Administrator. The Co-Administration Agreement may be renewed or
amended by the Trustees without a shareholder vote. The Co-Administration
Agreement is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust 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
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 Fund; (ii) provides
officers for the Trust; (iii) prepares and files documents required for
notification of state securities administrators; (iv) reviews and files
marketing and sales literature; (v) files regulatory documents and mails
communications to Trustees and investors; and (vi) maintains related books and
records.

          For its services under the Co-Administration Agreement, the Fund has
agreed to pay FDI fees equal to its allocable share of an annual complex-wide
charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to
the Fund is based on the ratio of the Fund's net assets to the aggregate net
assets of the Trust and certain other registered investment companies subject to
similar arrangements with FDI.

SERVICES AGENT

          The Trust, on behalf of the Fund, has entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan pursuant to which
Morgan is responsible for certain administrative and related services provided
to the Fund. The Services Agreement 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.

<PAGE>

          Under the Services Agreement, Morgan provides certain administrative
and related services to the Fund, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustee matters.

          Under the Services Agreement, the Fund has agreed to pay Morgan fees
equal to its allocable share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Fund, the Trust's
other series and the Master Portfolios in accordance with the following annual
schedule: 0.09% of the first $7 billion of their aggregate average daily net
assets, and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund is determined by the proportionate share that its net assets
bear to the total net assets of the Trust and the other investment companies
provided administrative services by Morgan.

CUSTODIAN AND TRANSFER AGENT

          State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's custodian and fund
accounting, transfer and dividend disbursing agent. Pursuant to the Custodian
Contract with the Trust, State Street is responsible for maintaining the books
and records of the Fund's portfolio transactions and for holding portfolio
securities and cash. The custodian maintains portfolio transaction records. As
transfer agent and dividend disbursing agent, State Street is responsible for
maintaining account records detailing the ownership of Fund shares and for
crediting income, capital gains and other changes in share ownership to
shareholder accounts.

SHAREHOLDER SERVICING

          The Trust, on behalf of the Fund, has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for Fund shareholders. Under this agreement, Morgan is
responsible for performing, directly or through an agent, shareholder account
administrative and servicing functions, which include but are not limited to
answering inquiries regarding account status and history, the manner in which
purchases and redemptions of Fund shares may be effected, and certain other
matters pertaining to the Fund; assisting customers in designating and changing
dividend options, account designations and addresses; providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Fund's transfer agent; transmitting
purchase and redemption orders to the Fund's transfer agent and arranging for
the wiring or other transfer of funds to and from customer accounts in
connection with orders to purchase or redeem Fund shares; verifying purchase and
redemption orders, transfers among and changes in accounts; informing FDI of the
gross amount of purchase orders for Fund shares; and providing other related
services.

          Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee of 0.10% (expressed as a percentage of the
average daily net asset value

<PAGE>

 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.

          As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and for providing administrative services to the Fund under the Services
Agreement, and JPMIM in acting as Advisor to the Fund under the Investment
Advisory Agreement may raise issues under these laws. However, Morgan and JPMIM
believe that they may properly perform these services and the other activities
described in the Prospectuses without violating the Glass-Steagall Act or other
applicable banking laws or regulations.

          If Morgan were prohibited from providing any of the services under the
Shareholder Servicing and the Services Agreements, the Trustees would seek an
alternative provider of such services. In such event, changes in the operation
of the Fund might occur and a shareholder might no longer be able to avail
himself or herself of any services then being provided to shareholders by
Morgan.

          The Fund may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.

FINANCIAL PROFESSIONALS

          The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as J.P. Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.

          Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary

<PAGE>

 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.

          The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, it 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 are PricewaterhouseCoopers
LLP. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Fund, assists in the preparation and/or review of the Fund's
federal and state income tax returns and consults with the Fund 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 Officers,"
"Investment Advisor," "Co-Administrator", "Distributor", "Services Agent" and
"Shareholder Servicing" above, the Fund is responsible for usual and customary
expenses associated with the Trust's operations. Such expenses include
organization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, registration fees under
federal securities laws, extraordinary expenses, transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, notices
and proxy statements to Fund shareholders, fees under state securities laws,
custodian fees and brokerage expenses.

PURCHASE OF SHARES

          ADDITIONAL MINIMUM BALANCE INFORMATION. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), the Fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the Fund reserves the right to close out your account and
send the proceeds to the address of record.

          METHOD OF PURCHASE. Investors may open accounts with the 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 Fund

<PAGE>

 reserves the right to determine the purchase orders that
they will accept.

          References in the Prospectus and this Statement of Additional
Information to customers of J.P. Morgan or a financial professional include
customers of their affiliates, and references to transactions by customers with
J.P. Morgan or a financial professional include transactions with their
affiliates. Only Fund investors who are using the services of a financial
institution acting as shareholder servicing agent pursuant to an agreement with
the Trust on behalf of the Fund may make transactions in shares of the Fund.

          The Fund may, at its own option, accept securities in payment for
shares. The securities so delivered are valued by the method described under
"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. In addition, securities accepted in payment for shares
must: (i) meet the investment objective and policies of the Fund; (ii) be
acquired by the Fund for investment and not for resale; (iii) be liquid
securities which are not restricted as to transfer; and (iv) if stock, have a
value which is readily ascertainable as evidenced by a listing on a stock
exchange, OTC market or by readily available market quotations from a dealer in
such securities. The Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

          Prospective investors may purchase shares with the assistance of a
financial professional and the financial professional may charge the investor a
fee for this service and other services it provides to its customers. J.P.
Morgan may pay fees to financial professionals for services in connection with
fund investments. See "Financial Professionals" above.

REDEMPTION OF SHARES

          Investors may redeem shares of the Fund as described in the
Prospectus. The Fund generally intends to pay redemption proceeds in cash;
however, it reserves the right at its sole discretion to pay redemptions over
$250,000 in-kind as a portfolio of representative stocks rather than cash. See
below and "Exchange of Shares."

          The Trust, on behalf of the Fund, reserves 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 thereon
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 Fund 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.

          If the Trust determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, payment of the

<PAGE>

redemption price may be made in whole or in part
by a distribution in kind of securities from the Fund, in lieu of cash. If
shares are redeemed in-kind, the redeeming shareholder might incur costs in
converting the assets into cash. The Trust is in the process of seeking
exemptive relief from the SEC with respect to redemptions in-kind by the Fund.
If the requested relief is granted, the Fund would then be permitted to pay
redemptions to greater than 5% shareholders in securities, rather than in cash,
to the extent permitted by the SEC and applicable law. 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.

          In general, the Fund will attempt to select securities for in-kind
redemptions that approximate the overall characteristics of the Fund's
portfolio. The Fund will not distribute illiquid securities to satisfy in-kind
redemptions. For purposes of effecting in-kind redemptions, securities will be
valued in the manner regularly used to value the Fund's portfolio securities.
The Fund will not redeem its shares in-kind in a manner that after giving effect
to the redemption would cause it to violate its investment restrictions or
policies.

          OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not
be processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless the Fund has received the
shareholder's certified taxpayer identification number and address. In addition,
if shares were paid for by check and the check has not yet cleared, redemption
proceeds will not be transmitted until the check has cleared, which may take up
to 15 days. The Fund reserves the right to suspend the right of redemption or
postpone the payment of redemption proceeds to the extent permitted by the SEC.
Shareholders may realize taxable gains upon redeeming shares.

          For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.

EXCHANGE OF SHARES

          Subject to the limitations below, an investor may exchange shares from
the Fund into 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. See "Redemption of Shares."
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. Shares of a fund to be acquired are purchased for settlement when the
proceeds from redemption become available. In the case of investors in certain
states, state securities laws may

<PAGE>

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

          The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.

          Dividends and capital gains distributions paid by the Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.

          If a shareholder has elected to receive dividends and/or capital gains
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.

NET ASSET VALUE

          The Fund computes its net asset value separately for each class of
shares outstanding once daily as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m. eastern time) on each business day as described in
the Prospectus. The net asset value will not be computed on the day the
following legal holidays are observed: New Year's Day, Martin Luther King Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. On days when U.S. trading markets close
early in observance of these holidays, the Fund will close for purchases and
redemptions at the same time. The Fund also may close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. The days on which net asset value is
determined are the Fund's business days.

          Portfolio securities are valued at the last sale price on the
securities exchange or national securities market on which such securities are
primarily traded. Unlisted securities are valued at the last average of the
quoted bid and asked prices in the OTC market. 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 average
currency exchange rate on the valuation date.

          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

<PAGE>

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 Fund was more than
60 days, unless this is determined not to represent fair value by the Trustees.

          Trading in securities in most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.

PERFORMANCE DATA

          From time to time, the Fund may quote performance in terms of actual
distributions, total return or capital appreciation for the various Fund classes
in reports, sales literature and advertisements published by the Trust. Current
performance information may be obtained by calling Morgan at (800) 766-7722.

          The classes of shares of the Fund may bear different shareholder
servicing fees and other expenses, which may cause the performance of a class to
differ from the performance of another class. Performance quotations will be
computed separately for each class of the Fund's shares. Any fees charged by an
institution directly to its customers' accounts in connection with investments
in the Funds will not be included in calculations of total return.

          TOTAL RETURN QUOTATIONS. As required by regulations of the SEC,
average annual total return of each class of shares of the Fund for a period is
computed by assuming a hypothetical initial payment of $1,000. It is then
assumed that all of the dividends and distributions by the Fund over the period
are reinvested. It is then assumed that at the end of the period, the entire
amount is redeemed. The average annual 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, also may be calculated.

          GENERAL. Performance will vary from time to time depending upon market
conditions, the composition of the portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide

<PAGE>

a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.

          Comparative performance information may be used from time to time in
advertising the Fund's 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 Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, qualified retirement plans and individual stocks and bonds), which
may or may not include the Fund; (7) comparisons of investment products
(including the Fund) with relevant markets or industry indices or other
appropriate benchmarks; (8) discussions of Fund rankings or ratings by
recognized rating organizations; and (9) discussions of various statistical
methods quantifying the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of the Fund.

PORTFOLIO TRANSACTIONS

          The Advisor places orders for the Fund for all purchases and sales of
portfolio securities, enters into repurchase agreements and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Fund. See "Investment Objectives and Policies."

          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 broker's
financial condition; and the commissions charged. A

<PAGE>

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 Trust's Trustees review regularly the
reasonableness of commissions and other transaction costs incurred by the Fund
in light of facts and circumstances deemed relevant from time to time and, in
that connection, will receive reports from Morgan 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 of the Advisor's clients and not solely or necessarily for the
benefit of the Fund. The Advisor believes that the value of research services
received is not determinable and does not significantly reduce its expenses. The
Fund does not reduce its fee to the Advisor by any amount that might be
attributable to the value of such services.

          Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of the Fund's brokerage transactions
to affiliates of the Advisor. In order for affiliates of the Advisor to effect
any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by such affiliates must be reasonable and fair compared to
the commissions, fees, or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time. Furthermore,
the Trust's Trustees, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.

          Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid. The Advisor intends to seek best execution on a competitive basis for both
purchases and sales of securities.

          Portfolio securities will not be purchased from or through or sold to
or through the Advisor or FDI or any "affiliated person" (as defined in the 1940
Act) thereof when such entities are acting as principals, except to the extent
permitted by law. In addition, the Fund will not purchase securities from any
underwriting group of which the Advisor or an affiliate of the Advisor is a
member, except to the extent permitted by law.

<PAGE>

          Investment decisions made by the Advisor are the product of many
factors in addition to basic suitability for the Fund or other client in
question. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more other clients are selling the same security. The Fund only may sell
a security to another series of the Trust or to other accounts managed by the
Advisor or its affiliates in accordance with procedures adopted by the Trustees.

          It also sometimes happens that two or more clients simultaneously
purchase or sell the same security. On those occasions when the Advisor deems
the purchase or sale of a security to be in the best interests of the Fund, as
well as other clients including other clients, the Advisor to the extent
permitted by applicable laws and regulations, may, but is not obligated to,
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other clients in order to obtain best execution, including
lower brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Advisor in the manner it considers to be most
equitable and consistent with the Advisor's fiduciary obligations to the Fund.
In some instances, this procedure might adversely affect the Fund.

MASSACHUSETTS TRUST

          The Trust is a "Massachusetts business trust" of which the Fund is a
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will not be subject to any personal liability for the acts or obligations of the
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of the Fund will contain a provision to the effect that the
shareholders are not personally liable thereunder.

          The Trust's Declaration of Trust further provides that no Trustee,
officer, employee or agent of the Trust is liable to the Fund or to a
shareholder, and that no Trustee, officer, employee or agent is liable to any
third persons in connection with the affairs of the Fund, except as such
liability may arise from his or its own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or its duties to such third persons
("disabling conduct"). It also provides that all third persons must look solely
to Fund property for satisfaction of claims arising in connection with the
affairs of the Fund. The Trust's Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund, except liabilities arising from
disabling conduct.

DESCRIPTION OF SHARES

          The Fund represents a separate series of shares of beneficial interest
of the Trust. Fund shares are further divided into separate classes. 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
without changing the proportionate beneficial interest of each shareholder in
the Fund. To date, the Fund is authorized to issue Institutional Shares and
Select Shares, but only Institutional Shares are currently offered.

<PAGE>

          Each share represents an equal proportional interest in the Fund with
each other share of the same class. Upon liquidation of the Fund, holders are
entitled to share pro rata in the net assets of the Fund available for
distribution to such shareholders. Shares of the Fund have no preemptive or
conversion rights.

          The shareholders of the Trust are entitled to one full or fractional
vote for each dollar or fraction of a dollar invested in shares. Subject to the
1940 Act, the Trustees 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 to appoint their
own successors. However, immediately after such appointment, the requisite
majority of the Trustees must have been elected by the shareholders of the
Trust. The voting rights of shareholders are not cumulative. The Trust does not
intend to hold annual meetings of shareholders. The Trustees may call meetings
of shareholders for action by shareholder vote if 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 shareholders whose shares represent two-thirds of the net
asset value of the Trust, 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
shareholders whose shares represent 10% of the net asset value of the Trust. The
Trustees also are required, under certain circumstances, to assist shareholders
in communicating with other shareholders.

TAXES

          The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of the Prospectuses. These laws and regulations
are subject to change by legislative or administrative action.

          The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock or securities and
other income (including but not limited to gains from options and futures
contracts) derived with respect to its business of investing in such stock or
securities; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of the Fund's total assets is represented
by cash, 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 the securities of other regulated investment
companies).

          As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it

<PAGE>

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 requirements. If the Fund does not
qualify as a regulated investment company, it will be treated for tax purposes
as an ordinary corporation subject to federal income tax.

          Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.

          For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends will
generally be taxable to a shareholder in the year declared rather than the year
paid.

          Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss is generally taxable to
shareholders of the Fund as ordinary income whether such distributions are taken
in cash or reinvested in additional shares. The Fund expects that a portion of
these distributions to corporate shareholders will be eligible for the
dividends-received deduction, subject to applicable limitations under the Code.
If dividend payments exceed income earned by the Fund, the overdistribution
would be considered a return of capital rather than a dividend payment. The Fund
intends to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of the 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 reduced
rate of tax. Investors should consult their tax advisors concerning the
treatment of capital gains and losses.

          Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or the straddle rules described below are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.

<PAGE>

          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.

          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. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, no loss will be allowed on the redemption or exchange
of shares of the Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.

          Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time a Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time a
Portfolio actually collects such income or pays such liabilities, are generally
treated as ordinary income or ordinary loss. Similarly, gains or losses on the
disposition of debt securities held by a Portfolio, if any, denominated in
foreign currency, to the extent attributable to fluctuations in exchange rates
between the acquisition and disposition dates are also treated as ordinary
income or loss.

          Forward currency contracts, options and futures contracts entered into
by a Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.

          Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.

          The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income

<PAGE>

tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.

          The Portfolios will be permitted to "mark to market" any marketable
stock held by a Portfolio in a PFIC. If a Portfolio made such an election, the
corresponding Fund would include in income each year an amount equal to its
share of the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the adjusted basis of such stock. The Fund
would be allowed a deduction for its share of the excess, if any, of the
adjusted basis of the PFIC stock over its fair market value as of the close of
the taxable year, but only to the extent of any net mark-to-market gains with
respect to the stock included by the Fund for prior taxable years.

          If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.

          FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.

          In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the 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 from the proceeds of redemptions, exchanges or other
dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by gift
of shares of the 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.

          STATE AND LOCAL TAXES. The Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of the

<PAGE>

Fund and its shareholders in those states that have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.

          OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code.

ADDITIONAL INFORMATION

          Telephone calls to the Fund, J.P. Morgan or State Street 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. Pursuant to
the rules and regulations of the SEC, certain portions have been omitted. The
registration statement, 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 FDI. The Prospectus and this Statement of Additional
Information do not constitute an offer by the Fund or by FDI 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 FDI to make such offer in such
jurisdictions.

 THE YEAR 2000 INITIATIVE

          With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always "19." As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss and/or legal
liability.

<PAGE>

          J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.

          Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund.

<PAGE>



                            J.P. MORGAN SERIES TRUST


                  J.P. MORGAN INSTITUTIONAL MARKET NEUTRAL FUND


                       STATEMENT OF ADDITIONAL INFORMATION





                                DECEMBER 31, 1998



THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED DECEMBER 31, 1998, AS SUPPLEMENTED FROM TIME TO TIME. THE
FUND'S PROSPECTUS IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., 60 STATE STREET, SUITE 1300, BOSTON, MASSACHUSETTS 02109,
ATTENTION: J.P. MORGAN SERIES TRUST (800) 221-7930.

<PAGE>

                                Table of Contents

                                                                          PAGE

GENERAL--------------------------------------------------------------------1
INVESTMENT OBJECTIVES AND POLICIES-----------------------------------------1
INVESTMENT RESTRICTIONS---------------------------------------------------16
TRUSTEES AND OFFICERS-----------------------------------------------------18
INVESTMENT ADVISOR--------------------------------------------------------22
DISTRIBUTOR---------------------------------------------------------------25
CO-ADMINISTRATOR----------------------------------------------------------25
SERVICES AGENT------------------------------------------------------------26
CUSTODIAN AND TRANSFER AGENT----------------------------------------------26
SHAREHOLDER SERVICING-----------------------------------------------------27
FINANCIAL PROFESSIONALS---------------------------------------------------28
INDEPENDENT ACCOUNTANTS---------------------------------------------------28
EXPENSES------------------------------------------------------------------28
PURCHASE OF SHARES--------------------------------------------------------29
REDEMPTION OF SHARES------------------------------------------------------30
EXCHANGE OF SHARES--------------------------------------------------------31
DIVIDENDS AND DISTRIBUTIONS-----------------------------------------------31
NET ASSET VALUE-----------------------------------------------------------31
PERFORMANCE DATA----------------------------------------------------------32
PORTFOLIO TRANSACTIONS----------------------------------------------------34
MASSACHUSETTS TRUST-------------------------------------------------------35
DESCRIPTION OF SHARES-----------------------------------------------------36
TAXES---------------------------------------------------------------------36
ADDITIONAL INFORMATION----------------------------------------------------40


<PAGE>

GENERAL

          J.P. Morgan Institutional Market Neutral Fund (the "Fund") is a series
of J.P. Morgan Series Trust, an open-end management investment company organized
as a Massachusetts business trust (the "Trust"). To date, the Trustees of the
Trust have authorized the issuance of two classes of shares--Institutional
Shares and Select Shares. The Fund currently offers Institutional Shares only.

          This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction with the
Fund's current prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings assigned to them in the Prospectus. The Trust's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.

          The Fund is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").

          Shares of the Fund are not deposits or obligations of, or guaranteed
or endorsed by any bank. Shares of the Fund are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency. An investment in the Fund is subject to risk that may cause
the value of the investment to fluctuate, and at the time it is redeemed, be
higher or lower than the amount originally invested.

INVESTMENT OBJECTIVES AND POLICIES

          The following discussion supplements the information in the Prospectus
regarding the investment objective and policies of the Fund.

          The Fund is designed for investors seeking long term capital
appreciation, while seeking to neutralize the risks of stock market investing.

          The various types of securities in which the Fund may invest are
described below.

EQUITY INVESTMENTS

          The Fund invests primarily in equity securities consisting of U.S.
and, to a lesser extent, foreign common stocks and other securities with equity
characteristics which are comprised of preferred stock, warrants, rights,
convertible securities, trust certifications, limited partnership interests and
investment company securities (collectively, "Equity Securities"). The Equity
Securities in which the Fund invests may include exchange-traded,
over-the-counter ("OTC") and unlisted common and preferred stocks. A discussion
of the various types of equity investments that may be purchased by the Fund
appears below. See also "Quality and Diversification Requirements."

<PAGE>

          EQUITY SECURITIES. The Equity Securities in which the Fund 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 Fund may invest include any
debt securities or preferred stock, which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.

          The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.

COMMON STOCK WARRANTS

          The Fund may invest in common stock warrants that entitle the holder
to buy common stock from the issuer 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 prior to the expiration date.

FOREIGN INVESTMENTS

          The Fund may invest up to 20% of its total assets at the time of
purchase, in securities of foreign issuers. This 20% limit is designed to
accommodate the increased globalization of companies as well as the
re-domiciling of companies for tax treatment purposes. It is not currently
expected to be used to increase direct non-U.S. exposure.

          Investors should realize that the value of the Fund's 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 Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably,

<PAGE>

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 Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.

          Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities typically issued by a
U.S. financial institution (a "depository") that evidence ownership interests in
a security or a pool of securities issued by a foreign issuer and deposited with
the depository. ADRs include American Depository Shares and New York Shares.
EDRs are receipts issued by a European financial institution. GDRs (sometimes
referred to as Continental Depository Receipts ("CDRs")) are securities
typically issued by a non-U.S. financial institution that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depository, whereas an unsponsored facility may be established by a depository
without participation by the issuer of the receipt's underlying security.

          Holders of an unsponsored depository receipt generally bear all costs
of the unsponsored facility. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of the receipts with respect to the deposited securities.

SHORT SELLING

          The Fund will engage heavily in short selling. In these transactions,
the Fund sells a security it does not own in anticipation of a decline in the
market value of the security. To complete the transaction, the Fund must borrow
the security to make delivery to the buyer. The Fund is obligated to replace the
security borrowed by purchasing it subsequently at the market price at the time
of replacement. The price at such time may be more or less than the price at
which the security was sold by the Fund, which may result in a loss or gain,
respectively. Unlike purchasing a stock, where potential losses are limited to
the purchase price, short sales have no cap on maximum losses, and gains are
limited to the price of the stock at the time of the short sale.

<PAGE>

          The Fund will not sell securities short if, after effect is given to
any such short sale, the total market value of all securities sold short would
exceed 100% of the Fund's net assets.

     The Fund also may make  short  sales  "against  the box," in which the Fund
enters into a short sale of a security  which it owns or has the right to obtain
at no additional cost..

ADDITIONAL INVESTMENTS

          WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund 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 no interest will accrue to the Fund until settlement takes
place. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction and
reflect the value each day of such securities in determining its net asset
value. At the time of settlement, a when-issued security may be valued at less
than the purchase price. To facilitate such acquisitions, the Fund will maintain
with the custodian a segregated account with liquid assets, consisting of cash
or other liquid assets, in an amount at least equal to such commitments. If the
Fund chooses to dispose of the right to acquire a when-issued security prior to
its acquisition, it could (as with the disposition of any other fund obligation)
incur a gain or loss due to market fluctuation. Also, the Fund may be
disadvantaged if the other party to the transaction defaults.

          INVESTMENT COMPANY SECURITIES. Securities of other investment
companies may be acquired by the Fund to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). These limits
require that, as determined immediately after a purchase is made, (i) not more
than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
the Fund's total assets will be invested in the aggregate in securities of
investment companies as a group, and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund. As a
shareholder of another investment company, the Fund 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 the Fund bears directly in connection with its own
operations.

          REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act, a reverse repurchase agreement may be
deemed to be a borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Fund to be magnified.

<PAGE>

The Fund will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, the Fund will enter into a reverse repurchase agreement
only when the expected return to be earned from the investment of the proceeds
is greater than the interest expense of the transaction. The Fund may not enter
into reverse repurchase agreements exceeding in the aggregate one-third of the
market value of its total assets less liabilities (other than reverse repurchase
agreements and other borrowings). See "Investment Restrictions."

          LOANS OF PORTFOLIO SECURITIES. The Fund is permitted to lend its
securities in an amount up to 33-1/3% of the value of the Fund's net assets. The
Fund may lend its securities if such loans are secured continuously by cash or
equivalent collateral or by a letter of credit in favor of the Fund at least
equal at all times to 100% of the market value of the securities loaned, plus
accrued interest. While such securities are on loan, the borrower will pay the
Fund any income accruing thereon. Loans will be subject to termination by the
Fund 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 that occurs during the term of the loan inures to the Fund
and its respective shareholders. The Fund may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Fund will consider
all facts and circumstances before entering into such an agreement, including
the creditworthiness of the borrowing financial institution, and the Fund will
not make any loans in excess of one year. The Fund will not lend its securities
to any officer, Trustee, Director, employee or other affiliate of the Fund, the
Advisor or the Fund's distributor, unless otherwise permitted by applicable law.

          ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. The Fund may not acquire any illiquid securities if, as a result
thereof, more than 15% of its net assets would be in illiquid investments.
Subject to this non-fundamental policy limitation, the Fund may acquire
investments that are illiquid or have limited liquidity, such as certain private
placements or investments that are not registered under the Securities Act of
1933, as amended (the "1933 Act"), and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Fund. The price the Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of these securities will
reflect any limitations on their liquidity.

          As to illiquid investments, these restricted holdings are subject to
the risk that the Fund will not be able to sell them at a price the Fund deems
representative of their value. If a restricted holding must be registered under
the 1933 Act, before it may be sold, the Fund may be obligated to pay all or
part of the registration expenses. Also, a considerable period may elapse
between the time of the decision to sell and the time the Fund is permitted to
sell a holding under an effective registration statement. If during such a
period adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.

<PAGE>

MONEY MARKET INSTRUMENTS

     Although the Fund  intends,  under normal  circumstances  and to the extent
practicable,  to be fully invested in equity securities,  the Fund may invest in
money  market  instruments  to  invest  temporary  cash  balances,  to  maintain
liquidity  to  meet  redemptions  or  as  a  defensive  measure  during,  or  in
anticipation of, adverse market  conditions.  A description of the various types
of money market instruments that may be purchased by the Fund appears below. See
"Quality and Diversification Requirements."

          U.S. TREASURY SECURITIES. The Fund may invest in direct obligations of
the U.S. Treasury, including Treasury bills, notes and bonds, all of which are
backed as to principal and interest payments by the full faith and credit of the
United States.

          ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, the Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credit of the issuing agency.

          BANK OBLIGATIONS. Unless otherwise noted below, the Fund 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 Fund will not invest in obligations for which the Advisor,
or any of its affiliated persons, is the ultimate obligor or accepting bank. The
Fund may also invest in obligations of international banking institutions
designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).

<PAGE>

     Commercial Paper. The Fund may invest in commercial paper, including master
demand obligations. Master demand obligations are obligations that provide for a
periodic  adjustment  in the interest  rate paid and permit daily changes in the
amount borrowed.  Master demand  obligations are governed by agreements  between
the  issuer  and  Morgan  Guaranty  Trust  Company  of New York  ("Morgan"),  an
affiliate  of the Advisor  acting as agent,  for no  additional  fee. The monies
loaned to the borrower come from accounts  managed by Morgan or its  affiliates,
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such  accounts.  Morgan 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 Fund may invest in such unrated  obligations only if, at the time
of  investment,  the  obligation  is  determined by the Advisor to have a credit
quality  which  satisfies  the Fund's  quality  restrictions.  See  "Quality and
Diversification  Requirements." Although there is no secondary market for master
demand  obligations,  such  obligations  are considered by the Fund to be liquid
because  they are  payable  upon  demand.  The Fund  does 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. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trust's Trustees. In a repurchase agreement, the Fund buys a security from a
seller that has agreed to repurchase the same security at a mutually agreed upon
date and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for the
period of time the agreement is in effect and is not related to the coupon rate
on the underlying security. A repurchase agreement may also be viewed as a fully
collateralized loan of money by the Fund to the seller. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will the Fund 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 Fund 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 Fund in each agreement
plus accrued interest, and the Fund will make payment for such securities only
upon physical delivery or upon evidence of book entry transfer to the account of
the custodian. If the seller defaults, the Fund might incur a loss if the value
of the collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced 

<PAGE>

with respect to the seller of the security,
realization upon disposal of the collateral by the Fund may be delayed or
limited.

QUALITY AND DIVERSIFICATION REQUIREMENTS

          The Fund 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 Fund: (1) the Fund may not invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities, and (2) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer. As for the
other 25% of the Fund's assets not subject to the limitation described above,
there is no limitation on investment of these assets under the 1940 Act, so that
all of such assets may be invested in securities of any one issuer. Investments
not subject to the limitations described above could involve an increased risk
to the Fund should an issuer, or a state or its related entities, be unable to
make interest or principal payments or should the market value of such
securities decline.

          The Fund 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 Fund may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time the Fund invests
in any commercial paper, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P"), the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by S&P, or if no such ratings are available, the investment must
be of comparable quality in the Advisor's opinion. At the time the Fund invests
in any other short-term debt securities, they must be rated A or higher by
Moody's or S&P, 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

          The Fund may use futures contracts and options for hedging and risk
management purposes. See "Risk Management" below. The Fund may not use futures
contracts and options for speculation.

          The Fund may use options and futures contracts to manage its exposure
to changing security prices. Some options and futures strategies, including
selling futures contracts

<PAGE>

and buying puts, tend to hedge the Fund's investments
against price fluctuations. Other strategies, including buying futures
contracts, writing puts and calls, and buying calls, tend to increase market
exposure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
Fund's overall strategy in a manner deemed appropriate to the Advisor and
consistent with the Fund's objective and policies. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close out.

          The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Fund's return. While the use of these instruments by
the Fund may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Fund's
return. Certain strategies limit the Fund's possibilities to realize gains as
well as limiting its exposure to losses. The Fund could also experience losses
if the prices of its options and futures positions were poorly correlated with
its other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, the Fund will incur transaction costs,
including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Fund's turnover rate.

          The Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets.

OPTIONS

          PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. The Fund also may close out a put option position
by entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, the Fund will lose the entire premium it paid. If
the Fund exercises a put option on a security, it will sell the instrument
underlying the option at the strike price. If the Fund exercises an option on an
index, settlement is in cash and does not involve the actual sale of securities.
If an option is American style, it may be exercised on any day up to its
expiration date. A European style option may be exercised on its expiration
date.

<PAGE>

          The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).

          The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.

          SELLING (WRITING) PUT AND CALL OPTIONS. When the Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Fund assumes the obligation
to pay the strike price for the instrument underlying the option if the other
party to the option chooses to exercise it. The Fund may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Fund has written, however, the Fund must continue to be prepared to
pay the strike price while the option is outstanding, regardless of price
changes, and must continue to post margin as discussed below.

          If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer also will profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.

          Writing a call option obligates the Fund to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer offsets part of the effect of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.

          The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.

<PAGE>

          OPTIONS ON INDEXES. Options on securities indexes are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. The Fund, in purchasing or selling
index options, is subject to the risk that the value of its portfolio securities
may not change as much as an index because the Fund's investments generally will
not match the composition of an index.

          For a number of reasons, a liquid market may not exist and thus the
Fund may not be able to close out an option position into which it has
previously entered. When the Fund purchases an OTC option (as defined below), it
will be relying on its counterparty to perform its obligations, and the Fund may
incur additional losses if the counterparty is unable to perform.

          EXCHANGE TRADED AND OTC OPTIONS. All options purchased or sold by the
Funds will be traded on a securities exchange or will be purchased or sold by
securities dealers ("OTC options") that meet creditworthiness standards approved
by the Board of Trustees. While exchange traded options are obligations of the
Options Clearing Corporation, in the case of OTC options, the Fund relies on the
dealer from which it purchased the option to perform if the option is exercised.
Thus, when the Fund purchases an OTC option, it relies on the dealer from which
it purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.

          Provided that the Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, the Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.

          FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may
purchase or sell (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. In addition, the
Fund may sell (write) put and call options, including options on futures.
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 

<PAGE>

holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.

          The seller of an option on a futures contract receives the premium
paid by the purchaser and may be required to pay initial margin. Amounts equal
to the initial margin and any additional collateral required on any options on
futures contracts sold by the Fund are paid by the Fund into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the interpretations of the Securities and Exchange Commission ("SEC")
thereunder.

          COMBINED POSITIONS. The Fund is permitted to purchase and write
options in combination with other series of the Trust, or in combination with
futures or forward contracts, to adjust the risk and return characteristics of
the overall position. For example, the Fund may purchase a put option and write
a call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to selling a
futures contract. Another possible combined position would involve writing a
call option at one strike price and buying a call option at a lower price, in
order to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.

          CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the Fund's
current or anticipated investments exactly. The Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.

          Options and futures contracts prices also can diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures contracts prices are affected by
such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation also may result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the Fund's options or
futures positions are poorly correlated with its other

<PAGE>

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 the Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions also could be impaired.
See "Exchange Traded and OTC Options" above for a discussion of the liquidity of
options not traded on an exchange.

          POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Fund or the Advisor may be required
to reduce the size of its futures and options positions or may not be able to
trade a certain futures or options contract in order to avoid exceeding such
limits.

          ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. Although
the Fund will not be commodity pools, certain derivatives subject the Fund to
the rules of the Commodity Futures Trading Commission which limit the extent to
which the Fund can invest in such derivatives. The Fund may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, the Fund may not invest in such contracts and options for other
purposes if the sum of the amount of initial margin deposits and premiums paid
for unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of the Fund's assets,
after taking into account unrealized profits and unrealized losses on such
contracts and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.

SWAPS AND RELATED SWAP PRODUCTS

          The Fund may engage in swap transactions, including, but not limited
to, interest rate, currency, securities index, basket, specific security and
commodity swaps, interest rate caps, floors and collars and options on interest
rate swaps (collectively defined as "swap transactions").

          The Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration

<PAGE>

management technique, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date, or to gain exposure
to certain matters in the most economical way possible. The Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that the 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 specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchase of an option on an interest rate swap, upon payment of a fee
(either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.

          The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., three month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by the Fund, payments by the
parties will be exchanged on a "net basis," and the Fund will receive or pay, as
the case may be, only the net amount of the two payments.

          The amount of the Fund's potential gain or loss on any swap
transaction is not subject to any fixed limit. Nor is there any fixed limit on
the Fund's potential loss if it sells a cap or collar. If the Fund buys a cap,
floor, or collar, however, the Fund's potential loss is limited to the amount of
the fee that it has paid. When measured against the initial amount of cash
required to initiate the transaction, which is typically zero in the case of
most conventional swap

<PAGE>

transactions, swaps, caps, floors and collars tend to be
more volatile than many other types of instruments.

          The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of the Fund will be less favorable than if these techniques had not
been used. These instruments typically are not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to the Fund or that the Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to the Fund.

          The Advisor will, however, consider such risks and will enter into
swap and other derivative transactions only when it believes that the risks are
not unreasonable.

          The Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If the Fund
enters into a swap agreement on a net basis, it will segregate assets with daily
value at least equal to the excess, if any, of the Fund's accrued obligations
under the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than a
net basis, or sells a cap, floor or collar, it will segregate assets with a
daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.

          The Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, the Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents using standardized swap documentation. As a result, the
markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.

          The liquidity of swap transactions, caps, floors and collars will be
as set forth in guidelines established by the Advisor and approved by the
Trustees which are based on various factors, including (1) the availability of
dealer quotations and the estimated transaction volume for the instrument, (2)
the number of dealers and end users for the instrument in the marketplace, (3)
the level of market making by dealers in the type of instrument, (4) the nature
of the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset the Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.

<PAGE>

          During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, the Fund will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.

          The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which the Fund
may engage in such transactions.

RISK MANAGEMENT

          The Fund may employ non-hedging risk management techniques. Risk
management strategies are used to keep the Fund fully invested and to reduce the
transaction costs associated with cash flows into and out of the Fund. The
objective where equity futures are used to "equitize" cash is to match the
notional value of all futures contracts to the Fund's cash balance. The notional
value of futures and of the cash is monitored daily. As the cash is invested in
securities and/or paid out to participants in redemptions, the Advisor
simultaneously adjusts the futures positions. Through such procedures, the Fund
not only gains equity exposure from the use of futures, but also benefits from
increased flexibility in responding to client cash flow needs. Additionally,
because it can be less expensive to trade a list of securities as a package or
program trade rather than as a group of individual orders, futures provide a
means through which transaction costs can be reduced. Such non-hedging risk
management techniques are not speculative, but because they involve leverage
include, as do all leveraged transactions, the possibility of losses as well as
gains that are greater than if these techniques involved the purchase and sale
of the securities themselves rather than their synthetic derivatives.

INVESTMENT RESTRICTIONS

          The investment restrictions set forth below have been adopted by the
Trust with respect to the Fund. Except as 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. 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 purchasing securities to the market value of the Fund's assets.

          The Fund:

          1. May not make any investments inconsistent with the Fund's
classification as a diversified investment company under the 1940 Act;

<PAGE>

          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 1940
Act 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 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  objectives  and policies and to the extent  permitted by  applicable
law.

          NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Fund and may be changed by
the Trustees. These non-fundamental investment policies require that the Fund:

          (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; and

          (ii) May not acquire securities of other investment companies, except
as permitted by the 1940 Act or any order pursuant thereto.

<PAGE>

          If any percentage restriction described above is adhered to at the
time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of the Fund's assets will not constitute a
violation of the restriction.

          For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.

TRUSTEES AND OFFICERS

TRUSTEES

          The Trustees of the Trust, their principal occupations during the past
five years, business addresses and dates of birth are set forth below.

          FREDERICK S. ADDY-Trustee; Retired; Prior to April 1994, Executive
Vice President and Chief Financial Officer, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1,
1932.

          WILLIAM G. BURNS-Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and 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 address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.

          MATTHEW HEALEY(1)-Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.

- -----------------
(1)  Mr. Healy is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.

<PAGE>

          MICHAEL P. MILLARDI-Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.

          Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P.
Morgan Institutional Funds and J.P. Morgan Funds 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, 1997 is set forth below.

<TABLE>
<CAPTION>
                                                            TOTAL TRUSTEE COMPENSATION
                                                               ACCRUED BY THE MASTER
                                                            PORTFOLIOS(*), J.P. MORGAN
                                 AGGREGATE TRUSTEE           INSTITUTIONAL FUNDS, J.P.
                              COMPENSATION PAID BY THE      MORGAN FUNDS AND THE TRUST
NAME OF TRUSTEE AND TITLE        TRUST DURING 1997                DURING 1997(**)

<S>                                 <C>                              <C>    
Frederick S. Addy,                  $90.92                           $72,500
Trustee

William G. Burns,                   $90.92                           $72,500
Trustee

Arthur C. Eschenlauer,              $90.92                           $72,500
Trustee

Matthew Healey,                     $90.92                           $72,500
Trustee (***)
Chairman and Chief
Executive  Officer

Michael P. Mallardi,                $90.92                           $72,500
Trustee

          (*) The J.P. Morgan Funds and J.P. Morgan Institutional Funds are each
multi-series registered investment companies that are part of a two-tier
(master-feeder) investment fund structure. Each series of the J.P. Morgan Funds
and J.P. Morgan Institutional Funds is a feeder fund that invests all of its
investable assets in one of 15 registered investment companies comprised of 22
separate master portfolios (collectively, the "Master Portfolios").

          (**) No investment company within the fund complex has a pension or
retirement plan.

          (***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role
as Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $21,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.
</TABLE>

<PAGE>

          The Trustees decide upon general policies and are responsible for
overseeing the Trust's business affairs. The Trust has entered into a Fund
Services Agreement with Pierpont Group, Inc. to assist the Trustees in
exercising their overall supervisory responsibilities over the affairs of the
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 has agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services to the Trust and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.

OFFICERS

          The Trust's executive officers (listed below), other than the Chief
Executive Officer and the officers who are employees of the Advisor, are
provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. The Chief Executive
Officer receives no compensation in his capacity as an officer of the Trust. The
officers conduct and supervise the business operations of the Trust. The Trust
has no employees.

          The officers of the Trust, their principal occupations during the past
five years and dates of birth are set forth below. 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-Vice President and Secretary. Senior Vice
President and General Counsel of FDI since April, 1998. From August 1996 to
March 1998, Ms. Chambers was Vice President and Assistant General Counsel for
Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an
associate with the law firm of Ropes & Gray. Her date of birth is October 12,
1959.

          MARIE E. CONNOLLY-Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual"), and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.

          DOUGLAS C. CONROY-Vice President and Assistant Treasurer. Assistant
Vice President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to 

<PAGE>

April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.

          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. Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston
Company Advisors, Inc. ("TBCA"). 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. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.

          KATHLEEN K. MORRISEY-Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant for Investors Bank & Trust Company.
Prior to July 1994 she was a finance student at Stonehill College. Her date of
birth is July 5, 1972.

          MARY A. NELSON-Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual
and an officer of certain investment companies distributed or administered by
FDI. Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.

          MARY JO PACE-Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Pace serves in the Funds Administration group as
a Manager for the Budgeting and Expense Processing Group. Prior to September
1995, Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company
of New York. Her address is 60 Wall Street, New York, New York 10260. Her date
of birth is March 13, 1966.

          MICHAEL S. PETRUCELLI-Vice President and Assistant Secretary. Senior
Vice President and Director of Strategic Client Initiatives for FDI since
December 1996. From December 1989 through November 1996, Mr. Petrucelli was
employed with GE Investments where he held various financial, business
development and compliance positions. He also served as Treasurer of the GE
Funds and as Director of GE Investment Services. His address is 200 Park Avenue,
New York, New York, 10166. His date of birth is May 18, 1961.

<PAGE>

          STEPHANIE D. PIERCE-Vice President and Assistant Secretary. Vice
President and Client Development Manager for FDI since April 1998. From April
1997 to March 1998, Ms. Pierce was employed by Citibank, NA as an officer of
Citibank and Relationship Manager on the Business and Professional Banking team
handling over 22,000 clients. From August 1995 to April 1997, she was an
Assistant Vice President with Hudson Valley Bank, and from September 1990 to
August 1995, she was a Second Vice President with Chase Manhattan Bank. Her
address is 200 Park Avenue, New York, New York 10166. Her date of birth is
August 18, 1968.

          GEORGE A. RIO-President and Assistant Treasurer. Executive Vice
President and Client Service Director of FDI since April 1998. From June 1995 to
March 1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for
Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was Director of
Business Development for First Data Corporation. From September 1983 to May
1994, Mr. Rio was Senior Vice President & Manager of Client Services and
Director of Internal Audit at The Boston Company. 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 a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.

INVESTMENT ADVISOR

          The Trust has retained JPMIM as Investment Advisor to provide
investment advice and portfolio management services to the Fund. Subject to the
supervision of the Fund's Trustees, the Advisor makes the Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments.

          JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.

          J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of more than $275 billion.

<PAGE>

          J.P. Morgan has a long history of service as an advisor, underwriter
and lender to an extensive roster of major companies and as a financial advisor
to national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.

          The basis of the Advisor's investment process is fundamental
investment research because the firm believes that fundamentals should determine
an asset's value over the long term. The Advisor currently employs over 100
full-time research analysts, among the largest research staffs in the money
management industry, in its investment management divisions located in New York,
London, Tokyo, Frankfurt and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research are quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for two to five years to
enable analysts to take a longer term view. These returns, or normalized
earnings, are used to establish relative values among stocks in each industrial
sector. These values may not be the same as the markets' current valuations of
these companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector.

          The investment advisory services the Advisor provides to the Fund are
not exclusive under the terms of the Investment Advisory Agreement. The Advisor
is free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management are invested in
common trust funds for which the Advisor serves as trustee. The accounts which
are managed or advised by the Advisor have varying investment objectives and the
Advisor invests assets of such accounts in investments substantially similar to,
or the same as, those which are expected to constitute the principal investments
of the Fund. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Fund. See
"Portfolio Transactions."

          Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Fund is the Russell 1000 Growth
Index.

          Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to 

<PAGE>

governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.

          The Fund is managed by officers of the Advisor who, in acting for
their clients, including the Fund, do not discuss their investment decisions
with any personnel of J.P. Morgan or any personnel of other divisions of J.P.
Morgan or with any of its affiliated persons, with the exception of certain
investment management affiliates of J.P. Morgan.

          As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Fund has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to 1.50% of the Fund's average daily net
assets.

          The Investment Advisory Agreement between the Advisor and the Trust,
on behalf of the Fund, provides that it will continue in effect for a period of
two years after execution only if specifically approved thereafter annually in
the same manner as the Distribution Agreement. See "Distributor" below. The
Investment Advisory Agreement will terminate automatically if assigned and is
terminable at any time with respect to the Fund without penalty by a vote of a
majority of the Trust's Trustees or by a vote of the holders of a majority of
the Fund's outstanding voting securities on 60 days' written notice to the
Advisor and by the Advisor on 90 days' written notice to the Fund. See
"Additional Information."

          The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities. The Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company that continuously issues
shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor,
administrator, shareholder servicing agent or custodian to such an investment
company. The Advisor believes that it may perform the services for the Fund
contemplated by the Investment Advisory Agreement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the Fund.

          If the Advisor were prohibited from acting as investment advisor to
the Fund, it is expected that the Trustees of the Trust would recommend to
shareholders that they approve the Fund's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.

<PAGE>

          Under separate agreements, Morgan provides certain financial, fund
accounting, administrative and shareholder services to the Trust. See "Services
Agent" and "Shareholder Servicing" below.

DISTRIBUTOR

          FDI serves as the Trust's exclusive distributor and holds itself
available to receive purchase orders for the Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of the Fund's shares in accordance with the terms of the
Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Fund's distributor.

          The Distribution Agreement will continue in effect with respect to the
Fund for a period of two years after execution and will continue thereafter only
if it is approved at least annually (i) by a vote of the holders of a majority
of the Fund's outstanding voting securities 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 Officers"). The Distribution Agreement will terminate
automatically if assigned by either party. The Distribution Agreement is also
terminable with respect to the Fund 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 (i) 67% or more of
the Fund's outstanding voting securities present at a meeting if the holders of
more than 50% of the Fund's outstanding voting securities are present or
represented by proxy, or (ii) more than 50% of the Fund's outstanding voting
securities, whichever is less. FDI is a wholly owned indirect subsidiary of
Boston Institutional Group, Inc. The principal offices of FDI are located at 60
State Street, Suite 1300, Boston, Massachusetts 02109.

CO-ADMINISTRATOR

          Under a Co-Administration Agreement with the Trust, FDI also serves as
the Trust's Co-Administrator. The Co-Administration Agreement may be renewed or
amended by the Trustees without a shareholder vote. The Co-Administration
Agreement is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust 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
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 Fund; (ii) provides
officers for the Trust; (iii) 

<PAGE>

prepares and files documents required for
notification of state securities administrators; (iv) reviews and files
marketing and sales literature; (v) files regulatory documents and mails
communications to Trustees and investors; and (vi) maintains related books and
records.

          For its services under the Co-Administration Agreement, the Fund has
agreed to pay FDI fees equal to its allocable share of an annual complex-wide
charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to
the Fund is based on the ratio of the Fund's net assets to the aggregate net
assets of the Trust and certain other registered investment companies subject to
similar arrangements with FDI.

SERVICES AGENT

          The Trust, on behalf of the Fund, has entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan pursuant to which
Morgan is responsible for certain administrative and related services provided
to the Fund. The Services Agreement 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 Agreement, Morgan provides certain administrative
and related services to the Fund, including services related to tax compliance,
preparation of financial statements, calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustee matters.

          Under the Services Agreement, the Fund has agreed to pay Morgan fees
equal to its allocable share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Fund, the Trust's
other series and the Master Portfolios in accordance with the following annual
schedule: 0.09% of the first $7 billion of their aggregate average daily net
assets, and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund is determined by the proportionate share that its net assets
bear to the total net assets of the Trust and the other investment companies
provided administrative services by Morgan.

CUSTODIAN AND TRANSFER AGENT

          State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's custodian and fund
accounting, transfer and dividend disbursing agent. Pursuant to the Custodian
Contract with the Trust, State Street is responsible for maintaining the books
and records of the Fund's portfolio transactions and for holding portfolio
securities and cash. The custodian maintains portfolio transaction records. 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

<PAGE>

          The Trust, on behalf of the Fund, has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for Fund shareholders. Under this agreement, Morgan is
responsible for performing, directly or through an agent, shareholder account
administrative and servicing functions, which include but are not limited to
answering inquiries regarding account status and history, the manner in which
purchases and redemptions of Fund shares may be effected, and certain other
matters pertaining to the Fund; assisting customers in designating and changing
dividend options, account designations and addresses; providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Fund's transfer agent; transmitting
purchase and redemption orders to the Fund's transfer agent and arranging for
the wiring or other transfer of funds to and from customer accounts in
connection with orders to purchase or redeem Fund shares; verifying purchase and
redemption orders, transfers among and changes in accounts; informing FDI of the
gross amount of purchase orders for Fund shares; and providing other related
services.

          Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee of 0.10% (expressed as a percentage of the
average daily net asset value 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.

          As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and for providing administrative services to the Fund under the Services
Agreement, and JPMIM in acting as Advisor to the Fund under the Investment
Advisory Agreement may raise issues under these laws. However, Morgan and JPMIM
believe that they may properly perform these services and the other activities
described in the Prospectuses without violating the Glass-Steagall Act or other
applicable banking laws or regulations.

          If Morgan were prohibited from providing any of the services under the
Shareholder Servicing and the Services Agreements, the Trustees would seek an
alternative provider of such services. In such event, changes in the operation
of the Fund might occur and a shareholder might no longer be able to avail
himself or herself of any services then being provided to shareholders by
Morgan.

          The Fund may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.

<PAGE>

FINANCIAL PROFESSIONALS

          The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as J.P. Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.

          Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.

          The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, it 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 are PricewaterhouseCoopers
LLP. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Fund, assists in the preparation and/or review of the Fund's
federal and state income tax returns and consults with the Fund 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 Officers,"
"Investment Advisor," "Co-Administrator", "Distributor", "Services Agent" and
"Shareholder Servicing" above, the Fund is responsible for usual and customary
expenses associated with the Trust's operations. Such expenses include
organization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, registration fees under
federal securities laws, extraordinary expenses, transfer, registrar and
dividend disbursing costs, the expenses of 

<PAGE>

printing and mailing reports, notices
and proxy statements to Fund shareholders, fees under state securities laws,
custodian fees and brokerage expenses.

PURCHASE OF SHARES

          ADDITIONAL MINIMUM BALANCE INFORMATION. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), the Fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the Fund reserves the right to close out your account and
send the proceeds to the address of record.

          METHOD OF PURCHASE. Investors may open accounts with the 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 Fund reserves the right to determine the purchase orders that
they will accept.

          References in the Prospectus and this Statement of Additional
Information to customers of J.P. Morgan or a financial professional include
customers of their affiliates, and references to transactions by customers with
J.P. Morgan or a financial professional include transactions with their
affiliates. Only Fund investors who are using the services of a financial
institution acting as shareholder servicing agent pursuant to an agreement with
the Trust on behalf of the Fund may make transactions in shares of the Fund.

          The Fund may, at its own option, accept securities in payment for
shares. The securities so delivered are valued by the method described under
"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. In addition, securities accepted in payment for shares
must: (i) meet the investment objective and policies of the Fund; (ii) be
acquired by the Fund for investment and not for resale; (iii) be liquid
securities which are not restricted as to transfer; and (iv) if stock, have a
value which is readily ascertainable as evidenced by a listing on a stock
exchange, OTC market or by readily available market quotations from a dealer in
such securities. The Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

          Prospective investors may purchase shares with the assistance of a
financial professional and the financial professional may charge the investor a
fee for this service and other services it provides to its customers. J.P.
Morgan may pay fees to financial professionals for services in connection with
fund investments. See "Financial Professionals" above.

<PAGE>

REDEMPTION OF SHARES

          Investors may redeem shares of the Fund as described in the
Prospectus. The Fund generally intends to pay redemption proceeds in cash;
however, it reserves the right at its sole discretion to pay redemptions over
$250,000 in-kind as a portfolio of representative stocks rather than cash. See
below and "Exchange of Shares."

          The Trust, on behalf of the Fund, reserves 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 thereon
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 Fund 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.

          If the Trust determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Fund, in lieu of cash. If
shares are redeemed in-kind, the redeeming shareholder might incur costs in
converting the assets into cash. The Trust is in the process of seeking
exemptive relief from the SEC with respect to redemptions in-kind by the Fund.
If the requested relief is granted, the Fund would then be permitted to pay
redemptions to greater than 5% shareholders in securities, rather than in cash,
to the extent permitted by the SEC and applicable law. 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.

          In general, the Fund will attempt to select securities for in-kind
redemptions that approximate the overall characteristics of the Fund's
portfolio. The Fund will not distribute illiquid securities to satisfy in-kind
redemptions. For purposes of effecting in-kind redemptions, securities will be
valued in the manner regularly used to value the Fund's portfolio securities.
The Fund will not redeem its shares in-kind in a manner that after giving effect
to the redemption would cause it to violate its investment restrictions or
policies.

          OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not
be processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless the Fund has received the
shareholder's certified taxpayer identification number and address. In addition,
if shares were paid for by check and the check has not yet cleared, redemption
proceeds will not be transmitted until the check has cleared, which may take up
to 15 days. The Fund reserves the right to suspend the right of redemption or
postpone the payment of redemption proceeds to the extent permitted by the SEC.
Shareholders may realize taxable gains upon redeeming shares.

<PAGE>

          For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.

EXCHANGE OF SHARES

          Subject to the limitations below, an investor may exchange shares from
the Fund into 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. See "Redemption of Shares."
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. Shares of a fund to be acquired are purchased for settlement when the
proceeds from redemption become available. In the case of investors in certain
states, state securities laws may restrict the availability of the exchange
privilege. The Trust reserves the right to discontinue, alter or limit the
exchange privilege at any time.

DIVIDENDS AND DISTRIBUTIONS

          The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.

          Dividends and capital gains distributions paid by the Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.

          If a shareholder has elected to receive dividends and/or capital gains
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.

NET ASSET VALUE

          The Fund computes its net asset value separately for each class of
shares outstanding once daily as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m. eastern time) on each business day as described in
the Prospectus. The net asset value

<PAGE>

will not be computed on the day the
following legal holidays are observed: New Year's Day, Martin Luther King Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. On days when U.S. trading markets close
early in observance of these holidays, the Fund will close for purchases and
redemptions at the same time. The Fund also may close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. The days on which net asset value is
determined are the Fund's business days.

          Portfolio securities are valued at the last sale price on the
securities exchange or national securities market on which such securities are
primarily traded. Unlisted securities are valued at the last average of the
quoted bid and asked prices in the OTC market. 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 average
currency exchange rate on the valuation date.

          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 Fund was more than
60 days, unless this is determined not to represent fair value by the Trustees.

          Trading in securities in most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.

PERFORMANCE DATA

          From time to time, the Fund may quote performance in terms of actual
distributions, total return or capital appreciation for the various Fund classes
in reports, sales literature and advertisements published by the Trust. Current
performance information may be obtained by calling Morgan at (800) 766-7722.

          The classes of shares of the Fund may bear different shareholder
servicing fees and other expenses, which may cause the performance of a class to
differ from the performance of another class. Performance quotations will be
computed separately for each class of the

<PAGE>

Fund's shares. Any fees charged by an
institution directly to its customers' accounts in connection with investments
in the Funds will not be included in calculations of total return.

          TOTAL RETURN QUOTATIONS. As required by regulations of the SEC,
average annual total return of each class of shares of the Fund for a period is
computed by assuming a hypothetical initial payment of $1,000. It is then
assumed that all of the dividends and distributions by the Fund over the period
are reinvested. It is then assumed that at the end of the period, the entire
amount is redeemed. The average annual 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, also may be calculated.

          GENERAL. Performance will vary from time to time depending upon market
conditions, the composition of the portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.

          Comparative performance information may be used from time to time in
advertising the Fund's 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 Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, qualified retirement plans and individual stocks and bonds), which
may or may not include the Fund; (7) comparisons of investment products
(including the Fund) with relevant markets or industry indices or other
appropriate benchmarks; (8) discussions of Fund rankings or ratings by
recognized rating organizations; and (9) discussions of various statistical
methods quantifying the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of the Fund.

<PAGE>

PORTFOLIO TRANSACTIONS

          The Advisor places orders for the Fund for all purchases and sales of
portfolio securities, enters into repurchase agreements and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Fund. See "Investment Objectives and Policies."

          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 broker's
financial condition; and 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 Trust's Trustees review regularly the
reasonableness of commissions and other transaction costs incurred by the Fund
in light of facts and circumstances deemed relevant from time to time and, in
that connection, will receive reports from Morgan 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 of the Advisor's clients and not solely or necessarily for the
benefit of the Fund. The Advisor believes that the value of research services
received is not determinable and does not significantly reduce its expenses. The
Fund does not reduce its fee to the Advisor by any amount that might be
attributable to the value of such services.

          Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of the Fund's brokerage transactions
to affiliates of the Advisor. In order for affiliates of the Advisor to effect
any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by such affiliates must be reasonable and fair compared to
the commissions, fees, or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time. Furthermore,
the Trust's Trustees, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are 

<PAGE>

reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.

          Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid. The Advisor intends to seek best execution on a competitive basis for both
purchases and sales of securities.

          Portfolio securities will not be purchased from or through or sold to
or through the Advisor or FDI or any "affiliated person" (as defined in the 1940
Act) thereof when such entities are acting as principals, except to the extent
permitted by law. In addition, the Fund will not purchase securities from any
underwriting group of which the Advisor or an affiliate of the Advisor is a
member, except to the extent permitted by law.

          Investment decisions made by the Advisor are the product of many
factors in addition to basic suitability for the Fund or other client in
question. Thus, a particular security may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more other clients are selling the same security. The Fund only may sell
a security to another series of the Trust or to other accounts managed by the
Advisor or its affiliates in accordance with procedures adopted by the Trustees.

          It also sometimes happens that two or more clients simultaneously
purchase or sell the same security. On those occasions when the Advisor deems
the purchase or sale of a security to be in the best interests of the Fund, as
well as other clients including other clients, the Advisor to the extent
permitted by applicable laws and regulations, may, but is not obligated to,
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other clients in order to obtain best execution, including
lower brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Advisor in the manner it considers to be most
equitable and consistent with the Advisor's fiduciary obligations to the Fund.
In some instances, this procedure might adversely affect the Fund.

 MASSACHUSETTS TRUST

          The Trust is a "Massachusetts business trust" of which the Fund is a
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will not be subject to any personal liability for the acts or obligations of the
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of the Fund will contain a provision to the effect that the
shareholders are not personally liable thereunder.

          The Trust's Declaration of Trust further provides that no Trustee,
officer, employee or agent of the Trust is liable to the Fund or to a
shareholder, and that no Trustee, officer, employee or agent is liable to any
third persons in connection with the affairs of the Fund, except as such
liability may arise from his or its own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or its duties to such third persons
("disabling conduct"). It 

<PAGE>

also provides that all third persons must look solely
to Fund property for satisfaction of claims arising in connection with the
affairs of the Fund. The Trust's Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund, except liabilities arising from
disabling conduct.

DESCRIPTION OF SHARES

          The Fund represents a separate series of shares of beneficial interest
of the Trust. Fund shares are further divided into separate classes. 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
without changing the proportionate beneficial interest of each shareholder in
the Fund. To date, the Fund is authorized to issue Institutional Shares and
Select Shares, but only Institutional Shares are currently offered.

          Each share represents an equal proportional interest in the Fund with
each other share of the same class. Upon liquidation of the Fund, holders are
entitled to share pro rata in the net assets of the Fund available for
distribution to such shareholders. Shares of the Fund have no preemptive or
conversion rights.

          The shareholders of the Trust are entitled to one full or fractional
vote for each dollar or fraction of a dollar invested in shares. Subject to the
1940 Act, the Trustees 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 to appoint their
own successors. However, immediately after such appointment, the requisite
majority of the Trustees must have been elected by the shareholders of the
Trust. The voting rights of shareholders are not cumulative. The Trust does not
intend to hold annual meetings of shareholders. The Trustees may call meetings
of shareholders for action by shareholder vote if 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 shareholders whose shares represent two-thirds of the net
asset value of the Trust, 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
shareholders whose shares represent 10% of the net asset value of the Trust. The
Trustees also are required, under certain circumstances, to assist shareholders
in communicating with other shareholders.

TAXES

          The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of the Prospectuses. These laws and regulations
are subject to change by legislative or administrative action.

<PAGE>

          The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock or securities and
other income (including but not limited to gains from options and futures
contracts) derived with respect to its business of investing in such stock or
securities; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of the Fund's total assets is represented
by cash, 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 the securities of other regulated investment
companies).

          As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's requirements. If the Fund does not
qualify as a regulated investment company, it will be treated for tax purposes
as an ordinary corporation subject to federal income tax.

          Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.

          For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends will
generally be taxable to a shareholder in the year declared rather than the year
paid.

          Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss is generally taxable to
shareholders of the Fund as ordinary income whether such distributions are taken
in cash or reinvested in additional shares. The Fund expects that a portion of
these distributions to corporate shareholders will be eligible for the
dividends-received deduction, subject to applicable limitations under the Code.
If dividend payments exceed income earned by the Fund, the overdistribution
would be considered a return of capital rather than a dividend payment. The Fund
intends to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of the 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 

<PAGE>

shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a reduced
rate of tax. Investors should consult their tax advisors concerning the
treatment of capital gains and losses.

          Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or the straddle rules described below are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.

          Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.

          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. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, no loss will be allowed on the redemption or exchange
of shares of the Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.

          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 

<PAGE>

create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.

          Certain options, futures and foreign currency contracts held by a
Portfolio at the end of each taxable year will be required to be "marked to
market" for federal income tax purposes -- i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.

          The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.

          The Portfolios will be permitted to "mark to market" any marketable
stock held by a Portfolio in a PFIC. If a Portfolio made such an election, the
corresponding Fund would include in income each year an amount equal to its
share of the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the adjusted basis of such stock. The Fund
would be allowed a deduction for its share of the excess, if any, of the
adjusted basis of the PFIC stock over its fair market value as of the close of
the taxable year, but only to the extent of any net mark-to-market gains with
respect to the stock included by the Fund for prior taxable years.

          If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.

          FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.

<PAGE>


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, the 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 from the proceeds of redemptions, exchanges or other
dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by gift
of shares of the 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.

          STATE AND LOCAL TAXES. The Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of the Fund and its shareholders in those states that have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.

          OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code.

ADDITIONAL INFORMATION

          Telephone calls to the Fund, J.P. Morgan or State Street 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. Pursuant to
the rules and regulations of the SEC, certain portions have been omitted. The
registration statement, 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 

<PAGE>

authorized by any of the
Trust, the Funds or FDI. The Prospectus and this Statement of Additional
Information do not constitute an offer by the Fund or by FDI 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 FDI to make such offer in such
jurisdictions.

THE YEAR 2000 INITIATIVE

          With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always "19." As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss and/or legal
liability.

          J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.

          Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund.

<PAGE>




                            J.P. MORGAN SERIES TRUST


                 J.P. MORGAN INSTITUTIONAL LARGE CAP GROWTH FUND


                       STATEMENT OF ADDITIONAL INFORMATION





                                DECEMBER 31, 1998





THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED DECEMBER 31, 1998, AS SUPPLEMENTED FROM TIME TO TIME. THE
FUND'S PROSPECTUS IS AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., 60 STATE STREET, SUITE 1300, BOSTON, MASSACHUSETTS 02109,
ATTENTION: J.P. MORGAN SERIES TRUST (800) 221-7930.

<PAGE>

                                Table of Contents

                                                                            PAGE


GENERAL---------------------------------------------------------------------1
INVESTMENT OBJECTIVES AND POLICIES------------------------------------------1
INVESTMENT RESTRICTIONS-----------------------------------------------------16
TRUSTEES AND OFFICERS-------------------------------------------------------18
INVESTMENT ADVISOR----------------------------------------------------------23
DISTRIBUTOR-----------------------------------------------------------------25
CO-ADMINISTRATOR------------------------------------------------------------26
SERVICES AGENT--------------------------------------------------------------26
CUSTODIAN AND TRANSFER AGENT------------------------------------------------27
SHAREHOLDER SERVICING-------------------------------------------------------27
FINANCIAL PROFESSIONALS-----------------------------------------------------28
INDEPENDENT ACCOUNTANTS-----------------------------------------------------29
EXPENSES--------------------------------------------------------------------29
PURCHASE OF SHARES----------------------------------------------------------29
REDEMPTION OF SHARES--------------------------------------------------------30
EXCHANGE OF SHARES----------------------------------------------------------31
DIVIDENDS AND DISTRIBUTIONS-------------------------------------------------32
NET ASSET VALUE-------------------------------------------------------------32
PERFORMANCE DATA------------------------------------------------------------33
PORTFOLIO TRANSACTIONS------------------------------------------------------34
MASSACHUSETTS TRUST---------------------------------------------------------36
DESCRIPTION OF SHARES-------------------------------------------------------36
TAXES-----------------------------------------------------------------------37
ADDITIONAL INFORMATION------------------------------------------------------41


<PAGE>

GENERAL

          J.P. Morgan Institutional Large Cap Growth Fund (the "Fund") is a
series of J.P. Morgan Series Trust, an open-end management investment company
organized as a Massachusetts business trust (the "Trust"). To date, the Trustees
of the Trust have authorized the issuance of two classes of
shares--Institutional Shares and Select Shares. The Fund currently offers
Institutional Shares only.

          This Statement of Additional Information provides additional
information with respect to the Fund and should be read in conjunction with the
Fund's current prospectus (the "Prospectus"). Capitalized terms not otherwise
defined herein have the meanings assigned to them in the Prospectus. The Trust's
executive offices are located at 60 State Street, Suite 1300, Boston,
Massachusetts 02109.

          The Fund is advised by J.P. Morgan Investment Management Inc. ("JPMIM"
or the "Advisor").

          Shares of the Fund are not deposits or obligations of, or guaranteed
or endorsed by any bank. Shares of the Fund are not federally insured by the
Federal Deposit Insurance Corporation, the Federal Reserve Board, or any other
governmental agency. An investment in the Fund is subject to risk that may cause
the value of the investment to fluctuate, and at the time it is redeemed, be
higher or lower than the amount originally invested.

INVESTMENT OBJECTIVES AND POLICIES

          The following discussion supplements the information in the Prospectus
regarding the investment objective and policies of the Fund.

          The Fund is designed for investors seeking long term growth from a
portfolio of large company growth stocks, focusing on those growth stocks that
the Advisor believes can provide returns in excess of the Russell 1000 Growth
Index.

          The various types of securities in which the Fund may invest are
described below.

EQUITY INVESTMENTS

          The Fund invests primarily in equity securities consisting of U.S.
and, to a lesser extent, foreign common stocks and other securities with equity
characteristics which are comprised of preferred stock, warrants, rights,
convertible securities, trust certifications, limited partnership interests and
investment company securities (collectively, "Equity Securities"). The Equity
Securities in which the Fund invests may include exchange-traded,
over-the-counter ("OTC") and unlisted common and preferred stocks. A discussion
of the various types of equity investments that may be purchased by the Fund
appears below. See also "Quality and Diversification Requirements."

<PAGE>

          EQUITY SECURITIES. The Equity Securities in which the Fund 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 Fund may invest include any
debt securities or preferred stock, which may be converted into common stock or
which carry the right to purchase common stock. Convertible securities entitle
the holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.

          The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible debentures,
the holders' claims on assets and earnings are subordinated to the claims of
other creditors and are senior to the claims of preferred and common
shareholders. In the case of convertible preferred stock, the holders' claims on
assets and earnings are subordinated to the claims of all creditors and are
senior to the claims of common shareholders.

COMMON STOCK WARRANTS

          The Fund may invest in common stock warrants that entitle the holder
to buy common stock from the issuer 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 prior to the expiration date.

FOREIGN INVESTMENTS

          The Fund may invest up to 20% of its total assets at the time of
purchase, in securities of foreign issuers. This 20% limit is designed to
accommodate the increased globalization of companies as well as the
re-domiciling of companies for tax treatment purposes. It is not currently
expected to be used to increase direct non-U.S. exposure.

          Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic

<PAGE>

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 Fund's 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 Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.

          Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depository Receipts ("ADRs"), European
Depository Receipts ("EDRs") and Global Depository Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities typically issued by a
U.S. financial institution (a "depository") that evidence ownership interests in
a security or a pool of securities issued by a foreign issuer and deposited with
the depository. ADRs include American Depository Shares and New York Shares.
EDRs are receipts issued by a European financial institution. GDRs (sometimes
referred to as Continental Depository Receipts ("CDRs")) are securities
typically issued by a non-U.S. financial institution that evidence ownership
interests in a security or a pool of securities issued by either a U.S. or
foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for investment
through "sponsored" or "unsponsored" facilities. A sponsored facility is
established jointly by the issuer of the security underlying the receipt and a
depository, whereas an unsponsored facility may be established by a depository
without participation by the issuer of the receipt's underlying security.

          Holders of an unsponsored depository receipt generally bear all costs
of the unsponsored facility. The depository of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through voting
rights to the holders of the receipts with respect to the deposited securities.

ADDITIONAL INVESTMENTS

          WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Fund 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 

<PAGE>

subject to market
fluctuation and no interest will accrue to the Fund until settlement takes
place. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction and
reflect the value each day of such securities in determining its net asset
value. At the time of settlement, a when-issued security may be valued at less
than the purchase price. To facilitate such acquisitions, the Fund will maintain
with the custodian a segregated account with liquid assets, consisting of cash
or other liquid assets, in an amount at least equal to such commitments. If the
Fund chooses to dispose of the right to acquire a when-issued security prior to
its acquisition, it could (as with the disposition of any other fund obligation)
incur a gain or loss due to market fluctuation. Also, the Fund may be
disadvantaged if the other party to the transaction defaults.

          INVESTMENT COMPANY SECURITIES. Securities of other investment
companies may be acquired by the Fund to the extent permitted under the
Investment Company Act of 1940, as amended (the "1940 Act"). These limits
require that, as determined immediately after a purchase is made, (i) not more
than 5% of the value of the Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
the Fund's total assets will be invested in the aggregate in securities of
investment companies as a group, and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund. As a
shareholder of another investment company, the Fund 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 the Fund bears directly in connection with its own
operations.

          REVERSE REPURCHASE AGREEMENTS. The Fund may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Fund sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price, reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act, a reverse repurchase agreement may be
deemed to be a borrowing of money by the Fund and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Fund to be magnified.
The Fund will invest the proceeds of borrowings under reverse repurchase
agreements. In addition, the Fund will enter into a reverse repurchase agreement
only when the expected return to be earned from the investment of the proceeds
is greater than the interest expense of the transaction. The Fund may not enter
into reverse repurchase agreements exceeding in the aggregate one-third of the
market value of its total assets less liabilities (other than reverse repurchase
agreements and other borrowings). See "Investment Restrictions."

          LOANS OF PORTFOLIO SECURITIES. The Fund is permitted to lend its
securities in an amount up to 33-1/3% of the value of the Fund's net assets. The
Fund may lend its securities if such loans are secured continuously by cash or
equivalent collateral or by a letter of credit in favor of the Fund at least
equal at all times to 100% of the market value of the securities loaned, plus
accrued interest. While such securities are on loan, the borrower will pay the
Fund any income accruing thereon. Loans will be subject to termination by the
Fund in the normal

<PAGE>

 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 that occurs during the term of the loan inures to the Fund
and its respective shareholders. The Fund may pay reasonable finders' and
custodial fees in connection with a loan. In addition, the Fund will consider
all facts and circumstances before entering into such an agreement, including
the creditworthiness of the borrowing financial institution, and the Fund will
not make any loans in excess of one year. The Fund will not lend its securities
to any officer, Trustee, Director, employee or other affiliate of the Fund, the
Advisor or the Fund's distributor, unless otherwise permitted by applicable law.

          ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. The Fund may not acquire any illiquid securities if, as a result
thereof, more than 15% of its net assets would be in illiquid investments.
Subject to this non-fundamental policy limitation, the Fund may acquire
investments that are illiquid or have limited liquidity, such as certain private
placements or investments that are not registered under the Securities Act of
1933, as amended (the "1933 Act"), and cannot be offered for public sale in the
United States without first being registered under the 1933 Act. An illiquid
investment is any investment that cannot be disposed of within seven days in the
normal course of business at approximately the amount at which it is valued by
the Fund. The price the Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly, the valuation of these securities will
reflect any limitations on their liquidity.

          As to illiquid investments, these restricted holdings are subject to
the risk that the Fund will not be able to sell them at a price the Fund deems
representative of their value. If a restricted holding must be registered under
the 1933 Act, before it may be sold, the Fund may be obligated to pay all or
part of the registration expenses. Also, a considerable period may elapse
between the time of the decision to sell and the time the Fund is permitted to
sell a holding under an effective registration statement. If during such a
period adverse market conditions were to develop, the Fund might obtain a less
favorable price than prevailed when it decided to sell.

MONEY MARKET INSTRUMENTS

     Although the Fund  intends,  under normal  circumstances  and to the extent
practicable,  to be fully invested in equity securities,  the Fund may invest in
money  market  instruments  to  invest  temporary  cash  balances,  to  maintain
liquidity  to  meet  redemptions  or  as  a  defensive  measure  during,  or  in
anticipation of, adverse market  conditions.  A description of the various types
of money market instruments that may be purchased by the Fund appears below. See
"Quality and Diversification Requirements."

          U.S. TREASURY SECURITIES. The Fund 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.

<PAGE>

          ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Fund may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. Securities which are backed by the full faith
and credit of the United States include obligations of the Government National
Mortgage Association, the Farmers Home Administration and the Export-Import
Bank. In the case of securities not backed by the full faith and credit of the
United States, the Fund must look principally to the federal agency issuing or
guaranteeing the obligation for ultimate repayment and may not be able to assert
a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Fund may
invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (i) obligations of the Tennessee Valley
Authority, the Federal Home Loan Mortgage Corporation, the Federal Home Loan
Banks and the U.S. Postal Service, each of which has the right to borrow from
the U.S. Treasury to meet its obligations; (ii) securities issued by the Federal
National Mortgage Association, which are supported by the discretionary
authority of the U.S. Government to purchase the agency's obligations; and (iii)
obligations of the Federal Farm Credit System and the Student Loan Marketing
Association, each of whose obligations may be satisfied only by the individual
credit of the issuing agency.

          BANK OBLIGATIONS. Unless otherwise noted below, the Fund 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 Fund will not invest in obligations for which the Advisor,
or any of its affiliated persons, is the ultimate obligor or accepting bank. The
Fund may also invest in obligations of international banking institutions
designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).

     Commercial Paper. The Fund may invest in commercial paper, including master
demand obligations. Master demand obligations are obligations that provide for a
periodic  adjustment  in the interest  rate paid and permit daily changes in the
amount borrowed.  Master demand  obligations are governed by agreements  between
the  issuer  and  Morgan  Guaranty  Trust  Company  of New York  ("Morgan"),  an
affiliate  of the Advisor  acting as agent,  for no  additional  fee. The monies
loaned to the borrower come from accounts  managed by Morgan or its  affiliates,
pursuant to arrangements with such accounts. Interest and principal payments are
credited to such  accounts.  Morgan 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 Fund may invest in such unrated  obligations only if, at the time
of  investment,  the  obligation  is  determined by the Advisor to have a credit
quality  which  satisfies  the Fund's  quality  restrictions.  See  "Quality and
Diversification  Requirements." Although there is no secondary market for master
demand  obligations,  such  obligations  are considered by the Fund to be liquid
because  they are  payable  upon  demand.  The Fund  does 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. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trust's Trustees. In a repurchase agreement, the Fund buys a security from a
seller that has agreed to repurchase the same security at a mutually agreed upon
date and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for the
period of time the agreement is in effect and is not related to the coupon rate
on the underlying security. A repurchase agreement may also be viewed as a fully
collateralized loan of money by the Fund to the seller. The period of these
repurchase agreements will usually be short, from overnight to one week, and at
no time will the Fund 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 Fund 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 Fund in each agreement
plus accrued interest, and the Fund will make payment for such securities only
upon physical delivery or upon evidence of book entry transfer to the account of
the custodian. If the seller defaults, the Fund might incur a loss if the value
of the collateral securing the repurchase agreement declines and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization upon disposal of the collateral by the Fund may be delayed or
limited.

QUALITY AND DIVERSIFICATION REQUIREMENTS

          The Fund 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 Fund: (1) the Fund may not invest more than 5% of its
total assets in the securities of any one issuer, except obligations of the U.S.
Government, its agencies and instrumentalities, and (2) the Fund may not own
more than 10% of the outstanding voting securities of any one issuer. As for the
other 25% of the Fund's assets not subject to the limitation described above,
there is no limitation on investment of these assets under the 1940 Act, so that
all of such assets may be invested in securities of any one issuer. Investments
not subject to the limitations described

<PAGE>

 above could involve an increased risk
to the Fund should an issuer, or a state or its related entities, be unable to
make interest or principal payments or should the market value of such
securities decline.

          The Fund 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 Fund may invest in convertible debt securities, for which there
are no specific quality requirements. In addition, at the time the Fund invests
in any commercial paper, bank obligation or repurchase agreement, the issuer
must have outstanding debt rated A or higher by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("S&P"), the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by S&P, or if no such ratings are available, the investment must
be of comparable quality in the Advisor's opinion. At the time the Fund invests
in any other short-term debt securities, they must be rated A or higher by
Moody's or S&P, 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

          The Fund may use futures contracts and options for hedging and risk
management purposes, although it currently intends only to use futures contracts
and only for the purpose of "equitizing" cash as described below. The Fund may
not use futures contracts and options for speculation.

          The Fund intends to use futures contracts to keep the Fund fully
invested and to reduce the transaction costs associated with cash flows into and
out of the Fund. The objective where equity futures are used to "equitize" cash
is to match the notional value of all futures contracts to the Fund's cash
balance. The notional value of futures and of the cash is monitored daily. As
the cash is invested in securities and/or paid out to participants in
redemptions, the Advisor simultaneously adjusts the futures positions. Through
such procedures, the Fund not only gains equity exposure from the use of
futures, but also benefits from increased flexibility in responding to client
cash flow needs. Additionally, because it can be less expensive to trade a list
of securities as a package or program trade rather than as a group of individual
orders, futures provide a means through which transaction costs can be reduced.
Such non-hedging risk management techniques are not speculative, but because
they involve leverage include, as do all leveraged transactions, the possibility
of losses as well as gains that are greater than if these techniques involved
the purchase and sale of the securities themselves rather than their synthetic
derivatives.

<PAGE>

          The Fund may use options and futures contracts to manage its exposure
to changing security prices. Some options and futures strategies, including
selling futures contracts and buying puts, tend to hedge the Fund's investments
against price fluctuations. Other strategies, including buying futures
contracts, writing puts and calls, and buying calls, tend to increase market
exposure. Options and futures contracts may be combined with each other or with
forward contracts in order to adjust the risk and return characteristics of the
Fund's overall strategy in a manner deemed appropriate to the Advisor and
consistent with the Fund's objective and policies. Because combined options
positions involve multiple trades, they result in higher transaction costs and
may be more difficult to open and close out.

          The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with
ordinary portfolio securities transactions, and there can be no guarantee that
their use will increase the Fund's return. While the use of these instruments by
the Fund may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Fund's
return. Certain strategies limit the Fund's possibilities to realize gains as
well as limiting its exposure to losses. The Fund could also experience losses
if the prices of its options and futures positions were poorly correlated with
its other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, the Fund will incur transaction costs,
including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Fund's turnover rate.

          The Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets.

OPTIONS

          PURCHASING PUT AND CALL OPTIONS. By purchasing a put option, the Fund
obtains the right (but not the obligation) to sell the instrument underlying the
option at a fixed strike price. In return for this right, the Fund pays the
current market price for the option (known as the option premium). Options have
various types of underlying instruments, including specific securities, indexes
of securities, indexes of securities prices, and futures contracts. The Fund may
terminate its position in a put option it has purchased by allowing it to expire
or by exercising the option. The Fund also may close out a put option position
by entering into an offsetting transaction, if a liquid market exists. If the
option is allowed to expire, the Fund will lose the entire premium it paid. If
the Fund exercises a put option on a security, it will sell the

<PAGE>


 instrument
underlying the option at the strike price. If the Fund exercises an option on an
index, settlement is in cash and does not involve the actual sale of securities.
If an option is American style, it may be exercised on any day up to its
expiration date. A European style option may be exercised on its expiration
date.

          The buyer of a typical put option can expect to realize a gain if the
price of the underlying instrument falls substantially. However, if the price of
the instrument underlying the option does not fall enough to offset the cost of
purchasing the option, a put buyer can expect to suffer a loss (limited to the
amount of the premium paid, plus related transaction costs).

          The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time, the buyer can expect to
suffer a loss if security prices do not rise sufficiently to offset the cost of
the option.

          SELLING (WRITING) PUT AND CALL OPTIONS. When the Fund writes a put
option, it takes the opposite side of the transaction from the option's
purchaser. In return for receipt of the premium, the Fund assumes the obligation
to pay the strike price for the instrument underlying the option if the other
party to the option chooses to exercise it. The Fund may seek to terminate its
position in a put option it writes before exercise by purchasing an offsetting
option in the market at its current price. If the market is not liquid for a put
option the Fund has written, however, the Fund must continue to be prepared to
pay the strike price while the option is outstanding, regardless of price
changes, and must continue to post margin as discussed below.

          If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its gain would be limited to the amount of
the premium it received. If security prices remain the same over time, it is
likely that the writer also will profit, because it should be able to close out
the option at a lower price. If security prices fall, the put writer would
expect to suffer a loss. This loss should be less than the loss from purchasing
and holding the underlying instrument directly, however, because the premium
received for writing the option should offset a portion of the decline.

          Writing a call option obligates the Fund to sell or deliver the
option's underlying instrument in return for the strike price upon exercise of
the option. The characteristics of writing call options are similar to those of
writing put options, except that writing calls generally is a profitable
strategy if prices remain the same or fall. Through receipt of the option
premium, a call writer offsets part of the effect of a price decline. At the
same time, because a call writer must be prepared to deliver the underlying
instrument in return for the strike price, even if its current value is greater,
a call writer gives up some ability to participate in security price increases.

<PAGE>

          The writer of an exchange traded put or call option on a security, an
index of securities or a futures contract is required to deposit cash or
securities or a letter of credit as margin and to make mark to market payments
of variation margin as the position becomes unprofitable.

          OPTIONS ON INDEXES. Options on securities indexes are similar to
options on securities, except that the exercise of securities index options is
settled by cash payment and does not involve the actual purchase or sale of
securities. In addition, these options are designed to reflect price
fluctuations in a group of securities or segment of the securities market rather
than price fluctuations in a single security. The Fund, in purchasing or selling
index options, is subject to the risk that the value of its portfolio securities
may not change as much as an index because the Fund's investments generally will
not match the composition of an index.

          For a number of reasons, a liquid market may not exist and thus the
Fund may not be able to close out an option position into which it has
previously entered. When the Fund purchases an OTC option (as defined below), it
will be relying on its counterparty to perform its obligations, and the Fund may
incur additional losses if the counterparty is unable to perform.

          EXCHANGE TRADED AND OTC OPTIONS. All options purchased or sold by the
Funds will be traded on a securities exchange or will be purchased or sold by
securities dealers ("OTC options") that meet creditworthiness standards approved
by the Board of Trustees. While exchange traded options are obligations of the
Options Clearing Corporation, in the case of OTC options, the Fund relies on the
dealer from which it purchased the option to perform if the option is exercised.
Thus, when the Fund purchases an OTC option, it relies on the dealer from which
it purchased the option to make or take delivery of the underlying securities.
Failure by the dealer to do so would result in the loss of the premium paid by
the Fund as well as the loss of the expected benefit of the transaction.

          Provided that the Fund has arrangements with certain qualified dealers
who agree that the Fund may repurchase any option it writes for a maximum price
to be calculated by a predetermined formula, the Fund may treat the underlying
securities used to cover written OTC options as liquid. In these cases, the OTC
option itself would only be considered illiquid to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the option.

          FUTURES CONTRACTS AND OPTIONS ON FUTURES CONTRACTS. The Fund may
purchase or sell (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. In addition, the
Fund may sell (write) put and call options, including options on futures.
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

<PAGE>

 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 the Fund are paid by the Fund into a segregated
account, in the name of the Futures Commission Merchant, as required by the 1940
Act and the interpretations of the Securities and Exchange Commission ("SEC")
thereunder.

          COMBINED POSITIONS. The Fund is permitted to purchase and write
options in combination with other series of the Trust, or in combination with
futures or forward contracts, to adjust the risk and return characteristics of
the overall position. For example, the Fund may purchase a put option and write
a call option on the same underlying instrument, in order to construct a
combined position whose risk and return characteristics are similar to selling a
futures contract. Another possible combined position would involve writing a
call option at one strike price and buying a call option at a lower price, in
order to reduce the risk of the written call option in the event of a
substantial price increase. Because combined options positions involve multiple
trades, they result in higher transaction costs and may be more difficult to
open and close out.

          CORRELATION OF PRICE CHANGES. Because there are a limited number of
types of exchange traded options and futures contracts, it is likely that the
standardized options and futures contracts available will not match the Fund's
current or anticipated investments exactly. The Fund may invest in options and
futures contracts based on securities with different issuers, maturities, or
other characteristics from the securities in which it typically invests, which
involves a risk that the options or futures position will not track the
performance of the Fund's other investments.

          Options and futures contracts prices also can diverge from the prices
of their underlying instruments, even if the underlying instruments match the
Fund's investments well. Options and futures contracts prices are affected by
such factors as current and anticipated short term interest rates, changes in
volatility of the underlying instrument, and the time remaining

<PAGE>

 until expiration
of the contract, which may not affect security prices the same way. Imperfect
correlation also may result from differing levels of demand in the options and
futures markets and the securities markets, from structural differences in how
options and futures and securities are traded, or from imposition of daily price
fluctuation limits or trading halts. The Fund may purchase or sell options and
futures contracts with a greater or lesser value than the securities it wishes
to hedge or intends to purchase in order to attempt to compensate for
differences in volatility between the contract and the securities, although this
may not be successful in all cases. If price changes in the Fund's options or
futures positions are poorly correlated with its other investments, the
positions may fail to produce anticipated gains or result in losses that are not
offset by gains in other investments.

          LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance a
liquid market will exist for any particular option or futures contract at any
particular time even if the contract is traded on an exchange. In addition,
exchanges may establish daily price fluctuation limits for options and futures
contracts and may halt trading if a contract's price moves up or down more than
the limit in a given day. On volatile trading days when the price fluctuation
limit is reached or a trading halt is imposed, it may be impossible for the Fund
to enter into new positions or close out existing positions. If the market for a
contract is not liquid because of price fluctuation limits or otherwise, it
could prevent prompt liquidation of unfavorable positions, and could potentially
require the Fund to continue to hold a position until delivery or expiration
regardless of changes in its value. As a result, the Fund's access to other
assets held to cover its options or futures positions also could be impaired.
See "Exchange Traded and OTC Options" above for a discussion of the liquidity of
options not traded on an exchange.

          POSITION LIMITS. Futures exchanges can limit the number of futures and
options on futures contracts that can be held or controlled by an entity. If an
adequate exemption cannot be obtained, the Fund or the Advisor may be required
to reduce the size of its futures and options positions or may not be able to
trade a certain futures or options contract in order to avoid exceeding such
limits.

          ASSET COVERAGE FOR FUTURES CONTRACTS AND OPTIONS POSITIONS. Although
the Fund will not be commodity pools, certain derivatives subject the Fund to
the rules of the Commodity Futures Trading Commission which limit the extent to
which the Fund can invest in such derivatives. The Fund may invest in futures
contracts and options with respect thereto for hedging purposes without limit.
However, the Fund may not invest in such contracts and options for other
purposes if the sum of the amount of initial margin deposits and premiums paid
for unexpired options with respect to such contracts, other than for bona fide
hedging purposes, exceeds 5% of the liquidation value of the Fund's assets,
after taking into account unrealized profits and unrealized losses on such
contracts and options; provided, however, that in the case of an option that is
in-the-money at the time of purchase, the in-the-money amount may be excluded in
calculating the 5% limitation.

<PAGE>

SWAPS AND RELATED SWAP PRODUCTS

          The Fund may engage in swap transactions, including, but not limited
to, interest rate, currency, securities index, basket, specific security and
commodity swaps, interest rate caps, floors and collars and options on interest
rate swaps (collectively defined as "swap transactions").

          The Fund may enter into swap transactions for any legal purpose
consistent with its investment objective and policies, such as for the purpose
of attempting to obtain or preserve a particular return or spread at a lower
cost than obtaining that return or spread through purchases and/or sales of
instruments in cash markets, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the price of
securities the Fund anticipates purchasing at a later date, or to gain exposure
to certain matters in the most economical way possible. The Fund will not sell
interest rate caps, floors or collars if it does not own securities with coupons
which provide the interest that the 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 specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchase of an option on an interest rate swap, upon payment of a fee
(either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre- specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.

          The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., three month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to

<PAGE>

 be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by the Fund, payments by the
parties will be exchanged on a "net basis," and the Fund will receive or pay, as
the case may be, only the net amount of the two payments.

          The amount of the Fund's potential gain or loss on any swap
transaction is not subject to any fixed limit. Nor is there any fixed limit on
the Fund's potential loss if it sells a cap or collar. If the Fund buys a cap,
floor, or collar, however, the Fund's potential loss is limited to the amount of
the fee that it has paid. When measured against the initial amount of cash
required to initiate the transaction, which is typically zero in the case of
most conventional swap transactions, swaps, caps, floors and collars tend to be
more volatile than many other types of instruments.

          The use of swap transactions, caps, floors and collars involves
investment techniques and risks which are different from those associated with
portfolio security transactions. If the Advisor is incorrect in its forecasts of
market values, interest rates, and other applicable factors, the investment
performance of the Fund will be less favorable than if these techniques had not
been used. These instruments typically are not traded on exchanges. Accordingly,
there is a risk that the other party to certain of these instruments will not
perform its obligations to the Fund or that the Fund may be unable to enter into
offsetting positions to terminate its exposure or liquidate its position under
certain of these instruments when it wishes to do so. Such occurrences could
result in losses to the Fund.

          The Advisor will, however, consider such risks and will enter into
swap and other derivative transactions only when it believes that the risks are
not unreasonable.

          The Fund will maintain cash or liquid assets in a segregated account
with its custodian in an amount sufficient at all times to cover its current
obligations under its swap transactions, caps, floors and collars. If the Fund
enters into a swap agreement on a net basis, it will segregate assets with daily
value at least equal to the excess, if any, of the Fund's accrued obligations
under the swap agreement over the accrued amount the Fund is entitled to receive
under the agreement. If the Fund enters into a swap agreement on other than a
net basis, or sells a cap, floor or collar, it will segregate assets with a
daily value at least equal to the full amount of a Fund's accrued obligations
under the agreement.

          The Fund will not enter into any swap transaction, cap, floor, or
collar, unless the counterparty to the transaction is deemed creditworthy by the
Advisor. If a counterparty defaults, the Fund may have contractual remedies
pursuant to the agreements related to the transaction. The swap markets in which
many types of swap transactions are traded have grown substantially in recent
years, with a large number of banks and investment banking firms acting both as
principals and as agents using standardized swap documentation. As a result, the
markets for certain types of swaps (e.g., interest rate swaps) have become
relatively liquid. The markets for some types of caps, floors and collars are
less liquid.

<PAGE>

          The liquidity of swap transactions, caps, floors and collars will be
as set forth in guidelines established by the Advisor and approved by the
Trustees which are based on various factors, including (1) the availability of
dealer quotations and the estimated transaction volume for the instrument, (2)
the number of dealers and end users for the instrument in the marketplace, (3)
the level of market making by dealers in the type of instrument, (4) the nature
of the instrument (including any right of a party to terminate it on demand) and
(5) the nature of the marketplace for trades (including the ability to assign or
offset the Fund's rights and obligations relating to the instrument). Such
determination will govern whether the instrument will be deemed within the 15%
restriction on investments in securities that are not readily marketable.

          During the term of a swap, cap, floor or collar, changes in the value
of the instrument are recognized as unrealized gains or losses by marking to
market to reflect the market value of the instrument. When the instrument is
terminated, the Fund will record a realized gain or loss equal to the
difference, if any, between the proceeds from (or cost of) the closing
transaction and the Fund's basis in the contract.

          The federal income tax treatment with respect to swap transactions,
caps, floors, and collars may impose limitations on the extent to which the Fund
may engage in such transactions.

INVESTMENT RESTRICTIONS

          The investment restrictions set forth below have been adopted by the
Trust with respect to the Fund. Except as 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. 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 purchasing securities to the market value of the Fund's assets.

          The Fund:

          1. May not make any investments inconsistent with the Fund's
classification as a diversified investment company under the 1940 Act;

          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;

<PAGE>

          3. May not issue senior securities, except as permitted under the 1940
Act 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 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 Funds investment
objectives and policies and to the extent permitted by applicable law.

          NON-FUNDAMENTAL INVESTMENT RESTRICTIONS. The investment restrictions
described below are not fundamental policies of the Fund and may be changed by
the Trustees. These non-fundamental investment policies require that the Fund:

          (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 acquire securities of other investment companies, except
as permitted by the 1940 Act or any order pursuant thereto; and

          (iii) 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.

<PAGE>

          If any percentage restriction described above is adhered to at the
time of investment, a subsequent increase or decrease in the percentage
resulting from a change in the value of the Fund's assets will not constitute a
violation of the restriction.

          For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL REPORTS
WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.

TRUSTEES AND OFFICERS

TRUSTEES

          The Trustees of the Trust, their principal occupations during the past
five years, business addresses and dates of birth are set forth below.

          FREDERICK S. ADDY-Trustee; Retired; Prior to April 1994, Executive
Vice President and Chief Financial Officer, Amoco Corporation. His address is
5300 Arbutus Cove, Austin, Texas 78746, and his date of birth is January 1,
1932.

          WILLIAM G. BURNS-Trustee; Retired; Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and 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 address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.

          MATTHEW HEALEY(1)-Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.

- -----------------
(1)  Mr. Healy is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM.

<PAGE>

          MICHAEL P. MILLARDI-Trustee; Retired; Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President, Broadcast Group. His address
is 10 Charnwood Drive, Suffern, New York 10910, and his date of birth is March
17, 1934.

          Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the Master Portfolios (as defined below), the J.P.
Morgan Institutional Funds and J.P. Morgan Funds 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, 1997 is set forth below.

<TABLE>
<CAPTION>
                                                            TOTAL TRUSTEE COMPENSATION
                                                               ACCRUED BY THE MASTER
                                                            PORTFOLIOS(*), J.P. MORGAN
                                 AGGREGATE TRUSTEE           INSTITUTIONAL FUNDS, J.P.
                              COMPENSATION PAID BY THE      MORGAN FUNDS AND THE TRUST
NAME OF TRUSTEE AND TITLE        TRUST DURING 1997                DURING 1997(**)

<S>                                 <C>                              <C>    
Frederick S. Addy,                  $90.92                           $72,500
Trustee

William G. Burns,                   $90.92                           $72,500
Trustee

Arthur C. Eschenlauer,              $90.92                           $72,500
Trustee

Matthew Healey,                     $90.92                           $72,500
Trustee (***)
Chairman and Chief
Executive  Officer

Michael P. Mallardi,                $90.92                           $72,500
Trustee
</TABLE>

<PAGE>

          (*) The J.P. Morgan Funds and J.P. Morgan Institutional Funds are each
multi-series registered investment companies that are part of a two-tier
(master-feeder) investment fund structure. Each series of the J.P. Morgan Funds
and J.P. Morgan Institutional Funds is a feeder fund that invests all of its
investable assets in one of 15 registered investment companies comprised of 22
separate master portfolios (collectively, the "Master Portfolios").

          (**) No investment company within the fund complex has a pension or
retirement plan.

          (***) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role
as Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $21,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.

          The Trustees decide upon general policies and are responsible for
overseeing the Trust's business affairs. The Trust has entered into a Fund
Services Agreement with Pierpont Group, Inc. to assist the Trustees in
exercising their overall supervisory responsibilities over the affairs of the
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 has agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services to the Trust and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.


OFFICERS

          The Trust's executive officers (listed below), other than the Chief
Executive Officer and the officers who are employees of the Advisor, are
provided and compensated by Funds Distributor, Inc. ("FDI"), a wholly owned
indirect subsidiary of Boston Institutional Group, Inc. The Chief Executive
Officer receives no compensation in his capacity as an officer of the Trust. The
officers conduct and supervise the business operations of the Trust. The Trust
has no employees.

          The officers of the Trust, their principal occupations during the past
five years and dates of birth are set forth below. 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.

<PAGE>

          MARGARET W. CHAMBERS-Vice President and Secretary. Senior Vice
President and General Counsel of FDI since April, 1998. From August 1996 to
March 1998, Ms. Chambers was Vice President and Assistant General Counsel for
Loomis, Sayles & Company, L.P. From January 1986 to July 1996, she was an
associate with the law firm of Ropes & Gray. Her date of birth is October 12,
1959.

          MARIE E. CONNOLLY-Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual"), and an
officer of certain investment companies distributed or administered by FDI.
Prior to July 1994, she was President and Chief Compliance Officer of FDI. Her
date of birth is August 1, 1957.

          DOUGLAS C. CONROY-Vice President and Assistant Treasurer. Assistant
Vice President and Assistant Department Manager of Treasury Services and
Administration of FDI and an officer of certain investment companies distributed
or administered by FDI. Prior to April 1997, Mr. Conroy was Supervisor of
Treasury Services and Administration of FDI. From April 1993 to January 1995,
Mr. Conroy was a Senior Fund Accountant for Investors Bank & Trust Company. His
date of birth is March 31, 1969.

          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. Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston
Company Advisors, Inc. ("TBCA"). 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. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.

          KATHLEEN K. MORRISEY-Vice President and Assistant Secretary. Vice
President and Assistant Secretary of FDI. Manager of Treasury Services
Administration and an officer of certain investment companies advised or
administered by Montgomery Asset Management, L.P. and Dresdner RCM Global
Investors, Inc., and their respective affiliates. From July 1994 to November
1995, Ms. Morrisey was a Fund Accountant for Investors Bank & Trust Company.
Prior to July 1994 she was a finance student at Stonehill College. Her date of
birth is July 5, 1972.

          MARY A. NELSON-Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual
and an officer of

<PAGE>

 certain investment companies distributed or administered by
FDI. Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for The Boston Company, Inc. Her date of birth is April 22, 1964.

          MARY JO PACE-Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York. Ms. Pace serves in the Funds Administration group as
a Manager for the Budgeting and Expense Processing Group. Prior to September
1995, Ms. Pace served as a Fund Administrator for Morgan Guaranty Trust Company
of New York. Her address is 60 Wall Street, New York, New York 10260. Her date
of birth is March 13, 1966.

          MICHAEL S. PETRUCELLI-Vice President and Assistant Secretary. Senior
Vice President and Director of Strategic Client Initiatives for FDI since
December 1996. From December 1989 through November 1996, Mr. Petrucelli was
employed with GE Investments where he held various financial, business
development and compliance positions. He also served as Treasurer of the GE
Funds and as Director of GE Investment Services. His address is 200 Park Avenue,
New York, New York, 10166. His date of birth is May 18, 1961.

          STEPHANIE D. PIERCE-Vice President and Assistant Secretary. Vice
President and Client Development Manager for FDI since April 1998. From April
1997 to March 1998, Ms. Pierce was employed by Citibank, NA as an officer of
Citibank and Relationship Manager on the Business and Professional Banking team
handling over 22,000 clients. From August 1995 to April 1997, she was an
Assistant Vice President with Hudson Valley Bank, and from September 1990 to
August 1995, she was a Second Vice President with Chase Manhattan Bank. Her
address is 200 Park Avenue, New York, New York 10166. Her date of birth is
August 18, 1968.

          GEORGE A. RIO-President and Assistant Treasurer. Executive Vice
President and Client Service Director of FDI since April 1998. From June 1995 to
March 1998, Mr. Rio was Senior Vice President and Senior Key Account Manager for
Putnam Mutual Funds. From May 1994 to June 1995, Mr. Rio was Director of
Business Development for First Data Corporation. From September 1983 to May
1994, Mr. Rio was Senior Vice President & Manager of Client Services and
Director of Internal Audit at The Boston Company. 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 a Manager of the Tax Group and is responsible for U.S. mutual fund tax
matters. Prior to September 1995, Ms. Rotundo served as a Senior Tax Manager in
the Investment Company Services Group of Deloitte & Touche LLP. Her address is
60 Wall Street, New York, New York 10260. Her date of birth is September 26,
1965.


INVESTMENT ADVISOR

<PAGE>

          The Trust has retained JPMIM as Investment Advisor to provide
investment advice and portfolio management services to the Fund. Subject to the
supervision of the Fund's Trustees, the Advisor makes the Fund's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Fund's investments.

          JPMIM, a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), is a registered investment adviser under the Investment
Advisers Act of 1940, as amended, and manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.

          J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of more than $275 billion.

          J.P. Morgan has a long history of service as an advisor, underwriter
and lender to an extensive roster of major companies and as a financial advisor
to national governments. The firm, through its predecessor firms, has been in
business for over a century and has been managing investments since 1913.

          The basis of the Advisor's investment process is fundamental
investment research because the firm believes that fundamentals should determine
an asset's value over the long term. The Advisor currently employs over 100
full-time research analysts, among the largest research staffs in the money
management industry, in its investment management divisions located in New York,
London, Tokyo, Frankfurt and Singapore to cover companies, industries and
countries on site. In addition, the investment management divisions employ
approximately 300 capital market researchers, portfolio managers and traders.
The conclusions of the equity analysts' fundamental research are quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for two to five years to
enable analysts to take a longer term view. These returns, or normalized
earnings, are used to establish relative values among stocks in each industrial
sector. These values may not be the same as the markets' current valuations of
these companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector.

          The investment advisory services the Advisor provides to the Fund are
not exclusive under the terms of the Investment Advisory Agreement. The Advisor
is free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other investment
companies and acts as fiduciary for trusts, estates and employee benefit plans.
Certain of the assets of trusts and estates under management

<PAGE>

 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 Fund. Such accounts are supervised by officers and employees of the
Advisor who may also be acting in similar capacities for the Fund. See
"Portfolio Transactions."

          Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Fund is the Russell 1000 Growth
Index.

          Morgan, also a wholly owned subsidiary of J.P. Morgan, is a bank
holding company organized under the laws of the State of Delaware. Morgan, whose
principal offices are at 60 Wall Street, New York, New York 10260, is a New York
trust company which conducts a general banking and trust business. Morgan is
subject to regulation by the New York State Banking Department and is a member
bank of the Federal Reserve System. Through offices in New York City and abroad,
Morgan offers a wide range of services, primarily to governmental,
institutional, corporate and high net worth individual customers in the United
States and throughout the world.

          The Fund is managed by officers of the Advisor who, in acting for
their clients, including the Fund, do not discuss their investment decisions
with any personnel of J.P. Morgan or any personnel of other divisions of J.P.
Morgan or with any of its affiliated persons, with the exception of certain
investment management affiliates of J.P. Morgan.

          As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Fund has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to 0.50% of the Fund's average daily net
assets.

          The Investment Advisory Agreement between the Advisor and the Trust,
on behalf of the Fund, provides that it will continue in effect for a period of
two years after execution only if specifically approved thereafter annually in
the same manner as the Distribution Agreement. See "Distributor" below. The
Investment Advisory Agreement will terminate automatically if assigned and is
terminable at any time with respect to the Fund without penalty by a vote of a
majority of the Trust's Trustees or by a vote of the holders of a majority of
the Fund's outstanding voting securities on 60 days' written notice to the
Advisor and by the Advisor on 90 days' written notice to the Fund. See
"Additional Information."

          The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities. The Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the

<PAGE>

 federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company that continuously issues
shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor,
administrator, shareholder servicing agent or custodian to such an investment
company. The Advisor believes that it may perform the services for the Fund
contemplated by the Investment Advisory Agreement without violation of the
Glass-Steagall Act or other applicable banking laws or regulations. State laws
on this issue may differ from the interpretation of relevant federal law, and
banks and financial institutions may be required to register as dealers pursuant
to state securities laws. However, it is possible that future changes in either
federal or state statutes and regulations concerning the permissible activities
of banks or trust companies, as well as further judicial or administrative
decisions and interpretations of present and future statutes and regulations,
might prevent the Advisor from continuing to perform such services for the Fund.

          If the Advisor were prohibited from acting as investment advisor to
the Fund, it is expected that the Trustees of the Trust would recommend to
shareholders that they approve the Fund's entering into a new investment
advisory agreement with another qualified investment advisor selected by the
Trustees.

          Under separate agreements, Morgan provides certain financial, fund
accounting, administrative and shareholder services to the Trust. See "Services
Agent" and "Shareholder Servicing" below.

DISTRIBUTOR

          FDI serves as the Trust's exclusive distributor and holds itself
available to receive purchase orders for the Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of the Fund's shares in accordance with the terms of the
Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Fund's distributor.

          The Distribution Agreement will continue in effect with respect to the
Fund for a period of two years after execution and will continue thereafter only
if it is approved at least annually (i) by a vote of the holders of a majority
of the Fund's outstanding voting securities 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 Officers"). The Distribution Agreement will terminate
automatically if assigned by either party. The Distribution Agreement is also
terminable with respect to the Fund 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 (i) 67% or more of
the Fund's outstanding voting securities present at a meeting if the holders of
more than 50% of the Fund's outstanding

<PAGE>

 voting securities are present or
represented by proxy, or (ii) more than 50% of the Fund's outstanding voting
securities, whichever is less. FDI is a wholly owned indirect subsidiary of
Boston Institutional Group, Inc. The principal offices of FDI are located at 60
State Street, Suite 1300, Boston, Massachusetts 02109.

CO-ADMINISTRATOR

          Under a Co-Administration Agreement with the Trust, FDI also serves as
the Trust's Co-Administrator. The Co-Administration Agreement may be renewed or
amended by the Trustees without a shareholder vote. The Co-Administration
Agreement is terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust 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
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 Fund; (ii) provides
officers for the Trust; (iii) prepares and files documents required for
notification of state securities administrators; (iv) reviews and files
marketing and sales literature; (v) files regulatory documents and mails
communications to Trustees and investors; and (vi) maintains related books and
records.

          For its services under the Co-Administration Agreement, the Fund has
agreed to pay FDI fees equal to its allocable share of an annual complex-wide
charge of $425,000 plus FDI's out-of-pocket expenses. The amount allocable to
the Fund is based on the ratio of the Fund's net assets to the aggregate net
assets of the Trust and certain other registered investment companies subject to
similar arrangements with FDI.


SERVICES AGENT

          The Trust, on behalf of the Fund, has entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan pursuant to which
Morgan is responsible for certain administrative and related services provided
to the Fund. The Services Agreement 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 Agreement, Morgan provides certain administrative
and related services to the Fund, 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.

<PAGE>

          Under the Services Agreement, the Fund has agreed to pay Morgan fees
equal to its allocable share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate net assets of the Fund, the Trust's
other series and the Master Portfolios in accordance with the following annual
schedule: 0.09% of the first $7 billion of their aggregate average daily net
assets, and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund is determined by the proportionate share that its net assets
bear to the total net assets of the Trust and the other investment companies
provided administrative services by Morgan.

CUSTODIAN AND TRANSFER AGENT

          State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's custodian and fund
accounting, transfer and dividend disbursing agent. Pursuant to the Custodian
Contract with the Trust, State Street is responsible for maintaining the books
and records of the Fund's portfolio transactions and for holding portfolio
securities and cash. The custodian maintains portfolio transaction records. As
transfer agent and dividend disbursing agent, State Street is responsible for
maintaining account records detailing the ownership of Fund shares and for
crediting income, capital gains and other changes in share ownership to
shareholder accounts.

SHAREHOLDER SERVICING

          The Trust, on behalf of the Fund, has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for Fund shareholders. Under this agreement, Morgan is
responsible for performing, directly or through an agent, shareholder account
administrative and servicing functions, which include but are not limited to
answering inquiries regarding account status and history, the manner in which
purchases and redemptions of Fund shares may be effected, and certain other
matters pertaining to the Fund; assisting customers in designating and changing
dividend options, account designations and addresses; providing necessary
personnel and facilities to coordinate the establishment and maintenance of
shareholder accounts and records with the Fund's transfer agent; transmitting
purchase and redemption orders to the Fund's transfer agent and arranging for
the wiring or other transfer of funds to and from customer accounts in
connection with orders to purchase or redeem Fund shares; verifying purchase and
redemption orders, transfers among and changes in accounts; informing FDI of the
gross amount of purchase orders for Fund shares; and providing other related
services.

          Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee of 0.10% (expressed as a percentage of the
average daily net asset value 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.

<PAGE>

          As discussed under "Investment Advisor," the Glass-Steagall Act and
other applicable laws and regulations limit the activities of bank holding
companies and certain of their subsidiaries in connection with registered
open-end investment companies. The activities of Morgan in acting as shareholder
servicing agent for Fund shareholders under the Shareholder Servicing Agreement
and for providing administrative services to the Fund under the Services
Agreement, and JPMIM in acting as Advisor to the Fund under the Investment
Advisory Agreement may raise issues under these laws. However, Morgan and JPMIM
believe that they may properly perform these services and the other activities
described in the Prospectuses without violating the Glass-Steagall Act or other
applicable banking laws or regulations.

          If Morgan were prohibited from providing any of the services under the
Shareholder Servicing and the Services Agreements, the Trustees would seek an
alternative provider of such services. In such event, changes in the operation
of the Fund might occur and a shareholder might no longer be able to avail
himself or herself of any services then being provided to shareholders by
Morgan.

          The Fund may be sold to or through financial intermediaries who are
customers of J.P. Morgan ("financial professionals"), including financial
institutions and broker-dealers, that may be paid fees by J.P. Morgan or its
affiliates for services provided to their clients that invest in the Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.

FINANCIAL PROFESSIONALS

          The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
subaccounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as J.P. Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.

          Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-based or other
fee for their services. Such charges may vary among financial professionals but
in all cases will be retained by the financial professional and not be remitted
to the Fund or J.P. Morgan.

<PAGE>

          The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, it 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 are PricewaterhouseCoopers
LLP. PricewaterhouseCoopers LLP conducts an annual audit of the financial
statements of the Fund, assists in the preparation and/or review of the Fund's
federal and state income tax returns and consults with the Fund 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 Officers,"
"Investment Advisor," "Co- Administrator", "Distributor", "Services Agent" and
"Shareholder Servicing" above, the Fund is responsible for usual and customary
expenses associated with the Trust's operations. Such expenses include
organization expenses, legal fees, accounting and audit expenses, insurance
costs, the compensation and expenses of the Trustees, registration fees under
federal securities laws, extraordinary expenses, transfer, registrar and
dividend disbursing costs, the expenses of printing and mailing reports, notices
and proxy statements to Fund shareholders, fees under state securities laws,
custodian fees and brokerage expenses.

PURCHASE OF SHARES

          ADDITIONAL MINIMUM BALANCE INFORMATION. If your account balance falls
below the minimum for 30 days as a result of selling shares (and not because of
performance), the Fund reserves the right to request that you buy more shares or
close your account. If your account balance is still below the minimum 60 days
after notification, the Fund reserves the right to close out your account and
send the proceeds to the address of record.

          METHOD OF PURCHASE. Investors may open accounts with the 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 Fund reserves the right to determine the purchase orders that
they will accept.

<PAGE>

          References in the Prospectus and this Statement of Additional
Information to customers of J.P. Morgan or a financial professional include
customers of their affiliates, and references to transactions by customers with
J.P. Morgan or a financial professional include transactions with their
affiliates. Only Fund investors who are using the services of a financial
institution acting as shareholder servicing agent pursuant to an agreement with
the Trust on behalf of the Fund may make transactions in shares of the Fund.

          The Fund may, at its own option, accept securities in payment for
shares. The securities so delivered are valued by the method described under
"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. In addition, securities accepted in payment for shares
must: (i) meet the investment objective and policies of the Fund; (ii) be
acquired by the Fund for investment and not for resale; (iii) be liquid
securities which are not restricted as to transfer; and (iv) if stock, have a
value which is readily ascertainable as evidenced by a listing on a stock
exchange, OTC market or by readily available market quotations from a dealer in
such securities. The Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

          Prospective investors may purchase shares with the assistance of a
financial professional and the financial professional may charge the investor a
fee for this service and other services it provides to its customers. J.P.
Morgan may pay fees to financial professionals for services in connection with
fund investments. See "Financial Professionals" above.

REDEMPTION OF SHARES

          Investors may redeem shares of the Fund as described in the
Prospectus. The Fund generally intends to pay redemption proceeds in cash;
however, it reserves the right at its sole discretion to pay redemptions over
$250,000 in-kind as a portfolio of representative stocks rather than cash. See
below and "Exchange of Shares."

          The Trust, on behalf of the Fund, reserves 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 thereon
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 Fund 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.

          If the Trust determines that it would be detrimental to the best
interests of the remaining shareholders of the Fund to make payment wholly or
partly in cash, payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the

<PAGE>

 Fund, in lieu of cash. If
shares are redeemed in-kind, the redeeming shareholder might incur costs in
converting the assets into cash. The Trust is in the process of seeking
exemptive relief from the SEC with respect to redemptions in-kind by the Fund.
If the requested relief is granted, the Fund would then be permitted to pay
redemptions to greater than 5% shareholders in securities, rather than in cash,
to the extent permitted by the SEC and applicable law. 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.

          In general, the Fund will attempt to select securities for in-kind
redemptions that approximate the overall characteristics of the Fund's
portfolio. The Fund will not distribute illiquid securities to satisfy in-kind
redemptions. For purposes of effecting in-kind redemptions, securities will be
valued in the manner regularly used to value the Fund's portfolio securities.
The Fund will not redeem its shares in-kind in a manner that after giving effect
to the redemption would cause it to violate its investment restrictions or
policies.

          OTHER REDEMPTION PROCESSING INFORMATION. Redemption requests may not
be processed if the redemption request is not submitted in proper form. A
redemption request is not in proper form unless the Fund has received the
shareholder's certified taxpayer identification number and address. In addition,
if shares were paid for by check and the check has not yet cleared, redemption
proceeds will not be transmitted until the check has cleared, which may take up
to 15 days. The Fund reserves the right to suspend the right of redemption or
postpone the payment of redemption proceeds to the extent permitted by the SEC.
Shareholders may realize taxable gains upon redeeming shares.

          For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.

EXCHANGE OF SHARES

          Subject to the limitations below, an investor may exchange shares from
the Fund into 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. See "Redemption of Shares."
Shareholders subject to federal income tax who exchange shares in one fund for
shares in another fund may recognize capital gain or loss for federal income tax
purposes. Shares of a fund to be acquired are purchased for settlement when the
proceeds from redemption become available. In the case of investors in certain
states, state securities laws may

<PAGE>

 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

          The Fund declares and pays dividends and distributions as described
under "Dividends and Distributions" in the Prospectus.

          Dividends and capital gains distributions paid by the Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.

          If a shareholder has elected to receive dividends and/or capital gains
distributions in cash and the postal or other delivery service is unable to
deliver checks to the shareholder's address of record, such shareholder's
distribution option will automatically be converted to having all dividend and
other distributions reinvested in additional shares. No interest will accrue on
amounts represented by uncashed distribution or redemption checks.

NET ASSET VALUE

          The Fund computes its net asset value separately for each class of
shares outstanding once daily as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m. eastern time) on each business day as described in
the Prospectus. The net asset value will not be computed on the day the
following legal holidays are observed: New Year's Day, Martin Luther King Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day. On days when U.S. trading markets close
early in observance of these holidays, the Fund will close for purchases and
redemptions at the same time. The Fund also may close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. The days on which net asset value is
determined are the Fund's business days.

          Portfolio securities are valued at the last sale price on the
securities exchange or national securities market on which such securities are
primarily traded. Unlisted securities are valued at the last average of the
quoted bid and asked prices in the OTC market. 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 average
currency exchange rate on the valuation date.

<PAGE>

          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 Fund was more than
60 days, unless this is determined not to represent fair value by the Trustees.

          Trading in securities in most foreign markets is normally completed
before the close of trading in U.S. markets and may also take place on days on
which the U.S. markets are closed. If events materially affecting the value of
securities occur between the time when the market in which they are traded
closes and the time when the Fund's net asset value is calculated, such
securities will be valued at fair value in accordance with procedures
established by and under the general supervision of the Trustees.

PERFORMANCE DATA

          From time to time, the Fund may quote performance in terms of actual
distributions, total return or capital appreciation for the various Fund classes
in reports, sales literature and advertisements published by the Trust. Current
performance information may be obtained by calling Morgan at (800) 766-7722.

          The classes of shares of the Fund may bear different shareholder
servicing fees and other expenses, which may cause the performance of a class to
differ from the performance of another class. Performance quotations will be
computed separately for each class of the Fund's shares. Any fees charged by an
institution directly to its customers' accounts in connection with investments
in the Funds will not be included in calculations of total return.

          TOTAL RETURN QUOTATIONS. As required by regulations of the SEC,
average annual total return of each class of shares of the Fund for a period is
computed by assuming a hypothetical initial payment of $1,000. It is then
assumed that all of the dividends and distributions by the Fund over the period
are reinvested. It is then assumed that at the end of the period, the entire
amount is redeemed. The average annual 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, also may be calculated.

<PAGE>

          GENERAL. Performance will vary from time to time depending upon market
conditions, the composition of the portfolio and operating expenses.
Consequently, any given performance quotation should not be considered
representative of the Fund's performance for any specified period in the future.
In addition, because performance will fluctuate, it may not provide a basis for
comparing an investment in the Fund with certain bank deposits or other
investments that pay a fixed yield or return for a stated period of time.

          Comparative performance information may be used from time to time in
advertising the Fund's 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 Fund may, in addition to any other permissible
information, include the following types of information in advertisements,
supplemental sales literature and reports to shareholders: (1) discussions of
general economic or financial principles (such as the effects of compounding and
the benefits of dollar-cost averaging); (2) discussions of general economic
trends; (3) presentations of statistical data to supplement such discussions;
(4) descriptions of past or anticipated portfolio holdings for the Fund; (5)
descriptions of investment strategies for the Fund; (6) descriptions or
comparisons of various savings and investment products (including, but not
limited to, qualified retirement plans and individual stocks and bonds), which
may or may not include the Fund; (7) comparisons of investment products
(including the Fund) with relevant markets or industry indices or other
appropriate benchmarks; (8) discussions of Fund rankings or ratings by
recognized rating organizations; and (9) discussions of various statistical
methods quantifying the Fund's volatility relative to its benchmark or to past
performance, including risk adjusted measures. The Fund may also include
calculations, such as hypothetical compounding examples, which describe
hypothetical investment results in such communications. Such performance
examples will be based on an express set of assumptions and are not indicative
of the performance of the Fund.

PORTFOLIO TRANSACTIONS

          The Advisor places orders for the Fund for all purchases and sales of
portfolio securities, enters into repurchase agreements and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Fund. See "Investment Objectives and Policies."

          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 broker's
financial condition; and 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 Trust's Trustees review regularly the
reasonableness of commissions and other transaction costs incurred by the Fund
in light of facts and circumstances deemed relevant from time to time and, in
that connection, will receive reports from Morgan 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 of the Advisor's clients and not solely or necessarily for the
benefit of the Fund. The Advisor believes that the value of research services
received is not determinable and does not significantly reduce its expenses. The
Fund does not reduce its fee to the Advisor by any amount that might be
attributable to the value of such services.

          Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of the Fund's brokerage transactions
to affiliates of the Advisor. In order for affiliates of the Advisor to effect
any portfolio transactions for the Fund, the commissions, fees or other
remuneration received by such affiliates must be reasonable and fair compared to
the commissions, fees, or other remuneration paid to other brokers in connection
with comparable transactions involving similar securities being purchased or
sold on a securities exchange during a comparable period of time. Furthermore,
the Trust's Trustees, including a majority of the Trustees who are not
"interested persons," have adopted procedures which are reasonably designed to
provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.

          Fixed income and debt securities are generally traded at a net price
with dealers acting as principal for their own accounts without a stated
commission. The price of the security usually includes profit to the dealers. In
underwritten offerings, securities are purchased at a fixed price which includes
an amount of compensation to the underwriter, generally referred to as the
underwriter's concession or discount. On occasion, certain securities may be
purchased directly from an issuer, in which case no commissions or discounts are
paid. The Advisor intends to seek best execution on a competitive basis for both
purchases and sales of securities.

          Portfolio securities will not be purchased from or through or sold to
or through the Advisor or FDI or any "affiliated person" (as defined in the 1940
Act) thereof when such entities are acting as principals, except to the extent
permitted by law. In addition, the Fund will not purchase securities from any
underwriting group of which the Advisor or an affiliate of the Advisor is a
member, except to the extent permitted by law.

          Investment decisions made by the Advisor are the product of many
factors in addition to basic suitability for the Fund or other client in
question. Thus, a particular security

<PAGE>

 may be bought or sold for certain clients
even though it could have been bought or sold for other clients at the same
time. Likewise, a particular security may be bought for one or more clients when
one or more other clients are selling the same security. The Fund only may sell
a security to another series of the Trust or to other accounts managed by the
Advisor or its affiliates in accordance with procedures adopted by the Trustees.

          It also sometimes happens that two or more clients simultaneously
purchase or sell the same security. On those occasions when the Advisor deems
the purchase or sale of a security to be in the best interests of the Fund, as
well as other clients including other clients, the Advisor to the extent
permitted by applicable laws and regulations, may, but is not obligated to,
aggregate the securities to be sold or purchased for the Fund with those to be
sold or purchased for other clients in order to obtain best execution, including
lower brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Advisor in the manner it considers to be most
equitable and consistent with the Advisor's fiduciary obligations to the Fund.
In some instances, this procedure might adversely affect the Fund.

MASSACHUSETTS TRUST

          The Trust is a "Massachusetts business trust" of which the Fund is a
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. Under
Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will not be subject to any personal liability for the acts or obligations of the
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of the Fund will contain a provision to the effect that the
shareholders are not personally liable thereunder.

          The Trust's Declaration of Trust further provides that no Trustee,
officer, employee or agent of the Trust is liable to the Fund or to a
shareholder, and that no Trustee, officer, employee or agent is liable to any
third persons in connection with the affairs of the Fund, except as such
liability may arise from his or its own bad faith, willful misfeasance, gross
negligence or reckless disregard of his or its duties to such third persons
("disabling conduct"). It also provides that all third persons must look solely
to Fund property for satisfaction of claims arising in connection with the
affairs of the Fund. The Trust's Declaration of Trust provides that a Trustee,
officer, employee or agent is entitled to be indemnified against all liability
in connection with the affairs of the Fund, except liabilities arising from
disabling conduct.

DESCRIPTION OF SHARES

          The Fund represents a separate series of shares of beneficial interest
of the Trust. Fund shares are further divided into separate classes. See
"Massachusetts Trust."

<PAGE>

          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
without changing the proportionate beneficial interest of each shareholder in
the Fund. To date, the Fund is authorized to issue Institutional Shares and
Select Shares, but only Institutional Shares are currently offered.

          Each share represents an equal proportional interest in the Fund with
each other share of the same class. Upon liquidation of the Fund, holders are
entitled to share pro rata in the net assets of the Fund available for
distribution to such shareholders. Shares of the Fund have no preemptive or
conversion rights.

          The shareholders of the Trust are entitled to one full or fractional
vote for each dollar or fraction of a dollar invested in shares. Subject to the
1940 Act, the Trustees 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 to appoint their
own successors. However, immediately after such appointment, the requisite
majority of the Trustees must have been elected by the shareholders of the
Trust. The voting rights of shareholders are not cumulative. The Trust does not
intend to hold annual meetings of shareholders. The Trustees may call meetings
of shareholders for action by shareholder vote if 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 shareholders whose shares represent two-thirds of the net
asset value of the Trust, 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
shareholders whose shares represent 10% of the net asset value of the Trust. The
Trustees also are required, under certain circumstances, to assist shareholders
in communicating with other shareholders.

TAXES

          The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of the Prospectuses. These laws and regulations
are subject to change by legislative or administrative action.

          The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock or securities and
other income (including but not limited to gains from options and futures
contracts) derived with respect to its business of investing in such stock or
securities; and (b) diversify its holdings so that, at the end of each fiscal
quarter, (i) at least 50% of the value of the Fund's total assets is represented
by cash, U.S. Government securities, investments in other regulated investment
companies and other securities limited, in respect of any one issuer, to an

<PAGE>


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 the securities of other regulated investment
companies).

          As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's requirements. If the Fund does not
qualify as a regulated investment company, it will be treated for tax purposes
as an ordinary corporation subject to federal income tax.

          Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.

          For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends will
generally be taxable to a shareholder in the year declared rather than the year
paid.

          Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital loss is generally taxable to
shareholders of the Fund as ordinary income whether such distributions are taken
in cash or reinvested in additional shares. The Fund expects that a portion of
these distributions to corporate shareholders will be eligible for the
dividends-received deduction, subject to applicable limitations under the Code.
If dividend payments exceed income earned by the Fund, the overdistribution
would be considered a return of capital rather than a dividend payment. The Fund
intends to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of the 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 reduced
rate of tax. Investors should consult their tax advisors concerning the
treatment of capital gains and losses.

          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

<PAGE>

 of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above.

          Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where a put is acquired or a call option is
written thereon or the straddle rules described below are otherwise applicable.
Other gains or losses on the sale of securities will be short-term capital gains
or losses. Gains and losses on the sale, lapse or other termination of options
on securities will be treated as gains and losses from the sale of securities.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.

          Any 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. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares. In addition, no loss will be allowed on the redemption or exchange
of shares of the Fund, if within a period beginning 30 days before the date of
such redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.

          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 -- 

<PAGE>

i.e., treated as having been sold at
market value. For options and futures contracts, 60% of any gain or loss
recognized on these deemed sales and on actual dispositions will be treated as
long-term capital gain or loss, and the remainder will be treated as short-term
capital gain or loss regardless of how long the Portfolio has held such options
or futures. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.

          The Funds may invest in Equity Securities of foreign issuers. If a
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the
corresponding fund may be subject to federal income tax on a portion of an
"excess distribution" from such foreign corporation, including any gain from the
disposition of such shares, even though a portion of such income may have to be
distributed as a taxable dividend by the Fund to its shareholders. In addition,
certain interest charges may be imposed on a Fund as a result of such
distributions. Alternatively, a Fund may in some cases be permitted to include
each year in its income and distribute to shareholders a pro rata portion of the
foreign investment fund's income, whether or not distributed to the Fund.

          The Portfolios will be permitted to "mark to market" any marketable
stock held by a Portfolio in a PFIC. If a Portfolio made such an election, the
corresponding Fund would include in income each year an amount equal to its
share of the excess, if any, of the fair market value of the PFIC stock as of
the close of the taxable year over the adjusted basis of such stock. The Fund
would be allowed a deduction for its share of the excess, if any, of the
adjusted basis of the PFIC stock over its fair market value as of the close of
the taxable year, but only to the extent of any net mark-to-market gains with
respect to the stock included by the Fund for prior taxable years.

          If a correct and certified taxpayer identification number is not on
file, the Fund is required, subject to certain exemptions, to withhold 31% of
certain payments made or distributions declared to non-corporate shareholders.

          FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.

          In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the Fund may be required to withhold U.S. federal
income tax as "backup

<PAGE>

 withholding" at the rate of 31% from distributions treated
as long-term capital gains from the proceeds of redemptions, exchanges or other
dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by gift
of shares of the 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.

          STATE AND LOCAL TAXES. The Fund may be subject to state or local taxes
in jurisdictions in which the Fund is deemed to be doing business. In addition,
the treatment of the Fund and its shareholders in those states that have income
tax laws might differ from treatment under the federal income tax laws.
Shareholders should consult their own tax advisors with respect to any state or
local taxes.

          OTHER TAXATION. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code.

ADDITIONAL INFORMATION

          Telephone calls to the Fund, J.P. Morgan or State Street 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. Pursuant to
the rules and regulations of the SEC, certain portions have been omitted. The
registration statement, 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 FDI. The Prospectus and this Statement of Additional
Information do not constitute an offer by the Fund or by FDI 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 FDI to make such offer in such
jurisdictions.

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THE YEAR 2000 INITIATIVE

          With the new millennium rapidly approaching, organizations are
examining their computer systems to ensure they are year 2000 compliant. The
issue, in simple terms, is that many existing computer systems use only two
numbers to identify a year in the date field with the assumption that the first
two digits are always "19." As the century is implied in the date, on January 1,
2000, computers that are not year 2000 compliant will assume the year is 1900.
Systems that calculate, compare or sort using the incorrect date will cause
erroneous results, ranging from system malfunctions to incorrect or incomplete
transaction processing. If not remedied, potential risks include business
interruption or shutdown, financial loss, reputation loss and/or legal
liability.

          J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan is on target with its plan to
substantially complete renovation, testing and validation of its key systems by
year-end 1998 and to participate in industry-wide testing (or streetwide
testing) in 1999. J.P. Morgan is also working with key external parties,
including clients, counterparties, vendors, exchanges, depositories, utilities,
suppliers, agents and regulatory agencies, to stem the potential risks the year
2000 problem poses to J.P. Morgan and to the global financial community.

          Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund.



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