SERIES PORTFOLIO II
POS AMI, 1999-03-05
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    As filed with the Securities and Exchange Commission on March 5, 1999


                               FILE NO. 811-08077



                       SECURITIES AND EXCHANGE COMMISSION


                             WASHINGTON, D.C. 20549



                                    FORM N-1A


                             REGISTRATION STATEMENT


                                      UNDER


                       THE INVESTMENT COMPANY ACT OF 1940

                                 AMENDMENT NO. 5

                               SERIES PORTFOLIO II
                (formerly The Global Strategic Income Portfolio)
               (Exact Name of Registrant as Specified in Charter)


            60 State Street, Suite 1300, Boston, Massachusetts 02109
                    (Address of Principal Executive Offices)


       Registrant's Telephone Number, Including Area Code: (617) 557-0700


               Christopher J. Kelley, c/o Funds Distributor, Inc.
            60 State Street, Suite 1300, Boston, Massachusetts 02109
                     (Name and Address of Agent for Service)

                     Copy to: John E. Baumgardner, Jr., Esq.
                              Sullivan & Cromwell
                              125 Broad Street
                              New York, NY 10004




<PAGE>



                                EXPLANATORY NOTE

         This Registration  Statement has been filed by the Registrant  pursuant
to Section  8(b) of the  Investment  Company Act of 1940,  as amended.  However,
beneficial  interests  in the  Registrant  are not  being  registered  under the
Securities Act of 1933, as amended (the "1933 Act"), because such interests will
be issued  solely in private  placement  transactions  that do not  involve  any
"public  offering"  within  the  meaning  of  Section  4(2)  of  the  1933  Act.
Investments in the Registrant  may only be made by other  investment  companies,
insurance company separate accounts, common or commingled trust funds or similar
organizations or entities that are "accredited  investors" within the meaning of
Regulation D under the 1933 Act. This Registration Statement does not constitute
an offer to  sell,  or the  solicitation  of an  offer  to buy,  any  beneficial
interests in the Registrant.


<PAGE>

                                     PART A (Global Strategic Income Portfolio)


     Responses  to  Items 1  through  3 and 5A have  been  omitted  pursuant  to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.

ITEM 4.  GENERAL DESCRIPTION OF REGISTRANT.

         The  Global  Strategic   Income   Portfolio  (the   "Portfolio")  is  a
diversified,  open-end  management  investment  company which was organized as a
trust  under the laws of the State of New York on January  9,  1997.  Beneficial
interests in the Portfolio are issued solely in private  placement  transactions
that do not involve any "public  offering" within the meaning of Section 4(2) of
the  Securities  Act of 1933,  as amended (the "1933 Act").  Investments  in the
Portfolio  may only be made by other  investment  companies,  insurance  company
separate accounts,  common or commingled trust funds or similar organizations or
entities  that are  "accredited  investors"  within the meaning of  Regulation D
under the 1933 Act. This Registration  Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security"  within the meaning
of the 1933 Act.

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

         Investments  in the  Portfolio are not deposits or  obligations  of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York ("Morgan"),
an affiliate of the Advisor,  or any other bank.  Interests in the Portfolio are
not federally insured by the Federal Deposit Insurance Corporation,  the Federal
Reserve Board or any other  governmental  agency. An investment in the Portfolio
is subject to risk, as the net asset value of the Portfolio  will fluctuate with
changes in the value of the Portfolio's holdings.

         Part  B  contains  more  detailed   information  about  the  Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio,  (ii) the Trustees,  officers,  Advisor and administrators of the
Portfolio,  (iii)  portfolio  transactions,   (iv)  rights  and  liabilities  of
investors and (v) the audited  financial  statements of the Portfolio at October
31, 1998.

         The investment objective of the Portfolio is described below,  together
with the  policies  employed to attempt to achieve  this  objective.  Additional
information  about the investment  policies of the Portfolio  appears in Part B,
under Item 13. THE PORTFOLIO  INVESTS IN LOWER QUALITY DEBT  INSTRUMENTS  ("JUNK
BONDS"),  WHICH ARE SUBJECT TO HIGHER RISKS OF UNTIMELY  INTEREST AND  PRINCIPAL
PAYMENTS,  DEFAULT AND PRICE  VOLATILITY THAN HIGHER QUALITY  SECURITIES AND MAY
PRESENT  LIQUIDITY  AND  VALUATION  PROBLEMS.  THE  PORTFOLIO'S  INVESTMENTS  IN
SECURITIES  OF  FOREIGN  ISSUERS,   INCLUDING   ISSUERS  IN  EMERGING   MARKETS,
INVESTMENTS  IN  UNRATED  AND  LOWER  RATED  DEBT  OBLIGATIONS  AND  INVESTMENTS
DENOMINATED OR QUOTED IN FOREIGN  CURRENCIES,  AS WELL AS THE PORTFOLIO'S USE OF
INTEREST RATE AND CURRENCY  MANAGEMENT  TECHNIQUES,  ENTAIL RISKS IN ADDITION TO
THOSE THAT ARE CUSTOMARILY ASSOCIATED WITH INVESTING IN DOLLAR-DENOMINATED FIXED
INCOME SECURITIES OF U.S. ISSUERS.  INVESTMENTS IN DIRECTLY PLACED MORTGAGES AND
MORTGAGE-BACKED  SECURITIES  MAY  SUBJECT  THE  PORTFOLIO  TO SOME OF THE  RISKS
ASSOCIATED  WITH  INVESTMENTS  IN  REAL  ESTATE.   INTEREST  RATE  AND  CURRENCY
MANAGEMENT  TECHNIQUES MAY BE  UNAVAILABLE  OR  INEFFECTIVE IN MITIGATING  RISKS
INHERENT  IN THE  PORTFOLIO.  THE  PORTFOLIO  MAY  NOT BE ABLE  TO  ACHIEVE  ITS
INVESTMENT  OBJECTIVE.  THE PORTFOLIO IS INTENDED FOR INVESTORS WHO CAN ACCEPT A
HIGH DEGREE OF RISK AND IS NOT SUITABLE FOR ALL INVESTORS.

         The Portfolio's investment objective,  which is non-fundamental and can
be changed  without the approval of interest  holders,  is to provide high total
return from a  portfolio  of fixed  income  securities  of foreign and  domestic
issuers.

     PRIMARY  INVESTMENTS.  The  Portfolio  invests  primarily in the  following
sectors of foreign and domestic fixed income markets: mortgage-backed securities
and direct mortgage obligations; below investment grade debt obligations of U.S.
and non-U.S. issuers;  investment grade U.S. dollar-denominated debt obligations
of U.S. and non-U.S.  issuers;  investment  grade  non-dollar  denominated  debt
obligations of non-U.S.  issuers;  and obligations of emerging  markets issuers.
Within such  sectors,  the  Portfolio may invest in a broad range of issuers and
securities   with   varying   maturities.   Under  normal   market   conditions,
substantially  all and at least  65% of the  Portfolio's  total  assets  will be
invested in fixed income  securities in at least three countries,  including the
United States.

         The  Portfolio  may  invest  up to 60% of its  assets  in fixed  income
securities  rated  below  investment  grade  by  one  or  more   internationally
recognized  rating  agencies such as Standard & Poor's  Ratings Group ("S&P") or
Moody's Investors Service,  Inc. ("Moody's") or in unrated securities determined
to be of comparable credit quality by the Advisor. The Portfolio will not invest
in securities rated below B by S&P or Moody's.  The Portfolio is not required to
dispose  of  securities  whose  ratings  fall below B.  Below  investment  grade
securities, commonly called "junk bonds," are considered speculative and include
securities that are unrated or in default.  See Additional  Investment Practices
and Risks.

         The Portfolio's non-U.S.  investments include obligations of government
and corporate issuers in developed and emerging markets. These securities may be
denominated in foreign  currencies or the U.S. dollar.  The Portfolio  generally
attempts to hedge into the U.S.  dollar the currency  risks  resulting  from its
investments in securities denominated in currencies of developed countries.  The
Portfolio  will not routinely  hedge the currency  exposure  resulting  from its
emerging  market  investments.  The  Advisor  may from  time to time  decide  to
maintain  unhedged  foreign  currency  positions  in any  currency  or engage in
foreign  currency  transactions  if the Advisor  believes  the foreign  currency
exposure or transaction will benefit the Portfolio.

         HOW  INVESTMENTS  ARE  SELECTED.  The  Portfolio  seeks to achieve  its
objective  through  sector  allocation  and  security  selection.  Under  normal
circumstances,  the  Portfolio  allocates  its assets  among the market  sectors
described  above on the  basis of  relative  investment  opportunities.  Using a
variety of  analytical  tools and based on  experienced  judgment,  the  Advisor
assesses the relative attractiveness of each market sector and seeks to optimize
the  allocation  among them.  Specific  securities  within the sectors which the
Advisor believes are undervalued are selected for purchase using fundamental and
quantitative analysis, analysis of credit and liquidity risk, the expertise of a
dedicated  trading desk and the judgment of fixed income portfolio  managers and
analysts specializing in each market sector.

     The  Portfolio's  duration  will  generally be  approximately  equal to the
duration of the Lehman Brothers Aggregate Bond Index (the "Index").  In addition
to  securities  selection,  the Advisor may use futures  contracts to adjust the
Portfolio's  duration.  Currently the Index's duration is approximately four and
one-half  years.  The  maturities  of the  securities  in the Portfolio may vary
widely, however.

         Duration  is a measure of the  weighted  average  maturity  of the debt
obligations held by the Portfolio and the sensitivity of the Portfolio's  market
value to changes in interest  rates.  Generally,  the longer the duration of the
Portfolio, the more sensitive it will be to changes in interest rates.

ADDITIONAL INVESTMENT PRACTICES AND RISKS

         Investments in fixed income securities entail certain risks,  including
adverse income and principal value fluctuations associated with general economic
conditions  affecting the fixed income  securities  markets,  as well as adverse
interest  rate  changes  and  volatility  of yields.  The value of fixed  income
securities  generally  will increase when interest  rates decline and decline as
interest rates increase. As a result of this price volatility,  an investment in
the Portfolio could go down in value.

         INVESTMENT  IN LOWER RATED FIXED  INCOME  SECURITIES.  While  generally
providing  higher coupons or interest  rates than  investments in higher quality
securities,  lower quality fixed income securities  involve greater risk of loss
of principal and income,  including the  possibility of default or bankruptcy of
the issuers of such securities,  and have greater price  volatility,  especially
during  periods of economic  uncertainty  or change.  These lower  quality fixed
income  securities  tend to be  affected  by  economic  changes  and  short-term
corporate  and industry  developments  to a greater  extent than higher  quality
securities,  which react  primarily  to  fluctuations  in the  general  level of
interest rates.  To the extent that the Portfolio  invests in such lower quality
securities, the achievement of its investment objective may be more dependent on
the Advisor's own credit analysis.

         Lower  quality  fixed  income  securities  are affected by the market's
perception  of  their  credit  quality,   especially  during  times  of  adverse
publicity,  and the  outlook  for  economic  growth.  Economic  downturns  or an
increase  in  interest  rates may cause a higher  incidence  of  default  by the
issuers of these securities,  especially issuers that are highly leveraged.  The
market for these lower quality fixed income  securities is generally less liquid
than the market for  investment  grade fixed income  securities.  It may be more
difficult to sell these lower rated securities to meet redemption  requests,  to
respond  to  changes  in the  market,  or to value  accurately  the  Portfolio's
portfolio  securities for the purposes of determining  the Portfolio's net asset
value.

         MORTGAGES   AND   MORTGAGE-BACKED   SECURITIES.   Mortgages   are  debt
instruments  secured  by real  property.  Mortgage-backed  securities  represent
direct or indirect participations in, or are collateralized by and payable from,
mortgage  loans  secured  by real  property.  Mortgagors  can  generally  prepay
interest or  principal  on their  mortgages  whenever  they  choose.  Therefore,
mortgages  and  mortgage-backed  securities  are  often  subject  to more  rapid
repayment  than  their  stated  maturity  dates  would  indicate  as a result of
principal  prepayments on the underlying loans. This can result in significantly
greater  price  and  yield  volatility  than  with   traditional   fixed  income
securities.  During  periods of declining  interest  rates,  prepayments  can be
expected to accelerate and thus impair the  Portfolio's  ability to reinvest the
returns of principal at comparable yields. Conversely, in a rising interest rate
environment,  a declining  prepayment  rate will extend the average life of many
mortgage-backed  securities and prevent the Portfolio  from taking  advantage of
such higher yields. Unlike mortgage-backed securities, which generally represent
an interest in a pool of  mortgages,  direct  investments  in mortgages  involve
prepayment  and  credit  risks  of  an  individual  issuer  and  real  property.
Consequently, these investments require different investment and credit analysis
by the Advisor.

         The   Portfolio   may  invest  in   publicly   and   privately   issued
mortgage-backed   securities  including  mortgage-backed  securities  issued  or
guaranteed by the U.S. Government or any of its agencies,  instrumentalities  or
sponsored enterprises, including but not limited to Government National Mortgage
Association ("Ginnie Mae"), Federal National Mortgage Association ("Fannie Mae")
and  Federal  Home  Loan  Mortgage  Corporation   ("Freddie  Mac").  Ginnie  Mae
securities are backed by the full faith and credit of the U.S. Government, which
means that the U.S.  Government  guarantees that the interest and principal will
be paid when due.  Fannie Mae  securities  and  Freddie Mac  securities  are not
backed by the full  faith  and  credit of the U.S.  Government;  however,  these
enterprises have the ability to obtain financing from the U.S. Treasury.

         The Portfolio may also invest in multiple class  securities,  including
collateralized mortgage obligations ("CMOs") and Real Estate Mortgage Investment
Conduit ("REMIC")  pass-through or participation  certificates.  CMOs provide an
investor  with a specified  interest in the cash flow from a pool of  underlying
mortgages  or other  mortgage-backed  securities.  CMOs are  issued in  multiple
classes,  each with a  specified  fixed or  floating  interest  rate and a final
scheduled distribution date. In most cases, payments of principal are applied to
the CMO classes in the order of their respective stated  maturities,  so that no
principal payments will be made on a CMO class until all other classes having an
earlier  stated  maturity date are paid in full. A REMIC is a CMO that qualifies
for special tax  treatment  under the Internal  Revenue Code of 1986, as amended
(the "Code"), and invests in certain mortgages  principally secured by interests
in real property and other permitted investments.  The Portfolio does not intend
to purchase residual interests in REMICs.

         Stripped  mortgage-backed  securities  ("SMBS") are derivative multiple
class mortgage-backed securities. SMBS are usually structured with two different
classes:  one that  receives  100% of the  interest  payments and the other that
receives 100% of the principal  payments from a pool of mortgage  loans.  If the
underlying mortgage loans experience  different than anticipated  prepayments of
principal,  the  Portfolio  may fail to fully recoup its initial  investment  in
these securities.  Although the market for SMBS is increasingly liquid,  certain
SMBS may not be readily marketable and will be considered  illiquid for purposes
of the Portfolio's limitation on investments in illiquid securities.  The market
value of the class  consisting  entirely  of  principal  payments  generally  is
unusually  volatile in response  to changes in interest  rates.  The yields on a
class of SMBS that receives all or most of the interest from mortgage  loans are
generally  higher  than  prevailing  market  yields  on  other   mortgage-backed
securities  because  their cash flow  patterns are more  volatile and there is a
greater risk that the initial investment will not be fully recouped.

         MORTGAGES  (DIRECTLY  HELD).  The  Portfolio  may  invest  directly  in
mortgages.  Mortgages  are debt  instruments  secured by real  property.  Unlike
mortgage-backed  securities,  which generally represent an interest in a pool of
mortgages,  direct  investments in mortgages involve prepayment and credit risks
of an  individual  issuer and real  property.  Consequently,  these  investments
require different investment and credit analysis by the Advisor.

         The  directly  placed  mortgages  in which the  Portfolio  invests  may
include residential mortgages,  multifamily mortgages,  mortgages on cooperative
apartment  buildings,   commercial   mortgages,   and   sale-leasebacks.   These
investments  are backed by assets such as office  buildings,  shopping  centers,
retail stores,  warehouses,  apartment buildings and single-family dwellings. In
the event that the Portfolio  forecloses  on any  non-performing  mortgage,  and
acquires a direct  interest in the real property,  the Portfolio will be subject
to the risks generally associated with the ownership of real property. There may
be fluctuations in the market value of the foreclosed property and its occupancy
rates, rent schedules and operating expenses.  There may also be adverse changes
in local,  regional or general  economic  conditions,  deterioration of the real
estate  market  and  the  financial   circumstances   of  tenants  and  sellers,
unfavorable changes in zoning, building, environmental and other laws, increased
real property taxes, rising interest rates,  reduced  availability and increased
cost of mortgage borrowings, the need for unanticipated renovations,  unexpected
increases in the cost of energy,  environmental  factors,  acts of God and other
factors which are beyond the control of the Portfolio or the Advisor.  Hazardous
or toxic  substances  may be present on, at or under the mortgaged  property and
adversely affect the value of the property. In addition,  the owners of property
containing  such  substances  may be held  responsible,  under various laws, for
containing, monitoring, removing or cleaning up such substances. The presence of
such  substances  may also  provide a basis for other  claims by third  parties.
Costs of clean-up or of liabilities to third parties may exceed the value of the
property.  In addition,  these risks may be  uninsurable.  In light of these and
similar  risks,  it may be  impossible  to dispose  profitably  of properties in
foreclosure.

         MORTGAGE  DOLLAR ROLLS.  The  Portfolio may enter into mortgage  dollar
rolls in which the Portfolio sells  securities for delivery in the current month
and  simultaneously  contracts with the same counterparty to repurchase  similar
(same type,  coupon and maturity)  but not  identical  securities on a specified
future date.  During the roll period,  the Portfolio  loses the right to receive
principal  (including  prepayments  of  principal)  and  interest  paid  on  the
securities sold. However,  the Portfolio may benefit from the interest earned on
the cash  proceeds  of the  securities  sold  until the  settlement  date of the
forward purchase.  The Portfolio will hold and maintain in a segregated  account
until the  settlement  date cash or liquid  securities in an amount equal to the
forward  purchase  price.  The benefits  derived from the use of mortgage dollar
rolls depend upon the Advisor's ability to manage mortgage prepayments. There is
no assurance that mortgage dollar rolls can be successfully employed.

         CORPORATE FIXED INCOME SECURITIES. The Portfolio may invest in publicly
and  privately  issued  debt  obligations  of U.S.  and  non-U.S.  corporations,
including  obligations  of  industrial,  utility,  banking  and other  financial
issuers.  These  securities are subject to the risk of an issuer's  inability to
meet  principal and interest  payments on the obligation and may also be subject
to price  volatility  due to such  factors  as  market  interest  rates,  market
perception of the creditworthiness of the issuer and general market liquidity.

         The  Portfolio may purchase  privately  issued  corporate  fixed income
securities  pursuant to Rule 144A of the Securities Act of 1933 ("Rule 144A") or
pursuant to a directly negotiated agreement between the investors, including the
Portfolio,  and the corporate  issuer.  At times,  the Portfolio may be the only
investor in a  privately  issued  fixed  income  security,  or one of only a few
institutional investors. In this circumstance,  there may be restrictions on the
Portfolio's  ability to resell the privately  issued fixed income  security that
result from  contractual  limitations  in the offering  agreement  and a limited
trading market. The Advisor will monitor the liquidity of privately issued fixed
income  securities in accordance with guidelines  established by the Advisor and
monitored by the Trustees. See Restricted and Illiquid Securities.

         ASSET-BACKED  SECURITIES.   The  principal  and  interest  payments  on
asset-backed  securities  are  collateralized  by pools of  assets  such as auto
loans,  credit card  receivables,  leases,  installment  contracts  and personal
property.  Such asset pools are  securitized  through the use of special purpose
trusts or corporations.  Principal and interest  payments may be credit enhanced
by a  letter  of  credit,  a  pool  insurance  policy  or a  senior/subordinated
structure. Like mortgage-backed securities,  asset-backed securities are subject
to more rapid  prepayment of principal than  indicated by their stated  maturity
which may greatly increase price and yield volatility.

         INVESTING IN FOREIGN SECURITIES. Investing in the securities of foreign
issuers involves risks that are not typically  associated with investing in U.S.
dollar-denominated  securities  of  domestic  issuers.  In  addition  to changes
affecting  securities  markets  generally,  these investments may be affected by
changes  in  currency  exchange  rates,  changes  in  foreign  or  U.S.  laws or
restrictions applicable to these investments and in exchange control regulations
(e.g.,  currency  blockage).  Transaction  costs for foreign  securities  may be
higher than those for similar  transactions  in the United States.  In addition,
clearance and settlement  procedures may be different in foreign  countries and,
in certain  markets,  these procedures have on occasion been unable to keep pace
with the volume of securities transactions,  thus making it difficult to conduct
securities transactions.

         Foreign  issuers  are not  generally  subject  to  uniform  accounting,
auditing and financial  reporting  standards  comparable to those  applicable to
U.S. issuers.  There may be less publicly available  information about a foreign
issuer than about a U.S. issuer. In addition, there is generally less government
regulation  of foreign  markets,  companies and  securities  dealers than in the
United States.  Foreign  securities  markets may have  substantially less volume
than U.S.  securities  markets and  securities of many foreign  issuers are less
liquid  and  more  volatile  than   securities  of  comparable   U.S.   issuers.
Furthermore,  there  is  a  possibility  of  nationalization,  expropriation  or
confiscatory  taxation,  imposition of withholding  taxes on interest  payments,
limitations  on the  removal  of funds  or other  assets,  political  or  social
instability or diplomatic developments which could affect investments in certain
foreign countries.

         CURRENCY RISKS.  The U.S.  dollar value of securities  denominated in a
foreign currency will vary with changes in currency exchange rates, which can be
volatile.  Accordingly,  changes  in the  value of the  currencies  in which the
Portfolio's  investments are denominated relative to the U.S. dollar will affect
the  Portfolio's net asset value.  Exchange rates are generally  affected by the
forces of supply and demand in the international  currency markets, the relative
merits of investing in different  countries and the  intervention  or failure to
intervene of U.S. or foreign  governments  and central banks.  Some countries in
emerging markets also may have managed  currencies,  which are not free floating
against the U.S. dollar.  In addition,  emerging markets are subject to the risk
of  restrictions  upon  the  free  conversion  of their  currencies  into  other
currencies.  Any  devaluations  relative to the U.S. dollar in the currencies in
which the  Portfolio's  securities are quoted would reduce the  Portfolio's  net
asset value.



         The  Portfolio  may  invest any  portion  of its  assets in  securities
denominated  in a particular  currency.  The portion of the  Portfolio's  assets
invested in securities denominated in non-U.S. currencies will vary depending on
market  conditions.  The  Portfolio  may enter  into  forward  foreign  currency
exchange contracts in order to manage its foreign currency exposure.

         INVESTING IN EMERGING MARKETS.  Investing in the securities of emerging
market  issuers  involves  considerations  and  potential  risks  not  typically
associated  with investing in the securities of issuers in the United States and
other developed countries.

         MARKET CHARACTERISTICS. The fixed income securities markets of emerging
countries  generally have substantially less volume than the markets for similar
securities  in the United  States and may not be able to absorb,  without  price
disruptions,   a  significant   increase  in  trading   volume  or  trade  size.
Additionally,  market making  activities  may be less extensive in such markets,
which may  contribute  to increased  volatility  and reduced  liquidity in those
markets.  The less  liquid  the  market,  the more  difficult  it may be for the
Portfolio to  accurately  price its  portfolio  securities or to dispose of such
securities at the times determined to be appropriate.  The risks associated with
reduced  liquidity  may be  particularly  acute to the extent that the Portfolio
needs cash to satisfy investor withdrawals, distribute income, or pay expenses.

         Transaction  costs in emerging markets may be higher than in the United
States and other  developed  securities  markets.  As legal  systems in emerging
markets develop,  foreign investors may be adversely  affected by new or amended
laws  and  regulations  or  may  not be  able  to  obtain  swift  and  equitable
enforcement of existing law.

         ECONOMIC, POLITICAL AND SOCIAL FACTORS. Emerging markets may be subject
to a greater  degree of economic,  political and social  instability  that could
significantly  disrupt the principal  financial  markets than are markets in the
United States and in other developed countries. Such instability may result from
among other things:  (i)  authoritarian  governments or military  involvement in
political and economic  decision making,  including changes or attempted changes
in government through  extraconstitutional means; (ii) popular unrest associated
with demands for  improved  economic,  political  and social  conditions;  (iii)
internal insurgencies;  (iv) hostile relations with neighboring  countries;  and
(v) ethnic,  religious  and racial  disaffection  and  conflict.  Many  emerging
markets have experienced in the past, and continue to experience,  high rates of
inflation.  In certain countries  inflation has at times accelerated  rapidly to
hyperinflationary  levels,  creating a negative  interest rate  environment  and
sharply eroding the value of outstanding  financial  assets in those  countries.
The economies of many emerging markets are heavily dependent upon  international
trade and are accordingly affected by protective trade barriers and the economic
conditions  of their  trading  partners.  In  addition,  the  economies  of some
emerging  markets are vulnerable to weakness in world prices for their commodity
exports.  The economies of emerging markets may differ unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital  reinvestment,  resources,  self-sufficiency  and  balance  of  payments
position.




<PAGE>



         RESTRICTIONS ON INVESTMENT AND  REPATRIATION.  Certain emerging markets
limit,  or  require  governmental  approval  prior to,  investments  by  foreign
persons.  Repatriation  of investment  income and capital from certain  emerging
markets  is subject to certain  governmental  consents.  Even where  there is no
outright  restriction on repatriation of capital,  the mechanics of repatriation
may affect the operation of the Portfolio.

         SOVEREIGN  FIXED INCOME  SECURITIES.  The Portfolio may invest in fixed
income securities issued or guaranteed by a foreign sovereign  government or its
agencies,  authorities or political subdivisions.  Investment in sovereign fixed
income  securities  involves special risks not present in corporate fixed income
securities.  The issuer of the sovereign  debt or the  governmental  authorities
that  control  the  repayment  of the debt may be unable or  unwilling  to repay
principal or interest when due, and the  Portfolio may have limited  recourse in
the event of a default.  During  periods  of  economic  uncertainty,  the market
prices of sovereign  debt,  and the  Portfolio's  net asset  value,  may be more
volatile  than prices of U.S. debt  obligations.  In the past,  certain  foreign
countries have  encountered  difficulties in servicing  their debt  obligations,
withheld  payments of  principal  and  interest  and  declared  moratoria on the
payment of principal and interest on their sovereign debts.

         A sovereign debtor's  willingness or ability to repay principal and pay
interest in a timely  manner may be affected by, among other  factors,  its cash
flow situation, the extent of its foreign currency reserves, the availability of
sufficient  foreign exchange,  the relative size of the debt service burden, the
sovereign  debtor's  policy  toward  international  lenders and local  political
constraints.  Sovereign debtors may also be dependent on expected  disbursements
from foreign  governments,  multilateral  agencies and other  entities to reduce
principal  and  interest  arrearages  on their debt.  The failure of a sovereign
debtor to  implement  economic  reforms,  achieve  specified  levels of economic
performance  or  repay  principal  or  interest  when  due  may  result  in  the
cancellation of third-party  commitments to lend funds to the sovereign  debtor,
which may further  impair such debtor's  ability or  willingness  to service its
debts.

         BRADY BONDS. Brady bonds are securities created through the exchange of
existing  commercial  bank  loans to public  and  private  entities  in  certain
emerging  markets for new bonds in connection  with debt  restructurings.  Brady
bonds have been issued  since 1989 and do not have a long  payment  history.  In
light of the  history of  defaults  of  countries  issuing  Brady bonds on their
commercial bank loans,  investments in Brady bonds may be viewed as speculative.
Brady bonds may be fully or partially  collateralized or  uncollateralized,  are
issued in various  currencies (but primarily the dollar) and are actively traded
in over-the-counter secondary markets. Incomplete  collateralization of interest
or   principal   payment   obligations   results  in   increased   credit  risk.
Dollar-denominated  collateralized Brady bonds, which may be fixed-rate bonds or
floating-rate  bonds, are generally  collateralized by U.S. Treasury zero coupon
bonds having the same maturity as the Brady bonds.

         OBLIGATIONS  OF  SUPRANATIONAL  ENTITIES.  The  Portfolio may invest in
obligations of  supranational  entities  designated or supported by governmental
entities to promote economic  reconstruction or development and of international
banking  institutions  and related  government  agencies.  Examples  include the
International  Bank for  Reconstruction  and Development (the "World Bank"), the
European  Coal  and  Steel  Community,   the  Asian  Development  Bank  and  the
Inter-American  Development Bank. Each supranational entity's lending activities
are limited to a percentage of its total capital  (including  "callable capital"
contributed by its governmental members at the entity's call),  reserves and net
income.  There is no assurance that  participating  governments  will be able or
willing  to  honor  their  commitments  to  make  capital   contributions  to  a
supranational  entity.  INVESTING IN EMERGING  MARKETS.  The  Portfolio may also
invest in countries with emerging economies or securities markets. Political and
economic  structures in many of such  countries  may be  undergoing  significant
evolution  and  rapid  development,  and such  countries  may  lack the  social,
political and economic  stability  characteristic  of more developed  countries.
Certain  of such  countries  may have in the past  failed to  recognize  private
property rights and have at times  nationalized  or  expropriated  the assets of
private companies.  As a result, the risks described above,  including the risks
of nationalization  or expropriation of assets, may be heightened.  In addition,
unanticipated  political  or social  developments  may  affect the values of the
Portfolio's investments in those countries and the availability to the Portfolio
of additional investments in those countries. The small size and inexperience of
the  securities  markets in certain of such  countries and the limited volume of
trading in securities in those countries may make the Portfolio's investments in
such  countries  illiquid and more volatile than  investments  in more developed
countries,  and the Portfolio may be required to establish  special custodial or
other arrangements before making certain  investments in those countries.  There
may be little  financial or  accounting  information  available  with respect to
issuers  located in  certain of such  countries,  and it may be  difficult  as a
result to assess the value or prospects of an investment in such issuers.

         Transaction  costs in emerging markets may be higher than in the United
States and other  developed  securities  markets.  As legal  systems in emerging
markets develop,  foreign investors may be adversely  affected by new or amended
laws  and  regulations  or  may  not be  able  to  obtain  swift  and  equitable
enforcement of existing law.

         RESTRICTIONS ON INVESTMENT AND  REPATRIATION.  Certain emerging markets
limit,  or  require  governmental  approval  prior to,  investments  by  foreign
persons.  Repatriation  of investment  income and capital from certain  emerging
markets  is subject to certain  governmental  consents.  Even where  there is no
outright  restriction on repatriation of capital,  the mechanics of repatriation
may affect the operation of the Portfolio.

         CONVERTIBLE  SECURITIES.  Convertible securities in which the Portfolio
may invest consist of bonds, notes, debentures and preferred stocks. Convertible
debt  securities and preferred  stock acquired by the Portfolio will entitle the
Portfolio  to  exchange  such  instruments  for common  stock of the issuer at a
predetermined  rate.  Convertible  securities are subject both to the credit and
interest rate risks  associated  with debt  obligations  and to the stock market
risk associated with equity securities.

         ZERO COUPON,  PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES.  Zero coupon
securities are securities  that are sold at a discount to par value and on which
interest  payments are not made during the life of the security.  Upon maturity,
the holder is  entitled to receive  the par value of the  security.  Pay-in-kind
securities are securities  that have interest  payable by delivery of additional
securities.  Upon maturity,  the holder is entitled to receive the aggregate par
value of the  securities.  The  Portfolio  accrues  income with  respect to zero
coupon  and  pay-in-kind  securities  prior  to the  receipt  of cash  payments.
Deferred  payment  securities are securities that remain zero coupon  securities
until a  predetermined  date,  at which  time the  stated  coupon  rate  becomes
effective  and  interest  becomes  payable at regular  intervals.  Zero  coupon,
pay-in-kind  and  deferred   payment   securities  may  be  subject  to  greater
fluctuation  in value  and  lesser  liquidity  in the  event of  adverse  market
conditions  than  comparably  rated  securities  paying cash interest at regular
interest payment periods.

         INVESTMENTS IN OTHER INVESTMENT COMPANIES.  The Portfolio may invest up
to 10% of its total assets in shares of other investment  companies and up to 5%
of its total  assets in any one  investment  company as long as that  investment
does not  represent  more than 3% of the  total  voting  shares of the  acquired
investment company.  Investments in the securities of other investment companies
may involve duplication of advisory fees and other expenses.

         MONEY MARKET INSTRUMENTS. Under normal market conditions, the Portfolio
will purchase money market  instruments to invest  temporary cash balances or to
maintain liquidity to meet redemptions.  However,  the Portfolio may also invest
in money market instruments  without limitation as a temporary defensive measure
taken in the Advisor's  judgment  during,  or in anticipation of, adverse market
conditions.  These  money  market  instruments  include  obligations  issued  or
guaranteed by the U.S.  Government or any of its agencies or  instrumentalities,
any foreign government or any of its political  subdivisions,  commercial paper,
bank  obligations,  repurchase  agreements and other fixed income  securities of
U.S. and foreign issuers. If a repurchase agreement counterparty defaults on its
obligations, the Portfolio may, under some circumstances,  be limited or delayed
in disposing of the repurchase agreement collateral to recover its investment.

         RESTRICTED   AND  ILLIQUID   SECURITIES.   The  Portfolio  may  acquire
securities  that have  restrictions on their resale  (restricted  securities) or
securities  for which there is a limited  trading  market  which the Advisor may
determine  are  illiquid.  However,  the  Portfolio may not purchase an illiquid
security if, as a result,  more than 15% of the  Portfolio's net assets would be
invested in illiquid  investments.  The price the  Portfolio  pays for  illiquid
securities  or receives upon resale may be lower than the price paid or received
for  similar  securities  with a  more  liquid  market.  In  addition,  illiquid
securities may be more difficult to value due to the  unavailability of reliable
broker  quotes for these  securities.  The Portfolio  may  experience  delays in
disposing  of  illiquid  securities  and this may have an adverse  effect on the
ability of the  Portfolio  to satisfy  withdrawals  in an  orderly  manner.  The
Portfolio  may purchase  restricted  securities  that are eligible for resale to
qualified  institutional  buyers  pursuant to Rule 144A.  Restricted  securities
eligible for resale under Rule 144A may be determined to be liquid in accordance
with  guidelines  established  by the Advisor and approved by the Trustees.  The
Trustees  will monitor the  Advisor's  implementation  of these  guidelines on a
periodic basis.

         WHEN-ISSUED  AND FORWARD  COMMITMENT  TRANSACTIONS.  The  Portfolio may
purchase  when-issued  securities  and enter into other forward  commitments  to
purchase or sell securities.  The value of securities purchased on a when-issued
or forward  commitment  basis may  decline  between  the  purchase  date and the
settlement date.

FUTURES AND OPTIONS TRANSACTIONS

         The   Portfolio   is  permitted  to  enter  into  futures  and  options
transactions  described below for hedging purposes although not for speculation.
For a more detailed  description of these  transactions  see Options and Futures
Transactions in Item 13 in Part B.

         The Portfolio may (a) purchase and sell exchange traded and OTC put and
call options on fixed income securities and indexes of fixed income  securities,
(b) purchase and sell futures  contracts on fixed income  securities and indexes
of fixed  income  securities,  and (c)  purchase put and call options on futures
contracts on fixed  income  securities  and indexes of fixed income  securities.
Each of these  instruments is a derivative  instrument as its value derives from
the underlying asset or index.

         The  Portfolio  may use futures  contracts  and options for hedging and
risk  management  purposes.  The  Portfolio  may not use futures  contracts  and
options for speculation.

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

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

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

         PURCHASING  PUT AND CALL  OPTIONS.  By  purchasing  a put  option,  the
Portfolio  obtains  the right (but not the  obligation)  to sell the  instrument
underlying  the option at a fixed strike  price.  In return for this right,  the
Portfolio  pays the  current  market  price for the option  (known as the option
premium).  Options  have  various  types of  underlying  instruments,  including
specific  securities,  indexes of securities,  indexes of securities prices, and
futures  contracts.  The Portfolio may terminate its position in a put option it
has  purchased  by  allowing  it to  expire or by  exercising  the  option.  The
Portfolio  may  also  close  out a put  option  position  by  entering  into  an
offsetting  transaction,  if a liquid market exists. If the option is allowed to
expire,  the  Portfolio  will lose the entire  premium it paid. If the Portfolio
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price.  If the  Portfolio  exercises an option on an index,
settlement  is in cash and does not involve the actual  sale of  securities.  An
option may be exercised on any day up to 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 Portfolio 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  Portfolio  assumes the
obligation to pay the strike price for the  instrument  underlying the option if
the other party to the option  chooses to exercise it. The Portfolio may seek to
terminate its position in a put option it writes  before  exercise by purchasing
an offsetting  option in the market at its current  price.  If the market is not
liquid for a put option the Portfolio has written,  however,  the Portfolio must
continue to be prepared to pay the strike price while the option is outstanding,
regardless  of price  changes,  and must  continue to post  margin as  discussed
below.

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

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

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

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

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

         FUTURES CONTRACTS.  When the Portfolio purchases a futures contract, it
agrees to  purchase  a  specified  quantity  of an  underlying  instrument  at a
specified  future  date  or to  make a cash  payment  based  on the  value  of a
securities index. When the Portfolio sells a futures contract, it agrees to sell
a specified quantity of the underlying  instrument at a specified future date or
to receive a cash payment based on the value of a securities index. The price at
which the purchase and sale will take place is fixed when the  Portfolio  enters
into  the  contract.  Futures  can be held  until  their  delivery  dates or the
position can be (and normally is) closed out before then. There is no assurance,
however,  that a liquid market will exist when the Portfolio wishes to close out
a particular position.

         When the  Portfolio  purchases  a  futures  contract,  the value of the
futures  contract tends to increase and decrease in tandem with the value of its
underlying  instrument.  Therefore,  purchasing  futures  contracts will tend to
increase the Portfolio's exposure to positive and negative price fluctuations in
the underlying instrument, much as if it had purchased the underlying instrument
directly. When the Portfolio sells a futures contract, by contrast, the value of
its futures  position will tend to move in a direction  contrary to the value of
the underlying instrument.  Selling futures contracts,  therefore,  will tend to
offset  both  positive  and  negative  market  price  changes,  much  as if  the
underlying instrument had been sold.

         The  purchaser  or seller  of a futures  contract  is not  required  to
deliver or pay for the underlying  instrument  unless the contract is held until
the delivery date. However, when the Portfolio buys or sells a futures contract,
it will be  required  to  deposit  "initial  margin"  with  its  Custodian  in a
segregated  account  in the  name of its  futures  broker,  known  as a  futures
commission  merchant  (FCM).  Initial margin  deposits are typically  equal to a
small  percentage  of the  contract's  value.  If the  value of  either  party's
position  declines,  that party will be required to make  additional  "variation
margin"  payments equal to the change in value on a daily basis.  The party that
has a gain may be  entitled  to  receive  all or a portion of this  amount.  The
Portfolio may be obligated to make  payments of variation  margin at a time when
it is disadvantageous to do so.  Furthermore,  it may not always be possible for
the Portfolio to close out its futures positions.  Until it closes out a futures
position,  the Portfolio will be obligated to continue to pay variation  margin.
Initial and variation margin payments do not constitute purchasing on margin for
purposes  of  the  Portfolio's  investment  restrictions.  In the  event  of the
bankruptcy of an FCM that holds margin on behalf of the Portfolio, the Portfolio
may be entitled to return of margin owed to it only in  proportion to the amount
received by the FCM's other  customers,  potentially  resulting in losses to the
Portfolio.

         The Portfolio will segregate  liquid assets in connection  with its use
of options  and  futures  contracts  to the extent  required by the staff of the
Securities  and Exchange  Commission.  Securities  held in a segregated  account
cannot be sold while the futures contract or option is outstanding,  unless they
are replaced with other  suitable  assets.  As a result,  there is a possibility
that  segregation of a large  percentage of the Portfolio's  assets could impede
portfolio  management or the Portfolio's  ability to meet redemption requests or
other current obligations.

         LOANS  OF  PORTFOLIO  SECURITIES.   Subject  to  applicable  investment
restrictions,  the Portfolio is permitted to lend its securities in an amount up
to 33 1/3% of the value of the  Portfolio's  net assets.  The Portfolio may lend
its  securities  if such loans are secured  continuously  by cash or  equivalent
collateral  or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market  value of the  securities  loaned,  plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any  income  accruing  thereon.  Loans will be  subject  to  termination  by the
Portfolio in the normal  settlement  time,  generally  three business days after
notice,  or by the borrower on one day's  notice.  Borrowed  securities  must be
returned  when the loan is  terminated.  Any gain or loss in the market price of
the borrowed  securities  which occurs during the term of the loan inures to the
Portfolio  and its  investors.  The Portfolio  may pay  reasonable  finders' and
custodial  fees in  connection  with a loan.  In addition,  the  Portfolio  will
consider  all facts and  circumstances  including  the  creditworthiness  of the
borrowing  financial  institution,  and the Portfolio will not make any loans in
excess of one year.

         Loans of portfolio securities may be considered extensions of credit by
the  Portfolio.  The risks to the  Portfolio  with  respect to  borrowers of its
portfolio  securities  are similar to the risks to the Portfolio with respect to
sellers in repurchase agreement transactions. See "Repurchase Agreements" above.
The Portfolio  will not lend its securities to any officer,  Trustee,  Director,
employee or other  affiliate  of the  Portfolio,  the  Advisor or the  placement
agent, unless otherwise permitted by applicable law.

         BORROWING  AND REVERSE  REPURCHASE  AGREEMENTS.  The  Portfolio may (1)
borrow money from banks solely for temporary or emergency (but not for leverage)
purposes and (2) enter into reverse repurchase  agreements for any purpose.  The
aggregate  amount of such borrowings and reverse  repurchase  agreements may not
exceed one-third of the Portfolio's  total assets less  liabilities  (other than
borrowings).  For the purposes of the Investment  Company Act of 1940 (the "1940
Act"),  reverse repurchase  agreements are considered a form of borrowing by the
Portfolio and,  therefore,  a form of leverage.  Leverage may cause any gains or
losses of the Portfolio to be magnified.

         SHORT-TERM  TRADING.  The  Portfolio  will  sell a  portfolio  security
without  regard to the  length of time  such  security  has been held if, in the
Advisor's  view, the security meets the criteria for sale. The annual  portfolio
turnover  rate of the Portfolio is generally not expected to exceed 300%. A high
portfolio  turnover rate involves higher  transaction  costs to the Portfolio in
the form of dealer  spreads.  This policy is subject to certain  requirements so
that certain investors can qualify as regulated  investment  companies under the
Code.

         INVESTMENT  POLICIES AND  RESTRICTIONS.  Except as otherwise  stated in
this  Part A or Part B,  the  Portfolio's  investment  objective,  policies  and
restrictions are not fundamental and may be changed without  investor  approval.
The  Portfolio  may not, with respect to 75% of its total assets (1) invest more
than 5% of its total assets in the securities of any one issuer, other than U.S.
Government  securities,  or (2) acquire more than 10% of the outstanding  voting
securities of any one issuer. The Portfolio will not concentrate  (invest 25% or
more of its total assets) in the securities of issuers in any one industry.  For
purposes of this limitation, the staff of the Securities and Exchange Commission
(the "SEC")  considers (a) all  supranational  organizations  as a group to be a
single industry and (b) each foreign  government and its political  subdivisions
to be a single industry.

         For a more detailed discussion of the above investment restrictions, as
well as a description of certain other investment  restrictions,  see Item 13 in
Part B.

ITEM 5.  MANAGEMENT OF THE PORTFOLIO.

         The Board of Trustees  provides broad  supervision  over the affairs of
the  Portfolio.  The  Portfolio has retained the services of JPMIM as investment
adviser and Morgan as administrative  services agent. The Portfolio has retained
the  services  of Funds  Distributor,  Inc.  ("FDI")  as  co-administrator  (the
"Co-Administrator").

         The Portfolio has not retained the services of a principal  underwriter
or  distributor,  since interests in the Portfolio are offered solely in private
placement  transactions.  FDI,  acting  as agent  for the  Portfolio,  serves as
exclusive  placement  agent of  interests  in the  Portfolio.  FDI  receives  no
additional  compensation  for  serving  as  exclusive  placement  agent  to  the
Portfolio.

         The Portfolio has entered into an Amended and Restated  Portfolio  Fund
Services  Agreement  dated July 11, 1996 with Pierpont  Group,  Inc.  ("Pierpont
Group")  to  assist  the  Trustees  in  exercising  their  overall   supervisory
responsibilities  for the  Portfolio.  The fees to be paid  under the  agreement
approximate the reasonable cost of Pierpont Group in providing these services to
the Portfolio  and certain  other  registered  investment  companies  subject to
similar agreements with Pierpont Group.  Pierpont Group was organized in 1989 at
the request of the Trustees of The  Pierpont  Family of Funds for the purpose of
providing  these  services  at cost to those  funds.  See Item 14 in Part B. The
principal  offices of Pierpont Group are located at 461 Fifth Avenue,  New York,
New York 10017.

         INVESTMENT  ADVISOR.  Subject  to the  supervision  of the  Portfolio's
Trustees,  the Advisor makes the Portfolio's  day-to-day  investment  decisions,
arranges for the execution of portfolio  transactions and generally  manages the
Portfolio's  investments.  Effective October 1, 1998 the portfolio's  investment
advisor is JPMIM.  Prior to that date, Morgan, a wholly owned subsidiary of J.P.
Morgan  & Co.  Incorporated  ("J.P.  Morgan"),  was the  Portfolio's  investment
advisor.  JPMIM,  also a wholly owned subsidiary of J.P. Morgan, is a registered
investment advisor under the Investment Advisers Act of 1940, as amended.  JPMIM
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 trustees.

         J.P.  Morgan,  through  the  Advisor  and other  subsidiaries,  acts as
investment advisor to individuals,  governments,  corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $316 billion.

         The Advisor uses a sophisticated,  disciplined,  collaborative  process
for  managing  the  Portfolio.   The  following   persons  have  been  primarily
responsible  for  the  day-to-day  management  and  implementation  of  Morgan's
investment  process for the Portfolio since its inception  (business  experience
for the past  five  years  is  indicated  parenthetically):  Gerard  W.  Lillis,
Managing  Director  (employed  by Morgan since prior to 1992) and Mark E. Smith,
Vice President (employed by Morgan since prior to 1992).

         As compensation for the services rendered and related expenses borne by
the Advisor under its investment  advisory  agreement  with the  Portfolio,  the
Portfolio has agreed to pay the Advisor a fee which is computed daily and may be
paid monthly at the annual rate of 0.45% of the  Portfolio's  average  daily net
assets.

     Under a separate agreement, Morgan also provides administrative and related
services to the Portfolio. See Administrative Services Agent below.

         CO-ADMINISTRATOR.  Pursuant to a  Co-Administration  Agreement with the
Portfolio,  FDI  serves  as the  Co-Administrator  for  the  Portfolio.  FDI (i)
provides  office space,  equipment and clerical  personnel for  maintaining  the
organization and books and records of the Portfolio;  (ii) provides officers for
the Portfolio;  (iii) files Portfolio  regulatory  documents and mails Portfolio
communications  to Trustees and investors;  and (iv) maintains related books and
records. See Administrative Services Agent below.

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

         ADMINISTRATIVE  SERVICES AGENT. Pursuant to the Administrative Services
Agreement with the Portfolio, Morgan provides certain administrative and related
services  to the  Portfolio,  including  services  related  to  tax  compliance,
preparation of financial statements,  calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustees matters.

         Under the Administrative  Services Agreement,  the Portfolio 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
Portfolio  and certain  other  registered  investment  companies  managed by the
Advisor in accordance with the following annual schedule:  0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their aggregate
average  daily net assets in excess of $7 billion,  less the  complex-wide  fees
payable to FDI.

         PLACEMENT  AGENT.  FDI,  a  registered  broker-dealer,  also  serves as
exclusive  placement  agent for the  Portfolio.  FDI is a wholly owned  indirect
subsidiary of Boston  Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.

     CUSTODIAN.  State  Street  Bank and Trust  Company  ("State  Street"),  225
Franklin Street,  Boston,  Massachusetts  02110,  serves as the custodian,  fund
accounting and transfer agent for the Portfolio. State Street keeps the books of
account for the Portfolio.

         EXPENSES.  In  addition to the fees  payable to the  service  providers
identified above, the Portfolio is responsible for usual and customary  expenses
associated with its operations.  These include, among other things, organization
expenses,  legal fees,  audit and  accounting  expenses,  insurance  costs,  the
compensation  and expenses of the Trustees,  interest,  taxes and  extraordinary
expenses (such as for  litigation),  brokerage  expenses and  registration  fees
under foreign securities laws.

     J.P.  Morgan  has  agreed  that  it will  maintain  the  Portfolio's  total
operating expenses at the annual rate of 0.65% of the Portfolio's  average daily
net assets. This expense limitation does not cover extraordinary expenses during
the  period.  There  is  no  assurance  that  J.P.  Morgan  will  continue  this
reimbursement.

ITEM 6.  CAPITAL STOCK AND OTHER SECURITIES.

         The  Portfolio  is  organized as a trust under the laws of the State of
New York.  Under the Declaration of Trust,  the Trustees are authorized to issue
beneficial  interests in the  Portfolio.  Each investor is entitled to a vote in
proportion to the amount of its investment in the Portfolio.  Investments in the
Portfolio  may not be  transferred,  but an  investor  may  withdraw  all or any
portion  of its  investment  at any time at net asset  value.  Investors  in the
Portfolio (e.g., other investment companies, insurance company separate accounts
and common and commingled  trust funds) will each be liable for all  obligations
of the Portfolio.  However,  the risk of an investor in the Portfolio  incurring
financial loss on account of such liability is limited to circumstances in which
both inadequate  insurance  existed and the Portfolio  itself was unable to meet
its obligations.

         As of January 31, 1999, the J.P. Morgan  Institutional Global Strategic
Income Fund and the J.P. Morgan Global Strategic Income Fund (collectively,  the
"Funds"),  series of the J.P.  Morgan  Institutional  Funds and the J.P.  Morgan
Funds,  respectively,  owned  96%  and  4%,  respectively,  of  the  outstanding
beneficial  interests  in the  Portfolio.  So  long  as the  Funds  control  the
Portfolio,  they may take  actions  without the  approval of any other holder of
beneficial interests in the Portfolio.

         Investments  in the Portfolio  have no preemptive or conversion  rights
and are fully paid and  nonassessable,  except as set forth below. The Portfolio
is not  required  and has no current  intention  of holding  annual  meetings of
investors, but the Portfolio will hold special meetings of investors when in the
judgment of the Trustees it is  necessary or desirable to submit  matters for an
investor vote.  Changes in  fundamental  policies will be submitted to investors
for approval. Investors have under certain circumstances (e.g., upon application
and  submission  of certain  specified  documents to the Trustees by a specified
percentage  of  the  outstanding  interests  in  the  Portfolio)  the  right  to
communicate  with other  investors in  connection  with  requesting a meeting of
investors for the purpose of removing one or more Trustees.  Investors also have
the right to remove one or more Trustees  without a meeting by a declaration  in
writing by a specified percentage of the outstanding interests in the Portfolio.
Upon liquidation of the Portfolio, investors would be entitled to share pro rata
in the net assets of the Portfolio available for distribution to investors.

         The net asset value of the  Portfolio is  determined  each business day
other  than the  holidays  listed in Part B  ("Portfolio  Business  Day").  This
determination  is made once each Portfolio  Business Day at the close of trading
on the New York Stock Exchange  (normally 4:00 p.m.) (the "Valuation Time"). See
Item 19 in Part B.

     The "net income" of the Portfolio  will consist of (i) all income  accrued,
less the amortization of any premium, on the assets of the Portfolio,  less (ii)
all actual and accrued  expenses of the Portfolio  determined in accordance with
generally  accepted  accounting  principles.  Interest income includes  discount
earned  (including  both original  issue and market  discount) on discount paper
accrued  ratably to the date of maturity and any net realized gains or losses on
the assets of the  Portfolio.  All the net income of the  Portfolio is allocated
pro rata among the investors in the Portfolio.

         The end of the Portfolio's fiscal year is October 31.

         Under  the  anticipated  method  of  operation  of the  Portfolio,  the
Portfolio will not be subject to any income tax.  However,  each investor in the
Portfolio  will be taxable on its share (as  determined in  accordance  with the
governing  instruments of the Portfolio) of the Portfolio's  ordinary income and
capital gain in determining its income tax liability.  The determination of such
share will be made in  accordance  with the Internal  Revenue  Code of 1986,  as
amended (the "Code") and regulations promulgated thereunder.

         It is intended that the Portfolio's  assets,  income and  distributions
will be managed in such a way that an investor in the Portfolio  will be able to
satisfy the requirements of Subchapter M of the Code, assuming that the investor
invested all of its assets in the Portfolio.

     Investor  inquiries  may be  directed  to FDI at 60 State  Street,  Boston,
Massachusetts 02109 or by calling FDI at (617)557-0700.

ITEM 7.  PURCHASE OF SECURITIES.

         Beneficial  interests  in the  Portfolio  are issued  solely in private
placement  transactions  that do not involve any  "public  offering"  within the
meaning of Section 4(2) of the 1933 Act.  Investments  in the Portfolio may only
be made by other investment  companies,  insurance  company  separate  accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited  investors"  as  defined  in Rule  501  under  the  1933  Act.  This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.

         An investment  in the  Portfolio may be made without a sales load.  All
investments  are  made at net  asset  value  next  determined  after an order is
received in "good order" by the Portfolio.  The net asset value of the Portfolio
is determined on each Portfolio Business Day.

         There is no minimum initial or subsequent  investment in the Portfolio.
However,  because the Portfolio  intends to be as fully invested at all times as
is  reasonably  practicable  in  order  to  enhance  the  yield  on its  assets,
investments must be made in federal funds (i.e.,  monies credited to the account
of the Custodian by a Federal Reserve Bank).

         The Portfolio may, at its own option,  accept securities in payment for
investments in its beneficial  interests.  The securities  delivered in kind are
valued by the method described in Item 19 of Part B as of the business day prior
to the day the Portfolio receives the securities.  Securities may be accepted in
payment  for  beneficial  interests  only if they are,  in the  judgment  of the
Advisor,  appropriate  investments  for the Portfolio.  In addition,  securities
accepted in payment  for  beneficial  interests  must:  (i) meet the  investment
objective and policies of the  Portfolio;  (ii) be acquired by the Portfolio for
investment  and not  for  resale;  (iii)  be  liquid  securities  which  are not
restricted  as to transfer  either by law or  liquidity  of market;  and (iv) if
stock, have a value which is readily  ascertainable as evidenced by a listing on
a stock exchange,  OTC market or by readily  available market  quotations from a
dealer in such securities.  The Portfolio reserves the right to accept or reject
at its own option any and all  securities  offered  in  payment  for  beneficial
interests.

         The Portfolio and FDI reserve the right to cease accepting  investments
at any time or to reject any investment order.

         Each investor in the  Portfolio may add to or reduce its  investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's  beneficial  interest in the Portfolio will be
determined  by  multiplying  the  net  asset  value  of  the  Portfolio  by  the
percentage,  effective for that day, which  represents that investor's  share of
the  aggregate  beneficial   interests  in  the  Portfolio.   Any  additions  or
reductions,  which are to be effected at the  Valuation  Time on such day,  will
then  be  effected.  The  investor's  percentage  of  the  aggregate  beneficial
interests in the Portfolio  will then be recomputed as the  percentage  equal to
the  fraction  (i) the  numerator  of  which  is the  value  of such  investor's
investment in the Portfolio at the Valuation Time on such day plus or minus,  as
the case may be, the amount of net additions to or reductions in the  investor's
investment  in the  Portfolio  effected  at the  Valuation  Time,  and  (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate  investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine  the  value of the  investor's  interest  in the  Portfolio  as of the
Valuation Time on the following Portfolio Business Day.

ITEM 8.  REDEMPTION OR REPURCHASE.

         An  investor  in the  Portfolio  may reduce  all or any  portion of its
investment  at the net asset  value  next  determined  after a request  in "good
order"  is  furnished  by the  investor  to the  Portfolio.  The  proceeds  of a
reduction  will be paid by the Portfolio in federal  funds  normally on the next
Portfolio Business Day after the reduction is effected,  but in any event within
seven days. Investments in the Portfolio may not be transferred.

         The right of any  investor  to  receive  payment  with  respect  to any
reduction  may be suspended or the payment of the proceeds  therefrom  postponed
during any period in which the New York Stock  Exchange  (the  "NYSE") is closed
(other than  weekends or holidays) or trading on the NYSE is  restricted  or, to
the extent otherwise permitted by the 1940 Act, if an emergency exists.

         The Portfolio reserves the right under certain  circumstances,  such as
accommodating  requests for  substantial  withdrawals  or  liquidations,  to pay
distributions in kind to investors (i.e., to distribute  portfolio securities as
opposed to cash).  If  securities  are  distributed,  an  investor  could  incur
brokerage,  tax or other  charges  in  converting  the  securities  to cash.  In
addition,  distribution  in kind may result in a less  diversified  portfolio of
investments or adversely affect the liquidity of the Portfolio or the investor's
portfolio, as the case may be.

ITEM 9.  PENDING LEGAL PROCEEDINGS.

         Not applicable.




                  PART A (THE TREASURY MONEY MARKET PORTFOLIO)

         Responses  to Items 1 through 3 and 5A have been  omitted  pursuant  to
paragraph 4 of Instruction F of the General Instructions to Form N-1A.

ITEM 4.  GENERAL DESCRIPTION OF REGISTRANT

         Series Portfolio II (the "Portfolio  Trust") is an open-end  management
investment company which was organized as a trust under the laws of the State of
New York on January 9, 1997.  Beneficial  interests of the  Portfolio  Trust are
divided  into  subtrust  (or series),  one of which,  The Treasury  Money Market
Portfolio (the  "Portfolio") is described  herein.  The Portfolio is diversified
for purposes of the Investment Company Act of 1940, as amended (the "1940 Act").
Beneficial  interests in the Portfolio  are issued  solely in private  placement
transactions  that do not involve any  "public  offering"  within the meaning of
Section 4(2) of the Securities Act of 1933 (the "1933 Act").  Investments in the
Portfolio  may only be made by other  investment  companies,  insurance  company
separate accounts,  common or commingled trust funds or similar organizations or
entities  that are  "accredited  investors"  within the meaning of  Regulation D
under the 1933 Act. This Registration  Statement does not constitute an offer to
sell, or the solicitation of an offer to buy, any "security"  within the meaning
of the 1933 Act.

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

         Investments  in the  Portfolio are not deposits or  obligations  of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company ("Morgan") or any other
bank.  Interests  in the  Portfolio  are not  federally  insured by the  Federal
Deposit  Insurance   Corporation,   the  Federal  Reserve  Board  or  any  other
governmental  agency.  An investment in the Portfolio is subject to risk, as the
net asset value of the Portfolio will fluctuate with changes in the value of the
Portfolio's holdings. There can be no assurance that the investment objective of
the Portfolio will be achieved.

         Part  B  contains  more  detailed   information  about  the  Portfolio,
including information related to (i) the investment policies and restrictions of
the Portfolio,  (ii) the Trustees,  officers,  Advisor and administrators of the
Portfolio,  (iii)  portfolio  transactions,   (iv)  rights  and  liabilities  of
investors and (v) the audited  financial  statements of the Portfolio at October
31, 1998.

         The investment objective of the Portfolio is described below,  together
with  the  policies  it  employs  in its  efforts  to  achieve  this  objective.
Additional information about the investment policies of the Portfolio appears in
Part B under Item 13.

         The Portfolio's investment objective,  which is non-fundamental and can
be changed without the approval of interest holders,  is to provide provide high
current  income  consistent  with  the  preservation  of  capital  and  same-day
liquidity.

         The Portfolio seeks to achieve its investment objective by investing in
direct  obligations  of the U.S.  Treasury and engaging in repurchase  agreement
transactions with respect to those obligations.  The market value of obligations
in  which  the  Portfolio  invests  is not  guaranteed  and may rise and fall in
response to changes in interest rates. The Portfolio maintains a dollar-weighted
average portfolio maturity of not more than 90 days and invests in the following
securities which have effective maturities of not more than thirteen months.

         TREASURY  SECURITIES.  The  Portfolio  will invest in  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  ("Treasury  Securities").
Treasury bills have initial maturities of one year or less;  Treasury notes have
initial  maturities  of one to ten years;  and  Treasury  bonds  generally  have
initial  maturities of greater than ten years.  Each such obligation must have a
remaining  maturity  of  thirteen  months or less at the time of purchase by the
Portfolio.
The Portfolio will not invest in U.S. Government agency obligations.

         The Portfolio also may purchase Treasury Securities on a when-issued or
delayed  delivery  basis and may engage in  repurchase  and  reverse  repurchase
agreement  transactions  involving  such  securities.  For a discussion of these
transactions, see "Additional Investment Information and Risk Factors."

ADDITIONAL INVESTMENT INFORMATION AND RISK FACTORS

         WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed  delivery basis.  Delivery of and payment
for these  securities  may take as long as a month or more after the date of the
purchase  commitment.  The  value of  these  securities  is  subject  to  market
fluctuation  during this  period and for fixed  income  securities,  no interest
accrues  to  the  Portfolio  until  settlement.  At the  time  of  settlement  a
when-issued  security  may be  valued  at less  than  its  purchase  price.  The
Portfolio  maintains  with the  Custodian a separate  account  with a segregated
portfolio of securities in an amount at least equal to these  commitments.  When
entering into a when-issued or delayed delivery transaction,  the Portfolio will
rely on the other party to consummate the transaction;  if the other party fails
to do so, the Portfolio may be disadvantaged.

         REPURCHASE AGREEMENTS. The Portfolio may engage in repurchase agreement
transactions  with  brokers,  dealers or banks  that meet the credit  guidelines
established  by the Trustees.  In a repurchase  agreement,  the Portfolio buys a
security  from a seller that has agreed to  repurchase  it at a mutually  agreed
upon date and price,  reflecting the interest rate effective for the term of the
agreement.  The Portfolio will only enter into repurchase  agreements  involving
Treasury  Securities.  The term of these agreements is usually from overnight to
one week. A repurchase agreement may be viewed as a fully collateralized loan of
money by the Portfolio to the seller.  The Portfolio always receives  securities
as  collateral  with a market  value at least equal to the  purchase  price plus
accrued interest and this value is maintained  during the term of the agreement.
If the seller defaults and the collateral  value  declines,  the Portfolio might
incur a loss.  If  bankruptcy  proceedings  are  commenced  with  respect to the
seller,  the Portfolio's  realization  upon the disposition of collateral may be
delayed or limited.  Investments  in certain  repurchase  agreements and certain
other  investments which may be considered  illiquid are limited.  See "Illiquid
Investments, Privately Placed and other Unregistered Securities" below.

         LOANS  OF  PORTFOLIO  SECURITIES.   Subject  to  applicable  investment
restrictions,  the Portfolio is permitted to lend its securities in an amount up
to 33 1/3% of the value of the  Portfolio's  net assets.  The Portfolio may lend
its  securities  if such loans are secured  continuously  by cash or  equivalent
collateral  or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market  value of the  securities  loaned,  plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any  income  accruing  thereon.  Loans will be  subject  to  termination  by the
Portfolio in the normal  settlement  time,  generally  three business days after
notice,  or by the borrower on one day's  notice.  Borrowed  securities  must be
returned  when the loan is  terminated.  Any gain or loss in the market price of
the borrowed  securities  which occurs during the term of the loan inures to the
Portfolio  and its  investors.  The Portfolio  may pay  reasonable  finders' and
custodial  fees in  connection  with a loan.  In addition,  the  Portfolio  will
consider  all facts and  circumstances  including  the  creditworthiness  of the
borrowing  financial  institution,  and the Portfolio will not make any loans in
excess of one year.

         Loans of portfolio securities may be considered extensions of credit by
the  Portfolio.  The risks to the  Portfolio  with  respect to  borrowers of its
portfolio  securities  are similar to the risks to the Portfolio with respect to
sellers in repurchase agreement transactions. See "Repurchase Agreements" above.
The Portfolio  will not lend its securities to any officer,  Trustee,  Director,
employee or other  affiliate  of the  Portfolio,  the  Advisor or the  placement
agent, unless otherwise permitted by applicable law.

         BORROWING  AND REVERSE  REPURCHASE  AGREEMENTS.  The  Portfolio may (1)
borrow money from banks solely for temporary or emergency (but not for leverage)
purposes and (2) enter into reverse repurchase  agreements for any purpose.  The
aggregate  amount of such borrowings and reverse  repurchase  agreements may not
exceed one-third of the Portfolio's  total assets less  liabilities  (other than
borrowings). For the purposes of the 1940 Act, reverse repurchase agreements are
considered  a form of  borrowing  by the  Portfolio  and,  therefore,  a form of
leverage.  Leverage  may  cause  any  gains or  losses  of the  Portfolio  to be
magnified. For more information, see Item 13 in Part B.

         ILLIQUID   INVESTMENTS,   PRIVATELY   PLACED  AND  OTHER   UNREGISTERED
SECURITIES.  The  Portfolio  may not acquire any  illiquid  securities  if, as a
result thereof, more than 10% of the Portfolio's net assets would be in illiquid
investments.  Subject to this  policy  limitation,  the  Portfolio  may  acquire
investments  that  are  illiquid  or have  limited  liquidity,  such as  private
placements or investments that are not registered under the 1933 Act, and cannot
be offered for public sale in the United States  without first being  registered
under the 1933 Act.  An illiquid  investment  is any  investment  that cannot be
disposed of within seven days in the normal course of business at  approximately
the amount at which it is valued by the Portfolio.  The price the Portfolio pays
for illiquid securities or receives upon resale may be lower than the price paid
or received for similar  securities  with a more liquid market.  Accordingly the
valuation of these securities will reflect any limitations on their liquidity.

         The  Portfolio  may  also  purchase  Rule  144A   securities   sold  to
institutional   investors  without   registration  under  the  1933  Act.  These
securities  may  be  determined  to be  liquid  in  accordance  with  guidelines
established  by the Advisor and  approved by the  Trustees.  The  Trustees  will
monitor the Advisor's implementation of these guidelines on a periodic basis.

INVESTMENT RESTRICTIONS

         The  Portfolio  may not  make  any  investment  inconsistent  with  its
classification as a diversified  investment company under the 1940 Act. The 1940
Act  currently  requires  that 75% of the assets of the Portfolio are subject to
the  following  fundamental  limitations:  (a) the Portfolio may not invest more
than 5% of its total  assets in the  securities  of any one issuer,  except U.S.
Government  securities,  and (b) the  Portfolio may not own more than 10% of the
outstanding  voting  securities  of any one issuer.  The Portfolio is subject to
additional non-fundamental requirements governing tax exempt money market funds.
These  non-fundamental   requirements  generally  prohibit  the  Portfolio  from
investing  more than 5% of its  total  assets in the  securities  of any  single
issuer,  except  obligations  of  the  U.S.  Government  and  its  agencies  and
instrumentalities.

         For  a  more  detailed   discussion  of  the   Portfolio's   investment
restrictions, as well as a description of certain other investment restrictions,
see Item 13 in Part B.

ITEM 5.  MANAGEMENT OF THE PORTFOLIO TRUST

         The Board of Trustees  provides broad  supervision  over the affairs of
the Portfolio  Trust.  The Portfolio Trust has retained the services of JPMIM as
investment  adviser  and  Morgan  as  administrative   services  agent  for  the
Portfolio.  The Portfolio Trust has retained the services of Funds  Distributor,
Inc. ("FDI") as co-administrator (the "Co-Administrator").

         The  Portfolio  Trust has not  retained  the  services  of a  principal
underwriter or distributor,  since interests in the Portfolio are offered solely
in  private  placement  transactions.  FDI,  acting as agent for the  Portfolio,
serves as exclusive placement agent of interests in the Portfolio.  FDI receives
no additional compensation for serving in this capacity.

         The Portfolio has entered into an Amended and Restated  Portfolio  Fund
Services  Agreement with Pierpont Group, Inc.  ("Pierpont  Group") to assist the
Trustees  in  exercising  their  overall  supervisory  responsibilities  for the
Portfolio.  The fees to be paid under the agreement  approximate  the reasonable
cost of Pierpont Group in providing  these services to the Trust,  the Portfolio
and certain other registered  investment companies subject to similar agreements
with Pierpont Group.  Pierpont Group was organized in 1989 at the request of the
Trustees  of The  Pierpont  Family of Funds for the purpose of  providing  these
services at cost to those funds. See Item 14 in Part B. The principal offices of
Pierpont Group are located at 461 Fifth Avenue, New York, New York 10017.

         INVESTMENT  ADVISOR.  Subject  to the  supervision  of the  Portfolio's
Trustees,  the Advisor makes the Portfolio's  day-to-day  investment  decisions,
arranges for the execution of portfolio  transactions and generally  manages the
Portfolio's  investments.  Effective October 1, 1998 the portfolio's  investment
advisor is JPMIM.  Prior to that date, Morgan, a wholly owned subsidiary of J.P.
Morgan  & Co.  Incorporated  ("J.P.  Morgan"),  was the  Portfolio's  investment
advisor.  JPMIM,  also a wholly owned subsidiary of J.P. Morgan, is a registered
investment adviser under the Investment Advisers Act of 1940, as amended.  JPMIM
manages employee benefit funds of corporations, labor unions and state and local
governments  and  the  accounts  of  other  institutional  investors,  including
investment  companies.  Certain of the assets of employee benefit accounts under
its management  are invested in commingled  pension trust funds for which Morgan
serves as trustee.

         J.P.  Morgan,  through  the  Advisor  and other  subsidiaries,  acts as
investment advisor to individuals,  governments,  corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $316 billion.

         The following  persons are  primarily  responsible  for the  day-to-day
management and  implementation  of JPMIM's  process for the Portfolio  since its
inception   (business   experience   for  the  past  five  years  is   indicated
parenthetically):  Robert R. Johnson,  Vice President  (employed by Morgan since
prior to 1993), Daniel B. Mulvey, Vice President (employed by Morgan since 1993)
and and  John  Donahue,  Vice  President  (since  June,  1997,  prior  to that a
portfolio manager for Goldman Sachs & Co.)

         As compensation for the services rendered and related expenses borne by
Morgan under the Investment  Advisory  Agreement with the Portfolio  Trust,  the
Portfolio  has agreed to pay Morgan a fee,  which is  computed  daily and may be
paid monthly,  at the annual rate of 0.20% of the Portfolio's  average daily net
assets up to $1 billion,  and 0.10% of average  daily net assets in excess of $1
billion.

         Under a separate  agreement,  Morgan also provides  administrative  and
related  services to the Portfolio  Trust.  See  Administrative  Services  Agent
below.

         CO-ADMINISTRATOR.  Pursuant to a  Co-Administration  Agreement with the
Portfolio Trust, FDI serves as the Co-Administrator for the Portfolio.  FDI, (i)
provides  office space,  equipment and clerical  personnel for  maintaining  the
organization and books and records of the Portfolio;  (ii) provides officers for
the  Portfolio  Trust;  (iii) files  Portfolio  regulatory  documents  and mails
Portfolio  communications to Trustees and investors;  and (iv) maintains related
books and records. See "Administrative Services Agent" below.

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

         ADMINISTRATIVE  SERVICES AGENT. Pursuant to the Administrative Services
Agreement with the Portfolio Trust,  Morgan provides certain  administrative and
related services to the Portfolio, including services related to tax compliance,
preparation of financial statements,  calculation of performance data, oversight
of service providers and certain regulatory and Board of Trustees matters.

         Under the Administrative  Services Agreement,  the Portfolio 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
Portfolio,  the other Portfolios in which series of the Trust or the J.P. Morgan
Funds invest and J.P.  Morgan  Series  Trust in  accordance  with the  following
annual schedule:  0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion, less the complex-wide fees payable to FDI.

         PLACEMENT  AGENT.  FDI,  a  registered  broker-dealer,  also  serves as
exclusive  placement  agent for the  Portfolio.  FDI is a wholly owned  indirect
subsidiary of Boston  Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.

     CUSTODIAN.  State  Street  Bank and Trust  Company  ("State  Street"),  225
Franklin Street, Boston Massachusetts 02110, serves as the Portfolio's custodian
and fund accounting and transfer agent.  State Street keeps the books of account
for the Portfolio.

         EXPENSES.  In  addition to the fees  payable to the  service  providers
identified above, the Portfolio is responsible for usual and customary  expenses
associated with its 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 and
extraordinary expenses.

     J.P.  Morgan has agreed that it will  reimburse the Portfolio to the extent
necessary to maintain the  Portfolio's  total  operating  expenses at the annual
rate of 0.20% of the Portfolio's  average daily net assets.  This limit does not
cover extraordinary  expenses during the period. There is no assurance that J.P.
Morgan will continue this waiver.

ITEM 6.  CAPITAL STOCK AND OTHER SECURITIES

         The Portfolio is a subtrust of the Portfolio Trust,  which is organized
as a trust  under the laws of the State of New York.  Under the  Declaration  of
Trust, the Trustees are authorized to issue beneficial  interests in one or more
subtrusts.  Currently,  there are two active  subtrusts of the Portfolio  Trust.
Investments  in the  Portfolio  may  not be  transferred,  but an  investor  may
withdraw  all or any portion of its  investment  at any time at net asset value.
The  Declaration  of Trust  provides  that  investors  in the  Portfolio  (other
investment  companies,  insurance  company  separate  accounts  and  common  and
commingled  trust funds) are each liable for all  obligations  of the Portfolio.
However,  the risk of an investor in the Portfolio  incurring  financial loss on
account of such liability is limited to  circumstances  in which both inadequate
insurance existed and the Portfolio itself was unable to meet its obligations.

         As of January 31, 1999, the J.P.  Morgan  Institutional  Treasury Money
Market Fund and J.P.  Morgan  Institutional  Service  Treasury Money Market Fund
(series  of  the  J.P.  Morgan   Institutional   Funds),   owned  42%  and  58%,
respectively,  of the outstanding beneficial interests in the Portfolio. So long
as the Funds control the Portfolio, they may take action without the approval of
any other holder of beneficial interests in the Portfolio.

         Each  investor in the  Portfolio is entitled to a vote in proportion to
the amount of its investment in the  Portfolio.  Investors in the Portfolio will
vote as a separate class, except as to voting of Trustees, as otherwise required
by the 1940 Act, or if  determined  by the Trustees to be a matter which affects
all  subtrusts.  As to any matter which only affects a specific  subtrust,  only
investors in that  subtrust are entitled to vote.  Investments  in the Portfolio
have no preemptive or  conversion  rights and are fully paid and  nonassessable,
except as set forth  below.  The  Portfolio  is not  required and has no current
intention of holding annual  meetings of investors,  but the Portfolio will hold
special  meetings  of  investors  when in the  judgment  of the  Trustees  it is
necessary  or  desirable  to submit  matters  for an investor  vote.  Changes in
fundamental policies will be submitted to investors for approval. Investors have
under certain  circumstances  (e.g.,  upon application and submission of certain
specified documents to the Trustees by a specified percentage of the outstanding
interests in the Portfolio  Trust) the right to communicate with other investors
in connection with requesting a meeting of investors for the purpose of removing
one or more  Trustees.  Investors  also  have the  right to  remove  one or more
Trustees without a meeting by a declaration in writing by a specified percentage
of the outstanding  interests in the Portfolio  Trust.  Upon  liquidation of the
Portfolio,  investors  would be  entitled to share pro rata in the net assets of
the Portfolio available for distribution to investors.

         The net asset value of the  Portfolio is  determined  each business day
other  than the  holidays  listed in Part B  ("Portfolio  Business  Day").  This
determination  is made once each Portfolio  Business Day at the close of trading
on the New York Stock Exchange  (normally 4:00 p.m.) (the "Valuation Time"). See
Item 19 in Part B.

         The "net  income"  of the  Portfolio  will  consist  of (i) all  income
accrued,  less the amortization of any premium,  on the assets of the Portfolio,
less (ii) all  actual  and  accrued  expenses  of the  Portfolio  determined  in
accordance  with  generally  accepted  accounting  principles.  Income  includes
dividends and interest, including discount earned (including both original issue
and market  discount) on discount paper accrued  ratably to the date of maturity
and any net  realized  and  unrealized  gains or  losses  on the  assets  of the
Portfolio.  All the net income of the  Portfolio is allocated pro rata among the
investors in the Portfolio.

         The end of the Portfolio's fiscal year is October 31.

         Under  the  anticipated  method  of  operation  of the  Portfolio,  the
Portfolio will not be subject to any income tax.  However,  each investor in the
Portfolio  will be taxable on its share (as  determined in  accordance  with the
governing  instruments of the Portfolio) of the Portfolio's  ordinary income and
capital gain in determining its income tax liability.  The determination of such
share will be made in  accordance  with the Internal  Revenue  Code of 1986,  as
amended (the "Code"), and regulations promulgated thereunder.

         It is intended that the Portfolio's  assets,  income and  distributions
will be managed in such a way that an investor in the Portfolio  will be able to
satisfy the  requirements of Subchapter M of the Code assuming that the investor
invested all of its assets in the Portfolio.

         Investor  inquiries may be directed to FDI at 60 State Street,  Boston,
Massachusetts 02109, or by calling FDI at (617) 557-0700.

ITEM 7.  PURCHASE OF SECURITIES

         Beneficial  interests  in the  Portfolio  are issued  solely in private
placement  transactions  that do not involve any  "public  offering"  within the
meaning of Section 4(2) of the 1933 Act.  Investments  in the Portfolio may only
be made by other investment  companies,  insurance  company  separate  accounts,
common or commingled trust funds, or similar organizations or entities which are
"accredited  investors"  as  defined  in Rule  501  under  the  1933  Act.  This
Registration Statement does not constitute an offer to sell, or the solicitation
of an offer to buy, any "security" within the meaning of the 1933 Act.

         An investment  in the  Portfolio may be made without a sales load.  All
investments  are  made at net  asset  value  next  determined  after an order is
received  in "good  order" by the  Portfolio  Trust.  The net asset value of the
Portfolio is determined at the Valuation Time on each Portfolio Business Day.

         There is no minimum initial or subsequent  investment in the Portfolio.
However,  because the Portfolio  intends to be as fully invested at all times as
is  reasonably  practicable  in  order  to  enhance  the  yield  on its  assets,
investments must be made in federal funds (i.e.,  monies credited to the account
of the Custodian by a Federal Reserve bank).

         The Portfolio may, at its own option,  accept securities in payment for
investments in its beneficial  interests.  The securities  delivered in kind are
valued by the method described in Item 19 of Part B as of the business day prior
to the day the Portfolio receives the securities.  Securities may be accepted in
payment for  beneficial  interests  only if they are, in the judgment of Morgan,
appropriate investments for the Portfolio.  In addition,  securities accepted in
payment for beneficial  interests  must:  (i) meet the investment  objective and
policies of the Portfolio;  (ii) be acquired by the Portfolio for investment and
not for  resale;  (iii) be  liquid  securities  which are not  restricted  as to
transfer  either by law or liquidity  of market;  and (iv) have a value which is
readily ascertainable as evidenced by a listing on an exchange, over-the-counter
market  or by  readily  available  market  quotations  from  a  dealer  in  such
securities.  The  Portfolio  reserves  the  right to accept or reject at its own
option any and all securities offered in payment for beneficial interests.

         The Portfolio and FDI reserve the right to cease accepting  investments
at any time or to reject any investment order.

         Each investor in the  Portfolio may add to or reduce its  investment in
the Portfolio on each Portfolio Business Day. At the Valuation Time on each such
day, the value of each investor's  beneficial  interest in the Portfolio will be
determined  by  multiplying  the  net  asset  value  of  the  Portfolio  by  the
percentage,  effective for that day, which  represents that investor's  share of
the  aggregate  beneficial   interests  in  the  Portfolio.   Any  additions  or
reductions,  which are to be effected at the  Valuation  Time on such day,  will
then  be  effected.  The  investor's  percentage  of  the  aggregate  beneficial
interests in the Portfolio  will then be recomputed as the  percentage  equal to
the  fraction  (i) the  numerator  of  which  is the  value  of such  investor's
investment in the Portfolio at the Valuation Time on such day plus or minus,  as
the case may be, the amount of net additions to or reductions in the  investor's
investment  in the  Portfolio  effected  at the  Valuation  Time,  and  (ii) the
denominator of which is the aggregate net asset value of the Portfolio as of the
Valuation Time on such day, plus or minus, as the case may be, the amount of net
additions to or reductions in the aggregate  investments in the Portfolio by all
investors in the Portfolio. The percentage so determined will then be applied to
determine  the  value of the  investor's  interest  in the  Portfolio  as of the
Valuation Time on the following Portfolio Business Day.

ITEM 8.  REDEMPTION OR REPURCHASE

         An  investor  in the  Portfolio  may reduce  all or any  portion of its
investment  at the net asset  value  next  determined  after a request  in "good
order"  is  furnished  by the  investor  to the  Portfolio.  The  proceeds  of a
reduction  will be paid by the Portfolio  Trust in federal funds normally on the
next  Portfolio  Business Day after the reduction is effected,  but in any event
within seven days. Investments in the Portfolio may not be transferred.

         The right of any  investor  to  receive  payment  with  respect  to any
reduction  may be suspended or the payment of the proceeds  therefrom  postponed
during any period in which the New York Stock  Exchange  (the  "NYSE") is closed
(other than  weekends or holidays) or trading on the NYSE is  restricted  or, to
the extent otherwise  permitted by the 1940 Act if an emergency  exists.  In the
event that  trading in the money  markets is  scheduled  to end earlier than the
close of the  NYSE,  the  Portfolio  would  expect to close  for  purchases  and
withdrawals an hour in advance of the end of trading in the money  markets.  The
Portfolio may also close for purchases  and  withdrawals  at such other times as
may be determined by the Trustees to the extent permitted by applicable law.

         The Portfolio  Trust,  on behalf of the  Portfolio,  reserves the right
under certain  circumstances,  such as  accommodating  requests for  substantial
withdrawals or liquidations, to pay distributions in kind to investors (i.e., to
distribute   portfolio  securities  as  opposed  to  cash).  If  securities  are
distributed,  an  investor  could  incur  brokerage,  tax or  other  charges  in
converting the securities to cash. In addition,  distribution in kind may result
in a less diversified portfolio of investments or adversely affect the liquidity
of the Portfolio or the investor's portfolio, as the case may be.

ITEM 9.  PENDING LEGAL PROCEEDINGS

         Not applicable.








<PAGE>




                           PART B (Global Strategic Income Portfolio)


ITEM 10.  COVER PAGE.

         Not applicable.


ITEM 11.  TABLE OF CONTENTS.                                  PAGE

     General Information and History                 B-1
     Investment Objective and Policies               B-1
     Management of the Fund                                   B-14
     Control Persons and Principal Holders
     of Securities                                            B-17
     Investment Advisory and Other Services B-17
     Brokerage Allocation and Other Practices        B-22
     Capital Stock and Other Securities              B-24
     Purchase, Redemption and Pricing of
     Securities Being Offered                                 B-25
     Tax Status                                               B-27
     Underwriters                                             B-28
     Calculations of Performance Data                B-28
     Financial Statements                            B-28

ITEM 12.  GENERAL INFORMATION AND HISTORY.

         Not applicable.

ITEM 13.  INVESTMENT OBJECTIVE AND POLICIES.

         The investment  objective of The Global Strategic Income Portfolio (the
"Portfolio") is high total return from a portfolio of fixed income securities of
foreign and domestic issuers.  The Portfolio  attempts to achieve its investment
objective  by  investing  primarily  in  mortgage-backed  securities  and direct
mortgage  obligations;  below  investment  grade debt  obligations  of U.S.  and
non-U.S.  issuers;  investment grade U.S. dollar denominated debt obligations of
U.S.  and  non-U.S.  issuers;   investment  grade  non-dollar  denominated  debt
obligations of non-U.S.  issuers;  and  obligations of emerging  market issuers.
These fixed income markets are described in Part A and this Part B.

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

         The following  discussion  supplements  the  information  regarding the
investment objective of the Portfolio and the policies to be employed to achieve
this objective as set forth above and in Part A.

MONEY MARKET INSTRUMENTS

         As  discussed  in Part A, the  Portfolio  may  invest  in money  market
instruments to the extent consistent with its investment objective and policies.
A  description  of the various  types of money  market  instruments  that may be
purchased by the Portfolio appears below. Also see "Quality and  Diversification
Requirements".

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

         ADDITIONAL  U.S.  GOVERNMENT  OBLIGATIONS.  The Portfolio may invest in
obligations   issued   or   guaranteed   by   U.S.    Government   agencies   or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United  States.  In the case of securities  not backed by the
full faith and credit of the United States,  the Portfolio must look principally
to the federal  agency  issuing or  guaranteeing  the  obligation  for  ultimate
repayment and may not be able to assert a claim against the United States itself
in the  event  the  agency  or  instrumentality  does not meet its  commitments.
Securities  in which the  Portfolio  may invest  that are not backed by the full
faith  and  credit  of the  United  States  include,  but  are not  limited  to,
obligations of the Tennessee  Valley  Authority,  the Federal Home Loan Mortgage
Corporation,  and the U.S. Postal Service, each of which has the right to borrow
from the  U.S.  Treasury  to meet  its  obligations.  Securities  in  which  the
Portfolio  may  invest  that are not  backed by the full faith and credit of the
United  States  include  obligations  of the Federal Farm Credit  System and the
Federal Home Loan Banks,  both of whose obligations may be satisfied only by the
individual  credits of each issuing agency.  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.

     FOREIGN GOVERNMENT  OBLIGATIONS.  The Portfolio,  subject to its applicable
investment  policies,  may also  invest  in  obligations  of  foreign  sovereign
governments or of their  agencies,  instrumentalities,  authorities or political
subdivisions.  These  securities  may be  denominated  in the U.S.  dollar or in
another currency. See "Foreign Investments".

         BANK  OBLIGATIONS.  The Portfolio,  unless otherwise noted in Part A or
below,  may invest in  negotiable  certificates  of deposit,  time  deposits and
bankers'  acceptances of (i) foreign branches of U.S. banks and U.S. savings and
loans associations or of foreign banks (Euros) and (ii) U.S. branches of foreign
banks  (Yankees).  The Portfolio  will not invest in  obligations  for which the
Advisor,  or any of its affiliated persons, is the ultimate obligor or accepting
bank.  The Portfolio 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  Portfolio  may  invest  in  commercial  paper,
including master demand  obligations.  Master demand obligations are obligations
that  provide for a periodic  adjustment  in the  interest  rate paid and permit
daily changes in the amount borrowed.  Master demand obligations are governed by
agreements between the issuer and Morgan acting as agent, for no additional fee.
The monies loaned to the borrower  come from  accounts  managed by Morgan or its
affiliates,  pursuant to arrangements with such accounts. Interest and principal
payments  are  credited  to such  accounts.  Morgan has the right to increase or
decrease the amount  provided to the borrower under an obligation.  The borrower
has the right to pay  without  penalty all or any part of the  principal  amount
then outstanding on an obligation together with interest to the date of payment.
Since these obligations  typically provide that the interest rate is tied to the
Federal  Reserve  commercial  paper  composite  rate,  the rate on master demand
obligations  is subject to change.  Repayment of a master  demand  obligation to
participating accounts depends on the ability of the borrower to pay the accrued
interest  and  principal  of the  obligation  on  demand  which is  continuously
monitored by Morgan. Since master demand obligations  typically are not rated by
credit rating  agencies,  the  Portfolio may invest in such unrated  obligations
only if at the time of an investment the obligation is determined by the Advisor
to have a credit quality which satisfies the Portfolio's  quality  restrictions.
See "Quality and Diversification  Requirements".  Although there is no secondary
market for master demand  obligations,  such  obligations  are considered by the
Portfolio to be liquid because they are payable upon demand.  The Portfolio 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  Portfolio  may  enter  into  repurchase
agreements  with  brokers,  dealers  or banks  that meet the  credit  guidelines
approved by the  Trustees.  In a  repurchase  agreement,  the  Portfolio  buys a
security  from a seller  that has agreed to  repurchase  the same  security at a
mutually  agreed upon date and price.  The resale price normally is in excess of
the purchase price,  reflecting an agreed upon interest rate. This interest rate
is effective  for the period of time the  Portfolio is invested in the agreement
and is not related to the coupon rate on the underlying  security.  A repurchase
agreement  may also be  viewed  as a fully  collateralized  loan of money by the
Portfolio to the seller. The period of these repurchase  agreements will usually
be short,  from overnight to one week, and at no time will the Portfolio  invest
in repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements,  however, may have maturity dates in excess of
thirteen  months  from  the  effective  date of the  repurchase  agreement.  The
Portfolio  will always receive  securities as collateral  whose market value is,
and during the entire term of the agreement  remains,  at least equal to 100% of
the dollar  amount  invested by the  Portfolio  in each  agreement  plus accrued
interest,  and the  Portfolio  will make payment for such  securities  only upon
physical  delivery or upon evidence of book entry transfer to the account of the
Custodian. If the seller defaults, the Portfolio might incur a loss if the value
of the  collateral  securing the repurchase  agreement  declines and might incur
disposition costs in connection with liquidating the collateral. In addition, if
bankruptcy proceedings are commenced with respect to the seller of the security,
realization  upon disposal of the  collateral by the Portfolio may be delayed or
limited.

         The Portfolio may make  investments in other debt securities  including
without  limitation  corporate and foreign  bonds,  asset-backed  securities and
other obligations described in Part A or this Part B.

CORPORATE BONDS AND OTHER DEBT SECURITIES

         As  discussed  in Part A, the  Portfolio  may invest in bonds and other
debt  securities of domestic and foreign  issuers to the extent  consistent with
its  investment  objectives  and policies.  A description  of these  investments
appears in Part A and below. See "Quality and Diversification Requirements". For
information  on short-term  investments in these  securities,  see "Money Market
Instruments".

         MORTGAGE-BACKED SECURITIES. The Portfolio may invest in mortgage-backed
securities. Each mortgage pool underlying mortgage-backed securities consists of
mortgage loans evidenced by promissory notes secured by first mortgages or first
deeds of trust or other similar  security  instruments  creating a first lien on
owner  occupied  and  non-owner  occupied  one-unit  to  four-unit   residential
properties, multifamily (i.e., five or more) properties, agriculture properties,
commercial properties and mixed use properties.  The investment  characteristics
of adjustable  and fixed rate  mortgage-backed  securities  differ from those of
traditional fixed income securities.  The major differences  include the payment
of interest  and  principal on  mortgage-backed  securities  on a more  frequent
(usually  monthly) schedule and the possibility that principal may be prepaid at
any time due to prepayments  on the  underlying  mortgage loans or other assets.
These differences can result in significantly greater price and yield volatility
than is the case with traditional fixed income securities. As a result, a faster
than expected prepayment rate will reduce both the market value and the yield to
maturity  from those which were  anticipated.  A prepayment  rate that is slower
than expected will have the opposite effect of increasing  yield to maturity and
market value.

         GOVERNMENT GUARANTEED MORTGAGE-BACKED  SECURITIES.  Government National
Mortgage Association mortgage-backed  certificates ("Ginnie Maes") are supported
by the full faith and credit of the United States. Certain other U.S. Government
securities,  issued or  guaranteed by federal  agencies or government  sponsored
enterprises,  are not  supported  by the full  faith and  credit  of the  United
States,  but may be supported by the right of the issuer to borrow from the U.S.
Treasury.  These securities include obligations of instrumentalities such as the
Federal Home Loan Mortgage Corporation ("Freddie Macs") and the Federal National
Mortgage  Association  ("Fannie Maes").  No assurance can be given that the U.S.
Government   will  provide   financial   support  to  these  federal   agencies,
authorities,  instrumentalities  and  government  sponsored  enterprises  in the
future.

         There  are  several  types  of  guaranteed  mortgage-backed  securities
currently available, including guaranteed mortgage pass-through certificates and
multiple  class  securities,  which  include  guaranteed  real  estate  mortgage
investment conduit  certificates  ("REMIC  Certificates"),  other collateralized
mortgage obligations ("CMOs") and stripped mortgage-backed securities.

         Mortgage   pass-through   securities  are  fixed  or  adjustable   rate
mortgage-backed  securities  which  provide  for  monthly  payments  that  are a
"pass-through"  of the monthly  interest and principal  payments  (including any
prepayments) made by the individual  borrowers on the pooled mortgage loans, net
of any  fees or  other  amounts  paid  to any  guarantor,  administrator  and/or
servicer of the underlying mortgage loans.

         Multiple class securities include CMOs and REMIC Certificates issued by
U.S. Government agencies,  instrumentalities  (such as Fannie Mae) and sponsored
enterprises (such as Freddie Mac) or by trusts formed by private originators of,
or  investors  in,  mortgage  loans,  including  savings and loan  associations,
mortgage bankers,  commercial banks,  insurance companies,  investment banks and
special  purpose  subsidiaries  of the  foregoing.  In  general,  CMOs  are debt
obligations  of a legal entity that are  collateralized  by, and multiple  class
mortgage-backed  securities  represent direct ownership  interests in, a pool of
mortgage loans or mortgaged-backed  securities and payments on which are used to
make payments on the CMOs or multiple class mortgage-backed securities.

         CMOs and guaranteed REMIC Certificates issued by Fannie Mae and Freddie
Mac are  types of  multiple  class  mortgage-backed  securities.  Investors  may
purchase beneficial  interests in REMICs, which are known as "regular" interests
or  "residual"  interests.  The Portfolio  does not intend to purchase  residual
interests  in REMICs.  The REMIC  Certificates  represent  beneficial  ownership
interests in a REMIC trust,  generally  consisting  of mortgage  loans or Fannie
Mae,  Freddie  Mac or Ginnie  Mae  guaranteed  mortgage-backed  securities  (the
"Mortgage  Assets").  The  obligations of Fannie Mae and Freddie Mac under their
respective  guaranty of the REMIC  Certificates are obligations solely of Fannie
Mae and Freddie Mac, respectively.

         CMOs and REMIC Certificates are issued in multiple classes.  Each class
of CMOs or REMIC Certificates,  often referred to as a "tranche," is issued at a
specific  adjustable  or fixed  interest rate and must be fully retired no later
than its final distribution date. Principal prepayments on the assets underlying
the CMOs or REMIC  Certificates  may cause some or all of the classes of CMOs or
REMIC  Certificates  to  be  retired  substantially  earlier  than  their  final
scheduled  distribution  dates.  Generally,  interest  is paid or accrues on all
classes of CMOs or REMIC Certificates on a monthly basis.

         STRIPPED   MORTGAGE-BACKED    SECURITIES.    Stripped   mortgage-backed
securities  ("SMBS") are derivative  multiclass mortgage  securities,  issued or
guaranteed  by the U.S.  Government,  its  agencies or  instrumentalities  or by
private issuers. Although the market for such securities is increasingly liquid,
privately  issued  SMBS may not be  readily  marketable  and will be  considered
illiquid for purposes of the  Portfolio's  limitation on investments in illiquid
securities.  The  Advisor  may  determine  that SMBS  which are U.S.  Government
securities are liquid for purposes of the Portfolio's  limitation on investments
in illiquid  securities in accordance  with  procedures  adopted by the Board of
Trustees.  The  market  value of the  class  consisting  entirely  of  principal
payments  generally  is  unusually  volatile  in response to changes in interest
rates.  The yields on a class of SMBS that  receives all or most of the interest
from Mortgage Assets are generally higher than prevailing market yields on other
mortgage-backed  securities  because  their cash flow patterns are more volatile
and  there is a  greater  risk  that the  initial  investment  will not be fully
recouped.

         ZERO  COUPON,  PAY-IN-KIND  AND  DEFERRED  PAYMENT  SECURITIES.   While
interest  payments are not made on such  securities,  holders of such securities
are  deemed to have  received  "phantom  income."  Because  the  Portfolio  will
distribute  "phantom  income" to investors,  the Portfolio may have fewer assets
with which to purchase income producing securities.



<PAGE>




         ASSET-BACKED SECURITIES. Asset-backed securities directly or indirectly
represent a  participation  interest  in, or are secured by and payable  from, a
stream of payments  generated  by  particular  assets  such as motor  vehicle or
credit card receivables. Payments of principal and interest may be guaranteed up
to certain amounts and for a certain time period by a letter of credit issued by
a financial  institution  unaffiliated with the entities issuing the securities.
The asset-backed securities in which the Portfolio may invest are subject to the
Portfolio's overall credit requirements.  However,  asset-backed securities,  in
general,  are  subject  to certain  risks.  Most of these  risks are  related to
limited  interests  in  applicable  collateral.  For  example,  credit card debt
receivables  are  generally  unsecured  and  the  debtors  are  entitled  to the
protection of a number of state and federal  consumer credit laws, many of which
give such  debtors  the right to set off  certain  amounts  on credit  card debt
thereby  reducing  the  balance  due.  Additionally,  if the letter of credit is
exhausted,  holders of  asset-backed  securities may also  experience  delays in
payments or losses if the full amounts due on underlying sales contracts are not
realized.  Because  asset-backed  securities  are  relatively  new,  the  market
experience in these  securities  is limited and the market's  ability to sustain
liquidity through all phases of the market cycle has not been tested.

FOREIGN INVESTMENTS

         The Portfolio makes substantial  investments in foreign countries.  The
Portfolio may invest in fixed income  securities of foreign issuers  denominated
in the  U.S.  dollar  and  other  currencies.  Foreign  investments  may be made
directly in securities of foreign issuers or in the form of American  Depositary
Receipts ("ADRs") and European Depositary Receipts ("EDRs"). Generally, ADRs and
EDRs are receipts  issued by a bank or trust company that evidence  ownership of
underlying  securities issued by a foreign corporation and that are designed for
use in the  domestic,  in the case of ADRs,  or  European,  in the case of EDRs,
securities markets.

         Since investments in foreign securities may involve foreign currencies,
the value of the Portfolio's  assets as measured in U.S. dollars may be affected
favorably or unfavorably  by changes in currency  rates and in exchange  control
regulations,  including currency blockage.  The Portfolio may enter into forward
commitments  for the purchase or sale of foreign  currencies in connection  with
the settlement of foreign  securities  transactions or to manage the Portfolio's
currency  exposure related to foreign  investments.  See "Additional  Investment
Information" in Part A.

         The Portfolio may also invest in countries  with emerging  economies or
securities markets.  Political and economic structures in many of such countries
may  be  undergoing  significant  evolution  and  rapid  development,  and  such
countries may lack the social,  political and economic stability  characteristic
of more  developed  countries.  Certain of such  countries  may have in the past
failed to recognize  private  property rights and have at times  nationalized or
expropriated the assets of private  companies.  As a result, the risks described
above, including the risks of nationalization or expropriation of assets, may be
heightened.  In addition,  unanticipated  political or social  developments  may
affect the values of the  Portfolio's  investments  in those  countries  and the
availability to the Portfolio of additional investments in those countries.  The
small  size and  inexperience  of the  securities  markets  in  certain  of such
countries and the limited volume of trading in securities in those countries may
make the  Portfolio's  investments in such countries  illiquid and more volatile
than investments in more developed countries,  and the Portfolio may be required
to establish  special  custodial or other  arrangements  before  making  certain
investments  in those  countries.  There may be little  financial or  accounting
information  available  with  respect  to  issuers  located  in  certain of such
countries,  and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.

         For a description  of the risks  associated  with  investing in foreign
securities, see "Additional Investment Information and Risk Factors" in Part A.

ADDITIONAL INVESTMENTS

         WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. For example,  delivery of
and payment for these  securities  can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase  commitment date or at the time
the settlement date is fixed.  The value of such securities is subject to market
fluctuation and for fixed income securities no interest accrues to the Portfolio
until  settlement takes place. At the time the Portfolio makes the commitment to
purchase  securities on a when-issued or delayed  delivery basis, it will record
the  transaction,  reflect the value each day of such  securities in determining
its net asset value and, if applicable,  calculate the maturity for the purposes
of average  maturity  from that date.  At the time of  settlement a  when-issued
security  may be valued at less than the  purchase  price.  To  facilitate  such
acquisitions,  the  Portfolio  will  maintain  with the  custodian a  segregated
account with liquid assets,  consisting of cash, U.S.  government  securities or
other appropriate  securities,  in an amount at least equal to such commitments.
On delivery dates for such transactions, the Portfolio will meet its obligations
from maturities or sales of the securities held in the segregated account and/or
from cash flow.  If the  Portfolio  chooses to dispose of the right to acquire a
when-issued security prior to its acquisition, it could, as with the disposition
of  any  other  portfolio  obligation,  incur  a gain  or  loss  due  to  market
fluctuation.

         INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Portfolio to the extent  permitted  under the 1940 Act or
any order pursuant  thereto.  These limits currently require that, as determined
immediately  after a purchase is made,  (i) not more than 5% of the value of the
Portfolio's  total  assets  will  be  invested  in the  securities  of  any  one
investment company, (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in  securities of investment  companies as a group,
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio.  As a shareholder of another  investment
company,  the Portfolio would bear, along with other shareholders,  its PRO RATA
portion of the other investment  company's  expenses,  including  advisory fees.
These  expenses would be in addition to the advisory and other expenses that the
Portfolio bears directly in connection  with its own  operations.  The Portfolio
has applied for exemptive  relief from the  Securities  and Exchange  Commission
("SEC") to permit the Portfolio to invest in affiliated investment companies. If
the requested relief is granted, the Portfolio would then be permitted to invest
in affiliated Funds,  subject to certain conditions  specified in the applicable
order.

REVERSE  REPURCHASE  AGREEMENTS.  The  Portfolio may enter into reverse
repurchase agreements.  In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase  the same  security at a mutually  agreed upon
date and  price  reflecting  the  interest  rate  effective  for the term of the
agreement.  For purposes of the 1940 Act a reverse repurchase  agreement is also
considered  as the  borrowing  of money by the Fund  and,  therefore,  a form of
leverage.  Leverage  may  cause  any  gains  or  losses  for a  Portfolio  to be
magnified.  The Portfolio  will invest the proceeds of borrowings  under reverse
repurchase agreements. In addition, except for liquidity purposes, the Portfolio
will enter into a reverse  repurchase  agreement  only when the expected  return
from  the  investment  of the  proceeds  is  greater  than  the  expense  of the
transaction.  The Portfolio will not invest the proceeds of a reverse repurchase
agreement  for a period  which  exceeds the  duration of the reverse  repurchase
agreement.  The  Portfolio  will  establish  and maintain  with the  custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase  agreements.  See
"Investment  Restrictions" for the Portfolio's limitations on reverse repurchase
agreements and bank borrowings.

         MORTGAGE DOLLAR ROLL TRANSACTIONS. The Portfolio may engage in mortgage
dollar  roll  transactions  with  respect to mortgage  securities  issued by the
Government  National  Mortgage   Association,   the  Federal  National  Mortgage
Association and the Federal Home Loan Mortgage Corporation. In a mortgage dollar
roll   transaction,   the  Portfolio   sells  a  mortgage  backed  security  and
simultaneously  agrees to  repurchase a similar  security on a specified  future
date at an agreed upon price.  During the roll period, the Portfolio will not be
entitled to receive any interest or principal paid on the  securities  sold. The
Portfolio is  compensated  for the lost interest on the  securities  sold by the
difference between the sales price and the lower price for the future repurchase
as well as by the interest earned on the reinvestment of the sales proceeds. The
Portfolio  may also be  compensated  by receipt of a  commitment  fee.  When the
Portfolio  enters into a mortgage dollar roll  transaction,  liquid assets in an
amount  sufficient  to pay for the future  repurchase  are  segregated  with the
custodian.  Mortgage dollar roll transactions are considered  reverse repurchase
agreements for purposes of the Portfolio's investment restrictions.

         LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its securities if
such loans are secured  continuously  by cash or  equivalent  collateral or by a
letter of credit in favor of the  Portfolio  at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest.  While such
securities are on loan, the borrower will pay the Portfolio any income  accruing
thereon.  Loans will be subject to  termination  by the  Portfolio in the normal
settlement time,  generally three business days after notice, or by the borrower
on one day's  notice.  Borrowed  securities  must be  returned  when the loan is
terminated.  Any gain or loss in the  market  price of the  borrowed  securities
which  occurs  during  the  term of the loan  inures  to the  Portfolio  and its
investors.  The Portfolio  may pay  reasonable  finders' and  custodial  fees in
connection  with a loan. In addition,  the Portfolio will consider all facts and
circumstances   before   entering   into  such  an   agreement,   including  the
creditworthiness of the borrowing financial institution,  and the Portfolio will
not make any  loans in  excess  of one  year.  The  Portfolio  will not lend its
securities to any officer,  Trustee,  Director,  employee, or other affiliate of
the Portfolio,  the Advisor,  or the placement agent, unless otherwise permitted
by applicable law.

         PRIVATELY PLACED AND CERTAIN UNREGISTERED SECURITIES. The Portfolio may
invest  in  privately  placed,  restricted,  Rule  144A  or  other  unregistered
securities as described in Part A.

         As to illiquid  investments,  the  Portfolio  is subject to a risk that
should the Portfolio  decide to sell them when a ready buyer is not available at
a price the  Portfolio  deems  representative  of their value,  the value of the
Portfolio's net assets could be adversely  affected.  Where an illiquid security
must be registered under the Securities Act of 1933, as amended (the "1933 Act")
before it may be sold,  the Portfolio may be obligated to pay all or part of the
registration  expenses, and a considerable period may elapse between the time of
the  decision  to sell and the time the  Portfolio  may be  permitted  to sell a
security under an effective  registration  statement.  If, during such a period,
adverse market  conditions  were to develop,  the Portfolio  might obtain a less
favorable price than prevailed when it decided to sell.

         INTEREST  RATE  SWAPS.  In  connection  with  such  transactions,   the
Portfolio will segregate cash or liquid securities to cover any amounts it could
owe under swaps that  exceed the amounts it is entitled to receive,  and it will
adjust that amount daily, as needed. During the term of the swap, changes in the
value of the swap are  recognized  as  unrealized  gains or losses by marking to
market to reflect the market value of the swap. When the swap is terminated, the
Portfolio will record a realized gain or loss equal to the  difference,  if any,
between  the  proceeds  from  (or  cost  of)  the  closing  transaction  and the
Portfolio's  basis in the  contract.  The Portfolio is exposed to credit loss in
the event of nonperformance by the other party to the swap.

QUALITY AND DIVERSIFICATION REQUIREMENTS

         The higher total return sought by the Portfolio is generally obtainable
from high yield  high risk  securities  in the lower  rating  categories  of the
established  rating  services.  These  securities are rated below Baa by Moody's
Investors Services,  Inc.  ("Moody's") or below BBB by Standard & Poor's Ratings
Group ("Standard & Poor's"). The Portfolio may invest in securities rated as low
as B by Moody's or Standard & Poor's,  which may indicate  that the  obligations
are  speculative  to a high degree and in default.  Lower rated  securities  are
generally  referred to as junk bonds.  See the Appendix for a description of the
characteristics  of  the  various  ratings  categories.  The  Portfolio  is  not
obligated to dispose of securities whose issuers  subsequently are in default or
which are downgraded  below the minimum ratings noted above.  The credit ratings
of Moody's and Standard & Poor's (the "Rating Agencies"),  such as those ratings
described in this Part B, may not be changed by the Rating  Agencies in a timely
fashion to reflect subsequent  economic events. The credit ratings of securities
do not evaluate market risk. The Portfolio may also invest in unrated securities
which, in the opinion of the Advisor,  offer comparable  yields and risks to the
rated securities in which the Portfolio may invest.

         Debt securities that are rated in the lower rating categories, or which
are unrated,  involve greater  volatility of price and risk of loss of principal
and income.  In addition,  lower  ratings  reflect a greater  possibility  of an
adverse  change in financial  condition  affecting  the ability of the issuer to
make payments of interest and principal. The market price and liquidity of lower
rated fixed income  securities  generally  respond to  short-term  corporate and
market  developments  to a greater extent than the price and liquidity of higher
rated securities, because these developments are perceived to have a more direct
relationship  to the ability of an issuer of lower rated  securities to meet its
ongoing debt  obligations.  Although the Advisor  seeks to minimize  these risks
through   diversification,   investment   analysis  and   attention  to  current
developments  in  interest  rates  and  economic  conditions,  there  can  be no
assurance  that the  Advisor  will be  successful  in limiting  the  Portfolio's
exposure  to the risks  associated  with lower  rated  securities.  Because  the
Portfolio invests in securities in the lower rated  categories,  the achievement
of the  Portfolio's  investment  objective is more  dependent  on the  Advisor's
ability than would be the case if the Portfolio  were investing in securities in
the higher rated categories.

         Reduced  volume and  liquidity  in the high  yield  bond  market or the
reduced  availability of market quotations may make it more difficult to dispose
of the Portfolio's  investments in high yield securities and to value accurately
these assets. The reduced availability of reliable,  objective data may increase
the Portfolio's  reliance on management's  judgment in valuing high yield bonds.
In  addition,  the  Portfolio's  investments  in high  yield  securities  may be
susceptible  to  adverse  publicity  and  investor  perceptions  whether  or not
justified by fundamental factors.

OPTIONS AND FUTURES TRANSACTIONS

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

         Provided  that the Portfolio has  arrangements  with certain  qualified
dealers who agree that the Portfolio may  repurchase  any option it writes for a
maximum  price to be calculated by a  predetermined  formula,  the Portfolio may
treat the underlying securities used to cover the 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.  In entering into
futures and options  transactions  the  Portfolio  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 Portfolio 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.



<PAGE>




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

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

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

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

         LIQUIDITY  OF OPTIONS AND FUTURES  CONTRACTS.  There is no  assurance a
liquid market will exist for any  particular  option or futures  contract at any
particular  time even if the  contract is traded on an  exchange.  In  addition,
exchanges may establish daily price  fluctuation  limits for options and futures
contracts and may halt trading if a contract's  price moves up or down more than
the limit in a given day. On volatile  trading  days when the price  fluctuation
limit is reached or a trading  halt is  imposed,  it may be  impossible  for the
Portfolio to enter into new  positions or close out existing  positions.  If the
market for a  contract  is not liquid  because  of price  fluctuation  limits or
otherwise,  it could prevent prompt  liquidation of unfavorable  positions,  and
could  potentially  require the  Portfolio to continue to hold a position  until
delivery or  expiration  regardless  of changes in its value.  As a result,  the
Portfolio's  access  to  other  assets  held to cover  its  options  or  futures
positions  could also be impaired.  (See "Exchange  Traded and  Over-the-Counter
Options"  above for a  discussion  of the  liquidity of options not traded on an
exchange).

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

         ASSET  COVERAGE  FOR  FUTURES  CONTRACTS  AND  OPTIONS  POSITIONS.  The
Portfolio  intends  to comply  with  Section  4.5 of the  regulations  under the
Commodity  Exchange  Act,  which  limits the extent to which the  Portfolio  can
commit assets to initial margin deposits and option premiums.  In addition,  the
Portfolio  will comply with  guidelines  established  by the SEC with respect to
coverage of options and futures contracts by mutual funds, and if the guidelines
so require,  will set aside appropriate liquid assets in a segregated  custodial
account in the amount prescribed. Securities held in a segregated account cannot
be sold while the  futures  contract or option is  outstanding,  unless they are
replaced with other suitable  assets.  As a result,  there is a possibility that
segregation  of a  large  percentage  of the  Portfolio's  assets  could  impede
portfolio  management or the Portfolio's  ability to meet redemption requests or
other current obligations.

         RISK MANAGEMENT.  The Portfolio may employ  non-hedging risk management
techniques.  Examples of such  strategies  include  synthetically  altering  the
duration of a portfolio or the mix of securities in a portfolio. For example, if
the Advisor wishes to extend  maturities in a fixed income portfolio in order to
take advantage of an anticipated decline in interest rates, but does not wish to
purchase the underlying  long-term  securities,  it might cause the Portfolio to
purchase  futures  contracts  on long term debt  securities.  Similarly,  if the
Advisor  wishes to decrease  fixed income  securities or purchase  equities,  it
could cause the  Portfolio to sell  futures  contracts  on debt  securities  and
purchase  futures  contracts on a stock index.  Such non-hedging risk management
techniques are not speculative, but because they involve leverage include, as do
all leveraged transactions,  the possibility of losses as well as gains that are
greater  than  if  these  techniques  involved  the  purchase  and  sale  of the
securities themselves rather than their synthetic derivatives.

         PORTFOLIO  TURNOVER.  The  Advisor  intends  to  manage  the  Portfolio
actively in pursuit of its investment  objective.  The Portfolio does not expect
to trade in securities  for  short-term  profits;  however,  when  circumstances
warrant,  securities  may be sold without  regard to the length of time held. To
the extent the Portfolio engages in short-term  trading,  it may incur increased
transaction  costs. The portfolio turnover rate for the Portfolio for the fiscal
years ended October 31, 1997 and 1998 were  212% and 368%, respectively.

INVESTMENT RESTRICTIONS

         The investment  restrictions  below have been adopted by the Portfolio.
Except where otherwise noted,  these investment  restrictions are  "fundamental"
policies  which,  under the 1940 Act,  may not be changed  without the vote of a
"majority of the outstanding  voting securities" (as defined in the 1940 Act) of
the Portfolio.  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 security holders meeting if the holders of more than 50% of the outstanding
voting  securities are present or represented by proxy,  or (b) more than 50% of
the outstanding voting securities.  The percentage  limitations contained in the
restrictions below apply at the time of the purchase of securities.

     The Portfolio:

1. May not make  any  investments  inconsistent  with  its  classification  as a
diversified investment company under the Investment Company Act of 1940;

2. May not purchase any security  which would cause the Portfolio to concentrate
its investments in the securities of issuers primarily engaged in any particular
industry except as permitted by the SEC;

3. May not issue senior  securities,  except as permitted  under the  Investment
Company Act of 1940 or any rule, order or interpretation thereunder;

4. May not borrow money, except in to the extent permitted by applicable law;

5. May not underwrite the securities of other issuers, except to the extent that
the  Portfolio,  in  disposing  of  portfolio  securities,   may  be  deemed  an
underwriter within the meaning of the 1933 Act;

6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Portfolio may (a) invest in securities or other  instruments
directly or indirectly  secured by real estate,  and (b) invest in securities or
other  instruments  issued by issuers  that  invest in real  estate and (c) make
direct investments in mortgages;

7. May not purchase or sell commodities or commodity contracts,  unless acquired
as a result of the ownership of securities or instruments issued by persons that
purchase  or sell  commodities  or  commodities  contracts;  but this  shall not
prevent the  Portfolio  from  purchasing,  selling and entering  into  financial
futures  contracts  (including  futures  contracts  on  indices  of  securities,
interest  rates  and  currencies),   options  on  financial   futures  contracts
(including  futures  contracts  on indices  of  securities,  interest  rates and
currencies),  warrants,  swaps,  forward  contracts,  foreign  currency spot and
forward  contracts  or other  derivative  instruments  that are not  related  to
physical commodities; and

8. Make loans to other persons, in accordance with its investment  objective and
policies and to the extent permitted by applicable law.

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

(i) May not illiquid  securities,  such as repurchase  agreements with more than
seven days to  maturity  or fixed time  deposits  with a duration  of over seven
calendar days, if as a result thereof,  more than 15% of the market value of the
Portfolio's total assets would be in investments which are illiquid;

(ii) May not purchase securities on margin,  make short sales of securities,  or
maintain a short position, provided that this restriction shall not be deemed to
be  applicable  to the  purchase  or sale of  when-issued  or  delayed  delivery
securities;

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

         There  will  be no  violation  of any  investment  restriction  if that
restriction  is  complied  with  at  the  time  the  relevant  action  is  taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.

ITEM 14.  MANAGEMENT OF THE PORTFOLIO.

         The Trustees and officers of the Portfolio,  their business  addresses,
principal  occupations  during  the past  five  years and dates of birth are set
forth  below.  Their  titles may have  varied  during that  period.  An asterisk
indicates that a Trustee is an "interested  person" (as defined in the 1940 Act)
of the Portfolio.

<PAGE>




TRUSTEES AND OFFICERS

         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* - Trustee; Chairman and Chief Executive Officer;  Chairman,
Pierpont  Group,  Inc.  ("Pierpont  Group ") since prior to 1993. His address is
Pine Tree Country Club Estates,  10286 St. Andrews Road, Boynton Beach,  Florida
33436, and his date of birth is August 23, 1937.

     Michael P. Mallardi - Trustee;  Retired;  Prior to April 1996,  Senior Vice
President, Capital Cities/ABC, Inc. and President,  Broadcast Group. His address
is 10 Charnwood Drive,  Suffern,  New York 10901, and his date of birth is March
17, 1934.

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

         Each Trustee is currently  paid an annual fee of $75,000 for serving as
Trustee of the Master Portfolios (as defined below),  the J.P. Morgan Funds, the
J.P. Morgan  Institutional  Funds and J.P. Morgan Series Trust and is reimbursed
for expenses incurred in connection with service as a Trustee.  The Trustees may
hold various other directorships unrelated to the Portfolio.

         Trustee compensation  expenses paid by the Master Portfolios(as defined
below),  the J.P. Morgan  Institutional  Funds and the J.P. Morgan Funds for the
calendar year ended December 31, 1998 is set forth below.

<TABLE>
<CAPTION>
<C>                                                    <S>                         <S>
- ------------------------------------------------------ --------------------------- ----------------------------------

                                                                                   TOTAL TRUSTEE COMPENSATION
                                                       THE AGGREGATE TRUSTEE       ACCRUED BY THE MASTER
                                                       COMPENSATION PAID BY THE    PORTFOLIOS(*), J.P. MORGAN
                                                       PORTFOLIO DURING 1997       INSTITUTIONAL FUNDS, J.P. MORGAN
NAME OF TRUSTEE                                                                    FUNDS AND J.P. MORGAN SERIES
                                                                                   TRUST DURING 1998(**)
- ------------------------------------------------------ --------------------------- ----------------------------------
- ------------------------------------------------------ --------------------------- ----------------------------------

Frederick S. Addy,                                     $468                        $75,000
  Trustee
- ------------------------------------------------------ --------------------------- ----------------------------------
- ------------------------------------------------------ --------------------------- ----------------------------------

William G. Burns,                                      $468                        $75,000
  Trustee
- ------------------------------------------------------ --------------------------- ----------------------------------
- ------------------------------------------------------ --------------------------- ----------------------------------

Arthur C. Eschenlauer,                                 $468                        $75,000
  Trustee
- ------------------------------------------------------ --------------------------- ----------------------------------
- ------------------------------------------------------ --------------------------- ----------------------------------

Matthew Healey,                                        $468                        $75,000
  Trustee(***), Chairman and Chief
  Executive Officer
- ------------------------------------------------------ --------------------------- ----------------------------------
- ------------------------------------------------------ --------------------------- ----------------------------------

Michael P. Mallardi,                                   $468                        $75,000
  Trustee
- ------------------------------------------------------ --------------------------- ----------------------------------
</TABLE>


     (*) Includes  the  Portfolio  and 18 other  portfolios  (collectively,  the
"Master Portfolios") for which JPMIM acts as investment advisor.

     (**) No  investment  company  within  the fund  complex  has a  pension  or
retirement  plan.  Currently  there are 17 investment  companies (14  investment
companies comprising the Master Portfolios,  the J.P. Morgan Funds, the
J.P.  Morgan  Institutional  Funds  and J.P.  Morgan  Series  Trust) in the fund
complex.

     (***) During 1998,  Pierpont Group paid Mr. Healey, in his role as Chairman
of Pierpont Group,  compensation in the amount of $157,400,  contributed $23,610
to a defined  contribution  plan on his  behalf and paid  $17,700  in  insurance
premiums for his benefit.

         The Trustees of the  Portfolio  are the same as the Trustees of each of
the  other  Master  Portfolios,  the  J.P.  Morgan  Funds  and the  J.P.  Morgan
Institutional  Funds.  In  accordance  with  applicable  state  requirements,  a
majority  of  the  disinterested   Trustees  have  adopted  written   procedures
reasonably appropriate to deal with potential conflicts of interest arising from
the fact that the same  individuals are Trustees of the Master  Portfolios,  the
J.P. Morgan Funds and the J.P. Morgan  Institutional  Funds, up to and including
creating a separate board of trustees.

     The  Trustees of the  Portfolio,  in addition to  reviewing  actions of the
Portfolio's  various service  providers,  decide upon matters of general policy.
The Portfolio has entered into a Portfolio Fund Services Agreement with Pierpont
Group  to  assist  the  Trustees  in  exercising   their   overall   supervisory
responsibilities  for the Portfolio's  affairs.  Pierpont Group was organized in
July 1989 to provide  services for the J.P. Morgan Family of Funds (formerly The
Pierpont  Family  of  Funds),  and the  Trustees  are the sole  shareholders  of
Pierpont  Group.  The  Portfolio  has agreed to pay  Pierpont  Group a fee in an
amount  representing its reasonable  costs in performing  these services.  These
costs are  periodically  reviewed by the Trustees.  The  aggregate  fees paid to
Pierpont Group by the Portfolio for the period March 17, 1997  (commencement  of
Operations)  to October 31, 1997  amounted to $1,574;  for the fiscal year ended
October 31, 1998: $5,766. The Portfolio has no employees; its executive officers
(listed below),  other than the Chief Executive Officer and the officers who are
employees of Morgan,  are provided and  compensated by Funds  Distributor,  Inc.
("FDI"), a wholly owned, indirect subsidiary of Boston Institutional Group, Inc.
The Portfolio's  officers  conduct and supervise the business  operations of the
Portfolio.

         The officers of the Portfolio,  their principal  occupations during the
past five  years and their  dates of birth  are set forth  below.  The  business
address of each of the officers unless otherwise noted is 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 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.

     KATHLEEN  K.  MORRISEY;  Vice  President  and  Assistant  Secretary.   Vice
President  and  Assistant   Secretary  of  FDI.  Manager  of  Treasury  Services
Administration  and an  officer  of  certain  investment  companies  advised  or
administered  by  Montgomery  Asset  Management,  L.P.  and  Dresdner RCM Global
Investors,  Inc., and their  respective  affiliates.  From July 1994 to November
1995, Ms.  Morrisey was a Fund Accountant II for Investors Bank & Trust Company.
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.  Address:  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.  Address:  200 Park Avenue,  New York, New York 10166.  Her
date of birth is August 18, 1968.

     GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service  Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior  Vice  President  and Senior Key Account  Manager  for Putnam  Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business  Development
for First Data Corporation.  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.

         The  Portfolio's  Declaration  of Trust provides that it will indemnify
its  Trustees  and  officers  against   liabilities  and  expenses  incurred  in
connection  with  litigation  in which  they may be  involved  because  of their
offices with the  Portfolio,  unless,  as to  liability to the  Portfolio or its
investors,  it is finally adjudicated that they engaged in willful  misfeasance,
bad faith,  gross  negligence  or reckless  disregard of the duties  involved in
their  offices,  or  unless  with  respect  to any other  matter  it is  finally
adjudicated  that they did not act in good faith in the  reasonable  belief that
their  actions  were in the  best  interests  of the  Portfolio.  In the case of
settlement,  such  indemnification  will  not be  provided  unless  it has  been
determined  by  a  court  or  other  body  approving  the  settlement  or  other
disposition,  or by a reasonable  determination,  based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel,  that such officers or Trustees have not engaged
in willful  misfeasance,  bad faith,  gross negligence or reckless  disregard of
their duties.

ITEM 15.  CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.

     As of January 31, 1999,  the J.P.  Morgan  Institutional  Global  Strategic
Income Fund and the J.P. Morgan Global Strategic Income Fund (collectively,  the
"Funds"),  series of the J.P.  Morgan  Institutional  Funds and the J.P.  Morgan
Funds,  respectively,  owned  96%  and  4%,  respectively,  of  the  outstanding
beneficial  interests  in the  Portfolio.  So  long  as the  Funds  control  the
Portfolio,  they may take  actions  without the  approval of any other holder of
beneficial interests in the Portfolio.

    The Fund has informed the Portfolio that whenever it is requested to vote on
matters  pertaining  to the  Portfolio  (other than a vote by the  Portfolio  to
continue the operation of the Portfolio upon the withdrawal of another  investor
in the Portfolio),  it will hold a meeting of its shareholders and will cast its
vote as instructed by those shareholders.

         The officers and Trustees of the Portfolio own none of the  outstanding
beneficial interests in the Portfolio.




<PAGE>




ITEM 16.  INVESTMENT ADVISORY AND OTHER SERVICES.

         INVESTMENT ADVISOR. The investment advisor to the Portfolio is JPMIM, a
wholly-owned  subsidiary  of J.P.  Morgan.  Subject  to the  supervision  of the
Portfolio's  Trustees,  the Advisor makes the Portfolio's  day-to-day investment
decisions,  arranges for the execution of portfolio  transactions  and generally
manages the Portfolio's  investments.  Prior to October 1, 1998,  Morgan was the
investment  advisor.  JPMIM,  a wholly owned  subsidiary  of J.P.  Morgan,  is a
registered  investment  adviser  under the  Investment  Advisers Act of 1940, as
amended, manages employee benefit funds of corporations,  labor unions and state
and  local  governments  and the  accounts  of  other  institutional  investors,
including  investment  companies.  Certain  of the  assets of  employee  benefit
accounts under its management are invested in commingled pension trust funds for
which Morgan serves as trustee.

         J.P.  Morgan,  through  the  Advisor  and other  subsidiaries,  acts as
investment advisor to individuals,  governments,  corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $316 billion.

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

     The basis of the Advisor's  investment  process is  fundamental  investment
research as the firm  believes  that  fundamentals  should  determine an asset's
value over the long  term.  J.P.  Morgan  currently  employs  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 is quantified into a set of projected
returns for individual  companies  through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector.  These values may not be the same
as the markets' current  valuations of these companies.  This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining  the stocks  purchased and sold in each sector.  The Advisor's fixed
income  investment   process  is  based  on  analysis  of  real  rates,   sector
diversification and quantitative and credit analysis.

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

         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  Portfolio is managed by officers of the Advisor who, in acting for
their  customers,  including  the  Portfolio,  do not discuss  their  investment
decisions with any personnel of J.P.  Morgan or any personnel of other divisions
of the Advisor or with any of its  affiliated  persons,  with the  exception  of
certain other 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  Investment
Advisory Agreement,  the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.45% of the
Portfolio's  average  daily net  assets.  For the  period  from  March 17,  1997
(commencement  of  operations)  to October  31,  1997 and the fiscal  year ended
October 31, 1998, these fees amounted to $212,934 and $887,960, respectively, in
advisory fees to the Advisor.

         The  Investment  Advisory  Agreement  provides that it will continue in
effect for a period of two years after execution only if  specifically  approved
annually  thereafter  (i)  by a  vote  of  the  holders  of a  majority  of  the
Portfolio's  outstanding  securities  or by its Trustees and (ii) by a vote of a
majority  of the  Portfolio's  Trustees  who are not  parties to the  Investment
Advisory  Agreement or  "interested  persons" as defined by the 1940 Act cast in
person at a meeting  called  for the  purpose  of voting on such  approval.  The
Investment  Advisory  Agreement will terminate  automatically if assigned and is
terminable at any time without  penalty by a vote of a majority of the Trustees,
or by a vote of the holders of a majority of the Portfolio's  outstanding voting
securities,  on 60 days' written  notice to the Advisor and by the Advisor on 90
days' written notice to the Portfolio.

         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,  and 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  continuously  engaged in the
issuance of its  shares,  such as the  Portfolio.  The  interpretation  does not
prohibit a holding  company or a subsidiary  thereof  from acting as  investment
advisor and custodian to such an investment  company.  The Advisor believes that
it may perform the  services  for the  Portfolio  contemplated  by the  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 Portfolio.

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

         Under a separate  agreement,  Morgan also provides  administrative  and
related services to the Portfolio. See "Administrative Services Agent" in Part A
above.

         CO-ADMINISTRATOR.  Under the  Portfolio's  Co-Administration  Agreement
dated  August 1,  1996,  FDI  serves as the  Portfolio's  Co-Administrator.  The
Co-Administration Agreement may be renewed or amended by the Trustees without an
investor vote. The Co-Administration Agreement is terminable at any time without
penalty by a vote of a majority  of the  Trustees of the  Portfolio  on not more
than 60 days' written  notice nor less than 30 days' written notice to the other
party. The  Co-Administrator  may, subject to the consent of the Trustees of the
Portfolio may  subcontract  for the  performance of its  obligations,  provided,
however,   that  unless  the  Portfolio   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  "Administrative
Services Agent" below.

     For its services under the Co-Administration  Agreement,  the Portfolio has
agreed to pay FDI fees equal to its  allocable  share of an annual  complex-wide
charge of $425,000 plus FDI's  out-of-pocket  expenses.  The amount allocable to
the  Portfolio  is based on the  ratio of its net  assets to the  aggregate  net
assets of the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, the Master
Portfolios,  and other investment  companies subject to similar  agreements with
FDI. For the period from March 17, 1997  (commencement  of  operations)  through
October 31, 1997 and for the fiscal year ended October 31, 1998,  administrative
fees in the amount of $889 and $2,695 were paid by the Portfolio to FDI.

         ADMINISTRATIVE  SERVICES  AGENT.  The  Portfolio  has  entered  into  a
Restated  Administrative  Services  Agreement  (the "Services  Agreement")  with
Morgan,  pursuant to which Morgan is responsible for certain  administrative and
related services provided to the Portfolio.

     Under the Services  Agreement,  effective August 1, 1996, the Portfolio has
agreed to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master  Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule:  0.09% on the first $7 billion of their aggregate average daily
net assets and 0.04% of their aggregate average daily net assets in excess of $7
billion,  less the complex-wide  fees payable to FDI. The portion of this charge
payable by the Portfolio is determined by the  proportionate  share that its net
assets bear to the total net assets of the J.P.  Morgan Funds,  the J.P.  Morgan
Institutional  Funds, the Master  Portfolios,  the other investors in the Master
Portfolios for which Morgan  provides  similar  services and J.P.  Morgan Series
Trust.  For the Period  from March 17,  1997  (commencement  of  Operations)  to
October 31, 1997 and the fiscal year ended  October 31, 1998,  the fee for these
services amounted to $14,495 and $57,247.

         CUSTODIAN.  State Street Bank and Trust Company ("State  Street"),  225
Franklin  Street,  Boston,   Massachusetts  02110,  serves  as  the  Portfolio's
custodian  and fund  accounting  and transfer  agent.  Pursuant to the Custodian
Contract,  State Street is responsible  for maintaining the books of account and
records of portfolio transactions and holding the portfolio securities and cash.
In addition,  the Custodian has also entered into  subcustodian  agreements with
Bankers Trust Company for the purpose of holding TENR Notes and with Bank of New
York and Chemical Bank, N.A. for the purpose of holding certain demand notes. In
the case of foreign assets held outside the United States, the Custodian employs
various  sub-custodians,  who were  approved by the Trustees of the Portfolio in
accordance  with the regulations of the SEC. The Custodian  maintains  Portfolio
transaction records,  calculates book and tax allocations for the Portfolio, and
computes the value of the interest of each investor.

         INDEPENDENT  ACCOUNTANTS.  The independent accountants of the Portfolio
are PricewaterhouseCoopers  LLP, 1177 Avenue of the Americas, New York, New York
10036.  PricewaterhouseCoopers  LLP  conducts an annual  audit of the  financial
statements of the  Portfolio,  assists in the  preparation  and/or review of the
Portfolio's federal and state income tax returns and consults with the Portfolio
as to matters of accounting and federal and state income taxation.

         EXPENSES.  In  addition to the fees  payable to the  service  providers
identified above, the Portfolio is responsible for usual and customary  expenses
associated with its operations.  Such expenses  include  organization  expenses,
legal fees,  insurance  costs,  the  compensation  and expenses of the Trustees,
registration  fees under federal  securities  laws, and  extraordinary  expenses
applicable to the Portfolio. Such expenses also include brokerage expenses.

     J.P.  Morgan  has  agreed  that  it will  maintain  the  Portfolio's  total
operating expenses at the annual rate of 0.65% of the Portfolio's  average daily
net assets. This expense limitation does not cover extraordinary expenses during
the period and may be  changed or  terminated  at any tome at the option of J.P.
Morgan.

     The  Euro.  Effective  January  1, 1999 the  euro,  a single  multinational
currency,  replaced the national currencies of certain countries in the Economic
Monetary Union (EMU).

     J.P. Morgan will monitor  potential  currency risk resulting from increased
volatility  in  exchange  rates  between  EMU  countries  and  non-participating
countries.

     The I.R.S has concluded that euro conversion will not cause a U.S. taxpayer
to realize  gain or loss to the extent  taxpayer's  rights and  obligations  are
altered solely by reason of the conversion.

     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  has  substantially  completed  renovation,
testing,  and  validation of its key systems and is preparing 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.  For potential failure scenarios where the risks
are  deemed  significant  and  where  such risk is  considered  to have a higher
probability  of  occurrence,  J.P.  Morgan  will  attempt  to  develop  business
recovery/contingency  plans.  These plans, are being developed in the first half
of 1999, will define the infrastructure that should be put in place for managing
a failure during the millennium event itself.

     Costs associated with efforts to prepare J.P. Morgan's systems for the year
2000 approximated $95 million in 1997 and $112 million for the first nine months
of 1998. In 1999,  J.P.  Morgan is continuing its efforts to prepare its systems
for the year 2000. The total cost to become year-2000  compliant is estimated at
$300 million (for firmwide  systems  upgrade,  not just for systems  relating to
mutual funds), for internal systems  renovation and testing,  testing equipment,
and both  internal and  external  resources  working on the  project.  The costs
associated with J.P. Morgan becoming  year-2000  compliant will be borne by J.P.
Morgan and not the Portfolio.

ITEM 17.  BROKERAGE ALLOCATION AND OTHER PRACTICES.

         The Advisor places orders for the Portfolio for all purchases and sales
of portfolio securities,  enters into repurchase agreements,  and may enter into
reverse  repurchase  agreements  and execute  loans of portfolio  securities  on
behalf of the Portfolio. See Item 13 above.

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

         Portfolio transactions for the Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates.  The Portfolio may engage in short term trading
consistent with its objective.

         In  connection  with  portfolio  transactions  for the  Portfolio,  the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.

         In  selecting  a broker,  the  Advisor  considers  a number of  factors
including:  the price per unit of the  security;  the broker's  reliability  for
prompt,  accurate  confirmations and on-time delivery of securities;  as well as
the firm's financial  condition.  The Trustees of the Portfolio review regularly
other  transaction  costs  incurred  by the  Portfolio  in light  of  facts  and
circumstances  deemed relevant from time to time, and, in that connection,  will
receive reports from the Advisor and published data concerning transaction costs
incurred by institutional  investors  generally.  Research  services provided by
brokers  to which the  Advisor  has  allocated  brokerage  business  in the past
include  economic  statistics  and  forecasting  services,  industry and company
analyses,  portfolio  strategy  services,   quantitative  data,  and  consulting
services from economists and political analysts.  Research services furnished by
brokers are used for the benefit of all the Advisor's  clients and not solely or
necessarily  for the benefit of the  Portfolio.  The Advisor  believes  that the
value  of  research   services   received  is  not  determinable  and  does  not
significantly reduce its expenses.  The Portfolio 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  possible
execution  of orders,  the  Advisor  may  allocate a portion of the  Portfolio's
portfolio  brokerage  transactions  to affiliates  of the Advisor.  In order for
affiliates  of  the  Advisor  to  effect  any  portfolio  transactions  for  the
Portfolio,  the  commissions,  fees  or  other  remuneration  received  by  such
affiliates  must be reasonable  and fair compared to the  commissions,  fees, or
other   remuneration  paid  to  other  brokers  in  connection  with  comparable
transactions   involving  similar  securities  being  purchased  or  sold  on  a
securities  exchange  during  a  comparable  period  of time.  Furthermore,  the
Trustees of the  Portfolio,  including a majority  of the  Trustees  who are not
"interested  persons," have adopted procedures which are reasonably  designed to
provide  that  any  commissions,  fees,  or  other  remuneration  paid  to  such
affiliates are consistent with the foregoing standard.

         The  Portfolio's  securities  will not be purchased  from or through or
sold to or  through  the  exclusive  placement  agent or  Advisor  or any  other
"affiliated  person"  (as  defined in the 1940 Act) of the  exclusive  placement
agent or Advisor  when such  entities  are acting as  principals,  except to the
extent permitted by law. In addition, the Portfolio will not purchase securities
during the existence of any  underwriting  group  relating  thereto of which the
Advisor  or an  affiliate  of the  Advisor  is a member,  except  to the  extent
permitted by law.

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

         If the Portfolio effects a closing purchase transaction with respect to
an option written by it, normally such  transaction will be executed by the same
broker-dealer who executed the sale of the option. The writing of options by the
Portfolio  will be subject to  limitations  established by each of the exchanges
governing the maximum  number of options in each class which may be written by a
single investor or group of investors  acting in concert,  regardless of whether
the  options  are  written  on the same or  different  exchanges  or are held or
written in one or more  accounts or through one or more  brokers.  The number of
options which the Portfolio may write may be affected by options  written by the
Advisor  for  other  investment  advisory  clients.  An  exchange  may order the
liquidation  of  positions  found to be in  excess of these  limits,  and it may
impose certain other sanctions.

ITEM 18.  CAPITAL STOCK AND OTHER SECURITIES.

         Under the  Declaration  of Trust,  the Trustees are authorized to issue
beneficial interests in the Portfolio. Investors are entitled to participate pro
rata in distributions of taxable income, loss, gain and credit of the Portfolio.
Upon  liquidation or  dissolution  of the  Portfolio,  investors are entitled to
share pro rata in the Portfolio's net assets  available for  distribution to its
investors.  Investments  in  the  Portfolio  have  no  preference,   preemptive,
conversion or similar rights and are fully paid and nonassessable, except as set
forth below.  Investments in the Portfolio may not be transferred.  Certificates
representing an investor's  beneficial interest in the Portfolio are issued only
upon the written request of an investor.

         Each  investor is entitled to a vote in proportion to the amount of its
investment in the Portfolio.  Investors in the Portfolio do not have  cumulative
voting rights,  and investors holding more than 50% of the aggregate  beneficial
interest in the  Portfolio may elect all of the Trustees if they choose to do so
and in such  event the other  investors  in the  Portfolio  would not be able to
elect any Trustee. The Portfolio is not required and has no current intention to
hold annual  meetings of investors but the Portfolio will hold special  meetings
of investors when in the judgment of the Portfolio's Trustees it is necessary or
desirable to submit matters for an investor  vote. No material  amendment may be
made to the Portfolio's  Declaration of Trust without the  affirmative  majority
vote of investors  (with the vote of each being in  proportion  to the amount of
its investment).

         The Portfolio may enter into a merger or consolidation,  or sell all or
substantially  all of its  assets,  if approved by the vote of two thirds of its
investors  (with the vote of each being in proportion  to its  percentage of the
beneficial  interests in the Portfolio),  except that if the Trustees  recommend
such sale of assets,  the approval by vote of a majority of the investors  (with
the  vote of each  being  in  proportion  to its  percentage  of the  beneficial
interests  of the  Portfolio)  will be  sufficient.  The  Portfolio  may also be
terminated (i) upon  liquidation  and  distribution of its assets if approved by
the  vote of two  thirds  of its  investors  (with  the  vote of each  being  in
proportion to the amount of its  investment)  or (ii) by the Trustees by written
notice to its investors.

         The  Portfolio  is  organized as a trust under the laws of the State of
New York.  Investors in the  Portfolio  will be held  personally  liable for its
obligations  and  liabilities,  subject,  however,  to  indemnification  by  the
Portfolio in the event that there is imposed upon an investor a greater  portion
of the  liabilities  and  obligations  of the Portfolio  than its  proportionate
beneficial  interest in the  Portfolio.  The  Declaration of Trust also provides
that the Portfolio shall maintain appropriate  insurance (for example,  fidelity
bonding and errors and omissions insurance) for the protection of the Portfolio,
its investors,  Trustees,  officers, employees and agents covering possible tort
and other liabilities. Thus, the risk of an investor incurring financial loss on
account  of  investor  liability  is  limited  to  circumstances  in which  both
inadequate  insurance  existed and the  Portfolio  itself was unable to meet its
obligations.



<PAGE>




         The Portfolio's  Declaration of Trust further provides that obligations
of the  Portfolio are not binding upon the Trustees  individually  but only upon
the property of the  Portfolio  and that the Trustees will not be liable for any
action or failure to act,  but nothing in the  Declaration  of Trust  protects a
Trustee  against any liability to which he would  otherwise be subject by reason
of willful  misfeasance,  bad faith, gross negligence,  or reckless disregard of
the duties involved in the conduct of his office.

ITEM 19.  PURCHASE, REDEMPTION AND PRICING OF SECURITIES BEING OFFERED.

         Beneficial  interests  in the  Portfolio  are issued  solely in private
placement  transactions  that do not involve any  "public  offering"  within the
meaning of Section 4(2) of the 1933 Act.

     The value of investments listed on a domestic securities exchange, is based
on the last sale prices on such  exchange.  In the  absence of  recorded  sales,
investments are valued at the average of readily available closing bid and asked
prices on such exchange.  Securities  listed on a foreign exchange are valued at
the last quoted sale prices on such exchange.  Unlisted securities are valued at
the 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 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 Portfolio was more
than 60 days,  unless  this is  determined  not to  represent  fair value by the
Trustees.

         Trading in  securities  on most  foreign  exchanges  and OTC markets is
normally  completed  before the close of trading of the New York Stock  Exchange
(normally  4:00pm)  and may also take  place on days on which the New York Stock
Exchange is closed. If events materially affecting the value of securities occur
between the time when the exchange on which they are traded  closes and the time
when a Portfolio'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.

         If the Portfolio  determines  that it would be  detrimental to the best
interest of the remaining  investors in the Portfolio to make payment  wholly or
partly in cash,  payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Portfolio,  in lieu of cash, in
conformity  with the  applicable  rule of the SEC. If interests  are redeemed in
kind,  the redeeming  investor might incur  transaction  costs in converting the
assets into cash.  The Portfolio is in the process of seeking  exemptive  relief
from the SEC with respect to  redemptions  in kind. If the  requested  relief is
granted,  the Portfolio  would then be permitted to pay redemptions to investors
owning 5% or more of the  outstanding  beneficial  interests in the Portfolio in
securities,  rather  than  in  cash,  to the  extent  permitted  by the  SEC and
applicable  law. The method of valuing  portfolio  securities is described above
and such  valuation  will be made as of the same  time the  redemption  price is
determined.  The Portfolio  will not redeem in kind except in  circumstances  in
which an investor is permitted to redeem in kind.

         The net asset  value of the  Portfolio  will not be  computed  on a day
which no orders to purchase or withdraw  beneficial  interests in the  Portfolio
has been received or on the days 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
Portfolio  would expect to close for purchases and withdrawals at the same time.
The Portfolio may also close for purchases and  withdrawals  at such other times
as may be determined by the Trustees to the extent  permitted by applicable law.
The days on which net asset value is  determined  are the  Portfolio's  business
days.

Item 20.  TAX STATUS.

         The  Portfolio is organized as a New York trust.  The  Portfolio is not
subject to any income or franchise tax in the State of New York.  However,  each
investor  in the  Portfolio  will be subject to U.S.  Federal  income tax in the
manner  described  below on its  share (as  determined  in  accordance  with the
governing  instruments of the Portfolio) of the Portfolio's  ordinary income and
capital gain in determining its income tax liability.  The determination of such
share will be made in accordance with the Internal Revenue Service Code of 1986,
as amended (the "Code"), and regulations promulgated thereunder.

         Although,  as described  above,  the  Portfolio  will not be subject to
federal income tax, it will file appropriate income tax returns.

         It is intended  that the  Portfolio's  assets will be managed in such a
way that an investor in the Portfolio  will be able to satisfy the  requirements
of  Subchapter M of the Code. To ensure that  investors  will be able to satisfy
the  requirements  of  subchapter M, the  Portfolio  must satisfy  certain gross
income and  diversification  requirements,  including,  among  other  things,  a
requirement that the Portfolio derive less than 30% of its gross income from the
sale of stock, securities,  options, futures or forward contracts held less than
three months.

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

         Forward  foreign  currency  exchange  contracts,  options  and  futures
contracts entered into by the Portfolio may create  "straddles" for U.S. federal
income tax  purposes  and this may affect the  character  and timing of gains or
losses realized by the Portfolio on forward foreign currency exchange 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  fiscal  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.  Any gain or loss recognized on foreign  currency  contracts will be
treated as ordinary income.

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

         OTHER TAXATION. The investment by an investor in the Portfolio does not
cause the investor to be liable for any income or franchise  tax in the State of
New York.  Investors  are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Portfolio.

ITEM 21.  UNDERWRITERS.

         The exclusive  placement agent for the Portfolio is FDI, which receives
no additional  compensation for serving in this capacity.  Investment companies,
insurance  company  separate  accounts,  common and  commingled  trust funds and
similar organizations and entities may continuously invest in the Portfolio.

ITEM 22.  CALCULATIONS OF PERFORMANCE DATA.

         Not applicable.

ITEM 23.  FINANCIAL STATEMENTS.

         The  Portfolio's   October  31,  1998  annual  report  filed  with  the
Securities and Exchange Commission pursuant to section 30(b) of the 1940 Act and
Rule 30b2-1  thereunder  is  incorporated  herein by  reference  (Accession  No.
0001047469-99-000092, filed January 5, 1999).




<PAGE>

APPENDIX A
DESCRIPTION OF SECURITY RATINGS

STANDARD & POOR'S

CORPORATE AND MUNICIPAL BONDS

AAA      - Debt rated AAA have the highest ratings assigned by Standard & Poor's
         to a debt  obligation.  Capacity to pay interest and repay principal is
         extremely strong.

     AA - Debt rated AA have a very strong  capacity to pay  interest  and repay
principal and differ from the highest rated issues only in a small degree.

A        - Debt  rated  A have a  strong  capacity  to pay  interest  and  repay
         principal  although they are somewhat more  susceptible  to the adverse
         effects of changes in circumstances  and economic  conditions than debt
         in higher rated categories.

BBB      - Debt rated BBB are  regarded  as having an  adequate  capacity to pay
         interest and repay  principal.  Whereas they normally  exhibit adequate
         protection   parameters,   adverse  economic   conditions  or  changing
         circumstances  are more  likely to lead to a weakened  capacity  to pay
         interest and repay principal for debt in this category than for debt in
         higher rated categories.

BB       - Debt rated BB are regarded as having less near-term  vulnerability to
         default than other speculative issues. However, they face major ongoing
         uncertainties  or exposure to adverse  business,  financial or economic
         conditions  which  could lead to  inadequate  capacity  to meet  timely
         interest and principal payments.

B        -  An  obligation  rated  B  is  more  vulnerable  to  nonpayment  than
         obligations  rated BB, but the obligor  currently  has the  capacity to
         meet its financial  commitment  on the  obligation.  Adverse  business,
         financial,  or economic  conditions  will likely  impair the  obligor's
         capacity  or  willingness  to  meet  its  financial  commitment  on the
         obligation.

CCC      - An obligation rated CCC is currently vulnerable to nonpayment, and is
         dependent upon favorable business,  financial,  and economic conditions
         for the obligor to meet its financial commitment on the obligation.  In
         the event of adverse business,  financial, or economic conditions,  the
         obligor  is not  likely  to have the  capacity  to meet  its  financial
         commitment on the obligation.

CC - An obligation rated CC is currently highly vulnerable to nonpayment.

C        - The C rating  may be used to  cover a  situation  where a  bankruptcy
         petition has been filed or similar action has been taken,  but payments
         on this obligation are being continued.

COMMERCIAL PAPER, INCLUDING TAX EXEMPT

A        - Issues  assigned  this  highest  rating  are  regarded  as having the
         greatest  capacity  for timely  payment.  Issues in this  category  are
         further  refined  with the  designations  1, 2, and 3 to  indicate  the
         relative degree of safety.


A-1 - This  designation  indicates  that the degree of safety  regarding  timely
payment is very strong.

     A-2 - This designation indicates that the degree of safety regarding timely
payment is satisfactory.

     A-3 - This designation indicates that the degree of safety regarding timely
payment is adequate.


SHORT-TERM TAX-EXEMPT NOTES

     SP-1 - The short-term  tax-exempt note rating of SP-1 is the highest rating
assigned by  Standard & Poor's and has a very  strong or strong  capacity to pay
principal and interest.  Those issues determined to possess  overwhelming safety
characteristics are given a "plus" (+) designation.

     SP-2 - The  short-term  tax-exempt  note rating of SP-2 has a  satisfactory
capacity to pay principal and interest.

MOODY'S

CORPORATE AND MUNICIPAL BONDS

Aaa      - Bonds which are rated Aaa are judged to be of the best quality.  They
         carry the smallest degree of investment risk and are generally referred
         to as "gilt edge." Interest  payments are protected by a large or by an
         exceptionally  stable margin and principal is secure. While the various
         protective  elements  are  likely to  change,  such  changes  as can be
         visualized  are  most  unlikely  to  impair  the  fundamentally  strong
         position of such issues.

Aa       - Bonds  which are rated Aa are  judged  to be of high  quality  by all
         standards. Together with the Aaa group they comprise what are generally
         known as high  grade  bonds.  They are rated  lower than the best bonds
         because  margins of protection may not be as large as in Aaa securities
         or  fluctuation of protective  elements may be of greater  amplitude or
         there may be other  elements  present  which  make the long term  risks
         appear somewhat larger than in Aaa securities.

A        - Bonds which are rated A possess many favorable investment  attributes
         and are to be  considered  as upper medium grade  obligations.  Factors
         giving  security to principal and interest are considered  adequate but
         elements may be present  which suggest a  susceptibility  to impairment
         sometime in the future.

Baa      - Bonds which are rated Baa are considered as medium grade obligations,
         i.e., they are neither highly  protected nor poorly  secured.  Interest
         payments and  principal  security  appear  adequate for the present but
         certain protective elements may be lacking or may be characteristically
         unreliable over any great length of time.  Such bonds lack  outstanding
         investment characteristics and in fact have speculative characteristics
         as well.

Ba       - Bonds  which are rated Ba are  judged to have  speculative  elements;
         their future cannot be considered as well-assured. Often the protection
         of interest and principal  payments may be very  moderate,  and thereby
         not well  safeguarded  during  both good and bad times over the future.
         Uncertainty of position characterizes bonds in this class.

B        -  Bonds  which  are  rated B  generally  lack  characteristics  of the
         desirable  investment.  Assurance of interest and principal payments or
         of  maintenance  of other terms of the contract over any long period of
         time may be small.

Caa      - Bonds which are rated Caa are of poor standing. Such issues may be in
         default  or there may be present  elements  of danger  with  respect to
         principal or interest.

Ca       - Bonds which are rated Ca represent  obligations which are speculative
         in a high degree. Such issues are often in default or have other marked
         shortcomings.

C        - Bonds  which  are  rated C are the  lowest  rated  class of bonds and
         issues so rated can be regarded as having  extremely  poor prospects of
         ever attaining any real investment standing.

COMMERCIAL PAPER, INCLUDING TAX EXEMPT

Prime-1           - Issuers rated Prime-1 (or related  supporting  institutions)
                  have  a  superior   capacity  for   repayment  of   short-term
                  promissory   obligations.   Prime-1  repayment  capacity  will
                  normally be evidenced by the following characteristics:

     - Leading market positions in well established industries.

     - High rates of return on funds employed.

     - Conservative capitalization structures with moderate reliance on debt and
ample asset protection.

     - Broad margins in earnings  coverage of fixed  financial  charges and high
internal cash generation.

     - Well  established  access to a range of  financial  markets  and  assured
sources of alternate liquidity.

     Prime-2  Issuers rated Prime-2 (or supporting  institutions)  have a strong
ability for repayment of senior short-term debt obligations.  This will normally
be evidenced by many of the characteristics  cited above but to a lesser degree.
Earnings  trends  and  coverage  ratios,  while  sound,  may be more  subject to
variation. Capitalization characteristics,  while still appropriate, may be more
affected by external conditions. Ample alternate liquidity is maintained.

     Prime-3  Issuers  rated  Prime-3  (or  supporting   institutions)  have  an
acceptable ability for repayment of senior short-term obligations. The effect of
industry  characteristics  and  market  compositions  may  be  more  pronounced.
Variability in earnings and  profitability may result in changes in the level of
debt protection measurements and may require relatively high financial leverage.
Adequate alternate liquidity is maintained.

SHORT-TERM TAX EXEMPT NOTES

MIG-1             The  short-term  tax-exempt  note rating  MIG-1 is the highest
                  rating  assigned  by Moody's  for notes  judged to be the best
                  quality.  Notes with this rating enjoy strong  protection from
                  established  cash flows of funds for their  servicing  or from
                  established   and   broad-based   access  to  the  market  for
                  refinancing, or both.

     MIG-2 -  MIG-2  rated  notes  are of  high  quality  but  with  margins  of
protection not as large as MIG-1.


                       PART B (Treasury Money Market Portfolio)

ITEM 10.  COVER PAGE.

         Not applicable.

ITEM 11. TABLE OF CONTENTS                           PAGE

General Information and History................ B-1
Investment Objective and Policies.............. B-1
Management of the Portfolio Trust ............. B-6
Control Persons and Principal Holders
of Securities.................................. B-11
Investment Advisory and Other Services......... B-11
Brokerage Allocation and Other Practices....... B-16
Capital Stock and Other Securities............. B-17
Purchase, Redemption and Pricing of
Securities Being Offered....................... B-18
Tax Status..................................... B-19
Underwriters................................... B-20
Calculations of Performance Data............... B-20
Financial Statements........................... B-20
Appendix A - Description of Security Ratings... B-21

ITEM 12.  GENERAL INFORMATION AND HISTORY.

         Not applicable.

ITEM 13.  INVESTMENT OBJECTIVE AND POLICIES.

         The Treasury Money Market  Portfolio (the  "Portfolio") is designed for
investors who seek to preserve  capital and earn current income from a portfolio
of high quality money market instruments.  The Portfolio's  investment objective
is to provide high current income  consistent  with the  preservation of capital
and same-day liquidity.

         The  Portfolio   attempts  to  achieve  its  investment   objective  by
maintaining a  dollar-weighted  average  portfolio  maturity of not more than 90
days  and by  investing  in U.S.  Treasury  securities  and  related  repurchase
agreement  transactions  as  described  in Part A and in this  Part B that  have
effective  maturities  of not  more  than  thirteen  months.  See  "Quality  and
Diversification Requirements."

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

         The following  discussion  supplements  the  information  regarding the
investment  objective of the Portfolio and the policies the Portfolio employs to
achieve its objective as set forth above and in Part A.

MONEY MARKET INSTRUMENTS

     A description of the various types of money market  instruments that may be
purchased by the Portfolio appears below. Also see "Quality and  Diversification
Requirements."

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

         REPURCHASE   AGREEMENTS.   The  Portfolio  may  enter  into  repurchase
agreements  with  brokers,  dealers  or banks  that meet the  credit  guidelines
approved by the  Portfolio  Trust's  Trustees.  In a repurchase  agreement,  the
Portfolio  buys a security from a seller that has agreed to repurchase  the same
security at a mutually agreed upon date and price.  The resale price normally is
in excess of the purchase  price,  reflecting an agreed upon interest rate. This
interest  rate is effective  for the period of time the Portfolio is invested in
the agreement and is not related to the coupon rate on the underlying  security.
A  repurchase  agreement  may also be viewed as a fully  collateralized  loan of
money by the Portfolio to the seller. The period of these repurchase  agreements
will  usually  be short,  from  overnight  to one week,  and at no time will the
Portfolio  invest in repurchase  agreements for more than thirteen  months.  The
securities  which  are  subject  to  repurchase  agreements,  however,  may have
maturity  dates in excess of  thirteen  months  from the  effective  date of the
repurchase  agreement.  The Portfolio will only enter into repurchase agreements
involving U.S. Treasury securities. The Portfolio will always receive securities
as collateral whose market value is, and during the entire term of the agreement
remains,  at least equal to 100% of the dollar amount  invested by the Portfolio
in each agreement plus accrued interest, and the Portfolio will make payment for
such  securities  only upon  physical  delivery  or upon  evidence of book entry
transfer to the account of the  Portfolio's  Custodian.  The  Portfolio  will be
fully  collateralized  within the meaning of paragraph (a)(4) of Rule 2a-7 under
the 1940 Act. If the seller  defaults,  the Portfolio  might incur a loss if the
value of the  collateral  securing the repurchase  agreement  declines and might
incur  disposition  costs in connection  with  liquidating  the  collateral.  In
addition, if bankruptcy  proceedings are commenced with respect to the seller of
the security,  realization  upon disposal of the collateral by the Portfolio may
be delayed or limited.

ADDITIONAL INVESTMENTS

         WHEN-ISSUED AND DELAYED DELIVERY SECURITIES. The Portfolio may purchase
securities on a when-issued or delayed delivery basis. For example,  delivery of
and payment for these  securities  can take place a month or more after the date
of the purchase commitment. The purchase price and the interest rate payable, if
any, on the securities are fixed on the purchase  commitment date or at the time
the settlement date is fixed.  The value of such securities is subject to market
fluctuation  and  for  fixed  income  securities,  no  interest  accrues  to the
Portfolio  until  settlement  takes place.  At the time the Portfolio  makes the
commitment to purchase securities on a when-issued or delayed delivery basis, it
will record the  transaction,  reflect the value each day of such  securities in
determining  its net asset value and, if applicable,  calculate the maturity for
the purposes of average  maturity from that date. At the time of  settlement,  a
when-issued  security  may be  valued  at  less  than  the  purchase  price.  To
facilitate such  acquisitions,  the Portfolio will maintain with the Custodian a
segregated  account with liquid  assets,  consisting  of cash,  U.S.  government
securities or other appropriate securities,  in an amount at least equal to such
commitments.  On delivery dates for such  transactions,  the Portfolio will meet
its  obligations  from  maturities  or  sales  of  the  securities  held  in the
segregated account and/or from cash flow. If the Portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition,  it could,
as with the disposition of any other portfolio obligation,  incur a gain or loss
due to market  fluctuation.  Also, a Portfolio may be disadvantaged if the other
party to the transaction defaults. It is the current policy of the Portfolio not
to enter into  when-issued  commitments  exceeding in the  aggregate  15% of the
market value of the Portfolio's  total assets,  less liabilities  other than the
obligations created by when-issued commitments.

         INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Portfolio to the extent  permitted  under the 1940 Act or
any order pursuant  thereto.  These limits currently require that, as determined
immediately  after a purchase is made,  (i) not more than 5% of the value of the
Portfolio's  total  assets  will  be  invested  in the  securities  of  any  one
investment company, (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in  securities of investment  companies as a group,
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio.  As a shareholder of another  investment
company,  the Portfolio would bear, along with other shareholders,  its pro rata
portion of the other investment  company's  expenses,  including  advisory fees.
These  expenses would be in addition to the advisory and other expenses that the
Portfolio bears directly in connection with its own operations.

     Reverse  Repurchase  Agreements.  The  Portfolio  may  enter  into  reverse
repurchase agreements.  In a reverse repurchase agreement, the Portoflio sells a
security and agrees to repurchase  the same  security at a mutually  agreed upon
date and  price  reflecting  the  interest  rate  effective  for the term of the
agreement.  For purposes of the 1940 Act a reverse repurchase  agreement is also
considered as the borrowing of money by the Portfolio and, therefore,  a form of
leverage.  Leverage  may  cause  any gains or  losses  for the  Portfolio  to be
magnified.  The Portfolio  will invest the proceeds of borrowings  under reverse
repurchase agreements. In addition, except for liquidity purposes, the Portfolio
will enter into a reverse  repurchase  agreement  only when the expected  return
from  the  investment  of the  proceeds  is  greater  than  the  expense  of the
transaction.  The Portfolio will not invest the proceeds of a reverse repurchase
agreement  for a period  which  exceeds the  duration of the reverse  repurchase
agreement.  The  Portfolio  will  establish  and maintain  with the  custodian a
separate account with a segregated portfolio of securities in an amount at least
equal to its purchase obligations under its reverse repurchase  agreements.  See
"Investment  Restrictions" for the Portoflio's limitations on reverse repurchase
agreements and bank borrowings.

         LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its securities if
such loans are secured  continuously  by cash or  equivalent  collateral or by a
letter of credit in favor of the  Portfolio  at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest.  While such
securities are on loan, the borrower will pay the Portfolio any income  accruing
thereon.  Loans will be subject to  termination  by the  Portfolio in the normal
settlement time,  generally three business days after notice, or by the borrower
on one day's  notice.  Borrowed  securities  must be  returned  when the loan is
terminated.  Any gain or loss in the  market  price of the  borrowed  securities
which  occurs  during  the  term of the loan  inures  to the  Portfolio  and its
respective  investors.  The Portfolio may pay reasonable  finders' and custodial
fees in  connection  with a loan. In addition,  the Portfolio  will consider all
facts  and  circumstances   including  the  creditworthiness  of  the  borrowing
financial  institution,  and the Portfolio  will not make any loans in excess of
one year. The Portfolio  will not lend its  securities to any officer,  Trustee,
Director, employee or other affiliate of the Portfolio, the Advisor or placement
agent unless otherwise permitted by applicable law.

QUALITY AND DIVERSIFICATION REQUIREMENTS

         The Portfolio intends to meet the  diversification  requirements of the
1940  Act.  Current  1940 Act  diversification  requirements  require  that with
respect to 75% of the assets of the: (1) the  Portfolio may not invest more than
5% of its total assets in the securities of any one issuer,  except  obligations
of the  U.S.  Government,  its  agencies  and  instrumentalities,  and  (2)  the
Portfolio may not own more than 10% of the outstanding  voting securities of any
one issuer.  As for the other 25% of the  Portfolio's  assets not subject to the
limitation described above, there is no limitation on investment of these assets
under the 1940 Act, so that all of such assets may be invested in  securities of
any one issuer. Investments not subject to the limitations described above could
involve an increased risk to the Portfolio  should an issuer,  or a state or its
related entities, be unable to make interest or principal payments or should the
market value of such securities decline.

         The Portfolio will limit its  investments to direct  obligations of the
U.S. Treasury, including Treasury bills, notes and bonds, and related repurchase
agreement  transactions,  each having a remaining maturity of thirteen months or
less at the  time of  purchase  and  will  maintain  a  dollar-weighted  average
portfolio  maturity of not more than 90 days so that  investors  can  maintain a
stable net asset value per share.

INVESTMENT RESTRICTIONS

         The  investment  restrictions  below have been adopted by the Portfolio
Trust  with  respect to the  Portfolio.  Except  where  otherwise  noted,  these
investment  restrictions are "fundamental"  policies which,  under the 1940 Act,
may not be changed  without  the vote of a majority  of the  outstanding  voting
securities  (as defined in the 1940 Act) of the  Portfolio.  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 security  holders meeting if
the holders of more than 50% of the outstanding voting securities are present or
represented by proxy, or (b) more than 50% of the outstanding voting securities.
The percentage limitations contained in the restrictions below apply at the time
of the purchase of securities.

         The Portfolio:

1. May not make any investment inconsistent with the Portfolio's  classification
as a diversified investment company under the Investment Company Act of 1940.

2. May not make  purchase  any  security  which  would  cause the  Portfolio  to
concentrate  its investments in the securities of issuers  primarily  engaged in
any particular industry except as permitted by the SEC;

3. Issue senior securities, except as permitted under the Investment Company Act
of 1940 or any rule, order or interpretation thereunder;

4. May not borrow money, except to the extent permitted by applicable law;

5. May not underwrite securities of other issuers, except to the extent that the
Portfolio,  in disposing of portfolio  securities,  may be deemed an underwriter
within the meaning of the 1933 Act;

6. May not purchase or sell real estate, except that, to the extent permitted by
applicable law, the Portfolio may (a) invest in securities or other  instruments
directly or  indirectly  secured by real estate 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  Portfolio  from  purchasing,  selling and entering  into  financial
futures  contracts  (including  futures  contracts  on  indices  of  securities,
interest  rates  and  currencies),   options  on  financial   futures  contracts
(including  futures  contracts  on indices  of  securities,  interest  rates and
currencies),  warrants,  swaps,  forward  contracts,  foreign  currency spot and
forward  contracts  or other  derivative  instruments  that are not  related  to
physical commodities; and

8.  May make  loans  to  other  persons,  in  accordance  with  the  Portfolio's
investment objective and policies and to the extent permitted by applicable law.

     Non-Fundamental   Investment  Restrictions.   The  investment  restrictions
described below are not fundamental policies of the Portfolio and may be changed
by their Trustees.  These  non-fundamental  investment policies require that the
Portfolio:

(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 10% of the market value
of the Portfolio's total assets would be in investments which are illiquid;

(ii) May not purchase securities on margin,  make short sales of securities,  or
maintain a short position, provided that this restriction shall not be deemed to
be  applicable  to the  purchase  or sale of  when-issued  or  delayed  delivery
securities.

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

(iv) Borrow money,  except in amounts not to exceed 10% of the Portfolio's total
assets.

         There  will  be no  violation  of any  investment  restriction  if that
restriction  is  complied  with  at  the  time  the  relevant  action  is  taken
notwithstanding a later change in market value of an investment, in net or total
assets, in the securities rating of the investment, or any other later change.

         For purposes of fundamental investment  restrictions regarding industry
concentration,  the Advisor may classify  issuers by industry in accordance with
classifications  set forth in the Directory of Companies  Filing Annual  Reports
With The Securities and Exchange  Commission or other sources. In the absence of
such  classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more  appropriately  considered  to be engaged in a different  industry,  the
Advisor  may  classify  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.

ITEM 14.  MANAGEMENT OF THE PORTFOLIO TRUST.

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


TRUSTEES

         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 1993. His address is Pine Tree Club Estates,
10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his date of birth is
August 23, 1937.

     MICHAEL P. MALLARDI -- Trustee;  Retired;  Prior to April 1996, Senior Vice
President, Capital Cities/ABC, Inc. and President,  Broadcast Group. His 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 (adjusted as of
April 1, 1997) for  serving as Trustee  of the  Master  Portfolios  (as  defined
below),  J.P.  Morgan Funds,  J.P.  Morgan  Institutional  Funds and J.P. Morgan
Series Trust and is reimbursed for expenses  incurred in connection with service
as a Trustee. The Trustees may hold various other directorships unrelated to the
Portfolio Trust.


     ------------------------- 
 (*)  Mr.  Healey  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


         The  compensation  paid to each  Trustee  for the  calendar  year ended
December 31, 1998 is set forth below.

- ---------------------------------------- --------------------------------------

                                                      TOTAL TRUSTEE COMPENSATION
                                                       ACCRUED BY THE MASTER
                                                     PORTFOLIOS(*), J.P. MORGAN
                               AGGREGATE TRUSTEE       INSTITUTIONAL FUNDS, J.P.
                               COMPENSATION PAID BY    MORGAN FUNDS AND J.P. 
NAME OF TRUSTEE                                        DURING 1998(***) MORGAN 
                                                       SERIES TRUST 
- ------------------------------ -------------------------- --------------------
- ------------------------------ -------------------------- --------------------

Frederick S. Addy, Trustee     $1,289                    $75,000
- ------------------------------ -------------------------- --------------------
- ------------------------------ -------------------------- --------------------

William G. Burns, Trustee      $1,289                     $75,000
- ------------------------------ -------------------------- --------------------
- ------------------------------ -------------------------- --------------------

Arthur C. Eschenlauer, Trustee $1,289                     $75,000
- ------------------------------ -------------------------- --------------------
- ------------------------------ -------------------------- --------------------

Matthew Healey, Trustee(**), 
Chairman and Chief 
Executive Officer              $1,289                     $75,000
- ------------------------------ -------------------------- ---------------------
- ------------------------------ -------------------------- ---------------------

Michael P. Mallardi, Trustee   $1,289                     $75,000
- ---------------------------------------- ------------- --------------------


(*)      Includes  the  Portfolio  and 18 other  portfolios  (collectively,  the
         "Master Portfolios") for which JPMIM acts as investment adviser.

     (**) During 1998,  Pierpont  Group,  Inc. paid Mr.  Healey,  in his role as
Chairman  of  Pierpont  Group,  Inc.,  compensation  in the amount of  $157,400,
contributed  $23,610  to a  defined  contribution  plan on his  behalf  and paid
$17,700 in insurance premiums for his benefit.

(***)    No  investment  company  within  the  fund  complex  has a  pension  or
         retirement  plan.  Currently  there  are 17  investment  companies  (14
         investment companies comprising the Master Portfolios,  the J.P. Morgan
         Funds,  the J.P.  Morgan  Institutional  Funds and J.P.  Morgan  Series
         Trust) in the fund complex.

         The  Trustees of the  Portfolio  Trust are the same as the  Trustees of
each of the other Master  Portfolios,  the J.P.  Morgan Funds,  the J.P.  Morgan
Institutional  Funds and J.P. Morgan Series Trust. In accordance with applicable
state  requirements,  a majority  of the  disinterested  Trustees  have  adopted
written procedures  reasonably  appropriate to deal with potential  conflicts of
interest  arising  from the fact that the same  individuals  are Trustees of the
Master  Portfolios,  the J.P.  Morgan  Funds and the J.P.  Morgan  Institutional
Funds, up to and including creating a separate board of trustees.

         The Trustees of the Portfolio,  decide upon matters of general policies
and are responsible for overseeing the Trust's and Portfolio's business affairs.
The Portfolio has entered into a Portfolio Fund Services Agreement with Pierpont
Group  to  assist  the  Trustees  in  exercising   their   overall   supervisory
responsibilities over the affairs of the Portfolio. Pierpont Group was organized
in July 1989 to provide  services for the J.P. Morgan Family of Funds (formerly,
"The Pierpont Family of Funds")  (currently an investor in the  Portfolio).  The
Portfolio has agreed to pay Pierpont Group a fee in an amount  representing  its
reasonable  costs in performing  these  services.  These costs are  periodically
reviewed by the  Trustees.  The  aggregate  fees paid to  Pierpont  Group by the
Portfolio for the period from July 7, 1997 (commencement of operations)  through
October  31,  1997 was $800.  The  Portfolio  has no  employees;  its  executive
officers (listed below),  other than the Chief Executive  Officer,  are provided
and compensated by Funds  Distributor,  Inc. ("FDI"),  a wholly-owned,  indirect
subsidiary of Boston  Institutional Group, Inc. The Portfolio's officers conduct
and supervise the business operations of the Portfolio.

         The Portfolio Trust has no employees;  its 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  Portfolio   Trust's  officers  conduct  and  supervise  the  business
operations of the Portfolio Trust. The Trustees of the Portfolio Trust are equal
and sole shareholders of Pierpont Group.

         The officers of the Portfolio Trust, their principal occupations during
the past five years and their dates of birth are set forth  below.  The business
address of each of the officers unless otherwise noted is 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 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.

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

     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.  Address:  200 Park Avenue,  New York, New York 10166.  Her
date of birth is August 18, 1968.

     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.  Address:  200 Park Avenue,  New York,  New
York, 10166. His date of birth is May 18, 1961.

     GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service  Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior  Vice  President  and Senior Key Account  Manager  for Putnam  Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business  Development
for First Data Corporation.  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.

         The  Portfolio  Trust's  Declaration  of  Trust  provides  that it will
indemnify its Trustees and officers against liabilities and expenses incurred in
connection  with  litigation  in which  they may be  involved  because  of their
offices with the  Portfolio,  unless,  as to  liability to the  Portfolio or its
investors,  it is finally adjudicated that they engaged in willful  misfeasance,
bad faith,  gross  negligence  or reckless  disregard of the duties  involved in
their  offices,  or  unless  with  respect  to any other  matter  it is  finally
adjudicated  that they did not act in good faith in the  reasonable  belief that
their  actions  were in the  best  interests  of the  Portfolio.  In the case of
settlement,  such  indemnification  will  not be  provided  unless  it has  been
determined  by  a  court  or  other  body  approving  the  settlement  or  other
disposition,  or by a reasonable  determination,  based upon a review of readily
available facts, by vote of a majority of disinterested Trustees or in a written
opinion of independent counsel,  that such officers or Trustees have not engaged
in willful  misfeasance,  bad faith,  gross negligence or reckless  disregard of
their duties.

ITEM 15.  CONTROL PERSONS AND PRINCIPAL HOLDERS OF SECURITIES.

         As of January 31, 1999, the J.P.  Morgan  Institutional  Treasury Money
Market Fund and J.P.  Morgan  Institutional  Service  Treasury Money Market Fund
series of the J.P. Morgan Institutional Funds, owned 42% and 58%,  respectively,
of the outstanding  beneficial interests in the Portfolio.  So long as the Funds
control the  Portfolio,  they may take action  without the approval of any other
holder of beneficial interests in the Portfolio.

         Each of the  Portfolio's  investors  has  informed the  Portfolio  that
whenever it is requested to vote on matters  pertaining to the Portfolio  (other
than a vote by the Portfolio to continue the operation of the Portfolio upon the
withdrawal of another investor in the Portfolio),  it will hold a meeting of its
shareholders and will cast its vote as instructed by those shareholders.

         The officers and Trustees of the Portfolio own none of the  outstanding
beneficial interests in the Portfolio.

ITEM 16.  INVESTMENT ADVISORY AND OTHER SERVICES.

         INVESTMENT ADVISOR. The investment advisor to the Portfolio is JPMIM, a
wholly-owned  subsidiary  of J.P.  Morgan.  Subject  to the  supervision  of the
Portfolio's  Trustees,  the Advisor makes the Portfolio's  day-to-day investment
decisions,  arranges for the execution of portfolio  transactions  and generally
manages the Portfolio's  investments.  Prior to October 1, 1998,  Morgan was the
investment  advisor.  JPMIM,  a wholly owned  subsidiary  of J.P.  Morgan,  is a
registered  investment  adviser  under the  Investment  Advisers Act of 1940, as
amended, manages employee benefit funds of corporations,  labor unions and state
and  local  governments  and the  accounts  of  other  institutional  investors,
including  investment  companies.  Certain  of the  assets of  employee  benefit
accounts under its management are invested in commingled pension trust funds for
which Morgan serves as trustee.

         J.P.  Morgan,  through  the  Advisor  and other  subsidiaries,  acts as
investment advisor to individuals,  governments,  corporations, employee benefit
plans, mutual funds and other institutional investors with combined assets under
management of approximately $316 billion.

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

         The basis of the Advisor's investment process is fundamental investment
research as the firm  believes  that  fundamentals  should  determine an asset's
value over the long  term.  J.P.  Morgan  currently  employs  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  Advisor's  fixed  income  investment  process is based on  analysis of real
rates, sector diversification and quantitative and credit analysis.

         The investment  advisory services the Advisor provides to the Portfolio
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  Portfolio.  Such accounts are  supervised by
officers  and  employees  of the  Advisor  who may  also be  acting  in  similar
capacities for the Portfolio. See Item 17 below.

         Sector  weightings are generally  similar to the Portfolio's  benchmark
with the  emphasis on  security  selection  as the method to achieve  investment
performance superior to the benchmark.  The benchmark for the Portfolio is IBC's
Treasury and Repo Money Fund Average.

         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  Portfolio  is managed by officers  of the  Advisor  who, in acting for
their  customers,  including  the  Portfolio,  do not discuss  their  investment
decisions with any personnel of J.P.  Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of J.P.
Morgan  Investment  Management  Inc.  and certain  other  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  Investment
Advisory Agreement,  the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.20% of the
Portfolio's  average  daily  net  assets  up to $1  billion  and  0.10%  of  the
Portfolio's  average  daily net assets in excess of $1  billion.  For the period
from July 7, 1997 (commencement of operations)  through October 31, 1997 and for
the fiscal year ended October 31, 1998, the Portfolio  paid JPMIM or Morgan,  as
applicable, $49,123 and $1,080,743, respectively, in advisory fees.

         The  Investment  Advisory  Agreement  provides that it will continue in
effect with respect to the Portfolio  for a period of two years after  execution
only if specifically  approved annually  thereafter (i) by a vote of the holders
of a majority of the Portfolio's  outstanding  securities or by the Trustees and
(ii)  by a vote of a  majority  of the  Trustees  who  are  not  parties  to the
agreement or "interested persons" as defined by the 1940 Act cast in person at a
meeting  called  for the  purpose  of voting on such  approval.  The  Investment
Advisory Agreement will terminate automatically if assigned and is terminable at
any  time  without  penalty  by a vote  of a  majority  of the  Trustees  of the
Portfolio  Trust or by a vote of the  holders of a majority  of the  Portfolio's
voting securities on 60 days' written notice to Morgan and by Morgan on 90 days'
written notice to the Portfolio.

         The  Glass-Steagall  Act and other  applicable laws generally  prohibit
banks such as the Advisor  from  engaging in the  business  of  underwriting  or
distributing  securities,  and 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 continuously engaged in the issuance of its securities,  such
as the Portfolio Trust. The  interpretation  does not prohibit a holding company
or a subsidiary  thereof from acting as investment advisor and custodian to such
an investment company. The Advisor believes that it may perform the services for
the  Portfolio   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 Portfolio.

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

         Under a separate agreement,  Morgan provides administrative and related
services to the Portfolio.  See  "Administrative  Services  Agreement" in Part A
above.

         PLACEMENT  AGENT.  FDI,  a  registered  broker-dealer,  also  serves as
exclusive  placement  agent for the  Portfolio.  FDI is a wholly owned  indirect
subsidiary of Boston  Institutional Group, Inc. FDI's principal business address
is 60 State Street, Suite 1300, Boston, Massachusetts 02109.

         CO-ADMINISTRATOR.   Under  the  Portfolio   Trust's   Co-Administration
Agreement   dated  August  1,  1996,   FDI  serves  as  the  Portfolio   Trust's
Co-Administrator.  The Co-Administration  Agreement may be renewed or amended by
the  Trustees  without an investor  vote.  The  Co-Administration  Agreement  is
terminable  at any time without  penalty by a vote of a majority of the Trustees
of the Portfolio Trust on not more than 60 days' written notice nor less than 30
days' written notice to the other party.  The  Co-Administrator  may, subject to
the  consent  of the  Trustees  of the  Portfolio  Trust,  subcontract  for  the
performance of its  obligations,  provided,  however,  that unless the Portfolio
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 Administrative Services Agent below.

     For its services under the Co-Administration Agreement, the Portfolio Trust
has  agreed  to  pay  FDI  fees  equal  to  its  allocable  share  of an  annual
complex-wide  charge of $425,000 plus FDI's out-of-pocket  expenses.  The amount
allocable  to the  Portfolio  is based on the  ratio  of its net  assets  to the
aggregate net assets of the J.P.  Morgan Funds,  the J.P.  Morgan  Institutional
Funds, the Master Portfolios,  and certain other investment companies subject to
similar  agreements with FDI. For the period from July 7, 1997  (commencement of
operations)  through  October 31, 1997 and for the fiscal year ended Ocotber 31,
1998, administrative fees in the amount of $406 and $7,258,  respectively,  were
paid by the Portfolio Trust to FDI.

         ADMINISTRATIVE  SERVICES AGENT.  The Portfolio Trust has entered into a
Restated  Administrative  Services  Agreement  (the "Services  Agreement")  with
Morgan,  pursuant to which Morgan is responsible for certain  administrative and
related services provided to the Portfolio.

         Under the  Services  Agreement  the  Portfolio  Trust has agreed to pay
Morgan fees equal to its allocable share of an annual complex-wide  charge. This
charge is  calculated  daily  based on the  aggregate  net  assets of the Master
Portfolios and J.P. Morgan Series Trust in accordance with the following  annual
schedule:  0.09% of the first $7 billion of their  aggregate  average  daily net
assets and 0.04% of their average daily net assets in excess of $7 billion, less
the complex-wide  fees payable to FDI. The portion of this charge payable by the
Portfolio is determined by the  proportionate  share that its net assets bear to
the total net assets of the J.P.  Morgan Funds,  the J.P.  Morgan  Institutional
Funds, the Master  Portfolios,  the other investors in the Master Portfolios for
which Morgan provides similar services and J.P. Morgan Series Trust.

     For the  period  from July 7, 1997  (commencement  of  operations)  through
October 31, 1997 and for the fiscal year ended  October 31, 1998,  the Portfolio
paid Morgan $7,289 and $155,752, respectively, in administrative services fees.

         See "Expenses" below for applicable expense limitations.

         CUSTODIAN.  State Street Bank and Trust Company ("State  Street"),  225
Franklin Street,  Boston,  Massachusetts  02110, serves as the Portfolio Trust's
custodian  and fund  accounting  and transfer  agent.  Pursuant to the Custodian
Contract,  State Street is responsible  for maintaining the books of account and
records of portfolio transactions and holding portfolio securities and cash. The
Custodian  maintains  portfolio  transaction  records,  calculates  book and tax
allocations  for the  Portfolio  and  computes the value of the interest of each
investor.

         INDEPENDENT  ACCOUNTANTS.  The independent accountants of the Portfolio
Trust are  PricewaterhouseCoopers,  LLP, 1177 Avenue of the Americas,  New York,
New York  10036.  PricewaterhouseCoopers  LLP  conducts  an annual  audit of the
financial statements of the Portfolio,  assists in the preparation and/or review
of the  Portfolio's  federal and state income tax returns and consults  with the
Portfolio  Trust as to  matters  of  accounting  and  federal  and state  income
taxation.

         EXPENSES.  In  addition to the fees  payable to the  service  providers
identified above, the Portfolio is responsible for usual and customary  expenses
associated with its 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, and
extraordinary expenses applicable to the Portfolio Trust.

ITEM 17.  BROKERAGE ALLOCATION AND OTHER PRACTICES.

         The Advisor places orders for the Portfolio for all purchases and sales
of  portfolio  securities,  enters into  repurchase  agreements,  may enter into
reverse  repurchase  agreements  and execute  loans of portfolio  securities  on
behalf of the Portfolio. See Item 13 above.

         Fixed  income  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.

         In  connection  with  portfolio  transactions  for the  Portfolio,  the
Advisor intends to seek best execution on a competitive basis for both purchases
and sales of securities.

         The Portfolio's  policy of investing only in securities with maturities
of less than  thirteen  months will  result in high  portfolio  turnover.  Since
brokerage  commissions are not normally paid on investments  which the Portfolio
makes,  turnover resulting from such investments should not adversely affect the
net asset value or net income of the Portfolio.

         Subject to the overriding  objective of obtaining the best execution of
orders,  the  Advisor  may  allocate  a  portion  of the  Portfolio's  brokerage
transactions  to  affiliates  of the  Advisor.  In order for  affiliates  of the
Advisor to effect any portfolio transactions for the Portfolio, the commissions,
fees or other  remuneration  received by such  affiliates must be reasonable and
fair  compared to the  commissions,  fees, or other  remuneration  paid to other
brokers in connection with comparable  transactions involving similar securities
being purchased or sold on a securities  exchange during a comparable  period of
time. Furthermore,  the Trustees of the Portfolio Trust, 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.

         The Portfolio Trust's  portfolio  securities will not be purchased from
or through or sold to or through the Exclusive Placement Agent or Advisor or any
other  "affiliated  person"  (as  defined  in the  1940  Act)  of the  Exclusive
Placement  Agent or Advisor when such entities are acting as principals,  except
to the extent  permitted by law. In addition,  the  Portfolio  will not purchase
securities  during the existence of any  underwriting  group relating thereto of
which the  Advisor or an  affiliate  of the  Advisor is a member,  except to the
extent permitted by law.

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

ITEM 18.  CAPITAL STOCK AND OTHER SECURITIES.

         The Portfolio is a subtrust (or series) of the Portfolio  Trust,  which
is  organized  as a trust  under the laws of the  State of New  York.  Under the
Portfolio  Trust's  Declaration  of Trust,  the Trustees are authorized to issue
beneficial  interests  in one or more series (each a  "Series"),  including  the
Portfolio.  Investors  in a  Series  will  be  held  personally  liable  for the
obligations  and  liabilities of that Series (and of no other Series),  subject,
however,  to  indemnification  by the Portfolio Trust in the event that there is
imposed upon an investor a greater portion of the liabilities and obligations of
the  Series  than its  proportionate  beneficial  interest  in the  Series.  The
Declaration  of Trust also  provides  that the  Portfolio  Trust shall  maintain
appropriate  insurance  (for  example,  a fidelity bond and errors and omissions
insurance) for the protection of the Portfolio Trust,  its investors,  Trustees,
officers,   employees  and  agents,   and  covering   possible  tort  and  other
liabilities.  Thus, the risk of an investor incurring  financial loss on account
of  investor  liability  is limited to  circumstances  in which both  inadequate
insurance  existed  and the  Portfolio  Trust  itself  was  unable  to meet  its
obligations.

         Investors  in  a  Series  are  entitled  to  participate  pro  rata  in
distributions  of taxable  income,  loss,  gain and  credit of their  respective
Series only. Upon liquidation or dissolution of a Series, investors are entitled
to share pro rata in that Series' (and no other Series) net assets available for
distribution to its investors.  The Portfolio Trust reserves the right to create
and  issue  additional  Series  of  beneficial  interests,  in  which  case  the
beneficial  interests  in each  new  Series  would  participate  equally  in the
earnings,  dividends  and assets of that  particular  Series  only (and no other
Series).  Any  property of the  Portfolio  Trust is  allocated  and belongs to a
specific Series to the exclusion of all other Series. All consideration received
by the Portfolio  Trust for the issuance and sale of  beneficial  interests in a
particular  Series,  together  with all  assets in which such  consideration  is
invested or reinvested, all income, earnings and proceeds thereof, and any funds
or payments  derived  from any  reinvestment  of such  proceeds,  is held by the
Trustees in a separate  Series for the benefit of  investors  in that Series and
irrevocably  belongs  to that  Series  for all  purposes.  Neither a Series  nor
investors  in that  Series  possess  any  right  to or  interest  in the  assets
belonging to any other Series.

         Investments in a Series have no preference,  preemptive,  conversion or
similar rights and are fully paid and nonassessable,  except as set forth below.
Investments in a Series may not be  transferred.  Certificates  representing  an
investor's  beneficial  interest  in a Series are issued  only upon the  written
request of an investor.

         Each  investor is entitled to a vote in proportion to the amount of its
investment in each Series.  Investors in a Series do not have cumulative  voting
rights,  and  investors  holding  more  than  50%  of the  aggregate  beneficial
interests in all outstanding Series may elect all of the Trustees if they choose
to do so and in such  event  other  investors  would  not be able to  elect  any
Trustees.  Investors  in each Series will vote as a separate  class except as to
voting of Trustees,  as otherwise  required by the 1940 Act, or if determined by
the  Trustees to be a matter  which  affects all Series.  As to any matter which
does not affect the interest of a particular  Series,  only investors in the one
or more  affected  Series  are  entitled  to vote.  The  Portfolio  Trust is not
required and has no current  intention of holding annual  meetings of investors,
but the  Portfolio  Trust will hold special  meetings of  investors  when in the
judgment of the  Portfolio  Trust's  Trustees it is  necessary  or  desirable to
submit matters for an investor vote. The Portfolio Trust's  Declaration of Trust
may be amended  without the vote of investors,  except that  investors  have the
right to approve by affirmative  majority vote any amendment  which would affect
their voting rights,  alter the procedures to amend the  Declaration of Trust of
the  Portfolio  Trust,  or as  required  by  law  or by  the  Portfolio  Trust's
registration  statement,  or as submitted to them by the Trustees. Any amendment
submitted to investors  which the Trustees  determine would affect the investors
of any Series shall be authorized by vote of the investors of such Series and no
vote will be required of investors in a Series not affected.

         The Portfolio  Trust or any Series  (including the Portfolio) may enter
into a merger or consolidation,  or sell all or substantially all of its assets,
if approved by the vote of two-thirds  of its  investors  (with the vote of each
being  in  proportion  to its  percentage  of the  beneficial  interests  in the
Series), except that if the Trustees recommend such sale of assets, the approval
by vote of a  majority  of the  investors  (with  the  vote  of  each  being  in
proportion to its percentage of the beneficial  interests in the Series) will be
sufficient.  The Portfolio  Trust or any Series may also be terminated  (i) upon
liquidation and distribution of its assets if approved by the vote of two-thirds
of its investors (with the vote of each being in proportion to the amount of its
investment) or (ii) by the Trustees by written notice to its investors.

         The Portfolio Trust's Declaration of Trust provides that obligations of
the Portfolio Trust are not binding upon the Trustees individually but only upon
the property of the Portfolio Trust and that the Trustees will not be liable for
any action or failure to act, but nothing in the Declaration of Trust protects a
Trustee  against any liability to which he would  otherwise be subject by reason
of willful  misfeasance,  bad faith, gross negligence,  or reckless disregard of
the duties involved in the conduct of his office.

ITEM 19.  PURCHASE, REDEMPTION AND PRICING OF SECURITIES

         Beneficial  interests  in the  Portfolio  are issued  solely in private
placement  transactions  that do not involve any  "public  offering"  within the
meaning of Section 4(2) of the 1933 Act.

         All portfolio  securities for the Portfolio are valued by the amortized
cost  method,  as  permitted  by a rule  adopted by the SEC. The purpose of this
method of calculation is to allow certain investors in the Portfolio to maintain
a constant net asset  value.  No  assurances  can be given that this goal can be
attained.  The amortized cost method of valuation  values a security at its cost
at the time of  purchase  and  thereafter  assumes a  constant  amortization  to
maturity of any  discount or premium,  regardless  of the impact of  fluctuating
interest  rates on the market value of the  instrument.  If a difference of more
than 1/2 of 1% occurs between  valuation  based on the amortized cost method and
valuation  based on market  value,  the  Trustees  will take steps  necessary to
reduce  such  deviation,  such as  shortening  the average  portfolio  maturity,
realizing gains or losses, or reducing the aggregate outstanding interests.  Any
reduction of  outstanding  interests will be effected by having each investor in
the Portfolio  contribute to the Portfolio's  capital the necessary amounts on a
pro rata basis.  Each investor in the Portfolio will be deemed to have agreed to
such a contribution in these circumstances by his investment in the Portfolio.

         If the Portfolio  determines  that it would be  detrimental to the best
interest of the remaining  investors in the Portfolio to make payment  wholly or
partly in cash,  payment of the redemption price may be made in whole or in part
by a distribution in kind of securities from the Portfolio,  in lieu of cash, in
conformity  with the  applicable  rule of the SEC. If interests  are redeemed in
kind,  the redeeming  investor might incur  transaction  costs in converting the
assets into cash. The method of valuing portfolio  securities is described above
and such  valuation  will be made as of the same  time the  redemption  price is
determined.  The Portfolio  will not redeem in kind except in  circumstances  in
which an investor is permitted to redeem in kind.

         The net asset  value of the  Portfolio  will not be  computed  on a day
which no orders to purchase or withdraw  beneficial  interests in the  Portfolio
has been received or on the days 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, Veteran's Day, Columbus Day, Thanksgiving Day,
and  Christmas  Day. In the event that trading in the money markets is scheduled
to end earlier than the close of the New York Stock  Exchange in  observance  of
these  holidays,   the  Portfolio  would  expect  to  close  for  purchases  and
withdrawals an hour in advance of the end of trading in the money  markets.  The
Portfolio may also close for purchases  and  withdrawals  at such other times as
may be determined by the Trustees to the extent permitted by applicable law. The
days on which net asset value is determined are the Portfolio's business days.

ITEM 20.  TAX STATUS.

         The  Portfolio is organized as a New York trust.  The  Portfolio is not
subject to any income or franchise tax in the State of New York.  However,  each
investor  in the  Portfolio  will be subject to U.S.  Federal  income tax in the
manner  described  below on its  share (as  determined  in  accordance  with the
governing  instruments of the Portfolio) of the Portfolio's  ordinary income and
capital gain in determining its income tax liability.  The determination of such
share will be made in  accordance  with the Code,  and  regulations  promulgated
thereunder.

         Although,  as described  above,  the  Portfolio  will not be subject to
federal income tax, it will file appropriate income tax returns.

         It is intended  that the  Portfolio's  assets will be managed in such a
way that an investor in the Portfolio  will be able to satisfy the  requirements
of  Subchapter M of the Code. To ensure that  investors  will be able to satisfy
the  requirements  of  subchapter M, the  Portfolio  must satisfy  certain gross
income and diversification requirements.

         For the  Portfolio to qualify as a regulated  investment  company under
Subchapter M of the Code,  the Portfolio  limits its  investments so that at the
close of each  quarter  of its  taxable  year (a) no more  than 25% of its total
assets are  invested  in the  securities  of any one issuer,  except  government
securities,  and (b) with regard to 50% of its total assets,  no more than 5% of
its total assets are invested in the securities of a single issuer,  except U.S.
Government securities.

         Gains or losses on sales of  portfolio  securities  will be  treated as
long-term  capital  gains or losses if the  securities  have been held by it for
more than one year.  Long-term  capital  gain of  individual  investors  will be
subject to a reduced rate of tax if the portfolio  securities  have been held by
the  Portfolio for more than one year at the time of sale and will be subject to
a further reduced rate of tax if the portfolio  securities have been held by the
Portfolio  for more than  eighteen  months at the time of sale.  Other  gains or
losses on the sale of securities will be short-term capital gains or losses.

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

         OTHER TAXATION. The investment by an investor in the Portfolio does not
cause the investor to be liable for any income or franchise  tax in the State of
New York.  Investors  are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in the Portfolio.

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  has  substantially  completed  renovation,
testing,  and  validation of its key systems and is preparing 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.  For potential failure scenarios where the risks
are  deemed  significant  and  where  such risk is  considered  to have a higher
probability  of  occurrence,  J.P.  Morgan  will  attempt  to  develop  business
recovery/contingency  plans.  These plans, are being developed in the first half
of 1999, will define the infrastructure that should be put in place for managing
a failure during the millennium event itself.

     Costs associated with efforts to prepare J.P. Morgan's systems for the year
2000 approximated $95 million in 1997 and $112 million for the first nine months
of 1998. In 1999,  J.P.  Morgan is continuing its efforts to prepare its systems
for the year 2000. The total cost to become year-2000  compliant is estimated at
$300 million (for firmwide  systems  upgrade,  not just for systems  relating to
mutual funds), for internal systems  renovation and testing,  testing equipment,
and both  internal and  external  resources  working on the  project.  The costs
associated with J.P. Morgan becoming  year-2000  compliant will be borne by J.P.
Morgan and not the Portfolio.

ITEM 21.  UNDERWRITERS.

         Not Applicable.

ITEM 22.  CALCULATIONS OF PERFORMANCE DATA.

         Not applicable.

ITEM 23.  FINANCIAL STATEMENTS.



<PAGE>


        The Portfolio's  October 31, 1998 annual report filed with the
Securities and Exchange Commission pursuant to Section 30(b) of the 1940 Act and
Rule  30b2-1   thereunder  is  incorporated   herein  by  reference   (Accession
No.0001047469-98-045636, filed December 31, 1998).


<PAGE>

APPENDIX A

Description of Security Ratings

STANDARD & POOR'S

CORPORATE AND MUNICIPAL BONDS

AAA-     Debt rated AAA have the highest  ratings  assigned by Standard & Poor's
         to a debt  obligation.  Capacity to pay interest and repay principal is
         extremely strong.

AA       - Debt rated AA have a very strong  capacity to pay  interest and repay
         principal  and differ  from the  highest  rated  issues only in a small
         degree.

A        - Debt  rated  A have a  strong  capacity  to pay  interest  and  repay
         principal  although they are somewhat more  susceptible  to the adverse
         effects of changes in circumstances  and economic  conditions than debt
         in higher rated categories.

BBB-     Debt  rated BBB are  regarded  as having an  adequate  capacity  to pay
         interest and repay  principal.  Whereas they normally  exhibit adequate
         protection   parameters,   adverse  economic   conditions  or  changing
         circumstances  are more  likely to lead to a weakened  capacity  to pay
         interest and repay principal for debt in this category than for debt in
         higher rated categories.

BB       - Debt rated BB are regarded as having less near-term  vulnerability to
         default than other speculative issues. However, they face major ongoing
         uncertainties  or exposure to adverse  business,  financial or economic
         conditions  which  could lead to  inadequate  capacity  to meet  timely
         interest and principal payments.

COMMERCIAL PAPER, INCLUDING TAX EXEMPT

A        - Issues  assigned  this  highest  rating  are  regarded  as having the
         greatest  capacity  for timely  payment.  Issues in this  category  are
         further  refined  with the  designations  1, 2, and 3 to  indicate  the
         relative degree of safety.

A-1 - This  designation  indicates  that the degree of safety  regarding  timely
payment is very strong.

SHORT-TERM TAX-EXEMPT NOTES

SP-1              - The short-term tax-exempt note rating of SP-1 is the highest
                  rating  assigned by Standard & Poor's and has a very strong or
                  strong  capacity to pay principal  and interest.  Those issues
                  determined to possess overwhelming safety  characteristics are
                  given a "plus" (+) designation.


<PAGE>




                                      BA-3

     SP-2 - The  short-term  tax-exempt  note rating of SP-2 has a  satisfactory
capacity to pay principal and interest.

MOODY'S

CORPORATE AND MUNICIPAL BONDS

Aaa      - Bonds which are rated Aaa are judged to be of the best quality.  They
         carry the smallest degree of investment risk and are generally referred
         to as "gilt edge." Interest  payments are protected by a large or by an
         exceptionally  stable margin and principal is secure. While the various
         protective  elements  are  likely to  change,  such  changes  as can be
         visualized  are  most  unlikely  to  impair  the  fundamentally  strong
         position of such issues.

Aa       - Bonds  which are rated Aa are  judged  to be of high  quality  by all
         standards. Together with the Aaa group they comprise what are generally
         known as high  grade  bonds.  They are rated  lower than the best bonds
         because  margins of protection may not be as large as in Aaa securities
         or  fluctuation of protective  elements may be of greater  amplitude or
         there may be other  elements  present  which  make the long term  risks
         appear somewhat larger than in Aaa securities.

A        - Bonds which are rated A possess many favorable investment  attributes
         and are to be  considered  as upper medium grade  obligations.  Factors
         giving  security to principal and interest are considered  adequate but
         elements may be present  which suggest a  susceptibility  to impairment
         sometime in the future.

Baa      - Bonds which are rated Baa are considered as medium grade obligations,
         i.e., they are neither highly  protected nor poorly  secured.  Interest
         payments and  principal  security  appear  adequate for the present but
         certain protective elements may be lacking or may be characteristically
         unreliable over any great length of time.  Such bonds lack  outstanding
         investment characteristics and in fact have speculative characteristics
         as well.

Ba       - Bonds  which are rated Ba are  judged to have  speculative  elements;
         their future cannot be considered as well-assured. Often the protection
         of interest and principal  payments may be very  moderate,  and thereby
         not well  safeguarded  during  both good and bad times over the future.
         Uncertainty of position characterizes bonds in this class.

     COMMERCIAL  PAPER,  INCLUDING TAX EXEMPT Prime-1- Issuers rated Prime-1 (or
related  supporting  institutions)  have a superior  capacity  for  repayment of
short-term promissory  obligations.  Prime-1 repayment capacity will normally be
evidenced by the following  characteristics:  - Leading market positions in well
established industries. - High rates of return on funds employed. - Conservative
capitalization  structures  with  moderate  reliance  on debt  and  ample  asset
protection.  - Broad margins in earnings coverage of fixed financial charges and
high internal cash generation. - Well established access to a range of financial
markets and assured sources of alternate liquidity.

SHORT-TERM TAX EXEMPT NOTES

MIG-1             - The short-term  tax-exempt  note rating MIG-1 is the highest
                  rating  assigned  by Moody's  for notes  judged to be the best
                  quality.  Notes with this rating enjoy strong  protection from
                  established  cash flows of funds for their  servicing  or from
                  established   and   broad-based   access  to  the  market  for
                  refinancing, or both.

     MIG-2 -  MIG-2  rated  notes  are of  high  quality  but  with  margins  of
protection not as large as MIG-1.





                                       C-3


<PAGE>


                                     PART C


ITEM 24.  FINANCIAL STATEMENTS AND EXHIBITS.

(A) FINANCIAL STATEMENTS INCLUDED IN PART A:

         Not applicable.

FINANCIAL STATEMENTS INCORPORATED BY REFERENCE INTO PART B:

         The audited financial statements included in Item 23 are as follows:

         Treasury Money Market Portfolio

         Schedule of  Investments  at October 31, 1998
         Statement  of Assets and Liabilities at October 31, 1998
         Statement of Operations for the fiscal year ended October 31, 1998
         Statement  of Changes in Net Assets for the period July 7, 1997 
         (commencement of operations) through October 31, 1997 and the fiscal 
         year ended  October 31, 1998
         Supplementary  Data Notes to Financial  Statements at October 31, 1998

         Global Strategic Income Portfolio

         Schedule of  Investments  at October 31, 1998
         Statement  of Assets and Liabilities at October 31, 1998
         Statement of Operations for the fiscal year ended October 31, 1998
         Statement  of Changes in Net Assets for the period March 17, 1997 
         (commencement of operations) through October 31, 1997 and the fiscal 
         year ended  October 31, 1998
         Supplementary  Data Notes to Financial  Statements at October 31, 1998

(B) EXHIBITS

1        Restated Declaration of Trust of the Registrant.1

2        Restated By-Laws of the Registrant.2

     5 Investment  Advisory  Agreement between the Registrant and J.P. Morgan
Investment Management. 3

     8 Form of Custodian  Contract  between the Registrant and State Street Bank
and Trust Company ("State Street").2

     9(a)   Co-Administration   Agreement   between  the  Registrant  and  Funds
Distributor, Inc. dated August 1, 1996.2

     9(b) Transfer Agency and Service Agreement between the Registrant and State
Street.2

     9(c) Restated  Administrative Services Agreement between the Registrant and
Morgan dated August 1, 1996.2

     9(d) Amended and Restated  Portfolio  Fund Services  Agreement  between the
Registrant and Pierpont Group, Inc. dated July 11, 1996.2

13       Purchase Agreement with respect to initial capital.2
27       Financial Data Schedules (filed herewith)

- -------------------
1        Incorporated herein by reference to Registrant's Registration Statement
         on Form N-1A as filed with the Securities and Exchange Commission on
         May 30, 1997 (Accession Number                   ).

2        Incorporated herein by reference to Registrant's Registration Statement
         on Form N-1A as filed with the  Securities  and Exchange  Commission on
         February 28, 1997 (Accession Number 0001016964-97-000040).

3        Incorporated herein by reference to Registrant's Registration Statement
         on Form N-1A as filed with the  Securities  and Exchange  Commission on
         November 6, 1998 (Accession Number 0001041455-98-000088).

ITEM 25.  PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.

         Not applicable.

ITEM 26.  NUMBER OF HOLDERS OF SECURITIES.

       Title of Class:  Beneficial Interests
       Number of Record Holders of each Portfolio: 2 (as of January 31, 1999)

ITEM 27.  INDEMNIFICATION.

         Reference is hereby made to Article V of the  Registrant's  Declaration
of Trust, filed as an Exhibit to its Registration Statement on Form N-1A.

         The Trustees and officers of the  Registrant  and the  personnel of the
Registrant's  administrator are insured under an errors and omissions  liability
insurance  policy.  The  Registrant  and its officers are also insured under the
fidelity bond required by Rule 17g-1 under the  Investment  Company Act of 1940,
as amended.

ITEM 28.  BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISOR.

     JPMIM is Delaware  corporation  which is a wholly-owned  subsidiary of J.P.
Morgan & Co. Incorporated.

         JPMIM is a registered  investment adviser under the Investment Advisers
Act of 1940, as amended,  and is a wholly owned  subsidiary of J.P. Morgan & Co.
Incorporated. JPMIM manages employee benefit funds of corporations, labor unions
and  state  and  local  governments  and the  accounts  of  other  institutional
investors, including investment companies.

         To the knowledge of the Registrant,  none of the directors or executive
officers of JPMIM is or has been during the past two fiscal years engaged in any
other  business,  profession,  vocation or employment  of a substantial  nature,
except that certain officers and directors of JPMIM also hold various  positions
with, and engage in business for J.P. Morgan & Co. Incorporated,  which owns all
the outstanding stock of JPMIM.

ITEM 29.  PRINCIPAL UNDERWRITERS.

         Not applicable.

ITEM 30.  LOCATION OF ACCOUNTS AND RECORDS.

         The accounts and records of the Registrant are located,  in whole or in
part, at the office of the Registrant and the following locations:

     J.P. Morgan Investment Management Inc. and Morgan Guaranty Trust Company of
New York, 522 Fifth Avenue,  New York, New York 10036 and/or 60 Wall Street, New
York,  New York  10260-0060  (records  relating to its  functions as  investment
adviser and administrative services agent).

         State  Street Bank and Trust  Company,  225  Franklin  Street,  Boston,
Massachusetts  02109 or 40 King Street West,  Toronto,  Ontario,  Canada M5H 3Y8
(records relating to its functions as custodian and fund accounting and transfer
agent).

         Funds  Distributor,   Inc.,  60  State  Street,   Suite  1300,  Boston,
Massachusetts 02109 or c/o State Street Cayman Trust Company,  Ltd., Elizabethan
Square,  Shedden Road, George Town, Grand Cayman,  Cayman Islands,  BWI (records
relating to its functions as co-administrator and exclusive placement agent).

         Pierpont  Group,  Inc.,  461 Fifth  Avenue,  New York,  New York  10017
(records  relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).

ITEM 31.  MANAGEMENT SERVICES.

         Not applicable.

ITEM 32.  UNDERTAKINGS.

         Not applicable.


<PAGE>



                                    SIGNATURE


     Pursuant to the  requirements  of the  Investment  Company Act of 1940,  as
amended,  The Global  Strategic  Income  Portfolio and The Treasury Money Market
Portfolio have duly caused its registration statement to be signed on its behalf
by the undersigned,  thereto duly authorized, in New York, NY, on the 5th day of
March, 1999.

         SERIES PORTFOLIO II



By:      /s/ Michael S. Petrucelli
         ----------------------------------
         Michael S. Petrucelli
         Vice President and Assistant Secretary


<PAGE>



                                INDEX TO EXHIBITS

EXHIBIT NO.      DESCRIPTION OF EXHIBIT

EX-27.1-27.2     Financial Data Schedules

WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.

<TABLE> <S> <C>
              
<ARTICLE> 6         
<LEGEND> 
This schedule contains summary financial data extracted from the annual report
dated 10/31/98 for The Global Strategic Income Portfolio and is qualified in its
entirety by reference to such annual report.
</LEGEND>
<MULTIPLIER> 1000
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          OCT-31-1998
<PERIOD-END>                               OCT-31-1998
<INVESTMENTS-AT-COST>                          259,964
<INVESTMENTS-AT-VALUE>                         259,094
<RECEIVABLES>                                   17,570
<ASSETS-OTHER>                                   2,311
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                 278,975
<PAYABLE-FOR-SECURITIES>                        39,136
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                        5,685
<TOTAL-LIABILITIES>                             44,821
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                             0
<SHARES-COMMON-STOCK>                                0
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                              0
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                             0
<NET-ASSETS>                                   234,154
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                               14,236
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                   1,238
<NET-INVESTMENT-INCOME>                         12,998
<REALIZED-GAINS-CURRENT>                       (8,737)
<APPREC-INCREASE-CURRENT>                      (3,001)
<NET-CHANGE-FROM-OPS>                            1,260
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                              0
<NUMBER-OF-SHARES-REDEEMED>                          0
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                         133,773
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                              888
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                  1,238
<AVERAGE-NET-ASSETS>                           197,316
<PER-SHARE-NAV-BEGIN>                                0
<PER-SHARE-NII>                                      0
<PER-SHARE-GAIN-APPREC>                              0
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                                  0
<EXPENSE-RATIO>                                   0.63
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0


        

</TABLE>

<TABLE> <S> <C>
              
<ARTICLE> 6         
<LEGEND> 
This schedule contains summary financial data extracted from the annual report
dated 10/31/98 for The Treasury Money Market Portfolio and is qualified in its
entirety by reference to such annual report.
</LEGEND>
<MULTIPLIER> 1000
       
<S>                             <C>
<PERIOD-TYPE>                   12-MOS
<FISCAL-YEAR-END>                          OCT-31-1998
<PERIOD-END>                               OCT-31-1998
<INVESTMENTS-AT-COST>                           696153
<INVESTMENTS-AT-VALUE>                          696153
<RECEIVABLES>                                     9126
<ASSETS-OTHER>                                       6
<OTHER-ITEMS-ASSETS>                                 0
<TOTAL-ASSETS>                                  705285
<PAYABLE-FOR-SECURITIES>                             0
<SENIOR-LONG-TERM-DEBT>                              0
<OTHER-ITEMS-LIABILITIES>                          238
<TOTAL-LIABILITIES>                                238
<SENIOR-EQUITY>                                      0
<PAID-IN-CAPITAL-COMMON>                             0
<SHARES-COMMON-STOCK>                                0
<SHARES-COMMON-PRIOR>                                0
<ACCUMULATED-NII-CURRENT>                            0
<OVERDISTRIBUTION-NII>                               0
<ACCUMULATED-NET-GAINS>                              0
<OVERDISTRIBUTION-GAINS>                             0
<ACCUM-APPREC-OR-DEPREC>                             0
<NET-ASSETS>                                    705047
<DIVIDEND-INCOME>                                    0
<INTEREST-INCOME>                                29553
<OTHER-INCOME>                                       0
<EXPENSES-NET>                                     627
<NET-INVESTMENT-INCOME>                          28926
<REALIZED-GAINS-CURRENT>                          (12)
<APPREC-INCREASE-CURRENT>                            0
<NET-CHANGE-FROM-OPS>                            28914
<EQUALIZATION>                                       0
<DISTRIBUTIONS-OF-INCOME>                            0
<DISTRIBUTIONS-OF-GAINS>                             0
<DISTRIBUTIONS-OTHER>                                0
<NUMBER-OF-SHARES-SOLD>                              0
<NUMBER-OF-SHARES-REDEEMED>                          0
<SHARES-REINVESTED>                                  0
<NET-CHANGE-IN-ASSETS>                          587943
<ACCUMULATED-NII-PRIOR>                              0
<ACCUMULATED-GAINS-PRIOR>                            0
<OVERDISTRIB-NII-PRIOR>                              0
<OVERDIST-NET-GAINS-PRIOR>                           0
<GROSS-ADVISORY-FEES>                             1081
<INTEREST-EXPENSE>                                   0
<GROSS-EXPENSE>                                   1455
<AVERAGE-NET-ASSETS>                            540798
<PER-SHARE-NAV-BEGIN>                                0
<PER-SHARE-NII>                                      0
<PER-SHARE-GAIN-APPREC>                              0
<PER-SHARE-DIVIDEND>                                 0
<PER-SHARE-DISTRIBUTIONS>                            0
<RETURNS-OF-CAPITAL>                                 0
<PER-SHARE-NAV-END>                                  0
<EXPENSE-RATIO>                                   .001
<AVG-DEBT-OUTSTANDING>                               0
<AVG-DEBT-PER-SHARE>                                 0

        

</TABLE>


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