JP MORGAN INSTITUTIONAL FUNDS, 497, 1998-12-02

JP MORGAN INSTITUTIONAL FUNDS
497, 1998-12-02

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NOVEMBER 30, 1998

PROSPECTUS

J.P. MORGAN INSTITUTIONAL MONEY MARKET FUNDS

Prime Money Market Fund

Treasury Money Market Fund

Federal Money Market Fund

Tax Exempt Money Market Fund

- ---------------------------------------
Seeking to provide high current income
consistent with the preservation of
capital and same-day liquidity

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

Shares in these funds are not bank deposits and are not guaranteed or insured by
any bank, government entity, or the FDIC. Each fund seeks to maintain a stable
$1 share price, without guaranteeing that it will always be able to do so

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

Distributed by Funds Distributor, Inc.

JPMorgan

<PAGE>

CONTENTS
- -------------------------------------------------------------------------------

2
Principles and techniques common
to the funds in this prospectus

MONEY MARKET MANAGEMENT APPROACH

Money market investment process ............................. 2
The spectrum of money market funds .......................... 3
Money market funds and stability ............................ 3

4
Each fund's goal, investment approach, risks, expenses, performance, and
financial highlights

J.P. MORGAN INSTITUTIONAL MONEY MARKET FUNDS

J.P. Morgan Institutional Prime Money Market Fund ........... 4
J.P. Morgan Institutional Treasury Money Market Fund ........ 6
J.P. Morgan Institutional Federal Money Market Fund ......... 8
J.P. Morgan Institutional Tax Exempt Money Market Fund ...... 10

12
Investing in the J.P. Morgan Institutional Money Market Funds

YOUR INVESTMENT

Investing through a financial professional .................. 12
Investing through an employer-sponsored retirement plan...... 12
Investing through an IRA or rollover IRA .................... 12
Investing directly .......................................... 12
Opening your account ........................................ 12
Adding to your account ...................................... 12
Selling shares .............................................. 13
Account and transaction policies ............................ 13
Dividends and distributions ................................. 14
Tax considerations .......................................... 14

15
More about the funds'
business operations

FUND DETAILS

Master/feeder structure .................................... 15
Management and administration ............................... 15

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

<PAGE>

INTRODUCTION
- -------------------------------------------------------------------------------

J.P. MORGAN INSTITUTIONAL MONEY MARKET FUNDS

Each of these funds invests in high-quality short-term debt securities by
investing through a master portfolio (another fund with the same goal). Each
fund accrues dividends daily, pays them to shareholders monthly, and seeks to
maintain a stable $1 share price.

WHO MAY WANT TO INVEST

The funds are designed for investors who

o want an investment that strives to preserve capital

o want regular income from a high quality portfolio

o want a highly liquid investment

o are looking for an interim investment

o are pursuing a short-term goal

o are seeking income that is generally exempt from state and local income taxes
(in the case of Federal Money Market Fund) or exempt from federal income tax
(in the case of Tax Exempt Money Market Fund)

The funds are not designed for investors who:

o are investing for long-term growth

o are investing for high income

o require the added security of the FDIC insurance

o in the case of Tax Exempt Money Market Fund, are investing through an IRA or
other tax-advantaged retirement plan

J.P. Morgan

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

- ---------------------------------------------
Before you invest
Investors considering these funds should understand that:

o There is no assurance that these funds will meet their investment goals

o Future returns will not necessarily resemble past performance

o These funds do not represent complete investment programs

<PAGE>

MONEY MARKET MANAGEMENT APPROACH
- -------------------------------------------------------------------------------

The J.P. Morgan Institutional money market funds invest exclusively in
high-quality short-term debt obligations.

While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor,
emphasizes investment quality through in-depth research of short-term securities
and their issuers. This allows each fund to focus on providing current income
without compromising share price stability

MONEY MARKET INVESTMENT PROCESS

In researching short-term securities, J.P. Morgan's credit analysts enhance the
data furnished by rating agencies by drawing on the insights of J.P. Morgan's
fixed income trading specialists and equity analysts. Only securities highly
rated by independent rating agencies as well as J.P. Morgan's proprietary
ratings system are considered for investment.

In managing the funds described in this prospectus, J.P. Morgan employs a
three-step process:

[GRAPHIC]

J.P. Morgan uses a disciplined process to control each fund's sensitivity to
interest rates

Maturity determination Based on analysis of a range of factors, including
current yields, economic forecasts, and anticipated fiscal and monetary
policies, J.P. Morgan establishes the desired weighted average maturity for each
fund within the permissible 90-day range. Controlling weighted average maturity
allows the funds to manage risk, since securities with shorter maturities are
typically less sensitive to interest rate shifts than those with longer
maturities.

[GRAPHIC]

The funds invest across different sectors for diversification and to take
advantage of yield spreads

Sector allocation Analysis of the yields available in different sectors of the
short-term debt market allows J.P. Morgan to adjust each fund's sector
allocation, with the goal of enhancing current income while also maintaining
diversification across permissible sectors.

[GRAPHIC]

Each fund selects its securities as described later in this prospectus

Security selection Based on the results of the firm's credit research and each
fund's maturity determination and sector allocation, the portfolio managers and
dedicated fixed-income traders make buy and sell decisions according to each
fund's goal and strategy.

2 MONEY MARKET MANAGEMENT APPROACH

<PAGE>

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

THE SPECTRUM OF MONEY MARKET FUNDS

The funds described in this prospectus differ primarily in the types of
securities they hold and in the tax status of the income they offer. The table
below provides an overview of the main types of securities in which each fund
may invest. The distinguishing features of each money market fund are described
in more detail on the following pages.

Money Market Funds
and Stability

Money market funds are subject to a range of federal regulations designed
to promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.

Primary investments
- -------------------------------------------------------------------------------

Prime Treasury Federal Tax Exempt
Money Money Money Money
Market Market Market Market
- -------------------------------------------------------------------------------
U.S.
Treasuries* o o o
- -------------------------------------------------------------------------------
U.S.
Government
Agency
instruments o o
- -------------------------------------------------------------------------------
Domestic
& foreign
bank
obligations o
- -------------------------------------------------------------------------------
Domestic
& foreign
short-term
corporate
obligations o
- -------------------------------------------------------------------------------
Foreign
governments o
- -------------------------------------------------------------------------------
Illiquid
holdings o
- -------------------------------------------------------------------------------
Repurchase
agreements o o
- -------------------------------------------------------------------------------
Tax-exempt
municipal
obligations** o

* Income is generally exempt from state and local income taxes
** Income is generally exempt from federal income taxes

MONEY MARKETMANAGEMENT APPROACH 3
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME
MONEY MARKET FUND TICKER SYMBOL: JPIXX
- -------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND)

GOAL

[GRAPHIC]

The fund's goal is to maximize current income consistent with the preservation
of capital and same-day liquidity. This goal can be changed without shareholder
approval.

INVESTMENT APPROACH

[GRAPHIC]

The fund looks for investments across a broad spectrum of U.S.
dollar-denominated money market securities, typically emphasizing different
types of securities at different times in order to take advantage of changing
yield differentials. The fund's investments may include obligations issued by
the U.S. Treasury, government agencies, domestic and foreign banks and
corporations, foreign governments, repurchase agreements, as well as
asset-backed securities, taxable municipal obligations, and other money market
instruments. Some of these investments may be illiquid or purchased on a
when-issued or delayed delivery basis.

POTENTIAL RISKS AND REWARDS

[GRAPHIC]

The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.

As with all money market funds, the fund's investments are subject to various
risks, which, while generally considered to be minimal, could cause its share
price to fall below $1. For example, the issuer or guarantor of a portfolio
security or the counterparty to a contract could default on its obligation. An
unexpected rise in interest rates could also lead to a loss in share price if
the fund is near the maximum allowable average weighted maturity at the time. To
the extent that the fund invests in foreign securities, the fund could lose
money because of foreign government actions, political instability, or lack of
adequate and accurate information. Also, the fund may have difficulty valuing
its illiquid holdings and may be unable to sell them at the time or price it
desires. While these possibilities exist, the fund's investment process and
management policies are designed to minimize the likelihood and impact of these
risks. To date, through this process, the fund's share price has never deviated
from $1.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.

The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in January of
1995 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.

MONEY MARKET FUNDS AND STABILITY

Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.

<PAGE>

- --------------------------------------------------------------------------------
INVESTOR EXPENSES

The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations.

Footnotes for this section are shown on next page.

Annual fund operating expenses(1) (%)

Management fee 0.12
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) 0.08
- ------------------------------------
Total operating expenses(2)
(after reimbursement) 0.20
- ------------------------------------

Expense example

The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- -------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 2 6 11 26
- -------------------------------------------------------------------------------

4 J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
<PAGE>
- -------------------------------------------------------------------------------

PERFORMANCE (unaudited)

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1997
- -------------------------------------------------------------------------------
1 yr. 5 yrs.(3) 10 yrs.(3)
J.P. Morgan Institutional Prime Money Market Fund
(after expenses) 5.60 4.80 5.81
- -------------------------------------------------------------------------------
IBC's First Tier Money Fund Average(4)
(after expenses) 5.04 4.36 5.45
- -------------------------------------------------------------------------------

Year-by-year total return (%)Shows changes in returns by calendar year
- -------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

12%
9%
6%
3%
0%
7.38 9.13 8.04 6.07 3.67 2.87 4.15 5.98 5.41 5.60
7.08 8.87 7.82 5.71 3.37 2.70 2.75 5.48 4.85 5.04

o J.P. Morgan Institutional Prime Money Market Fund
[] IBC's First Tier Money Fund Average(4)
<TABLE>
<CAPTION>

- ------------------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

Per-share data For fiscal periods ended
- ------------------------------------------------------------------------------------------------------------------------------------
11/30/93 11/30/94 11/30/95 11/30/96 11/30/97 5/31/98
(unaudited)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0120 0.0385 0.0577 0.0529 0.0543 0.0277
Net realized and unrealized gain (loss)
on investment ($) (0.0000)(5) (0.0000)(5) 0.0003 0.0001 (0.0000)(5)
(0.0000)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0120 0.0385 0.0580 0.0530 0.0543 0.0277
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0120) (0.0385) (0.0577) (0.0529) (0.0543) (0.0277)
Net realized gain ($) (0.0000)(5) -- -- (0.0003) (0.0003)
(0.0000)(5)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.0120) (0.0385) (0.0577) (0.0532) (0.0546) (0.0277)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 1.21(6) 3.92 5.93 5.46 5.59 2.81(6)
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 27,188 584,867 999,746 1,220,401 1,387,792 3,297,557
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.30(7) 0.21 0.20 0.20 0.20 0.20(7)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.88(7) 4.42 5.77 5.28 5.42 5.56(7)
- ------------------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.10(7) 0.31 0.15 0.11 0.09 0.07(7)
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>
<PAGE>

The Financial Highlights above have been, except as noted, audited by
PricewaterhouseCoopers LLP, the fund's independent accountants.

(1) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, expressed as a percentage of the fund's average net assets
after reimbursement for ordinary expenses over 0.20%.

(2) Without reimbursement, other expenses and total operating expenses would
have been 0.22% and 0.34%, respectively. There is no guarantee that
reimbursement will continue beyond 3/31/99. These amounts have been restated
and assume that the current fee arrangements had been in effect during the
entire fiscal year.

(3) The fund commenced operations on 7/12/93. Except in Financial Highlights,
returns reflect performance of the J.P. Morgan Prime Money Market Fund (a
separate feeder fund investing in the same master portfolio) from 1/1/88
through 7/12/93.This data is based on historical earnings and is not
intended to indicate future performance.

(4) Consists of the IBC/Donoghue Taxable Money Market Fund Average from
inception through November 30, 1995 and IBC's First Tier Money Fund Average
thereafter.

(5) Less than $0.0001.

(6) Not annualized.

(7) Annualized.

J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND 5

<PAGE>
J.P. MORGAN INSTITUTIONAL TREASURY
MONEY MARKET Fund TICKER SYMBOL: JTMXX
- -------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND)
GOAL

[GRAPHIC]

The fund's goal is to provide high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed
only with shareholder approval.

INVESTMENT APPROACH

[GRAPHIC]

The fund purchases securities that offer the highest credit quality and provide
regular income. It invests exclusively in U.S. Treasury obligations and
repurchase agreements collateralized by these obligations. Some of these
investments may be purchased on a when-issued or delayed delivery basis.

POTENTIAL RISKS AND REWARDS

[GRAPHIC]

While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the federal government, investors should bear in mind that any
repurchase agreements the fund may hold do not have this guarantee (even though
they are fully collateralized by Treasuries), and that in any case, government
guarantees do not extend to shares of the fund itself.

The portion of the fund's income derived from direct investments in U.S.
Treasury obligations may be exempt from state and local personal income taxes.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.

The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in October of
1996 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.

MONEY MARKET FUNDS AND STABILITY

Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.

<PAGE>

- --------------------------------------------------------------------------------
INVESTOR EXPENSES

Footnotes for this section are shown on next page.

Annual fund operating expenses(1) (%)

Management fee
(after expense reimbursement) 0.20
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
- ------------------------------------
Total operating expenses(2)
(after reimbursement) 0.20
- ------------------------------------

Expense example

The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- -------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 2 6
- -------------------------------------------------------------------------------

6 J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
<PAGE>
- -------------------------------------------------------------------------------

PERFORMANCE (unaudited)

Average annual total return (%) Shows performance over time, for period ended
December 31, 1997
- -------------------------------------------------------------------------------
Since inception(3)
J.P. Morgan Institutional Treasury Money Market Fun
(after expenses) 2.35
- -------------------------------------------------------------------------------
IBC's U.S. Treasury & Repo Money Fund Average 2.00
- -------------------------------------------------------------------------------

Total returns (%)Shows changes in returns for period ended December 31, 1997
- -------------------------------------------------------------------------------
Since inception
6%
3%
0%
2.35
2.00
- -------------------------------------------------------------------------------

o J.P. Morgan Institutional Treasury Money Market Fund
[] IBC's U.S. Treasury & Repo Money Fund Average
- -------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS

Per-share data For fiscal periods ended
- -------------------------------------------------------------------------------
10/31/97 4/30/98
(unaudited)
Net asset value, beginning of period ($) 1.00 1.00
- -------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.176 0.0271
Net realized gain
on investment ($) (0.0000)(4) (0.0000)(4)
- -------------------------------------------------------------------------------
Total from investment operations ($) 0.0176 0.0271
- -------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0176) (0.0271)
Net realized gain ($) (0.0000)(4) (0.0000)(4)
- -------------------------------------------------------------------------------
Total distributions ($) (0.0176) (0.0271)
- -------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00
- -------------------------------------------------------------------------------
Total return (%) 1.77(5) 2.74(5)
- -------------------------------------------------------------------------------
Ratios and supplemental data
- -------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 80,924 199,251
- -------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.04(6) 0.09(6)
- -------------------------------------------------------------------------------
Net investment income (%) 5.53(6) 5.45(6)
- -------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.06(6) 0.33(6)
- -------------------------------------------------------------------------------
<PAGE>

The Financial Highlights above have been, except as noted, audited by
PricewaterhouseCoopers LLP, the fund's independent accountants.

(1) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for the
current fiscal year, expressed as a percentage of the fund's average net
assets after reimbursement for ordinary expenses over 0.20%.

(2) Without reimbursement, other expenses and total operating expenses are
estimated to be 0.08% and 0.28%, respectively, for the current fiscal year.
There is no guarantee that this reimbursement will continue beyond 2/28/99.

(3) The fund commenced operations on 7/8/97; performance is calculated as of
7/31/97. This data is based on historical earnings and is not intended to
indicate future performance.

(4) Less than $0.0001.

(5) Not annualized.

(6) Annualized.

J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND 7
<PAGE>
- -------------------------------------------------------------------------------

J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND TICKER SYMBOL: JPTXX
- -------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND)

GOAL

[GRAPHIC]

The fund's goal is to provide high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.

INVESTMENT APPROACH

[GRAPHIC]

The fund purchases securities that offer very high credit quality and pay
regular income that is generally free from state and local income taxes. It
invests exclusively in U.S. government agency obligations such as the Federal
Farm Credit Bank, the Tennessee Valley Authority, the Federal Home Loan Bank,
the Student Loan Marketing Association, and in obligations of the U.S. Treasury.
Some of these investments may be purchased on a when-issued or delayed delivery
basis.

POTENTIAL RISKS AND REWARDS

[GRAPHIC]

While the fund's U.S. Treasury obligations are backed by the full faith and
credit of the Government, investors should bear in mind that any agency
obligations the fund may hold do not have this guarantee, and that in any case
government guarantees do not extend to shares of the fund itself.

Most of the fund's income is generally exempt from state and local personal
income taxes and from some corporate income taxes (although not federal income
taxes). Because of this beneficial tax status, the fund's yields are generally
lower than those of taxable money market funds when compared on a pre-tax basis.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.

The portfolio management team is led by Robert R. Johnson, vice president, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1988, Daniel B. Mulvey, vice president, who joined the team in October of
1996 and has been at J.P. Morgan since 1991, and by John Donohue, vice
president, who has been on the team since joining J.P. Morgan in June of 1997.
Prior to managing this fund, Mr. Donohue was an Institutional Money Market
Portfolio Manager at Goldman Sachs & Co.

MONEY MARKET FUNDS AND STABILITY

Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
<PAGE>
- -------------------------------------------------------------------------------
INVESTOR EXPENSES

Footnotes for this section are shown on next page.

Annual fund operating expenses1 (%)

Management fee 0.20
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
- ------------------------------------
Total operating expenses(2)
(after reimbursement) 0.20
- ------------------------------------

Expense example

8 J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
<PAGE>
- -------------------------------------------------------------------------------

PERFORMANCE (unaudited)

Average annual total return (%)Shows performance over time, for periods ended
December 31, 1997
- -------------------------------------------------------------------------------
1 yr. 3 yrs. Since inception
J.P. Morgan Institutional Federal
Money Market Fund(3) (after expenses) 5.40 5.47 4.65
- -------------------------------------------------------------------------------
IBC's U.S. Government & Agency Money Market
Fund Average(4) (after expenses) 4.83 4.89 4.18
- -------------------------------------------------------------------------------

Year-by-year total return (%) Shows changes in returns by calendar year
- -------------------------------------------------------------------------------
1994 1995 1996 1997
6%
3%
0%
5.98 5.79 5.22 5.40
3.55 5.19 4.67 4.83
- -------------------------------------------------------------------------------
o J.P. Morgan Institutional Federal Money Market Fund(3)
[ ] IBC's U.S. Government & Agency Money Market Fund Average(4)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS

Per-share data For fiscal periods ended
- ---------------------------------------------------------------------------------------------------------------------------
10/31/93 10/31/94 10/31/95 10/31/96 10/31/97 4/30/98
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0220 0.0354 0.0555 0.0508 0.0521 0.0267
Net realized gain (loss)
on investment ($) 0.0000(5) (0.0000)(5) 0.0003 0.0006 0.0001 0.0000(5)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0220 0.0354 0.0558 0.0514 0.0522 0.0267
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0220) (0.0354) (0.0555) (0.0508) (0.0521) (0.0267)
Net realized gain ($) -- (0.0001) -- (0.0003) (0.0007) --
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.0220) (0.0355) (0.0555) (0.0511) (0.0528) (0.0267)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00 1.00
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 2.23(6) 3.61 5.69 5.23 5.41 2.70(6)
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 25,477 80,146 145,108 109,050 137,306 643,697
- ---------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.27(7) 0.20 0.20 0.20 0.20 0.20(7)
- ---------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.81(7) 3.81 5.56 5.09 5.19 5.36(7)
- ---------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 0.76(7) 0.47 0.31 0.26 0.26 0.17(7)
- ---------------------------------------------------------------------------------------------------------------------------

</TABLE>
<PAGE>

The Financial Highlights above have been, except as noted, audited by
PricewaterhouseCoopers LLP, the fund's independent accountants.

(2) Without reimbursement, other expenses and total operating expenses would
have been 0.31% and 0.51%, respectively. There is no guarantee that this
reimbursement will continue beyond 2/28/99. These amounts have been restated
and assume that the current fee arrangements had been in effect during the
entire fiscal year.

(3) The fund commenced operations on 1/4/93. Returns reflect performance of the
fund from 1/31/93 through 12/31/97. This data is based on historical
earnings and is not intended to indicate future performance.

(4) Consists of the IBC/Donoghue U.S. Treasury & Repo Money Market Fund Average
through 12/31/95 and IBC's U.S. Government & Agency Money Market Fund
Average thereafter.

(5) Less than $0.0001.

(6) Not annualized.

(7) Annualized.

J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND 9
<PAGE>
- -------------------------------------------------------------------------------

J.P. MORGAN INSTITUTIONAL TAX EXEMPT
MONEY MARKET FUND TICKER SYMBOL: JPEXX
- -------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND)

GOAL

[GRAPHIC]

The fund's goal is to maximize current income that is exempt from federal income
tax consistent with the preservation of capital and same-day liquidity. This
goal can be changed without shareholder approval.

INVESTMENT APPROACH

[GRAPHIC]

The fund invests primarily in high quality municipal obligations whose income is
exempt from federal income taxes. The fund's municipal obligations must fall
into the highest short-term rating category (top two highest categories for New
York State obligations) or be of equivalent quality. The fund may also invest in
certain structured municipal obligations, and in certain municipal or other
obligations whose income is subject to tax, including the alternative minimum
tax. Although the fund is permitted to hold these other obligations or cash, it
aims to be fully invested in municipal obligations. In order to maintain
liquidity, the fund may buy securities with puts that allow the fund to
liquidate the securities on short notice. Some of the fund's securities may be
purchased on a when-issued or delayed delivery basis.

[GRAPHIC]

POTENTIAL RISKS AND REWARDS

The fund's income is generally exempt from federal income taxes. A small portion
may be exempt from state or local income taxes.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.

The portfolio management team is led by Daniel B. Mulvey, vice president, who
has been on the team since August of 1995 and has been at J.P. Morgan since
1991, and by Richard W. Oswald, vice president, who has been on the team since
joining J.P. Morgan in October of 1996. Prior to managing this fund, Mr. Oswald
served as Treasurer of CBS and President of its finance unit.

MONEY MARKET FUNDS AND STABILITY

Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
<PAGE>
- -------------------------------------------------------------------------------
INVESTOR EXPENSES

Annual fund operating expenses(1) (%)

Management fee 0.16
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) 0.06
- ------------------------------------
Total operating expenses(2)
(after reimbursement) 0.22
- ------------------------------------

Expense example

The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- -------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 2 7 12 28
- -------------------------------------------------------------------------------

10 J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
<PAGE>
- -------------------------------------------------------------------------------

PERFORMANCE (unaudited)

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1997
- -------------------------------------------------------------------------------
1 yr. 5 yrs.(3) 10 yrs.(3)
J.P. Morgan Institutional Tax Exempt
Money Market Fund (after expenses) 3.46 3.03 3.85
- -------------------------------------------------------------------------------
IBC's Tax Exempt Money Fund Average(4)
(after expenses) 3.09 2.72 3.65
- -------------------------------------------------------------------------------

Year-by-year total return (%) Shows changes in returns by calendar year
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
9%
6%
3%
0%
4.93 6.11 5.56 4.16 2.71 2.10 2.00 3.68 3.24 3.46
4.80 5.91 5.49 4.17 2.56 1.93 2.34 3.34 2.90 3.09
- -------------------------------------------------------------------------------

o J.P. Morgan Institutional Tax Exempt Money Market Fund(3)
[ ] IBC's Tax Exempt Money Fund Average(4)

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------

FINANCIAL HIGHLIGHTS
Per-share data For fiscal periods ended August 31
- -----------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C>

Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0040 0.0228 0.0352 0.0331 0.0330 0.0339
Net realized loss on investment ($) (0.0000)(5) (0.0000)(5) (0.0002) (0.0000)(5) (0.0000)(5) (0.0000)(5)
- -----------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.0040 0.0228 0.0350 0.0331 0.0330 0.0339
- -----------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0040) (0.0228) (0.0352) (0.0331) (0.0330) (0.0339)
Net realized gain ($) -- (0.0000)(5) -- -- --
- -----------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.0040) (0.0228) (0.0352) (0.0331) (0.0330) (0.0339)
- -----------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00 1.00
- -----------------------------------------------------------------------------------------------------------------------------
Total return (%) 0.406 2.30 3.57 3.36 3.35 3.45
- -----------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 35,004 46,083 100,142 163,569 290,943 594,291
- -----------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.35(7) 0.35 0.35 0.35 0.29 0.22
- -----------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.25(7) 2.34 3.49 3.28 3.29 3.37
- -----------------------------------------------------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement/waiver (%) 1.08(7) 0.65 0.15 0.07 0.10 0.13
- -----------------------------------------------------------------------------------------------------------------------------

</TABLE>
<PAGE>

The Financial Highlights above have been audited by PricewaterhouseCoopers LLP,
the fund's independent accountants.

(1) The fund has a master/feeder structure as described on page 15. The fees and
expenses in the table are expressed as a percentage of the fund's average
net assets. Total operating expenses may vary but in any event will not
exceed 0.35% of the fund's average daily net assets.

(2) Morgan has agreed to waive and/or reimburse all fund expenses (except for
those allocated to the fund by the master portfolio, and extraordinary
expenses). Without such waiver and reimbursement, other expenses and total
operating expenses would have been 0.24% and 0.40%, respectively. These
amounts have been restated and assume that the current fee arrangements had
been in effect during the entire fiscal year. This reimbursment arrangement
can be changed or terminated at any time at the option of J.P. Morgan.

(3) The fund commenced operations on 7/12/93. Except in Financial Highlights,
returns reflect performance of the J.P. Morgan Tax Exempt Money Market Fund
(a separate feeder fund investing in the same master portfolio) from 1/1/88
through 7/12/93. This data is based on historical earnings and is not
intended to indicate future performance.

(4) IBC's Tax Exempt Money Fund Average is an average of all major tax free
money market fund returns.

(5) Less than $0.0001.

(6) Not annualized.

(7) Annualized.

J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND 11
<PAGE>

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

For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund investments.

INVESTING THROUGH A FINANCIAL PROFESSIONAL

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

INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN

Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.

INVESTING THROUGH AN IRA OR ROLLOVER IRA

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

INVESTING DIRECTLY

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

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

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

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

<PAGE>
OPENING YOUR ACCOUNT

By wire

o Mail your completed application to the Shareholder Services Agent.

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

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

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

By check

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

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

By exchange

o Call the Shareholder Services Agent to effect an exchange.

ADDING TO YOUR ACCOUNT

By wire

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

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

By check

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

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

By exchange

o Call the Shareholder Services Agent to effect an exchange.

12 YOUR INVESTMENT
<PAGE>
SELLING SHARES

By phone -- wire payment

o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.

o Place your wire request. If you are transferring money to a non-Morgan
account, you will need to provide the representative with the personal
identification number (PIN) that was provided to you when you opened your fund
account.

By phone -- check payment

o Call the Shareholder Services Agent and place your request. Once your request
has been verified, a check for the net amount, payable to the registered
owner(s), will be mailed to the address of record. For checks payable to any
other party or mailed to any other address, please make your request in
writing (see below).

In writing

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

o Indicate whether you want the proceeds sent by check or by wire.

o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.

o Mail the letter to the Shareholder Services Agent.

By exchange

o Call the Shareholder Services Agent to effect an exchange.
<PAGE>

ACCOUNT AND TRANSACTION POLICIES

Telephone orders The funds accept telephone orders from all shareholders. To
guard against fraud, the funds require shareholders to use a PIN, and may record
telephone orders or take other reasonable precautions. However, if a fund does
take such steps to ensure the authenticity of an order, you may bear any loss if
the order later proves fraudulent.

Exchanges You may exchange shares in these funds for shares in any other J.P.
Morgan Institutional or J.P. Morgan mutual fund at no charge (subject to the
securities laws of your state). When making exchanges, it is important to
observe any applicable minimums. Keep in mind that, for tax purposes, an
exchange is considered a sale.

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

Business days and NAV calculations The funds' regular business days are the same
as those of the New York Stock Exchange. The Federal and Tax Exempt Money Market
Funds calculate their net asset value per share (NAV) every business day at 4:00
p.m. eastern time. The Treasury Money Market Fund calculates its NAV every
business day at 4:30 p.m. eastern time. The Prime Money Market Fund calculates
its NAV every business day at 5:00 p.m. eastern time.

Timing of orders Orders to buy or sell shares are executed at the next NAV
calculated after the order has been accepted. Purchase and redemption orders for
each fund must be received by the times indicated in the table below:

Fund Cut-off Time
Prime Money Market 5:00 p.m.
Treasury Money Market 4:30 p.m.
Federal Money Market 2:00 p.m.
Tax Exempt Money Market 12:00 noon

For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be
- -------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-766-7722

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

YOUR INVESTMENT 13
<PAGE>

received by 4:00 p.m. for Federal and Tax Exempt Money Market Funds, by 4:30
p.m. for Treasury Money Market Fund and by 5:00 p.m. for Prime Money Market Fund
eastern time on a fund business day. A fund has the right to suspend redemption
of shares and to postpone payment of proceeds for up to seven days or as
permitted by law.

Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment.

Redemption orders for each fund received by the respective cut-off times will be
paid in immediately available funds, normally on the same day, according to
instructions on file.

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

Statements and reports The funds send monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months, each fund sends out an annual or semi-annual report containing
information on its holdings and a discussion of recent and anticipated market
conditions and fund performance.

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

DIVIDENDS AND DISTRIBUTIONS

Substantially all income dividends are declared daily and paid monthly. If all
of an investor's shares are redeemed during the month, accrued but unpaid
dividends are paid with the redemption proceeds. Shares of the funds earn
dividends on the business day their purchase is effective, but not on the
business day their redemption is effective.
<PAGE>

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

TAX CONSIDERATIONS

In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. The transactions
below typically create the following tax liabilities:
- -------------------------------------------------------------------------------
Transaction Tax status

Income dividends from Prime Ordinary income
Money Market, Treasury Money
Market and Federal Money
Market Funds

Income dividends from Tax Exempt from federal
Exempt Money Market Fund income taxes
Short-term capital gains Ordinary income
distributions
- -------------------------------------------------------------------------------

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

Any investor for whom a fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.

The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.

Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.

14 YOUR INVESTMENT
<PAGE>

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

Master/Feeder Structure

As noted earlier, each fund is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)

Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses, and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-766-7722. Generally, when a master
portfolio seeks a vote, its feeder fund will hold a shareholder meeting and cast
its vote proportionately, as instructed by its shareholders. Fund shareholders
are entitled to one full or fractional vote for each dollar or fraction of a
dollar invested.

Each fund and its master portfolio expect to maintain consistent goals, but if
they do not, the fund will withdraw from the master portfolio, receiving its
assets either in cash or securities. Each fund's trustees would then consider
whether the fund should hire its own investment adviser, invest in a different
master portfolio, or take other action.

MANAGEMENT AND ADMINISTRATION

The feeder funds described in this prospectus and their corresponding master
portfolios are all governed by the same trustees. The trustees are responsible
for overseeing all business activities. The trustees are assisted by Pierpont
Group, Inc., which they own and operate on a cost basis; costs are shared by all
funds governed by these trustees. Funds Distributor Inc., as co-administrator,
along with J.P. Morgan, provides fund officers. J.P. Morgan, as
co-administrator, oversees each fund's other service providers.

J.P. Morgan receives the following fees for investment advisory and other
services:
- -------------------------------------------------------------------------------
Advisory services 0.20% of the first $1 billion of
each master portfolio's average
net assets plus 0.10% over
$1 billion

Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion

Shareholder services 0.10% of each fund's average
net assets
- -------------------------------------------------------------------------------

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

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

FUND DETAILS 15
<PAGE>
- -------------------------------------------------------------------------------

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

16
<PAGE>
- -------------------------------------------------------------------------------

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

<PAGE>

FOR MORE INFORMATION

For investors who want more information on these funds, the following documents
are available free upon request:

Annual/Semi-annual Reports Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for a fund's most recently completed fiscal year or
half-year.

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

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

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

Telephone: 1-800-766-7722

Hearing impaired: 1-888-468-4015

Email: [email protected]

Text-only versions of these documents and this prospectus are available, upon
payment of a duplicating fee, from the Public Reference Room of the Securities
and Exchange Commission in Washington, D.C. (1-800-SEC-0330) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov. The
funds' investment company and 1933 Act registration numbers are:

J.P. Morgan Institutional Prime Money Market Fund ............. 811-07342 and
033-54642
J.P. Morgan Institutional Treasury Money Market Fund .......... 811-07342 and
033-54642
J.P. Morgan Institutional Federal Money Market Fund............ 811-07342 and
033-54642
J.P. Morgan Institutional Tax Exempt Money Market Fund ........ 811-07342 and
033-54642

J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION

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

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

Advisor
J.P. Morgan Investment Management Inc.
522 Fifth Avenue
New York, NY 10036
1-800-766-7722

Distributor
Funds Distributor, Inc.
60 State Street
Boston, MA 02109
1-800-221-7930

<PAGE>

NOVEMBER 30, 1998

PROSPECTUS

J.P. MORGAN INSTITUTIONAL SERVICE MONEY MARKET FUNDS

Prime Money Market Fund

Treasury Money Market Fund

Federal Money Market Fund

Tax Exempt Money Market Fund

- --------------------------------------
Seeking to provide high current income
consistent with the preservation of
capital and same-day liquidity

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

Distributed by Funds Distributor, Inc.

JPMorgan

<PAGE>

CONTENTS
- --------------------------------------------------------------------------------

2
Principles and techniques common
to the funds in this prospectus

MONEY MARKET MANAGEMENT APPROACH

Money market investment process ...............................................2
The spectrum of money market funds ............................................3
Money market funds and stability ..............................................3

4
Each fund's goal, investment approach, risks, expenses, performance, and
financial highlights

J.P. MORGAN INSTITUTIONAL SERVICE MONEY MARKET FUNDS

J.P. Morgan Institutional Service Prime Money Market Fund .....................4
J.P. Morgan Institutional Service Treasury Money Market Fund ..................6
J.P. Morgan Institutional Service Federal Money Market Fund ...................8
J.P. Morgan Institutional Service Tax Exempt Money Market Fund ...............10

12
Investing in the J.P. Morgan Institutional Service Money Market Funds

YOUR INVESTMENT

Investing through a service organization .....................................12
Investing through an employer-sponsored retirement plan ......................12
Investing through an IRA or rollover IRA .....................................12
Investing directly ...........................................................12
Opening your account .........................................................12
Adding to your account .......................................................12
Selling shares ...............................................................13
Account and transaction policies .............................................13
Dividends and distributions ..................................................14
Tax considerations ...........................................................14

15
More about the funds' business operations

FUND DETAILS

Master/feeder structure ......................................................15
Management and administration ................................................15

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

<PAGE>

INTRODUCTION
- --------------------------------------------------------------------------------

J.P. MORGAN INSTITUTIONAL SERVICE MONEY MARKET FUNDS

WHO MAY WANT TO INVEST

The funds are designed for investors who:
o want an investment that strives to preserve capital
o want regular income from a high quality portfolio
o want a highly liquid investment
o are looking for an interim investment
o are pursuing a short-term goal
o are seeking income that is generally exempt from state and local income taxes
(in the case of Service Federal Money Market Fund) or exempt from federal
income tax (in the case of Service Tax Exempt Money Market Fund)

The funds are not designed for investors who:
o are investing for long-term growth
o are investing for high income
o require the added security of the FDIC insurance
o in the case of Service Tax Exempt Money Market Fund, are investing through an
IRA or other tax-advantaged retirement plan

J.P. MORGAN

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

Investors considering these funds should understand that:
o There is no assurance that these funds will meet their investment goals
o Future returns will not necessarily resemble past performance
o These funds do not represent complete investment programs
1

<PAGE>

MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
The J.P. Morgan Institutional Service money market funds invest exclusively in
high-quality short-term debt obligations.

MONEY MARKET INVESTMENT PROCESS

In managing the funds described in this prospectus, J.P. Morgan employs a
three-step process:

[graphic] J.P. Morgan uses a disciplined process
to control each fund's sensitivity
to interest rates

[graphic] The funds invest across different
sectors for diversification and to
take advantage of yield spreads

[graphic] Each fund selects its securities as
described later in this prospectus

2 MONEY MARKET MANAGEMENT APPROACH

<PAGE>

THE SPECTRUM OF MONEY MARKET FUNDS

MONEY MARKET FUNDS
AND STABILITY

Primary investments
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Service Service Service Service
Prime Treasury Federal Tax Exempt
Money Money Money Money
Market Market Market Market
- --------------------------------------------------------------------------------
U.S.
Treasuries* o o o
- --------------------------------------------------------------------------------
U.S.
Government
Agency
instruments o o
- --------------------------------------------------------------------------------
Domestic
& foreign
bank
obligations o
- --------------------------------------------------------------------------------
Domestic
& foreign
short-term
corporate
obligations o
- --------------------------------------------------------------------------------
Foreign
governments o
- --------------------------------------------------------------------------------
Illiquid
holdings o
- --------------------------------------------------------------------------------
Repurchase
agreements o o
- --------------------------------------------------------------------------------
Tax-exempt
municipal
obligations** o

* Income is generally exempt from state and local income taxes
** Income is generally exempt from federal income taxes

MONEY MARKET MANAGEMENT APPROACH 3

<PAGE>

J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. Morgan Institutional Service Prime Money Market Fund)

[graphic] GOAL

The fund's goal is to maximize current income consistent with the preservation
of capital and same-day liquidity. This goal can be changed only with
shareholder approval.

[graphic] INVESTMENT APPROACH

[graphic] POTENTIAL RISKS AND REWARDS

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.

MONEY MARKET FUNDS AND STABILITY

Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.

<PAGE>

INVESTOR EXPENSES

Annual fund operating expenses(1) (%)
- ---------------------------------------
Management fees 0.12
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) 0.08
Service fees3 0.25
- ---------------------------------------
Total operating expenses(2)
(after reimbursement) 0.45
- ---------------------------------------
Expense example

4 J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND

<PAGE>

PERFORMANCE (unaudited)

Average annual total return (%)
Shows performance over time, for periods ended December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<C> <S> <S> <S>
1 yr. 5 yrs. 10 yrs.
J.P. Morgan Institutional Service Prime Money Market Fund(4)
(after expenses) 5.41 4.63 5.73
IBC's First Tier Money Fund Average5 (after expenses)
5.04 4.36 5.45
</TABLE>
Year-by-year total return (%)Shows changes in returns by calendar year
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997

12%
9%
6%
3%
0%
7.38 9.13 8.04 6.07 3.67 2.83 3.95 5.79 5.04 5.41
7.08 8.87 7.82 5.71 3.37 2.70 3.75 5.48 4.85 5.21

[ ] J.P. Morgan Institutional Service prime money market fund(4)
[ ] IBC's first tier money fund average (5)

<PAGE>

FINANCIAL HIGHLIGHTS
11/30/97 5/31/98
Per-share data For fiscal period ended (unaudited)
- -----------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00 1.00
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0057 0.0265
Net realized loss
on investment ($) (0.0000)(6) (0.0000)(6)
- -----------------------------------------------------------------------------
Total from investment operations ($) 0.0057 0.0265
- -----------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0057) (0.0265)
- -----------------------------------------------------------------------------
Net realized gain ($) .-- (0.0000)(6)
- -----------------------------------------------------------------------------
Total distributions ($) (0.0057) (0.0265)
Net asset value, end of period ($) 1.00 1.00
- -----------------------------------------------------------------------------
Total return (%) 0.577 2.68(7)
- -----------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------
Net assets, end of period ($ thousands) 384 606,174
- -----------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.45(8) 0.45(8)
- -----------------------------------------------------------------------------
Net investment income (%) 5.28(8) 5.25(8)
- -----------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 35.10(8,9) 0.10(8)
- -----------------------------------------------------------------------------
The Financial Highlights above have been, except as noted, audited by
PricewaterhouseCoopers LLP, the fund's independent accountants.

<PAGE>

- --------------
(1) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year, expressed as a percentage of the fund's average net
assets after reimbursement for ordinary expenses over 0.45%.

(2) Without reimbursement, other expenses and total operating expenses would
have been 35.18% and 35.55%, respectively. There is no guarantee that this
reimbursement will continue beyond 3/31/99.

(3) Service Organizations may charge other fees to their customers who are the
beneficial owners of shares in connection with their customers' accounts.
Such fees, if any, may affect the return such customers realize with
respect to their investments.

(4) The fund commenced operations on 10/23/97. Except in Financial Highlights,
returns reflect performance of the J.P. Morgan Prime Money Market Fund (a
separate feeder fund investing in the same master portfolio) from 1/1/88
through 10/23/97. These returns reflect lower operating expenses than the
fund's. Also, these returns may be higher than the fund's would have been
had it existed during the same periods. This data is based on historical
earnings and is not intended to indicate future performance.

(5) Consists of the IBC/Donoghue Taxable Money Market Fund Average from
inception through November 30, 1995 and IBC's First Tier Money Fund Average
thereafter.

(6) Less than $0.0001.

(7) Not annualized.

(8) Annualized.

(9) Not representative of ongoing reimbursement ratio since period covers less
than two months.

J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND 5

<PAGE>

J.P. MORGAN INSTITUTIONAL SERVICE
TREASURY MONEY MARKET FUND TICKER SYMBOL: JPMXX
- --------------------------------------------------------------------------------
Registrant: J.P. INSTITUTIONAL FUNDS
(J.P.MORGAN INSTITUTIONAL SERVICE
TREASURY MONEY MARKET FUND)
[graphic] GOAL

The fund's goal is to provide high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed without
shareholder approval.

[graphic] INVESTMENT APPROACH

[graphic] POTENTIAL RISKS AND REWARDS

The portion of the fund's income derived from direct investments in U.S.
Treasury obligations may be exempt from state and local personal income taxes.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.

MONEY MARKET FUNDS AND STABILITY
Money market funds are subject to a range of
federal regulations designed to promote stability. For example, money market
funds must maintain a weighted average maturity of no more than 90 days, and
generally may not invest in any securities with a remaining maturity of more
than 13 months. Keeping the weighted average maturity this short helps funds in
their pursuit of a stable $1 share price.

<PAGE>

INVESTOR EXPENSES

Footnotes for this section are shown on next page.
Annual fund operating expenses(1) (%)
Management fees(2)
(after expense reimbursement) 0.20
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
Service fees(3) 0.25
- ---------------------------
Total operating expenses(2)
(after reimbursement) 0.45
- ---------------------------
Expense example
The example below uses the same assumptions
as other fund prospectuses: $1,000 initial investment, 5% annual total return,
expenses unchanged, all shares sold at the end of each time period. The example
is for comparison only; the fund's actual return and expenses will be different.
- ---------------------------
1 yr. 3 yrs.
Your cost($) 5 14
- ---------------------------

6 J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND

<PAGE>

PERFORMANCE (UNAUDITED)
Average annual total return (%)Shows performance over time, for period ended
December 31, 1997 Since inception(4)
J.P. Morgan Institutional Service Treasury Money Market Fund
(after expenses) 2.24
IBC's U.S. Treasury & Repo Money Fund Average 2.00

Year-by-year total return (%)(%)Shows changes in returns for period ended
December 31, 1997 Since inception

6%
3%
0%
2.24

2.00

[ ] J.P. Morgan Institutional Service Treasury Money Market Fund
[ ] IBC's U.S. Treasury & Repo Money Fund Average

FINANCIAL HIGHLIGHTS
Per-share data For fiscal period ended 10/31/97 4/30/98
(unaudited)
- -----------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00 1.00
- -----------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0169 .0259
Net realized gain on investment ($) 0.0000(5) (0000)(5)
- -----------------------------------------------------------------------------
Total from investment operations ($) 0.0169 0259
- -----------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0169) (0.0259)
- -----------------------------------------------------------------------------
Net realized gain ($) 0.0000(5) 0.0000(5)
- -----------------------------------------------------------------------------
Total distributions ($) (0.0169) (0.0259)
- -----------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00
- -----------------------------------------------------------------------------
Total return (%) 1.71(6) 2.62(6)
- -----------------------------------------------------------------------------
Ratios and supplemental data
Net assets, end of period ($ thousands) 35,983 357,532
- -----------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.28(7) 0.35(7)
- -----------------------------------------------------------------------------
Net investment income (%) 5.29(7) 5.18(7)
- -----------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 1.43(7) 0.28(7)
- -----------------------------------------------------------------------------
The Financial Highlights above, except as noted, have been audited by
PricewaterhouseCoopers LLP, the fund's independent accountants.

(1) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for
the current fiscal year, expressed as a percentage of the fund's average
net assets after reimbursement for ordinary expenses over 0.45%.

(2) Without reimbursement, other expenses and total operating expenses are
estimated to be 0.06% and 0.51%, respectively, for the current fiscal year.
There is no guarantee that this reimbursement will continue beyond 2/28/99.

(4) The fund commenced operations on 7/7/97and performance is calculated as of
7/31/97. This data is based on historical earnings and is not intended to
indicate future performance.

(5) Less than $0.0001.

(6) Not annualized.

(7) Annualized.

J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND 7

<PAGE>

J.P. MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
Registrant: J.P. INSTITUTIONAL FUNDS
(J.P.MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND)

[graphic] GOAL

The fund's goal is to provide high current income consistent with the
preservation of capital and same-day liquidity. This goal can be changed
only with shareholder approval.

[graphic] INVESTMENT APPROACH

The fund purchases securities that
offer very high credit quality and pay regular income that is generally free
from state and local income taxes. It invests exclusively in U.S. government
agency obligations such as the Federal Farm Credit Bank, the Tennessee Valley
Authority, the Federal Home Loan Bank, the Student Loan Marketing Association,
and in obligations of the U.S. Treasury. Some of these investments may be
purchased on a when-issued or delayed delivery basis.

[graphic] POTENTIAL RISKS AND REWARDS

The fund's yield will vary in response to changes in interest rates. How
well the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.

MONEY MARKET FUNDS AND STABILITY

Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.

<PAGE>

INVESTOR EXPENSES
The current expenses you should expect to pay as an investor in the fund are
shown at right. The fund has no sales, redemption, exchange, or account fees,
although some institutions may charge you a fee for shares you buy through them.
The annual fund expenses shown are deducted from fund assets prior to
performance calculations. Footnotes for this section are shown on next page.

ANNUAL FUND OPERATING EXPENSES(1) (%)
Management fees 0.20
Marketing (12b-1) fees None
Other expenses(2)
(after reimbursement) None
Service fees(3) 0.25
- -------------------------------------
Total operating expenses(2)
(after reimbursement) 0.45
- -------------------------------------

EXPENSE EXAMPLE
The example below uses the same assumptions as other fund prospectuses:
$1,000 initial investment, 5% annual total return, expenses unchanged, all
shares sold at the end of each time period. The example is for comparison only;
the fund's actual return and expenses will be different.
- --------------------------------------
1 yr. 3 yrs.
Your cost($) 5 14
- --------------------------------------

8 J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND

<PAGE>

Performance (unaudited)

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>

1 yr. 3 yrs. Since inception
<S> <C> <C> <C>
J.P. Morgan Institutional Service Federal Money Market Fund(4) 5.18 5.25 4.45
- ----------------------------------------------------------------------------------------------------------------------
IBC's U.S. Government & Agency Money Market Fund Average(5) (after expenses) 4.83 4.89 4.18
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C> <C> <C> <C>
Year-by-year total return (%)Shows changes in returns by calendar year
- -----------------------------------------------------------------------------------------------------------------------------

1994 1995 1996 1997

6% 5.59
- --- 5.19 5.18
4.99 4.83
4.67
3% 3.78
- --- 3.52

0%
- ---
- -----------------------------------------------------------------------------------------------------------------------------
[ ] J.P. Morgan Institutional Service Federal Money Market Fund(4) [ ] IBC's U.S. Government & Agency Money Market Fund
Average(5)
</TABLE>

- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
4/30/98
Per-share data For fiscal period ended (unaudited)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0261
Net realized gain on investment ($) (0.0000)(6)
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.0261
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0261)
- --------------------------------------------------------------------------------
Total distributions ($) (0.0261)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00
- --------------------------------------------------------------------------------
Total return (%) 2.63(7)
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 12,429
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.45(8)
- --------------------------------------------------------------------------------
Net investment income (%) 5.14(8)
- --------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 8.96(8,9)
- --------------------------------------------------------------------------------
<PAGE>

(1) The fund has a master/feeder structure as described on page 15. This table
shows the fund's estimated expenses and its estimated share of master
portfolio expenses for the current fiscal year, expressed as a percentage of
the fund's estimated average net assets after reimbursement for ordinary
expenses over 0.45%.

(2) Without reimbursement, other expenses and total operating expenses are
estimated to be 0.26% and 0.71%, respectively. There is no guarantee that
this reimbursement will continue beyond 2/28/99.

(4) The fund commenced operations on 11/6/97. Returns reflect performance of the
J.P. Morgan Federal Money Market Fund (a separate feeder fund investing in
the same master portfolio) from 1/31/93 through 11/6/97. This data is based
on historical earnings and is not intended to indicate future performance.

(5) Consists of the IBC/Donoghue U.S. Treasury & Repo Money Market Fund Average
through 12/31/95 and IBC's U.S. Government & Agency Money Market Fund
Average thereafter.

(6) Less than $0.0001.

(7) Not Annualized.

(8) Annualized.

(9) Ratio decrease is substantially impacted by the short period covered and is
not representative of current reimbursement ratio policy.

J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND 9
<PAGE>

J.P. MORGAN INSTITUTIONAL SERVICE
TAX EXEMPT MONEY MARKET FUND

[LOGO] Goal

The fund's goal is to maximize current income that is exempt from federal
income tax consistent with the preservation of capital and same-day liquidity.
This goal can be changed only with shareholder approval.

INVESTMENT APPROACH
The fund invests primarily in high quality municipal obligations whose income is
exempt from federal income taxes. The fund's municipal obligations must fall
into the highest short-term rating category (top two highest categories for New
York State obligations) or be of equivalent quality. The fund may also invest in
certain structured municipal obligations, and in certain municipal or other
obligations whose income is subject to tax, including the alternative minimum
tax. Although the fund is permitted to hold these other obligations or cash, it
aims to be fully invested in municipal obligations. In order to maintain
liquidity, the fund may buy securities with puts that allow the fund to
liquidate the securities on short notice. Some of the fund's securities may be
purchased on a when-issued or delayed delivery basis.

POTENTIAL RISKS AND REWARDS
The fund's yield will vary in response to changes in interest rates. How well
the fund's yield compares to the yields of similar money market funds will
depend on the success of the investment process described on page 2.

The fund's income is generally exempt from federal income taxes. A small portion
may be exempt from state or local income taxes.

Registrant: J.P. Morgan institutional Funds
(J.P. Morgan institutional Service tax exempt money market fund)

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $275 billion, including more than $12 billion using the same
strategy as the fund.

MONEY MARKET FUNDS
AND STABILITY

Money market funds are subject to a range of federal regulations designed to
promote stability. For example, money market funds must maintain a weighted
average maturity of no more than 90 days, and generally may not invest in any
securities with a remaining maturity of more than 13 months. Keeping the
weighted average maturity this short helps funds in their pursuit of a stable $1
share price.
<PAGE>

INVESTOR EXPENSES

Footnotes for this section are shown on next page.

Annual fund operating expenses(1) (%)
Management fees 0.16

Marketing (12b-1) fees None

Other expenses(2)
(after waiver and reimbursement) 0.04

Service fees(3) 0.25
- ---------------------------------------------------------------------
Total operating expenses(2)
(after reimbursement) 0.45
- ---------------------------------------------------------------------

Expense example

The example below uses the same assumptions as other fund prospectuses: $1,000
initial investment, 5% annual total return, expenses unchanged, all shares sold
at the end of each time period. The example is for comparison only; the fund's
actual return and expenses will be different.
- --------------------------------------------------------------------------------
1 yr. 3 yrs.
Your cost($) 5 14
- --------------------------------------------------------------------------------

10 J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND
<PAGE>
<TABLE>
<CAPTION>

PERFORMANCE (unaudited)
Average annual total return (%) Shows performance over time, for periods ended December 31, 1997
- -----------------------------------------------------------------------------------==-------------------
<S> <C> <C> <C>
1 yr. 5 yrs. 10 yrs.
J.P. Morgan Institutional Service Tax Exempt Money Market Fund(4) 3.26 2.89 3.78
- -----------------------------------------------------------------------------------==-------------------
IBC's Tax Exempt Money Market Fund Average5 (after expenses) 3.09 2.72 3.65
- -----------------------------------------------------------------------------------==-------------------
</TABLE>
<TABLE>
<CAPTION>

Year-by-year total return (%) Shows changes in returns by calendar year
- ----------------------------------------------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>

9%
- ---

6% 6.11
- --- 5.91
5.58
5.49
4.93
4.80

4.17
4.16
3% 3.52
- --- 3.34
3.26
3.12

3.09
2.93
2.71
2.56
2.50
2.34
2.04
1.93
0%
- ---
- ---------------------------------------------------------------------------------------------------------------------------------
/ / J.P. Morgan Institutional Service Tax Exempt Money Market Fund(4) / / IBC's Tax Exempt Money Market Fund Average(5)
</TABLE>
<PAGE>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Per-share data For the fiscal year ended August 31 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0276
Net realized gain on investment ($) (0.0000)(6)
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.0276
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0276)
- --------------------------------------------------------------------------------
Total distributions ($) (0.0276)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00
- --------------------------------------------------------------------------------
Total return (%) 2.807
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 8,237
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.60(8)
- --------------------------------------------------------------------------------
Net investment income (%) 2.95(8)
- --------------------------------------------------------------------------------
Decrease reflected in expense ratio due
to expense reimbursement (%) 5.23(8)
- --------------------------------------------------------------------------------
The Financial Highlights above have been audited by PricewaterhouseCoopers LLP,
the fund's independent accountants.

(2) Without such waiver and reimbursement, other expenses and total operating
expenses would have been 5.42% and 5.83%, respectively. This reimbursement
arrangement can be changed or terminated at any time at the option of J.P.
Morgan.

(4) The fund commenced operations on 11/4/97. Returns reflect performance of the
J.P. Morgan Tax Exempt Money Market Fund (a separate feeder fund investing
in the same master portfolio) from 1/1/88 through 11/4/97. These returns
reflect lower operating expenses than the fund's. Also, these returns may be
higher than the fund's would have been had it existed during the same
periods. This data is based on historical earnings and is not intended to
indicate future performance.

(5) IBC's Tax Exempt Money Market Fund Average is an average of all major tax
free money market fund returns.

(6) Less than $0.0001.
(7) Not annualized.
(8) Annualized.

J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND 11

<PAGE>

YOUR INVESTMENT

For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund investments.

INVESTING THROUGH A SERVICE ORGANIZATION

Prospective investors may purchase shares of each fund with the assistance of a
service organization. Your service organization is paid by the fund to assist
you in establishing your fund account, executing transactions, and monitoring
your investment. If your fund investment is not held in the name of your service
organization and you prefer to place a transaction order yourself, please use
the instructions for investing directly.

INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN

Your fund investments are handled through your plan. Refer to your plan
materials or contact your benefits office for information on buying, selling, or
exchanging fund shares.

INVESTING THROUGH AN IRA OR ROLLOVER IRA

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

INVESTING DIRECTLY

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

o Determine the amount you are investing. The minimum amount for initial
investments in a fund is $10,000,000 and for additional investments $25,000,
although these minimums may be less for some investors. A service organization
may impose a minimum amount for initial and subsequent investments in a fund
and may establish other requirements such as a minimum account balance.
Customers should contact their service organization for further information
concerning such requirements and charges. For more information on minimum
investments, call 1-800-766-7722.

o Mail in your application, making your initial investment as shown below.

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

OPENING YOUR ACCOUNT
By wire

o Mail your completed application to the Shareholder Services Agent.

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

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

By check

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

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

By exchange

o Call the Shareholder Services Agent to effect an exchange. Adding to YOUR
account By wire l Call the Shareholder Services Agent to place a purchase
order. Funds that are wired without a purchase order will be returned
uninvested.

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

By check

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

o Mail the check with a completed investment slip to the

12 YOUR INVESTMENT
<PAGE>

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

By exchange

o Call the Shareholder Services Agent to effect an exchange.

SELLING SHARES

By phone -- wire payment

o Call the Shareholder Services Agent to verify that the wire redemption
privilege is in place on your account. If it is not, a representative can help
you add it.

By phone -- check payment

In writing

o Indicate whether you want the proceeds sent by check or by wire.

o Make sure the letter is signed by an authorized party. The Shareholder
Services Agent may require additional information, such as a signature
guarantee.

(l) Mail the letter to the Shareholder Services Agent.
<PAGE>

By exchange

o Call the Shareholder Services Agent to effect an exchange.

ACCOUNT AND TRANSACTION POLICIES

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

Business days and NAV calculations The funds' regular business days are the same
as those of the New York Stock Exchange. The Service Federal and Service Tax
Exempt Money Market Funds calculate their net asset value per share (NAV) every
business day at 4:00 p.m. eastern time. The Service Treasury Money Market Fund
calculates its NAV every business day at 4:30 p.m. eastern time. The Service
Prime Money Market Fund calculates its NAV every business day at 5:00 p.m.
eastern time.

Fund Cut-off Time
Service Prime Money Market 5:00 p.m.
Service Treasury Money Market 4:30 p.m.
Service Federal Money Market 2:00 p.m.
Service Tax Exempt Money Market 12:00 noon
- --------------------------------------------------------------------------------

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

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

YOUR INVESTMENT 13

<PAGE>

For the purchase to be effective and dividends to be earned on the same day,
immediately available funds must be received by 4:00 p.m. for Service Federal
and Service Tax Exempt Money Market Funds, by 4:30 p.m. for Service Treasury
Money Market Fund and by 5:00 p.m. for Service Prime Money Market Fund eastern
time on a fund business day. A fund has the right to suspend redemption of
shares and to postpone payment of proceeds for up to seven days or as permitted
by law.

Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment.

Redemption orders for each fund received by the respective cut-off times will be
paid in immediately available funds, normally on the same day, according to
instructions on file.

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

DIVIDENDS AND DISTRIBUTIONS

TAX CONSIDERATIONS

Transaction Tax status

Income dividends from Prime Ordinary income

Money Market, Treasury Money

Market and Federal Money

Market Funds

Income dividends from Tax Exempt from federal

Exempt Money Market Fund income taxes

Short-term capital gains Ordinary income
distributions

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

Any investor for whom a fund does not have a valid taxpayer identification
number will be subject to backup withholding for taxes.

The tax considerations described in this section do not apply to tax-deferred
accounts or other non-taxable entities.

Because each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.

14 YOUR INVESTMENT
<PAGE>

FUND DETAILS
- --------------------------------------------------------------------------------
MASTER/FEEDER STRUCTURE

Each feeder fund and its master portfolio expect to maintain consistent goals,
but if they do not, the fund will withdraw from the master portfolio, receiving
its assets either in cash or securities. Each fund's trustees would then
consider whether the fund should hire its own investment adviser, invest in a
different master portfolio, or take other action.

MANAGEMENT AND ADMINISTRATION

J.P. Morgan receives the following fees for investment advisory and other
services:
<PAGE>
s
Advisory services 0.20% of the first $1 billion of
each master portfolio's average
net assets plus 0.10% over
$1 billion

Shareholder services 0.05% of the each fund's
average net assets

Each fund has a service plan which allows it to pay service organizations up to
0.25% of the average net assets of the shares held in the name of the service
organization.

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

FUND DETAILS 15
<PAGE>

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

<PAGE>

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

<PAGE>

FOR MORE INFORMATION

For investors who want more information on these funds, the following documents
are available free upon request:

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

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

Telephone: 1-800-766-7722

Hearing impaired: 1-888-468-4015

Email: [email protected]

J.P. Morgan Institutional Service Prime Money Market Fund......... 811-07342 and
033-54642

J.P.Morgan Institutional Service Treasury Money Market Fund....... 811-07342 and
033-54642

J.P. Morgan Institutional Service Federal Money Market Fund....... 811-07342 and
033-54642

J.P. Morgan Institutional Service Tax Exempt Money Market Fund.....811-07342 and
033-54642

J.P. MORGAN INVESTMENT INSTITUTIONAL FUNDS AND THE MORGAN TRADITION

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

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

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J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 30, 1998

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED NOVEMBER 30, 1998 FOR THE FUND LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT RELATING TO THE
FUND LISTED ABOVE. THE PROSPECTUS AND THESE FINANCIAL STATEMENTS, INCLUDING THE
AUDITOR'S REPORT THEREON, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.

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Table of Contents

Page

General...................................................................1
Investment Objective and Policies.........................................1
Investment Restrictions...................................................11
Trustees and Officers.....................................................13
Investment Advisor........................................................17
Distributor...............................................................19
Co-Administrator..........................................................20
Services Agent............................................................20
Custodian and Transfer Agent..............................................21
Shareholder Servicing.....................................................22
Financial Professionals. . . . . . . . . . . . . . . . . . . . . . . . . .23
Independent Accountants...................................................23
Expenses..................................................................23
Purchase of Shares........................................................24
Redemption of Shares......................................................25
Exchange of Shares........................................................25
Dividends and Distributions...............................................26
Net Asset Value...........................................................26
Performance Data..........................................................27
Portfolio Transactions....................................................28
Massachusetts Trust.......................................................29
Description of Shares.....................................................30
Special Information Concerning
Investment Structure. . . . . . . . . . . . . . . . . . . . . . . . . . .32
Taxes.....................................................................33
Additional Information....................................................36
Appendix A - Description of Security Ratings..............................A-1

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GENERAL

This Statement of Additional Information relates only to the J.P.
Morgan Institutional Tax Exempt Money Market Fund (the "Fund"). The Fund is a
series of shares of beneficial interest of the J.P. Morgan Institutional Funds,
an open-end management investment company formed as a Massachusetts business
trust (the "Trust"). In addition to the Fund, the Trust consists of other series
representing separate investment funds (each a "J.P. Morgan Institutional
Fund"). The other J.P. Morgan Institutional Funds are covered by separate
Statements of Additional Information.

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

Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), an open-end management investment company having the same
investment objective as the Fund. The Fund invests in the Portfolio through a
two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure."

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

Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor or any other bank. Shares of the Fund
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other governmental agency. An investment in the
Fund is subject to risk that may cause the value of the investment to fluctuate,
and when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.

INVESTMENT OBJECTIVE AND POLICIES

The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve the
objective by the Portfolio as set forth herein and in the Prospectus. Since the
investment characteristics and experiences of the Fund correspond directly with
those of the Portfolio, the discussion in this Statement of Additional
Information focuses on the investments and investment policies of the Portfolio.
Accordingly, references below to the Portfolio also include the Fund; similarly,
references to the Fund also include the Portfolio unless the context requires
otherwise.

The Fund is designed for investors who seek high current income
consistent with the preservation of capital and same-day liquidity from a
portfolio of high quality money market instruments. The Fund's investment
objective is to maximize current income that is exempt from federal income tax
consistent with the preservation of capital and same-day liquidity. See "Taxes."
The Fund attempts to achieve this objective by investing all of its investable
assets in The Tax Exempt Money Market Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Fund.

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. dollar-denominated securities described in this
Statement of Additional Information that meet certain rating criteria, present
minimal credit risks, have effective maturities of not more than thirteen months
and earn interest wholly exempt from federal income tax in the opinion of bond
counsel for the issuer. If attractive municipal obligations are not available,
the Fund may hold cash rather than invest in taxable money market instruments.
The Portfolio, however, may temporarily invest up to 20% of total assets in
taxable securities in abnormal market conditions, for defensive purposes only.
For purposes of this calculation, obligations that generate income that may be
treated as a preference item for purposes of the alternative minimum tax shall
not be considered taxable securities. See "Quality and Diversification
Requirements." Interest on these securities may be subject to state and local
taxes. For more detailed information regarding tax matters, including the
applicability of the alternative minimum tax, see "Taxes."

Money Market Instruments

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

Tax Exempt Obligations

The Fund may invest in tax exempt obligations to the extent consistent with
the Fund's investment objective and policies. A description of the various types
of tax exempt obligations which may be purchased by the Fund appears below. See
"Quality and Diversification Requirements."

Municipal Bonds. Municipal bonds are debt obligations issued by the
states, territories and possessions of the United States and the District of
Columbia, by their political subdivisions and by duly constituted authorities
and corporations. For example, states, territories, possessions and
municipalities may issue municipal bonds to raise funds for various public
purposes such as airports, housing, hospitals, mass transportation, schools,
water and sewer works. They may also issue municipal bonds to refund
outstanding obligations and to meet general operating expenses. Public
authorities issue municipal bonds to obtain funding for privately operated
facilities, such as housing and pollution control facilities, for industrial
facilities or for water supply, gas, electricity or waste disposal facilities.

Municipal bonds may be general obligation or revenue bonds. General
obligation bonds are secured by the issuer's pledge of its full faith, credit
and taxing power for the payment of principal and interest. Revenue bonds are
payable from revenues derived from particular facilities, from the proceeds of
a special excise tax or from other specific revenue sources. They are not
generally payable from the general taxing power of a municipality.

Municipal Notes. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.

Municipal notes are short-term obligations with a maturity at the time
of issuance ranging from six months to five years. The principal types of
municipal notes include tax anticipation notes, bond anticipation notes,
revenue anticipation notes, grant anticipation notes and project notes. Notes
sold in anticipation of collection of taxes, a bond sale, or receipt of other
revenues are usually general obligations of the issuing municipality or
agency.

Municipal commercial paper typically consists of very short-term
unsecured negotiable promissory notes that are sold to meet seasonal working
capital or interim construction financing needs of a municipality or agency.
While these obligations are intended to be paid from general revenues or
refinanced with long-term debt, they frequently are backed by letters of
credit, lending agreements, note repurchase agreements or other credit
facility agreements offered by banks or institutions.

Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.

Variable rate demand notes are tax exempt municipal obligations or
participation interests that provide for a periodic adjustment in the interest
rate paid on the notes. They permit the holder to demand payment of the notes,
or to demand purchase of the notes at a purchase price equal to the unpaid
principal balance, plus accrued interest either directly by the issuer or by
drawing on a bank letter of credit or guaranty issued with respect to such
note. The issuer of the municipal obligation may have a corresponding right to
prepay at its discretion the outstanding principal of the note plus accrued
interest upon notice comparable to that required for the holder to demand
payment. The variable rate demand notes in which the Fund may invest are
payable, or are subject to purchase, on demand usually on notice of seven
calendar days or less. The terms of the notes provide that interest rates are
adjustable at intervals ranging from daily to six months, and the adjustments
are based upon the prime rate of a bank or other appropriate interest rate
index specified in the respective notes. Variable rate demand notes are valued
at amortized cost; no value is assigned to the right of the Fund to receive
the par value of the obligation upon demand or notice.

Master demand obligations are tax exempt municipal obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. The interest on such obligations is, in the
opinion of counsel for the borrower, excluded from gross income for federal
income tax purposes. For a description of the attributes of master demand
obligations, see "Money Market Instruments" above. Although there is no
secondary market for master demand obligations, such obligations are
considered by the Fund to be liquid because they are payable upon demand. The
Fund has no specific percentage limitations on investments in master demand
obligations.

The Fund may purchase securities of the type described above if they
have effective maturities within thirteen months. As required by regulation of
the Securities and Exchange Commission (the "SEC"), this means that on the
date of acquisition the final stated maturity (or if called for redemption,
the redemption date) must be within thirteen months or the maturity must be
deemed to be no more than thirteen months because of a maturity shortening
mechanism, such as a variable interest rate, coupled with a conditional or
unconditional right to resell the investment to the issuer or a third party.
See "Variable Rate Demand Notes" and "Puts." A substantial portion of the
Fund's portfolio is subject to maturity shortening mechanisms consisting of
variable interest rates coupled with unconditional rights to resell the
securities to the issuers either directly or by drawing on a domestic or
foreign bank letter of credit or other credit support arrangement. See
"Foreign Investments."

Puts. The Fund may purchase without limit municipal bonds or notes
together with the right to resell the bonds or notes to the seller at an
agreed price or yield within a specified period prior to the maturity date of
the bonds or notes. Such a right to resell is commonly known as a "put." The
aggregate price for bonds or notes with puts may be higher than the price for
bonds or notes without puts. Consistent with the Fund's investment objective
and subject to the supervision of the Trustees, the purpose of this practice
is to permit the Fund to be fully invested in tax exempt securities while
preserving the necessary liquidity to purchase securities on a when-issued
basis, to meet unusually large redemptions, and to purchase at a later date
securities other than those subject to the put. The principal risk of puts is
that the writer of the put may default on its obligation to repurchase. The
Advisor will monitor each writer's ability to meet its obligations under puts.

Puts may be exercised prior to the expiration date in order to fund
obligations to purchase other securities or to meet redemption requests. These
obligations may arise during periods in which proceeds from sales of Fund
shares and from recent sales of portfolio securities are insufficient to meet
obligations or when the funds available are otherwise allocated for
investment. In addition, puts may be exercised prior to the expiration date in
order to take advantage of alternative investment opportunities or in the
event the Advisor revises its evaluation of the creditworthiness of the issuer
of the underlying security. In determining whether to exercise puts prior to
their expiration date and in selecting which puts to exercise, the Advisor
considers the amount of cash available to the Fund, the expiration dates of
the available puts, any future commitments for securities purchases,
alternative investment opportunities, the desirability of retaining the
underlying securities in the Fund's portfolio and the yield, quality and
maturity dates of the underlying securities.

The Fund values any municipal bonds and notes which are subject to
puts at amortized cost. No value is assigned to the put. The cost of any such
put is carried as an unrealized loss from the time of purchase until it is
exercised or expires. The Board of Trustees would, in connection with the
determination of the value of a put, consider, among other factors, the
creditworthiness of the writer of the put, the duration of the put, the dates
on which or the periods during which the put may be exercised and the
applicable rules and regulations of the SEC.

Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Fund's policy is to enter
into put transactions only with municipal securities dealers who are approved
by the Advisor. Each dealer will be approved on its own merits, and it is the
Fund's general policy to enter into put transactions only with those dealers
which are determined to present minimal credit risks. In connection with such
determination, the Trustees will review regularly the Advisor's list of
approved dealers, taking into consideration, among other things, the ratings,
if available, of their equity and debt securities, their reputation in the
municipal securities markets, their net worth, their efficiency in
consummating transactions and any collateral arrangements, such as letters of
credit, securing the puts written by them. Commercial bank dealers normally
will be members of the Federal Reserve System, and other dealers will be
members of the National Association of Securities Dealers, Inc. or members of
a national securities exchange. The Trustees have directed the Advisor not to
enter into put transactions with any dealer which in the judgment of the
Advisor becomes more than a minimal credit risk. In the event that a dealer
should default on its obligation to repurchase an underlying security, the
Fund is unable to predict whether all or any portion of any loss sustained
could subsequently be recovered from such dealer.

The Trust has been advised by counsel that the Fund will be considered
the owner of the securities subject to the puts so that the interest on the
securities is tax exempt income to the Fund. Such advice of counsel is based
on certain assumptions concerning the terms of the puts and the attendant
circumstances.

Taxable Investments

The Portfolio attempts to invest its assets in tax exempt securities
and when investments are not available, may hold cash or may invest to a
limited extent in taxable securities. While the Fund does not currently intend
to invest in taxable securities, in abnormal market conditions for defensive
purposes only, it may invest up to 20% of the value of its total assets in
securities, the interest income on which may be subject to federal, state or
local income taxes. The taxable investments permitted for the Portfolio
include obligations of the U.S. Government and its agencies and
instrumentalities, bank obligations, commercial paper and repurchase
agreements.

The Fund may make investments in other debt securities with remaining
effective maturities of not more than thirteen months, including without
limitation corporate bonds, and other obligations described in the Prospectus
or this Statement of Additional Information.

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

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

Bank Obligations. The Fund, unless otherwise noted in the Prospectus
or below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
the laws of the United States or any state, (ii) foreign branches of these
banks or of foreign banks of equivalent size (Euros) and (iii) U.S. branches
of foreign banks of equivalent size (Yankees). The Fund may not invest in
obligations of foreign branches of foreign banks. The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank.

Commercial Paper. The Fund may invest in commercial paper, including
master demand obligations. Master demand obligations are obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan acting as agent, for no additional
fee. The monies loaned to the borrower come from accounts managed by Morgan or
its affiliates, pursuant to arrangements with such accounts. Interest and
principal payments are credited to such accounts. Morgan, an affiliate of the
Advisor, has the right to increase or decrease the amount provided to the
borrower under an obligation. The borrower has the right to pay without
penalty all or any part of the principal amount then outstanding on an
obligation together with interest to the date of payment. Since these
obligations typically provide that the interest rate is tied to the Federal
Reserve commercial paper composite rate, the rate on master demand obligations
is subject to change. Repayment of a master demand obligation to participating
accounts depends on the ability of the borrower to pay the accrued interest
and principal of the obligation on demand which is continuously monitored by
Morgan. Since master demand obligations typically are not rated by credit
rating agencies, the Fund may invest in such unrated obligations only if at
the time of an investment the obligation is determined by the Advisor to have
a credit quality which satisfies the Fund's quality restrictions. See "Quality
and Diversification Requirements." Although there is no secondary market for
master demand obligations, such obligations are considered by the Fund to be
liquid because they are payable upon demand. The Fund does not have any
specific percentage limitation on investments in master demand obligations. It
is possible that the issuer of a master demand obligation could be a client of
Morgan to whom Morgan, in its capacity as a commercial bank, has made a loan.

Repurchase Agreements. The Fund, unless otherwise noted in the
Prospectus or below, may enter into repurchase agreements with brokers,
dealers or banks that meet the credit guidelines approved by the Fund's
Trustees. In a repurchase agreement, the Fund buys a security from a seller
that has agreed to repurchase the same security at a mutually agreed upon date
and price. The resale price normally is in excess of the purchase price,
reflecting an agreed upon interest rate. This interest rate is effective for
the period of time the Fund is invested in the agreement and is not related to
the coupon rate on the underlying security. A repurchase agreement may also be
viewed as a fully collateralized loan of money by the Fund to the seller. The
period of these repurchase agreements will usually be short, from overnight to
one week, and at no time will the Fund invest in repurchase agreements for
more than 397 days. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of 397 days from the effective date
of the repurchase agreement. The Fund will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Fund in
the agreement plus accrued interest, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the Custodian. The Fund will be fully collateralized within
the meaning of paragraph (a)(4) of Rule 2a-7 under the Investment Company Act
of 1940, as amended (the "1940 Act"). If the seller defaults, the Fund might
incur a loss if the value of the collateral securing the repurchase agreement
declines and might incur disposition costs in connection with liquidating the
collateral. In addition, if bankruptcy proceedings are commenced with respect
to the seller of the security, realization upon disposal of the collateral by
the Fund may be delayed or limited.

Additional Investments

When-Issued and Delayed Delivery Securities. The Fund may purchase
securities on a when-issued or delayed delivery basis. For example, delivery
of and payment for these securities can take place a month or more after the
date of the purchase commitment. The purchase price and the interest rate
payable, if any, on the securities are fixed on the purchase commitment date
or at the time the settlement date is fixed. The value of such securities is
subject to market fluctuation and for money market instruments and other fixed
income securities no interest accrues to the Fund until settlement takes
place. At the time the Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, 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 Fund
will maintain with the Custodian a segregated account with liquid assets,
consisting of cash, U.S. Government securities or other appropriate
securities, in an amount at least equal to such commitments. On delivery dates
for such transactions, the Fund will meet its obligations from maturities or
sales of the securities held in the segregated account and/or from cash flow.
If the Fund chooses to dispose of the right to acquire a when-issued security
prior to its acquisition, it could, as with the disposition of any other
portfolio obligation, incur a gain or loss due to market fluctuation. Also, a
Fund may be disadvantaged if the other party to the transaction defaults. It
is the current policy of the Fund not to enter into when-issued commitments
exceeding in the aggregate 15% of the market value of the Fund'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 Fund and 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 Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value
of its total assets will be invested in the aggregate in securities of
investment companies as a group, and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Fund, provided
however, that the Fund may invest all of its investable assets in an open-end
investment company that has the same investment objective as the Fund (its
corresponding Portfolio). As a shareholder of another investment company, the
Fund or Portfolio would bear, along with other shareholders, its pro rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the advisory and other expenses that
the Fund or Portfolio bears directly in connection with its own operations.

Reverse Repurchase Agreements. The Fund, unless otherwise noted in the
Prospectus or below, may enter into reverse repurchase agreements. In a
reverse repurchase agreement, the Fund sells a security and agrees to
repurchase the same security at a mutually agreed upon date and price
reflecting the interest rate effective for the term of the agreement. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Fund and, therefore, a form of leverage.
Leverage may cause any gains or losses for a Fund to be magnified. The Fund
will invest the proceeds of borrowings under reverse repurchase agreements. In
addition, the Fund will enter into a reverse repurchase agreement only when
the interest income to be earned from the investment of the proceeds is
greater than the interest expense of the transaction. The Fund will not invest
the proceeds of a reverse repurchase agreement for a period which exceeds the
duration of the reverse repurchase agreement. The Fund will establish and
maintain with the Custodian a separate account with a segregated portfolio of
securities in an amount at least equal to its purchase obligations under its
reverse repurchase agreements. If interest rates rise during the term of a
reverse repurchase agreement, entering into the reverse repurchase agreement
may have a negative impact on the Fund's ability to maintain a net asset value
of $1.00 per share. See "Investment Restrictions" for the Fund's limitations
on reverse repurchase agreements and bank borrowings.

Loans of Portfolio Securities. Subject to applicable investment
restrictions, the Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net assets. The Fund may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund
any income accruing thereon. Loans will be subject to termination by the Fund
in the normal settlement time, generally three business days after notice, or
by the borrower on one day's notice. Borrowed securities must be returned when
the loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to the Fund and its
respective investors. The Fund may pay reasonable finders' and custodial fees
in connection with a loan. In addition, the Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and the Fund will not make any loans in excess of one year. Loans
of portfolio securities may be considered extensions of credit by the Fund.
The risks to the Fund with respect to borrowers of its portfolio securities
are similar to the risks to the Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". The Fund will not lend
its securities to any officer, Trustee, Director, employee or other affiliate
of the Fund, the Advisor or the Distributor, unless otherwise permitted by
applicable law.

Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Fund may invest in privately placed, restricted, Rule 144A or
other unregistered securities. The Fund may not acquire any illiquid holdings
if, as a result thereof, more than 10% of the Fund's net assets would be in
illiquid investments. Subject to this non-fundamental 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
Securities Act of 1933, as amended (the "1933 Act") and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of
within seven days in the normal course of business at approximately the amount
at which it is valued by the 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 Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the
Advisor and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.

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

Synthetic Instruments. The Fund may invest in certain synthetic
variable rate instruments. Such instruments generally involve the deposit of a
long-term tax exempt bond in a custody or trust arrangement and the creation
of a mechanism to adjust the long-term interest rate on the bond to a variable
short-term rate and a right (subject to certain conditions) on the part of the
purchaser to tender it periodically to a third part at par. Morgan will review
the structure of synthetic variable rate instruments to identify credit and
liquidity risks (including the conditions under which the right to tender the
instrument would no longer be available) and will monitor those risks. In the
event that the right to tender the instrument is no longer available, the risk
to the Portfolio will be that of holding the long-term bond, which may require
the disposition of the bond which could be at a loss. In the case of some
types of instruments credit enhancement is not provided, and if certain
events, which may include (a) default in the payment of principal or interest
on the underlying bond, (b) downgrading of the bond below investment grade or
(c) a loss of the bond's tax exempt status, occur, then (i) the put will
terminate, (ii) the risk to the Fund will be that of holding a long-term bond,
and (iii) the disposition of the bond may be required which could be at a
loss.

Quality and Diversification Requirements

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

At the time the Fund invests in any taxable commercial paper, master
demand obligation, bank obligation or repurchase agreement, the issuer must
have outstanding debt rated A or higher by Moody's or Standard & Poor's, the
issuer's parent corporation, if any, must have outstanding commercial paper
rated Prime-1 by Moody's or A-1 by Standard & Poor's, or if no such ratings
are available, the investment must be of comparable quality in Morgan's
opinion.

For purposes of diversification and concentration under the 1940 Act,
identification of the issuer of municipal bonds or notes depends on the terms
and conditions of the obligation. If the assets and revenues of an agency,
authority, instrumentality or other political subdivision are separate from
those of the government creating the subdivision and the obligation is backed
only by the assets and revenues of the subdivision, such subdivision is
regarded as the sole issuer. Similarly, in the case of an industrial
development revenue bond or pollution control revenue bond, if the bond is
backed only by the assets and revenues of the nongovernmental user, the
nongovernmental user is regarded as the sole issuer. If in either case the
creating government or another entity guarantees an obligation, the guaranty
is regarded as a separate security and treated as an issue of such guarantor.
Since securities issued or guaranteed by states or municipalities are not
voting securities, there is no limitation on the percentage of a single
issuer's securities which the Fund may own so long as it does not invest more
than 5% of its total assets that are subject to the diversification limitation
in the securities of such issuer, except obligations issued or guaranteed by
the U.S. Government. Consequently, the Fund may invest in a greater percentage
of the outstanding securities of a single issuer than would an investment
company which invests in voting securities. See "Investment Restrictions."

In order to attain its objective of maintaining a stable net asset
value, the Fund will limit its investments to securities that present minimal
credit risks and securities (other than New York State municipal notes) that
are rated within the highest rating assigned to short-term debt securities
(or, in the case of New York State municipal notes, within one of the two
highest ratings assigned to short-term debt securities) by at least two NRSROs
or by the only NRSRO that has rated the security. Securities which originally
had a maturity of over one year are subject to more complicated, but generally
similar rating requirements. The Fund may also purchase unrated securities
that are of comparable quality to the rated securities described above.
Additionally, if the issuer of a particular security has issued other
securities of comparable priority and security and which have been rated in
accordance with the criteria described above that security will be deemed to
have the same rating as such other rated securities.

In addition, the Board of Trustees has adopted procedures which (i)
require the Fund to maintain a dollar-weighted average portfolio maturity of
not more than 90 days and to invest only in securities with a remaining
maturity of not more than thirteen months and (ii) require the Fund, in the
event of certain downgrading of or defaults on portfolio holdings, to dispose
of the holding, subject in certain circumstances to a finding by the Trustees
that disposing of the holding would not be in the Fund's best interest.

The credit quality of variable rate demand notes and other municipal
obligations is frequently enhanced by various credit support arrangements with
domestic or foreign financial institutions, such as letters of credit,
guarantees and insurance, and these arrangements are considered when
investment quality is evaluated. The rating of credit-enhanced municipal
obligations by a NRSRO may be based primarily or exclusively on the credit
support arrangement.

INVESTMENT RESTRICTIONS

The investment restrictions of the Fund and Portfolio are identical,
unless otherwise specified. Accordingly, references below to the Fund also
include the Portfolio unless the context requires otherwise; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.

The investment restrictions below have been adopted by the Trust, with
respect to the Fund, and 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 of the Fund or Portfolio, as the case may be. A "majority of the
outstanding voting securities" is defined in the 1940 Act as the lesser of (a)
67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented
by proxy, or (b) more than 50% of the outstanding voting securities. The
percentage limitations contained in the restrictions below apply at the time
of the purchase of securities. Whenever the Fund is requested to vote on a
change in the fundamental investment restrictions of the Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.

The Fund and its corresponding Portfolio:

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

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

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

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

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

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

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

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

Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Fund and its corresponding
Portfolio and may be changed by their Trustees. These non-fundamental investment
policies require that the Fund and its corresponding 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 Fund'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) May not borrow money, except from banks for temporary, extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the Fund's
total assets, taken at cost at the time of such borrowing; or mortgage, pledge
or hypothecate any assets except in connection with any such borrowing in
amounts up to 10% of the value of the Fund's net assets at the time of such
borrowing. The Fund will not purchase securities while borrowings exceed 5% of
the Fund's total assets, provided, however, that the Fund may increase its
interest in an open-end management investment company with the same investment
objective and restrictions as the Fund's while such borrowings are outstanding.
This borrowing provision, for example, facilitates the orderly sale of portfolio
securities in the event of abnormally heavy redemption requests or in the event
of redemption requests during periods of tight market supply. This provision is
not for leveraging purposes.

(v) May not purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Fund assets would be invested in industrial revenue bonds
where payment of principal and interest are the responsibility of companies with
fewer than three years of operating history.

Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, the Fund reserves the right, without the approval of
shareholders, to invest all of its assets in the securities of a single open-end
registered investment company with substantially the same investment objective,
restrictions and policies as the Fund.

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

For purposes of fundamental investment restrictions regarding industry
concentration, the Advisor may classify issuers by industry in accordance with
classifications set forth in the Directory of Companies Filing Annual Reports
With The Securities and Exchange Commission or other sources. In the absence of
such classification or if the Advisor determines in good faith based on its own
information that the economic characteristics affecting a particular issuer make
it more appropriately considered to be engaged in a different industry, the
Advisor may classify an issuer accordingly. For instance, personal credit
finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.

TRUSTEES AND OFFICERS

Trustees

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

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

WILLIAM G. BURNS--Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His address is 2200 Alaqua Drive, Longwood, Florida
32779, and his date of birth is November 2, 1932.

ARTHUR C. ESCHENLAUER--Trustee; Retired; Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His address is 14 Alta Vista Drive,
RD #2, Princeton, New Jersey 08540, and his date of birth is May 23, 1934.

MATTHEW HEALEY1--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.

The Trustees of the Trust are the same as the Trustees of the
Portfolio. 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 Trust, the Portfolio and the J.P. Morgan Funds
up to and including creating a separate board of trustees.

Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), the J.P. Morgan 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
Fund.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.
<TABLE>
<C> <S> <S>
- -------------------------------------------------- ------------------------ ---------------------------------------

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

NAME OF TRUSTEE
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------

Frederick S. Addy, Trustee $11,772.77 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------

William G. Burns, Trustee $11,786.38 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------

Arthur C. Eschenlauer, Trustee $11,786.38 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------

Matthew Healey, Trustee (**) $11,786.38 $72,500
Chairman and Chief Executive
Officer
- -------------------------------------------------- ------------------------ ---------------------------------------
- -------------------------------------------------- ------------------------ ---------------------------------------

Michael P. Mallardi, Trustee $11,786.38 $72,500
- -------------------------------------------------- ------------------------ ---------------------------------------
</TABLE>
(*) Includes the Portfolio and 19 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.

(**) During 1997, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $147,500,
contributed $22,100 to a defined contribution plan on his behalf and paid
$20,500 in insurance premiums for his benefit.

(***) No investment company within the fund complex has a pension or
retirement plan. Currently there are 18 investment companies (15 investment
companies comprising the Master Portfolios, the J.P. Morgan Funds, the Trust and
J.P. Morgan Series Trust) in the fund complex.

The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. The Portfolio and the
Trust have entered into a Fund Services Agreement with Pierpont Group, Inc. to
assist the Trustees in exercising their overall supervisory responsibilities
over the affairs of the Portfolio and the Trust. Pierpont Group, Inc. was
organized in July 1989 to provide services for The Pierpont Family of Funds (now
the J.P. Morgan Family of Funds), and the Trustees are the equal and sole
shareholders of Pierpont Group, Inc. The Trust and the Portfolio have agreed to
pay Pierpont Group, Inc. a fee in an amount representing its reasonable costs in
performing these services to the Trust, the Portfolio and certain other
registered investment companies subject to similar agreements with Pierpont
Group, Inc. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New
York 10017.

The aggregate fees paid to Pierpont Group, Inc. by the Fund and the
Portfolio during the indicated fiscal years are set forth below:

Fund -- For the fiscal years ended August 31, 1996, 1997 and 1998: $8,391,
$6,074 and $14,685.

Portfolio -- For the fiscal years ended August 31, 1996, 1997 and 1998: $62,310,
$43,285 and $53,097.

Officers

The Trust's and Portfolio's 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 officers conduct and supervise the business
operations of the Trust and the Portfolio. The Trust and the Portfolio have no
employees.

The officers of the Trust and the Portfolio, their principal
occupations during the past five years and dates of birth are set forth below.
Unless otherwise specified, each officer holds the same position with the Trust
and the Portfolio. The business address of each of the officers unless otherwise
noted is Funds Distributor, Inc., 60 State Street, Suite 1300, Boston,
Massachusetts 02109.

MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree 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.

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.

INVESTMENT ADVISOR

The Fund has not retained the services of an investment adviser because
the Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio. 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 was the
Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan
& Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, which 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 $275 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 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
"Portfolio Transactions."

Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolio in which the Fund
invests is currently IBC's Tax Exempt 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
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.

The Portfolio paid the following advisory fees to Morgan, the
Portfolio's advisor prior to October 1, 1998 for the fiscal years ended August
31, 1996, 1997 and 1998: $2,154,248, $2,267,159 and $2,710,567. See the
Prospectus and below for applicable expense limitations.

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

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

DISTRIBUTOR

FDI serves as the Trust's exclusive Distributor and holds itself
available to receive purchase orders for the Fund's shares. In that capacity,
FDI has been granted the right, as agent of the Trust, to solicit and accept
orders for the purchase of the Fund's shares in accordance with the terms of the
Distribution Agreement between the Trust and FDI. Under the terms of the
Distribution Agreement between FDI and the Trust, FDI receives no compensation
in its capacity as the Trust's distributor. FDI is a wholly owned indirect
subsidiary of Boston Institutional Group, Inc. FDI also serves as exclusive
placement agent for the Portfolio. FDI currently provides administration and
distribution services for a number of other investment companies.

The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a vote of the holders of a majority of the Fund's
outstanding shares or by its Trustees and (ii) by a vote of a majority of the
Trustees of the Trust who are not "interested persons" (as defined by the 1940
Act) of the parties to the Distribution Agreement, cast in person at a meeting
called for the purpose of voting on such approval (see "Trustees and Officers").
The Distribution Agreement will terminate automatically if assigned by either
party thereto and is terminable at any time without penalty by a vote of a
majority of the Trustees of the Trust, a vote of a majority of the Trustees who
are not "interested persons" of the Trust, or by a vote of the holders of a
majority of the Fund's outstanding shares as defined under "Additional
Information," in any case without payment of any penalty on 60 days' written
notice to the other party. The principal offices of FDI are located at 60 State
Street, Suite 1300, Boston, Massachusetts 02109.

CO-ADMINISTRATOR

Under Co-Administration Agreements with the Trust and the Portfolio
dated August 1, 1996, FDI also serves as the Trust's and the Portfolio's
Co-Administrator. The Co-Administration Agreements may be renewed or amended by
the respective Trustees without a shareholder vote. The Co-Administration
Agreements are terminable at any time without penalty by a vote of a majority of
the Trustees of the Trust or the Portfolio, as applicable, on not more than 60
days' written notice nor less than 30 days' written notice to the other party.
The Co-Administrator may subcontract for the performance of its obligations,
provided, however, that unless the Trust or the Portfolio, as applicable,
expressly agrees in writing, the Co-Administrator shall be fully responsible for
the acts and omissions of any subcontractor as it would for its own acts or
omissions. See "Services Agent" below.

FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolio; (ii) provides officers for the Trust and the Portfolio; (iii)
prepares and files documents required for notification of state securities
administrators; (iv) reviews and files marketing and sales literature; (v) files
Portfolio regulatory documents and mails Portfolio communications to Trustees
and investors; and (vi) maintains related books and records.

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

The Fund paid FDI the following administrative fees for the period August
1, 1996 through August 31, 1996 and the fiscal years ended August 31, 1997 and
1998: $525, $6,410 and $11,546.

The Portfolio paid FDI the following administrative fees for the period
August 1, 1996 through August 31, 1996 and the fiscal years ended August 31,
1997 and 1998: $2,284, $25,082 and $24,913.

For the period September 1, 1995 through July 31, 1996, the Fund paid
Signature Broker-Dealer Services, Inc. (which provided distribution and
administrative services to the Trust and placement agent and administrative
services to the Portfolio prior to August 1, 1996) $23,755 in administrative
fees.

For the period September 1, 1995 through July 31, 1996, the Portfolio
paid Signature Broker-Dealer Services, Inc. (which provided distribution and
administrative services to the Trust and placement agent and administrative
services to the Portfolio prior to August 1, 1996) $110,848 in administrative
fees.

SERVICES AGENT

The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
pursuant to which Morgan is responsible for certain administrative and related
services provided to the Fund and Portfolio. The Services Agreements may be
terminated at any time, without penalty, by the Trustees or Morgan, in each case
on not more than 60 days' nor less than 30 days' written notice to the other
party.

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

Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996 with Morgan, the Portfolio paid Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This charge
was calculated daily based on the aggregate net assets of the Master Portfolios
in accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion. Prior to
December 29, 1995, the Trust and the Portfolio had entered into Financial and
Fund Accounting Services Agreements with Morgan, the provisions of which
included certain of the activities described above and, prior to September 1,
1995, also included reimbursement of usual and customary expenses.

The Fund paid to Morgan, as Services Agent, the following fees net of
fee waivers and reimbursements, for the fiscal years ended August 31, 1996, 1997
and 1998: $30,085, $60,316 and $147,096. See the Prospectus and below for
applicable expense limitations.

The Portfolio paid to Morgan, as Services Agent, the following fees net of
fee waivers and reimbursements, for the fiscal years ended August 31, 1996, 1997
and 1998: $205,419, $397,340 and $502,654. See the Prospectus and below for
applicable expense limitations.

CUSTODIAN AND TRANSFER AGENT

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the Custodian Contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In addition, the
Custodian has entered into subcustodian agreements on behalf of the Portfolio
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 variable
rate demand notes. The custodian maintains portfolio transaction records. As
transfer agent and dividend disbursing agent, State Street is responsible for
maintaining account records detailing the ownership of Fund shares and for
crediting income, capital gains and other changes in share ownership to
shareholder accounts.

SHAREHOLDER SERVICING

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

Effective August 1, 1998, under the Shareholder Servicing Agreement,
the Fund has agreed to pay Morgan for these services a fee at the annual rate of
0.10%(expressed as a percentage of the average daily net asset value of Fund
shares owned by or for shareholders for whom Morgan is acting as shareholder
servicing agent). Morgan acts as shareholder servicing agent for all
shareholders. See the Prospectus and below for applicable expense limitations.

The paragraph below sets forth for the Fund listed the shareholder
servicing fees paid by the Fund to Morgan, net of fee waivers and
reimbursements, for the fiscal periods indicated. See "Expenses" in the
Prospectus and below for applicable expense limitations.

The shareholder servicing fees paid by the Fund to Morgan, net of fee
waivers and reimbursements, for the fiscal years ended August 31, 1996, 1997 and
1998 were as follows: $103,262, $97,098 and $278,809, of which $50,458 was
waived for the period February 10, 1997 through August 31, 1997. The entire
shareholder servicing fee was waived for the fiscal year ended August 31, 1998.

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

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

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

FINANCIAL PROFESSIONALS

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

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

INDEPENDENT ACCOUNTANTS

The independent accountants of the Trust and 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 Fund and the Portfolio, assists in the preparation and/or
review of the Fund's and the Portfolio's federal and state income tax returns
and consults with the Fund and the Portfolio as to matters of accounting and
federal and state income taxation.

EXPENSES

In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "Distributor," "Services Agent" and
"Shareholder Servicing" above, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration fees under federal securities laws, and
extraordinary expenses applicable to the Fund or the Portfolio. For the Fund,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolio, such expenses also include custodian fees. For additional information
regarding waivers or expense subsidies, see the Prospectus.

J.P. Morgan has agreed that it will reimburse all Fund expenses except
those allocated to the Fund by the Portfolio. If the Portfolio's allocation of
expenses to the Fund exceeds 0.35% of the Fund's average daily net assets, J.P.
Morgan will reimburse the Fund to the extent necessary to maintain the Fund's
total operating expenses at the annual rate of 0.35% of the Fund's average daily
net assets. These limits do not cover extraordinary expenses. This
reimbursement/waiver arrangement can be changed at any time after December 31,
1998 at the option of J.P. Morgan.

PURCHASE OF SHARES

Method of Purchase. Investors may open accounts with the Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.

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

The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the Portfolio;
(ii) be acquired by the Fund for investment and not for resale (other than for
resale to the Portfolio); and (iii) be liquid securities which are not
restricted as to transfer either by law or liquidity of market. The Fund
reserves the right to accept or reject at its own option any and all securities
offered in payment for its shares.

Prospective investors may purchase shares with the assistance of a
Financial Professional, and the Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.

<PAGE>

REDEMPTION OF SHARES

Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Fund should be aware that the Fund attempts
to maintain a stable net asset value of $1.00 per share; however, there can be
no assurance that it will be able to continue to do so, and in that case the net
asset value of the Fund's shares might deviate from $1.00 per share.
Accordingly, a redemption request might result in payment of a dollar amount
which differs from the number of shares redeemed. See "Net Asset Value" below.

If the Trust, on behalf of the Fund, and the Portfolio determine that
it would be detrimental to the best interest of the remaining shareholders of
the Fund to make payment wholly or partly in cash, payment of the redemption
price may be made in whole or in part by a distribution in kind of securities
from the Portfolio, in lieu of cash, in conformity with the applicable rule of
the SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust,
on behalf of the Fund, has elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which the Portfolio is obligated to redeem shares solely in cash
up to the lesser of $250,000 or one percent of the net asset value of the Fund
during any 90-day period for any one shareholder. The Trust will redeem Fund
shares in kind only if it has received a redemption in kind from the Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolio has advised the Trust that
the Portfolio will not redeem in kind except in circumstances in which the Fund
is permitted to redeem in kind.

Further Redemption Information. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of the Fund, and the Portfolio reserve the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.

EXCHANGE OF SHARES

An investor may exchange shares from the Fund into shares of any other
J.P. Morgan Institutional or J.P. Morgan mutual fund, without charge. An
exchange may be made so long as after the exchange the investor has shares, in
each fund in which he or she remains an investor, with a value of at least that
fund's minimum investment amount. Shareholders should read the prospectus of the
fund into which they are exchanging and may only exchange between fund accounts
that are registered in the same name, address and taxpayer identification
number. Shares are exchanged on the basis of relative net asset value per share.
Exchanges are in effect redemptions from one fund and purchases of another fund
and the usual purchase and redemption procedures and requirements are applicable
to exchanges. Shareholders subject to federal income tax who exchange shares in
one fund for shares in another fund may recognize capital gain or loss for
federal income tax purposes. Shares of the Fund to be acquired are purchased for
settlement when the proceeds from redemption become available. The Trust
reserves the right to discontinue, alter or limit the exchange privilege at any
time.

DIVIDENDS AND DISTRIBUTIONS

The Fund declares and pays dividends and distributions as described in
the Prospectus.

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

NET ASSET VALUE

The Fund computes its net asset value once daily on Monday through
Friday as described in the Prospectus. The net asset value will not be computed
on the day the following legal holidays are observed: New Year's Day, Martin
Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day, Independence
Day, Labor Day, Columbus Day, Veterans 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
Fund and Portfolio would expect to close for purchases and redemptions an hour
in advance of the end of trading in the money markets. The Fund and the
Portfolio may also close for purchases and redemptions at such other times as
may be determined by the Board of Trustees to the extent permitted by applicable
law. On any business day when the Public Securities Association ("PSA")
recommends that the securities market close early, the Fund reserves the right
to cease accepting purchase and redemption orders for same business day credit
at the time PSA recommends that the securities market close. On days the Fund
closes early, purchase and redemption orders received after the PSA-recommended
closing time will be credited the next business day. The days on which net asset
value is determined are the Fund's business days.

The net asset value of the Fund is equal to the value of the Fund's
investment in the Portfolio (which is equal to the Fund's pro rata share of the
total investment of the Fund and of any other investors in the Portfolio less
the Fund's pro rata share of the Portfolio's liabilities) less the Fund's
liabilities. The following is a discussion of the procedures used by the
Portfolio in valuing its assets.

The Portfolio's portfolio securities are valued by the amortized cost
method. The purpose of this method of calculation is to attempt to maintain a
constant net asset value per share of the Fund of $1.00. 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 changing the Fund's
dividend policy, shortening the average portfolio maturity, realizing gains or
losses, or reducing the number of outstanding Fund shares. Any reduction of
outstanding shares will be effected by having each shareholder contribute to the
Fund's capital the necessary shares on a pro rata basis. Each shareholder will
be deemed to have agreed to such contribution in these circumstances by his
investment in the Fund. See "Taxes."

PERFORMANCE DATA

From time to time, the Fund may quote performance in terms of yield,
actual distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Current performance
information for the Fund may be obtained by calling the number provided on the
cover page of this Statement of Additional Information.

Yield Quotations. As required by regulations of the SEC, current yield
for the Fund is computed by determining the net change exclusive of capital
changes in the value of a hypothetical pre-existing account having a balance of
one share at the beginning of a seven-day calendar period, dividing the net
change in account value of the account at the beginning of the period, and
multiplying the return over the seven-day period by 365/7. For purposes of the
calculation, net change in account value reflects the value of additional shares
purchased with dividends from the original share and dividends declared on both
the original share and any such additional shares, but does not reflect realized
gains or losses or unrealized appreciation or depreciation. Effective yield for
the Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares. The tax equivalent yield is computed by
first computing the yield as discussed above. Then the portion of the yield
attributable to securities the income of which was exempt for federal income tax
purposes is determined. This portion of the yield is then divided by one minus
the stated assumed federal income tax rate for individuals and then added to the
portion of the yield that is not attributable to securities, the income of which
was tax exempt.

Historical yield information for the period ended August 31, 1998 is as
follows: 7-day current yield: 3.21%; 7-day tax equivalent yield at 39.6% tax
rate: 5.31%; 7-day effective yield: 3.26%.

Total Return Quotations. Historical performance information for the periods
prior to the establishment of the Fund will be that of its corresponding
predecessor J.P. Morgan fund and will be presented in accordance with applicable
SEC Staff interpretations. The applicable financial information in the
registration statement for the J.P. Morgan Funds (Registration Nos. 033-54632
and 811-07340) is incorporated herein by reference.

Historical return information for the Fund's predecessor for the period
ended August 31, 1998 is as follows: Average annual total return, 1 year: 3.45%;
Average annual total return, 5 years: 3.21%; average annual total return, 10
years: 3.77%; aggregate total return, 1 year: 3.45%; aggregate total return, 5
years: 17.09%; aggregate total return, 10 years: 44.77%.

Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.

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

Comparative performance information may be used from time to time in
advertising the Fund's shares, including appropriate market indices including
the benchmarks indicated under "Investment Advisor" above or data from Lipper
Analytical Services, Inc., Micropal, Inc., Ibbotson Associates, Morningstar
Inc., the Dow Jones Industrial Average and other industry publications.

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

PORTFOLIO TRANSACTIONS

The Advisor places orders for the 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 "Investment Objectives and Policies."

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

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. See "Investment Objective and Policies --
Portfolio Turnover." The Portfolio will not seek profits through short-term
trading, but the Portfolio may dispose of any portfolio security prior to its
maturity if it believes such disposition is appropriate even if this action
realizes profits or losses.

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 has a policy of investing only in securities with
maturities of not more than thirteen months, which 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 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, 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.

Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor 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 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.

MASSACHUSETTS TRUST

The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the Fund is a separate and distinct
series. a copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.

Effective January 1, 1998, the name of the Trust was changed from "The
JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and the Fund's
name changed accordingly.

Under Massachusetts law, shareholders of such a trust may, under
certain circumstances, be held personally liable as partners for the obligations
of the trust which is not the case for a corporation. However, the Trust's
Declaration of Trust provides that the shareholders shall not be subject to any
personal liability for the acts or obligations of the Fund and that every
written agreement, obligation, instrument or undertaking made on behalf of the
Fund shall contain a provision to the effect that the shareholders are not
personally liable thereunder.

No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision is
given, except possibly in a few jurisdictions. With respect to all types of
claims in the latter jurisdictions, (i) tort claims, (ii) contract claims where
the provision referred to is omitted from the undertaking, (iii) claims for
taxes, and (iv) certain statutory liabilities in other jurisdictions, a
shareholder may be held personally liable to the extent that claims are not
satisfied by the Fund. However, upon payment of such liability, the shareholder
will be entitled to reimbursement from the general assets of the Fund. The
Trustees intend to conduct the operations of the Trust in such a way so as to
avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.

The Trust's Declaration of Trust further provides that the name of the
Trust refers to the Trustees collectively as Trustees, not as individuals or
personally, that no Trustee, officer, employee or agent of the Fund is liable to
the Fund or to a shareholder, and that no Trustee, officer, employee, or agent
is liable to any third persons in connection with the affairs of the Fund,
except as such liability may arise from his or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or its duties to such
third persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Trust's Declaration of Trust provides
that a Trustee, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of the Fund.

The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust concerning termination by action of the
shareholders or by action of the Trustees upon notice to the shareholders.

DESCRIPTION OF SHARES

The Trust is an open-end management investment company organized as a
Massachusetts business trust in which the Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."

The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in the Fund (or in the assets of other series, if applicable).
Each share represents an equal proportional interest in the Fund with each other
share. Upon liquidation of the Fund, holders are entitled to share pro rata in
the net assets of the Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of the Fund have no preemptive or conversion
rights and are fully paid and nonassessable. The rights of redemption and
exchange are described in the Prospectus and elsewhere in this Statement of
Additional Information.

The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to lengthen
their own terms, or to make their terms of unlimited duration subject to certain
removal procedures, and appoint their own successors, provided, however, that
immediately after such appointment the requisite majority of the Trustees have
been elected by the shareholders of the Trust. The voting rights of shareholders
are not cumulative so that holders of more than 50% of the shares voting can, if
they choose, elect all Trustees being selected while the shareholders of the
remaining shares would be unable to elect any Trustees. It is the intention of
the Trust not to hold meetings of shareholders annually. The Trustees may call
meetings of shareholders for action by shareholder vote as may be required by
either the 1940 Act or the Trust's Declaration of Trust.

Shareholders of the Trust have the right, upon the declaration in
writing or vote of more than two-thirds of its outstanding shares, to remove a
Trustee. The Trustees will call a meeting of shareholders to vote on removal of
a Trustee upon the written request of the record holders of 10% of the Trust's
shares. In addition, whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who hold in
the aggregate either shares having a net asset value of at least $25,000 or at
least 1% of the Trust's outstanding shares, whichever is less, shall apply to
the Trustees in writing, stating that they wish to communicate with other
shareholders with a view to obtaining signatures to request a meeting for the
purpose of voting upon the question of removal of any Trustee or Trustees and
accompanied by a form of communication and request which they wish to transmit,
the Trustees shall within five business days after receipt of such application
either: (1) afford to such applicants access to a list of the names and
addresses of all shareholders as recorded on the books of the Trust; or (2)
inform such applicants as to the approximate number of shareholders of record,
and the approximate cost of mailing to them the proposed communication and form
of request. If the Trustees elect to follow the latter course, the Trustees,
upon the written request of such applicants, accompanied by a tender of the
material to be mailed and of the reasonable expenses of mailing, shall, with
reasonable promptness, mail such material to all shareholders of record at their
addresses as recorded on the books, unless within five business days after such
tender the Trustees shall mail to such applicants and file with the SEC,
together with a copy of the material to be mailed, a written statement signed by
at least a majority of the Trustees to the effect that in their opinion either
such material contains untrue statements of fact or omits to state facts
necessary to make the statements contained therein not misleading, or would be
in violation of applicable law, and specifying the basis of such opinion. After
opportunity for hearing upon the objections specified in the written statements
filed, the SEC may, and if demanded by the Trustees or by such applicants shall,
enter an order either sustaining one or more of such objections or refusing to
sustain any of them. If the SEC shall enter an order refusing to sustain any of
such objections, or if, after the entry of an order sustaining one or more of
such objections, the SEC shall find, after notice and opportunity for hearing,
that all objections so sustained have been met, and shall enter an order so
declaring, the Trustees shall mail copies of such material to all shareholders
with reasonable promptness after the entry of such order and the renewal of such
tender.

The Trustees have authorized the issuance and sale to the public of
shares of 23 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.

As of October 31, 1998, the following owned of record more than 5% of the
outstanding shares of the Fund: E. H. Skove (7.00%).

The address of each owner listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of the Fund.

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in the Master Portfolio, a separate registered investment
company with the same investment objective as the Fund. Generally, when a Master
Portfolio seeks a vote to change a fundamental investment restriction and
policies, its feeder fund(s) will hold a shareholder meeting and cast its vote
proportionately, as instructed by its shareholders. Fund shareholders are
entitled to one vote for each dollar of net asset value (or a proportionate
fractional vote in respect of a fractional dollar amount), on matters on which
shares of the Fund shall be entitled to vote.

In addition to selling a beneficial interest to the Fund, the Portfolio
may sell beneficial interests to other mutual funds or institutional investors.
Such investors will invest in the Portfolio on the same terms and conditions and
will bear a proportionate share of the Portfolio's expenses. However, the other
investors investing in the Portfolio may sell shares of their own fund using a
different pricing structure than the Fund. Such different pricing structures may
result in differences in returns experienced by investors in other funds that
invest in the Portfolio. Such differences in returns are not uncommon and are
present in other mutual fund structures. Information concerning other holders of
interests in the Portfolio is available from Morgan at (800) 766-7722.

The Trust may withdraw the investment of the Fund from the Portfolio at
any time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in the Fund's prospectus.

Certain changes in the Portfolio's fundamental investment policies or
restrictions, or a failure by the Fund's shareholders to approve such change in
the Portfolio's investment restrictions, may require withdrawal of the Fund's
interest in the Portfolio. Any such withdrawal could result in a distribution in
kind of portfolio securities (as opposed to a cash distribution) from the
Portfolio which may or may not be readily marketable. The distribution in kind
may result in the Fund having a less diversified portfolio of investments or
adversely affect the Fund's liquidity, and the Fund could incur brokerage, tax
or other charges in converting the securities to cash. Notwithstanding the
above, there are other means for meeting shareholder redemption requests, such
as borrowing.

Smaller funds investing in the Portfolio may be materially affected by
the actions of larger funds investing in the Portfolio. For example, if a large
fund withdraws from the Portfolio, the remaining funds may subsequently
experience higher pro rata operating expenses, thereby producing lower returns.

Additionally, because the Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the Fund's
shareholders. The Trust will vote the shares held by Fund shareholders who do
not give voting instructions in the same proportion as the shares of Fund
shareholders who do give voting instructions. Shareholders of the Fund who do
not vote will have no affect on the outcome of such matters.

TAXES

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

The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investment of other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies). As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.

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

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

The Fund intends to qualify to pay exempt-interest dividends to its
shareholders by having, at the close of each quarter of its taxable year, at
least 50% of the value of its total assets consist of tax exempt securities. An
exempt-interest dividend is that part of dividend distributions made by the Fund
which is properly designated as consisting of interest received by the Fund on
tax exempt securities. Shareholders will not incur any federal income tax on the
amount of exempt-interest dividends received by them from the Fund, other than
the alternative minimum tax under certain circumstances. In view of the Fund's
investment policies, it is expected that a substantial portion of all dividends
will be exempt-interest dividends, although the Fund may from time to time
realize and distribute net short-term capital gains and may invest limited
amounts in taxable securities under certain circumstances.

Distributions of net investment income and realized net short-term
capital gains in excess of net long-term capital losses (other than exempt
interest dividends) are generally taxable to shareholders of the Fund as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. Distributions to corporate shareholders of the Fund are not
eligible for the dividends received deduction. Distributions of net long-term
capital gain (i.e., net long-term capital gain in excess of net short-term
capital loss) are taxable to shareholders of the Fund as long-term capital
gains, regardless of whether such distributions are taken in cash or reinvested
in additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a reduced rate of tax. Investors should consult their tax advisors
concerning the treatment of capital gains and losses. Additionally, any loss
realized on a redemption or exchange of shares of the Fund will be disallowed to
the extent the shares disposed of are replaced by securities that are
substantially identical to shares of the Fund within a period of 61 days
beginning 30 days before such disposition, such as pursuant to reinvestment of a
dividend in shares of the Fund.

To maintain a constant $1.00 per share net asset value, the Trustees of
the Trust may direct that the number of outstanding shares be reduced pro rata.
If this adjustment is made, it will reflect the lower market value of portfolio
securities and not realized losses. The adjustment may result in a shareholder
having more dividend income than net income in his account for a period. When
the number of outstanding shares of the Fund is reduced, the shareholder's basis
in the shares of the Fund may be adjusted to reflect the difference between
taxable income and net dividends actually distributed. This difference may be
realized as a capital loss when the shares are liquidated. Subject to certain
limited exceptions, capital losses cannot be used to offset ordinary income. See
"Net Asset Value."

Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put is acquired or a
call option is written thereon or straddle rules are otherwise applicable. Other
gains or losses on the sale of securities will be short-term capital gains or
losses. Gains and losses on the sale, lapse or other termination of options on
securities will be treated as gains and losses from the sale of securities. If
an option written by 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.

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

Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. However, any loss realized by a
shareholder upon the redemption or exchange of shares in the Fund held for six
months or less will be treated as a long-term capital loss to the extent of any
long-term capital gain distributions received by the shareholder with respect to
such shares.

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

In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of the Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.

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

Other Taxation. The Trust is organized as a Massachusetts business
trust and, under current law, neither the Trust nor the Fund is liable for any
income or franchise tax in The Commonwealth of Massachusetts, provided that the
Fund continues to qualify as a regulated investment company under Subchapter M
of the Code. The Portfolio is organized as a New York trust. The Portfolio is
not subject to any federal income taxation or income or franchise tax in the
State of New York or The Commonwealth of Massachusetts. The investment by the
Fund in the Portfolio does not cause the Fund to be liable for any income or
franchise tax in the State of New York.

ADDITIONAL INFORMATION

As used in this Statement of Additional Information and the Prospectus,
the term "majority of the outstanding voting securities" means the vote of (i)
67% or more of the Fund's shares or the Portfolio's outstanding voting
securities present at a meeting, if the holders of more than 50% of the Fund's
outstanding shares or the Portfolio's outstanding voting securities are present
or represented by proxy, or (ii) more than 50% of the Fund's outstanding shares
or the Portfolio's outstanding voting securities, whichever is less.

Telephone calls to the Fund, J.P. Morgan or Financial Professionals as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the Portfolio's
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.

Statements contained in this Statement of Additional Information and
the Prospectus concerning the contents of any contract or other document are not
necessarily complete, and in each instance, reference is made to the copy of
such contract or other document filed as an exhibit to the applicable
Registration Statements.
Each such statement is qualified in all respects by such reference.

No dealer, salesman or any other person has been authorized to give any
information or to make any representations, other than those contained in the
Prospectus and this Statement of Additional Information, in connection with the
offer contained therein and, if given or made, such other information or
representations must not be relied upon as having been authorized by any of the
Trust, the Fund or the Distributor. The Prospectus and this Statement of
Additional Information do not constitute an offer by the Fund or by the
Distributor to sell or solicit any offer to buy any of the securities offered
hereby in any jurisdiction to any person to whom it is unlawful for the Fund or
the Distributor to make such offer in such jurisdictions.

The Year 2000 Initiative

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

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

Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will continue
its efforts to prepare its systems for the year 2000. The total cost to become
year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio. FINANCIAL STATEMENTS

The financial statements and the report thereon of Price waterhouseCoopers LLP
are incorporated herein by reference from the Fund's August 31, 1998 annual
report filing made with the SEC on October 30, 1998 pursuant to Section 30(b) of
the 1940 Act and Rule 30b2-1 thereunder (Accession Number 0001047469-98-038757).
The financial statements are available without charge upon request by calling
J.P. Morgan Funds Services at (800) 766-7722. The Fund's financial statements
include the financial statements of the Portfolio.

<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.

Commercial Paper, including Tax Exempt

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

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

Short-Term Tax-Exempt Notes

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

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

MOODY'S

Corporate and Municipal Bonds

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

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

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

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

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.

- --------
1 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.

<PAGE>

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 30, 1998

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED NOVEMBER 30, 1998, FOR THE FUND LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE ANNUAL REPORT RELATING TO THE
FUND LISTED ABOVE. THE PROSPECTUS AND THESE FINANCIAL STATEMENTS, INCLUDING THE
AUDITOR'S REPORT THEREON, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL SERVICE FUNDS (800)
221-7930.

<PAGE>

Table of Contents

Page
General...............................................................1
Investment Objective and Policies.....................................1
Investment Restrictions..............................................11
Trustees and Officers................................................14
Investment Advisor...................................................18
Distributor..........................................................20
Co-Administrator.....................................................21
Services Agent.......................................................21
Custodian and Transfer Agent.........................................22
Shareholder Servicing................................................23
Service Organization.................................................23
Independent Accountants..............................................25
Expenses.............................................................25
Purchase of Shares...................................................25
Redemption of Shares.................................................26
Exchange of Shares...................................................27
Dividends and Distributions..........................................27
Net Asset Value......................................................27
Performance Data.....................................................28
Portfolio Transactions...............................................30
Massachusetts Trust..................................................31
Description of Shares................................................32
Special Information Concerning
Investment Structure.................................................34
Taxes................................................................35
Additional Information...............................................38
Appendix A - Description of Security Ratings........................A-1

<PAGE>

GENERAL

This Statement of Additional Information relates only to the J.P.
Morgan Institutional Service Tax Exempt Money Market Fund (the "Fund"). The Fund
is a series of shares of beneficial interest of the J.P. Morgan Institutional
Funds, an open-end management investment company formed as a Massachusetts
business trust (the "Trust"). In addition to the Fund, the Trust consists of
other series representing separate investment funds (each a "J.P. Morgan
Institutional Fund"). The other J.P. Morgan Institutional Funds are covered by
separate Statements of Additional Information.

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

Investments in the Fund are not deposits or obligations of, or
guaranteed or endorsed by, Morgan Guaranty Trust Company of New York,
("Morgan"), an affiliate of the Advisor, or any other bank. Shares of the Fund
are not federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board, or any other governmental agency. An investment in the
Fund is subject to risk that may cause the value of the investment to fluctuate,
and when the investment is redeemed, the value may be higher or lower than the
amount originally invested by the investor.

INVESTMENT OBJECTIVE AND POLICIES

The Fund is designed for investors who seek to high current income
consistent with the preservation of capital and same day liquidity from a
portfolio of high quality money market instruments. The Fund's investment
objective is maximize current income that is exempt from federal income tax
consistent with the preservation of capital and same day liquidity. See "Taxes."
The Fund attempts to achieve this objective by investing all of its

<PAGE>

investable assets in The Tax Exempt Money Market Portfolio (the
"Portfolio"), a diversified open-end management investment company having the
same investment objective as the Fund.

Money Market Instruments

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

Tax Exempt Obligations

<PAGE>

Municipal Notes. Municipal notes are subdivided into three categories of
short-term obligations: municipal notes, municipal commercial paper and
municipal demand obligations.

Municipal demand obligations are subdivided into two types: variable rate
demand notes and master demand obligations.

<PAGE>

the redemption date) must be within thirteen months or the maturity
must be deemed to be no more than 397 days because of a maturity shortening
mechanism, such as a variable interest rate, coupled with a conditional or
unconditional right to resell the investment to the issuer or a third party.
See "Variable Rate Demand Notes" and "Puts." A substantial portion of the
Fund's portfolio is subject to maturity shortening mechanisms consisting of
variable interest rates coupled with unconditional rights to resell the
securities to the issuers either directly or by drawing on a domestic or
foreign bank letter of credit or other credit support arrangement. See
"Foreign Investments."

The Fund values any municipal bonds and notes which are subject to puts
at amortized cost. No value is assigned to the put. The cost of any such put
is carried as an unrealized loss from the time of purchase until it is
exercised or expires. The Board of Trustees would, in connection with the
determination of the value of a put, consider, among other factors, the
creditworthiness of the writer of the put, the duration of the put, the dates
on which or the periods during which the put may be exercised and the
applicable rules and regulations of the SEC.

<PAGE>

connection with such determination, the Trustees will review regularly
the Advisor's list of approved dealers, taking into consideration, among other
things, the ratings, if available, of their equity and debt securities, their
reputation in the municipal securities markets, their net worth, their
efficiency in consummating transactions and any collateral arrangements, such
as letters of credit, securing the puts written by them. Commercial bank
dealers normally will be members of the Federal Reserve System, and other
dealers will be members of the National Association of Securities Dealers,
Inc. or members of a national securities exchange. The Trustees have directed
the Advisor not to enter into put transactions with any dealer which in the
judgment of the Advisor becomes more than a minimal credit risk. In the event
that a dealer should default on its obligation to repurchase an underlying
security, the Fund is unable to predict whether all or any portion of any loss
sustained could subsequently be recovered from such dealer.

Taxable Investments

The Fund attempts to invest its assets in tax exempt securities and
when investments are not available, may hold cash or may invest to a limited
extent in taxable securities. While the Fund does not currently intend to
invest in taxable securities, in abnormal market conditions for defensive
purposes only, it may invest up to 20% of the value of its total assets in
securities, the interest income on which may be subject to federal, state or
local income taxes. The taxable investments permitted for the Fund include
obligations of the U.S. Government and its agencies and instrumentalities,
bank obligations, commercial paper and repurchase agreements.

<PAGE>

Federal Home Loan Banks and the U.S. Postal Service, each of which has
the right to borrow from the U.S. Treasury to meet its obligations; (ii)
securities issued by the Federal National Mortgage Association, which are
supported by the discretionary authority of the U.S. Government to purchase
the agency's obligations; and (iii) obligations of the Federal Farm Credit
System and the Student Loan Marketing Association, each of whose obligations
may be satisfied only by the individual credits of the issuing agency.

Bank Obligations. The Fund, unless otherwise noted in the Prospectus or
below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) banks, savings and loan associations and savings
banks which have more than $2 billion in total assets and are organized under
the laws of the United States or any state, (ii) foreign branches of these
banks or of foreign banks of equivalent size (Euros) and (iii) U.S. branches
of foreign banks of equivalent size (Yankees). The Fund may not invest in
obligations of foreign branches of foreign banks. The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank.

<PAGE>

agreement may also be viewed as a fully collateralized loan of money by
the Fund to the seller. The period of these repurchase agreements will usually
be short, from overnight to one week, and at no time will the Fund invest in
repurchase agreements for more than 397 days. The securities which are subject
to repurchase agreements, however, may have maturity dates in excess of 397
days from the effective date of the repurchase agreement. The Fund will always
receive securities as collateral whose market value is, and during the entire
term of the agreement remains, at least equal to 100% of the dollar amount
invested by the Fund in the agreement plus accrued interest, and the Fund will
make payment for such securities only upon physical delivery or upon evidence
of book entry transfer to the account of the Custodian. The Fund will be fully
collateralized within the meaning of paragraph (a)(4) of Rule 2a-7 under the
Investment Company Act of 1940, as amended (the "1940 Act"). If the seller
defaults, the Fund might incur a loss if the value of the collateral securing
the repurchase agreement declines and might incur disposition costs in
connection with liquidating the collateral. In addition, if bankruptcy
proceedings are commenced with respect to the seller of the security,
realization upon disposal of the collateral by the Fund may be delayed or
limited.

Additional Investments

<PAGE>

Investment Company Securities. Securities of other investment companies
may be acquired by the Fund and 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 Fund's total assets will be invested in the securities of any
one investment company, (ii) not more than 10% of the value of its total
assets will be invested in the aggregate in securities of investment companies
as a group, and (iii) not more than 3% of the outstanding voting stock of any
one investment company will be owned by the Fund, provided however, that the
Fund may invest all of its investable assets in an open-end investment company
that has the same investment objective as the Fund (its corresponding
Portfolio). As a shareholder of another investment company, the Fund or
Portfolio would bear, along with other shareholders, its pro rata portion of
the other investment company's expenses, including advisory fees. These
expenses would be in addition to the advisory and other expenses that the Fund
or Portfolio bears directly in connection with its own operations.

<PAGE>

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

<PAGE>

of principal or interest on the underlying bond, (b) downgrading of the
bond below investment grade or (c) a loss of the bond's tax exempt status,
occur, then (i) the put will terminate, (ii) the risk to the Fund will be that
of holding a long-term bond, and (iii) the disposition of the bond may be
required which could be at a loss.

Quality and Diversification Requirements

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

<PAGE>

(or, in the case of New York State municipal notes, within one of the
two highest ratings assigned to short-term debt securities) by at least two
NRSROs or by the only NRSRO that has rated the security. Securities which
originally had a maturity of over one year are subject to more complicated,
but generally similar rating requirements. The Fund may also purchase unrated
securities that are of comparable quality to the rated securities described
above. Additionally, if the issuer of a particular security has issued other
securities of comparable priority and security and which have been rated in
accordance with the criteria described above that security will be deemed to
have the same rating as such other rated securities.

INVESTMENT RESTRICTIONS

The investment restrictions below have been adopted by the Trust, with
respect to the Fund, and, except as noted, 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 of the Fund or Portfolio, as the case may
be. A "majority of the outstanding voting securities" is defined in the 1940
Act as the lesser of (a) 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities
are present or represented by proxy, or (b) more than 50% of the outstanding
voting securities. The percentage limitations contained in the restrictions
below apply at the time of the purchase of securities. Whenever the Fund is
requested to vote on a change in the fundamental investment restrictions of
the Portfolio, the Trust will hold a meeting of Fund shareholders and will
cast its votes as instructed by the Fund's shareholders.

The Fund may not:

1. Borrow money, except from banks for temporary, extraordinary or
emergency purposes and then only in amounts up to 10% of the value of
the Fund's total assets, taken at cost at the time of such borrowing;
or mortgage, pledge or hypothecate any assets except in connection with
any

<PAGE>

such borrowing in amounts up to 10% of the value of the Fund's net assets at
the time of such borrowing. The Fund will not purchase securities while
borrowings exceed 5% of the Fund's total assets, provided, however,
that the Fund may increase its interest in an open-end management
investment company with the same investment objective and restrictions
as the Fund's while such borrowings are outstanding. This borrowing
provision, for example, facilitates the orderly sale of portfolio
securities in the event of abnormally heavy redemption requests or in
the event of redemption requests during periods of tight market supply.
This provision is not for leveraging purposes;

2. Invest more than 25% of its total assets in securities of governmental
units located in any one state, territory, or possession of the United
States. The Fund may invest more then 25% of its total assets in
industrial development and pollution control obligations whether or not
the users of facilities financed by such obligations are in the same
industry;1

3. Purchase industrial revenue bonds if, as a result of such purchase,
more than 5% of total Fund assets would be invested in industrial
revenue bonds where payment of principal and interest are the
responsibility of companies with fewer than three years of operating
history;

4. Purchase the securities or other obligations of any one issuer if,
immediately after such purchase, more than 5% of the value of the Fund's total
assets would be invested in securities or other obligations of any one such
issuer, provided, however, that the Fund may invest all or part of its
investable assets in an open-end management investment company with the same
investment objective and restrictions as the Fund's. Each state and each
political subdivision, agency or instrumentality of such state and each
multi-state agency of which such state is a member will be a separate issuer if
the security is backed only by the assets and revenues of that issuer. If the
security is guaranteed by another entity, the guarantor will be deemed to be the
issuer. This limitation shall not apply to securities issued or guaranteed by
the U.S. Government, its agencies or instrumentalities or to permitted
investments of up to 25% of the Fund's total assets;2

5. Make loans, except through the purchase or holding of debt obligations,
repurchase agreements, or loans of portfolio securities in accordance
with the Fund's investment objective and policies (see "Investment
Objectives and Policies");

<PAGE>

6. Purchase or sell puts, calls, straddles, spreads, or any combination
thereof except to the extent that securities subject to a demand
obligation, stand-by commitments and puts may be purchased (see
"Investment Objectives and Policies"); real estate; commodities;
commodity contracts; or interests in oil, gas, or mineral exploration
or development programs. However, the Fund may purchase municipal
bonds, notes or commercial paper secured by interests in real estate;

7. 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
securities or of securities for delayed delivery;

8. Acquire securities of other investment companies, except as permitted by the
1940 Act;

9. Act as an underwriter of securities; or

10. Issue senior securities, except as may otherwise be permitted by the
foregoing investment restrictions or under the 1940 Act or any rule,
order or interpretation thereunder.

The Tax Exempt Money Market Portfolio, except as noted below, has
adopted substantially similar fundamental investment restrictions. Investment
restrictions numbered 3, 7 and 8 above are non-fundamental for the Portfolio.
The Portfolio's fundamental borrowing restriction allows the Portfolio to borrow
to the extent permitted by law, currently 33-1/3% of total assets. The
Portfolio, however, has adopted a non-fundamental investment restriction
limiting its borrowing ability to 10% of total assets. These differences are not
expected to materially affect the management of the Portfolio.

Non-Fundamental Investment Restriction. The investment restriction
described below is not a fundamental policy of the Fund may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Fund may not:

(i) 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 Fund's net assets would be in investments that are illiquid.

<PAGE>

With The Securities and Exchange Commission or other sources. In the
absence of such classification or if the Advisor determines in good faith based
on its own information that the economic characteristics affecting a particular
issuer make it more appropriately considered to be engaged in a different
industry, the Advisor may classify an issuer accordingly. For instance, personal
credit finance companies and business credit finance companies are deemed to be
separate industries and wholly owned finance companies are considered to be in
the industry of their parents if their activities are primarily related to
financing the activities of their parents.

TRUSTEES AND OFFICERS

Trustees

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

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.

MATTHEW HEALEY3--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1992. His address is Pine Tree
Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his
date of birth is August 23, 1937.

<PAGE>

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1997 are set forth below.

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

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

Frederick S. Addy, Trustee $11,772.77 $72,500
- -------------------------------- ------------ ---------------------------
- -------------------------------- ------------ ---------------------------

William G. Burns, Trustee $11,786.38 $72,500
- -------------------------------- ------------ ---------------------------
- -------------------------------- ------------ ---------------------------

Arthur C. Eschenlauer, Trustee $11,786.38 $72,500
- -------------------------------- ------------ ---------------------------
- -------------------------------- ------------ ---------------------------

Matthew Healey, Trustee (**) $11,786.38 $72,500
Chairman and Chief Executive
Officer
- -------------------------------- ------------ ---------------------------------
- -------------------------------- ------------ ---------------------------------

Michael P. Mallardi, Trustee $11,786.38 $72,500
- -------------------------------- ------------ ---------------------------------

(*) Includes the Portfolio and 19 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.

<PAGE>

The principal offices of Pierpont Group, Inc. are located at 461 Fifth
Avenue, New York, New York 10017.

The aggregate fees paid to Pierpont Group, Inc. by the Fund and
Portfolio during the indicated fiscal years are set forth below:

Fund -- For the period November 4, 1997 (commencement of operations) through the
fiscal year ended August 31, 1998: $26.

Portfolio -- For the fiscal years ended August 31, 1996, 1997 and 1998: $62,310,
$43,285 and $53,097.

Officers

<PAGE>

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.

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

<PAGE>

Director of Internal Audit at The Boston Company. His date of birth is
January 2, 1955.

INVESTMENT ADVISOR

The Fund has not retained the services of an investment adviser because
each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio. Subject to the supervision of
the Portfolio's Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Effective October 1, 1998 the
Portfolio's investment advisor is JPMIM. Prior to that date, Morgan was the
Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan
& Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, which 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.

<PAGE>

are invested in common trust funds for which the Advisor serves as trustee.
The accounts which are managed or advised by the Advisor have varying investment
objectives and the Advisor invests assets of such accounts in investments
substantially similar to, or the same as, those which are expected to constitute
the principal investments of the Portfolio. Such accounts are supervised by
officers and employees of the Advisor who may also be acting in similar
capacities for the Portfolio. See "Portfolio Transactions."

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.

<PAGE>

its shares, such as the 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 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.

DISTRIBUTOR

<PAGE>

CO-ADMINISTRATOR

For the fiscal period November 4, 1997 (commencement of operations)
through the fiscal year ended August 31, 1998, the Fund paid FDI $28 in
administrative fees.

The Portfolio paid the following administrative fees to FDI for the
fiscal period August 1, 1996 through August 31, 1996 and the fiscal years ended
August 31, 1997 and 1998: $2,284, $25,082 and $24,913. See the Prospectus and
below for applicable expense limitations.

The Portfolio paid the following administrative fees to Signature
Broker-Dealer Services, Inc. (which provided distribution and administrative
services to the Trust and placement agent and administrative services to the
Portfolio prior to August 1, 1996) for the period September 1, 1995 through July
31, 1996: $110,848. See the Prospectus and below for applicable expense
limitations.

SERVICES AGENT

<PAGE>

The Fund incurred and Morgan waived its fee of $392 as Services Agent
for the fiscal period November 4, 1997 (commencement of operations) through the
fiscal year ended August 31, 1998. In addition, Morgan was reimbursed $72,455 of
other expenses for the fiscal period indicated. See the Prospectus and below for
applicable expense limitations.

The Portfolio paid the following fees paid Morgan, net of fee waivers
and reimbursements, as Services Agent for the fiscal years ended August 31,
1996, 1997 and 1998: $205,419, $397,340 and $502,654. See the Prospectus and
below for applicable expense limitations.

CUSTODIAN AND TRANSFER AGENT

<PAGE>

SHAREHOLDER SERVICING

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

Under the Shareholder Servicing Agreement, the Fund has agreed to pay
Morgan for these services a fee at the annual rate (expressed as a percentage of
the average daily net asset value of Fund shares owned by or for shareholders
for whom Morgan is acting as shareholder servicing agent) of 0.05%. Morgan acts
as shareholder servicing agent for all shareholders.

The Fund paid the following shareholder servicing fee to Morgan, net of
fee waivers and reimbursements, for the period November 4, 1997 (commencement of
operations) through the fiscal year ended August 31, 1998: $696. See the
Prospectus and "Expenses" below for applicable expense limitations.

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

SERVICE ORGANIZATION

The Trust, on behalf of the Fund, has adopted a service plan (the
"Plan") with respect to the shares which authorizes the Fund to compensate
Service Organizations for providing certain account administration and other
services to their customers who are beneficial owners of such shares. Pursuant
to the Plan, the Trust, on behalf of the Fund, enters into agreements with
Service Organizations which purchase shares on behalf of their customers
("Service Agreements"). Under such Service Agreements, the Service Organizations
may: (a) act, directly or through an agent, as the sole shareholder of record
and nominee for all customers, (b) maintain or assist in maintaining account
records for each customer who beneficially owns shares, and (c) process or
assist in processing customer orders to purchase, redeem and exchange shares,
and handle or assist in handling the transmission of funds representing the
customers' purchase price or redemption proceeds. As compensation for such
services, the Trust on behalf of the Fund pays each Service Organization a
service fee in an amount up to 0.25% (on an annualized basis) of the average
daily net assets of the shares of the Fund attributable to or held in the name
of such Service Organization for its customers (0.20% where J.P. Morgan acts as
a service organization).

Conflicts of interest restrictions (including the Employee Retirement
Income Security Act of 1974) may apply to a Service Organization's receipt of
compensation paid by the Trust in connection with the investment of fiduciary
funds in shares. Service Organizations, including banks regulated by the
Comptroller of the Currency, the Federal Reserve Board or the Federal Deposit
Insurance Corporation, and investment advisers and other money managers subject
to the jurisdiction of the Securities and Exchange Commission, the Department of
Labor or state securities commissions, are urged to consult legal advisers
before investing fiduciary assets in shares. In addition, under some state
securities laws, banks and other financial institutions purchasing shares on
behalf of their customers may be required to register as dealers.

The Trustees of the Trust, including a majority of Trustees who are not
interested persons of the Trust and who have no direct or indirect financial
interest in the operation of such Plan or the related Service Agreements,
initially voted to approve the Plan and Service Agreements at a meeting called
for the purpose of voting on such Plan and Service Agreements on April 9, 1997.
The Plan was approved by the initial shareholders of each Fund on June 3, 1997,
remains in effect until July 10, 1998 and will continue in effect thereafter
only if such continuance is specifically approved annually by a vote of the
Trustees in the manner described above. The Plan may not be amended to increase
materially the amount to be spent for the services described therein without
approval of the shareholders of the Fund, and all material amendments of the
Plan must also be approved by the Trustees in the manner described above. The
Plan may be terminated at any time by a majority of the Trustees as described
above or by vote of a majority of the outstanding shares of the Fund. The
Service Agreements may be terminated at any time, without payment of any
penalty, by vote of a majority of the disinterested Trustees as described above
or by a vote of a majority of the outstanding shares of the Fund on not more
than 60 days' written notice to any other party to the Service Agreements. The
Service Agreements shall terminate automatically if assigned. So long as the
Plans are in effect, the selection and nomination of those Trustees who are not
interested persons shall be determined by the non-interested members of the
Board of Trustees. The Trustees have determined that, in their judgment, there
is a reasonable

<PAGE>

likelihood that the Plan will benefit the Funds and Fund shareholders.
In the Trustees' quarterly review of the Plan and Service Agreements, they will
consider their continued appropriateness and the level of compensation provided
therein.

INDEPENDENT ACCOUNTANTS

EXPENSES

In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "Distributor", "Services Agent" and
"Shareholder Servicing" above, the Fund and the Portfolio are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration fees under federal securities laws, and
extraordinary expenses applicable to the Fund or the Portfolio. For the Fund,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolio, such expenses also include custodian fees and brokerage expenses. For
additional information regarding waivers or expense subsidies, see the
Prospectus.

J.P. Morgan has agreed that it will reimburse the Fund until further notice
to the extent necessary to maintain the Fund's total operating expenses (which
include expenses of the Fund and the Portfolio) at the annual rate of 0.45% of
the Fund's average daily net assets. This limit does not cover extraordinary
expenses. This reimbursement/waiver arrangement can be changed at any time after
December 31, 1998 at the option of J.P. Morgan.

PURCHASE OF SHARES

References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a Service Organization include customers
of their affiliates and references to transactions by customers with Morgan or

<PAGE>

a Service Organization include transactions with their affiliates. Only
Fund investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
the Fund may make transactions in shares of the Fund.

Prospective investors may purchase shares with the assistance of a
Service Organization, and the Service Organization may charge the investor a fee
for this service and other services it provides to its customers.

REDEMPTION OF SHARES

<PAGE>

purchased before the check has cleared, the transmittal of redemption
proceeds from the shares will occur upon clearance of the check which may take
up to 15 days. The Trust, on behalf of the Fund, and the Portfolio reserve the
right to suspend the right of redemption and to postpone the date of payment
upon redemption as follows: (i) for up to seven days, (ii) during periods when
the New York Stock Exchange is closed for other than weekends and holidays or
when trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit.

EXCHANGE OF SHARES

DIVIDENDS AND DISTRIBUTIONS

The Fund declares and pays dividends and distributions as described in
the Prospectus.

NET ASSET VALUE

<PAGE>

Association ("PSA") recommends that the securities market close early,
the Fund reserves the right to cease accepting purchase and redemption orders
for same business day credit at the time PSA recommends that the securities
market close. On days the Fund closes early, purchase and redemption orders
received after the PSA-recommended closing time will be credited the next
business day. The days on which net asset value is determined are the Fund's
business days.

PERFORMANCE DATA

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individuals and then added to the portion of the yield that is not
attributable to securities, the income of which was tax exempt.

Below is set forth historical yield information for the periods
indicated:

The historical yield information of the Fund for the period ended August
31, 1998 is as follows: 7-day current yield: 2.85%; 7-day tax equivalent yield
at 39.6% tax rate: 4.72%; 7-day effective yield: 2.89%.

Total return quotations. Historical performance information for periods
prior to the establishment of the Fund will be that of its related series of the
J.P. Morgan Funds and will be presented in accordance with applicable SEC staff
interpretations. The applicable financial information in the registration
statement for the J.P. Morgan Funds (Registration Nos. 033-54632 and 811-07340)
is incorporated herein by reference.

The historical performance information shown below may reflect
operating expenses which were lower than those of the Fund. These returns may be
higher than would have occurred if an investment had been made during the
periods indicated in the J.P. Morgan Institutional Service Tax Exempt Money
Market Fund.

Historical return information for the Fund's related series of the J.P.
Morgan Funds for the period ended August 31, 1998 is as follows: Average annual
total return, 1 year: 3.65%; Average annual total return, 5 years: 3.12%;
average annual total return, 10 years: 3.73%; aggregate total return, 1 year:
3.65%; aggregate total return, 5 years:16.62%; aggregate total return, 10
years:44.17%.

Aggregate total returns, reflecting the cumulative percentage change
over a measuring period, may also be calculated.

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(including, but not limited to, qualified retirement plans and
individual stocks and bonds), which may or may not include the Fund; (7)
comparisons of investment products (including the Fund) with relevant markets or
industry indices or other appropriate benchmarks; (8) discussions of Fund
rankings or ratings by recognized rating organizations; and (9) discussions of
various statistical methods quantifying the Fund's volatility relative to its
benchmark or to past performance, including risk adjusted measures. The Fund may
also include calculations, such as hypothetical compounding examples, which
describe hypothetical investment results in such communications. Such
performance examples will be based on an express set of assumptions and are not
indicative of the performance of the Fund.

PORTFOLIO TRANSACTIONS

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

Subject to the overriding objective of obtaining the best possible
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

<PAGE>

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.

MASSACHUSETTS TRUST

The Trust is a trust fund of the type commonly known as a
"Massachusetts business trust" of which the Fund is a separate and distinct
series. A copy of the Declaration of Trust for the Trust is on file in the
office of the Secretary of The Commonwealth of Massachusetts. The Declaration of
Trust and the By-Laws of the Trust are designed to make the Trust similar in
most respects to a Massachusetts business corporation. The principal distinction
between the two forms concerns shareholder liability described below.

Effective January 1, 1998, the name of the Trust was changed from "The
JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and the Fund's
name changed accordingly.

<PAGE>

satisfied by the Fund. However, upon payment of such liability, the
shareholder will be entitled to reimbursement from the general assets of the
Fund. The Trustees intend to conduct the operations of the Trust in such a way
so as to avoid, as far as possible, ultimate liability of the shareholders for
liabilities of the Fund.

DESCRIPTION OF SHARES

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action by shareholder vote as may be required by either the 1940 Act or the
Trust's Declaration of Trust.

<PAGE>

invested, would belong to that series or class, subject only to the
rights of creditors of the Trust and would be subject to the liabilities related
thereto. Shareholders of any additional series or class will approve the
adoption of any management contract or distribution plan relating to such series
or class and of any changes in the investment policies related thereto, to the
extent required by the 1940 Act.

For information relating to mandatory redemption of Fund shares or
their redemption at the option of the Trust under certain circumstances, see the
Prospectus.

As of October 31, 1998, the following owned of record more than 5% of the
outstanding shares of the Fund: Bank of New York (71.91%); Hare & Co. (23.86%).

The address of each owner listed above is c/o Morgan, 522 Fifth Avenue,
New York, New York, 10036. As of the date of this Statement of Additional
Information, the officers and Trustees as a group owned less than 1% of the
shares of the Fund.

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in the Master Portfolio, a separate registered investment
company with the same investment objective and policies as the Fund. Generally,
when a Master Portfolio seeks a vote to change a fundamental investment
restriction, its feeder fund(s) will hold a shareholder meeting and cast its
vote proportionately, as instructed by its shareholders. Fund shareholders are
entitled to one vote for each dollar of net asset value (or a proportionate
fractional vote in respect of a fractional dollar amount), on matters on which
shares of the Fund shall be entitled to vote.

TAXES

The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments of other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies). As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.

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

Distributions of net investment income and realized net short-term
capital gains in excess of net long-term capital loss (other than exempt
interest dividends) are generally taxable to shareholders of the Fund as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. Distributions to corporate shareholders of the Fund are not
eligible for the dividends received deduction. Distributions of net long-term
capital gains (i.e., net long-term capital gain in excess of net short-term
capital loss) are taxable to shareholders of the Fund as long-term capital
gains, regardless of whether such distributions are taken in cash or reinvested
in additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a reduced rate of tax. Investors should consult their tax advisors
concerning the treatment of capital gains and losses. Additionally, any loss
realized on a redemption or exchange of shares of the Fund will be disallowed to
the extent the shares disposed of are replaced by securities that are
substantially identical to shares of the Fund within a period of 61 days
beginning 30 days before such disposition, such as pursuant to reinvestment of a
dividend in shares of the Fund.

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

Foreign Shareholders. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations. Distributions treated
as long term capital gains to foreign shareholders will not be subject to U.S.
tax unless the distributions are effectively connected with the shareholder's
trade or business in the United States or, in the case of a shareholder who is a
nonresident alien individual, the shareholder was present in the United States
for more than 182 days during the taxable year and certain other conditions are
met.
In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8 is provided. Transfers by
gift of shares of the Fund by a foreign shareholder who is a nonresident alien
individual will not be subject to U.S. federal gift tax, but the value of shares
of the Fund held by such a shareholder at his or her death will be includible in
his or her gross estate for U.S. federal estate tax purposes.

ADDITIONAL INFORMATION

Telephone calls to the Fund, J.P. Morgan or Service Organizations as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the Portfolio's
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.

The Year 2000 Initiative

Costs associated with efforts to prepare J.P. Morgan's systems
for the year 2000 approximated $95 million in 1997. In 1998, J.P. Morgan will
continue its efforts to prepare its systems for the year 2000. The total cost to
become year-2000 compliant is estimated at $250 million, for internal systems
renovation and testing, testing equipment, and both internal and external
resources working on the project. Remaining costs will be incurred primarily in
1998. The costs associated with J.P. Morgan becoming year-2000 compliant will be
borne by J.P. Morgan and not the Fund nor the Portfolio.

FINANCIAL STATEMENTS

The financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference from the Fund's
August 31, 1998 annual report filing made with the SEC on October 30, 1998
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession
Number 0001047469-98-038755). The financial statements are available without
charge upon request by calling J.P. Morgan Funds Services at (800) 766-7722. The
Fund's financial statements include the financial statements of the Portfolio.

<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.

BBB - Debt rated BBB are regarded as having an adequate capacity to pay
interest and repay principal. Whereas it 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.

Commercial Paper, including Tax Exempt

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

Short-Term Tax-Exempt Notes

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

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Corporate and Municipal Bonds

<PAGE>

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

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1Pursuant to an interpretation of the staff of the SEC, the Fund may
not invest more than 25% of its assets in industrial development bonds
in projects of similar type or in the same state. The Fund shall comply
with this interpretation until such time as it may be modified by the
staff of the SEC.

2For purposes of interpretation of Investment Restriction No. 4
"guaranteed by another entity" includes credit substitutions, such as
letters of credit or insurance, unless the Advisor determines that the
security meets the Fund's credit standards without regard to the credit
substitution.

3Mr. 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.