JP MORGAN INSTITUTIONAL FUNDS, 497, 1999-03-05

JP MORGAN INSTITUTIONAL FUNDS
497, 1999-03-05

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MARCH 1, 1999 | PROSPECTUS

J.P. MORGAN INSTITUTIONAL
U.S. EQUITY FUNDS

Disciplined Equity Fund

U.S. Equity Fund

U.S. Small Company Fund

Tax Aware Disciplined Equity Fund

----------------------------------------
Seeking to outperform U.S. stock markets
over the long term through a disciplined
management approach

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

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

Distributed by Funds Distributor, Inc.

<PAGE>

CONTENTS
- --------------------------------------------------------------------------------
2 | Each fund's goal, investment approach, risks, expenses and performance

J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUNDS
J.P. Morgan Institutional Disciplined Equity Fund ................... 2
J.P. Morgan Institutional U.S. Equity Fund .......................... 4
J.P. Morgan Institutional U.S. Small Company Fund ................... 6
J.P. Morgan Institutional Tax Aware Disciplined Equity Fund ......... 8

10 | Principles and techniques common
to the funds in this prospectus

U.S. EQUITY MANAGEMENT APPROACH
J.P. Morgan ........................................................ 10
J.P. Morgan U.S. equity funds ...................................... 10
The spectrum of U.S. equity funds .................................. 10
Who may want to invest ............................................. 10
U.S. equity investment process ..................................... 11
Tax aware investing at J.P. Morgan ................................. 11

12 | Investing in the J.P. Morgan
Institutional U.S. Equity 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 risk and the funds'
business operations

FUND DETAILS
Business structure ................................................. 15
Management and administration ...................................... 15
Risk and reward elements ........................................... 16
Financial Highlights ............................................... 18

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

<PAGE>

J.P. MORGAN INSTITUTIONAL
DISCIPLINED EQUITY FUND | TICKER SYMBOL: JPIEX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND)

RISK/RETURN SUMMARY
[GRAPHIC OMITTED]
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 16-17.

GOAL
[GRAPHIC OMITTED]
The fund's goal is to provide a consistently high total return from a broadly
diversified portfolio of equity securities with risk characteristics similar to
the Standard & Poor's 500 Stock Index (S&P 500). This goal can be changed
without shareholder approval.

INVESTMENT APPROACH
[GRAPHIC OMITTED]
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the S&P 500.
The fund does not look to overweight or underweight industries.

Within each industry, the fund modestly overweights stocks that are ranked as
undervalued or fairly valued while modestly underweighting or not holding stocks
that appear overvalued. (The process used to rank stocks according to their
relative valuations is described on page 11.) Therefore, the fund tends to own a
larger number of stocks within the S&P 500 than the U.S. Equity Fund.

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

An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. You could lose money if you sell when the fund's share price is lower
than when you invested.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $16.4 billion using similar strategies as the fund.

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

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

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

o The fund does not represent a complete investment program.

2 | J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND

<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Disciplined Equity Fund.

The bar chart indicates the risks by showing the performance of the fund's
shares during its first complete calendar year of operations.

The table indicates the risks by showing how the fund's average annual returns
for the past year and for the life of the fund compare to those of the S&P 500
Index. This is a widely recognized, unmanaged index of U.S. stocks used as a
measure of overall U.S. stock market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1998
30% 32.35

20%
10%

0%
- --------------------------------------------------------------------------------

[] J.P. Morgan Institutional Disciplined Equity Fund

For the period covered by this total return chart, the fund's highest quarterly
return was 22.85% (for the quarter ended 12/31/98); and the lowest quarterly
return was -9.91% (for the quarter ended 9/30/98).

Average annual total return (%) Shows performance over time, for periods
ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Institutional Disciplined Equity
Fund (after expenses) 32.35 30.49
- --------------------------------------------------------------------------------
S&P 500 Index (no expenses) 28.58 28.37
- --------------------------------------------------------------------------------

<PAGE>

- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.35

Marketing (12b-1) fees none

Other expenses(4) 0.37
- --------------------------------------------
Total annual fund
operating expenses(4) 0.72
- --------------------------------------------

- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 74 230 401 895
- --------------------------------------------------------------------------------

(1) The fund's fiscal year end is 5/31.
(2) The fund commenced operations on 1/3/97 and performance is calculated as of
1/31/97.
(3) The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for
the past fiscal year before reimbursement, expressed as a percentage of the
fund's average net assets.
(4) After reimbursement other expenses and total operating expenses are 0.10%
and 0.45%, respectively. This reimbursement can be changed or terminated at
any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND | 3

<PAGE>

J.P. MORGAN INSTITUTIONAL
U.S. EQUITY FUND | TICKER SYMBOL: JMUEX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND)

RISK/RETURN SUMMARY
[GRAPHIC OMITTED]
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 16-17.

GOAL
[GRAPHIC OMITTED]
The fund's goal is to provide high total return from a portfolio of selected
equity securities. This goal can be changed without shareholder approval.

INVESTMENT APPROACH
[GRAPHIC OMITTED]
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund can moderately underweight or
overweight industries when it believes it will benefit performance.

Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the investment process described on page 11. The fund
generally considers selling stocks that appear overvalued.

By emphasizing undervalued stocks, the fund seeks to produce returns that exceed
those of the S&P 500. At the same time, by controlling the industry weightings
of the fund so they can differ only moderately from the industry weightings of
the S&P 500, the fund seeks to limit its volatility to that of the overall
market, as represented by this index.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $13.3 billion using similar strategies as the fund.

The portfolio management team is led by William M. Riegel, Jr., managing
director, who has been on the team since 1993 and has been at J.P. Morgan since
1979, and Henry D. Cavanna, managing director, who joined the team in February
1998, and has been at J.P. Morgan since 1971. Both served as managers of U.S.
equity portfolios prior to managing the fund.

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

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

o The fund does not represent a complete investment program.

4 | J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND

<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional U.S. Equity Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the fund's last 10 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one, five and ten years compare to those of the S&P 500 Index. This
is a widely recognized, unmanaged index of U.S. stocks used as a measure of
overall U.S. stock market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998

40%
34.12 32.83
30% 31.43
28.58 24.79
20% 21.22
11.06
10%
8.73
0% 1.38
(0.32)
(10%)
- --------------------------------------------------------------------------------

[] J.P. Morgan Institutional U.S. Equity Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 21.33% (for the quarter ended 12/31/98); and the
lowest quarterly return was -11.83% (for the quarter ended 9/30/90).

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
J.P. Morgan Institutional U.S.
Equity Fund (after expenses) 24.79 20.83 18.71
- --------------------------------------------------------------------------------
S&P 500 Index (no expenses) 28.58 24.06 19.21
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.40

Marketing (12b-1) fees none

Other expenses(4) 0.23
- --------------------------------------------
Total annual fund
operating expenses(4) 0.63
- --------------------------------------------

Expense example

- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 64 202 351 786
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 9/17/93. For the period 1/1/89 through
9/30/93, returns reflect performance of The Pierpont Equity Fund, the
predecessor of the fund.
(2) The fund's fiscal year end is 5/31.

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

(4) After reimbursement, other expenses and total operating expenses are 0.20%
and 0.60%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND | 5

<PAGE>

J.P. MORGAN INSTITUTIONAL
U.S. SMALL COMPANY FUND | TICKER SYMBOL: JUSSX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND)

RISK/RETURN SUMMARY
[GRAPHIC OMITTED]
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 16-17.

GOAL
[GRAPHIC OMITTED]
The fund's goal is to provide high total return from a portfolio of small
company stocks. This goal can be changed without shareholder approval.

INVESTMENT APPROACH
[GRAPHIC OMITTED]
The fund invests primarily in small and medium sized U.S. companies whose market
capitalizations are greater than $110 million and less than $1.5 billion.
Industry by industry, the fund's weightings are similar to those of the Russell
2000 Index. The fund can moderately underweight or overweight industries when it
believes it will benefit performance.

Within each industry, the fund focuses on those stocks that are ranked as most
undervalued according to the process described on page 11. The fund generally
considers selling stocks that appear overvalued or have grown into large-cap
stocks.

Small-cap stocks have historically offered higher long-term growth than
large-cap stocks, and have also involved higher risks. The fund's small-cap
emphasis means it is likely to be more sensitive to economic news and is likely
to fall further in value during broad market downturns. The fund pursues returns
that exceed those of the Russell 2000 Index while seeking to limit its
volatility relative to this index.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $2.7 billion using similar strategies as the fund.

The portfolio management team is led by Denise Higgins, vice president, Marian
Pardo, managing director, and Stephen J. Rich, vice president. Ms. Higgins
joined the team in January 1998 and has been with J.P. Morgan since 1994. Prior
to managing the fund, Ms. Higgins served as a balanced and equity portfolio
manager and member of the U.S. asset allocation committee, and prior to 1994,
was a mid-to-small cap portfolio manager at Lord Abbett & Company. Ms. Pardo has
been at J.P. Morgan since 1968, except for five months in 1998 when she was
president of a small investment management firm. Prior to managing the fund, Ms.
Pardo managed small and large cap equity portfolios, equity and convertible
funds, and several institutional portfolios. Mr. Rich joined the team in January
1997 and has been at J.P. Morgan since 1991, and prior to managing the fund held
positions in J.P. Morgan's structured equity and balanced/equity groups.

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

Investors considering the fund should understand that:

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

o The fund does not represent a complete investment program.

6 | J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY EQUITY FUND

<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan U.S. Institutional Small Company Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the fund's last 10 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one, five and ten years compare to those of the Russell 2000 Index.
This is a widely recognized, unmanaged index of small cap U.S. stocks used as a
measure of overall U.S. small company stock performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

(30%)
(24.34)
(5.81) (5.28)
- --------------------------------------------------------------------------------
[] J.P. Morgan U.S. Small Company Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 33.79% (for the quarter ended 3/31/91); and the
lowest quarterly return was -30.03% (for the quarter ended 9/30/90).

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
J.P. Morgan Institutional U.S. Small Company
Fund (after expenses) (5.28) 11.77 13.38
- --------------------------------------------------------------------------------
Russell 2000 Index (no expenses) (2.55) 11.86 12.92
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.60

Marketing (12b-1) fees none

Other expenses(4) 0.25
- --------------------------------------------
Total annual fund
operating expenses(4) 0.85
- --------------------------------------------

Expense example

- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 87 271 471 1049
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 11/4/93. For the period 1/1/89 through
11/30/93 returns reflect performance of The Pierpont Capital Appreciation
Fund, the predecessor of the fund.
(2) The fund's fiscal year end is 5/31.

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

(4) After reimbursement other expenses and total operating expenses are 0.20%
and 0.80%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND | 7

<PAGE>

J.P. MORGAN INSTITUTIONAL TAX AWARE
DISCIPLINED EQUITY FUND | TICKER SYMBOL: JPDEX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN TAX AWARE DISCIPLINED EQUITY FUND:INSTITUTIONAL SHARES)

RISK/RETURN SUMMARY
[GRAPHIC OMITTED]
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 16-17.

GOAL
[GRAPHIC OMITTED]
The fund's goal is to provide high after tax total return from a portfolio of
selected equity securities. This goal can be changed without shareholder
approval.

INVESTMENT APPROACH
[GRAPHIC OMITTED]
The fund invests primarily in large- and medium-capitalization U.S. companies.
Industry by industry, the fund's weightings are similar to those of the Standard
& Poor's 500 Stock Index (S&P 500). The fund does not look to underweight or
overweight industries.

To this investment approach the fund adds the element of tax aware investing.
The fund's tax aware investment strategies are described on page 11.

By owning a large number of stocks within the S&P 500, with an emphasis on those
that appear undervalued or fairly valued, and by tracking the industry
weightings of that index, the fund seeks returns that modestly exceed those of
the S&P 500 over the long term with virtually the same level of volatility. The
fund's tax aware strategies may reduce your capital gains but will not eliminate
them. Maximizing after-tax returns may require trade-offs that reduce pre-tax
returns.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $16.4 billion using similar strategies as the fund.

The portfolio management team is led by Robin B. Chance, vice president, and
Frederic A. Nelson, managing director, who have been on the team since the
fund's inception in January of 1997. Ms. Chance has been at J.P. Morgan since
1987, Mr. Nelson since May 1994. Prior to managing this fund, both were
responsible for structured equity strategies. Prior to joining Morgan, Mr.
Nelson was a portfolio manager at Bankers Trust.

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

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

o The fund does not represent a complete investment program.

8 | J.P. MORGAN INSTITUTIONAL TAX AWARE DISCIPLINED EQUITY FUND

<PAGE>

- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Tax Aware Disciplined Equity Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares during its first complete calendar year of operations.

The table indicates the risks by showing how the fund's average annual returns
for the past year and the life of the fund compare to those of the S&P 500
Index. This is a widely recognized, unmanaged index of U.S. stocks used as a
measure of overall U.S. stock performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

- --------------------------------------------------------------------------------
Total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1998

40%
31.82
20%

0%
- --------------------------------------------------------------------------------
[] J.P. Morgan Institutional Tax Aware Disciplined Equity Fund

For the period covered by this total return chart, the fund's highest quarterly
return was 22.98% (for the quarter ended 12/31/98) and the lowest quarterly
return was -10.05% (for the quarter ended 9/30/98).

- --------------------------------------------------------------------------------
Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Institutional Tax Aware
Disciplined Equity Fund (after expenses) 31.82 31.29
- --------------------------------------------------------------------------------
S&P 500 Index (no expenses) 28.58 28.37
- --------------------------------------------------------------------------------

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

INVESTOR EXPENSES
The expenses of the fund before reimbursement are shown at right. The fund has
no sales, exchange, or account fees, although some institutions may charge you a
fee for shares you buy through them. The annual fund expenses after
reimbursement are deducted from fund assets prior to performance calculations.

- -------------------------------------------------
Shareholder transaction expenses(3)
- -------------------------------------------------
Redemption fees (% of your cash proceeds)
- -------------------------------------------------
Shares held for less than one year 1.00
Shares held one year or longer none

Annual expenses (% of fund assets)
- -------------------------------------------------
Management fees 0.35
Marketing (12b-1) fees none
Other expenses 0.67
- -------------------------------------------------
Total annual fund operating expenses 1.02
- -------------------------------------------------

- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 104/204 325 563 1,248
- --------------------------------------------------------------------------------
(1) The fund's fiscal year end is 10/31.

(2) The fund commenced operations on 1/30/97, and returns reflect performance
of the fund from 1/31/97.

(3) This table shows the fund's expenses for the past fiscal year before
reimbursement, expressed as a percentage of the fund's average net assets.
After reimbursement, other expenses and total operating expenses are 0.20%
and 0.55%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL TAX AWARE DISCIPLINED EQUITY FUND | 9

<PAGE>

U.S. EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $316 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.

J.P. MORGAN U.S. EQUITY FUNDS
These funds invest primarily in U.S. stocks either directly or through another
fund. As a shareholder, you should anticipate risks and rewards beyond those of
a typical bond fund or a typical balanced fund.

THE SPECTRUM OF U.S. EQUITY FUNDS
The funds described in this prospectus pursue a range of goals and offer varying
degrees of risk and potential reward. Differences between these funds include:

o how much emphasis they give to the most undervalued stocks

o how closely they follow the industry weightings of their benchmarks

o how many securities they typically maintain in their portfolios

o the size or market capitalization of the companies in which they invest

o whether they focus on before-tax or after-tax returns

The table below shows degrees of the relative risk and return that these funds
potentially offer. These and other distinguishing features of each U.S. equity
fund were described on the preceding pages.

- --------------------------------------------------------------------------------
Who May Want To Invest

The funds are designed for investors who:

o are pursuing a long-term goal such as retirement

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

o want funds that seek to outperform the markets in which they each invest
over the long term

o with regard to the Tax Aware Fund, are individuals that could benefit from
a strategy that pursues returns from an after-tax perspective

The funds are not designed for investors who:

o want funds that pursue market trends or focus only on particular industries
or sectors

o require regular income or stability of principal

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

o with regard to the Tax Aware Fund, are investing through a tax-deferred
account such as an IRA.

- --------------------------------------------------------------------------------
Potential risk and return
- --------------------------------------------------------------------------------
^
|
|---------------U.S. Small Company Fund o The positions of the funds in
R| | this graph reflect long-term
| | performance goals only and are
e| | relative, not absolute.
| |
t|--------------------o U.S. Equity Fund |
| | |
u| | |
| | |
r| | |
|----------o Tax Aware Disciplined Equity Fund
n| | Disciplined Equity Fund |
| | | |
| | | |
| | | |
| | | |
-------------------------------------------->
R i s k

10 | FUND DETAILS

<PAGE>

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

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

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

U.S. EQUITY INVESTMENT PROCESS
The J.P. Morgan U.S. equity funds invest primarily in U.S. stocks. The Tax Aware
Fund does so while seeking to enhance after-tax returns.

While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor, focuses
on stock picking while largely avoiding sector or market-timing strategies.

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

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

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

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

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

o high potential reward compared to potential risk

o temporary mispricings caused by market overreactions

<PAGE>

- --------------------------------------------------------------------------------
TAX AWARE INVESTING AT J.P. MORGAN
The Tax Aware Fund is designed to reduce, but not eliminate, capital gains
distributions to shareholders. In doing so, the fund sells securities when the
anticipated performance benefit justifies the resulting tax liability. This
strategy often includes holding securities long enough to avoid higher,
short-term capital gains taxes, selling shares with a higher cost basis first,
and offsetting gains realized in one security by selling another security at a
capital loss. The fund is aided in this process by a tax-sensitive optimization
model developed by J.P. Morgan.

The Tax Aware Fund generally intends to pay redemption proceeds in cash; however
it reserves the right at its sole discretion to pay redemptions over $250,000
in-kind as a portfolio of representative stocks rather than cash. An in-kind
redemption payment can shield the fund -- and other shareholders -- from tax
liabilities that might otherwise be incurred. It is not subject to a redemption
fee by the fund. However, the stocks received will continue to fluctuate in
value after redemption and will be subject to brokerage or other transaction
costs when liquidated.

FUND DETAILS | 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 Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments is $1,000,000 for the Disciplined
Equity and U.S. Small Company funds and $3,000,000 for the U.S. Equity and
Tax Aware funds and for additional investments $25,000, although these
minimums may be less for some investors. For more information on minimum
investments, call 1-800-766-7722.

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

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

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

<PAGE>

OPENING YOUR ACCOUNT

By wire

o Mail your completed application to the Shareholder Services Agent.

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

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

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

By check

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

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

By exchange

o Call the Shareholder Services Agent to effect an exchange.

ADDING TO YOUR ACCOUNT

By wire

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

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

By check

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

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

By exchange

o Call the Shareholder Services Agent to effect an exchange.

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

In writing

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

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

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

o Mail the letter to the Shareholder Services Agent.

By exchange

o Call the Shareholder Services Agent to effect an exchange.

Redemption in kind

o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.

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

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

Business days and NAV calculations The funds' regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each fund
calculates its net asset value per share (NAV) every business day as of the
close of trading on the NYSE (normally 4:00 p.m. eastern time). Each fund's
securities are typically priced using market quotes or pricing services. When
these methods are not available or do not represent a security's value at the
time of pricing, (e.g., when an event occurs after the close of trading that
would materially impact a security's value) the security is valued in accordance
with the fund's fair valuation procedures.

- --------------------------------------------------------------------------------
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>

- --------------------------------------------------------------------------------
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment, generally the day following execution. When
you sell shares, cash proceeds are generally available the day following
execution and will be forwarded according to your instructions. In-kind
redemptions (described on page 11) will be available as promptly as is feasible.

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

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

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

DIVIDENDS AND DISTRIBUTIONS
Income dividends are typically paid four times a year for the Disciplined
Equity, U.S. Equity and Tax Aware funds; and twice a year for the U.S. Small
Company fund. Each fund typically makes capital gains distributions, if any,
once per year. However, a fund may make more or fewer payments in a given year,
depending on its investment results and its tax compliance situation. Each
fund's dividends and distributions consist of most or all of its net investment
income and net realized capital gains.

Dividends and distributions are reinvested in additional fund shares.
Alternatively, you may instruct your financial professional or J.P. Morgan Funds
Services to have them sent to you

<PAGE>

by check, credited to a separate account, or invested in another J.P. Morgan
Institutional Fund.

TAX CONSIDERATIONS

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

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

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
- --------------------------------------------------------------------------------
BUSINESS STRUCTURE
As noted earlier, each fund (except the Tax Aware Fund) is a series of J.P
Morgan Institutional Funds, a Massachusetts business trust, and is a "feeder"
fund that invests in a master portfolio. (Except where indicated, this
prospectus uses the term "the fund" to mean the feeder fund and its master
portfolio taken together.)

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

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

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

J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:

<PAGE>

- --------------------------------------------------------------------------------
Advisory services Percentage of the master
portfolio's average net assets
- --------------------------------------------------------------------------------
Disciplined Equity 0.35%
- --------------------------------------------------------------------------------
U.S. Equity 0.40%
- --------------------------------------------------------------------------------
U.S. Small Company 0.60%
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion in J.P. Morgan-
advised portfolios, plus 0.04% of
average net assets over
$7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------

The Tax Aware Fund, subject to the expense reimbursements described earlier in
this prospectus, pays J.P. Morgan the following fees for investment advisory and
other services:

- --------------------------------------------------------------------------------
Advisory services 0.35% of the fund's average
net assets
- --------------------------------------------------------------------------------
Administrative services Fund's pro-rata portion of 0.09%
(fee shared with Funds of the first $7 billion of
Distributor, Inc.) average net assets in
J.P. Morgan-advised portfolios,
plus 0.04% of average
net assets over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------

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

FUND DETAILS | 15
<PAGE>

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

<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Potential risks Potential rewards Policies to balance risk and reward
- -----------------------------------------------------------------------------------------------------------------------------------
Market conditions

o Each fund's share price and o Stocks have generally outperformed o Under normal circumstances the funds
performance will fluctuate more stable investments (such as plan to remain fully invested, with
in response to stock bonds and cash equivalents) over the at least 65% in stocks; stock
market movements long term investments may include U.S. and
foreign common stocks, convertible
o Adverse market conditions may from securities, preferred stocks, trust
time to time cause a fund to take or partnership interests, warrants,
temporary defensive positions that rights, and investment company
are inconsistent with its principal securities
investment strategies and may hinder
a fund from achieving its investment o The funds seek to limit risk through
objective diversification

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

- ------------------------------------------------------------------------------------------------------------------------------------
Management choices

o A fund could underperform its o A fund could outperform its benchmark o J.P. Morgan focuses its active
benchmark due to its securities and due to these same choices management on securities selection,
asset allocation choices the area where it believes its
commitment to research can most
enhance returns

- ------------------------------------------------------------------------------------------------------------------------------------
Foreign investments

o Currency exchange rate movements o Favorable exchange rate movements o Each Fund anticipates that its total
could reduce gains or create losses could generate gains or reduce losses foreign investments will not exceed
20% of assets
o A fund could lose money because of o Foreign investments, which represent
foreign government actions, political a major portion of the world's o Each fund actively manages the
instability, or lack of adequate and securities, offer attractive currency exposure of its foreign
accurate information potential performance and investments relative to its
opportunities for diversification benchmark, and may hedge back into
the U.S. dollar from time to time
(see also "Derivatives")

- -----------------------------------------------------------------------------------------------------------------------------------
When-issued and delayed delivery securities

o When a fund buys securities before o A fund can take advantage of o Each fund uses segregated accounts to
issue or for delayed delivery, it attractive transaction opportunities offset leverage risk
could be exposed to leverage
risk if it does not use segregated
accounts

- -----------------------------------------------------------------------------------------------------------------------------------
Short-term trading

o Increased trading would raise a o A fund could realize gains in a short o Each Fund anticipates a portfolio
fund's brokerage and related costs period of time turnover rate of approximately 100%

o Increased short-term capital gains o A fund could protect against losses o The funds generally avoid short-term
distributions would raise if a stock is overvalued and its trading, except to take advantage of
shareholders' income tax liability value later falls attractive or unexpected
opportunities or to meet demands
generated by shareholder activity

</TABLE>

16 | FUND DETAILS

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
Potential risks Potential rewards Policies to balance risk and reward
- ------------------------------------------------------------------------------------------------------------------------------------
Derivatives
<S> <C> <C>

o Derivatives such as futures, options, o Hedges that correlate well with o The funds use derivatives for hedging
swaps, and forward foreign currency underlying positions can reduce or and for risk management (i.e., to
contracts that are used for hedging eliminate losses at low cost establish or adjust exposure to
the portfolio or specific securities particular securities, markets or
may not fully offset the underlying o A fund could make money and protect currencies); risk management may
positions(1) and this could result in against losses if management's include management of a fund's
losses to the fund that would not analysis proves correct exposure relative to its benchmark
have otherwise occurred
o Derivatives that involve leverage o The funds only establish hedges that
o Derivatives used for risk management could generate substantial gains at they expect will be highly correlated
may not have the intended effects and low cost with underlying positions
may result in losses or missed
opportunities o While the funds may use derivatives
that incidentally involve leverage,
o The counterparty to a derivatives they do not use them for the specific
contract could default purpose of leveraging their
portfolios
o Derivatives that involve leverage
could magnify losses

o Certain types of derivatives involve
costs to the funds which can reduce
returns

- ------------------------------------------------------------------------------------------------------------------------------------
Securities Lending
o When a fund lends a security, o The fund may enhance o J.P. Morgan maintains a list of approved borrowers
the loaned securities may not income through the
be returned if the borrower investment of the o The lending agents idemnify the fund against borrower
defaults collateral received default
from the borrower
o J.P. Morgan's collateral investment guidelines limit the
quality and duration of collateral investments
to minimize losses

o The collateral will be subject
to the risks of the securities o The fund receives collateral equal to at least 100%
in which it is invested of the current value of the securities loaned

o Upon recall, the borrower must return the securities loaned
within the normal settlement period
- ------------------------------------------------------------------------------------------------------------------------------------
Illiquid holdings

o A fund could have difficulty valuing o These holdings may offer more o No fund may invest more than 15% of
these holdings precisely attractive yields or potential growth net assets in illiquid holdings
than comparable widely traded
o A fund could be unable to sell these securities o To maintain adequate liquidity to
holdings at the time or price it meet redemptions, each fund may hold
desires investment-grade short-term
securities (including repurchase
agreements and reverse repurchase
agreements) and, for temporary or
extraordinary purposes, may borrow
from banks up to 33 1/3% of the value
of its total assets

- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>

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

FUND DETAILS | 17

<PAGE>

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

The financial tables are intended to help you understand each fund's financial
performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends and distributions). Except where noted, this information has been
audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's
financial statements, are included in the respective fund's annual report, which
are available upon request.

- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND
- --------------------------------------------------------------------------------
Per-share data For fiscal periods ended
- --------------------------------------------------------------------------------
5/31/97(1) 5/31/98 11/30/98
(unaudited)
Net asset value, beginning of period ($) 10.00 11.47 14.96
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.04 0.12 0.07
Net realized and unrealized gain
on investment ($) 1.43 3.62 1.15
- --------------------------------------------------------------------------------
Total from investment operations ($) 1.47 3.74 1.22
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.12) (0.05)
Net realized gains ($) -- (0.13) --
- --------------------------------------------------------------------------------
Total distributions ($) -- (0.25) (0.05)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 11.47 14.96 16.13
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Total return (%) 14.70(2) 32.98 8.18(2)
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 49,726 296,19(1) 458,399
- --------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 0.45(3) 0.45 0.45(3)
------------------------------------------------------------------------------
Net investment income (%) 1.58(3) 1.27 1.14(3)
------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.34(3) 0.72 0.61(3)
------------------------------------------------------------------------------
(1) The fund commenced operations on 1/3/97.
(2) Not annualized.
(3) Annualized.

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share data For fiscal periods ended
- ------------------------------------------------------------------------------------------------------------------------------------
5/31/94(1) 5/31/95 5/31/96 5/31/97 5/31/98 11/30/98
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 10.92 12.10 14.00 15.66 16.73
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.08 0.18 0.27 0.17 0.15 0.09
Net realized and unrealized gain
on investments ($) 0.88 1.42 2.66 3.02 3.81 0.63
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.96 1.60 2.93 3.19 3.96 0.72
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.04) (0.14) (0.20) (0.25) (0.18) (0.05)
Net realized gains ($) -- (0.28) (0.83) (1.28) (2.71) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.04) (0.42) (1.03) (1.53) (2.89) (0.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.92 12.10 14.00 15.66 16.73 17.40
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 9.61 15.40 25.43 25.21 28.53 4.32(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 47,473 172,497 221,368 329,776 378,988 311,212
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses (%) 0.60(2) 0.60 0.60 0.60 0.60 0.60(2)
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 1.74(2) 2.07 2.08 1.33 0.89 0.97(2)
----------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.03(2) 0.71 0.62 0.65 0.63 0.63(2)
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The fund commenced public investment operations on 9/17/93 and returns
reflect performance of The Pierpont Equity Fund, the fund's predecessor,
prior to that date.

(2) Annualized.

(3) Not annualized

18 | FUND DETAILS

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share data For fiscal periods ended
- ------------------------------------------------------------------------------------------------------------------------------------
5/31/94(1) 5/31/95 5/31/96 5/31/97 5/31/98 11/30/98
(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 10.03 11.16 13.97 14.09 15.30
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.04 0.10 0.13 0.10 0.09 0.05
Net realized and unrealized gain (loss)
on investment ($) -- 1.12 3.66 1.07 3.04 (2.47)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.04 1.22 3.79 1.17 3.13 (2.42)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from
Net investment income ($) (0.01) (0.09) (0.12) (0.13) (0.08) (0.04)
Net realized gain ($) -- -- (0.86) (0.92) (1.84) --
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.01) (0.09) (0.98) (1.05) (1.92) (0.04)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.03 11.16 13.97 14.09 15.30 12.84
- ------------------------------------------------------------------------------------------------------------------------------------

- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 0.42 12.26 35.60 9.44 23.55 (15.83)(4)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 74,141 149,279 291,931 401,797 420,413 337,856
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses (%) 0.80(2) 0.80 0.80 0.80 0.80 0.80(2)
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (loss) (%) 0.93(2) 1.14 1.20 0.81 0.55 0.71(2)
----------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement and including
interest expense (%) 1.07(2) 0.91 0.83 0.85 0.85 0.85(2)
----------------------------------------------------------------------------------------------------------------------------------
Interest expense (%) -- -- -- -- 0.00(3) --
----------------------------------------------------------------------------------------------------------------------------------

</TABLE>

(1) The fund commenced public investment operations on 11/4/93 and returns
reflect performance of The Capital Appreciation Fund, the fund's
predecessor, prior to that date.

(2) Annualized.

(3) Less than 0.01%.

(4) Not annualized.

<PAGE>

- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL TAX AWARE DISCIPLINED EQUITY FUND
- --------------------------------------------------------------------------------
Per-share data For fiscal periods ended
- --------------------------------------------------------------------------------
10/31/97(1) 10/31/98
Net asset value, beginning of period ($) 10.00 12.08
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.06 0.11
Net realized and unrealized gain
on investments ($) 2.02 2.68
- --------------------------------------------------------------------------------
Total from investment operations ($) 2.08 2.79
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- (0.16)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 12.08 14.71
- --------------------------------------------------------------------------------

- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Total return (%) 20.80(2) 23.26
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 12,026 90,079
- --------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 0.55(3) 0.55
------------------------------------------------------------------------------
Net investment income (%) 1.19(3) 0.97
------------------------------------------------------------------------------
Expenses without reimbursement (%) 4.59(3) 1.02
------------------------------------------------------------------------------
Portfolio turnover rate (%) 35 57
------------------------------------------------------------------------------

(1) The fund commenced operations on 1/30/97.

(2) Not annualized.

(3) Annualized.

FUND DETAILS | 19

<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]

J.P. Morgan Institutional Disciplined Equity Fund 811-07342 and 033-54642
J.P. Morgan Institutional U.S. Equity Fund 811-07342 and 033-54642
J.P. Morgan Institutional U.S. Small Company Fund 811-07342 and 033-54642
J.P. Morgan Institutional Tax Aware Disciplined
Equity Fund 811-07795 and 333-11125

J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION

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

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

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

<PAGE>

MARCH 1, 1999

PROSPECTUS

J.P. MORGAN INSTITUTIONAL
FIXED INCOME FUNDS

Short Term Bond Fund
Bond Fund
Global Strategic Income Fund
Tax Exempt Bond Fund
New York Tax Exempt Bond Fund
California Bond Fund

- ------------------------------------
Seeking high total return or current
income by investing primarily in
fixed income securities.

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

JP Morgan

<PAGE>

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

2
Each fund's goal, investment approach,
risks, expenses, and performance

J.P. MORGAN INSTITUTIONAL FIXED INCOME FUNDS

J.P. Morgan Institutional Short Term Bond Fund ........................... 2
J.P. Morgan Institutional Bond Fund ...................................... 4
J.P. Morgan Institutional Global Strategic Income Fund ................... 6
J.P. Morgan Institutional Tax Exempt Bond Fund ........................... 8
J.P. Morgan Institutional New York Tax Exempt Bond Fund .................. 10
J.P. Morgan Institutional California Bond Fund ........................... 12

14
Principles and techniques common
to the funds in this prospectus

FIXED INCOME MANAGEMENT APPROACH

J.P. Morgan .............................................................. 14
J.P. Morgan Institutional fixed income funds ............................. 14
The spectrum of fixed income funds ....................................... 14
Who may want to invest ................................................... 14
Fixed income investment process .......................................... 15

16
Investing in the J.P. Morgan
Institutional Fixed Income funds

YOUR INVESTMENT

Investing through a financial professional ............................... 16
Investing through an employer-sponsored retirement plan .................. 16
Investing through an IRA or rollover IRA ................................. 16
Investing directly ....................................................... 16
Opening your account ..................................................... 16
Adding to your account ................................................... 16
Selling shares ........................................................... 17
Account and transaction policies ......................................... 17
Dividends and distributions .............................................. 18
Tax considerations ....................................................... 18

19
More about risk and the funds'
business operations

FUND DETAILS
Business structure ....................................................... 19
Management and administration ............................................ 19
Risk and reward elements ................................................. 20
Investments .............................................................. 22
Financial highlights ..................................................... 24
FOR MORE INFORMATION ............................................. back cover

<PAGE>

J.P. MORGAN INSTITUTIONAL
SHORT TERM BOND FUND TICKER SYMBOL: JMSBX
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REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.

GOAL
The fund's goal is to provide high total return, consistent with low volatility
of principal. This goal can be changed without shareholder approval.

INVESTMENT APPROACH

The fund invests primarily in fixed income securities, including U.S. government
and agency securities, domestic and foreign corporate bonds, private placements,
asset-backed and mortgage-related securities, and money market instruments, that
it believes have the potential to provide a high total return over time. These
securities may be of any maturity, but under normal market conditions the fund's
duration will range between one and three years, similar to that of the Merrill
Lynch 1-3 Year Treasury Index. For a description of duration, please see fixed
income investment process on page 15.

Up to 25% of assets may be invested in foreign securities, including 20% in debt
securities denominated in foreign currencies of developed countries. The fund
typically hedges its non-dollar investments back to the U.S. dollar. At least
90% of assets must be invested in securities that, at the time of purchase, are
rated investment-grade (BBB/Baa or better) or are the unrated equivalent,
including at least 75% A or better. No more than 10% of assets may be invested
in securities rated B or BB.

The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
duration fixed income funds will depend on the success of the investment
process, which is described on page 15.

Although any rise in interest rates is likely to cause a fall in the price of
bonds, the fund's comparatively short duration is designed to help keep its
share price within a relatively narrow range. Because it seeks to minimize risk,
the fund will generally offer less income, and during periods of declining
interest rates, may offer lower total returns than bond funds with longer
durations. Because of the sensitivity of the fund's mortgage related securities
to changes in interest rates, the performance and duration of the fund may be
more volatile than if it did not hold these securities. The fund uses futures
contracts to help manage duration. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks. To the extent the fund invests in foreign securities,
it could lose money because of foreign government actions, political
instability, currency fluctuation or lack of adequate and accurate information.
The fund may engage in active and frequent trading, leading to increased
portfolio turnover and the possibility of increased capital gains. See page 18
for further discussion on the tax treatment of capital gains.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $2.1 billion using similar strategies as the fund.

The portfolio management team is led by Connie J. Plaehn, managing director, who
has been on the team since the fund's inception and has been at J.P. Morgan
since 1984, William G. Tennille, vice president, who joined the team in January
1994 and has been at J.P. Morgan since 1992 and Augustus Cheh, vice president,
who has been a fixed income portfolio manager and analyst since joining J.P.
Morgan in 1994.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.

2 J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Short Term Bond Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 5 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one year, five years and life of the fund compare to those of the
Merrill Lynch 1-3 Year Treasury Index. This is a widely recognized, unmanaged
index of U.S. Treasury notes and bonds with maturities of 1-3 years used as a
measure of overall short-term bond market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
20%
10%
0% 0.36 10.80 5.10 6.40 7.04
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Short Term Bond Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 3.36% (for the quarter ended 6/30/95); and the
lowest quarterly return was -0.47% (for the quarter ended 3/31/94).

Average annual total return Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
J.P. Morgan Institutional Short Term
Bond Fund (after expenses) 7.04 5.89 5.68
- --------------------------------------------------------------------------------
Merrill Lynch 1-3 Year Treasury
Index (no expenses) 7.00 5.99 5.86
- --------------------------------------------------------------------------------

<PAGE>

INVESTOR EXPENSES
The expenses of the fund before reimbursement are shown at right. The fund has
no sales, redemption, exchange, or account fees, although some institutions may
charge you a fee for shares you buy through them. The annual fund expenses after
reimbursement are deducted from fund assets prior to performance calculations.

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.25
Marketing (12b-1) fees none
Other expenses(4) 0.39
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 0.64
- --------------------------------------------------------------------------------

Expense Example

(1) The fund's fiscal year end is 10/31.
(2) The fund commenced operations on 9/13/93. For the period 7/31/93 through
9/30/93, returns reflect performance of the Pierpont Short Term Bond Fund.
(3) The fund has a master/feeder structure as described on page 19. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year using the current fees as if they had been in effect during
the past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.05%
and 0.30%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND 3
<PAGE>
J.P. MORGAN INSTITUTIONAL BOND FUND TICKER SYMBOL: JMIBX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL BOND FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.

GOAL
The fund's goal is to provide high total return consistent with moderate risk of
capital and maintenance of liquidity. This goal can be changed without
shareholder approval.

INVESTMENT APPROACH
The fund invests primarily in fixed income securities, including U.S. government
and agency securities, corporate bonds, private placements, asset-backed and
mortgage-backed securities, that it believes have the potential to provide a
high total return over time. These securities may be of any maturity, but under
normal market conditions the management team will keep the fund's duration
within one year of that of the Salomon Brothers Broad Investment Grade Bond
Index (currently about five years). For a description of duration, please see
fixed income investment process on page 15.

Up to 25% of assets may be invested in foreign securities, including 20% in debt
securities denominated in foreign currencies of developed countries. The fund
typically hedges its non-dollar investments back to the U.S. dollar. At least
75% of assets must be invested in securities that, at the time of purchase, are
rated investment-grade (BBB/Baa or better) or are the unrated equivalent,
including at least 65% A or better. No more than 25% of assets may be invested
in securities rated B or BB.

To the extent that the fund seeks higher returns by investing in
non-investment-grade bonds, often called junk bonds, it takes on additional
risks, since these bonds are more sensitive to economic news and their issuers
have a less secure financial position. To the extent the fund invests in foreign
securities, it could lose money because of foreign government actions, political
instability, currency fluctuation or lack of adequate and accurate information.
The fund may engage in active and frequent trading, leading to increased
portfolio turnover and the possibility of increased capital gains. See page 18
for further discussion on the tax treatment of capital gains.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $32.9 billion using similar strategies as the fund.

The portfolio management team is led by William G. Tennille, vice president, who
has been at J.P. Morgan since 1992, Connie J. Plaehn, managing director, who has
been at J.P. Morgan since 1984, and John Snyder, vice president, who has been at
J.P. Morgan since 1993. Mr. Tennille and Ms. Plaehn have been on the team since
January 1994. Mr. Snyder has been a fixed income portfolio manager since joining
J.P. Morgan.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.

4 J.P. MORGAN INSTITUTIONAL BOND FUND

<PAGE>

PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Bond Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 10 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one, five and ten years compare to those of the Salomon Brothers
Broad Investment Grade Bond Index. This is a widely recognized, unmanaged index
of U.S. Treasury and agency securities and investment-grade mortgage and
corporate bonds used as a measure of overall bond market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

20% 18.42
10% 10.23 10.09 13.45 6.53 9.88 (2.68) 9.29 7.54
0% 3.30
(10%)
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Bond Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 6.30% (for the quarter ended 6/30/95); and the
lowest quarterly return was -2.38% (for the quarter ended 3/31/94).

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
J.P. Morgan Institutional Bond
Fund (after expenses) 7.54 6.95 8.48
- --------------------------------------------------------------------------------
Salomon Brothers Broad Investment
Grade Bond Index (no expenses) 8.72 7.30 9.31
- --------------------------------------------------------------------------------

<PAGE>

INVESTOR EXPENSES

The expenses of the fund before reimbursement are shown at right. The fund has
no sales, redemption, exchange, or account fees, although some institutions may
charge you a fee for shares you buy through them. The annual fund expenses after
reimbursement are deducted from fund assets prior to performance calculations.

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.30
Marketing (12b-1) fees none
Other expenses(4) 0.22
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 0.52
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 7/12/93. Returns for the period 3/31/88
through 7/31/93 reflect performance of The Pierpont Bond Fund, the fund's
predecessor, which commenced operations on 3/11/88.
(2) The fund's fiscal year end is 10/31.
(3) The fund has a master/feeder structure as described on page 19. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year using the current fees as if they had been in effect during
the past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.20%
and 0.50%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL BOND FUND 5

<PAGE>
J.P. MORGAN INSTITUTIONAL
GLOBAL STRATEGIC INCOME FUND TICKER SYMBOL: JPGSX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.

GOAL
The fund's goal is to provide high total return from a portfolio of fixed income
securities of foreign and domestic issuers. This goal can be changed without
shareholder approval.

INVESTMENT APPROACH
The fund invests in a wide range of debt securities from the U.S. and other
markets, both developed and emerging. Issuers may include governments,
corporations, financial institutions, and supranational organizations (such as
the World Bank), that the fund believes have the potential to provide a high
total return over time. The fund may invest directly in mortgages and in
mortgage-backed securities. The fund's securities may be of any maturity, but
under normal market conditions its duration will generally be similar to that of
the Lehman Brothers Aggregate Bond Index (currently about four and a half
years). For a description of duration, please see fixed income investment
process on page 15. At least 40% of assets must be invested in securities that,
at the time of purchase, are rated investment-grade (BBB/Baa or better) or are
the unrated equivalent. The balance of assets must be invested in securities
rated B or higher at the time of purchase (or the unrated equivalent), except
that the fund's emerging market component has no minimum quality rating and may
invest without limit in securities that are in the lowest rating categories (or
are the unrated equivalent).

The management team uses the process described on page 15, and also makes
country allocations, based primarily on macro-economic factors. The team uses
the model allocation shown at right as a basis for its sector allocation,
although the actual allocations are adjusted periodically within the indicated
ranges. Within each sector, a dedicated team handles securities selection. The
fund typically hedges its non-dollar investments in developed countries back to
the U.S. dollar.

The fund's share price and total return vary in response to changes in global
bond markets, interest rates, and currency exchange rates. How well the fund's
performance compares to that of similar fixed income funds will depend on the
success of the investment process. Because of credit and foreign and emerging
markets investment risks, the fund's performance is likely to be more volatile
than that of most fixed income funds. Foreign and emerging market investment
risks include foreign government actions, political instability, currency
fluctuations and lack of adequate and accurate information. The fund may invest
a substantial portion of its assets in non-investment grade bonds, often called
junk bonds, since these bonds are more sensitive to economic news and their
issuers have a less secure financial position. The fund's mortgage-backed
investments involve the risk of losses due to default or to prepayments that
occur earlier or later than expected. Some investments, including directly owned
mortgages, may be illiquid. The fund has the potential for long-term total
returns that exceed those of more traditional bond funds, but investors should
also be prepared for risks that exceed those of more traditional bond funds.

MODEL SECTOR ALLOCATION

15% public/private
corporates
(range 5-25%)

23% high yield
corporates
(range 13-33%)

15% emerging
markets
(range 5-25%)

12% international
non-dollar
(range 0-25%)

35% public/private
mortgages
(range 20-45%)

<PAGE>

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $4.1 billion using similar strategies as the fund.

The portfolio management team is led by Gerard W. Lillis, managing director, who
has been at J.P. Morgan since 1978, and Mark E. Smith, managing director, who
joined J.P. Morgan in 1994 from Allied Signal, Inc. where he managed fixed
income portfolios and oversaw asset allocation activities. Both have been on the
team since the fund's inception.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.

6 J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Global Strategic Income Fund.

The bar chart indicates the risks by showing the performance of the fund's
shares during its first complete calendar year of operations.

The table indicates the risks by showing how the fund's average annual returns
for the past one year and life of the fund compare to those of the Lehman
Brothers Aggregate Bond Index. This is a widely recognized, unmanaged index
which measures bond market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1998

20%
10%
0% 2.59
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Global Strategic Income Fund

For the period covered by this total return chart, the fund's highest quarterly
return was 3.13% (for the quarter ended 3/31/98); and the lowest quarterly
return was -1.45% (for the quarter ended 9/30/98).

Average annual total return Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Institutional Global
Strategic Income Fund (after expenses) 2.59 7.00
- --------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index (no expenses) 8.67 10.91
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.45
Marketing (12b-1) fees none
Other expenses(4) 0.38
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 0.83
- --------------------------------------------------------------------------------

Expense example

(1) The fund's fiscal year is 10/31.
(2) The fund commenced operations on 3/14/97 and performance is calculated as of
3/31/97.
(3) The fund has a master/feeder structure as described on page 19. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year before reimbursement, expressed as a percentage of the
fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.20%
and 0.65%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND 7

<PAGE>

J.P. MORGAN INSTITUTIONAL
TAX EXEMPT BOND FUND TICKER SYMBOL: JITBX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.

GOAL
The fund's goal is to provide a high level of current income that is exempt from
federal income tax consistent with moderate risk of capital. This goal can be
changed without shareholder approval.

INVESTMENT APPROACH
The fund invests primarily in high quality municipal securities that it believes
have the potential to provide current income that is free from federal personal
income tax. While the fund's goal is high tax-exempt income, the fund may invest
to a limited extent in taxable securities, including U.S. government, government
agency, corporate, or taxable municipal securities. The fund's securities may be
of any maturity, but under normal market conditions the fund's duration will
generally range between four and seven years, similar to that of the Lehman
Brothers 1-16 Year Municipal Bond Index (currently 5.4 years). For a description
of duration, please see fixed income investment process on page 15. At least 90%
of assets must be invested in securities that, at the time of purchase, are
rated investment-grade (BBB/Baa or better) or are the unrated equivalent. No
more than 10% of assets may be invested in securities rated B or BB.

The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
tax-exempt funds will depend on the success of the investment process, which is
described on page 15.

Investors should be prepared for higher share price volatility than from a tax
exempt fund of shorter duration. The fund's performance could also be affected
by market reaction to proposed tax legislation. To the extent that the fund
seeks higher returns by investing in non-investment-grade bonds, often called
junk bonds, it takes on additional risks, since these bonds are more sensitive
to economic news and their issuers have a less secure financial position.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $12 billion using similar strategies as the fund.

The portfolio management team is led by Robert W. Meiselas, vice president, who
joined the team in May 1997 and has been at J.P. Morgan since 1987, and Elaine
B. Young, vice president, who joined the team in January 1996 and has been at
J.P. Morgan since August 1994. Prior to joining J.P. Morgan, Ms. Young was a
municipal bond trader and fixed income portfolio manager at Scudder, Stevens, &
Clark, Inc.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.

8 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Tax Exempt Bond Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the fund's last 10 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one, five and ten years compare to those of the Lehman Brothers
1-16 Year Municipal Bond Index. This is a widely recognized, unmanaged index of
general obligation and revenue bonds with maturities of 1-16 years used as a
measure of overall tax-exempt bond market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

20% 13.50
10% 8.25 6.87 10.92 7.47 9.58 7.58
0% 3.71 5.65
(10%) (2.53)
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Tax Exempt Bond Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 5.16% (for the quarter ended 3/30/95); and the
lowest quarterly return was -3.08% (for the quarter ended 3/31/94).

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
J.P. Morgan Institutional Tax Exempt
Bond Fund (after expenses) 5.65 5.45 7.02
- --------------------------------------------------------------------------------
Lehman Brothers 1-16 Year Municipal
Bond Index (no expenses) 6.25 5.86 N/A
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.30
Marketing (12b-1) fees none
Other expenses(4) 0.28
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 0.58
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 7/12/93. For the period 1/1/88 through
7/31/93 returns reflect performance of The Pierpont Tax Exempt Bond Fund,
the predecessor of the fund, which commenced operations on 10/3/84.
(2) The fund's fiscal year end is 8/31.
(3) The fund has a master/feeder structure as described on page 19. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year using the current fees as if they had been in effect during
the past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.20%
and 0.50%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND 9

<PAGE>

J.P. MORGAN INSTITUTIONAL NEW YORK
TAX EXEMPT BOND FUND TICKER SYMBOL: JPNTX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.

GOAL
The fund's goal is to provide a high level of tax exempt income for New York
residents consistent with moderate risk of capital. This goal can be changed
without shareholder approval.

INVESTMENT APPROACH
The fund invests primarily in New York municipal securities that it believes
have the potential to provide high current income which is free from federal,
state, and New York City personal income taxes for New York residents. The fund
may also invest to a limited extent in securities of other states or
territories. To the extent that the fund invests in municipal securities of
other states, the income from such securities would be free from federal
personal income taxes for New York residents but would be subject to New York
State and New York City personal income taxes. For non-New York residents, the
income from New York municipal securities is free from federal personal income
taxes only. The fund may also invest in taxable securities. The fund's
securities may be of any maturity, but under normal market conditions the fund's
duration will generally range between three and seven years, similar to that of
the Lehman Brothers 1-16 Year Municipal Bond Index (currently 5.4 years). For a
description of duration, please see fixed income investment process on page 15.
At least 90% of assets must be invested in securities that, at the time of
purchase, are rated investment-grade (BBB/Baa or better) or are the unrated
equivalent. No more than 10% of assets may be invested in securities rated B or
BB.

The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 15. Because most of the fund's investments will typically
be from issuers in the State of New York, its performance will be affected by
the fiscal and economic health of that state and its municipalities. The fund is
non-diversified and may invest more than 5% of assets in a single issuer, which
could further concentrate its risks. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks, since these bonds are more sensitive to economic news
and their issuers have a less secure financial condition.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $12 billion using similar strategies as the fund.

The portfolio management team is led by Robert W. Meiselas, vice president, who
has been at J.P. Morgan since 1987, and Elaine B. Young, vice president, who
joined J.P. Morgan from Scudder, Stevens & Clark, Inc. in 1994 where she was a
municipal bond trader and fixed income portfolio manager. Both have been on the
team since June 1997.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.

10 J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional New York Tax Exempt Bond Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 4 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past year and the life of the fund compare to those of the Lehman
Brothers 1-16 Year Municipal Bond Index. This is a widely recognized, unmanaged
index of general obligation and revenue bonds with maturities of 1-16 years used
as a measure of overall tax-exempt bond market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1995 1996 1997 1998

20% 13.28
10%
0% 4.21 7.68 5.61
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional New York Tax Exempt Bond Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 4.86% (for the quarter ended 3/31/95) and the
lowest quarterly return was -0.59% (for the quarter ended 3/31/96).

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Institutional New York
Tax Exempt Bond Fund (after expenses) 5.61 6.63
- --------------------------------------------------------------------------------
Lehman Brothers 1-16 Year Municipal Bond
Index (no expenses) 6.25 7.07
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.30
Marketing (12b-1) fees none
Other expenses(4) 0.32
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 0.62
- --------------------------------------------------------------------------------

(1) The fund's fiscal year end is 3/31.
(2) The fund commenced operations on 4/11/94, and returns reflect performance of
the fund from 4/30/94.
(3) The fund has a master/feeder structure as described on page 19. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year using the current fees as if they had been in effect during
the past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.20%
and 0.50%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND 11

<PAGE>

J.P. MORGAN INSTITUTIONAL
CALIFORNIA BOND FUND TICKER SYMBOL: JPICX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN CALIFORNIA BOND FUND: INSTITUTIONAL SHARES)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 22-25.

GOAL
The fund's goal is to provide high after-tax total return for California
residents consistent with moderate risk of capital. This goal can be changed
without shareholder approval.

INVESTMENT APPROACH
The fund invests primarily in California municipal securities that it believes
have the potential to provide high current income which is free from federal and
state personal income taxes for California residents. Because the fund's goal is
high after-tax total return rather than high tax-exempt income, the fund may
invest to a limited extent in securities of other states or territories. To the
extent that the fund invests in municipal securities of other states, the income
from such securities would be free from federal personal income taxes for
California residents but would be subject to California state personal income
taxes. For non-California residents, the income from California municipal
securities is free from federal personal income taxes only. The fund may also
invest in taxable securities. The fund's securities may be of any maturity, but
under normal market conditions the fund's duration will generally range between
three and ten years, similar to that of the Lehman Brothers 1-16 Year Municipal
Bond Index (currently 5.4 years). For a description of duration, please see
fixed income investment process on page 15. At least 90% of assets must be
invested in securities that, at the time of purchase, are rated investment-grade
(BBB/Baa or better) or are the unrated equivalent. No more than 10% of assets
may be invested in securities rated B or BB.

The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 15. Because most of the fund's investments will typically
be from issuers in the State of California, its performance will be affected by
the fiscal and economic health of that state and its municipalities. The fund is
non-diversified and may invest more than 5% of assets in a single issuer, which
could further concentrate its risks. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks, because these bonds are more sensitive to economic
news and their issuers have a less secure financial condition.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $12 billion using similar strategies as the fund.

o There is no assurance that the fund will meet its investment goal.
o The fund does not represent a complete investment program.

12 J.P. MORGAN INSTITUTIONAL CALIFORNIA BOND FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional California Bond Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 2 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past year and life of fund compare to those of the Lehman Brothers 1-16
Year Municipal Bond Index. This is a widely recognized, unmanaged index of
general obligation and revenue bonds with maturities of 1-16 years used as a
measure of overall tax-exempt bond market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1997 1998

10%
5% 7.72 5.60
0%
(5%)
- --------------------------------------------------------------------------------
o J.P. Morgan California Bond Fund: Institutional Shares

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 3.44% (for the quarter ended 9/30/98) and the
lowest quarterly return was -0.34% (for the quarter ended 3/31/97).

Average annual total return (%) Shows performance over time, for period ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan California Bond Fund:
Institutional Shares (after expenses) 5.60 6.60
- --------------------------------------------------------------------------------
Lehman Brothers 1-16 Year Municipal
Bond Index (no expenses) 6.25 7.11
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.30
Marketing (12b-1) fees none
Other expenses(4) 0.54
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 0.84
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 12/23/96, and returns reflect performance
of the fund from 12/31/96.
(2) The fund's fiscal year end is 4/30.
(3) This table is restated to show the current fee arrangements in effect as of
8/1/98, and shows expenses for the past fiscal year using the current fees
as if they had been in effect during the past fiscal year, before
reimbursement, expressed as a percentage of average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.20%
and 0.50%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL CALIFORNIA BOND FUND 13

<PAGE>

FIXED INCOME MANAGEMENT APPROACH
- --------------------------------------------------------------------------------

J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $316 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.

J.P. MORGAN INSTITUTIONAL FIXED INCOME FUNDS
These funds invest primarily in bonds and other fixed income securities, either
directly or through a master portfolio (another fund with the same goal). The
funds seek high total return or high current income.

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 the potential for consistently enhancing performance while managing
risk.

THE SPECTRUM OF FIXED INCOME FUNDS
The funds described in this prospectus pursue different goals and offer varying
degrees of risk and potential reward. The table below shows degrees of the
relative risk and return that these funds potentially offer. These and other
distinguishing features of each fixed income fund were described on the
preceding pages. Differences among these funds include:

o the types of securities they hold
o the tax status of the income they offer
o the relative emphasis on current income versus total return

Potential risk and return

Return (after taxes)

Global Strategic Income Fund

New York Tax Exempt Bond Fund*
California Bond Fund*

Tax Exempt Bond Fund*

Bond Fund

Short Term Bond Fund

Risk

The positions of the funds in this graph reflect long-term performance goals
only, and are relative, not absolute.

* Based on tax-equivalent returns for an investor in the highest income tax
bracket.

<PAGE>

Who May Want to Invest
The funds are designed for investors who:

o want to add an income investment to further diversify a portfolio

o want an investment whose risk/return potential is higher than that of money
market funds but generally less than that of stock funds

o want an investment that pays monthly dividends

o with regard to the Tax Exempt Bond Fund, are seeking income that is exempt
from federal personal income tax

o with regard to the state-specific funds, are seeking income that is exempt
from federal, state, and local (if applicable) personal income taxes in New
York or California

The funds are not designed for investors who:

o are investing for aggressive long-term growth

o require stability of principal

o with regard to the Global Strategic Income Fund, are not prepared to accept a
higher degree of risk than most traditional bond funds

o with regard to the federal or state tax-exempt funds, are investing through a
tax-deferred account such as an IRA

14 FIXED INCOME MANAGEMENT APPROACH

<PAGE>

FIXED INCOME INVESTMENT PROCESS
J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas and takes positions in many different areas, helping the
funds to limit exposure to concentrated sources of risk. In managing the funds
described in this prospectus, J.P. Morgan employs a three-step process that
combines sector allocation, fundamental research for identifying portfolio
securities, and duration management.

The funds invest across a range of
different types of securities

Sector allocation The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which a fund may invest. The team
seeks to enhance performance and manage risk by underweighting or overweighting
sectors.

Each fund makes its portfolio decisions
as described earlier in this prospectus

Security selection Relying on the insights of different specialists, including
credit analysts, quantitative researchers, and dedicated fixed income traders,
the portfolio managers make buy and sell decisions according to each fund's goal
and strategy.

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

Duration management Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish each fund's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securities owned by a fund, duration measures the average time needed to receive
the present value of all principal and interest payments by analyzing cash flows
and interest rate movements. A fund's duration is generally shorter than a
fund's average maturity because the maturity of a security only measures the
time until final payment is due. Each fund's target duration typically remains
relatively close to the duration of the market as a whole, as represented by the
fund's benchmark. The strategists closely monitor the funds and make tactical
adjustments as necessary.

FIXED INCOME MANAGEMENT APPROACH 15

<PAGE>

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

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

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

o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments is $5,000,000 for the Short Term Bond,
Bond, Tax Exempt Bond, New York Tax Exempt Bond and California Bond funds and
$1,000,000 for the Global Strategic Income Fund and for additional investments
$25,000, although these minimums may be less for some investors.

For more information on minimum investments, call 1-800-766-7722.

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

o Mail in your application, making your initial investment as shown 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:

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.

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

16 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.

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.

Redemption In Kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.

ACCOUNT AND TRANSACTION POLICIES

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 hours and NAV calculations The funds' regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each fund
calculates its net asset value per share (NAV) every business day as of the
close of trading on the NYSE (normally 4:00 p.m. eastern time). Each fund's
securities are typically priced using pricing services or market quotes. When
these methods are not available or do not represent a security's value at the
time of pricing (e.g. when an event occurs after the close of trading that would
materially impact a security's value), the security is valued in accordance with
the fund's fair valuation procedures.

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

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

YOUR INVESTMENT 17
<PAGE>
Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day following execution
and will be forwarded according to your instructions.

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
Income dividends are typically declared daily and paid monthly. If an investor's
shares are redeemed during the month, accrued but unpaid dividends are paid with
the redemption proceeds. Shares of a fund earn dividends on the business day the
purchase is effective, but not on the business day the redemption is effective.
Each fund distributes capital gains, if any, once a year. However, a fund may
make more or fewer payments in a given year, depending on its investment results
and its tax compliance situation. Each fund's dividends and distributions
consist of most or all of its net investment income and net realized capital
gains.

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

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

- --------------------------------------------------------------------------------
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends from the Exempt from federal, state,
New York Tax Exempt Bond and New York City personal
Fund income taxes for New York
residents only
- --------------------------------------------------------------------------------
Income dividends from the Exempt from federal and state
California Bond Fund personal income taxes for
California residents only
- --------------------------------------------------------------------------------
Income dividends from the Exempt from federal personal
Tax Exempt Bond Fund income taxes
- --------------------------------------------------------------------------------
Income dividends from Ordinary income
all other funds
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
Long-term capital gains Capital gains
distributions
- --------------------------------------------------------------------------------
Sales or exchanges of Capital gains or
shares owned for more losses
than one year
- --------------------------------------------------------------------------------
Sales or exchanges of Gains are treated as ordinary
shares owned for one year income; losses are subject
or less to special rules
- --------------------------------------------------------------------------------
<PAGE>

Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when a fund is about to declare a long-term capital
gains distribution. A portion of the Tax Exempt Bond, New York Tax Exempt Bond
and California Bond funds' returns may be subject to federal, state, or local
tax, or the alternative minimum tax. 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.

18 YOUR INVESTMENT
<PAGE>
FUND DETAILS
- --------------------------------------------------------------------------------

BUSINESS STRUCTURE
As noted earlier, each fund (except the California Bond Fund) is a series of
J.P. Morgan Institutional Funds, a Massachusetts business trust, and is a
"feeder" fund that invests in a master portfolio. (Except where indicated, this
prospectus uses the term "the fund" to mean the feeder fund and its master
portfolio taken together.)

Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the 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, each of its feeder funds will hold a shareholder meeting
and cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one full or fractional vote for each dollar or
fraction of a dollar invested.

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

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

J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:

- --------------------------------------------------------------------------------
Advisory services Percentage of the master
portfolio's average net assets
- --------------------------------------------------------------------------------
Short Term Bond 0.25%
- --------------------------------------------------------------------------------
Bond 0.30%
- --------------------------------------------------------------------------------
Global Strategic Income 0.45%
- --------------------------------------------------------------------------------
Tax Exempt Bond 0.30%
- --------------------------------------------------------------------------------
New York Tax Exempt Bond 0.30%
- --------------------------------------------------------------------------------
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% of
average net assets over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------

The California Bond Fund, subject to the expense reimbursements described
earlier in this prospectus, pays J.P. Morgan the following fees for investment
advisory and other services:

- --------------------------------------------------------------------------------
Advisory services 0.30% of each fund's average
net assets
- --------------------------------------------------------------------------------
Administrative services Fund's pro-rata portion of 0.09%
(fee shared with of the first $7 billion of average
Funds Distributor, Inc.) net assets in J.P. Morgan-advised
portfolios, plus 0.04% of average
assets over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------
<PAGE>

J.P. Morgan may pay fees to certain firms and professionals for providing
recordkeeping or other services in connection with investments in 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 fund or generally, the
net asset value of the funds will decline.

FUND DETAILS 19

<PAGE>

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

================================================================================
Potential risks
- --------------------------------------------------------------------------------
Market conditions
o Each fund's share price, yield, and total return will fluctuate in response to
bond market movements

o The value of most bonds will fall when interest rates rise; the longer a
bond's maturity and the lower its credit quality, the more its value typically
falls

o Adverse market conditions may from time to time cause a fund to take temporary
defensive positions that are inconsistent with its principal investment
strategies and may hinder a fund from achieving its investment objective

o Mortgage-backed and asset-backed securities (securities representing an
interest in, or secured by, a pool of mortgages or other assets such as
receivables) could generate capital losses or periods of low yields if they
are paid off substantially earlier or later than anticipated
- --------------------------------------------------------------------------------
Credit quality
o The default of an issuer would leave a fund with unpaid interest or principal

o Junk bonds (those rated BB/Ba or lower) have a higher risk of default, tend to
be less liquid, and may be more difficult to value
- --------------------------------------------------------------------------------
Foreign investments
o A fund could lose money because of foreign government actions, political
instability, or lack of adequate and accurate information

o Currency exchange rate movements could reduce gains or create losses

o Currency and investment risks tend to be higher in emerging markets
- --------------------------------------------------------------------------------
When-issued and delayed delivery securities
o When a fund buys securities before issue or for delayed delivery, it could be
exposed to leverage risk if it does not use segregated accounts
- --------------------------------------------------------------------------------

================================================================================
Potential rewards
- --------------------------------------------------------------------------------
o Bonds have generally outperformed money market investments over the long term,
with less risk than stocks

o Most bonds will rise in value when interest rates fall

o Mortgage-backed and asset-backed securities can offer attractive returns
- --------------------------------------------------------------------------------
o Investment-grade bonds have a lower risk of default

o Junk bonds offer higher yields and higher potential gains
- --------------------------------------------------------------------------------
o Foreign bonds, which represent a major portion of the world's fixed income
securities, offer attractive potential performance and opportunities for
diversification

o Favorable exchange rate movements could generate gains or reduce losses

o Emerging markets can offer higher returns
- --------------------------------------------------------------------------------
o A fund can take advantage of attractive transaction opportunities
- --------------------------------------------------------------------------------

<PAGE>

================================================================================
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o Under normal circumstances the funds plan to remain fully invested in bonds
and other fixed income securities as noted in the table on pages 24-25

o The funds seek to limit risk and enhance total return or yields through
careful management, sector allocation, individual securities selection, and
duration management

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

o J.P. Morgan monitors interest rate trends, as well as geographic and
demographic information related to mortgage-backed securities and mortgage
prepayments
- --------------------------------------------------------------------------------
o Each fund maintains its own policies for balancing credit quality against
potential yields and gains in light of its investment goals

o J.P. Morgan develops its own ratings of unrated securities and makes a credit
quality determination for unrated securities
- --------------------------------------------------------------------------------
o Foreign bonds are a primary investment only for the Global Strategic Income
fund and may be a significant investment for the Short Term Bond and Bond
funds; the Tax Exempt Bond, New York Tax Exempt Bond and California Bond funds
are not permitted to invest any assets in foreign bonds

o To the extent that a fund invests in foreign bonds, it may manage the currency
exposure of its foreign investments relative to its benchmark, and may hedge a
portion of its foreign currency exposure into the U.S. dollar from time to
time (see also "Derivatives"); these currency management techniques may not be
available for certain emerging markets investments
- --------------------------------------------------------------------------------
o Each fund uses segregated accounts to offset leverage risk
- --------------------------------------------------------------------------------

20 FUND DETAILS

<PAGE>

================================================================================
Potential risks
- --------------------------------------------------------------------------------
Management choices
o A fund could underperform its benchmark due to its sector, securities or
duration choices
- --------------------------------------------------------------------------------
Derivatives
o Derivatives such as futures, options, swaps and forward foreign currency
contracts that are used for hedging the portfolio or specific securities may
not fully offset the underlying positions(1) and this could result in losses
to the fund that would not have otherwise occurred

o Derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities

o The counterparty to a derivatives contract could default

o Certain types of derivatives involve costs to the funds which can reduce
returns

o Derivatives that involve leverage could magnify losses
- --------------------------------------------------------------------------------
Securities Lending
o When a fund lends a security, the loaned securities may not be returned if
the borrower defaults

o The collateral will be subject to the risks of the securities in which it is
invested
- --------------------------------------------------------------------------------
Illiquid holdings
o A fund could have difficulty valuing these holdings precisely

o A fund could be unable to sell these holdings at the time or price desired
- --------------------------------------------------------------------------------
Short-term trading
o Increased trading would raise a fund's transaction costs

o Increased short-term capital gains distributions would raise shareholders'
income tax liability
- --------------------------------------------------------------------------------

================================================================================
Potential rewards
- --------------------------------------------------------------------------------
o A fund could outperform its benchmark due to these same choices

- --------------------------------------------------------------------------------
o Hedges that correlate well with underlying positions can reduce or eliminate
losses at low cost

o A fund could make money and protect against losses if management's analysis
proves correct

o Derivatives that involve leverage could generate substantial gains at low cost
- --------------------------------------------------------------------------------
o A fund may enhance income through the investment of the collateral received
from the borrower
- --------------------------------------------------------------------------------
o These holdings may offer more attractive yields or potential growth than
comparable widely traded securities
- --------------------------------------------------------------------------------
o A fund could realize gains in a short period of time

o A fund could protect against losses if a bond is overvalued and its value
later falls
- --------------------------------------------------------------------------------

<PAGE>

================================================================================
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o J.P. Morgan focuses its active management on those areas where it believes its
commitment to research can most enhance returns and manage risks in a
consistent way
- --------------------------------------------------------------------------------
o The funds use derivatives, such as futures, options, swaps and forward foreign
currency contracts for hedging and for risk management (i.e., to adjust
duration or to establish or adjust exposure to particular securities, markets,
or currencies); risk management may include management of a fund's exposure
relative to its benchmark; the Tax Exempt Bond, New York Tax Exempt Bond and
California Bond funds are permitted to enter into futures and options
transactions, however, these transactions result in taxable gains or losses so
it is expected that these funds will utilize them infrequently; forward
foreign currency contracts are not permitted to be used by the Tax Exempt
Bond, New York Tax Exempt Bond and California Bond funds

o The funds only establish hedges that they expect will be highly correlated
with underlying positions

o While the funds may use derivatives that incidentally involve leverage, they
do not use them for the specific purpose of leveraging their portfolios
- --------------------------------------------------------------------------------
o J.P. Morgan maintains a list of approved borrowers

o The fund receives collateral equal to at least 100% of the current value of
the securities loaned

o The lending agents indemnify a fund against borrower default

o J.P. Morgan's collateral investment guidelines limit the quality and duration
of collateral investment to minimize losses

o Upon recall, the borrower must return the securities loaned within the normal
settlement period
- --------------------------------------------------------------------------------
o No fund may invest more than 15% of net assets in illiquid holdings

o To maintain adequate liquidity to meet redemptions, each fund may hold
investment-grade short-term securities (including repurchase agreements and
reverse repurchase agreements) and, for temporary or extraordinary purposes,
may borrow from banks up to 33 1/3% of the value of its total assets
- --------------------------------------------------------------------------------
o The expected turnover rate for each fund is as follows:
o Tax Exempt Bond 50%
o New York Tax Exempt Bond, California Bond 75%
o Short Term Bond, Bond, Global Strategic Income 300%

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

FUND DETAILS 21

<PAGE>

Investments
This table discusses the customary types of investments which can be held by
each fund. In each case the principal types of risk are listed on the following
page (see below for definitions).This table reads across two pages.

- --------------------------------------------------------------------------------
Asset-backed securities Interests in a stream of payments from specific assets,
such as auto or credit card receivables.
- --------------------------------------------------------------------------------
Bank obligations Negotiable certificates of deposit, time deposits and bankers'
acceptances of domestic and foreign issuers.
- --------------------------------------------------------------------------------
Commercial paper Unsecured short term debt issued by domestic and foreign banks
or corporations. These securities are usually discounted and are rated by S&P or
Moody's.
- --------------------------------------------------------------------------------
Convertible securities Domestic and foreign debt securities that can be
converted into equity securities at a future time and price.
- --------------------------------------------------------------------------------
Corporate bonds Debt securities of domestic and foreign industrial, utility,
banking, and other financial institutions.
- --------------------------------------------------------------------------------
Mortgages (directly held) Domestic debt instrument which gives the lender a lien
on property as security for the loan payment.
- --------------------------------------------------------------------------------
Mortgage-backed securities Domestic and foreign securities (such as Ginnie Maes,
Freddie Macs, Fannie Maes) which represent interests in pools of mortgages,
whereby the principal and interest paid every month is passed through to the
holder of the securities.
- --------------------------------------------------------------------------------
Mortgage dollar rolls The purchase of mortgage-backed securities with the
promise to purchase similar securities upon the maturity of the original
security. Segregated accounts are used to offset leverage risk.
- --------------------------------------------------------------------------------
Participation interests Interests that represent a share of bank debt or similar
securities or obligations.
- --------------------------------------------------------------------------------
Private placements Bonds or other investments that are sold directly to an
institutional investor.
- --------------------------------------------------------------------------------
REITs and other real-estate related instruments Securities of issuers that
invest in real estate or are secured by real estate.
- --------------------------------------------------------------------------------
Repurchase agreements Contracts whereby the fund agrees to purchase a security
and resell it to the seller on a particular date and at a specific price.
- --------------------------------------------------------------------------------
Reverse repurchase agreements Contracts whereby the fund sells a security and
agrees to repurchase it from the buyer on a particular date and at a specific
price. Considered a form of borrowing.
- --------------------------------------------------------------------------------
Sovereign debt, Brady bonds, and debt of supranational organizations Dollar- or
non-dollar-denominated securities issued by foreign governments or supranational
organizations. Brady bonds are issued in connection with debt restructurings.
- --------------------------------------------------------------------------------
Swaps Contractual agreement whereby a party agrees to exchange periodic payments
with a counterparty. Segregated accounts are used to offset leverage risk.
- --------------------------------------------------------------------------------
Synthetic variable rate instruments Debt instruments whereby the issuer agrees
to exchange one security for another in order to change the maturity or quality
of a security in the fund.
- --------------------------------------------------------------------------------
Tax exempt municipal securities Securities, generally issued as general
obligation and revenue bonds, whose interest is exempt from federal taxation and
state and/or local taxes in the state where the securities were issued.
- --------------------------------------------------------------------------------
U.S. government securities Debt instruments (Treasury bills, notes, and bonds)
guaranteed by the U.S. government for the timely payment of principal and
interest.
- --------------------------------------------------------------------------------
Zero coupon, pay-in-kind, and deferred payment securities Domestic and foreign
securities offering non-cash or delayed-cash payment. Their prices are typically
more volatile than those of some other debt instruments and involve certain
special tax considerations.
- --------------------------------------------------------------------------------
<PAGE>

Risk related to certain investments held by J.P. Morgan Institutional fixed
income funds:

Credit risk The risk a financial obligation will not be met by the issuer of a
security or the counterparty to a contract, resulting in a loss to the
purchaser.

Currency risk The risk currency exchange rate fluctuations may reduce gains or
increase losses on foreign investments.

Environmental risk The risk that an owner or operator of real estate may be
liable for the costs associated with hazardous or toxic substances located on
the property.

Extension risk The risk a rise in interest rates will extend the life of a
mortgage-backed security to a date later than the anticipated prepayment date,
causing the value of the investment to fall.

Interest rate risk The risk a change in interest rates will adversely affect the
value of an investment. The value of fixed income securities generally moves in
the opposite direction of interest rates (decreases when interest rates rise and
increases when interest rates fall).

Leverage risk The risk of gains or losses disproportionately higher than the
amount invested.

22 FUND DETAILS
<PAGE>

o Permitted (and if applicable, percentage limitation)
percentage of total assets - bold
percentage of net assets - italic
o Permitted, but not typically used
+ Permitted, but no current intention of use
- -- Not permitted

Principal Types of Risk

<TABLE>
<CAPTION>
Short Term Global Strategic Tax Exempt New York Tax California
Bond Bond Income Bond Exempt Bond Bond
<S> <C> <C> <C> <C> <C> <C>
credit, interest rate, market, prepayment o o o o o o

credit, currency, liquidity, political o(1) o(1) o o Domestic o Domestic o Domestic
Only Only Only
credit, currency, interest rate, liquidity, market,
political o o o o o o

credit, currency, interest rate, liquidity, market,
political, valuation o 25% o 25% o -- -- --
Foreign Foreign
credit, currency, interest rate, liquidity, market,
political, valuation o 25% o 25% o -- -- --
Foreign Foreign
credit, environmental, extension, interest rate,
liquidity, market, natural event, political,
prepayment, valuation o o o + + +

credit, currency, extension, interest rate,
leverage, market, political, prepayment o o o -- -- --

currency, extension, interest rate, leverage,
liquidity, market, political, prepayment o 33 1/3% o 33 1/3% o 33 1/3% -- -- --

credit, currency, extension, interest rate,
liquidity, political, prepayment o o o -- -- --

credit, interest rate, liquidity, market,
valuation o o o o o o

credit, interest rate, liquidity, market, natural
event prepayment, valuation o o o -- -- --

credit o o o o o o

credit o(3) o(3) o(3) o(3) o(3) o(3)

credit, currency, interest rate, market, political o o o -- -- --

credit, currency, interest rate, leverage, market,
political o o o o -- --

credit, interest rate, leverage, liquidity, market -- -- -- o o o

credit, interest rate, market, natural event,
political o o -- o(2) o(2) o(2)

interest rate o o o o o o

credit, currency, interest rate, liquidity, market,
political, valuation o o o o o o
</TABLE>
<PAGE>

Liquidity risk The risk the holder may not be able to sell the security at the
time or price it desires.

Market risk The risk that when the market as a whole declines, the value of a
specific investment will decline proportionately. This systematic risk is common
to all investments and the mutual funds that purchase them.

Natural event risk The risk a natural disaster, such as a hurricane or similar
event, will cause severe economic losses and default in payments by the issuer
of the security.

Political risk The risk governmental policies or other political actions will
negatively impact the value of the investment.

Prepayment risk The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.

Valuation risk The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.

(1) For each of the Short Term Bond and Bond funds, all foreign securities in
the aggregate may not exceed 25% of such fund's assets.

(2) At least 65% of assets must be in tax exempt securities (for New York Tax
Exempt Bond and California Bond funds, the 65% must be in New York or
California municipal securities, respectively).

(3) All forms of borrowing (including securities lending and reverse repurchase
agreements) in the aggregate may not exceed 33 1/3% of the fund's total
assets.

FUND DETAILS 23

<PAGE>

FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each fund's
financial performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends and distributions). Except where noted, this information has been
audited by PricewaterhouseCoopers LLP, whose reports, along with each fund's
financial statements, are included in the respective fund's annual report, which
are available upon request.
<TABLE>
<CAPTION>
J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND

Net asset value, beginning of period ($) 9.99 9.60 9.83 9.85 9.84
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.47 0.58 0.55 0.61 0.59
Net realized and unrealized gain (loss)
on investment and foreign currency contracts
and transactions($) (0.39) 0.24 0.02 (0.01) 0.12
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.08 0.82 0.57 0.60 0.71
- -----------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.47) (0.59) (0.55) (0.61) (0.59)
Net asset value, end of period ($) 9.60 9.83 9.85 9.84 9.96
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Total return (%) 0.87 8.81 6.01 6.27 7.40
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 47,679 18,916 17,810 27,375 232,986
- -----------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- -----------------------------------------------------------------------------------------------------------------------
Expenses (%) 0.45 0.45 0.37 0.25 0.25
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.96 6.09 5.69 6.19 5.84
- -----------------------------------------------------------------------------------------------------------------------
Expenses without
reimbursement (%) 0.78 0.67 1.37 0.96 0.62
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

24 FUND DETAILS

- -----------------------------------------------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL BOND FUND

Net asset value, beginning of period ($) 10.14 9.23 9.98 9.84 10.01
- -----------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.55 0.63 0.61 0.65 0.64
Net realized and unrealized gain (loss)
on investment and foreign currency contracts
and transactions ($) (0.88) 0.75 (0.11) 0.18 0.15
- -----------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) (0.33) 1.38 0.50 0.83 0.79
- -----------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.55) (0.63) (0.61) (0.64) (0.63)
Net realized gain ($) (0.03) -- (0.03) (0.02) (0.07)
- -----------------------------------------------------------------------------------------------------------------------
Total distributions ($) (0.58) (0.63) (0.64) (0.66) (0.70)
- -----------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.23 9.98 9.84 10.01 10.10
- -----------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------------------------------
Total return (%) (3.33) 15.50 5.21 8.78 8.18
- -----------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 253,174 438,610 836,066 912,054 1,001,411
- -----------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.50 0.47 0.50 0.50 0.49
- -----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 6.00 6.62 6.28 6.59 6.32
- -----------------------------------------------------------------------------------------------------------------------
Expenses without
reimbursement (%) 0.69 0.52 0.53 0.50 0.50
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>

- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND

Per-share data For fiscal periods ended October 31
- --------------------------------------------------------------------------------
1997(1) 1998

Net asset value, beginning of period ($) 10.00 10.16
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.46 0.75
Net realized and unrealized gain (loss)
on investment and foreign currency transactions ($) 0.15 (0.45)
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.61 0.30
- --------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.45) (0.70)
Net realized gain ($) -- (0.02)
Return of capital -- (0.02)
- --------------------------------------------------------------------------------
Total distributions ($) (0.45) (0.74)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 10.16 9.72
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Total return (%) 6.15(2) 2.91
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 105,051 223,700
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.65(3) 0.65
- --------------------------------------------------------------------------------
Net investment income (%) 7.12(3) 6.59
- --------------------------------------------------------------------------------
Expenses without
reimbursement (%) 1.18(3) 0.83
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 3/17/97.
(2) Not annualized.
(3) Annualized.

FUND DETAILS 25

<PAGE>

- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL CALIFORNIA BOND FUND

Per-share data For fiscal periods ended
- --------------------------------------------------------------------------------
4/30/97(1) 4/30/98 10/31/98
(unaudited)
Net asset value, beginning of period ($) 10.00 9.90 10.20
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.16 0.42 0.21
Net realized and unrealized gain (loss)
on investment ($) (0.10) 0.30 0.33
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.06 0.72 0.54
- --------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.16) (0.42) (0.21)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 9.90 10.20 10.53
- --------------------------------------------------------------------------------
Total return (%) 0.56(2) 7.35 5.30(2)
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 14,793 46,280 53,971
- --------------------------------------------------------------------------------
Ratio to average net assets:
Expenses (%) 0.45(3) 0.45 0.48(3)
- --------------------------------------------------------------------------------
Net investment income (%) 4.43(3) 4.11 3.96(3)
- --------------------------------------------------------------------------------
Expenses without
reimbursement (%) 3.46(3) 0.79 0.73(3)
- --------------------------------------------------------------------------------
Portfolio turnover (%) 40 44 27
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 12/23/96.
(2) Not annualized.
(3) Annualized.

26 FUND DETAILS

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

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

<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 fund, may be obtained by contacting:

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

J.P. Morgan Institutional Short Term Bond Fund.....................811-07342 and
033-54642
J.P. Morgan Institutional Bond Fund ...............................811-07342 and
033-54642
J.P. Morgan Institutional Global Strategic Income Fund ............811-07342 and
033-54642
J.P. Morgan Institutional Tax Exempt Bond Fund.....................811-07342 and
033-54642
J.P. Morgan Institutional New York Tax Exempt Bond Fund ...........811-07342 and
033-54642
J.P. Morgan Institutional California Bond Fund.....................811-07795 and
333-11125

J.P. MORGAN INSTITUTIONAL
FUNDS AND THE MORGAN
TRADITION

JPMorgan
- --------------------------------------------------------------------------------
J.P. MORGAN 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
1-800-521-5411 1-800-221-7930

<PAGE>

MARCH 1, 1999

PROSPECTUS

J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUNDS

International Equity Fund
European Equity Fund
International Opportunities Fund
Emerging Markets Equity Fund

- ----------------------------------------
Seeking high total return primarily from
stocks outside the United States

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

Distributed by Funds Distributor, Inc.

JPMorgan

<PAGE>

Contents
- --------------------------------------------------------------------------------
2
Each fund's goal, investment approach,
risks, expenses and performance

J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUNDS

J.P. Morgan Institutional International Equity Fund ....................... 2
J.P. Morgan Institutional European Equity Fund ............................ 4
J.P. Morgan Institutional International Opportunities Fund ................ 6
J.P. Morgan Institutional Emerging Markets Equity Fund .................... 8

10
Principles and techniques common
to the funds in this prospectus

INTERNATIONAL EQUITY MANAGEMENT APPROACH

J.P. Morgan ............................................................... 10
J.P. Morgan international equity funds .................................... 10
The spectrum of international equity funds ................................ 10
Who may want to invest .................................................... 10
International equity investment process ................................... 11

12
Investing in the J.P. Morgan
Institutional International Equity 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 risk and the funds'
business operations

FUND DETAILS

Master/Feeder structure ................................................... 15
Management and administration ............................................. 15
Risk and reward elements .................................................. 16
Financial Highlights ...................................................... 18

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

<PAGE>

J.P. MORGAN INSTITUTIONAL
INTERNATIONAL EQUITY FUND TICKER SYMBOL: JNUSX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 16-17.

GOAL
The fund's goal is to provide high total return from a portfolio of foreign
company equity securities. This goal can be changed without shareholder
approval.

INVESTMENT APPROACH
The fund invests primarily in equity securities from developed countries
included in the Morgan Stanley Capital International Europe, Australasia, and
Far East Index (EAFE), which is the fund's benchmark. The fund typically does
not invest in U.S. companies.

The fund's industry weightings generally approximate those of the EAFE Index,
although it does not seek to mirror the index in its choice of individual
securities, and may overweight or underweight countries relative to the EAFE
Index. In choosing stocks, the fund emphasizes those that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund makes its
currency management decisions as described on pages 11 and 16.

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

In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Foreign markets
tend to be more volatile than those of the U.S., and changes in currency
exchange rates could reduce market performance. To the extent that the fund
hedges its currency exposure into the U.S. dollar, it may reduce the effects of
currency fluctuations. The fund may also hedge from one foreign currency to
another. Foreign stocks are generally riskier than their domestic counterparts.
You should be prepared to ride out periods of underperformance.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including approximately $8.1 billion using similar strategies as the
fund.

The portfolio management team is led by Paul A. Quinsee, managing director, who
joined the team in April 1993 and has been at J.P. Morgan since 1992, and by
Nigel F. Emmett, vice president, who has been on the team since joining J.P.
Morgan in August 1997. Previously, Mr. Emmett was an assistant manager at Brown
Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.

2 J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional International Equity Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 8 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one and five years and life of the fund compare to those of the
EAFE Index. This is an unmanaged index used to track the average performance of
over 900 securities listed on the stock exchanges of countries in Europe,
Australasia and the Far East.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1991 1992 1993 1994 1995 1996 1997 1998
40% 24.37
20% 10.58 13.62
0% 6.00 7.96 8.48 1.46
(20%) (10.77)
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional International Equity Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 20.21% (for the quarter ended 12/31/98); and the
lowest quarterly return was -17.97% (for the quarter ended (9/30/98).

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
J.P. Morgan Institutional International
Equity Fund (after expenses) 13.62 7.43 5.59
- --------------------------------------------------------------------------------
EAFE Index (no expenses) 20.00 9.19 6.73
- --------------------------------------------------------------------------------

<PAGE>

INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.60
Marketing (12b-1) fees none
Other expenses 0.37
- --------------------------------------------------------------------------------
Total annual fund
operating expenses 0.97
- --------------------------------------------------------------------------------

Expense example

(1) The fund commenced operations on 10/4/93. Returns reflect performance of the
J.P. Morgan International Equity Fund (a separate feeder fund investing in
the same master portfolio) from 6/1/90 through 10/31/93.

(2) The fund's fiscal year end is 10/31.

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

J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND 3

<PAGE>

J.P. MORGAN INSTITUTIONAL
EUROPEAN EQUITY FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 16-17.

GOAL
The fund's goal is to provide high total return from a portfolio of European
company equity securities. This goal can be changed without shareholder
approval.

INVESTMENT APPROACH
The fund invests primarily in equity securities from the 14 countries included
in the Morgan Stanley Capital International (MSCI) Europe Index, which is the
fund's benchmark. The fund typically does not invest in U.S. companies.

The fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. The fund generally
keeps its industry weightings similar to those of the MSCI Europe Index,
although it does not seek to mirror the index in its choice of individual
securities. The fund makes its country allocation and currency management
decisions as described on pages 11 and 16.

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

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $4.5 billion using similar strategies as the fund.

The portfolio management team is led by Paul A. Quinsee, managing director, who
has been at J.P. Morgan since 1992, and by Nigel F. Emmett, vice president, who
has been on the team since February 1998. Mr. Emmett has been at J.P. Morgan
since August 1997. Previously, Mr. Emmett was an assistant manager at Brown
Brothers Harriman and Co. and a portfolio manager at Gartmore Investment
Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.

4 J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional European Equity Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 2 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one year and life of the fund compare to those of the MSCI Europe
Index. This is an unmanaged index comprised of more than 600 companies in 14
European countries.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1997 1998
40%
20% 22.27 21.48
0%
(20%)
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional European Equity Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 19.67% (for the quarter ended 12/31/98); and the
lowest quarterly return was -18.48% (for the quarter ended 9/30/98).

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Institutional European
Equity Fund (after expenses) 21.48 21.75
- --------------------------------------------------------------------------------
MSCI Europe Index (no expenses) 28.53 24.96
- --------------------------------------------------------------------------------

<PAGE>
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.65
Marketing (12b-1) fees none
Other expenses(4) 1.12
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 1.77
- --------------------------------------------------------------------------------

Expense example

(1) The fund's fiscal year end is 11/30. Prior to 1998, the fund's fiscal year
end was 12/31.

(2) The fund commenced operations on 2/29/96.

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

(4) After reimbursement, other expenses and total operating expenses are 0.35%
and 1.00%, respectively. This reimbursement can be changed or terminated at
any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND 5

<PAGE>

J.P. MORGAN INSTITUTIONAL
INTERNATIONAL OPPORTUNITIES FUND TICKER SYMBOL: JPIOX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 16-17.

GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities of foreign companies in developed and, to a lesser extent, emerging
markets. This goal can be changed without shareholder approval.

INVESTMENT APPROACH
The fund's assets are invested primarily in companies from developed markets
other than the U.S. The fund's assets may also be invested to a limited extent
in companies from emerging markets. Developed countries include Australia,
Canada, Japan, New Zealand, the United Kingdom, and most of the countries of
western Europe; emerging markets include most other countries in the world. The
fund focuses on stock picking, emphasizing those stocks that are ranked as
undervalued according to J.P. Morgan's proprietary research, while
underweighting or avoiding those that appear overvalued. While the fund
generally follows the process described on page 11, its country allocations and
sector weightings may differ significantly from those of the MSCI All Country
World Index Free (ex-U.S.), the fund's benchmark. The fund makes its currency
management decisions as described on pages 11 and 16.

To the extent that the fund hedges its currency exposure into the U.S. dollar,
it may reduce the effects of currency fluctuations. The fund may also hedge from
one foreign currency to another. However, the fund does not typically use this
strategy for its emerging markets currency exposure. Foreign stocks are
generally riskier than their domestic counterparts. You should be prepared to
ride out periods of underperformance.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including approximately $2.4 billion using similar strategies as the
fund.

The portfolio management team is led by Paul A. Quinsee, managing director, who
has been on the team since the fund's inception and at J.P. Morgan since 1992,
Andrew C. Cormie, vice president, who has been an international equity portfolio
manager since 1997 and employed by J.P. Morgan since 1984, and by Nigel F.
Emmett, vice president, who has been on the team since joining J.P. Morgan in
August 1997. Previously, Mr. Emmett was an assistant manager at Brown Brothers
Harriman and Co. and a portfolio manager at Gartmore Investment Management.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.

6 J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional International Opportunities Fund.

The bar chart indicates the risks by showing the performance of the fund's
shares during its first complete calendar year of operations.

The table indicates the risks by showing how the fund's average annual return
for the period ended December 31, 1998 compare to those of the MSCI All Country
World Index Free (ex.-U.S.). This is an unmanaged index that measures developed
and emerging foreign stock market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1998
40%
20%
0% 3.83
(20%)
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional International Opportunities Fund

For the period covered by this total return chart, the fund's highest quarterly
return was 22.09% (for the quarter ended 12/31/98); and the lowest quarterly
return was -21.34% (for the quarter ended 9/30/98).

Average annual total return (%) Shows performance over time, for period ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Institutional International
Opportunities Fund (after expenses) 3.83 3.25
- --------------------------------------------------------------------------------
MSCI All Country World Index Free (ex-U.S.) 14.11 8.41
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.60
Marketing (12b-1) fees none
Other expenses(4) 0.42
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 1.02
- --------------------------------------------------------------------------------

Expense example

(1) The fund's fiscal year end is 11/30.

(2) The fund commenced operations on 2/26/97 and performance is calculated as of
2/28/97.

(4) After reimbursement other expenses and total operating expenses are 0.40%
and 1.00%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND 7

<PAGE>

J.P. MORGAN INSTITUTIONAL EMERGING
MARKETS EQUITY FUND TICKER SYMBOL: JMIEX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY FUND)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 16-17.

GOAL
The fund's goal is to provide high total return from a portfolio of equity
securities from emerging markets issuers. This goal can be changed without
shareholder approval.

INVESTMENT APPROACH
The fund invests primarily in equity securities from countries whose economies
or stock markets are less developed. The fund may also invest to a lesser extent
in debt securities of these countries. This designation currently includes most
countries in the world except Australia, Canada, Japan, New Zealand, the United
Kingdom, the U.S., and most of the countries of western Europe.

The fund makes its country allocation decisions as described on page 11 and may
overweight or underweight countries relative to its benchmark, the Morgan
Stanley Capital International (MSCI) Emerging Markets Free Index. The fund
emphasizes stocks that are ranked as undervalued, while underweighting or
avoiding stocks that appear overvalued. The fund typically maintains full
currency exposure to those markets in which it invests. However, the fund may
from time to time hedge a portion of its foreign currency exposure into the U.S.
dollar.

The value of your investment in the fund will fluctuate in response to movements
in international stock and bond markets, interest rates and currency exchange
rates. Fund performance will also depend on the effectiveness of J.P. Morgan's
research and the management team's country allocation and security selection
decisions.

In general, international investing involves higher risks than investing in U.S.
markets but offers attractive opportunities for diversification. Because
emerging markets carry higher risks than developed markets, the fund's
performance is likely to be more volatile than that of many other international
equity funds. To the extent that the fund hedges its currency exposure into the
U.S. dollar, it may reduce the effects of currency fluctuations. Foreign
securities are generally riskier than their domestic counterparts. You should be
prepared to ride out periods of underperformance.

By emphasizing undervalued stocks, the fund has the potential to produce returns
that exceed those of the fund's benchmark. At the same time, the fund seeks to
limit its volatility to that of the benchmark.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $3.6 billion using similar strategies as the fund.

The management team is led by Douglas Dooley, managing director, who has been at
J.P. Morgan since 1979, Satyen Mehta, vice president, who has been at J.P.
Morgan since 1984, both of whom have been on the team since the fund's inception
and by Leigh Wasson, vice president, who has been at J.P. Morgan since 1987. Ms.
Wasson joined the team in March 1997.
- --------------------------------------------------------------------------------
Before you invest
Investors considering the fund should understand that:

o There is no assurance that the fund will meet its investment goals.
o The fund does not represent a complete investment program.

8 J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Emerging Markets Equity Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last 5 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one and five years and life of the fund compare to those of the
MSCI Emerging Markets Free Index. This is a widely recognized, unmanaged index
of emerging markets stocks used as a measure of overall emerging market equity
performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998
10%
0% (7.19) (9.68) (8.84) (7.71)
(10%)
(20%)
(30%) (30.33)
(35%)
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Emerging Markets Equity Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 17.07% (for the quarter ended 9/30/94); and the
lowest quarterly return was -23.56% (for the quarter ended 6/30/98).

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
J.P. Morgan Institutional Emerging
Markets Equity Fund (after expenses) -30.33 -10.12 -7.46
- --------------------------------------------------------------------------------
MSCI Emerging Markets Equity Free -25.34 -9.27 -6.35
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 1.00
Marketing (12b-1) fees none
Other expenses(4) 0.54
- --------------------------------------------------------------------------------
Total annual fund
operating expenses(4) 1.54
- --------------------------------------------------------------------------------

Expense example

(1) The fund's fiscal year end is 10/31.

(2) The fund commenced operations on 11/15/93 and performance is calculated as
of 11/30/93.

(4) After reimbursement, other expenses and total operating expenses are 0.45%
and 1.45%, respectively. This reimbursement can be changed or terminated at
any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY FUND 9

<PAGE>

INTERNATIONAL EQUITY MANAGEMENT APPROACH
- --------------------------------------------------------------------------------

J.P. MORGAN INTERNATIONAL EQUITY FUNDS
These funds invest primarily in stocks and other equity securities of companies
outside the U.S. through a master portfolio (another fund with the same goal).
As a shareholder, you should anticipate risks and rewards beyond those of a
typical U.S. stock fund.

THE SPECTRUM OF INTERNATIONAL EQUITY FUNDS
The funds described in this prospectus pursue a range of goals and offer varying
degrees of risk and potential reward. Differences between these funds include:

o the parts of the world in which they invest
o how closely they follow the weightings of their benchmarks
o how many securities they typically maintain in their portfolios
o the relative weighting of stocks in developed vs emerging markets

The table below shows degrees of the relative risk and return that these funds
potentially offer. These and other distinguishing features of each international
equity fund were described on the preceding pages.
- --------------------------------------------------------------------------------
Who May Want to Invest
The funds are designed for investors who:

o are pursuing a long-term goal
o want to add a non-U.S. investment with growth potential to further diversify
a portfolio
o want funds that seek to consistently outperform the markets in which they
invest

The funds are not designed for investors who:

o are uncomfortable with the risks of international investing
o are looking for a less aggressive stock investment
o require regular income or stability of principal
o are pursuing a short-term goal or investing emergency reserves

Potential risk and return

The positions of the funds in this graph reflect long-term performance goals
only and are relative, not absolute.

Emerging Markets Equity Fund

European Equity Fund

Return

International
Opportunities Fund

International Equity Fund

FUND DETAILS

Risk

10 INTERNATIONAL EQUITY MANAGEMENT APPROACH
<PAGE>

INTERNATIONAL EQUITY INVESTMENT PROCESS
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor, focuses
on allocating assets by country, selecting stocks and managing currency
exposure. The funds largely avoid using sector or market-timing strategies.

Through its extensive global equity research and analytical systems, J.P. Morgan
seeks to generate an information advantage. Using fundamental analysis as well
as macro-economic models, J.P. Morgan develops proprietary research on
countries, companies, and currencies. In these processes, the analysts focus on
a relatively long period rather than on near-term expectations alone. The team
of analysts dedicated to international equities includes more than 90 members
around the world, with an average of nearly ten years of experience.

In managing the funds described in this prospectus, J.P. Morgan employs a
three-step process that combines country allocation, fundamental research for
identifying portfolio securities, and currency management decisions:

J.P. Morgan uses top-down analysis
in determining which countries
to emphasize

Country allocation J.P. Morgan takes an in-depth look at the relative valuations
and economic prospects of different countries, ranking the attractiveness of
their markets. Using these rankings, a team of strategists establishes a country
allocation for each fund. Country allocation may vary either significantly or
moderately from the benchmark, depending on the fund. J.P. Morgan considers the
developed countries of Europe (excluding the U.K.) as a whole while monitoring
the fund's exposure to any one country.

Stocks in each industry are ranked
with the help of models, then selected
for investment

Stock selection Various models are used to quantify J.P. Morgan's fundamental
stock research, producing a ranking of companies in each industry group
according to their relative value. Each fund's management team then buys and
sells stocks, using the research and valuation rankings as well as its
assessment of other factors, including:

o catalysts that could trigger a change in a stock's price
o potential reward compared to potential risk
o temporary mispricings caused by market overreactions

In some funds, J.P. Morgan may adjust
currency exposure to seek to manage
risks and enhance returns

Currency management The funds have access to J.P. Morgan's currency specialists
in determining the extent and nature of each fund's exposure to various foreign
currencies. (The Emerging Markets Equity fund typically maintains full currency
exposure to those markets in which it invests.)

INTERNATIONAL EQUITY MANAGEMENT APPROACH 11

<PAGE>

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

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

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

o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in the Emerging Markets Equity fund is
$500,000 and in the International Equity, International Opportunities and
European Equity funds is $1,000,000. The minimum for additional investments is
$25,000, although these minimums may be less for some investors. For more
information on minimum investments, call 1-800-766-7722.

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

o Mail in your application, making your initial investment as shown 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:

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.

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.

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).

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

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

o Mail the letter to the Shareholder Services Agent.

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

Redemption in kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.

<PAGE>

ACCOUNT AND TRANSACTION POLICIES

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

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

Business hours and NAV calculations The funds' regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). Each fund
calculates its net asset value per share (NAV) every business day as of the
close of trading on the NYSE (normally 4:00 p.m. eastern time).The funds'
securities are typically priced using market quotes or pricing services. When
these methods are not available or do not represent a security's value at the
time of pricing (e.g., when an event occurs after the close of trading that
would materially impact a security's value), the security is valued in
accordance with the fund's fair valuation procedures.

Timing of settlements When you buy shares, you will become the owner of record
when a fund receives your payment, generally the day following execution. When
you sell shares, proceeds are generally available the day
- --------------------------------------------------------------------------------
Shareholder Services Agent
J.P. Morgan Funds Services
522 Fifth Avenue
New York, NY 10036
1-800-776-7722

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

YOUR INVESTMENT 13

<PAGE>
following execution and will be forwarded according to your instructions.

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

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

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

DIVIDENDS AND DISTRIBUTIONS

Each fund typically pays income dividends and makes capital gains distributions,
if any, once a year. A fund may declare an additional income dividend in a given
year, depending on its tax situation. However, a fund may also make fewer
payments in a given year, depending on its investment results. Dividends and
distributions consist of substantially all of the fund's net investment income
and realized capital gains.

TAX CONSIDERATIONS

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

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 series of J.P. Morgan Institutional Funds, a
Massachusetts business trust, and is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)

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

J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:

- --------------------------------------------------------------------------------
Advisory services Percentage of the master
portfolio's average net assets
International Equity 0.60%
European Equity 0.65%
International Opportunities 0.60%
Emerging Markets Equity 1.00%
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion of average net
assets in J.P. Morgan-advised
portfolios, plus 0.04% of average
net assets over $7 billion
- --------------------------------------------------------------------------------
Shareholder services 0.10% of the fund's average
net assets
- --------------------------------------------------------------------------------

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

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

FUND DETAILS 15
<PAGE>

RISK AND REWARD ELEMENTS

This table identifies the main elements that make up each fund's overall risk
and reward characteristics. It also outlines each fund's policies toward various
investments, including those that are designed to help certain funds manage
risk.

o Each fund's share price and performance will fluctuate in response to stock
and bond market movements

o The value of most bonds will fall when interest rates rise; the longer a
bond's maturity and the lower its credit quality, the more its value typically
falls

o A fund could lose money because of foreign government actions, political
instability, or lack of adequate and/or accurate information

o Investment risks tend to be higher in emerging markets. These markets also
present higher liquidity and valuation risks

o Adverse market conditions may from time to time cause the fund to take
temporary defensive positions that are inconsistent with its principal
investment strategies and may hinder the fund from achieving its investment
objective
- --------------------------------------------------------------------------------
Management choices

o A fund could underperform its benchmark due to its securities choices and
other management decisions
- --------------------------------------------------------------------------------
Foreign currencies

o Currency exchange rate movements could reduce gains or create losses

o Currency risks tend to be higher in emerging markets
- --------------------------------------------------------------------------------
When-issued and delayed delivery securities

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

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

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

o Most bonds will rise in value when interest rates fall

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

o Emerging markets can offer higher returns
- --------------------------------------------------------------------------------
o A fund could outperform its benchmark due to these same choices
- --------------------------------------------------------------------------------
o Favorable exchange rate movements could generate gains or reduce losses
- --------------------------------------------------------------------------------
o A fund can take advantage of attractive transaction opportunities
- --------------------------------------------------------------------------------

<PAGE>

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

o Under normal circumstances the funds plan to remain fully invested, with at
least 65% in stocks; stock investments may include convertible securities,
preferred stocks, depository receipts (such as ADRs and EDRs), trust or
partnership interests, warrants, rights, and investment company securities

o The funds seek to limit risk and enhance performance through active
management, country allocation and diversification

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

o The Emerging Markets Equity Fund will invest up to 20% of assets in debt
securities when J.P. Morgan believes the potential total return exceeds
potential total return in emerging markets equity securities
- --------------------------------------------------------------------------------
o J.P. Morgan focuses its active management on securities selection, the area
where it believes its commitment to research can most enhance returns
- --------------------------------------------------------------------------------
o Except as noted earlier in this prospectus, each fund manages the currency
exposure of its foreign investments relative to its benchmark and may hedge a
portion of its foreign currency exposure into the U.S. dollar from time to
time. (see also "Derivatives")
- --------------------------------------------------------------------------------
o Each fund uses segregated accounts to offset leverage risk
- --------------------------------------------------------------------------------

16 FUND DETAILS

<PAGE>

================================================================================
Potential risks
- --------------------------------------------------------------------------------
Derivatives

o Derivatives such as futures, options, swaps, and forward foreign currency
contracts(1) that are used for hedging the portfolio or specific securities
may not fully offset the underlying positions and this could result in losses
to the fund that would not have otherwise occurred

o Derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities

o The counterparty to a derivatives contract could default

o Derivatives that involve leverage could magnify losses

o Certain types of derivatives involve costs to a fund which can reduce returns
- --------------------------------------------------------------------------------
Securities Lending

o When a fund lends a security, the loaned securities may not be returned if
the borrower defaults

o The collateral will be subject to the risks of the securities in which it is
invested
- --------------------------------------------------------------------------------
Illiquid holdings

o A fund could have difficulty valuing these holdings precisely

o A fund could be unable to sell these holdings at the time or price it desired
- --------------------------------------------------------------------------------
Short-term trading

o Increased trading could raise a fund's brokerage and related costs

o Increased short-term capital gains distributions could raise shareholders'
income tax liability
- --------------------------------------------------------------------------------

================================================================================
Potential rewards
- --------------------------------------------------------------------------------
o Hedges that correlate well with underlying positions can reduce or eliminate
losses at low cost

o A fund could make money and protect against losses if the investment analysis
proves correct

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

<PAGE>

================================================================================
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o The funds use derivatives, such as futures, options, swaps, and forward
foreign currency contracts, for hedging and for risk management (i.e., to
establish or adjust exposure to particular securities, markets or currencies);
risk management may include management of a fund's exposure relative to its
benchmark

o The funds only establish hedges that they expect will be highly correlated
with underlying positions

o The fund receives collateral equal to at least 100% of the current value of
the securities loaned

o The lending agents indemnify a fund against borrower default

o J.P. Morgan's collateral investment guidelines limit the quality and duration
of collateral investment to minimize losses

o Upon recall, the borrower must return the securities loaned within the normal
settlement period
- --------------------------------------------------------------------------------
o No fund may invest more than 15% of net assets in illiquid holdings

o To maintain adequate liquidity, each fund may hold investment-grade short-term
securities (including repurchase agreements and reverse repurchase agreements)
and, for temporary or extraordinary purposes, may borrow from banks up to
33 1/3% of the value of its total assets
- --------------------------------------------------------------------------------
o Each fund anticipates that its portfolio turnover rate will not exceed 100%

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

FUND DETAILS 17

<PAGE>

FINANCIAL HIGHLIGHTS
The financial highlights tables are intended to help you understand each fund's
financial performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends and distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose reports, along with each fund's financial
statements, are included in the representative fund's annual report, which are
available upon request.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND

Per-share data For fiscal periods ended October 31
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998
Net asset value, beginning of period ($) 10.20 10.83 10.44 11.43 11.39
- --------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.06 0.06 0.12 0.17 0.32
Net realized and unrealized gain (loss)
on investment and foreign currency ($) 0.57 (0.33) 1.17 0.24 0.20
- --------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.63 (0.27) 1.29 0.41 0.52
- --------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) -- -- (0.24) (0.25) (0.35)
Net realized gain ($) -- (0.12) (0.06) (0.20) (0.35)
- --------------------------------------------------------------------------------------------------------------------------
Total distributions ($) -- (0.12) (0.30) (0.45) (0.70)
- --------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.83 10.44 11.43 11.39 11.21
- --------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------------------------------------------------
Total return (%) 6.18 (2.46) 12.54 3.71 4.95
- --------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 213,119 467,511 726,864 614,659 366,991
- --------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- --------------------------------------------------------------------------------------------------------------------------
Expenses (%) 1.00 0.92 0.95 0.93 0.97
-----------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.95 1.24 1.24 1.32 0.92
-----------------------------------------------------------------------------------------------------------------------
Expenses without
reimbursement (%) 1.16 0.94 0.96 0.93 0.97
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>

18 J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUNDS

<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND

Per-share data For fiscal periods ended
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
For the
Eleven Months Ended
12/31/96(1) 12/31/97 November 30, 1998
Net asset value, beginning of period ($) 10.00 11.56 12.56
- ---------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.12 0.21 0.20
Net realized and unrealized gain
on investment and foreign currency ($) 1.59 2.34 1.97
- ---------------------------------------------------------------------------------------------------------
Total from investment operations ($) 1.71 2.55 2.17
- ---------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.10) (0.17) -
Net realized gains ($) (0.05) (1.38) -
- ---------------------------------------------------------------------------------------------------------
Total distributions ($) (0.15) (1.55) -
- ---------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 11.56 12.56 14.73
- ---------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------
Total return (%) 17.10(2) 22.27 17.28(2)
- ---------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 6,532 10,174 12,439
- ---------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------------
Expenses (%) 1.00(3) 1.00 1.00(3)
------------------------------------------------------------------------------------------------------
Net investment income (%) 1.68(3) 1.57 1.32(3)
------------------------------------------------------------------------------------------------------
Expenses without
reimbursement (%) 2.50(4) 2.08 1.77
- ---------------------------------------------------------------------------------------------------------
</TABLE>

(1) The fund commenced operations on 2/29/96.
(2) Not annualized.
(3) Annualized.
(4) After consideration of then applicable state limitations.

- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND

Per-share data For fiscal period ended November 30
- --------------------------------------------------------------------------------
1997(1) 1998
Net asset value, beginning of period ($) 10.00 9.94
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.07 0.22
Net realized and unrealized loss
on investment and foreign currency ($) (0.13) 0.05
- --------------------------------------------------------------------------------
Total from investment operations ($) (0.06) 0.27
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) - (0.10)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 9.94 10.11
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Total return (%) (0.60)(2) 2.69
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 211,229 323,918
- --------------------------------------------------------------------------------
Ratios to average net assets:
-----------------------------------------------------------------------------
Expenses (%) 0.99(3) 0.99
-----------------------------------------------------------------------------
Net investment income (%) 1.35(3) 1.13
-----------------------------------------------------------------------------
Expenses without
reimbursement (%) 1.17(3) 1.02
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 2/26/97.
(2) Not annualized.
(3) Annualized.

J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUNDS 19

<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY FUND

Per-share data For fiscal periods ended October 31
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994(1) 1995 1996 1997 1998
Net asset value, beginning of period ($) 10.00 12.47 9.71 10.27 9.86
- ---------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income (loss) ($) 0.04 0.08 0.08 0.11 0.14
Net realized and unrealized gain (loss)
on investment and foreign currency ($) 2.43 (2.66) 0.56 (0.43) (3.44)(4)
- ---------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 2.47 (2.58) 0.64 (0.32) (3.30)(4)
- ---------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) - (0.05) (0.08) (0.09) (0.13)
- ---------------------------------------------------------------------------------------------------------------------------
Net realized gain ($) - (0.13) - - (0.52)
- ---------------------------------------------------------------------------------------------------------------------------
Total distributions ($) - (0.18) (0.08) (0.09) (0.65)
- ---------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 12.47 9.71 10.27 9.86 5.91
- ---------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ---------------------------------------------------------------------------------------------------------------------------
Total return (%) 24.70(2) (20.81) 6.64 (3.15) (35.50)
- ---------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 146,667 186,023 293,594 306,381 120,402
- ---------------------------------------------------------------------------------------------------------------------------
Ratios to average net assets:
- ---------------------------------------------------------------------------------------------------------------------------
Expenses (%) 1.46(3) 1.43 1.41 1.37 1.46
------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 0.61(3) 0.96 0.96 0.95 1.43
------------------------------------------------------------------------------------------------------------------------
Expenses without
reimbursement (%) 1.62(3) 1.44 1.41 1.37 1.54
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The fund commenced operations on 11/15/93.
(2) Not annualized.
(3) Annualized.
(4) Based on amounts prior to Statement of Position 93-2 adjustments.

20 J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUNDS

<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 these 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:
<TABLE>
<CAPTION>
<S> <C>
J.P. Morgan Institutional International Equity Fund .............. 811-07342 and 033-54642
J.P. Morgan Institutional European Equity Fund ................... 811-07342 and 033-54642
J.P. Morgan Institutional International Opportunities Fund ....... 811-07342 and 033-54642
J.P. Morgan Institutional Emerging Markets Equity Fund ........... 811-07342 and 033-54642
</TABLE>

J.P. MORGAN INSTITUTIONAL
FUNDS AND THE MORGAN
TRADITION

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>

MARCH 1, 1999 | 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.

Distributed by Funds Distributor, Inc.

JPMorgan

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

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

<PAGE>

CONTENTS
- --------------------------------------------------------------------------------
2 |
Each fund's goal, investment approach,
risks, expenses and performance

J.P. MORGAN INSTITUTIONAL MONEY MARKET FUNDS
J.P. Morgan Institutional Prime Money Market Fund ..............2
J.P. Morgan Institutional Treasury Money Market Fund ...........4
J.P. Morgan Institutional Federal Money Market Fund ............6
J.P. Morgan Institutional Tax Exempt Money Market Fund .........8

10 |
Principles and techniques common
to the funds in this prospectus

MONEY MARKET MANAGEMENT APPROACH
J.P. Morgan ...................................................10
J.P. Morgan Institutional Money Market ........................10
The spectrum of money market funds ............................10
Who may want to invest ........................................10
Money market investment process ...............................11

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
Financial highlights ..........................................16

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

<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)

(GRAPHIC OMITTED) 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 without shareholder
approval.

(GRAPHIC OMITTED) INVESTMENT APPROACH
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, reverse 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.

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 11.

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 dollar weighted average maturity
(currently not to exceed 90 days) 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.

An investment in the fund is not a deposit of any bank and is not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. Although the fund seeks to preserve the value of your investment at $1
per share, it is possible to lose money by investing in the fund.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $316 billion, including more than $12.6 billion using similar
strategies 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.

- --------------------------------------------------------------------------------
BEFORE YOU INVEST
Investors considering these funds should understand that:

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

o These funds do not represent complete investment programs

2 | J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND

<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Prime Money Market Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last ten calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one year, five years and ten years compared to those of the IBC's
First Tier Money Fund Average. This is an average of all major first tier money
fund returns.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
12%

9% 9.13
8.04 6.07
6% 5.98 5.41 5.60 5.56
4.15
3% 3.67
2.87
0%
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Institutional Prime Money Market Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 2.33% (for the quarter ended 6/30/89); and the
lowest quarterly return was 0.69% (for the quarter ended 9/30/93).

PERFORMANCE (unaudited)

<S> <C> <C> <C>
J.P. Morgan Institutional Prime Money Market Fund (after expenses) 5.56 5.34 5.63
- --------------------------------------------------------------------------------------------------------------
IBC's First Tier Money Fund Average (after expenses) 4.88 4.78 N/A
- --------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
- -------------------------------------------
Management fees 0.12
Marketing (12b-1) fees None
Other expenses(4) 0.22
- -------------------------------------------
Total operating expenses(4) 0.34

- --------------------------------------------------------------------------------
Expense example
- --------------------------------------------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 35 109 191 431
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/12/93. Returns reflect performance of The
Pierpont Money Market Fund, the fund's predecessor, prior to that date.
(2) The fund's fiscal year end is 11/30.
(3) The fund has a master/feeder structure as described on page 15. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, using the current fees as if they had been in effect
during the past fiscal year before reimbursement, expressed as a percentage
of the fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.08%
and 0.20%, respectively. This reimbursement can be changed or terminated at
any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND | 3

<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)

(GRAPHIC OMITTED) 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 OMITTED) INVESTMENT APPROACH
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.

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 $316 billion, including more than $12.6 billion using similar
strategies as the fund.

Investors considering these funds should understand that:

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

o These funds do not represent complete investment programs

4 | J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND

<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Treasury Money Market Fund.

The bar chart indicates the risks by showing the performance of the fund's
shares during its first complete calendar year of operations.

The table indicates the risks by showing how the fund's average annual returns
for the past one year and life of the fund compared to those of the IBC's U.S.
Treasury and Repo Money Fund Average. This is an average of all major U.S.
treasury and repo money market fund returns.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Total returns (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1998
10%

5% 5.41

0%
- --------------------------------------------------------------------------------

[ ] J.P. Morgan Institutional Treasury Money Market Fund

For the period covered by this total return chart, the fund's highest quarterly
return was 1.37% (for the quarter ended 9/30/98); and the lowest quarterly
return was 1.23% (for the quarter ended 12/31/98).

PERFORMANCE (unaudited)

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Institutional Treasury Money Market
Fund (after expenses) 5.41 5.49
- --------------------------------------------------------------------------------
IBC's U.S. Treasury & Repo Money Fund Average 4.71 4.76
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.20
Marketing (12b-1) fees None
Other expenses(4) 0.28
- ----------------------------------------------------------------------
Total operating expenses(4) 0.48
- ----------------------------------------------------------------------
Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 49 154 269 604
- --------------------------------------------------------------------------------
(1) The fund's fiscal year end is 10/31.
(2) The fund commenced operations on 7/7/97 and performance is calculated as of
7/31/97.
(3) The fund has a master/feeder structure as described on page 15. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, using the current fees as if they had been in effect
during the past fiscal year before reimbursement, expressed as a percentage
of the fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.00%
and 0.20%, respectively. This reimbursement can be changed or terminated at
any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND | 5

<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)

(GRAPHIC OMITTED) 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 OMITTED) 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.

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 $316 billion, including more than $12.6 billion
using similar strategies as the fund.

Investors considering these funds should understand that:
o There is no assurance that these funds will meet their investment goals
o These funds do not represent complete investment programs

6 | J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND

<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Federal Money Market Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last five calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one year, five years and life of the fund compared to those of the
IBC's U.S. Government and Agency Money Market Fund Average. This is an average
of all major U.S. government and agency money market fund returns.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

0%
- --------------------------------------------------------------------------------

[ ] J.P. Morgan Institutional Federal Money Market Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 1.46% (for the quarter ended 6/30/95); and the
lowest quarterly return was 0.67% (for the quarter ended 3/31/94).

PERFORMANCE (unaudited)

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
J.P. Morgan Institutional Federal Money
Market Fund 5.39 5.15 4.77
- --------------------------------------------------------------------------------
IBC's U.S. Government and Agency Money Market Fund Average
(after expenses) 4.79 4.60 4.28
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.19
Marketing (12b-1) fees None
Other expenses(4) 0.26
- --------------------------------------------------------------------
Total operating expenses(4) 0.45
- --------------------------------------------------------------------

Expense example
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 46 144 252 567
- --------------------------------------------------------------------------------
(1) The fund's fiscal year end is 10/31.
(2) The fund commenced operations on 1/4/93 and returns reflect performance as
of 1/31/93.
(3) The fund has a master/feeder structure as described on page 15. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, using the current fees as if they had been in effect
during the past fiscal year before reimbursement, expressed as a percentage
of the fund's average net assets.
(4) After reimbursement, other expenses and total operating expenses are 0.01%
and 0.20%, respectively. This reimbursement can be changed or terminated at
any time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND | 7

<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)

(GRAPHIC OMITTED) 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 without shareholder approval.

(GRAPHIC OMITTED) NVESTMENT 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.

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 $316 billion, including more than $12.6 billion
using similar strategies 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.

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

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

o These funds do not represent complete investment programs

8 | J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND

<PAGE>
- --------------------------------------------------------------------------------
PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing J.P. Morgan Institutional Tax Exempt Money Market Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last ten calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one year, five years, and ten years compare to those of the IBC's
Tax Exempt Money Market Fund Average. This is an average of all major tax free
money market fund returns.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
9%

6% 6.11
5.58
4.16
3% 3.68 3.24 3.46 3.32
2.71
2.66
2.10
0%
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
[ ] J.P. Morgan Institutional Tax Exempt Money Market Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 1.60% (for the quarter ended 6/30/89); and the
lowest quarterly return was 0.49% (for the quarter ended 3/31/93).

PERFORMANCE (unaudited)

Average annual total return (%) Shows performance over time, for periods
ended December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
J.P. Morgan Institutional Tax Exempt Money
Market Fund 3.32 3.27 3.70
- --------------------------------------------------------------------------------
IBC's Tax Exempt Money Market Fund Average
(after expenses) 2.90 2.92 3.46
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.16
Marketing (12b-1) fees None
Other expenses(4) 0.24
- --------------------------------------------------------------------
Total operating expenses(4) 0.40
- --------------------------------------------------------------------

- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 41 128 224 505
- --------------------------------------------------------------------------------
(1) The fund commenced operations on 7/12/93. Returns reflect performance of The
Pierpont Tax Exempt Money Market Fund, the fund's predecessor, prior to that
date.
(2) The fund's fiscal year end is 8/31.
(3) The fund has a master/feeder structure as described on page 15. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, using the current fees as if they had been in effect
during the past fiscal year before reimbursement, expressed as a percentage
of the fund's average net assets.
(4) J.P. 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). J.P. Morgan will not waive/reimburse fund expenses if such
waiver/reimbursement would cause total operating expenses to be less than
0.20%, and in no case will total operating expenses exceed 0.35%. After
reimbursement, other expenses and total operating expenses for the past
fiscal year were 0.06% and 0.22%, respectively. This reimbursement
arrangement can be changed or terminated at any time at the option of J.P.
Morgan.

J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND | 9

<PAGE>

MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
J.P. MORGAN

Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has approximately $316 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.

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.

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 preceding pages.

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 &
reverse
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

<PAGE>

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

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.

10 |

<PAGE>

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

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

[GRAPHIC OMITTED]
Each fund selects its securities as described earlier in this prospectus

MONEY MARKET INVESTMENT PROCESS
While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor,
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.

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:

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 dollar 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.

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.

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.

| 11

<PAGE>

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 below.

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.

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.

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.

Redemption in kind

o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.

<PAGE>

ACCOUNT AND TRANSACTION POLICIES

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

- --------------------------------------------------------------------------------
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 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.

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>

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 series of J.P. Morgan Institutional Funds, a
Massachusetts business trust, and 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.

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 - prorata portions of
(fee shared with Funds 0.09% of the first $7 billion of average net assets
Distributor, Inc.) 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 also 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>

FINANCIAL HIGHLIGHTS

The financial tables are intended to help you understand each fund's financial
performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends are distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose reports, along with each fund's financial
statements, are included in the respective fund's annual report, which are
available upon request.

<TABLE>
<CAPTION>
====================================================================================================================================
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share data For fiscal periods ended November 30
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0385 0.0577 0.0529 0.0543 0.0547
Net realized gain (loss) on investment ($) (0.0000)(1) 0.0003 0.0001 (0.0000)(1) (0.0000)(1)
====================================================================================================================================
Total from investment operations ($) 0.0385 0.0580 0.0530 0.0543 0.0547
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0385) (0.0577) (0.0529) (0.0543) (0.0547)
Net realized gain ($) -- -- (0.0003) (0.0003) --
====================================================================================================================================
Total distributions ($) (0.0385) (0.0577) (0.0532) (0.0546) (0.0547)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 3.92 5.93 5.46 5.59 5.61
- ------------------------------------------------------------------------------------------------------------------------------------

Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 584,867 999,746 1,220,401 1,387,792 3,458,634
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses (%) 0.21 0.20 0.20 0.20 0.20
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.42 5.77 5.28 5.42 5.45
----------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.52 0.35 0.31 0.29 0.31
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Less than $0.0001.

<PAGE>

================================================================================
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
Per-share data For fiscal periods ended October 31
- --------------------------------------------------------------------------------
1997(1) 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0176 0.0539
Net realized loss on investment ($) (0.0000)(2) (0.0000)(2)
================================================================================
Total from investment operations ($) 0.0176 0.0539
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0176) (0.0539)
Net realized gain ($) (0.0000)(2) (0.0000)(2)
================================================================================
Total distributions ($) (0.0176) (0.0539)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00
- --------------------------------------------------------------------------------
Total return (%) 1.77(3) 5.53
- --------------------------------------------------------------------------------

Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 80,924 231,319
- --------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 0.04(4) 0.11
------------------------------------------------------------------------------
Net investment income (%) 5.53(4) 5.37
------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.10(4) 0.44
------------------------------------------------------------------------------

(1) The fund commenced operations on 7/8/97.
(2) Less than $0.0001.
(3) Not annualized.
(4) Annualized.

16 |

<PAGE>

<TABLE>
<CAPTION>
====================================================================================================================================
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share data For the fiscal periods ended October 31
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0354 0.0555 0.0508 0.0521 0.0535
Net realized gain (loss) on investment ($) (0.0000) 0.0003 0.0006 0.0001 0.0000
====================================================================================================================================
Total from investment operations ($) 0.0354 0.0558 0.0514 0.0522 0.0535
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0354) (0.0555) (0.0508) (0.0521) (0.0535)
Net realized gain ($) (0.0001) -- (0.0003) (0.0007) --
====================================================================================================================================
Total distributions ($) (0.0355) (0.0555) (0.0511) (0.0528) (0.0535)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 3.61 5.69 5.23 5.41 5.48
- ------------------------------------------------------------------------------------------------------------------------------------

Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 80,146 145,108 109,050 137,306 969,873
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses (%) 0.20 0.20 0.20 0.20 0.20
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 3.81 5.56 5.09 5.19 5.31
----------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.67 0.51 0.46 0.46 0.41
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Less than $0.0001.

<PAGE>

<TABLE>
<CAPTION>
====================================================================================================================================
J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
- ------------------------------------------------------------------------------------------------------------------------------------
Per-share data For the fiscal periods ended August 31
- ------------------------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0228 0.0352 0.0331 0.0330 0.0339
Net realized loss on investment ($) (0.0000)(1) (0.0002) (0.0000)(1) (0.0000)(1) (0.0000)(1)
====================================================================================================================================
Total from investment operations ($) 0.0228 0.0350 0.0331 0.0330 0.0339
- ------------------------------------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0228) (0.0352) (0.0331) (0.0330) (0.0339)
Net realized gain ($) (0.0000)(1) -- -- -- --
====================================================================================================================================
Total distributions ($) (0.0228) (0.0352) (0.0331) (0.0330) (0.0339)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00 1.00 1.00 1.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 2.30 3.57 3.36 3.35 3.45
- ------------------------------------------------------------------------------------------------------------------------------------

Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 46,083 100,142 163,569 290,943 594,291
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses (%) 0.35 0.35 0.35 0.29 0.22
----------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 2.34 3.49 3.28 3.29 3.37
----------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.00 0.50 0.42 0.39 0.35
----------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Less than $0.0001.

| 17
<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 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.

IMMCP-993

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

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

<PAGE>

MARCH 1, 1999

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>

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

<PAGE>

Contents
- --------------------------------------------------------------------------------
2
Each fund's goal, investment approach,
risks, expenses and performance

J.P. MORGAN INSTITUTIONAL SERVICE MONEY MARKET FUNDS

J.P. Morgan Institutional Service Prime Money Market Fund .................. 2
J.P. Morgan Institutional Service Treasury Money Market Fund ............... 4
J.P. Morgan Institutional Service Federal Money Market Fund ................ 6
J.P. Morgan Institutional Service Tax Exempt Money Market Fund ............. 8

10
Principles and techniques common
to the funds in this prospectus

MONEY MARKET MANAGEMENT APPROACH

J.P. Morgan ............................................................... 10
J.P. Morgan Institutional Service Money Market ............................ 10
The spectrum of money market funds ........................................ 10
Who may want to invest .................................................... 10
Money market investment process ........................................... 11

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
Financial highlights ...................................................... 16

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

<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)

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.

INVESTMENT APPROACH
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, reverse 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.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $316 billion, including more than $12.6 billion using similar
strategies as the fund.

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

o These funds do not represent complete investment programs

2 | J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Service Prime Money Market Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last ten calendar years.

12%
9% 9.13 8.04
6% 6.07 5.79 5.21 5.41 5.30
3% 3.67 2.83 3.95
0%
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Service Prime Money Market Fund

PERFORMANCE (unaudited)

Average annual total return (%) Shows performance overtime, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
J.P. Morgan Institutional Service
Prime Money Market Fund (after expenses) 5.30 5.13 5.52
- --------------------------------------------------------------------------------
IBC's First Tier Money Fund Average
(after expenses) 4.88 4.78 N/A
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.12
Marketing (12b-1) fees None
Other expenses(4)
(after reimbursement) 0.19
Service fees(5) 0.25
- --------------------------------------------------------------------------------
Total operating expenses(4) 0.56
- --------------------------------------------------------------------------------

Returns for periods prior to 7/31/93 reflect performance of The Pierpont Money
Market Fund, the predecessor of the J.P. Morgan Prime Money Market Fund. These
returns reflect lower operating expenses than those of the fund. Therefore,
these returns may be higher than the fund's would have been had it existed
during the same period.

2 The fund's fiscal year end is 11/30.

3 The fund has a master/feeder structure as described on page 15. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.

4 After reimbursement, other expenses and total operating expenses are 0.08% and
0.45%, respectively. This reimbursement can be changed or terminated at any
time at the option of J.P. Morgan.

5 Service Organizations (described on page 12) 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.

J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND | 3
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
TREASURY MONEY MARKET FUND TICKER SYMBOL: JPMXX
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY
MARKET FUND)

[GRAPHIC OMITTED]
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 OMITTED]
INVESTMENT APPROACH
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.

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 $316 billion, including more than $12.6 billion using similar
strategies as the fund.

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

o These funds do not represent complete investment programs

4 | J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND

<PAGE>
PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Service Treasury Money Market Fund.

The bar chart indicates the risks by showing the performance of the fund's
shares during its first complete calendar year of operations.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Total return (%) Shows changes in returns by calendar year(1)
- --------------------------------------------------------------------------------
1998

6%
3% 5.14
0%
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Service Treasury Money Market Fund

For the period covered by this total return chart, the fund's highest quarterly
return was 1.31% (for the quarter ended 9/30/98); and the lowest quarterly
return was 1.17% (for the quarter ended 12/31/98).

PERFORMANCE (unaudited)
Average annual total return (%) Shows performance overtime, for period ended
December 31, 1998(2)
- --------------------------------------------------------------------------------
Past 1 yr. Life of fund
J.P. Morgan Institutional Service
Treasury Money Market Fund (after expenses) 5.14 5.23
- --------------------------------------------------------------------------------
IBC's U.S. Treasury & Repo Money Fund Average 4.71 4.76
- --------------------------------------------------------------------------------

<PAGE>

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.20
Marketing (12b-1) fees None
Other expenses(4) 0.21
Service fees(5) 0.25
- --------------------------------------------------------------------------------
Total operating expenses(4) 0.66
- --------------------------------------------------------------------------------

2 The fund commenced operations on 7/7/97 and performance is calculated as of
7/31/97.

4 After reimbursement, other expenses and total operating expenses are 0.00% and
0.45%, respectively. This reimbursement can be changed or terminated at any
time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND | 5

<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE
FEDERAL MONEY MARKET FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND)

[GRAPHIC OMITTED]
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 OMITTED]
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.

PORTFOLIO MANAGEMENT
The fund's assets are managed by J.P. Morgan, which currently manages
approximately $316 billion, including more than $12.6 billion using similar
strategies as the fund.

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

o These funds do not represent complete investment programs

6 | J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Service Federal Money Market Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last five calendar years.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1994 1995 1996 1997 1998

6% 5.59 4.99 5.18 5.21
3% 3.78
0%
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Service Federal Money Market Fund

For the period covered by this year-by-year total return chart, the fund's
highest quarterly return was 1.41% (for the quarter ended 6/30/95); and the
lowest quarterly return was 0.67% (for the quarter ended 3/31/94).

PERFORMANCE (unaudited)
Average annual total return (%) Shows performance overtime, for period ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
J.P. Morgan Institutional Service
Federal Money Market Fund 5.21 4.95 4.58
- --------------------------------------------------------------------------------
IBC's U.S. Government and Agency Money
Market Fund Average (after expenses) 4.79 4.60 4.28
- --------------------------------------------------------------------------------

<PAGE>

INVESTOR EXPENSES

The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted form fund
assets prior to performance calculations.

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.19
Marketing (12b-1) fees None
Other expenses(4)
(after reimbursement) 0.88
Service fees(5) 0.25
- --------------------------------------------------------------------------------
Total operating expenses(4) 1.32
- --------------------------------------------------------------------------------

1 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, prior to that date.

2 The fund's fiscal year end is 10/31.

4 After reimbursement, other expenses and total operating expenses are 0.01% and
0.45%, respectively. This reimbursement can be changed or terminated at any
time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND | 7

<PAGE>

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

[GRAPHIC OMITTED]
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.

[GRAPHIC OMITTED]
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.

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 $316 billion, including more than $12.6 billion using similar
strategies as the fund.

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

o These funds do not represent complete investment programs

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

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing J.P. Morgan Institutional Service Tax Exempt Money Market Fund.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the last ten calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one year, five years and ten years compare to those of the IBC's
Tax Exempt Money Market Fund average. This is an average of all major tax free
money market fund returns.

6% 6.11 5.58
3% 4.16 3.52 3.12 3.26 3.49
0% 2.71 2.04 2.50
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Service Tax Exempt Money Market Fund

PERFORMANCE (unaudited)
Average annual total return (%) Shows performance overtime, for periods ended
December 31, 19981
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
J.P. Morgan Institutional Service
Tax Exempt Money Market Fund 3.49 3.18 3.64
- --------------------------------------------------------------------------------
IBC's Tax Exempt Money Market Fund
Average (after expenses) 2.90 2.92 3.46
- --------------------------------------------------------------------------------

<PAGE>

INVESTOR EXPENSES

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.16
Marketing (12b-1) fees None
Other expenses(4) 5.42
Service fees(5) 0.25
- --------------------------------------------------------------------------------
Total operating expenses(4) 5.83
- --------------------------------------------------------------------------------

1 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, prior to that date. Returns for periods prior to
7/31/93 reflect performance of The Pierpont Tax Exempt Money Market Fund, the
predecessor of the J.P. Morgan Tax Exempt Money Market Fund.

2 The fund's fiscal year end is 8/31.

4 After reimbursement, other expenses and total operating expenses are 0.04% and
0.45%, respectively. This reimbursement can be changed or terminated at any
time at the option of J.P. Morgan.

J.P. MORGAN INSTITUTIONAL SERVICE TAX EXEMPT MONEY MARKET FUND | 9

<PAGE>
MONEY MARKET MANAGEMENT APPROACH
- --------------------------------------------------------------------------------

J.P. MORGAN
Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has approximately $316 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.

J.P. MORGAN INSTITUTIONAL SERVICE 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.

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 preceding pages.

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

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>

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

Service Service Service Service
Prime Treasury Federal Tax Exempt
Money Market Money Market Money Market Money Market
- --------------------------------------------------------------------------------
U.S. Treasuries* o o o
- --------------------------------------------------------------------------------
U.S. government
agency o o
instruments
- --------------------------------------------------------------------------------
Domestic &
foreign bank o
obligations
- --------------------------------------------------------------------------------
Domestic &
foreign
short-term o
corporate
obligations
- --------------------------------------------------------------------------------
Foreign
governments o
- --------------------------------------------------------------------------------
Illiquid holdings o
- --------------------------------------------------------------------------------
Repurchase
agreements and o o
reverse repurchase
agreements
- --------------------------------------------------------------------------------
Tax-exempt
municipal o
obligations**
- --------------------------------------------------------------------------------
* Income is generally exempt from state and local income taxes
** Income is generally exempt from federal income taxes

10|

<PAGE>

Money Market Investment Process

While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor,
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.

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

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

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

[GRAPHIC OMITTED]
Each fund selects its securities as described earlier in this prospectus

| 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 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 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 below.
<PAGE>

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

OPENING YOUR ACCOUNT

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

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

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

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

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

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

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

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.

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

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

o Mail the letter to the Shareholder Services Agent.

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

Redemption in kind
o Each fund reserves the right to make redemptions of over $250,000 in
securities rather than in cash.

<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 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.

<PAGE>

- --------------------------------------------------------------------------------
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.

J.P. Morgan receives the following fees for investment advisory and other
services:

<PAGE>

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 of average
net assets in J.P. Morgan-
advised portfolios, plus 0.04%
over $7 billion

- --------------------------------------------------------------------------------
Shareholder services 0.05% of 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 also 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>

FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
The financial tables are intended to help you understand each fund's financial
performance for the past one through five fiscal years or periods, as
applicable. Certain information reflects financial results for a single fund
share. The total returns in the tables represent the rate that an investor would
have earned (or lost) on an investment in a fund (assuming reinvestment of all
dividends are distributions). This information has been audited by
PricewaterhouseCoopers LLP, whose reports, along with each fund's financial
statements, are included in the respective fund's annual report, which are
available upon request.

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

Per-share data For the fiscal periods ended November 30 1997(1) 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0057 0.0523
Net realized loss on investment ($) (0.0000)(2) (0.0000)(2)
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.0057 0.0523
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0057) (0.0523)
Net realized gain ($) -- (0.0000)(2)
- --------------------------------------------------------------------------------
Total distributions ($) (0.0057) (0.0523)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00
- --------------------------------------------------------------------------------
Total return (%) 0.57(3) 5.35
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 384 470,836
- --------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 0.45(4) 0.45
-----------------------------------------------------------------------------
Net investment income (%) 5.28(4) 5.17
-----------------------------------------------------------------------------
Expenses without
reimbursement (%) 35.55(4,5) 0.56
-----------------------------------------------------------------------------
(1) The fund commenced operations on 10/23/97.
(2) Less than $0.0001.
(3) Not annualized.
(4) Annualized.
(5) Not representative of ongoing reimbursement ratio since period covers less
than two months.

<PAGE>

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

Per-share data For fiscal periods ended October 31 1997(1) 1998
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0169 0.0514
Net realized gain (loss) on investment ($) 0.0000(2) (0.0000)(2)
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.0169 0.0514
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0169) (0.0514)
Net realized gain ($) 0.0000(2) (0.0000)(2)
- --------------------------------------------------------------------------------
Total distributions ($) (0.0169) (0.0514)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 1.00 1.00
- --------------------------------------------------------------------------------
Total return (%) 1.71(3) 5.27
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 35,983 471,279
- --------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 0.28(4) 0.37
-----------------------------------------------------------------------------
Net investment income (%) 5.29(4) 5.11
-----------------------------------------------------------------------------
Expenses without
reimbursement (%) 1.71(4) 0.66
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 7/7/97.
(2) Less than $0.0001.
(3) Not annualized.
(4) Annualized.

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

Per-share data For the fiscal year ended October 31 1998(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0517
Net realized loss on investment ($) (0.0000)(2)
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.0517
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0517)
-----------------------------------------------------------------------------
Net asset value, end of period ($) 1.00
- --------------------------------------------------------------------------------
Total return (%) 5.24(3)
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 29,459
- --------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 0.45(4)
-----------------------------------------------------------------------------
Net investment income (%) 5.07(4)
-----------------------------------------------------------------------------
Expenses without
reimbursement (%) 1.32(4)
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 11/5/97.
(2) Less than 0.0001.
(3) Not annualized.
(4) Annualized

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

Per-share data For the fiscal year ended August 31 1998(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 1.00
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.0276
Net realized loss on investment ($) (0.0000)(2)
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.0276
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.0276)
-----------------------------------------------------------------------------
Net asset value, end of period ($) 1.00
- --------------------------------------------------------------------------------
Total return (%) 2.80(3)
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 8,237
- --------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 0.60(4)
-----------------------------------------------------------------------------
Net investment income (%) 2.95(4)
-----------------------------------------------------------------------------
Expenses without
reimbursement (%) 5.83(4)
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 11/4/97.
(2) Less than $0.0001.
(3) Not annualized.
(4) Annualized.

| 17

<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 INSTITUTIONAL
FUNDS AND THE MORGAN
TRADITION

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>

MARCH 1, 1999

PROSPECTUS

J.P. MORGAN INSTITUTIONAL
BOND FUND-ULTRA

- -------------------------
Seeking high total return
by investing primarily in
fixed income securities.

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

Distributed by Funds Distributor, Inc.

JPMorgan

<PAGE>

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

J.P. MORGAN INSTITUTIONAL BOND FUND-ULTRA

Fund description ........................................................... 2
Performance ................................................................ 3
Investor expenses .......................................................... 3

4
FIXED INCOME MANAGEMENT APPROACH

J.P. Morgan ................................................................ 4
Who may want to invest ..................................................... 4
Fixed income investment process ............................................ 5

6
Investing in the J.P. Morgan
Institutional Bond Fund-Ultra

YOUR INVESTMENT

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

9
More about risk and the fund's
business operations

FUND DETAILS

Master/feeder structure ................................................... 9
Management and administration ............................................. 9
Risk and reward elements .................................................. 10
Investments ............................................................... 12
Financial Highlights ...................................................... 14

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

<PAGE>
J.P. MORGAN INSTITUTIONAL
BOND FUND-ULTRA
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL BOND FUND-ULTRA)

RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and their main risks,
as well as fund strategies, please see pages 10-13.

GOAL
The fund's goal is to provide high total return consistent with moderate risk of
capital and maintenance of liquidity. This goal can be changed without
shareholder approval.

Up to 25% of assets may be invested in foreign securities, including 20% in debt
securities denominated in foreign currencies of developed countries. At least
75% of assets must be invested in securities that, at the time of purchase, are
rated investment-grade (BBB/Baa or better) or are the unrated equivalent,
including at least 65% A or better. No more than 25% of assets may be invested
in securities rated B or BB.

To the extent that the fund seeks higher returns by investing in
non-investment-grade bonds, it takes on additional risks, because these bonds
are more sensitive to economic news and their issuers are in less secure
financial condition. To the extent that the fund seeks higher returns by
investing in non-investment-grade bonds, often called junk bonds, it takes on
additional risks, since these bonds are more sensitive to economic news and
their issuers have a less secure financial position. To the extent the fund
invests in foreign securities, it could lose money because of foreign government
actions, political instability, currency fluctuation, or lack of adequate or
accurate information. The fund may engage in active and frequent trading,
leading to increased portfolio turnover and the possibility of increased capital
gains. See page 8 for further discussion on the tax treatment of capital gains.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $316
billion, including more than $32.9 billion using similar strategies as the fund.

Investors considering the fund should understand that:

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

o The fund does not represent a complete investment program.

<PAGE>

PERFORMANCE (unaudited)
The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Institutional Bond Fund-Ultra.

The bar chart indicates the risks by showing changes in the performance of the
fund's shares from year to year for each of the fund's last 10 calendar years.

The table indicates the risks by showing how the fund's average annual returns
for the past one, five and ten years and life of the fund compare to those of
the Salomon Brothers Broad Investment Grade Bond Index. This is a widely
recognized, unmanaged index of U.S. Treasury and agency securities and
investment-grade mortgage and corporate bonds used as a measure of overall bond
market performance.

The fund's past performance does not necessarily indicate how the fund will
perform in the future.

20% 18.17
10% 10.23 10.09 13.45 9.87 9.13 7.74
0% 6.53 3.13
(10%) (2.97)
- --------------------------------------------------------------------------------
o J.P. Morgan Institutional Bond Fund-Ultra

Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998(1)
- --------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10 yrs.
J.P. Morgan Institutional Bond
Fund-Ultra (after expenses) 7.74 6.97 8.49
- --------------------------------------------------------------------------------
Salomon Brothers Broad Investment
Grade Bond Index (no expenses) 8.72 7.30 9.31
- --------------------------------------------------------------------------------

<PAGE>
- --------------------------------------------------------------------------------
INVESTOR EXPENSES
The expenses of the fund are shown at right. The fund has no sales, redemption,
exchange, or account fees, although some institutions may charge you a fee for
shares you buy through them. The annual fund expenses are deducted from fund
assets prior to performance calculations.

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)

Management fees 0.30
Marketing (12b-1) fees none
Other expenses(4) 0.30
- --------------------------------------------------------------------------------
Total annual fund(4)
operating expenses 0.60
- --------------------------------------------------------------------------------
Expense example

The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.
- --------------------------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 61 192 335 750
- --------------------------------------------------------------------------------
1 The fund commenced operations on 12/15/97. Returns reflect performance of J.P.
Morgan Bond Fund (a separate feeder fund investing in the same master
portfolio) from 7/31/93. Returns for the period 3/31/88 through 7/31/93
reflect performance of The Pierpont Bond Fund, the predecessor of J.P. Morgan
Bond Fund.

2 The fund's fiscal year end is 10/31.

3 The fund has a master/feeder structure as described on page 9. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal period before reimbursement, expressed as a percentage of the
fund's average net assets.

4 J.P. 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). J.P. Morgan will not waive/reimburse fund expenses if such
waiver/reimbursement would cause total operating expenses to be less than
0.35%, and in no case will total operating expenses exceed 0.50%. After
reimbursement, other expenses and total operating expenses for the past fiscal
year were 0.07% and 0.37%, respectively. This reimbursement arrangement can be
changed or terminated at any time at the option of J.P. Morgan.

FIXED INCOME MANAGEMENT APPROACH 3

<PAGE>

FIXED INCOME MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
J.P. MORGAN

Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 300 analysts and portfolio managers
around the world and has more than $316 billion in assets under management,
including assets managed by the fund's advisor, J.P. Morgan Investment
Management Inc.

J.P. MORGAN INSTITUTIONAL BOND FUND-ULTRA

This fund invests primarily in bonds and other fixed income securities through a
master portfolio (another fund with the same goal). The fund seeks high total
return consistent with moderate risk.

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

The fund is designed for investors who:

o want to add an income investment to further diversify a portfolio

o want an investment whose risk/return potential is higher than that of money
market funds but generally less than that of stock funds

o want an investment that pays monthly dividends

The fund is not designed for investors who:

o are investing for aggressive long-term growth

o require stability of principal

4 J.P. MORGAN INSTITUTIONAL BOND FUND-ULTRA

<PAGE>
- --------------------------------------------------------------------------------
FIXED INCOME INVESTMENT PROCESS

J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas and takes positions in many different ones, helping the
fund to limit exposure to concentrated sources of risk.

In managing the fund, J.P. Morgan employs a three-step process that combines
sector allocation, fundamental research for identifying portfolio securities,
and duration management.

The fund invests across a range
of different types of securities

Sector allocation The sector allocation team meets monthly, analyzing the
fundamentals of a broad range of sectors in which the fund may invest. The team
seeks to enhance performance and manage risk by underweighting or overweighting
sectors.

The fund makes its portfolio decisions as
described later in this prospectus

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

Duration management Forecasting teams use fundamental economic factors to
develop strategic forecasts of the direction of interest rates. Based on these
forecasts, strategists establish the fund's target duration, a common
measurement of a security's sensitivity to interest rate movements. For
securitites owned by the fund, duration measures the average time needed to
receive the present value of all principal and interest payments by analyzing
cash flows and interest rate movements. The fund's duration is generally shorter
than the fund's average maturity because the maturity of a security only
measures the time until final payment is due. The fund's target duration
typically remains relatively close to the duration of the market as a whole, as
represented by the fund's benchmark. The strategists closely monitor the fund
and make tactical adjustments as necessary.

J.P. MORGAN INSTITUTIONAL BOND FUND-ULTRA 5

<PAGE>

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

For your convenience, the J.P. Morgan Institutional Funds offer several ways to
start and add to fund 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 is $20,000,000 and for additional investments $25,000, although
these minimums may be less for some investors. For more information on minimum
investments, call 1-800-766-7722.

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

o Mail in your application, making your initial investment as shown 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:

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.

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

6 YOUR INVESTMENT

<PAGE>
- --------------------------------------------------------------------------------
SELLING SHARES

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

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

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

o Mail the letter to the Shareholder Services Agent.

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

Redemption in kind
o The Fund reserves the right to make redemptions of over $250,000 in securities
rather than in cash.

<PAGE>
- --------------------------------------------------------------------------------
ACCOUNT AND TRANSACTION POLICIES

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

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

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

Business hours and NAV calculations The fund's regular business days and hours
are the same as those of the New York Stock Exchange (NYSE). The fund calculates
its net asset value per share (NAV) every business day as of the close of
trading on the NYSE (normally 4:00 p.m. eastern time). The fund's securities are
typically priced using pricing services or market quotes. When these methods are
not available or do not represent a security's value at the time of pricing
(e.g. when an event occurs after the close of trading that would materially
impact a security's value), the security is valued in accordance with the fund's
fair valuation procedures.

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

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

YOUR INVESTMENT 7

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

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

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

Statements and reports The fund sends monthly account statements as well as
confirmations after each purchase or sale of shares (except reinvestments).
Every six months the fund sends out an annual or semi-annual report containing
information on the fund's 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 may close out your account and send the proceeds to
the address of record.

DIVIDENDS AND DISTRIBUTIONS

The fund typically declares income dividends daily and pays them monthly. If an
investor's shares are redeemed during the month, accrued but unpaid dividends
are paid with the redemption proceeds.

Shares of the fund earn dividends on the business day the purchase is effective,
but not on the business day the redemption is effective. The fund distributes
capital gains, if any, once a year. However, the fund may make more or fewer
payments in a given year, depending on its investment results and its tax
compliance situation. These dividends and distributions consist of most or all
of the fund's net investment income and net realized capital gains.

TAX CONSIDERATIONS

In general, selling shares, exchanging shares, and receiving distributions
(whether reinvested or taken in cash) are all taxable events. These transactions
typically create the following tax liabilities:
- --------------------------------------------------------------------------------
Transaction Tax status
- --------------------------------------------------------------------------------
Income dividends Ordinary income
- --------------------------------------------------------------------------------
Short-term capital gains Ordinary income
distributions
- --------------------------------------------------------------------------------
Long-term capital gains Capital gains
distributions
- --------------------------------------------------------------------------------
Sales or exchanges of Capital gains or
shares owned for more losses
than one year
- --------------------------------------------------------------------------------
Sales or exchanges of Gains are treated as ordinary
shares owned for one year income; losses are subject
or less to special rules
- --------------------------------------------------------------------------------

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

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

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

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

8 YOUR INVESTMENT

<PAGE>

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

MASTER/FEEDER STRUCTURE
As noted earlier, the fund is a series of J.P. Morgan Institutional Funds, a
Massachusetts business trust, and is a "feeder" fund that invests in a master
portfolio. (Except where indicated, this prospectus uses the term "the fund" to
mean the feeder fund and its master portfolio taken together.)

The master portfolio accepts investments from other feeder funds, and the
feeders bear the master portfolio's expenses in proportion to their assets.
However, each feeder can set its own transaction minimums, fund-specific
expenses, and other conditions. This means that one feeder could offer access to
the same master portfolio on more attractive terms, or could experience better
performance, than another feeder. Information about other feeders is available
by calling 1-800-766-7722. Generally, when the master portfolio seeks a vote,
the funds 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.

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

J.P. Morgan, subject to the expense reimbursements described earlier in this
prospectus, receives the following fees for investment advisory and other
services:
- --------------------------------------------------------------------------------
Advisory services 0.30% of the master portfolio's
average net assets
- --------------------------------------------------------------------------------
Administrative services Master portfolio's and fund's pro-
(fee shared with Funds rata portions of 0.09% of the
Distributor, Inc.) first $7 billion of average net
assets in J.P. Morgan-advised
portfolios, plus 0.04% of average
net assets over $7 billion
Shareholder services 0.05% of the fund's average net assets
- --------------------------------------------------------------------------------

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

FUND DETAILS 9

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

RISK AND REWARD ELEMENTS

This table discusses the main elements that make up the fund's overall risk and
reward characteristics. It also outlines the fund's policies toward various
investments, including those that are designed to help the fund manage risk.
================================================================================
Potential risks
- --------------------------------------------------------------------------------
Market conditions
o The fund's share price, yield, and total return will fluctuate in response to
bond market movements

o The value of most bonds will fall when interest rates rise; the longer a
bond's maturity and the lower its credit quality, the more its value typically
falls

- --------------------------------------------------------------------------------
Management choices
o The fund could underperform its benchmark due to its sector, securities, or
duration choices
- --------------------------------------------------------------------------------
Credit quality
o The default of an issuer would leave the fund with unpaid interest or
principal

o Junk bonds (those rated BB/Ba or lower) have a higher risk of default, tend to
be less liquid, and may be more difficult to value
- --------------------------------------------------------------------------------
Foreign investments
o The fund could lose money because of foreign government actions, political
instability, or lack of adequate and accurate information

o Currency exchange rate movements could reduce gains or create losses
- --------------------------------------------------------------------------------

o Most bonds will rise in value when interest rates fall

o Mortgage-backed and asset-backed securities can offer attractive returns
- --------------------------------------------------------------------------------

o The fund could outperform its benchmark due to these same choices
- --------------------------------------------------------------------------------
o Investment-grade bonds have a lower risk of default

o Favorable exchange rate movements could generate gains or reduce losses
- --------------------------------------------------------------------------------

<PAGE>

================================================================================
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o Under normal circumstances the fund plans to remain fully invested in bonds
and other fixed income securities as noted in the table on pages 12-13

o The fund seeks to limit risk and enhance total return or yields through
careful management, sector allocation, individual securities selection, and
duration management

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

o J.P. Morgan monitors interest rate trends, as well as geographic and
demographic information related to mortgage-backed securities and mortgage
prepayments
- --------------------------------------------------------------------------------
o J.P. Morgan focuses its active management on those areas where it believes its
commitment to research can most enhance returns and manage risks in a
consistent way

o The fund maintains its own policies for balancing credit quality against
potential yields and gains in light of its investment goals

o To the extent that the fund invests in foreign bonds, it may manage the
currency exposure of its foreign investments relative to its benchmark, and
may hedge a portion of its foreign currency exposure into the U.S. dollar from
time to time (see also "Derivatives")
- --------------------------------------------------------------------------------

10 FUND DETAILS

<PAGE>
================================================================================
Potential risks
- --------------------------------------------------------------------------------
Derivative
o Derivatives such as futures, options, swaps and foreign currency forward
contracts that are used for hedging the portfolio or specific securities may
not fully offset the underlying positions(1) and this could result in losses
to the fund that would not have otherwise occurred

o Derivatives used for risk management may not have the intended effects and may
result in losses or missed opportunities

o The counterparty to a derivatives contract could default

o Certain types of derivatives involve costs to the fund which can reduce
returns

o The collateral will be subject to the risks of the securities in which it is
invested
- --------------------------------------------------------------------------------
Illiquid holdings
o The fund could have difficulty valuing these holdings precisely

o The fund could be unable to sell these holdings at the time or price desired
- --------------------------------------------------------------------------------
When-issued and delayed delivery securities
o When the fund buys securities before issue or for delayed delivery, it could
be exposed to leverage risk if it does not use segregated accounts
- --------------------------------------------------------------------------------
Short-term trading

o Increased trading would raise the fund's transaction costs

o Increased short-term capital gains distributions would raise shareholders'
income tax liability
- --------------------------------------------------------------------------------

================================================================================
Potential rewards
- --------------------------------------------------------------------------------
o Hedges that correlate well with underlying positions can reduce or eliminate
losses at low cost

o The fund could make money and protect against losses if management's analysis
proves correct

o Derivatives that involve leverage could generate substantial gains at low cost
- --------------------------------------------------------------------------------
o The fund may enhance income through the investment of the collateral received
from the borrower
- --------------------------------------------------------------------------------
o These holdings may offer more attractive yields or potential growth than
comparable widely traded securities
- --------------------------------------------------------------------------------
o The fund can take advantage of attractive transaction opportunities
- --------------------------------------------------------------------------------
o The fund could realize gains in a short period of time

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

<PAGE>

================================================================================
Policies to balance risk and reward
- --------------------------------------------------------------------------------
o The fund uses derivatives such as futures, options, swaps and forward currency
contracts for hedging and for risk management (i.e., to adjust duration or to
establish or adjust exposure to particular securities, markets, or currencies)

o The fund only establishes hedges that it expects will be highly correlated
with underlying positions

o While the fund may use derivatives that incidentally involve leverage, it does
not use them for the specific purpose of leveraging the portfolio
- --------------------------------------------------------------------------------
o J.P. Morgan maintains a list of approved borrowers

o The fund receives collateral equal to at least 100% of the current value of
the securities loaned

o The lending agents indemnify a fund against borrower default

o J.P. Morgan's collateral investment guidelines limit the quality and duration
of collateral investment to minimize losses

o Upon recall, the borrower must return the securities loaned within the normal
settlement period
- --------------------------------------------------------------------------------
o The fund may not invest more than 15% of net assets in illiquid holdings

o To maintain adequate liquidity to meet redemptions, the fund may hold
investment-grade short-term securities (including repurchase agreements and
reverse repurchase agreements) and, for temporary or extraordinary purposes,
may borrow from banks up to 33 1/3% of the value of its assets
- --------------------------------------------------------------------------------
o The fund uses segregated accounts to offset leverage risk
- --------------------------------------------------------------------------------
o The fund anticipates a portfolio turnover rate of approximately 300%

o The fund generally avoids short-term trading, except to take advantage of
attractive or unexpected opportunities or to meet demands generated by
shareholder activity
- --------------------------------------------------------------------------------
(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash payment
based on the value of a securities index. An option is the right to buy or
sell a set quantity of an underlying instrument at a predetermined price. A
swap is a privately negotiated agreement to exchange one stream of payments
for another. A foreign currency forward contract is an obligation to buy or
sell a given currency on a future date and at a set price.

FUND DETAILS 11

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

This table discusses the customary types of investments which can be held by the
fund. In each case the principal types of risk are listed on the following page
(see below for definitions).This table reads across two pages.

- --------------------------------------------------------------------------------
Asset-backed securities Interests in a stream of payments from specific assets,
such as auto or credit card receivables.
- --------------------------------------------------------------------------------
Bank obligations Negotiable certificates of deposit, time deposits and bankers'
acceptances of domestic and foreign issuers.
- --------------------------------------------------------------------------------
Commercial paper Unsecured short term debt issued by domestic and foreign banks
or corporations. These securities are usually discounted and are rated by S&P or
Moody's.
- --------------------------------------------------------------------------------
Convertible securities Domestic and foreign debt securities that can be
converted into equity securities at a future time and price.
- --------------------------------------------------------------------------------
Corporate bonds Debt securities of domestic and foreign industrial, utility,
banking, and other financial institutions.
- --------------------------------------------------------------------------------
Mortgages (directly held) Domestic debt instrument which gives the lender a lien
on property as security for the loan payment.
- --------------------------------------------------------------------------------
Mortgage-backed securities Domestic and foreign securities (such as Ginnie Maes,
Freddie Macs, Fannie Maes) which represent interests in pools of mortgages,
whereby the principal and interest paid every month is passed through to the
holder of the securities.
- --------------------------------------------------------------------------------
Mortgage dollar rolls The purchase of mortgage-backed securities with the
promise to purchase similar securities upon the maturity of the original
security. Segregated accounts are used to offset leverage risk.
- --------------------------------------------------------------------------------
Participation interests Interests that represent a share of bank debt or similar
securities or obligations.
- --------------------------------------------------------------------------------
Private placements Bonds or other investments that are sold directly to an
institutional investor.
- --------------------------------------------------------------------------------
REITs and other real-estate related instruments Securities of issuers that
invest in real estate or are secured by real estate.
- --------------------------------------------------------------------------------
Repurchase agreements Contracts whereby the fund agrees to purchase a security
and resell it to the seller on a particular date and at a specific price.
- --------------------------------------------------------------------------------
Reverse repurchase agreements Contracts whereby the fund sells a security and
agrees to repurchase it from the buyer on a particular date and at a specific
price. Considered a form of borrowing.
- --------------------------------------------------------------------------------
Sovereign debt, Brady bonds, and debt of supranational organizations Dollar- or
non-dollar-denominated securities issued by foreign governments or supranational
organizations. Brady bonds are issued in connection with debt restructurings.
- --------------------------------------------------------------------------------
Swaps Contractual agreement whereby a party agrees to exchange periodic payments
with a counterparty. Segregated accounts are used to offset leverage risk.
- --------------------------------------------------------------------------------
Tax exempt municipal securities Securities, generally issued as general
obligation and revenue bonds, whose interest is exempt from federal taxation and
state and/or local taxes in the state where the securities were issued.
- --------------------------------------------------------------------------------
U.S. government securities Debt instruments (Treasury bills, notes, and bonds)
guaranteed by the U.S. government for the timely payment of principal and
interest.
- --------------------------------------------------------------------------------
Zero coupon, pay-in-kind, and deferred payment securities Domestic and foreign
securities offering non-cash or delayed-cash payment.Their prices are typically
more volatile than those of some other debt instruments and involve certain
special tax considerations.
- --------------------------------------------------------------------------------

<PAGE>

Risk related to certain investments held by J.P. Morgan Institutional fixed
income funds:

Credit risk The risk a financial obligation will not be met by the issuer of a
security or the counterparty to a contract, resulting in a loss to the
purchaser.

Currency risk The risk currency exchange rate fluctuations may reduce gains or
increase losses on foreign investments.

Environmental risk The risk that an owner or operator of real estate may be
liable for the costs associated with hazardous or toxic substances located on
the property.

Extension risk The risk a rise in interest rates will extend the life of a
mortgage-backed security to a date later than the anticipated prepayment date,
causing the value of the investment to fall.

Leverage risk The risk of gains or losses disproportionately higher than the
amount invested.

12 FUND DETAILS

<PAGE>

Bond Fund-Ultra
- --------------------------------------------------------------------------------
o Permitted (and if applicable, percentage limitation)
percentage of total assets - bold
percentage of net assets - italic
o Permitted, but not typically used

Principal Types of Risk
- --------------------------------------------------------------------------------
credit, interest rate, market, prepayment o
- --------------------------------------------------------------------------------
credit, currency, liquidity, political o(1)
- --------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political o
- --------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, o 25%
valuation Foreign
- --------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, o 25%
valuation Foreign
- --------------------------------------------------------------------------------
credit, environmental, extension, interest rate, liquidity,
market, natural event, political, prepayment, valuation o
- --------------------------------------------------------------------------------
credit, currency, extension, interest rate, leverage, market,
political, prepayment o
- --------------------------------------------------------------------------------
currency, extension, interest rate, leverage, liquidity,
market, political, prepayment prepayment o 33 1/3%
- --------------------------------------------------------------------------------
credit, currency, extension, interest rate, liquidity,
political, prepayment o
- --------------------------------------------------------------------------------
credit, interest rate, liquidity, market, valuation o
- --------------------------------------------------------------------------------
credit, interest rate, liquidity, market, natural event,
prepayment, valuation o
- --------------------------------------------------------------------------------
credit o
- --------------------------------------------------------------------------------
credit o(2)
- --------------------------------------------------------------------------------
credit, currency, interest rate, market, political o
- --------------------------------------------------------------------------------
credit, currency, interest rate, leverage, market, political o
- --------------------------------------------------------------------------------
credit, interest rate, market, natural event, political o
- --------------------------------------------------------------------------------
interest rate o
- --------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political,
valuation o
- --------------------------------------------------------------------------------

Liquidity risk The risk the holder may not be able to sell the security at the
time or price it desires.

Natural event risk The risk a natural disaster, such as a hurricane or similar
event, will cause severe economic losses and default in payments by the issuer
of the security.

Political risk The risk governmental policies or other political actions will
negatively impact the value of the investment.

Prepayment risk The risk declining interest rates will result in unexpected
prepayments, causing the value of the investment to fall.

Valuation risk The risk the estimated value of a security does not match the
actual amount that can be realized if the security is sold.

(1) All foreign securities in the aggregate may not exceed 25% of the fund's
assets.

(2) All forms of borrowing (including securities lending and reverse repurchase
agreements) in the aggregate may not exceed 33 1/3% of the fund's total
assets.

FUND DETAILS 13

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

FINANCIAL HIGHLIGHTS
The financial highlights table is intended to help you understand the fund's
financial performance for the past fiscal period. Certain information reflects
financial results for a single fund share. The total returns in the table
represent the rate that an investor would have earned (or lost) on an investment
in the fund (assuming reinvestment of all dividends and distributions). This
information has been audited by PricewaterhouseCoopers LLP, whose reports, along
with the fund's financial statements, are included in the fund's annual report,
which is available upon request.
- --------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL BOND FUND-ultra

Per-share data For the period ended 10/31/98(1)
- --------------------------------------------------------------------------------
Net asset value, beginning of period ($) 10.03
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.54
Net realized and unrealized gain
on investment and foreign currency contracts and
transactions ($) 0.16
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.70
- --------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.56)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 10.17
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Total return (%) 7.17(2)
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 128,250
- --------------------------------------------------------------------------------
Ratio to average net assets:
- --------------------------------------------------------------------------------
Expenses (%) 0.37(3)
-----------------------------------------------------------------------------
Net investment income (%) 6.28(3)
-----------------------------------------------------------------------------
Expenses without
reimbursement (%) 0.60(3)
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 12/15/97
(2) Not Annualized.
(3) Annualized

14 J.P. MORGAN INSTITUTIONAL BOND FUND-ULTRA

<PAGE>

FOR MORE INFORMATION

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

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

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

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

J.P. Morgan Institutional Bond Fund-Ultra
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
FUNDS AND THE MORGAN
TRADITION

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

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 FOR THE J.P. MORGAN INSTITUTIONAL BOND FUND - ULTRA, AS
SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL
INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE
SHAREHOLDER REPORT RELATING TO THE FUND LISTED ABOVE DATED AUGUST 31, 1998. THE
PROSPECTUS AND THESE FINANCIAL STATEMENTS, INCLUDING THE INDEPENDENT
ACCOUNTANTS' REPORT ON THE ANNUAL FINANCIAL STATEMENTS, ARE AVAILABLE, WITHOUT
CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN
INSTITUTIONAL FUNDS (800) 221-7930.

<PAGE>

Table of Contents

Page

General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 26
Trustees and Officers . . . . . . . . . . . . 28
Investment Advisor . . . . . . . . . . . . . . 32
Distributor . . . . . . . . . . . . . . . . . 34
Co-Administrator . . . . . . . . . . . . . . . 34
Services Agent . . . . . . . . . . . . . . . . 35
Custodian and Transfer Agent . . . . . . . . . 36
Shareholder Servicing . . . . . . . . . . . . 36
Financial Professionals. . . . . . . . . . . . 37
Independent Accountants . . . . . . . . . . . 38
Expenses . . . . . . . . . . . . . . . . . . . 38
Purchase of Shares . . . . . . . . . . . . . . 39
Redemption of Shares . . . . . . . . . . . . . 39
Exchange of Shares . . . . . . . . . . . . . . 40
Dividends and Distributions . . . . . . . . . 40
Net Asset Value . . . . . . . . . . . . . . . 41
Performance Data . . . . . . . . . . . . . . . 42
Portfolio Transactions . . . . . . . . . . . . 44
Massachusetts Trust . . . . . . . . . . . . . 45
Description of Shares . . . . . . . . . . . . 46
Special Information Concerning Investment
Structure . . . . . . . . . . . . . . . . . 48
Taxes . . . . . . . . . . . . . . . . . . . . 49
Additional Information . . . . . . . . . . . 53
Financial Statements . . . . . . . . . . . 55
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . A-1

<PAGE>

GENERAL

This Statement of Additional Information relates only to the J.P.
Morgan Institutional Bond Fund - Ultra (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 investment
objectives 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 Fund'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 The U.S. Fixed Income Portfolio (the
"Portfolio"), a corresponding diversified 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 Fund is designed to be an economical and convenient means of making
substantial investments in a broad range of corporate and government debt
obligations and related investments of domestic and foreign issuers, subject to
certain quality and other restrictions. See "Quality and Diversification
Requirements." The Fund's investment objective is to provide a high total return
consistent with moderate risk of capital and maintenance of liquidity. Although
the net asset value of the Fund will fluctuate, the Fund attempts to conserve
the value of its investments to the extent consistent with its objective. The
Fund attempts to achieve its objective by investing all of its investable assets
in The U.S. Fixed Income 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 investing
in high grade corporate and government debt obligations and related securities

<PAGE>

of domestic and foreign issuers described in this Statement of Additional
Information.

The following discussion supplements the information regarding the
investment objective of the Fund and the policies to be employed to achieve this
objective by the Portfolio as set forth above and in the Prospectus. The Fund
and the Portfolio have the same investment objective. Accordingly, references
below to the Fund also include the Portfolio; similarly, references to the
Portfolio also include the Fund unless the context requires otherwise.

Fixed Income Investments

The Fund may invest in a broad range of debt securities of domestic and
foreign corporate and government issuers. The corporate securities in which the
Fund may invest include debt securities of various types and maturities, e.g.,
debentures, notes, mortgage securities, equipment trust certificates and other
collateralized securities and zero coupon securities. Collateralized securities
are backed by a pool of assets such as loans or receivables which generate cash
flow to cover the payments due on the securities. Collateralized securities are
subject to certain risks, including a decline in the value of the collateral
backing the security, failure of the collateral to generate the anticipated cash
flow or in certain cases more rapid prepayment because of events affecting the
collateral, such as accelerated prepayment of mortgages or other loans backing
these securities or destruction of equipment subject to equipment trust
certificates. In the event of any such prepayment the Fund will be required to
reinvest the proceeds of prepayments at interest rates prevailing at the time of
reinvestment, which may be lower. In addition, the value of zero coupon
securities which do not pay interest is more volatile than that of interest
bearing debt securities with the same maturity.

Corporate Bonds and Other Debt Securities

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

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

<PAGE>

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

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

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

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

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

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

<PAGE>

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

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

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

<PAGE>

the aggregate par value of the securities. The Fund accrues income with
respect to zero coupon and pay-in-kind securities prior to the receipt of cash
payments. Deferred payment securities are securities that remain zero coupon
securities until a predetermined date, at which time the stated coupon rate
becomes effective and interest becomes payable at regular intervals. While
interest payments are not made on such securities, holders of such securities
are deemed to have received "phantom income." Because the Fund will distribute
"phantom income" to shareholders, to the extent that shareholders elect to
receive dividends in cash rather than reinvesting such dividends in additional
shares, the Portfolio will have fewer assets with which to purchase income
producing securities. Zero coupon, pay-in-kind and deferred payment securities
may be subject to greater fluctuation in value and lesser liquidity in the event
of adverse market conditions than comparably rated securities paying cash
interest at regular interest payment periods.

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

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

Money Market Instruments

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

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

<PAGE>

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.

Foreign Government Obligations. The Fund, subject to its investment
policies, may also invest in short-term obligations of foreign sovereign
governments or of their agencies, instrumentalities, authorities or political
subdivisions. These securities may be denominated in the U.S. dollar or in
another currency. See "Foreign Investments."

Bank Obligations. The Fund may invest in negotiable certificates of
deposit, time deposits and bankers' acceptances of (i) banks, savings and loan
associations and savings banks which have more than $2 billion in total assets
(the "Asset Limitation") and are organized under the laws of the United States
or any state, (ii) foreign branches of these banks or of foreign banks of
equivalent size (Euros) and (iii) U.S. branches of foreign banks of equivalent
size (Yankees). See "Foreign Investments." The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. The Fund may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).

Commercial Paper. The Fund may invest in commercial paper, including
master demand obligations. Master demand obligations are obligations that
provide for a periodic adjustment in the interest rate paid and permit daily
changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan acting as agent, for no additional fee.
The monies loaned to the borrower come from accounts managed by Morgan or its
affiliates, pursuant to arrangements with such accounts. Interest and principal
payments are credited to such accounts. Morgan has the right to increase or
decrease the amount provided to the borrower under an obligation. The borrower
has the right to pay without penalty all or any part of the principal amount
then outstanding on an obligation together with interest to the date of payment.
Since these obligations typically provide that the interest rate is tied to the
Federal Reserve commercial paper composite rate, the rate on master demand
obligations is subject to change. Repayment of a master demand obligation to
participating accounts depends on the ability of the borrower to pay the accrued
interest and principal of the obligation on demand which is continuously
monitored by the 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

<PAGE>

satisfies the Fund's quality restrictions. See "Quality and
Diversification Requirements." Although there is no secondary market for master
demand obligations, such obligations are considered by the Fund to be liquid
because they are payable upon demand. The Fund does not have any specific
percentage limitation on investments in master demand obligations. It is
possible that the issuer of a master demand obligation could be a client of
Morgan to whom Morgan, in its capacity as a commercial bank, has made a loan.

Repurchase Agreements. The Fund may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
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 thirteen months. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of thirteen months from the effective
date of the repurchase agreement. The Fund will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Fund in
each agreement plus accrued interest, and the Fund will make payment for such
securities only upon physical delivery or upon evidence of book entry transfer
to the account of the custodian. If the seller defaults, the Fund might incur a
loss if the value of the collateral securing the repurchase agreement declines
and might incur disposition costs in connection with liquidating the collateral.
In addition, if bankruptcy proceedings are commenced with respect to the seller
of the security, realization upon disposal of the collateral by the Fund may be
delayed or limited.

The Fund may make investments in other debt securities, including
without limitation corporate bonds and other obligations described in this
Statement of Additional Information.

Tax Exempt Obligations

In certain circumstances the Fund may invest in tax exempt obligations to
the extent consistent with its 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.

<PAGE>

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 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

<PAGE>

Fund has no specific percentage limitations on investments in master
demand obligations.

Premium Securities. During a period of declining interest rates, many
municipal securities in which the Fund invests likely will bear coupon rates
higher than current market rates, regardless of whether the securities were
initially purchased at a premium. In general, such securities have market values
greater than the principal amounts payable on maturity, which would be reflected
in the net asset value of the Fund's shares. The values of such "premium"
securities tend to approach the principal amount as they near maturity.

Puts. The Funds 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 subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Fund were to invest in municipal bonds and notes with maturities of 60 days or
more that are subject to puts separate from the underlying securities, the puts
and the underlying securities would be valued at fair value as determined in
accordance with procedures established by the Board of Trustees. 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. Prior to
investing in such securities, the Fund, if deemed necessary based upon the
advice of counsel, will apply to the SEC for an exemptive order, which may not
be granted, relating to the amortized valuation of such securities.

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

<PAGE>

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 Advisor reviews regularly the 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. Other put
writers will have outstanding debt rated Aa or better by Moody's Investors
Service, Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Group
("Standard & Poor's"), or will be of comparable quality in the Advisor's opinion
or such put writers' obligations will be collateralized and of comparable
quality in the Advisor's opinion. The Trustees have directed the Advisor not to
enter into put transactions with any dealer which in the judgment of the Advisor
become 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.

Entering into a put with respect to a tax exempt security may be
treated, depending upon the terms of the put, as a taxable sale of the tax
exempt security by the Fund with the result that, while the put is outstanding,
the Fund will no longer be treated as the owner of the security and the interest
income derived with respect to the security will be treated as taxable income to
the Fund.

Foreign Investments

The Fund may invest in certain foreign securities. The Fund may invest
up to 20% of total assets in fixed income securities of foreign issuers
denominated in foreign currencies. The Fund does not expect to invest more than
25% of its total assets, at the time of purchase, in securities of foreign
issuers. No foreign commercial paper may be subject to foreign withholding tax
at the time of purchase.

Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or in other
similar securities of foreign issuers. ADRs are securities, typically issued by
a U.S. financial institution (a "depositary"), that evidence ownership interests
in a security or a pool of securities issued by a foreign issuer and deposited
with the depositary. ADRs include American Depositary Shares and New York
Shares. EDRs are receipts issued by a European financial institution. GDRs,
which are sometimes referred to as Continental Depositary Receipts ("CDRs"), are
securities, typically issued by a non-U.S. financial institution, that evidence
ownership interests in a security or a pool of securities issued by either a
U.S. or foreign issuer. ADRs, EDRs, GDRs and CDRs may be available for
investment through "sponsored" or "unsponsored" facilities. A sponsored facility
is established jointly by the issuer of the security underlying the receipt and
a depositary, whereas an unsponsored facility may be established by a depositary
without participation by the issuer of the receipt's underlying security. An
unsponsored depositary may not provide the same shareholder information that a
sponsored depositary is required to provide under its contractual arrangements
with the issuer of the

<PAGE>

underlying foreign security. Generally, ADRs, in registered form, are
designed for use in the U.S. securities markets, and EDRs, in bearer form, are
designed for use in European securities markets.

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

Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment risks
from those affecting securities of U.S. domestic issuers. There may be limited
publicly available information with respect to foreign issuers, and foreign
issuers are not generally subject to uniform accounting, auditing and financial
standards and requirements comparable to those applicable to domestic companies.
Dividends and interest paid by foreign issuers may be subject to withholding and
other foreign taxes which may decrease the net return on foreign investments as
compared to dividends and interest paid to the Fund by domestic companies.

Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administration or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investment made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.

In addition, while the volume of transactions effected on foreign
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In addition, there is generally
less government supervision and regulation of securities exchanges, brokers and
issuers located in foreign countries than in the United States.

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

<PAGE>

Foreign Currency Exchange Transactions. Because the Fund may buy and
sell securities and receive interest in currencies other than the U.S. dollar,
the Fund may enter from time to time into foreign currency exchange
transactions. The Fund either enters into these transactions on a spot (i.e.
cash) basis at the spot rate prevailing in the foreign currency exchange market
or uses forward contracts to purchase or sell foreign currencies. The cost of
the Fund's spot currency exchange transactions is generally the difference
between the bid and offer spot rate of the currency being purchased or sold.

A forward foreign currency exchange contract is an obligation by the
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Fund's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.

The Fund may enter into forward foreign currency exchange transactions
in an attempt to protect against changes in forward foreign currency exchange
rates between the trade and settlement dates of specific securities transactions
or anticipated securities transactions. The Fund may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Fund would enter into
a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Fund will only enter into forward contracts to
sell a foreign currency for another foreign currency if the Advisor expects the
foreign currency purchased to appreciate against the U.S. dollar.

Sovereign Fixed Income Securities. The Fund may invest in fixed income
securities issued or guaranteed by a foreign sovereign government or its
agencies, authorities or political subdivisions. Investment in sovereign fixed
income securities involves special risks not present in corporate fixed income
securities. The issuer of the sovereign debt or the governmental

<PAGE>

authorities that control the repayment of the debt may be unable or
unwilling to repay principal or interest when due, and the Fund may have limited
recourse in the event of a default. During periods of economic uncertainty, the
market prices of sovereign debt, and the Fund's net asset value, may be more
volatile than prices of U.S. debt obligations. In the past, certain foreign
countries have encountered difficulties in servicing their debt obligations,
withheld payments of principal and interest and declared moratoria on the
payment of principal and interest on their sovereign debts.

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

Obligations of Supranational Entities. The Fund may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. Each supranational entity's lending activities
are limited to a percentage of its total capital (including "callable capital"
contributed by its governmental members at the entity's call), reserves and net
income. There is no assurance that participating governments will be able or
willing to honor their commitments to make capital contributions to a
supranational entity.

Additional Investments

Convertible Securities. The Fund may invest in convertible securities
of domestic and, subject to the Fund's investment restrictions, foreign issuers.
The convertible securities in which the Fund may invest include any debt
securities or preferred stock which may be converted into common stock or which
carry the right to purchase common stock. Convertible securities entitle the
holder to exchange the securities for a specified number of shares of common
stock, usually of the same company, at specified prices within a certain period
of time.

<PAGE>

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, the 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.

Risks Associated with Derivative Securities and Contracts. The risks
associated with a Fund's transactions in derivative securities and contracts may
include some or all of the following: market risk, leverage and volatility risk,
correlation risk, credit risk, and liquidity and valuation risk.

Market Risk. Investments in structured securities are subject to the
market risks described above. Entering into a derivative contract involves a
risk that the applicable market will move against the Fund's position and that
the Fund will incur a loss. For derivative contracts other than purchased
options, this loss may substantially exceed the amount of the initial investment
made or the premium received by the Fund.

Leverage and Volatility Risk. Derivative instruments may sometimes
increase or leverage a Fund's exposure to a particular market risk. Leverage
enhances the price volatility of derivative instruments held by a Fund. If a
Fund enters into futures contracts, writes options or engages in certain foreign
currency exchange transactions, it is required to maintain a segregated account
consisting of cash or liquid assets, hold offsetting portfolio securities or
cover written options which may partially offset the leverage inherent in these
transactions. Segregation of a large percentage of assets could impede portfolio
management or an investor's ability to meet redemption requests.

Correlation Risk. A Fund's success in using derivative contracts to
hedge portfolio assets depends on the degree of price correlation between the
derivative contract and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading markets
for the derivative contract, the assets underlying the derivative contract and
the Fund's assets.

Credit Risk. Derivative securities and over-the-counter derivative
contracts involve a risk that the issuer or counterparty will fail to perform
its contractual obligations.

Liquidity and Valuation Risk. Some derivative securities are not
readily marketable or may become illiquid under adverse market conditions. In
addition, during periods of extreme market volatility, a commodity exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. A Fund's ability
to terminate over-the-counter derivative contracts may depend on the cooperation
of the counterparties to such contracts. For thinly traded

<PAGE>

derivative securities and contracts, the only source of price
quotations may be the selling dealer or counterparty.

Investment Company Securities. Securities of other investment companies
may be acquired by the Fund and the Portfolio to the extent permitted under the
1940 Act or any order pursuant thereto. These limits currently require that, as
determined immediately after a purchase is made, (i) not more than 5% of the
value of the 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 (the 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. The Fund has applied for exemptive relief from the SEC to permit
the Fund's corresponding Portfolio to invest in affiliated investment companies.
If the requested relief is granted, the Fund's corresponding Portfolio would
then be permitted to invest in affiliated funds, subject to certain conditions
specified in the applicable order.

Reverse Repurchase Agreements. The Fund may enter into reverse repurchase
agreements. In a reverse repurchase agreement, a Fund sells a security and
agrees to repurchase the same security at a mutually agreed upon date and price
reflecting the interest rate effective for the term of the agreement. For
purposes of the 1940 Act a reverse repurchase agreement is also considered as
the borrowing of money by the Fund and, therefore, a form of leverage. Leverage
may cause any gains or losses for the Fund to be magnified. The Fund will invest
the proceeds of borrowings under reverse repurchase agreements. In addition,
except for liquidity purposes, the Fund will enter into a reverse repurchase
agreement only when the expected return from the investment of the proceeds is
greater than the expense of the transaction. 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. See "Investment Restrictions" for the Fund's
limitations on reverse repurchase agreements and bank borrowings.

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

<PAGE>

custodian. Mortgage dollar roll transactions are considered reverse
repurchase agreements for purposes of the Fund's investment restrictions.

Loans of Portfolio Securities. Subject to applicable investment
restrictions, the Fund is permitted to lend 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 Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the 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 Portfolio will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and will not make any loans in excess of one year. The Fund will
not lend securities to any officer, Trustee, Director, employee or other
affiliate of the Portfolio, the Advisor or the Distributor, unless otherwise
permitted by applicable law.

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

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.

<PAGE>

Quality and Diversification Requirements

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

The Fund will comply with the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a
regulated investment company. See "Taxes."

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.

The Fund invests in a diversified portfolio of securities with the
quality ratings described in the Prospectus. These securities are considered
"high grade," "investment grade" and "below investment grade" as described in
Appendix A. In addition, At the time the Fund invests in any commercial paper,
bank obligation, repurchase agreement, or any other money market instrument, the
investment must have received a short term rating of investment grade or better
(currently Prime-3 or better by Moody's or A-3 or better by Standard & Poor's)
or the investment must have been issued by an issuer that received a short term
investment grade rating or better with respect to a class of investments or any
investment within that class that is comparable in priority and security with
the investment being purchased by the Fund. If no such ratings exist, the
investment must be of comparable investment quality in the Advisor's opinion,
but will not be eligible for purchase if the issuer or its parent has long term
outstanding debt rated below BBB.

<PAGE>

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

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

In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.

Options and Futures Transactions

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

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

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

The use of options and futures is a highly specialized activity which
involves investment strategies and risks different from those associated with

<PAGE>

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

The Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets. In addition, the Fund will not purchase or sell (write) futures
contracts, options on futures contracts or commodity options for risk management
purposes if, as a result, the aggregate initial margin and options premiums
required to establish these positions exceed 5% of the net asset value of the
Fund.

Options

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

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

The features of call options are essentially the same as those of put
options, except that the purchaser of a call option obtains the right to
purchase, rather than sell, the instrument underlying the option at the option's
strike price. A call buyer typically attempts to participate in potential price
increases of the instrument underlying the option with risk limited to the cost
of the option if security prices fall. At the same time,

<PAGE>

the buyer can expect to suffer a loss if security prices do not rise
sufficiently to offset the cost of the option.

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

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

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

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

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

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

<PAGE>

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

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

Futures Contracts

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

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

<PAGE>

futures position, the Fund will be obligated to continue to pay
variation margin. Initial and variation margin payments do not constitute
purchasing on margin for purposes of the Fund's investment restrictions. In the
event of the bankruptcy of an FCM that holds margin on behalf of the Fund, the
Fund may be entitled to return of margin owed to it only in proportion to the
amount received by the FCM's other customers, potentially resulting in losses to
the Fund.

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

Options on Futures Contracts. The Fund may purchase and sell put and
call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities.

Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.

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

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

<PAGE>

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

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

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

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

<PAGE>

guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures contract or option is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of the Portfolio's
assets could impede portfolio management or the Portfolio's ability to meet
redemption requests or other current obligations.

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

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

Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.

<PAGE>

the use of swap agreements which call for a net payment to be made by
the party with the larger payment obligation when the obligations of the parties
fall due on the same date. Under most swap agreements entered into by the Fund,
payments by the parties will be exchanged on a "net basis", and the Fund will
receive or pay, as the case may be, only the net amount of the two payments.

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

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

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

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

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

<PAGE>

the level of market making by dealers in the type of instrument, (4)
the nature of the instrument (including any right of a party to terminate it on
demand) and (5) the nature of the marketplace for trades (including the ability
to assign or offset the Fund's rights and obligations relating to the
instrument). Such determination will govern whether the instrument will be
deemed within the 15% restriction on investments in securities that are not
readily marketable.

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

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

Risk Management

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

Portfolio Turnover

For the fiscal years ended October 31, 1996, 1997 and 1998, the
portfolio turnover rates for the Portfolio were 186%, 93% and 115%,
respectively. A rate of 100% indicates that the equivalent of all of the
Portfolio's assets have been sold and reinvested in a year. High portfolio
turnover may result in the realization of substantial net capital gains or
losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.

INVESTMENT RESTRICTIONS

The investment restrictions of the Fund and the 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

<PAGE>

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, (b) invest in securities or other
instruments issued by issuers that invest in real estate and (c) make direct
investments in mortgages;

7. May not purchase or sell commodities or commodity contracts unless acquired
as a result of 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 15% of the market value
of the Fund's net assets would be in investments which are illiquid;

<PAGE>

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

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

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

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

TRUSTEES AND 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

<PAGE>

Country 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. 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 these
funds.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

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

Matthew Healey, Trustee(***), $20,055 $75,000
Chairman and Chief Executive
Officer
- -------------------------------- ------------------- ---------------------------
- -------------------------------- ------------------- ---------------------------

Michael P. Mallardi, Trustee $20,055 $75,000
- -------------------------------- ------------------- ---------------------------

</TABLE>

(*) Includes the Portfolio and 17 other portfolios (collectively the
"Master Portfolios") for which JPMIM acts as investment advisor.

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

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

<PAGE>

The Trustees decide upon matters of 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 J.P.
Morgan Family of Funds (formerly "The Pierpont Family of Funds"), and the
Trustees are the equal and sole shareholders of Pierpont Group, Inc. The Trust
and the 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
Portfolio for the indicated fiscal years are set forth below:

Fund -- For the period December 15, 1997 (commencement of operations)
through the fiscal year ended October 31, 1998: $28,012.

Portfolio -- For the fiscal year ended October 31, 1996: $36,922. For the
fiscal year ended October 31, 1997: $35,577. For the fiscal year ended October
31, 1998: $35,661.

Officers

The Trust's and Portfolio's executive officers (listed below), other
than the Chief Executive Officer and the officers who are employees of the
Advisor, are provided and compensated by Funds Distributor, Inc. ("FDI"), a
wholly owned indirect subsidiary of Boston Institutional Group, Inc. The
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 Country Club Estates, 10286 Saint
Andrews Road, Boynton Beach, Florida 33436. His date of birth is August 23,
1937.

MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.

MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI, Premier
Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an
officer of certain investment companies distributed or administered by FDI.

<PAGE>

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.

JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio only. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds at
Morgan Grenfell in Cayman and was Managing Director of Bank of Nova Scotia Trust
Company (Cayman) Limited prior to September 1993. Address: P.O. Box 2508 GT,
Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman, Cayman
Islands, BWI. Her date of birth is March 24, 1942.

KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston Company
Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.

CHRISTOPHER J. KELLEY; Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.

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

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

MARY JO PACE; Assistant Treasurer. Vice President, Morgan Guaranty Trust
Company of New York since 1990. 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.

<PAGE>

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 the 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. Prior October 28, 1998, 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, manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.

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

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

<PAGE>

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 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."

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 investment management affiliates of J.P. Morgan.

As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreements, the Portfolio has agreed to pay the Advisor a fee, which is computed
daily and may be paid monthly, equal to the annual rate of 0.30% of the
Portfolio's average daily net assets.

The advisory fees paid by the Portfolio to the Advisor for the fiscal years
ended October 31, 1996, 1997 and 1998 were $2,402,660, $2,908,384 and
$3,583,060, respectively.

The Investment Advisory Agreement provides that it will continue in
effect for a period of two years after execution only if specifically approved

<PAGE>

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 and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company continuously engaged in the
issuance of its shares, such as the 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

<PAGE>

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 table below sets forth for the Fund and the Portfolio the
administrative fees paid to FDI for the fiscal periods indicated:

Fund -- For the period December 15, 1997 (commencement of operations)
through the fiscal year ended October 31, 1998: $1,312.

Portfolio -- For the period August 1, 1996 through October 31, 1996:
$6,419. For the fiscal year ended October 31, 1997: $23,296. For the fiscal year
ended October 31, 1998: $22,913.

The administrative fees paid by the Portfolio 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 November 1, 1995 through July
31, 1996 was $65,610.

SERVICES AGENT

The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan

<PAGE>

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

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

Under the Services Agreements, the Fund and the Portfolio have agreed
to pay Morgan fees equal to their allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their average daily net assets in excess of $7 billion,
less the complex-wide fees payable to FDI. The portion of this charge payable by
the Fund and Portfolio is determined by the proportionate share that their 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 Portfolio in
accordance with the following schedule: 0.06% of the first $7 billion of the
Portfolio's aggregate average daily net assets, and 0.03% of the Portfolio's
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 table below sets forth for the Fund and Portfolio the fees paid to
Morgan as Services Agent. See the Prospectus and "Expenses" below for expense
limitations.

Fund -- For the period December 15, 1997 (commencement of operations)
through the fiscal year ended October 31, 1998: $17,970.

Portfolio -- For the fiscal year ended October 31, 1996: $191,348. For the
fiscal year ended October 31, 1997: $300,675. For the fiscal year ended October
31, 1998: $348,110.

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 contract, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In the case of foreign
assets held outside the United States, the custodian employs various
subcustodians who were approved by the Trustees of the Portfolio in accordance
with the regulations of the SEC. The custodian maintains portfolio transaction
records. As transfer agent and dividend disbursing agent, State

<PAGE>

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; 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 of 0.05% (expressed as a
percentage of the average daily net asset values of Fund shares owned by or for
shareholders).

The table below sets forth for the Fund the shareholder servicing fee
paid by the Fund to Morgan for the fiscal periods indicated. See the Prospectus
and "Expenses" below for applicable expense limitations.

Fund -- For the period December 15, 1997 (commencement of operations)
through the fiscal year ended October 31, 1998: $31,274.

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 Agreement, 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 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 Agreement, 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.

<PAGE>

"Financial Professionals" below. Organizations that provide record
keeping 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.

The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.

INDEPENDENT ACCOUNTANTS

The independent accountants of the Trust and the 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

<PAGE>

shareholders, and filing fees under state securities laws. For the
Portfolio, such expenses also include applicable registration fees under foreign
securities laws, custodian fees and brokerage expenses.

J.P. Morgan has agreed that it will reimburse all Fund expenses until
further notice except those allocated to the Fund by the Portfolio. If the
Portfolio's allocation of expenses to the Fund exceeds 0.50% 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
0.50% of the Fund's average daily net assets. If the Portfolio's allocation of
expenses to the Fund falls below 0.35% of the Fund's average daily net assets,
J.P. Morgan will reimburse the Fund's expenses in excess of those required to
bring the Fund's total operating expenses to the annual rate of 0.35% of the
Fund's average daily net assets. These limits do not cover extraordinary
expenses. These reimbursement/waiver arrangement can be changed at any time at
the option of J.P.
Morgan.

The table below sets forth for each Fund listed the fees and other
expenses J.P. Morgan reimbursed under the expense reimbursement arrangements
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.

Fund -- For the period December 15, 1997 (commencement of operations) through
the fiscal year ended October 31, 1998: $145,384.

Portfolio -- For the fiscal year ended October 31, 1996: N/A. For the
fiscal year ended October 31, 1997: N/A. For the fiscal year ended October 31,
1998: N/A.

PURCHASE OF SHARES

Investors may open Fund accounts and purchase shares as described in
the Prospectus. 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 acquiring
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.

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, and the Portfolio have elected to be governed by Rule
18f-1 under the 1940 Act pursuant to which the Fund and the Portfolio are
obligated to redeem shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Fund during any 90 day period for any one
shareholder. The Trust will redeem Fund shares in kind only if it has received a
redemption in kind from the 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. The
Trust is in the process of seeking exemptive relief from the SEC with respect to
redemptions in kind by the Fund. If the requested relief is granted, the Fund
would then be permitted to pay redemptions to greater than 5% shareholders in
securities, rather than in cash, to the extent permitted by the SEC and
applicable law. The method of valuing portfolio securities is described under
"Net Asset Value," and such valuation will be made as of the same time the
redemption price is determined.

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

EXCHANGE OF SHARES

An investor may exchange shares from any J.P. Morgan Institutional Fund
into any other J.P. Morgan Institutional Fund, J.P. Morgan Fund or shares of
J.P. Morgan Series Trust 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

<PAGE>

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. In the case of investors in
certain states, state securities laws may restrict the availability of the
exchange privilege. The Fund reserves the right to discontinue, alter or limit
its exchange privilege at any time.

DIVIDENDS AND DISTRIBUTIONS

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

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

If a shareholder has elected to receive dividends and/or capital 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 separately for each class of
shares outstanding once daily as of the close of trading on the New York Stock
Exchange (normally 4:00 p.m. eastern time) on each business day as described in
the prospectus. The net asset value will not be computed on the day the
following legal holidays are observed: New Year's Day, Martin Luther King, Jr.
Day, Presidents' Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day, and Christmas Day. On days when U.S. trading markets close
early in observance of these holidays, the Fund will close for purchases and
redemptions at the same time. The Fund 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. The days on which net
asset value is determined are the Funds' business days.

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

<PAGE>

readily available market quotations exist is based on a decision as to
the broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing average
currency exchange rate on the valuation date.

Securities or other assets for which market quotations are not readily
available (including certain restricted and illiquid securities) are valued at
fair value in accordance with procedures established by and under the general
supervision and responsibility of the Trustees. Such procedures include the use
of independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments which
mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.

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

PERFORMANCE DATA

From time to time, the Fund may quote performance in terms of yield,
actual distributions, average annual and aggregate total returns 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. See also the Prospectus.

Comparative performance information may be used from time to time in
advertising the Fund's shares, including appropriate market indices including
the benchmark 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.

The Fund may advertise "total return" and non-standardized total return
data. The total return shows what an investment in the Fund would have earned
over a specified period of time (one, five or ten years or since commencement of
operations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment dates during the period and less all
recurring fees. This method of calculating total return is required by
regulations of the SEC. Total return data similarly calculated, unless otherwise
indicated, over other specified periods of time may also be used. All
performance figures are based on historical earnings and are not intended to
indicate future performance.

<PAGE>

earned on all debt obligations during the period and subtracting from
that amount the total of all recurring expenses incurred during the period. The
30-day yield is then annualized on a bond-equivalent basis assuming semi-annual
reinvestment and compounding of net investment income.

Historical performance of the Fund shown below is that of the J.P.
Morgan Bond Fund, a series of the J.P. Morgan Funds which also invests in the
Portfolio, and is presented in accordance with applicable SEC staff
interpretations. Historical 30-day yield information of the J.P. Morgan
Institutional Bond Fund-Ultra for the fiscal year ended October 31, 1998 5.74%.

Total Return Quotations. The Fund may advertise "total return" and
non-standardized total return data. The total return shows what an investment in
the Fund would have earned over a specified period of time (one, five or ten
years or since commencement of operations, if less) assuming that all
distributions and dividends by the Fund were reinvested on the reinvestment
dates during the period and less all recurring fees. This method of calculating
total return is required by regulations of the SEC. Total return data similarly
calculated, unless otherwise indicated, over other specified periods of time may
also be used. All performance figures are based on historical earnings and are
not intended to indicate future performance.

As required by regulations of the SEC, the average annual total return
of the Fund for a period is computed by assuming a hypothetical initial payment
of $1,000. It is then assumed that all of the dividends and distributions by the
Fund over the period are reinvested. It is then assumed that at the end of the
period, the entire amount is redeemed. The average annual total return is then
calculated by determining the annual rate required for the initial payment to
grow to the amount which would have been received upon redemption.

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

Historical performance information for any period or portion thereof
prior to the establishment of the Fund will be that of the J.P. Morgan Bond
Fund, a series of the J.P. Morgan Funds which also invests in the Portfolio, and
is presented in accordance with applicable SEC staff interpretations. The
applicable financial information in the registration statements for the J.P.
Morgan Funds (Registration Nos. 033-54632 and 811-07340) is incorporated herein
by reference.

Below is set forth historical return information of the Fund for the
fiscal year ended October 31, 1998:

Average annual total return, 1 year: 8.28%; average annual total return, 5
years: N/A; average annual total return, commencement of operations (December
15, 1997): 7.17%; aggregate total return, 1 year: 8.28%; aggregate total return,
5 years: N/A; aggregate total return, commencement of operations (December 15,
1997) to period end: 7.17%.

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

<PAGE>

deposits or other investments that pay a fixed yield or return for a
stated period of time.

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.

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.

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

<PAGE>

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.

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

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

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

MASSACHUSETTS TRUST

<PAGE>

acts or obligations of any Fund and that every written agreement,
obligation, instrument or undertaking made on behalf of any Fund will contain a
provision to the effect that the shareholders are not personally liable
thereunder.

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

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 each Fund represents a separate series of
shares of beneficial interest. See "Massachusetts Trust."

The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in the Fund (or in the assets of other series, if applicable).
To date shares of 22 series are currently available for sale to the public. Each
share represents an equal proportional interest in a Fund with each other share.
Upon liquidation of a Fund, holders are entitled to share pro rata in the net
assets of that Fund available for distribution to such shareholders. See
"Massachusetts Trust." Fund shares 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

<PAGE>

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 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

<PAGE>

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 January 31, 1999, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of the Fund: JPMIM as Agent for Winthrop University (8.69%); Morgan as
Agent for P. and D. Soros (8.54%); Morgan as Agent for Tenet Healthcare
Foundation (11.79%); Morgan as Agent for 1984 Geisel Trust (12.35%); JPMIM as
Agent for Diocese of L.I. (7.07%); Bankers Trust Company for the benefit of
Magnetek (7.29%%); JPMIM as Agent for Artic Slope Regional Corporation (6.86%);
Michigan Catholic Conference Diocese Investment (5.40%); JPMIM as Agent for
Winthrop University Hospital (5.20%): Morgan as Agent for 1984 Geisel Marital
Trust (5.57%); Morgan as Agent for D. Soros 1993 Trust (5.48%%); Morgan as Agent
for P. Soros 1993 Trust (5.48%).

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, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
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 a Fund from a Portfolio at any
time if the Board of Trustees of the Trust determines that it is in the best
interests of the Fund to do so. Upon any such withdrawal, the Board of Trustees
would consider what action might be taken, including the investment of all the
assets of the Fund in another pooled investment entity having the same
investment objective and restrictions in accordance with the investment policies
with respect to the Portfolio described above and in the Fund's Prospectus.

<PAGE>

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 Fund intends to continue to qualify and remain qualified as a
regulated investment company under Subchapter M of the Code. As a regulated
investment company, a Fund must, among other things, (a) derive at least 90% of
its gross income from dividends, interest, payments with respect to loans of
stock and securities, gains from the sale or other disposition of stock,
securities or foreign currency and other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or foreign currency; and (b)
diversify its holdings so that, at the end of each fiscal quarter of its taxable
year, (i) at least 50% of the value of the Fund's total assets is represented by
cash, cash items, U.S. Government securities, investments in other regulated
investment companies, and other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's total assets, and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies).

<PAGE>

short-term capital gains in excess of net long-term capital losses for
the taxable year is distributed in accordance with the Code's timing
requirements.

Under the Code, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. 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 a Fund
in October, November or December as of a record date in such month and actually
paid in January of the following year will be treated as if they were paid on
December 31 of the year declared. Therefore, such dividends generally will be
taxable to a shareholder in the year declared rather than the year paid.

For federal income tax purposes, the Fund had a capital loss
carryforward at October 31, 1998 of $226,218 all of which expires in the year
2006. To the extent that this capital loss is used to offset future capital
gains, it is probable that gains so offset will not be distributed to
shareholders.

Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital
losses are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Funds are not eligible for the
dividends received deduction. The Fund generally pays a monthly dividend. If
dividend payments exceed income earned by the Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Fund
intends to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gains in excess of net short-term capital losses) are taxable
to shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.

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

<PAGE>

distribution, although constituting a return of capital to the
shareholder, will be taxable as described above. Investors should thus consider
the consequences of purchasing shares in the Fund shortly before the Fund
declares a sizable dividend distribution.

Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. Investors are urged to consult their tax advisors
concerning the limitations on the deductibility of capital losses. In addition,
no loss will be allowed on the redemption or exchange of shares of the Fund, if
within a period beginning 30 days before the date of such redemption or exchange
and ending 30 days after such date, the shareholder acquires (such as through
dividend reinvestment) securities that are substantially identical to shares of
the Fund.

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

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

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

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.

<PAGE>

which case the dividends will be subject to tax on a net income basis at the
graduated rates applicable to U.S. individuals or domestic corporations.
Distributions treated as long term capital gains to foreign shareholders will
not be subject to U.S. tax unless the distributions are effectively connected
with the shareholder's trade or business in the United States or, in the case of
a shareholder who is a nonresident alien individual, the shareholder was present
in the United States for more than 182 days during the taxable year and certain
other conditions are met.

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

<PAGE>

generally be treated as derived from U.S. sources, however, and certain foreign
currency gains and losses likewise will be treated as derived from U.S. sources.
The limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, if the election is
made, shareholders may nevertheless be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by the
Global Strategic Income Fund. Effective for taxable years of a shareholder
beginning after December 31, 1997, individual shareholders of the Fund with $300
or less of creditable foreign taxes ($600 in the case of an individual
shareholder filing jointly) may elect to be exempt from the foreign tax credit
limitation rules described above (other than the 90% limitation applicable for
purposes of the alternative minimum tax), provided that all of such individual
shareholder's foreign source income is "qualified passive income" (which
generally includes interest, dividends, rents, royalties and certain other types
of income) and further provided that all of such foreign source income is shown
on one or more payee statements furnished to the shareholder. Shareholders
making this election will not be permitted to carry over any excess foreign
taxes to or from a tax year to which such an election applies.

State and Local Taxes. 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

Telephone calls to the Fund, J.P. Morgan or a Financial Professional as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the 1940 Act and the 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.

<PAGE>

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 has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, which is being
developed in the first half of 1999, will define the infrastructure that should
be put in place for managing a failure during the millennium event itself.

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

<PAGE>

project. The costs associated with J.P. Morgan becoming year-2000 compliant
will be borne by J.P. Morgan and not the Fund.

The Euro

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

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

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

<PAGE>

FINANCIAL STATEMENTS

The Portfolio's financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference to The U.S.
Fixed Income Portfolio's October 31, 1998 annual report filing made with the SEC
on January 5, 1999 pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder (Accession No. 0001047469-99-000097). The annual report is available
without charge upon request by calling J.P. Morgan Funds Services at (800)
766-7722.

<PAGE>

APPENDIX A

Description of Security Ratings

STANDARD & POOR'S

Corporate and Municipal Bonds

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

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

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

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

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

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

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

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

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

<PAGE>

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.

<PAGE>

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

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

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

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

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

Commercial Paper, including Tax Exempt

- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and
assured sources of alternate liquidity.

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

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

Short-Term Tax Exempt Notes

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

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

- --------
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.

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL SHORT TERM BOND FUND
J.P. MORGAN INSTITUTIONAL BOND FUND
J.P. MORGAN INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS RELATING
TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 1998. THE PROSPECTUS AND THESE
FINANCIAL STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT ON THE
ANNUAL FINANCIAL STATEMENTS, ARE AVAILABLE, WITHOUT CHARGE UPON REQUEST FROM
FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS
(800)221-7930.

Table of Contents

Page

General................................. 1
Investment Objectives and Policies...... 1
Investment Restrictions................. 29
Trustees and Officers................... 31
Investment Advisor...................... 35
Distributor............................. 38
Co-Administrator........................ 38
Services Agent.......................... 40
Custodian and Transfer Agent............ 41
Shareholder Servicing................... 41
Financial Professionals................. 43
Independent Accountants................. 43
Expenses................................ 43
Purchase of Shares...................... 44
Redemption of Shares.................... 44
Exchange of Shares...................... 45
Dividends and Distributions............. 46
Net Asset Value......................... 46
Performance Data........................ 47
Portfolio Transactions.................. 49
Massachusetts Trust..................... 51
Description of Shares................... 51
Special Information Concerning
Investment Structure................... 53
Taxes.................................... 54
Additional Information................... 58
Financial Statements..................... 60
Appendix A - Description of Security
Ratings................................ A-1

<PAGE>

GENERAL

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

This Statement of Additional Information describes the financial
history, investment objectives and policies, management and operation of each of
the Funds in order to enable investors to select the Fund or Funds which best
suit their needs. The J.P. Morgan Institutional Funds operate through a two-tier
master-feeder investment fund structure.

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

Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund seeks to achieve its investment objective by
investing all of its investable assets in a corresponding Master Portfolio (the
"Portfolio"), a corresponding open-end management investment company having the
same investment objective as the Fund. Each Fund invests in a Portfolio through
a two-tier master-feeder investment fund structure. See "Special Information
Concerning Investment Structure." Accordingly, references below to the Fund also
include the Portfolio; similarly, references to the Portfolio also include the
Fund unless the context requires otherwise.

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

Investments in a 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 a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.

INVESTMENT OBJECTIVES AND POLICIES

J.P. Morgan Institutional Short Term Bond Fund (the "Short Term Bond
Fund") is designed for investors who place a strong emphasis on conservation of
capital but who also want a return greater than that of a money market fund or
other very low risk investment vehicles. The Short Term Bond Fund is appropriate
for investors who do not require the stable net asset value typical of a money
market fund but who want less price fluctuation than is typical of a longer-term
bond fund. The Short Term Bond Fund's investment objective is to provide high
total return, consistent with low volatility of principal. The Short Term Bond
Fund seeks to achieve this high total return to the extent consistent with
modest risk of capital and the maintenance of liquidity. The Short Term Bond
Fund attempts to achieve its investment objective by investing all of its
investable assets in The Short Term Bond Portfolio (the "Portfolio"), a
diversified open-end management investment company having the same investment
objective as the Short Term Bond Fund.

The Portfolio attempts to achieve its investment objective by investing
primarily in the corporate and government debt obligations and related
securities of domestic and foreign issuers described in this Statement of
Additional Information.

J.P. Morgan Institutional Bond Fund (the "Bond Fund") is designed to be
an economical and convenient means of making substantial investments in a broad
range of corporate and government debt obligations and related investments of
domestic and foreign issuers, subject to certain quality and other restrictions.
See "Quality and Diversification Requirements." The Bond Fund's investment
objective is to provide a high total return consistent with moderate risk of
capital and maintenance of liquidity. Although the net asset value of the Bond
Fund will fluctuate, the Bond Fund attempts to conserve the value of its
investments to the extent consistent with its objective. The Bond Fund attempts
to achieve its objective by investing all of its investable assets in The U.S.
Fixed Income Portfolio (the "Portfolio"), a diversified open-end management
investment company having the same investment objective as the Bond Fund.

The Portfolio attempts to achieve its investment objective by investing
primarily in high grade and investment grade corporate and government debt
obligations and related securities of domestic and foreign issuers described in
the Prospectus and this Statement of Additional Information.

J.P. Morgan Institutional Global Strategic Income Fund (the "Global
Strategic Income Fund") is designed for the aggressive investor seeking to
diversify an investment portfolio by investing in fixed-income securities of
foreign and domestic issuers. The Global Strategic Income Fund's investment
objective is high total return from a portfolio of fixed-income securities of
foreign and domestic issuers. The Global Strategic Income Fund seeks to achieve
its objective by investing all of its investable assets in the Global Strategic
Income Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Global Strategic Income
Fund.

The Portfolio attempts to achieve its investment objective by investing
primarily in mortgage-backed securities and direct mortgage obligations; below
investment grade debt obligations of U.S. and non-U.S. issuers; investment grade
U.S. dollar-denominated debt obligations of U.S. and non-U.S. issuers;
investment grade non-dollar denominated debt obligations of non-U.S. issuers;
and obligations of emerging market issuers.

The following discussion supplements the information regarding the
investment objective of each of the Funds and the policies to be employed to
achieve this objective by their corresponding Portfolios as set forth above and
in the Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.

Fixed Income Investments

Each Fund may invest in a broad range of debt securities of domestic
and foreign corporate and government issuers. The corporate securities in which
the Funds may invest include debt securities of various types and maturities,
e.g., debentures, notes, mortgage securities, equipment trust certificates and
other collateralized securities and zero coupon securities. Collateralized
securities are backed by a pool of assets such as loans or receivables which
generate cash flow to cover the payments due on the securities. Collateralized
securities are subject to certain risks, including a decline in the value of the
collateral backing the security, failure of the collateral to generate the
anticipated cash flow or in certain cases more rapid prepayment because of
events affecting the collateral, such as accelerated prepayment of mortgages or
other loans backing these securities or destruction of equipment subject to
equipment trust certificates. In the event of any such prepayment a Fund will be
required to reinvest the proceeds of prepayments at interest rates prevailing at
the time of reinvestment, which may be lower. In addition, the value of zero
coupon securities which do not pay interest is more volatile than that of
interest bearing debt securities with the same maturity.

Corporate Bonds and Other Debt Securities

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

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

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

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

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

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

Zero Coupon, Pay-in-Kind and Deferred Payment Securities. Zero coupon
securities are securities that are sold at a discount to par value and on which
interest payments are not made during the life of the security. Upon maturity,
the holder is entitled to receive the par value of the security. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. The Fund accrues income with respect to zero coupon and
pay-in-kind securities prior to the receipt of cash payments. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. While interest payments are not
made on such securities, holders of such securities are deemed to have received
"phantom income." Because a Fund will distribute "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the applicable Fund
will have fewer assets with which to purchase income producing securities. Zero
coupon, pay-in-kind and deferred payment securities may be subject to greater
fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.

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

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

Money Market Instruments

Each Fund may invest in money market instruments to the extent
consistent with its investment objective and policies. Under normal
circumstances, the Funds will purchase these securities to invest temporary cash
balances or to maintain liquidity to meet withdrawals. However, the Funds may
also invest in money market instruments as a temporary defensive measure taken
during, or in anticipation of, adverse market conditions. A description of the
various types of money market instruments that may be purchased by the Funds
appears below.

Also see "Quality and Diversification Requirements."

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

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

Foreign Government Obligations. Each of the Funds, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."

Bank Obligations. Each of the Funds may invest in negotiable
certificates of deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks which have more than $2 billion
in total assets (the "Asset Limitation") and are organized under the laws of the
United States or any state, (ii) foreign branches of these banks or of foreign
banks of equivalent size (Euros) and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). The Asset Limitation is not applicable to the Global
Strategic Income Fund. See "Foreign Investments." The Funds will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. Each of the Funds may also invest in
obligations of international banking institutions designated or supported by
national governments to promote economic reconstruction, development or trade
between nations (e.g., the European Investment Bank, the Inter-American
Development Bank, or the World Bank).

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

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

Each of the Funds may make investments in other debt securities,
including without limitation corporate bonds and other obligations described in
this Statement of Additional Information.

Tax Exempt Obligations

In certain circumstances the Bond and Short Term Bond Funds may invest in
tax exempt obligations to the extent consistent with each Fund's investment
objective and policies. A description of the various types of tax exempt
obligations which may be purchased by the Funds appears below. See "Quality and
Diversification Requirements."

Municipal Notes. The Funds may also invest in municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds, as well as
municipal commercial paper and municipal demand obligations such as variable
rate demand notes and master demand obligations.

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 Funds 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 each 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 Funds to be liquid because they are payable upon demand. The Funds have
no specific percentage limitations on investments in master demand obligations.

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 Advisor reviews regularly the 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. Other put
writers will have outstanding debt rated Aa or better by Moody's Investors
Service, Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Group
("Standard & Poor's"), or will be of comparable quality in the Advisor's opinion
or such put writers' obligations will be collateralized and of comparable
quality in the Advisor's opinion. The Trustees have directed the Advisor not to
enter into put transactions with any dealer which in the judgment of the Advisor
become 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.

Foreign Investments

The Global Strategic Income Fund makes substantial investments in
foreign countries. The Bond and Short Term Bond Funds may invest in certain
foreign securities. The Short Term Bond and Bond Funds may invest up to 20% of
total assets in fixed income securities of foreign issuers denominated in
foreign currencies. Neither the Bond or Short Term Bond Funds expect to invest
more than 25% of their respective total assets at the time of purchase in
securities of foreign issuers. In the case of the Bond and Short Term Bond
Funds, any foreign commercial paper must not be subject to foreign withholding
tax at the time of purchase.

Investors should realize that the value of a Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administration or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investment made by a Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.

In addition, while the volume of transactions effected on foreign
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In addition, there is generally
less government supervision and regulation of securities exchanges, brokers and
issuers located in foreign countries than in the United States.

Since investments in foreign securities may involve foreign currencies,
the value of the Fund's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. Each Fund may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Fund's
currency exposure. See "Foreign Currency Exchange Transactions" below.

Foreign Currency Exchange Transactions. Because each Fund may buy and
sell securities and receive interest in currencies other than the U.S. dollar, a
Fund may enter from time to time into foreign currency exchange transactions.
The Fund either enters into these transactions on a spot (i.e. cash) basis at
the spot rate prevailing in the foreign currency exchange market or uses forward
contracts to purchase or sell foreign currencies. The cost of the Fund's spot
currency exchange transactions is generally the difference between the bid and
offer spot rate of the currency being purchased or sold.

A Fund may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. A Fund may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, the Fund would enter into
a forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. A Fund will only enter into forward contracts to
sell a foreign currency for another foreign currency if the Advisor expects the
foreign currency purchased to appreciate against the U.S.
dollar.

Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the hedged
currency increase. In addition, forward contracts that convert a foreign
currency into another foreign currency will cause the Fund to assume the risk of
fluctuations in the value of the currency purchased against the hedged currency
and the U.S. dollar. The precise matching of the forward contract amounts and
the value of the securities involved will not generally be possible because the
future value of such securities in foreign currencies will change as a
consequence of market movements in the value of such securities between the date
the forward contract is entered into and the date it matures. The projection of
currency market movements is extremely difficult, and the successful execution
of a hedging strategy is highly uncertain.
Sovereign Fixed Income Securities. Each of the Funds may invest in
fixed income securities issued or guaranteed by a foreign sovereign government
or its agencies, authorities or political subdivisions. Investment in sovereign
fixed income securities involves special risks not present in corporate fixed
income securities. The issuer of the sovereign debt or the governmental
authorities that control the repayment of the debt may be unable or unwilling to
repay principal or interest when due, and a Fund may have limited recourse in
the event of a default. During periods of economic uncertainty, the market
prices of sovereign debt, and a Fund's net asset value, may be more volatile
than prices of U.S. debt obligations. In the past, certain foreign countries
have encountered difficulties in servicing their debt obligations, withheld
payments of principal and interest and declared moratoria on the payment of
principal and interest on their sovereign debts.

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

Obligations of Supranational Entities. Each Fund may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. Each supranational entity's lending activities
are limited to a percentage of its total capital (including "callable capital"
contributed by its governmental members at the entity's call), reserves and net
income. There is no assurance that participating governments will be able or
willing to honor their commitments to make capital contributions to a
supranational entity.

Investing in Emerging Markets

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

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

The Global Strategic Income Fund may make investments denominated in
emerging markets currencies. Some countries in emerging markets also may have
managed currencies, which are not free floating against the U.S. dollar. In
addition, emerging markets are subject to the risk of restrictions upon the free
conversion of their currencies into other currencies. Any devaluations relative
to the U.S. dollar in the currencies in which the Fund's securities are quoted
would reduce the Fund's net asset value.

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

Additional Investments

Convertible Securities. Each of the Funds may invest in convertible
securities of domestic and, subject to the Fund's investment restrictions,
foreign issuers. The convertible securities in which a Fund may invest include
any debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of shares
of common stock, usually of the same company, at specified prices within a
certain period of time.

When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, 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, each Fund will
maintain with the custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transaction defaults. It is the current
policy of the Bond and Short Term Bond Funds 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.

Structured Securities. The Global Strategic Income Fund may invest in
structured securities, including currency linked securities. The interest rate
or, in some cases, the principal payable at the maturity of a structured
security may change positively or inversely in relation to one or more interest
rates, financial indices, currency rates or other financial indicators
(reference prices). A structured security may be leveraged to the extent that
the magnitude of any change in the interest rate or principal payable on a
structured security is a multiple of the change in the reference price. Thus,
structured securities may decline in value due to adverse market changes in
currency exchange rates and other reference prices.

Credit Risk. Derivative securities and over-the-counter derivative
contracts involve a risk that the issuer or counterparty will fail to perform
its contractual obligations.

Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made, (i)
not more than 5% of the value of a Fund's total assets will be invested in the
securities of any one investment company, (ii) not more than 10% of the value of
its total assets will be invested in the aggregate in securities of investment
companies as a group, and (iii) not more than 3% of the outstanding voting stock
of any one investment company will be owned by a Fund, provided however, that a
Fund may invest all of its investable assets in an open-end investment company
that has the same investment objective as the Fund (its corresponding
Portfolio). As a shareholder of another investment company, a Fund or Portfolio
would bear, along with other shareholders, its pro rata portion of the other
investment company's expenses, including advisory fees. These expenses would be
in addition to the advisory and other expenses that a Fund or Portfolio bears
directly in connection with its own operations. Each Fund has applied for
exemptive relief from the SEC to permit the Fund's corresponding Portfolio to
invest in affiliated investment companies. If the requested relief is granted,
the Fund's corresponding Portfolio would then be permitted to invest in
affiliated funds, subject to certain conditions specified in the applicable
order.

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

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

Loans of Portfolio Securities. Subject to applicable investment
restrictions, each Fund is permitted to lend securities in an amount up to 33
1/3% of the value of its total assets. Each of the Funds may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Fund at least equal at all times to 100% of the
market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Fund any income accruing
thereon. Loans will be subject to termination by a 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 a Fund and its respective investors. The
Funds may pay reasonable finders' and custodial fees in connection with a loan.
In addition, a Fund will consider all facts and circumstances including the
creditworthiness of the borrowing financial institution, and no Fund will make
any loans in excess of one year. The Funds will not lend their securities to any
officer, Trustee, Director, employee or other affiliate of the Funds, the
Advisor or the Distributor, unless otherwise permitted by applicable law.

Illiquid Investments; Privately Placed and Other Unregistered
Securities. No Fund may acquire any illiquid securities if, as a result thereof,
more than 15% of its net assets would be in illiquid investments. Subject to
this non-fundamental policy limitation, each Fund may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the Securities Act of 1933, as amended
(the "1933 Act"), and cannot be offered for public sale in the United States
without first being registered under the 1933 Act. An illiquid investment is any
investment that cannot be disposed of within seven days in the normal course of
business at approximately the amount at which it is valued by a Fund. The price
a Fund pays for illiquid securities or receives upon resale may be lower than
the price paid or received for similar securities with a more liquid market.
Accordingly the valuation of these securities will reflect any limitations on
their liquidity.
Each Fund may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be
determined to be liquid in accordance with guidelines established by the Advisor
and approved by the Trustees. The Trustees will monitor the Advisor's
implementation of these guidelines on a periodic basis.

As to illiquid investments, a Fund is subject to a risk that should 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, a Fund may be obligated to pay all or part of the
registration expenses, and a considerable period may elapse between the time of
the decision to sell and the time 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, a Fund might obtain a less favorable price
than prevailed when it decided to sell.

Quality and Diversification Requirements

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

Each Fund will comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes".

Short Term Bond and Bond Funds. 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.

The Bond and Short Term Bond Funds invest in a diversified portfolio of
securities that are considered "high grade," "investment grade" and "below
investment grade" as described in Appendix A. In addition, at the time the Fund
invests in any commercial paper, bank obligation, repurchase agreement, or any
other money market instruments, the investment must have received a short term
rating of investment grade or better (currently Prime-3 or better by Moody's or
A-3 or better by Standard & Poor's) or the investment must have been issued by
an issuer that received a short term investment grade rating or better with
respect to a class of investments or any investment within that class that is
comparable in priority and security with the investment being purchased by the
Fund. If no such ratings exist, the investment must be of comparable investment
quality in the Advisor's opinion, but will not be eligible for purchase if the
issuer or its parent has long term outstanding debt rated below BBB.

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

Debt securities that are rated in the lower rating categories, or which
are unrated, involve greater volatility of price and risk of loss of principal
and income, including the possibility of default or bankruptcy of the issuer of
such securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. Although the
Advisor seeks to minimize these risks through diversification, investment
analysis and attention to current developments in interest rates and economic
conditions, there can be no assurance that the Advisor will be successful in
limiting the Global Strategic Income Fund's exposure to the risks associated
with lower rated securities. Because the Global Strategic Income Fund invests in
securities in the lower rated categories, the achievement of the Fund's
investment objective is more dependent on the Advisor's ability than would be
the case if the Fund were investing in securities in the higher rated
categories.

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

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

Below Investment Grade Debt. Certain lower rated securities purchased
by each Fund, such as those rated Ba or B by Moody's or BB or B by Standard &
Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of principal
and interest and to greater market fluctuations. While generally providing
greater income than investments in higher quality securities, lower quality
fixed income securities involve greater risk of loss of principal and income,
including the possibility of default or bankruptcy of the issuers of such
securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Fund invests in such lower quality securities, the achievement of its
investment objective may be more dependent on the Advisor's own credit analysis.

Options and Futures Transactions

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

Each of the Funds may use futures contracts and options for hedging and
risk management purposes. The Funds may not use futures contracts and options
for speculation.

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

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

A Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of a Fund's total
assets. In addition, the a Fund will not purchase or sell (write) futures
contracts, options on futures contracts or commodity options for risk management
purposes if, as a result, the aggregate initial margin and options premiums
required to establish these positions exceed 5% of the net asset value of a
Fund.

Options

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

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

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

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

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

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

Futures Contracts

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

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

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

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

Options on Futures Contracts. The Funds may purchase and sell put and
call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities.

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

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

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

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

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

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

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

Swaps and Related Swap Products. Each of the Funds may engage in swap
transactions, including, but not limited to, interest rate, currency, securities
index, basket, specific security and commodity swaps, interest rate caps, floors
and collars and options on interest rate swaps (collectively defined as "swap
transactions").

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

The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by a Fund, payments by the parties
will be exchanged on a "net basis", and a Fund will receive or pay, as the case
may be, only the net amount of the two payments.

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

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

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

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

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

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

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

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

Risk Management

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

The table below sets forth the portfolio turnover rates for the
Portfolios corresponding to the Funds. A rate of 100% indicates that the
equivalent of all of the Portfolio's assets have been sold and reinvested in a
year. High portfolio turnover may result in the realization of substantial net
capital gains or losses. To the extent net short term capital gains are
realized, any distributions resulting from such gains are considered ordinary
income for federal income tax purposes. See "Taxes" below.

The Short Term Bond Portfolio (Short Term Bond Fund) -- For the fiscal year
ended October 31, 1997: 219%. For the fiscal year ended October 31, 1998: 381%.

The U.S. Fixed Income Portfolio (Bond Fund) -- For the fiscal year ended
October 31, 1997: 93%. For the fiscal year ended October 31, 1998: 115%.

The Global Strategic Income Portfolio (Global Strategic Income Fund) -- For
the period March 17, 1997 (commencement of operations) through October 31, 1997:
212%. For the fiscal year ended October 31, 1998: 368%.

INVESTMENT RESTRICTIONS

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

The investment restrictions below have been adopted by each Fund and by
each corresponding Portfolio. Except where otherwise noted, these investment
restrictions are "fundamental" policies which, under the 1940 Act, may not be
changed without the vote of a majority of the outstanding voting securities of
the Fund or Portfolio, as the case may be. A "majority of the outstanding voting
securities" is defined in the 1940 Act as the lesser of (a) 67% or more of the
voting securities present at a meeting if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy, or (b) more
than 50% of the outstanding voting securities. The percentage limitations
contained in the restrictions below apply at the time of the purchase of
securities. Whenever a Fund is requested to vote on a change in the fundamental
investment restrictions of its corresponding Portfolio, the Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the Fund's
shareholders.

The Funds and their corresponding Portfolios:

1. May not make any 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;

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

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

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

TRUSTEES AND OFFICERS

Trustees

The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, 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
Country 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 each of the
Portfolios. A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Funds, up to and including creating a
separate board of trustees.

Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), J.P. Morgan Funds and J.P. Morgan Series Trust
and is reimbursed for expenses incurred in connection with service as a Trustee.
The Trustees may hold various other directorships unrelated to these funds.

Trustee compensation expenses paid by the Trust for the calendar
year ended December 31, 1998 are set forth below.

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

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

Frederick S. Addy, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

William G. Burns, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

Arthur C. Eschenlauer, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

Matthew Healey, Trustee(***), $20,055 $75,000
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

Michael P. Mallardi, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>
(*) Includes the Portfolios and 16 other portfolios (collectively the
"Master Portfolios") for which JPMIM acts as investment advisor.

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

The Trustees decide upon general policies and are responsible for
overseeing the Trust's and Portfolio's business affairs. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for the J.P. Morgan
Family of Funds (formerly "The Pierpont Family of Funds"), and the Trustees are
the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolios have agreed to pay Pierpont Group, Inc. a fee in an amount
representing its reasonable costs in performing these services. These costs are
periodically reviewed by the Trustees. The principal offices of Pierpont Group,
Inc. are located at 461 Fifth Avenue, New York, New York 10017.
The aggregate fees paid to Pierpont Group, Inc. by each Fund and its
corresponding Portfolio during the indicated fiscal years are set forth below:

Short Term Bond Fund -- For the fiscal year ended October 31, 1996: $568.
For the fiscal year ended October 31, 1997: $900. For the fiscal year ended
October 31, 1998: $2,773.

The Short Term Bond Portfolio -- For the fiscal year ended October 31,
1996: $1,005. For the fiscal year ended October 31, 1997: $1,343. For the fiscal
year ended October 31, 1998: $3,458.

Bond Fund -- For the fiscal year ended October 31, 1996: $30,044. For the
fiscal year ended October 31, 1997: $29,814. For the fiscal year ended October
31, 1998: $28,012.

The U.S. Fixed Income Portfolio -- For the fiscal year ended October 31,
1996: $36,922. For the fiscal year ended October 31, 1997: $35,577. For the
fiscal year ended October 31, 1998: $35,661.

Global Strategic Income Fund - For the period March 17, 1997 (commencement
of operations) through October 31, 1997: 1,573. For the fiscal year ended
October 31, 1998: $5,519.

Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through October 31, 1997: $1,574. For the fiscal
year ended October 31, 1998: $5,766.

Officers

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

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

JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of (The
U.S. Fixed Income and Short Term Bond Portfolios only). Managing Director, State
Street Cayman Trust Company, Ltd. since October 1994. Prior to October 1994,
Mrs. Henning was head of mutual funds at Morgan Grenfell in Cayman and was
Managing Director of Bank of Nova Scotia Trust Company (Cayman) Limited prior to
September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor,
Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI. Her date of birth
is March 24, 1942.

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.

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.

INVESTMENT ADVISOR

The Funds have not retained the services of an investment adviser
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of 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. Prior to October 28, 1998, Morgan
was each 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, 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.

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

Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Short Term Bond Portfolio--Merrill Lynch 1-3 Year
Treasury Index; The U.S. Fixed Income Portfolio--Salomon Brothers Broad
Investment Grade Bond Index; The Global Strategic Income Portfolio--The Lehman
Brothers Aggregate Bond Index.

The Portfolios are managed by officers of the Advisor who, in acting
for their customers, including the Portfolios, do not discuss their investment
decisions with any personnel of J.P. Morgan or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain 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 Advisory
Agreements, the Portfolio corresponding to each Fund has agreed to pay the
Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of each Portfolio's average daily net assets shown below.

Short Term Bond: 0.25%

U.S. Fixed Income: 0.30%

Global Strategic Income: 0.45%

The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to Morgan and JPMIM, as applicable, for the
fiscal period indicated.

The Short Term Bond Portfolio (Short Term Bond Fund) -- For the fiscal year
ended October 31, 1996: $50,319. For the fiscal year ended October 31, 1997:
$92,126. For the fiscal year ended October 31, 1998: $322,384.

The U.S. Fixed Income Portfolio (Bond Fund) -- For the fiscal year ended
October 31, 1996: $2,402,660. For the fiscal year ended October 31, 1997:
$2,908,384. For the fiscal year ended October 31, 1998: $3,583,060.

The Global Strategic Income Portfolio (Global Strategic Income Fund) -- For the
period March 17, 1997 (commencement of operations) through October 31, 1997:
$212,934. For the fiscal year ended October 31, 1998:
$887,960.

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

The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company continuously engaged in the
issuance of its shares, such as the 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 Portfolios contemplated by the Advisory Agreements
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 Portfolios.

If the Advisor were prohibited from acting as investment advisor to any
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 also provides certain financial, fund
accounting and administrative services to the Trust and the Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.

DISTRIBUTOR

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

CO-ADMINISTRATOR

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

FDI (i) provides office space, equipment and clerical personnel for
maintaining the organization and books and records of the Trust and the
Portfolios; (ii) provides officers for the Trust and the Portfolios; (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, each Fund and
Portfolio has agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The amount
allocable to each Fund or Portfolio is based on the ratio of its net assets to
the aggregate net assets of the Trust, J.P. Morgan Funds, the Master Portfolios
and other investment companies subject to similar agreements with FDI.

The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.

Short Term Bond Fund -- For the period August 1, 1996 through October 31,
1996: $137. For the fiscal year ended October 31, 1997: $764. For the fiscal
year ended October 31, 1998: $2,245.

The Short Term Bond Portfolio -- For the period August 1, 1996 through
October 31, 1996: $156. For the fiscal year ended October 31, 1997: $886. For
the fiscal year ended October 31, 1998: $2,401.

Bond Fund -- For the period August 1, 1996 through October 31, 1996:
$7,415. For the fiscal year ended October 31, 1997: $25,518 For the fiscal year
ended October 31, 1998: $20,814.

The U.S. Fixed Income Portfolio -- For the period August 1, 1996 through
October 31, 1996: $6,419. For the fiscal year ended October 31, 1997: $23,296
For the fiscal year ended October 31, 1998: $22,913.

Global Strategic Income Fund -- For the period March 17, 1997 (commencement
of operations) through October 31, 1997: $1,378. For the fiscal year ended
October 31, 1998: $4,108.

The Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through October 31, 1997: $889. For the fiscal year
ended October 31, 1998: $2,695.

The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to Signature Broker-Dealer Services, Inc.
(which provided distribution and administrative services to the Trust and
placement agent and administrative services to the Portfolios prior to August 1,
1996) for the fiscal periods indicated.

Short Term Bond Fund -- For the period November 1, 1995 through July 31, 1996:
$1,332.

The Short Term Bond Portfolio -- For the period November 1, 1995 through July
31, 1996: $1,547.

Bond Fund -- For the period November 1, 1995 through July 31, 1996: $67,809.

The U.S. Fixed Income Portfolio -- For the period November 1, 1995 through
July 31, 1996: $65,610.

SERVICES AGENT

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

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

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

Prior to December 29, 1995, the Trust and each 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 table below sets forth for each Fund listed and its corresponding
Portfolio the fees paid to Morgan as Services Agent. See the Prospectus and
"Expenses" below for applicable expense limitations.

Short Term Bond Fund -- For the fiscal year ended October 31, 1996: $2,425.
For the fiscal year ended October 31, 1997: $7,502. For the fiscal year ended
October 31, 1998: $30,377.

The Short Term Bond Portfolio -- For the fiscal year ended October 31,
1996: $4,344. For the fiscal year ended October 31, 1997: $11,434. For the
fiscal year ended October 31, 1998: $37,243.

Bond Fund -- For the fiscal year ended October 31, 1996: $157,773. For the
fiscal year ended October 31, 1997: $251,508. For the fiscal year ended October
31, 1998: $271,190.

The U.S. Fixed Income Portfolio -- For the fiscal year ended October 31,
1996: $191,348. For the fiscal year ended October 31, 1997: $300,675. For the
fiscal year ended October 31, 1998: $348,110.

Global Strategic Income Fund -- For the period March 17, 1997 (commencement
of operations) through October 31, 1997: $14,447. For the fiscal year ended
October 31, 1998: $54,594.

The Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through October 31, 1997: $14,495. For the fiscal
year ended October 31, 1998: $57,247.

CUSTODIAN AND TRANSFER AGENT

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each of the
Portfolio's custodian and fund accounting agent and each 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 the case of foreign
assets held outside the United States, the Custodian employs various
subcustodians who were approved by the Trustees of the Portfolios in accordance
with the regulations of the SEC. 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 each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account administrative and servicing functions, which
includes but is not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.

Effective August 1, 1998, under the Shareholder Servicing Agreement,
each 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).
The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated. See
the Prospectus and "Expenses" below for applicable expense limitations.

Short Term Bond Fund -- For the fiscal year ended October 31, 1996: $7,885.
For the fiscal year ended October 31, 1997: $18,131. For the fiscal year ended
October 31, 1998: $90,716.

Bond Fund -- For the fiscal year ended October 31, 1996: $472,758. For the
fiscal year ended October 31, 1997: $608,161. For the fiscal year ended October
31, 1998: $759,423.

Global Strategic Income Fund -- For the period March 17, 1997 (commencement
of operations) through October 31, 1997: $47,162. For the fiscal year ended
October 31, 1998: $188,159.

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 Funds and the Portfolios under the
Services Agreements and the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements, may raise issues under
these laws. However, JPMIM and Morgan believe that they may properly perform
these services and the other activities 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 Funds or the Portfolios 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.

Each 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 record keeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.

FINANCIAL PROFESSIONALS

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

Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.

INDEPENDENT ACCOUNTANTS

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

EXPENSES

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

J.P. Morgan has agreed that it will reimburse the Funds noted below
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
following annual rates of the Fund's average daily net assets.

Bond: 0.50%
Short Term Bond Fund: 0.30%
Global Strategic Income Fund: 0.65%

These limits do not cover extraordinary expenses. These
reimbursement/waiver arrangements can be changed at any time at the option of
J.P. Morgan.

Bond Fund -- For the fiscal year ended October 31, 1996: $176,156. For the
fiscal year ended October 31, 1997: $16,909. For the fiscal year ended October
31, 1998: $42,614.

The U.S. Fixed Income Portfolio -- For the fiscal year ended October 31,
1996: N/A. For the fiscal year ended October 31, 1997: N/A. For the fiscal year
ended October 31, 1998: N/A.

Short Term Bond Fund -- For the fiscal year ended October 31, 1996:
$86,297. For the fiscal year ended October 31, 1997: $99,323. For the fiscal
year ended October 31, 1998: $259,461.

The Short Term Bond Portfolio -- For the fiscal year ended October 31,
1996: $46,618. For the fiscal year ended October 31, 1997: $111,329. For the
fiscal year ended October 31, 1998: $166,257.

Global Strategic Income Fund -- For the period March 17, 1997 (commencement
of operations) through October 31, 1997: $180,127. For the fiscal year ended
October 31, 1998: $331,863.

The Global Strategic Income Portfolio -- For the period March 17, 1997
(commencement of operations) through October 31, 1997: $69,136. For the fiscal
year ended October 31, 1998: N/A.

PURCHASE OF SHARES

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

Investors may redeem shares as described in the Prospectus.

If the Trust on behalf of a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Fund, in lieu of cash, in conformity with the applicable
rule of the SEC. If shares are redeemed in kind, the redeeming shareholder might
incur transaction costs in converting the assets into cash. The method of
valuing portfolio securities is described under "Net Asset Value," and such
valuation will be made as of the same time the redemption price is determined.
The Trust, on behalf of all of the Funds and their corresponding Portfolios
(except the Global Strategic Income Portfolio), have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which the Funds and the corresponding
Portfolios are obligated to redeem shares solely in cash up to the lesser of
$250,000 or one percent of the net asset value of each Fund during any 90 day
period for any one shareholder. The Trust will redeem Fund shares in kind only
if it has received a redemption in kind from the corresponding Portfolio and
therefore shareholders of each Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolios have advised the Trust that
the Portfolios will not redeem in kind except in circumstances in which a Fund
is permitted to redeem in kind. The Trust is in the process of seeking exemptive
relief from the SEC with respect to redemptions in kind by a Fund. If the
requested relief is granted, each Fund would then be permitted to pay
redemptions to greater than 5% shareholders in securities, rather than in cash,
to the extent permitted by the SEC and applicable law. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined.

Further Redemption Information. Investors should be aware that
redemptions from each Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, each 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, reserves the right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit. For information regarding
redemption orders placed through a financial professional, please see "Financial
Professionals" above.

EXCHANGE OF SHARES

An investor may exchange shares from the Fund into any other J.P.
Morgan Institutional Fund, J.P. Morgan Fund or J.P. Morgan Series Trust 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. In the case of investors in certain states, state securities laws may
restrict the availability of the exchange privilege. The Fund reserves the right
to discontinue, alter or limit its exchange privilege at any time.

DIVIDENDS AND DISTRIBUTIONS

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

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

NET ASSET VALUE

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

Portfolio securities are valued at the last sale price on the
securities exchange or national securities market on which such securities are
primarily traded. Unlisted securities are valued at the last average of the
quoted bid and asked prices in the OTC market. The value of each security for
which readily available market quotations exist is based on a decision as to the
broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing average
currency exchange rate on the valuation date.

PERFORMANCE DATA

From time to time, the Funds 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 Funds may be obtained by calling the number provided on the
cover page of this Statement of Additional Information. See also the Prospectus.

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

The Funds may advertise "total return" and non-standardized total
return data. The total return shows what an investment in a Fund would have
earned over a specified period of time (one, five or ten years or since
commencement of operations, if less) assuming that all distributions and
dividends by the Fund were reinvested on the reinvestment dates during the
period and less all recurring fees. This method of calculating total return is
required by regulations of the SEC. Total return data similarly calculated,
unless otherwise indicated, over other specified periods of time may also be
used. All performance figures are based on historical earnings and are not
intended to indicate future performance.

Yield Quotations. As required by regulations of the SEC, the annualized
yield for the Funds is computed by dividing each Fund's net investment income
per share earned during a 30-day period by the net asset value on the last day
of the period. The average daily number of shares outstanding during the period
that are eligible to receive dividends is used in determining the net investment
income per share. Income is computed by totaling the interest earned on all debt
obligations during the period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield is then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.

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

Short Term Bond Fund (10/31/98): 30-day yield: 5.23%.

Bond Fund (10/31/98): 30-day yield: 5.61%.

Global Strategic Income Fund (10/31/98): 30-day yield: 5.86%.

Total Return Quotations. The Funds may advertise "total return" and
non-standardized total return data. The total return shows what an investment in
a Fund would have earned over a specified period of time (one, five or ten years
or since commencement of operations, if less) assuming that all distributions
and dividends by the Fund were reinvested on the reinvestment dates during the
period and less all recurring fees. This method of calculating total return is
required by regulations of the SEC. Total return data similarly calculated,
unless otherwise indicated, over other specified periods of time may also be
used. All performance figures are based on historical earnings and are not
intended to indicate future performance.

As required by regulations of the SEC, the average annual total return
of the Funds for a period is computed by assuming a hypothetical initial payment
of $1,000. It is then assumed that all of the dividends and distributions by the
Fund over the period are reinvested. It is then assumed that at the end of the
period, the entire amount is redeemed. The average annual total return is then
calculated by determining the annual rate required for the initial payment to
grow to the amount which would have been received upon redemption.

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

Historical performance information for periods prior to the
establishment of the Short Term Bond and Bond Funds will be that of their
corresponding predecessor J.P. Morgan Funds and will be presented in accordance
with applicable SEC staff interpretations.

Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:

Short Term Bond Fund (10/31/98): Average annual total return, 1 year:
7.40%; average annual total return, 5 years: 5.84; average annual total return,
commencement of operations (July 13, 1993) to period end: 5.71%; aggregate total
return, 1 year: 7.40%; aggregate total return, 5 years: 32.79%; aggregate total
return, commencement of operations (July 13, 1993) to period end: 34.20%.

Bond Fund (10/31/98): Average annual total return, 1 year: 8.18%; average
annual total return, 5 years: 6.69%; average annual total return, 10 years:
8.34%; aggregate total return, 1 year: 8.18%; aggregate total return, 5 years:
38.26%; aggregate total return, 10 years: 122.71%.

Global Strategic Income Fund (10/31/98): Average annual total return, 1
year: 2.91%; average annual total return, 5 years: N/A; average annual total
return, commencement of operations (November 5, 1997) to period end: 5.56%;
aggregate total return, 1 year: 2.91%; aggregate total return, 5 years: N/A;
aggregate total return, commencement of operations (March 14, 1997) to period
end: 9.24%.

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

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

PORTFOLIO TRANSACTIONS

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

Portfolio transactions for the Portfolios corresponding to the Funds
will be undertaken principally to accomplish a Portfolio's objective in relation
to expected movements in the general level of interest rates. The Portfolios
corresponding to the Funds may engage in short-term trading consistent with
their objectives. See "Investment Objectives and Policies -- Portfolio
Turnover."

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

Subject to the overriding objective of obtaining the best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for a 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 each 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 Portfolios will not purchase
securities during the existence of any underwriting group of which the Advisor
or an affiliate of the Advisor is a member, except to the extent permitted by
law.

It also sometimes happens that two or more clients simultaneously
purchase or sell the same security. On those occasions when the Advisor deems
the purchase or sale of a security to be in the best interests of the Portfolio,
as well as other clients including other funds, 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 clients in order to obtain best execution,
including lower brokerage commissions if appropriate. In such event, allocation
of the securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Advisor in the manner it considers to be most
equitable and consistent with the Advisor's fiduciary obligations to the
Portfolio. In some instances, this procedure might adversely affect the
Portfolio.

MASSACHUSETTS TRUST

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

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

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 a Fund is liable to a
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 a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.

DESCRIPTION OF SHARES

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

The shareholders of the Trust are entitled to one 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 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.

The Trustees have authorized the issuance and sale to the public of
shares of 22 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.

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

As of January 31, 1999 the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:

Short Term Bond Fund -- Morgan as Agent for Charitable Remainder
Unitrust (23.47%); JPMIM as Agent for Leed Investments (10.72%);
Goodfield Liquidating Corp. (10.00%); Morgan as Agent for Jurodin
(10.87%); Morgan as Agent for Taft School (7.09%).

Bond Fund - Morgan of NY Deferred Profit Sharing (5.97%); Morgan as
Agent for Ameritech Union (5.92%).

Global Strategic Income Fund -- Morgan as Agent for RSL 4201 Trust
(23.23%); Morgan as Agent for R. Lauder (16.77%); Morgan as Agent for
Kenan Charitable Trust (13.43%).

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

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

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

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

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

Additionally, because a Portfolio would become smaller, it may become
less diversified, resulting in potentially increased portfolio risk (however,
these possibilities also exist for traditionally structured funds which have
large or institutional investors who may withdraw from a fund). Also, funds with
a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever the Fund is requested to
vote on matters pertaining to the Portfolio (other than a vote by the Fund to
continue the operation of the Portfolio upon the withdrawal of another investor
in the Portfolio), the Trust will hold a meeting of shareholders of the Fund and
will cast all of its votes proportionately as instructed by the 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

Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each fiscal quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, investments in other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies).

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

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

Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital
losses are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
Distributions to corporate shareholders of the Funds are not eligible for the
dividends received deduction. Each Fund generally pays a monthly dividend. If
dividend payments exceed income earned by the Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Fund
intends to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gains in excess of net short-term capital losses) are taxable
to shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.

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

Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should thus consider the consequences
of purchasing shares in the Fund shortly before the Fund declares a sizable
dividend distribution.

For federal income tax purposes, the Global Strategic Income Fund had a
capital loss carryforward at October 31, 1998 of $8,890,820, all of which
expires in the year 2006. To the extent that this capital loss is used to offset
future capital gains, it is probable that gains to offset will not be
distributed to shareholders.

Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less (i) 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, and (ii) will be disallowed to the
extent of any exempt-interest dividends received by the shareholder with respect
to such shares. Investors are urged to consult their tax advisors concerning the
limitations on the deductibility of capital losses. In addition, no loss will be
allowed on the redemption or exchange of shares of the Fund, if within a period
beginning 30 days before the date of such redemption or exchange and ending 30
days after such date, the shareholder acquires (such as through dividend
reinvestment) securities that are substantially identical to shares of the Fund.

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.

Foreign Taxes. It is expected that the Global Strategic Income Fund may
be subject to foreign withholding taxes or other foreign taxes with respect to
income (possibly including, in some cases, capital gains) received from sources
within foreign countries. So long as more than 50% in value of the total assets
of the Fund (including its share of the assets of the corresponding Portfolio)
at the close of any taxable year consists of stock or securities of foreign
corporations, the Fund may elect to treat any foreign income taxes deemed paid
by it as paid directly by its shareholders. The Fund will make such an election
only if it deems it to be in the best interest of its shareholders. The Fund
will notify its shareholders in writing each year if it makes the election and
of the amount of foreign income taxes, if any, to be treated as paid by the
shareholders and the amount of foreign taxes, if any, for which shareholders of
the Fund will not be eligible to claim a foreign tax credit because the holding
period requirements (described below) have not been satisfied. If the Fund makes
the election, each shareholder will be required to include in his income (in
addition to the dividends and distributions he receives) his proportionate share
of the amount of foreign income taxes deemed paid by the Fund and will be
entitled to claim either a credit (subject to the limitations discussed below)
or, if he itemizes deductions, a deduction for his share of the foreign income
taxes in computing federal income tax liability (no deduction will be permitted
in computing an individual's alternative minimum tax liability). Effective for
dividends paid after September 5, 1997, shareholders of the Fund will not be
eligible to claim a foreign tax credit with respect to taxes paid by the Fund
(notwithstanding that the Fund elects to treat the foreign taxes deemed paid by
it as paid directly by its shareholders) unless certain holding period
requirements are met. A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by the Global Strategic Income Fund from its foreign
source net investment income will be treated as foreign source income. The
Fund's gains and losses from the sale of securities will generally be treated as
derived from U.S. sources, however, and certain foreign currency gains and
losses likewise will be treated as derived from U.S. sources. The limitation on
the foreign tax credit is applied separately to foreign source "passive income,"
such as the portion of dividends received from the Fund which qualifies as
foreign source income. In addition, the foreign tax credit is allowed to offset
only 90% of the alternative minimum tax imposed on corporations and individuals.
Because of these limitations, if the election is made, shareholders may
nevertheless be unable to claim a credit for the full amount of their
proportionate shares of the foreign income taxes paid by the Global Strategic
Income Fund. Effective for taxable years of a shareholder beginning after
December 31, 1997, individual shareholders of the Fund with $300 or less of
creditable foreign taxes ($600 in the case of an individual shareholder filing
jointly) may elect to be exempt from the foreign tax credit limitation rules
described above (other than the 90% limitation applicable for purposes of the
alternative minimum tax), provided that all of such individual shareholder's
foreign source income is "qualified passive income" (which generally includes
interest, dividends, rents, royalties and certain other types of income) and
further provided that all of such foreign source income is shown on one or more
payee statements furnished to the shareholder. Shareholders making this election
will not be permitted to carry over any excess foreign taxes to or from a tax
year to which such an election applies.

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

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

ADDITIONAL INFORMATION

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

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

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

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, are being developed
in the first half of 1999, will define the infrastructure that should be put in
place for managing a failure during the millennium event itself.

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

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

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

FINANCIAL STATEMENTS

The following financial statements and the reports thereon of
PricewaterhouseCoopers LLP of each Fund are incorporated herein by reference to
their respective annual report filings made with the SEC pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial
reports are available without charge upon request by calling J.P. Morgan Funds
Services at (800) 766-7722. Each Fund's financial statements include the
financial statements of the corresponding Portfolio.
<TABLE>
<S> <C>
- ----------------------------------------------------------- --------------------------------------------------------

Date of Annual Report;
Name of Fund Date Annual Report Filed;
and Accession Number
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------

J.P. Morgan Institutional Short Term Bond Fund 10/31/98;
01/05/99;
0001047469-99-000095
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------

J.P. Morgan Institutional Bond Fund 10/31/98;
01/05/99;
0001047469-99-000097
- ----------------------------------------------------------- --------------------------------------------------------
- ----------------------------------------------------------- --------------------------------------------------------

J.P. Morgan Institutional Global Strategic Income Fund 10/31/98:
01/05/99;
0001047469-99-000094
- ----------------------------------------------------------- --------------------------------------------------------
</TABLE>

<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.

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

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

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

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

Commercial Paper, including Tax Exempt

A-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

Corporate and Municipal Bonds

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

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

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

Commercial Paper, including Tax Exempt

- 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.

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL DISCIPLINED EQUITY FUND
J.P. MORGAN INSTITUTIONAL U.S. EQUITY FUND
J.P. MORGAN INSTITUTIONAL U.S. SMALL COMPANY FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 FOR EACH OF THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION
INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER
REPORTS RELATING TO EACH OF THE FUNDS LISTED ABOVE DATED MAY 31, 1998 AND
NOVEMBER 30, 1998. THE PROSPECTUSES AND THESE FINANCIAL STATEMENTS, INCLUDING
THE INDEPENDENT ACCOUNTANTS' REPORT ON THE ANNUAL FINANCIAL STATEMENTS, ARE
AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION:
J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.

<PAGE>

Table of Contents

Page

General . . . . . . . . . . . . . . . . . . . 1
Investment Objectives and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 19
Trustees and Officers . . . . . . . . . . . . 21
Investment Advisor . . . . . . . . . . . . . . 25
Distributor . . . . . . . . . . . . . . . . . 28
Co-Administrator . . . . . . . . . . . . . . . 28
Services Agent . . . . . . . . . . . . . . . . 29
Custodian and Transfer Agent . . . . . . . . . 30
Shareholder Servicing . . . . . . . . . . . . 31
Financial Professionals. . . . . . . . . . . . 32
Independent Accountants . . . . . . . . . . . 32
Expenses . . . . . . . . . . . . . . . . . . . 33
Purchase of Shares . . . . . . . . . . . . . . 33
Redemption of Shares . . . . . . . . . . . . . 34
Exchange of Shares . . . . . . . . . . . . . . 34
Dividends and Distributions . . . . . . . . . 35
Net Asset Value . . . . . . . . . . . . . . . 35
Performance Data . . . . . . . . . . . . . . . 36
Portfolio Transactions . . . . . . . . . . . . 38
Massachusetts Trust . . . . . . . . . . . . . 39
Description of Shares . . . . . . . . . . . . 40
Special Information Concerning
Investment Structure. . . . . . . . . . . . . . 42
Taxes . . . . . . . . . . . . . . . . . . . . 44
Additional Information . . . . . . . . . . . 47
Financial Statements . . . . . . . . . . . . . 49
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . Appendix A - 1

<PAGE>

GENERAL

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

This Statement of Additional Information describes the financial
history, investment objectives and policies, management and operation of each of
the Funds in order to enable investors to select the Fund or Funds which best
suit their needs. The Funds operate through a two-tier master-feeder investment
fund structure.

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

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

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

INVESTMENT OBJECTIVES AND POLICIES

The following discussion supplements the information regarding the
investment objective of each Fund and the policies to be employed to achieve
this objective by its corresponding Portfolio as set forth above and in the
Prospectus. The investment objective of each Fund and its corresponding
Portfolio is identical. Accordingly, references below to a Fund also include the
Fund's corresponding Portfolio; similarly, references to a Portfolio also
include the corresponding Fund that invests in the Portfolio unless the context
requires otherwise.

J.P. Morgan Institutional Disciplined Equity Fund (the "Disciplined
Equity Fund") is designed for investors seeking enhanced total return relative
to that of large and medium sized companies, typically represented by the S&P
500 Index. The Disciplined Equity Fund's investment objective is to provide a
consistently high total return from a broadly diversified portfolio of equity
securities with risk characteristics similar to the S&P 500 Index. This
investment objective can be changed without shareholder approval. The
Disciplined Equity Fund attempts to achieve its investment objective by
investing all of its investable assets in The Disciplined Equity Portfolio, a
diversified open-end management investment company having the same investment
objective as the Disciplined Equity Fund.

The Disciplined Equity Fund invests primarily in a diversified
portfolio of common stocks and other equity securities. Under normal
circumstances, the Disciplined Equity Fund expects to invest at least 65% of its
total assets in such securities.

Investment Process for The Disciplined Equity Fund

Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, follow
approximately 600 medium and large capitalization U.S. companies. Their research
goal is to forecast intermediate-term earnings and prospective dividend growth
rates for the companies that they cover.

Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the intermediate-term earnings by comparing a company's current stock price with
its forecasted dividends and earnings. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.

Stock Selection: A broadly diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are allocated among stocks in the
first three quintiles. Once a stock falls into the fourth and fifth quintiles --
either because its price has risen or its fundamentals have deteriorated -- it
generally becomes a candidate for sale. The Disciplined Equity Fund's sector
weightings are matched to those of the S&P 500 Index, the Disciplined Equity
Fund's benchmark. The Advisor, also controls the Disciplined Equity Fund's
exposure to style and theme bets and maintains near-market security weightings
in individual security holdings. This process results in an investment portfolio
containing approximately 300 stocks.

J.P. Morgan Institutional U.S. Equity Fund (the "U.S. Equity Fund") is
designed for investors who want an actively managed portfolio of selected equity
securities that seeks to outperform the S&P 500 Index. The U.S. Equity Fund's
investment objective is to provide a high total return from a portfolio of
selected equity securities. This investment objective can be changed without
shareholder approval. The U.S. Equity Fund attempts to achieve its investment
objective by investing all of its investable assets in The U.S. Equity
Portfolio, a diversified open-end management investment company having the same
investment objective as the U.S.
Equity Fund.

In normal circumstances, at least 65% of the U.S. Equity Fund's net
assets will be invested in equity securities consisting of U.S. and foreign
common stocks and other securities with equity characteristics comprised of
preferred stock, warrants, rights, convertible securities, depository receipts
(such as ADRs and EDRs) trust certifications, limited partnership interests and
investment company securities (collectively, "Equity Securities"). The U.S.
Equity Fund's primary equity investments are the common stock of large
capitalization U.S. corporations and, to a limited extent, similar securities of
foreign corporations.

Investment Process for The U.S. Equity Fund

Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, follow
approximately 700 predominantly large- and medium-sized U.S. companies --
approximately 500 of which form the universe for the U.S. Equity Fund's
investments. Their research goal is to forecast normalized, longer term earnings
and dividends for the companies that they cover. In doing this, they may work in
concert with the Advisor's international equity analysts in order to gain a
broader perspective for evaluating industries and companies in today's global
economy.

Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with its
forecasted dividends and earnings. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5)
are deemed the most overvalued.

Stock Selection: A diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among first-quintile
stocks; the specific names selected reflect the portfolio manager's judgment
concerning the soundness of the underlying forecasts, the likelihood that the
perceived misvaluation will be corrected within a reasonable time frame, and the
magnitude of the risks versus the rewards. Once a stock falls into the third
quintile -- because its price has risen or its fundamentals have deteriorated --
it generally becomes a candidate for sale. The portfolio manager seeks to hold
sector weightings close to those of the S&P 500 Index, the U.S. Equity Fund's
benchmark.

J.P. Morgan Institutional U.S. Small Company Fund (the "U.S. Small
Company Fund") is designed for investors who are willing to assume the somewhat
higher risk of investing in small companies in order to seek a higher return
over time than might be expected from a portfolio of stocks of large companies.
The U.S. Small Company Fund's investment objective is to provide high total
return from a portfolio of small company stocks. This investment objective can
be changed without shareholder approval. The U.S. Small Company Fund attempts to
achieve its investment objective by investing all of its investable assets in
The U.S. Small Company Portfolio, a diversified open-end management investment
company having the same investment objective as the U.S. Small Company Fund.

The U.S. Small Company Fund attempts to achieve its investment
objective by investing primarily in the common stock of small sized U.S.
companies that are included in the Russell 2000 Index, which is composed of
2,000 common stocks of U.S. small-cap companies with market capitalizations
ranging from $110 million to $2.5 billion.

Investment Process for The U.S. Small Company Fund

Research: The Advisor's more than 20 domestic equity analysts, each an
industry specialist with an average of over 10 years of experience, continuously
monitor the small cap stocks in their respective sectors with the aim of
identifying companies that exhibit superior financial strength and operating
returns. Meetings with management and on-site visits play a key role in shaping
their assessments. Their research goal is to forecast normalized, long-term
earnings and dividends for the most attractive small cap companies among those
they monitor -- a universe that contains a total of approximately 600 names.
Because the Advisor's analysts follow both the larger and smaller companies in
their industries -- in essence, covering their industries from top to bottom --
they are able to bring broad perspective to the research they do on both.

Valuation: The analysts' forecasts are converted into comparable
expected returns using a proprietary dividend discount model, which calculates
the long-term earnings by comparing a company's current stock price with the its
forecasted dividends and earnings. Within each industry, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued relative
to their long-term earnings power, while those with the lowest expected returns
(Quintile 5) are deemed the most overvalued.

Stock Selection: A diversified portfolio is constructed using
disciplined buy and sell rules. Purchases are concentrated among the stocks in
the top two quintiles of the rankings; the specific names selected reflect the
portfolio manager's judgment concerning the soundness of the underlying
forecasts, the likelihood that the perceived misvaluation will soon be
corrected, and the magnitude of the risks versus the rewards. Once a stock falls
into the third quintile -- because its price has risen or its fundamentals have
deteriorated -- it generally becomes a candidate for sale. The portfolio manager
seeks to hold sector weightings close to those of the Russell 2000 Index, the
U.S. Small Company Fund's benchmark.

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

Equity Investments

The Funds invest primarily in Equity Securities. The Equity Securities
in which the Funds invest include those listed on any domestic or foreign
securities exchange or traded in the over-the-counter (OTC) market as well as
certain restricted or unlisted securities.

Equity Securities. The Equity Securities in which the Funds may invest may
or may not pay dividends and may or may not carry voting rights. Common stock
occupies the most junior position in a company's capital structure.

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

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

Common Stock Warrants

The Funds may invest in common stock warrants that entitle the holder
to buy common stock from the issuer of the warrant at a specific price (the
strike price) for a specific period of time. The market price of warrants may be
substantially lower than the current market price of the underlying common
stock, yet warrants are subject to similar price fluctuations. As a result,
warrants may be more volatile investments than the underlying common stock.

Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.

Foreign Investments

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

Investors should realize that the value of the Funds' investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Funds' operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Funds must be made in compliance
with U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.

In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Fund's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.

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

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

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

Foreign Currency Exchange Transactions

Because each Fund may buy and sell securities and receive interest and
dividends in currencies other than the U.S. dollar, a Fund may enter from time
to time into foreign currency exchange transactions. Each Fund either enters
into these transactions on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market or uses forward contracts to purchase or
sell foreign currencies. The cost of a Fund's spot currency exchange
transactions is generally the difference between the bid and offer spot rate of
the currency being purchased or sold.

A forward foreign currency exchange contract is an obligation by the
Fund to purchase or sell a specific currency at a future date, which may be any
fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contract. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of a Fund's securities or in
foreign exchange rates, or prevent loss if the prices of these securities should
decline.

Each Fund may enter into foreign currency exchange transactions in an
attempt to protect against changes in foreign currency exchange rates between
the trade and settlement dates of specific securities transactions or
anticipated securities transactions. Each Fund may also enter into forward
contracts to hedge against a change in foreign currency exchange rates that
would cause a decline in the value of existing investments denominated or
principally traded in a foreign currency. To do this, a Fund would enter into a
forward contract to sell the foreign currency in which the investment is
denominated or principally traded in exchange for U.S. dollars or in exchange
for another foreign currency. The Funds will only enter into forward contracts
to sell a foreign currency in exchange for another foreign currency if the
Advisor expects the foreign currency purchased to appreciate against the U.S.
dollar.

Additional Investments

When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value, and
calculate the maturity for the purposes of average maturity from that date. At
the time of settlement a when-issued security may be valued at less than the
purchase price. To facilitate such acquisitions, each Fund will maintain with
the custodian a segregated account with liquid assets, consisting of cash, U.S.
Government securities or other appropriate securities, in an amount at least
equal to such commitments. On delivery dates for such transactions, each Fund
will meet its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If a Fund chooses to dispose of the
right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio obligation, incur a gain or loss due
to market fluctuation. Also, a Fund may be disadvantaged if the other party to
the transaction defaults. It is the current policy of each 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 each of the Funds and their corresponding Portfolios to the
extent permitted under the 1940 Act. These limits require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of a
Fund's total assets will be invested in the securities of any one investment
company, (ii) not more than 10% of the value of its total assets will be
invested in the aggregate in securities of investment companies as a group, and
(iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by a Fund, provided however, that a Fund may invest all of
its investable assets in an open-end investment company that has the same
investment objective as the Fund (its corresponding Portfolio). As a shareholder
of another investment company, a Fund or Portfolio would bear, along with other
shareholders, its pro rata portion of the other investment company's expenses,
including advisory fees. These expenses would be in addition to the advisory and
other expenses that a Fund or Portfolio bears directly in connection with its
own operations. The Funds have applied for exemptive relief from the SEC to
permit the Funds to invest in affiliated investment companies. If the requested
relief is granted, the Funds would then be permitted to invest in affiliated
Funds, subject to certain conditions specified in the applicable order.

Loans of Portfolio Securities. Each Fund is permitted to lend its
securities in an amount up to 331/3% of the value of such Fund's net assets.
Each of the Funds may lend its securities if such loans are secured continuously
by cash or equivalent collateral or by a letter of credit in favor of the Fund
at least equal at all times to 100% of the market value of the securities
loaned, plus accrued interest. While such securities are on loan, the borrower
will pay the Fund any income accruing thereon. Loans will be subject to
termination by the Funds in the normal settlement time, generally three business
days after notice, or by the borrower on one day's notice. Borrowed securities
must be returned when the loan is terminated. Any gain or loss in the market
price of the borrowed securities which occurs during the term of the loan inures
to a Fund and its respective investors. The Funds may pay reasonable finders'
and custodial fees in connection with a loan. In addition, a Fund will consider
all facts and circumstances before entering into such an agreement, including
the creditworthiness of the borrowing financial institution, and no Fund will
make any loans in excess of one year. The Funds will not lend their securities
to any officer, Trustee, Director, employee or other affiliate of the Funds, the
Advisor or the Distributor, unless otherwise permitted by applicable law.

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

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

Money Market Instruments

Although the Funds intend, under normal circumstances and to the extent
practicable, to be fully invested in equity securities, each Fund may invest in
money market instruments to the extent consistent with its respective investment
objective and policies. The Funds may make money market investments pending
other investment or settlement, for liquidity or in adverse market conditions. A
description of the various types of money market instruments that may be
purchased by the Funds appears below. Also see "Quality and Diversification
Requirements."

Bank Obligations. Each of the Funds may invest in negotiable
certificates of deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks which have more than $2 billion
in total assets (the "Asset Limitation") and are organized under the laws of the
United States or any state, (ii) foreign branches of these banks or of foreign
banks of equivalent size (Euros) and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). See "Foreign Investments." The Funds will not invest
in obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. Each of the Funds may also invest in
obligations of international banking institutions designated or supported by
national governments to promote economic reconstruction, development or trade
between nations (e.g., the European Investment Bank, the Inter-American
Development Bank, or the World Bank).

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

Each of the Funds may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in this Statement of Additional Information.

Quality and Diversification Requirements

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

The Funds will also comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes."

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

Options and Futures Transactions

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

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

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

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

Options

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

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

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

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

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

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

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

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

Futures Contracts and Options on Futures Contracts. The Funds may
purchase or sell (write) futures contracts and purchase or sell put and call
options, including put and call options on futures contracts. Futures contracts
obligate the buyer to take and the seller to make delivery at a future date of a
specified quantity of a financial instrument or an amount of cash based on the
value of a securities index. Currently, futures contracts are available on
various types of fixed income securities, including but not limited to U.S.
Treasury bonds, notes and bills, Eurodollar certificates of deposit and on
indexes of fixed income securities and indexes of equity securities.

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

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

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

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

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

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

Swaps and Related Swap Products

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

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

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

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

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

Risk Management

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

Portfolio Turnover

The table below sets forth the portfolio turnover rates for the
Portfolios corresponding to the Funds. A rate of 100% indicates that the
equivalent of all of Portfolio's assets have been sold and reinvested in a year.
High portfolio turnover may result in the realization of substantial net capital
gains or losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.

The Disciplined Equity Portfolio (Disciplined Equity Fund) -- For the
period December 30, 1996 (commencement of operations) through May 31, 1997: 20%.
For the fiscal year ended May 31, 1998: 61%. For the six months ended November
30, 1998 (unaudited): 28%.

The U.S. Equity Portfolio (U.S. Equity Fund) -- For the fiscal year ended
May 31, 1996: 85%. For the fiscal year ended May 31, 1997: 99%. For the fiscal
year ended May 31, 1998: 106%. For the six months ended November 30, 1998
(unaudited): 49%.

The U.S. Small Company Portfolio (U.S. Small Company Fund) -- For the
fiscal year ended May 31, 1996: 93%. For the fiscal year ended May 31, 1997:
98%. For the fiscal year ended May 31, 1998: 96%. For the six months ended
November 30, 1998 (unaudited): 27%.

INVESTMENT RESTRICTIONS

The investment restrictions below have been adopted by the Trust with
respect to each Fund and by each corresponding Portfolio. Except where otherwise
noted, these investment restrictions are "fundamental" policies which, under the
1940 Act, may not be changed without the vote of a majority of the outstanding
voting securities of the Fund or Portfolio, as the case may be. A "majority of
the outstanding voting securities" is defined in the 1940 Act as the lesser of
(a) 67% or more of the voting securities present at a meeting if the holders of
more than 50% of the outstanding voting securities are present or represented by
proxy, or (b) more than 50% of the outstanding voting securities. The percentage
limitations contained in the restrictions below apply at the time of the
purchase of securities. Whenever a Fund is requested to vote on a change in the
fundamental investment restrictions of its corresponding Portfolio, the Trust
will hold a meeting of Fund shareholders and will cast its votes as instructed
by the Fund's shareholders.

The Funds and their corresponding Portfolios:

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

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

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

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

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

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

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

8. May make loans to other persons, in accordance with their respective
investment objectives and policies and to the extent permitted by
applicable law.

Non-Fundamental Investment Restrictions The investment restrictions
described below are not fundamental policies of these Funds and their
corresponding Portfolios and may be changed by their respective Trustees.

These non-fundamental investment policies require that the Funds:

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

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 each of the
Portfolios and the other Master Portfolios, as defined below, 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
Country 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.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

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

Matthew Healey, Trustee(***), $20,055 $75,000
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

Michael P. Mallardi, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>

(*) Includes the Portfolios and 16 other Portfolios (collectively the "Master
Portfolios") for which JPMIM acts as investment advisor.

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

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

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

Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through May 31, 1997: $320. For the fiscal year ended May 31, 1998:
$5,296. For the six months ended November 30, 1998 (unaudited): $4,894.

The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $607. For the fiscal year
ended May 31, 1998: $5,818. For the six months ended November 30, 1998
(unaudited): $5,301.

U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $13,993. For
the fiscal year ended May 31, 1997: $9,112. For the fiscal year ended May 31,
1998: $12,419. For the six months ended November 30, 1998 (unaudited): $4,566.

The U.S. Equity Portfolio -- For the fiscal year ended May 31, 1996:
$46,626. For the fiscal year ended May 31, 1997: $26,486. For the fiscal year
ended May 31, 1998: $30,613. For the six months ended November 30, 1998
(unaudited): $10,257.

U.S. Small Company Fund -- For the fiscal year ended May 31, 1996: $14,539.
For the fiscal year ended May 31, 1997: $11,350. For the fiscal year ended May
31, 1998: $15,145. For the six months ended November 30, 1998 (unaudited):
$5,068.

The U.S. Small Company Portfolio -- For the fiscal year ended May 31, 1996:
$48,688. For the fiscal year ended May 31, 1997: $31,320. For the fiscal year
ended May 31, 1998: $36,011. For the six months ended November 30, 1998
(unaudited): $8,099.

Officers

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

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

MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937.

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.

JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolios only. Managing Director, State Street Cayman Trust Company, Ltd.
since October 1994. Prior to October 1994, Mrs. Henning was head of mutual funds
at Morgan Grenfell in Cayman and was Managing Director of Bank of Nova Scotia
Trust Company (Cayman) Limited prior to September 1993. Address: P.O. Box 2508
GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town, Grand Cayman,
Cayman Islands, BWI. Her date of birth is March 24, 1942.

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.

INVESTMENT ADVISOR

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

The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The conclusions of
the equity analysts' fundamental research is quantified into a set of projected
returns for individual companies through the use of a dividend discount model.
These returns are projected for 2 to 5 years to enable analysts to take a longer
term view. These returns, or normalized earnings, are used to establish relative
values among stocks in each industrial sector. These values may not be the same
as the markets' current valuations of these companies. This provides the basis
for ranking the attractiveness of the companies in an industry according to five
distinct quintiles or rankings. This ranking is one of the factors considered in
determining the stocks purchased and sold in each sector.

Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Disciplined Equity Portfolio and The U.S. Equity
Portfolio--S&P 500 Index; and The U.S. Small Company Portfolio--Russell 2000
Index.

Disciplined Equity: 0.35%

U.S. Equity: 0.40%

U.S. Small Company: 0.60%

The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to Morgan and JPMIM, as applicable, for the
fiscal periods indicated. See also the Fund's financial statements which are
incorporated herein by reference.

The Disciplined Equity Portfolio (Disciplined Equity Fund) -- For the
period December 30, 1996 (commencement of operations) through May 31, 1997:
$73,985. For the fiscal year ended May 31, 1998: $628,965. For the six months
ended November 30, 1998 (unaudited): $703,700.

The U.S. Equity Portfolio (U.S. Equity Fund) -- For the fiscal year ended
May 31, 1996: $2,744,054. For the fiscal year ended May 31, 1997: $3,049,388.
For the fiscal year ended May 31, 1998: $3,534,791. For the six months ended
November 30, 1998 (unaudited): $1,491,031.

The U.S. Small Company Portfolio (U.S. Small Company Fund) -- For the
fiscal year ended May 31, 1996: $4,286,311. For the fiscal year ended May 31,
1997: $5,424,514. For the fiscal year ended May 31, 1998: $6,161,868. For the
six months ended November 30, 1998 (unaudited): $1,756,798.

The Glass-Steagall Act and other applicable laws generally prohibit
banks and their subsidiaries, such as the Advisor, from engaging in the business
of underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or certain subsidiaries thereof may not sponsor, organize, or
control a registered open-end investment company continuously engaged in the
issuance of its shares, such as the 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 Portfolios contemplated by the Advisory Agreements
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 Portfolios.

If the Advisor were prohibited from acting as investment advisor to any
Portfolio, it is expected that the Trustees of the Portfolios would recommend to
investors that they approve the Portfolios' 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 Portfolios and
shareholder services for the Trust. See "Services Agent" and "Shareholder
Servicing" below.

DISTRIBUTOR

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

The Distribution Agreement shall continue in effect with respect to
each of the Funds for a period of two years after execution only if it is
approved at least annually thereafter (i) by a vote of the holders of a majority
of each Fund's outstanding shares or by its Trustees and (ii) by a vote of a
majority of the Trustees of the Trust who are not "interested persons" (as
defined by the 1940 Act) of the parties to the Distribution Agreement, cast in
person at a meeting called for the purpose of voting on such approval (see
"Trustees and 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

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

The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.

Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through May 31, 1997: $392. For the fiscal year ended May 31, 1998:
$4,082. For the six months ended November 30, 1998 (unaudited): $3,674.

The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $520. For the fiscal year
ended May 31, 1998: $3,742. For the six months ended November 30, 1998
(unaudited): $3,500.

U.S. Equity Fund -- For the period August 1, 1996 through May 31, 1997:
$7,865. For the fiscal year ended May 31, 1998: $9,349. For the six months ended
November 30, 1998 (unaudited): $3,286.

The U.S. Equity Portfolio -- For the period August 1, 1996 through May 31,
1997: $16,536. For the fiscal year ended May 31, 1998: $18,971. For the six
months ended November 30, 1998 (unaudited): $6,512.

U.S. Small Company Fund -- For the period August 1, 1996 through May 31,
1997: $9,753. For the fiscal year ended May 31, 1998: $11,396. For the six
months ended November 30, 1998 (unaudited): $3,652.

The U.S. Small Company Portfolio -- For the period August 1, 1996 through
May 31, 1997: $19,652. For the fiscal year ended May 31, 1998: $22,248. For the
six months ended November 30, 1998 (unaudited): $5,118.

U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $41,556. For
the period June 1, 1996 through July 31, 1996: $4,553.

The U.S. Equity Portfolio -- For the fiscal year ended May 31, 1996:
$62,404. For the period June 1, 1996 through July 31, 1996: $14,675.

U.S. Small Company Fund -- For the fiscal year ended May 31, 1996: $42,829.
For the period June 1, 1996 through July 31, 1996: $5,925.

The U.S. Small Company Portfolio -- For the fiscal year ended May 31, 1996:
$65,079. For the period June 1, 1996 through July 31, 1996: $17,162.

SERVICES AGENT

The Trust, on behalf of each Fund, and the Portfolios have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended August 1, 1996, pursuant to which Morgan
is responsible for certain administrative and related services provided to each
Fund and its corresponding Portfolio. The Services Agreements may be terminated
at any time, without penalty, by the Trustees or Morgan, in each case on not
more than 60 days' nor less than 30 days' written notice to the other party.

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

Under Administrative Services Agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, each Fund and its corresponding
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 each Portfolio had entered
into Financial and Fund Accounting Services Agreements with Morgan, the
provisions of which included certain of the activities described above. The
table below sets forth for each Fund listed and its corresponding Portfolio the
fees paid to Morgan as Services Agent.

Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through May 31, 1997: $3,801. For the fiscal year ended May 31,
1998: $49,243. For the six months ended November 30, 1998 (unaudited): $52,435.

The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $6,614. For the fiscal year
ended May 31, 1998: $53,654. For the six months ended November 30, 1998
(unaudited): $56,899.

U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $23,487. For
the fiscal year ended May 31, 1997: $80,756. For the fiscal year ended May 31,
1998: $108,362. For the six months ended November 30, 1998 (unaudited): $46,835.

The U.S. Equity Portfolio -- For the fiscal year ended May 31, 1996:
$138,134. For the fiscal year ended May 31, 1997: $232,617. For the fiscal year
ended May 31, 1998: $265,956. For the six months ended November 30, 1998
(unaudited): $105,636.

U.S. Small Company Fund -- For the fiscal year ended May 31, 1996: $26,324.
For the fiscal year ended May 31, 1997: $100,607. For the fiscal year ended May
31, 1998: $131,588. For the six months ended November 30, 1998 (unaudited):
$52,004.

The U.S. Small Company Portfolio -- For the fiscal year ended May 31, 1996:
$144,277. For the fiscal year ended May 31, 1997: $275,962. For the fiscal year
ended May 31, 1998: $309,695. For the six months ended November 30, 1998
(unaudited): $83,005.

CUSTODIAN AND TRANSFER AGENT

SHAREHOLDER SERVICING

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

Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services at an annual rate of 0.10% (expressed as a percentage
of the average daily net assets of Fund shares owned by or for shareholders for
whom Morgan is acting as Shareholder Servicing Agent). Morgan acts as
Shareholder Servicing Agent for all shareholders.

The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated.

Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through May 31, 1997: $12,168. For the fiscal year ended May 31,
1998: $165,144. For the six months ended November 30, 1998 (unaudited):
$185,273.

U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $151,111. For
the fiscal year ended May 31, 1997: $264,300. For the fiscal year ended May 31,
1998: $360,672. For the six months ended November 30, 1998 (unaudited):
$165,058.

U.S. Small Company Fund -- For the fiscal year ended May 31, 1996:
$162,465. For the fiscal year ended May 31, 1997: $329,689. For the fiscal year
ended May 31, 1998: $437,716. For the six months ended November 30, 1998
(unaudited): $183,488.

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 Funds and the Portfolios under the
Services Agreements, and JPMIM in acting as Advisor to the Portfolios under the
Investment Advisory Agreements, may raise issues under these laws. However,
Morgan and JPMIM believe that they may properly perform these services and the
other activities described herein without violation of the Glass-Steagall Act or
other applicable banking laws or regulations.

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 a Fund. See
"Financial Professionals" below. Organizations that provide recordkeeping or
other services to certain employee benefit or retirement plans that include a
Fund as an investment alternative may also be paid a fee.

FINANCIAL PROFESSIONALS

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

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

Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.

INDEPENDENT ACCOUNTANTS

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 Funds and the Portfolios are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws and extraordinary expenses
applicable to the Funds or the Portfolios. For the Funds, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders
and filing fees under state securities laws. For the Portfolios, such expenses
also include applicable registration fees under foreign securities laws,
custodian fees and brokerage expenses. Under fee arrangements prior to September
1, 1995, Morgan as Services Agent was responsible for reimbursements to the
Trust and the Portfolio and the usual customary expenses described above
(excluding organization and extraordinary expenses, custodian fees and brokerage
expenses).

Disciplined Equity Fund: 0.45%
U.S. Equity Fund: 0.60%
U.S. Small Company Fund: 0.80%

These limits do not cover extraordinary expenses. These
reimbursement/waiver arrangements can be changed at any time at the option of
J.P. Morgan.

Disciplined Equity Fund -- For the period January 3, 1997 (commencement of
operations) through May 31, 1997: $73,277. For the fiscal year ended May 31,
1998: $356,413. For the six months ended November 30, 1998 (unaudited):
$287,226.

The Disciplined Equity Portfolio -- For the period December 30, 1996
(commencement of operations) through May 31, 1997: $68,970. For the fiscal year
ended May 31, 1998: $110,241. For the six months ended November 30, 1998
(unaudited): N/A.

U.S. Equity Fund -- For the fiscal year ended May 31, 1996: $42,693. For
the fiscal year ended May 31, 1997: $124,953. For the fiscal year ended May 31,
1998: $114,954. For the six months ended November 30, 1998 (unaudited): $44,085.

U.S. Equity Portfolio -- For the fiscal year ended May 31, 1996: N/A. For
the fiscal year ended May 31, 1997: N/A. For the fiscal year ended May 31, 1998:
N/A. For the six months ended November 30, 1998 (unaudited): N/A.

U.S. Small Company Fund -- For the fiscal year ended May 31, 1996: $56,151.
For the fiscal year ended May 31, 1997: $180,418. For the fiscal year ended May
31, 1998: $230,707. For the six months ended November 30, 1998 (unaudited):
$92,844.

U.S. Small Company Portfolio -- For the fiscal year ended May 31, 1996:
N/A. For the fiscal year ended May 31, 1997: N/A. For the fiscal year ended May
31, 1998: N/A. For the six months ended November 30, 1998 (unaudited): N/A.

PURCHASE OF SHARES

Method of Purchase. Investors may open accounts with a Fund only
through the Distributor. All purchase transactions in Fund accounts are
processed by Morgan as shareholder servicing agent and the Fund is authorized to
accept any instructions relating to a Fund account from Morgan as shareholder
servicing agent for the customer. All purchase orders must be accepted by the
Distributor. Prospective investors who are not already customers of Morgan may
apply to become customers of Morgan for the sole purpose of Fund transactions.
There are no charges associated with becoming a Morgan customer for this
purpose. Morgan reserves the right to determine the customers that it will
accept, and the Trust reserves the right to determine the purchase orders that
it will accept.
References in the Prospectus and this Statement of Additional
Information to customers of Morgan or a financial professional include customers
of their affiliates and references to transactions by customers with Morgan or a
financial professional include transactions with their affiliates. Only Fund
investors who are using the services of a financial institution acting as
shareholder servicing agent pursuant to an agreement with the Trust on behalf of
a Fund may make transactions in shares of a Fund.

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

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

REDEMPTION OF SHARES

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

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

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

EXCHANGE OF SHARES

An investor may exchange shares from any J.P. Morgan Institutional Fund
into any other J.P. Morgan Institutional Fund or J.P. Morgan 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 a fund to be
acquired are purchased for settlement when the proceeds from redemption become
available. In the case of investors in certain states, state securities laws may
restrict the availability of the exchange privilege. The Trust reserves the
right to discontinue, alter or limit the exchange privilege at any time.

DIVIDENDS AND DISTRIBUTIONS

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

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

NET ASSET VALUE

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

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

The value of investments listed on a domestic securities exchange,
other than options on stock indexes, is based on the last sale prices on such
exchange. Securities listed on a foreign exchange are valued at the last quoted
sale prices on such exchange. Unlisted securities are valued at the average of
the quoted bid and asked prices in the OTC market. The value of each security
for which readily available market quotations exist is based on a decision as to
the broadest and most representative market for such security. For purposes of
calculating net asset value all assets and liabilities initially expressed in
foreign currencies will be converted into U.S. dollars at the prevailing rate
currency average on the valuation date.

Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges which is currently 4:10
p.m. New York time. Stock index futures and related options, which are traded on
commodities exchanges, are valued at their last sales price as of the close of
such commodities exchanges which is currently 4:15 p.m., New York time.
Securities or other assets for which market quotations are not readily available
(including certain restricted and illiquid securities) are valued at fair value
in accordance with procedures established by and under the general supervision
and responsibility of the Trustees. Such procedures include the use of
independent pricing services which use prices based upon yields or prices of
securities of comparable quality, coupon, maturity and type; indications as to
values from dealers; and general market conditions. Short-term investments which
mature in 60 days or less are valued at amortized cost if their original
maturity was 60 days or less, or by amortizing their value on the 61st day prior
to maturity, if their original maturity when acquired by the Portfolio was more
than 60 days, unless this is determined not to represent fair value by the
Trustees.

Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of the New York Stock Exchange (normally
4:00 p.m.) and may also take place on days on which the New York Stock Exchange
is closed. If events materially affecting the value of securities occur between
the time when the exchange on which they are traded closes and the time when a
Fund's net asset value is calculated, such securities will be valued at fair
value in accordance with procedures established by and under the general
supervision of the Trustees.

PERFORMANCE DATA

From time to time, the Funds may quote performance in terms of actual
distributions, total return or capital appreciation in reports, sales literature
and advertisements published by the Trust. Shareholders may obtain current
performance information by calling the number provided on the cover page of this
Statement of Additional Information. See also the Prospectus.

Composite performance information shown in the prospectus has been
calculated in accordance with Performance Presentation Standards of the
Association for Investment Management and Research ("AIMR").

Total Return Quotations. As required by regulations of the SEC, the
annualized total return of the Funds for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Fund over the period are reinvested. It is
then assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.

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

Historical performance information for periods prior to the
establishment of each Fund will be that of each corresponding predecessor J.P.
Morgan Fund, as permitted by applicable SEC staff interpretations, since each
J.P. Morgan Fund commenced operations before the corresponding J.P. Morgan
Institutional Fund. Additionally, historical performance information for periods
prior to the establishment of the U.S. Equity and U.S. Small Company funds will
be that of their respective predecessor free-standing funds and will be
presented in accordance with applicable SEC staff interpretations. The
applicable financial information in the registration statements for J.P. Morgan
Funds (Registration Nos. 033-54632 and 811-07340) is incorporated herein by
reference.

Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:

Disciplined Equity Fund (11/30/98): Average annual total return, 1 year:
26.65%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations (January 3, 1997) to period end: 30.03%; aggregate
total return, 1 year: 26.65%; aggregate total return, 5 years: N/A; aggregate
total return, commencement of operations (January 3, 1997) to period end:
65.00%.

U.S. Equity Fund (11/30/98): Average annual total return, 1 year: 20.78%;
average annual total return, 5 years: 20.17%; average annual total return, 10
years: 18.33%; aggregate total return, 1 year: 20.78%; aggregate total return, 5
years: 150.58%; aggregate total return, 10 years: 693.69%.

U.S. Small Company Fund (11/30/98): Average annual total return, 1 year:
(10.49%); average annual total return, 5 years: 10.88%; average annual total
return, 10 years: 13.21%; aggregate total return, 1 year: (10.49%); aggregate
total return, 5 years: 67.61%; aggregate total return, 10 years: 245.84%.

PORTFOLIO TRANSACTIONS

In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of each Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolios in light of facts and circumstances deemed relevant from time to
time, and, in that connection, will receive reports from the Advisor and
published data concerning transaction costs incurred by institutional investors
generally. Research services provided by brokers to which the Advisor has
allocated brokerage business in the past include economic statistics and
forecasting services, industry and company analyses, portfolio strategy
services, quantitative data, and consulting services from economists and
political analysts. Research services furnished by brokers are used for the
benefit of all the Advisor's clients and not solely or necessarily for the
benefit of an individual Portfolio. The Advisor believes that the value of
research services received is not determinable and does not significantly reduce
its expenses. The Portfolios do not reduce their fee to the Advisor by any
amount that might be attributable to the value of such services.

The Portfolios corresponding to the Funds paid the following
approximate brokerage commissions for the indicated periods:

Disciplined Equity -- (For the period December 30, 1996 (commencement of
operations of the Disciplined Equity Portfolio) through May 31, 1997): $25,351.
For the fiscal year ended May 31, 1998: $175,629.

U.S. Equity -- For the fiscal year ended May 31, 1996: $1,375,696. For the
fiscal year ended May 31, 1997: $1,614,293. For the fiscal year ended May 31,
1998: $1,594,078.

U.S. Small Company -- For the fiscal year ended May 31, 1996: $1,554,459.
For the fiscal year ended May 31, 1997: $2,174,321. For the fiscal year ended
May 31, 1998: $1,662,968.

The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
a Portfolio or its predecessor.

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

MASSACHUSETTS TRUST

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

Effective May 12, 1997, the name of the U.S. Equity Fund was changed
from "The JPM Institutional Selected U.S. Equity Fund" to "The JPM Institutional
U.S. Equity Fund", and the Fund's corresponding Portfolio changed its name
accordingly. Effective January 1, 1998, the name of the Trust was changed from
"The JPM Institutional Funds to "J.P. Morgan Institutional Funds", and each
Fund's name changed accordingly.

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

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

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

DESCRIPTION OF SHARES

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

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

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

As of January 31, 1999, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:

Disciplined Equity Fund - Charles Schwab & Co. Inc. special custody account
for the benefit of customers (15.62%); MGT of Deferred Profit Sharing Plan
(32.64%).

U.S. Equity Fund - Morgan as Trustee for Degussa Defined Benefit Trust (13.30%);
Morgan as trustee for Major League Baseball Master Pension Trust (8.46%); JPMIM
as agent for Wachovia Bank of North Carolina T/U/A DTD 1/1/88 Newmont Gold Co.
Master Pension Trust (9.38%); LIN Television Corporation Retirement Plan
(8.33%); Harris Trust and Savings Bank as Trustee of the CTS Corporate Employee
Benefit Plans Master Trust (8.07%); Marietta College (5.32%).

U.S. Small Company Fund - MGT of Deferred Profit Sharing Plan (22.27%).

The address of each owner listed above is c/o JPMIM, 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 each Fund.

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

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

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

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

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

TAXES

Each Fund intends to continue to qualify as a regulated investment
company under Subchapter M of the Code. As a regulated investment company, a
Fund must, among other things, (a) derive at least 90% of its gross income from
dividends, interest, payments with respect to loans of stock and securities,
gains from the sale or other disposition of stock, securities or foreign
currency and other income (including but not limited to gains from options,
futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; and (b) diversify its
holdings so that, at the end of each quarter of its taxable year, (i) at least
50% of the value of the Fund's total assets is represented by cash, cash items,
U.S. Government securities, securities of other regulated investment companies,
and other securities limited, in respect of any one issuer, to an amount not
greater than 5% of the Fund's total assets, and 10% of the outstanding voting
securities of such issuer, and (ii) not more than 25% of the value of its total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).

As a regulated investment company, a Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gain that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gain in excess of net long-term capital loss for the taxable year is distributed
in accordance with the Code's timing requirements.

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

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

Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital loss
(other than exempt interest dividends) are generally taxable to shareholders of
the Funds as ordinary income whether such distributions are taken in cash or
reinvested in additional shares. The Funds expect that a portion of these
distributions to corporate shareholders will be eligible for the
dividends-received deduction, subject to applicable limitations under the Code.
If dividend payments exceed income earned by a Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Funds
intend to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.

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

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

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

ADDITIONAL INFORMATION

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

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

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

The Year 2000 Initiative

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, which are being
developed in the first half of 1999, will define the infrastructure that should
be put in place for managing a failure during the millennium event itself.

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

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

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

<PAGE>

FINANCIAL STATEMENTS

The following financial statements of the Funds and the report thereon
of PricewaterhouseCoopers LLP are incorporated herein by reference from their
respective semi-annual report filings made with the SEC pursuant to Section
30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following financial
reports are available without charge upon request by calling J.P. Morgan Funds
Services at (800) 766-7722. Each Fund's financial statements include the
financial statements of the Fund's corresponding Portfolio.

- ----------------------------------------- --------------------------------------- ------------------------------------------
Date of Annual Report; Date Annual Date of Semi-Annual Report; Date
Name of Fund Report Filed; and Accession Number Semi-Annual Report Filed; and Accession
Number
- ----------------------------------------- --------------------------------------- ------------------------------------------
- ----------------------------------------- --------------------------------------- ------------------------------------------
J.P. Morgan Institutional Disciplined 5/31/98; 7/31/98; 11/30/98; 02/10/99;
Equity Fund 0001047469-98-028837 0001047469-99-004410
- ----------------------------------------- --------------------------------------- ------------------------------------------
- ----------------------------------------- --------------------------------------- ------------------------------------------
J.P. Morgan Institutional U.S. Equity 5/31/98; 7/31/98; 11/30/98; 02/04/99;
Fund 0001047469-98-028917 0001047469-99-003379
- ----------------------------------------- --------------------------------------- ------------------------------------------
- ----------------------------------------- --------------------------------------- ------------------------------------------
J.P. Morgan Institutional U.S. Small 5/31/98; 7/29/98; 11/30/98; 02/04/99;
Company Fund 0001047469-98-028627 0001047469-99-003268
- ----------------------------------------- --------------------------------------- ------------------------------------------
</TABLE>

<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.

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

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

Commercial Paper, including Tax Exempt

A-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

Corporate and Municipal Bonds

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

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

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

Commercial Paper, including Tax Exempt

- 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.

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL INTERNATIONAL EQUITY FUND
J.P. MORGAN INSTITUTIONAL EMERGING MARKETS EQUITY FUND
J.P. MORGAN INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
J.P. MORGAN INSTITUTIONAL EUROPEAN EQUITY FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS RELATING
TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 1998 (FOR THE INTERNATIONAL EQUITY
AND EMERGING MARKETS EQUITY FUNDS) AND NOVEMBER 30, 1998 (FOR THE INTERNATIONAL
OPPORTUNITIES AND EUROPEAN EQUITY FUNDS). THE PROSPECTUS AND THESE FINANCIAL
STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT ON THE ANNUAL
FINANCIAL STATEMENTS, ARE AVAILABLE, WITHOUT CHARGE UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN FUNDS (800)221-7930.

<PAGE>

781751v2

TABLE OF CONTENTS

Page

General.....................................................................1
Investment Objective and Policies...........................................1
Investment Restrictions.....................................................18
Trustees....................................................................20
Officers....................................................................22
Investment Advisor..........................................................24
Distributor.................................................................27
Co-Administrator............................................................27
Services Agent..............................................................29
Custodian and Transfer Agent................................................30
Shareholder Servicing.......................................................30
Financial Professionals.....................................................31
Independent Accountants.....................................................32
Expenses....................................................................32
Purchase of Shares..........................................................33
Redemption of Shares........................................................34
Exchange of Shares..........................................................35
Dividends and Distributions.................................................35
Net Asset Value.............................................................35
Performance Data............................................................36
Portfolio Transactions......................................................38
Massachusetts Trust.........................................................40
Description of Shares.......................................................41
Special Information Concerning Investment Structure.........................43
Taxes.......................................................................44
Additional Information......................................................48
Financial Statements........................................................50
Appendix A - Description of Security Ratings................................A-1

<PAGE>

GENERAL

This Statement of Additional Information relates only to the J.P. Morgan
Institutional International Equity Fund, the J.P. Morgan Institutional Emerging
Markets Equity Fund, the J.P. Morgan Institutional International Opportunities
Fund and the J.P. Morgan Institutional European Equity Fund (collectively, the
"Funds"). Each of the Funds is a separate 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 Funds, the Trust consists of other series representing separate
investment funds (each, a "J.P. Morgan Institutional Fund"). The other J.P.
Morgan Institutional Funds are covered by separate Statements of Additional
Information.

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

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

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

INVESTMENT OBJECTIVE AND POLICIES

The J.P. Morgan Institutional International Equity Fund (the
"International Equity Fund") is designed for investors with a long term
investment horizon who want to diversify their portfolios by investing in an
actively managed portfolio of non-U.S. securities that seeks to outperform the
Morgan Stanley Capital International ("MSCI") Europe, Australasia and Far East
Index (the "EAFE Index"). The Fund's investment objective is to provide high
total return from a portfolio of equity securities of foreign corporations. The
Fund attempts to achieve its investment objective by investing all of its
investable assets in The International Equity Portfolio (the "International
Equity Portfolio"), a diversified open-end management investment company having
the same investment objective as the International Equity Fund.
The International Equity Portfolio seeks to achieve its investment
objective by investing primarily in the equity securities of foreign
corporations. Equity securities consist of common stocks and other securities
with equity characteristics such as preferred stocks, depository receipts,
warrants, rights, convertible securities, trust or limited partnership interests
and equity participations (collectively, "Equity Securities"). Under normal
circumstances, the International Equity Portfolio expects to invest at least 65%
of its total assets in such securities. The Portfolio does not intend to invest
in U.S. securities (other than money market instruments), except temporarily,
when extraordinary circumstances prevailing at the same time in a significant
number of developed foreign countries render investments in such countries
inadvisable.

Investment Process for the International Equity Portfolio

Country allocation: JPMIM's country allocation decision begins with a
forecast of equity risk premiums, which provide a valuation signal by measuring
the relative attractiveness of stocks. Using a proprietary approach, JPMIM
calculates this risk premium for each of the nations in the International Equity
Portfolio's universe, determines the extent of its deviation -- if any -- from
its historical norm, and then ranks countries according to the size of those
deviations. Countries with high (low) rankings are overweighted (underweighted)
in comparisons to the EAFE Index to reflect the above-average (below-average)
attractiveness of their stock markets. In determining weightings, JPMIM analyzes
a variety of qualitative factors as well, including the liquidity, earnings
momentum and interest rate climate of the market at hand. These qualitative
assessments can change the magnitude but not the direction of the country
allocations called for by the risk premium forecast. JPMIM places limits on the
total size of the International Equity Portfolio's country over- and
under-weightings relative to the EAFE Index.

Stock selection: JPMIM's more than 90 international equity analysts,
each an industry and country specialist with an average of nearly ten years of
experience, forecast normalized earnings and dividend payouts for roughly 1,200
non-U.S. companies -- taking a long-term perspective rather than the short time
frame common to consensus estimates. These forecasts are converted into
comparable expected returns by a dividend discount model, and then companies are
ranked from most to least attractive by industry and country. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate the purchases in the stocks deemed most
undervalued, and to keep sector weightings close to those of the EAFE Index, the
International Equity Portfolio's benchmark. Once a stock falls into the bottom
half of the rankings, it generally becomes a candidate for sale. Where
available, warrants and convertibles may be purchased instead of common stock if
they are deemed a more attractive means of investing in an undervalued company.

Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
the International Equity Portfolio's return. JPMIM's currency decisions are
supported by a proprietary tactical model which forecasts currency movements
based on an analysis of four fundamental factors -- trade balance trends,
purchasing power parity, real short-term interest differentials and real bond
yields -- plus a technical factor designed to improve the timing of
transactions. Combining the output of this model with a subjective assessment of
economic, political and market factors, JPMIM's currency specialists recommend
currency strategies that are implemented in conjunction with the International
Equity Portfolio's investment strategy.

J.P. Morgan Institutional Emerging Markets Equity Fund (the "Emerging
Markets Equity Fund") is designed for investors with a long term investment
horizon who want exposure to the rapidly growing emerging markets. The Emerging
Markets Equity Fund's investment objective is to achieve a high total return
from a portfolio of equity securities of companies in emerging markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The Emerging Markets Equity Portfolio (the "Emerging Markets Equity
Portfolio"), a diversified open-end management investment company having the
same investment objective as the Emerging Markets Equity Fund.

The Emerging Markets Equity Portfolio seeks to achieve its investment
objective by investing primarily in Equity Securities of emerging markets
issuers. Under normal circumstances, the Emerging Markets Equity Portfolio
expects to invest at least 65% of its total assets in such securities and it may
also invest up to 20% in debt securities of emerging markets issuers. The
Emerging Markets Equity Portfolio does not intend to invest in U.S. securities
(other than money market instruments), except temporarily, when extraordinary
circumstances prevailing at the same time in a significant number of emerging
markets countries render investments in such countries inadvisable.

Investment Process for the Emerging Markets Equity Portfolio

Country allocation: JPMIM's country allocation decision begins with a
forecast of the expected return of each market in the Emerging Markets Equity
Portfolio's universe. These expected returns are calculated using a proprietary
valuation method that is forward looking in nature rather than based on
historical data. JPMIM then evaluates these expected returns from two different
perspectives: first, it identifies those countries that have high real expected
returns relative to their own history and other nations in their universe.
Second, it identifies those countries that it expects will provide high returns
relative to their currency risk. Countries that rank highly on one or both of
these scores are overweighted relative to the Emerging Markets Equity
Portfolio's benchmark, the MSCI Emerging Markets Free Index, while those that
rank poorly are underweighted.

Stock selection: JPMIM's 25 emerging markets equity analysts, each an
industry specialist, monitor a universe of approximately 325 companies in these
countries, developing forecasts of earnings and cash flows for the most
attractive among them. Companies are ranked from most to least attractive based
on this research, and then a diversified portfolio is constructed using
disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the Emerging Markets Equity Portfolio's holdings in the stocks
deemed most undervalued, and to keep sector weightings relatively close to those
of the index. Stocks are generally held until they fall into the bottom half of
JPMIM's rankings.

J.P. Morgan Institutional International Opportunities Fund (the
"International Opportunities Fund") is designed for long-term investors who want
to invest in an actively managed portfolio of common stocks and other equity
securities of non-U.S. companies, including companies located in emerging
markets. The International Opportunities Fund's investment objective is to
provide high total return from a portfolio of equity securities of foreign
companies in developed and, to a lesser extent, developing markets. The Fund
attempts to achieve its investment objective by investing all of its investable
assets in The International Opportunities Portfolio (the "International
Opportunities Portfolio"), a diversified open-end management investment company
having the same investment objective as the International Opportunities Fund.

The International Opportunities Portfolio seeks to achieve its
investment objective by investing primarily in Equity Securities of non-U.S.
issuers in developed and developing countries. Under normal circumstances, the
International Opportunities Portfolio expects to invest at least 65% of its
total assets in such securities. The International Opportunities Portfolio does
not intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of foreign countries render investments in such
countries inadvisable.

Investment Process for the International Opportunities Portfolio

Stock selection: JPMIM's approximately 90 international equity analysts
and 23 emerging markets equity analysts, each an industry and country
specialist, forecast normalized earnings, dividend payouts and cash flows for
roughly 1,200 non-U.S. companies, taking a long-term perspective rather than the
short time frame common to consensus estimates. These forecasts are converted
into comparable expected returns by a dividend discount model, and then
companies are ranked from most to least attractive by industry. A diversified
portfolio is constructed using disciplined buy and sell rules. The portfolio
manager's objective is to concentrate the International Opportunities
Portfolio's purchases in the stocks deemed most undervalued. Stocks generally
become a candidate for sale when they fall into the bottom half of JPMIM's
rankings. Where available, warrants and convertibles may be purchased instead of
common stock if they are deemed a more attractive means of investing in an
undervalued company.

Currency management: JPMIM actively manages the currency exposure of
the International Opportunities Portfolio's investments in developed countries,
in conjunction with country and stock allocation, with the goal of protecting
and possibly enhancing the International Opportunities Portfolio's return.
JPMIM's currency decisions are supported by a proprietary tactical model which
forecasts currency movements based on an analysis of four fundamental factors --
trade balance trends, purchasing power parity, real short-term interest
differentials and real bond yields -- plus a technical factor designed to
improve the timing of transactions. Combining the output of this model with a
subjective assessment of economic, political and market factors, JPMIM's
currency specialists recommend currency strategies that are implemented in
conjunction with the International Opportunities Portfolio's investment
strategy.

Country allocation (developed countries): The International
Opportunities Portfolio's country weightings primarily result from its stock
selection decisions and may vary significantly from the MSCI All Country World
Index Free (ex-U.S.), the International Opportunities Portfolio's benchmark.

J.P. Morgan Institutional European Equity Fund (the "European Equity
Fund") is designed for investors who want an actively managed portfolio of
European Equity Securities that seeks to outperform the MSCI Europe Index which
is comprised of more than 600 companies in 14 European countries. The European
Equity Fund's investment objective is to provide high total return from a
portfolio of European company stocks. The European Equity Fund attempts to
achieve its investment objective by investing all of its investable assets in
The European Equity Portfolio (the "European Equity Portfolio"), a diversified
open-end management investment company having the same investment objective as
the European Equity Fund.

The European Equity Portfolio seeks to achieve its investment objective
by investing primarily in the Equity Securities of European companies. Under
normal circumstances, the European Equity Portfolio expects to invest at least
65% of its total assets in Equity Securities. The European Equity Portfolio does
not intend to invest in U.S. securities (other than money market instruments),
except temporarily, when extraordinary circumstances prevailing at the same time
in a significant number of European countries render investments in such
countries inadvisable.

Investment Process for the European Equity Portfolio

Stock selection: Various models are used to quantify JPMIM's
fundamental stock research, producing a ranking of companies in each industry
group according to their relative value. The European Equity Portfolio's
management team then buys and sells stocks, using the research and valuation
rankings as well as its assessment of other factors including: catalysts that
could trigger a change in a stock's price, potential reward compared to
potential risk and temporary mispricings caused by market overreactions.

Country allocation: The European Equity Portfolio's country weightings
primarily result from its stock selection decisions and may vary significantly
from the MSCI Europe Index, the European Equity Portfolio's benchmark. In
addition, JPMIM makes active allocations to certain countries. For example,
currently country weightings in continental Europe result from individual stock
selection decisions. With regards to the United Kingdom, the Advisor makes an
active country allocation decision. The Advisor, based on changing market
conditions and experienced judgment, may from time to time adjust the extent to
which country weighting is based on stock selection and active country
allocation.

Equity Investments

The Portfolios invest primarily in Equity Securities. The Equity
Securities in which the Portfolios invest include those listed on any domestic
or foreign securities exchange or traded in the over-the-counter (OTC) market as
well as certain restricted or unlisted securities.

Equity Securities. The Equity Securities in which the Portfolios may invest
may or may not pay dividends and may or may not carry voting rights. Common
stock occupies the most junior position in a company's capital structure.

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

Common Stock Warrants

The Portfolios may invest in common stock warrants that entitle the
holder to buy common stock from the issuer of the warrant at a specific price
(the strike price) for a specific period of time. The market price of warrants
may be substantially lower than the current market price of the underlying
common stock, yet warrants are subject to similar price fluctuations. As a
result, warrants may be more volatile investments than the underlying common
stock.
Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless if
it is not exercised on or prior to the expiration date.

Foreign Investments

The Portfolios make substantial investments in foreign countries.
Investors should realize that the value of the Portfolios' investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Portfolios' operations. Furthermore, the economies of individual foreign
nations may differ from the U.S. economy, whether favorably or unfavorably, in
areas such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Portfolios must be made in
compliance with U.S. and foreign currency restrictions and tax laws restricting
the amounts and types of foreign investments.

Generally, investment in securities of foreign issuers involves
somewhat different investment risks from those affecting securities of U.S.
domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Dividends and interest paid by
foreign issuers may be subject to withholding and other foreign taxes which may
decrease the net return on foreign investments as compared to dividends and
interest paid to a Portfolio by domestic companies.

In addition, while the volume of transactions effected on foreign stock
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, a Portfolio's foreign
investments may be less liquid and their prices may be more volatile than
comparable investments in securities of U.S. companies. Moreover, the settlement
periods for foreign securities, which are often longer than those for securities
of U.S. issuers, may affect portfolio liquidity. In buying and selling
securities on foreign exchanges, purchasers normally pay fixed commissions that
are generally higher than the negotiated commissions charged in the United
States. In addition, there is generally less government supervision and
regulation of securities exchanges, brokers and issuers located in foreign
countries than in the United States.

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

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

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

Foreign Currency Exchange Transactions. Because the Portfolios buy and
sell securities and receive interest and dividends in currencies other than the
U.S. dollar, the Portfolios may enter from time to time into foreign currency
exchange transactions. The Portfolios either enter into these transactions on a
spot (i.e., cash) basis at the spot rate prevailing in the foreign currency
exchange market, or use forward contracts to purchase or sell foreign
currencies. The cost of a Portfolio's spot currency exchange transactions is
generally the difference between the bid and offer spot rate of the currency
being purchased or sold.

A forward foreign currency exchange contract is an obligation by a
Portfolio to purchase or sell a specific currency at a future date, which may be
any fixed number of days from the date of the contract. Forward foreign currency
exchange contracts establish an exchange rate at a future date. These contracts
are derivative instruments, as their value derives from the spot exchange rates
of the currencies underlying the contracts. These contracts are entered into in
the interbank market directly between currency traders (usually large commercial
banks) and their customers. A forward foreign currency exchange contract
generally has no deposit requirement, and is traded at a net price without
commission. Neither spot transactions nor forward foreign currency exchange
contracts eliminate fluctuations in the prices of the Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.

The Portfolios may enter into forward foreign currency exchange
contracts in connection with settlements of securities transactions and other
anticipated payments or receipts. In addition, from time to time, the Advisor
may reduce a Portfolio's foreign currency exposure by entering into forward
foreign currency exchange contracts to sell a foreign currency in exchange for
the U.S. dollar. The Portfolios may also enter into forward foreign currency
exchange contracts to adjust their currency exposure relative to their
benchmarks. Forward foreign currency exchange contracts may involve the purchase
or sale of a foreign currency in exchange for U.S.
dollars or may involve two foreign currencies.

Sovereign and Corporate Debt Obligations. The Emerging Markets Equity
Fund may invest in sovereign debt obligations. Investment in sovereign debt
obligations involves special risks not present in corporate debt obligations.
The issuer of the sovereign debt or the governmental authorities that control
the repayment of the debt may be unable or unwilling to repay principal or
interest when due, and the Fund may have limited recourse in the event of a
default. During periods of economic uncertainty, the market prices of sovereign
debt, and the Fund's net asset value, may be more volatile than prices of U.S.
debt obligations. In the past, certain emerging markets have encountered
difficulties in servicing their debt obligations, withheld payments of principal
and interest and declared moratoria on the payment of principal and interest on
their sovereign debts.

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

Corporate debt obligations, including obligations of industrial,
utility, banking and other financial issuers, are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.

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

Obligations of Supranational Entities. The Emerging Markets Equity Fund
may invest in obligations of supranational entities designated or supported by
governmental entities to promote economic reconstruction or development and of
international banking institutions and related government agencies. Examples
include the International Bank for Reconstruction and Development (the "World
Bank"), the European Coal and Steel Community, the Asian Development Bank and
the Inter-American Development Bank. Each supranational entity's lending
activities are limited to a percentage of its total capital (including "callable
capital" contributed by its governmental members at the entity's call), reserves
and net income. There is no assurance that participating governments will be
able or willing to honor their commitments to make capital contributions to a
supranational entity.

Investment in Lower Rated Obligations

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

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

Money Market Instruments

Although the Portfolios intend under normal circumstances and to the
extent practicable, to be fully invested in Equity Securities, each Portfolio
may invest in money market instruments to the extent consistent with its
investment objective and policies. The Portfolios may make money market
investments pending other investment or settlement, for liquidity or in adverse
market conditions. A description of the various types of money market
instruments that may be purchased by the Portfolios appears below. Also see
"Quality and Diversification Requirements."

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

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

Foreign Government Obligations. Each of the Portfolios, subject to its
applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. These securities may be denominated in
the U.S. dollar or in another currency. See "Foreign Investments."

Bank Obligations. Each of the Portfolios may invest in negotiable
certificates of deposit, time deposits and bankers' acceptances of (i) banks,
savings and loan associations and savings banks which have more than $2 billion
in total assets and are organized under the laws of the United States or any
state, (ii) foreign branches of these banks or of foreign banks of equivalent
size (Euros) and (iii) U.S. branches of foreign banks of equivalent size
(Yankees). The Portfolios will not invest in obligations for which the Advisor,
or any of its affiliated persons, is the ultimate obligor or accepting bank.
Each of the Portfolios may also invest in international banking institutions
designated or supported by national governments to promote economic
reconstruction, development or trade between nations (e.g., the European
Investment Bank, the Inter-American Development Bank, or the World Bank).

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

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

Each of the Portfolios may make investments in other debt securities
with remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described in this Statement of Additional Information.

Corporate Bonds and Other Debt Securities. Each of the Portfolios may
invest in bonds and other debt securities of domestic and foreign issuers to the
extent consistent with its investment objective and policies. A description of
these investments appears below. See "Quality and Diversification Requirements."
For information on short-term investments in these securities, see "Money Market
Instruments."

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

Additional Investments

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

Investment Company Securities. Securities of other investment companies
may be acquired by each of the Funds and their corresponding Portfolio to the
extent permitted under the 1940 Act or any order pursuant thereto. These limits
currently require that, as determined immediately after a purchase is made,
(i)not more than 5% of the value of a Fund's total assets will be invested in
the securities of any one investment company, (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group, and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by a Fund; provided,
however, that a Fund may invest all of its investable assets in an open-end
investment company that has the same investment objective as the Fund (its
corresponding Portfolio). As a shareholder of another investment company, a Fund
or Portfolio would bear, along with other shareholders, its pro rata portion of
the other investment company's expenses, including advisory fees. These expenses
would be in addition to the advisory and other expenses that a Fund or Portfolio
bears directly in connection with its own operations.

Loans of Portfolio Securities. Each of the Portfolios may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Portfolio at least equal at
all times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Portfolio
any income accruing thereon. Loans will be subject to termination by the
Portfolio in the normal settlement time, generally three business days after
notice, or by the borrower on one day's notice. Borrowed securities must be
returned when the loan is terminated. Any gain or loss in the market price of
the borrowed securities which occurs during the term of the loan inures to a
Portfolio and its respective investors. The Portfolios may pay reasonable
finders' and custodial fees in connection with a loan. In addition, a Portfolio
will consider all facts and circumstances before entering into such an
agreement, including the creditworthiness of the borrowing financial
institution, and no Portfolio will make any loans in excess of one year. The
Portfolios will not lend their securities to any officer, Trustee, Director,
employee or other affiliate of the Portfolios, the Advisor or the Distributor,
unless otherwise permitted by applicable law.

Privately Placed and Certain Unregistered Securities. A Portfolio may
not acquire any illiquid securities if, as a result thereof, more than 15% of
the Portfolio's net assets would be in illiquid investments. Subject to this
non-fundamental policy limitation, the Portfolios may acquire investments that
are illiquid or have limited liquidity, such as private placements or
investments that are not registered under the 1933 Act and cannot be offered for
public sale in the United States without first being registered under the 1933
Act. An illiquid investment is any investment that cannot be disposed of within
seven days in the normal course of business at approximately the amount at which
it is valued by a Portfolio. The price a Portfolio pays for illiquid securities
or receives upon resale may be lower than the price paid or received for similar
securities with a more liquid market. Accordingly the valuation of these
securities will reflect any limitations on their liquidity.
The Portfolios may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.

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

Quality and Diversification Requirements

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

The Portfolios will also comply with the diversification requirements
imposed by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. See "Taxes."

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

Options and Futures Transactions

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

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

Futures Contracts and Options on Futures Contracts. The Portfolios may
purchase or sell (write) futures contracts and may purchase and sell (write) put
and call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a future
date of a specified quantity of a financial instrument or an amount of cash
based on the value of a securities index. Currently, futures contracts are
available on various types of fixed income securities, including but not limited
to U.S. Treasury bonds, notes and bills, Eurodollar certificates of deposit and
on indexes of fixed income securities and indexes of equity securities.

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

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

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

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

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

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

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

Swaps and Related Swap Products

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

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

The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event a Portfolio is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by a Portfolio, payments by the
parties will be exchanged on a "net basis", and a Portfolio will receive or pay,
as the case may be, only the net amount of the two payments.

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

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

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

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

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

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

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

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

Risk Management

The Portfolios may employ non-hedging risk management techniques.
Examples of risk management strategies include synthetically altering a
portfolio's exposure to the equity markets of particular countries by purchasing
futures contracts on the stock indices of those countries to increase exposure
to their equity markets. Such non-hedging risk management techniques are not
speculative, but because they involve leverage include, as do all leveraged
transactions, the possibility of losses as well as gains that are greater than
if these techniques involved the purchase and sale of the securities themselves
rather than their synthetic derivatives.

Portfolio Turnover

The International Equity Portfolio (International Equity Fund) For the
fiscal year ended October 31, 1997: 67%. For the fiscal year ended October 31,
1998: For the fiscal year ended October 31, 1998: 74%

The Emerging Markets Equity Portfolio (Emerging Markets Equity Fund) For
the fiscal year ended October 31, 1996: 31%. For the fiscal year ended October
31, 1997: 55%. For the fiscal year ended October 31, 1998: 44%

The International Opportunities Portfolio (International Equity Fund) For
the period February 26, 1997 (commencement of operations) through November 30,
1997: 72%. For the fiscal year ended November 30, 1998: 143%.

The European Equity Portfolio (European Equity Fund) For the fiscal year
ended December 31, 1996: 57%. For the fiscal year ended December 31, 1997: 65%.
For the period January 1, 1998 through November 30, 1998: 99%

INVESTMENT RESTRICTIONS

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

Each Fund and its corresponding Portfolio:

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

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

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

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

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

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

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

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

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

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

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

TRUSTEES

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. ("Pierpont Group") since prior to 1993. His address is Pine
Tree Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida
33436, and his date of birth is August 23, 1937.

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 each of the
Portfolios. A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, each
of the Portfolios and the J.P. Morgan Funds up to and including creating a
separate board of trustees.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

Matthew Healey, Trustee(***), $20,055 $75,000
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

Michael P. Mallardi, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>
* Includes the Portfolios and 15 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment advisor.

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

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

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

International Equity Fund -- For the fiscal year ended October 31, 1996:
$29,774. For the fiscal year ended October 31, 1997: $25,727. For the fiscal
year ended October 31, 1998: $14,956.

International Equity Portfolio -- For the fiscal year ended October 31,
1996: $39,391. For the fiscal year ended October 31, 1997: $32,439. For the
fiscal year ended October 31, 1998: $18,453.

Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1996:
$11,374. For the fiscal year ended October 31, 1997: $13,144. For the fiscal
year ended October 31, 1998: $6,699.

Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1996: $36,851. For the fiscal year ended October 31, 1997: $34,045. For the
fiscal year ended October 31, 1998: $11,566.

International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $3,978. For the fiscal
year ended November 30, 1998: $11,047.

International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $5,110. For the fiscal
year ended November 30, 1998: $13,264.

European Equity Fund -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $153. For the fiscal year ended December
31, 1997: $339. For the period January 1, 1998 through November 30, 1998: $395.

European Equity Portfolio -- For the fiscal year ended December 31, 1996:
$25,144. For the fiscal year ended December 31, 1997: $21,837. For the period
January 1, 1998 through November 30, 1998: $738.

OFFICERS

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

MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
Inc., since prior to 1993. His address is Pine Tree Country Club Estates, 10286
Saint Andrews Road, Boynton Beach, Florida 33436. His date of birth is August
23, 1937.

INVESTMENT ADVISOR

The Funds have not retained the services of an investment advisor
because each Fund seeks to achieve its investment objective by investing all of
its investable assets in a corresponding Portfolio. Subject to the supervision
of the Portfolios' Trustees, the Advisor makes each Portfolio's day-to-day
investment decisions, arranges for the execution of portfolio transactions and
generally manages the Portfolio's investments. Prior to October 1, 1998, Morgan
was each Portfolio's investment advisor. JPMIM, a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"), is a registered investment
adviser under the Investment Advisers Act of 1940, as amended, manages employee
benefit funds of corporations, labor unions and state and local governments and
the accounts of other institutional investors, including investment companies.
Certain of the assets of employee benefit accounts under its management are
invested in commingled pension trust funds for which Morgan serves as trustee.

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

Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolios in which the Funds
invest are currently: The International Equity Portfolio -- EAFE; The Emerging
Markets Equity Portfolio -- MSCI Emerging Markets Free Index; The International
Opportunities Portfolio -- MSCI All Country World Index Free (ex-U.S.); The
European Equity Portfolio - MSCI Europe Index.

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

International Equity: 0.60%

Emerging Markets Equity: 1.00%

International Opportunities: 0.60%

European Equity: 0.65%

The table below sets forth for each Fund listed the advisory fees paid
by its corresponding Portfolio to Morgan and JPMIM, as applicable, for the
fiscal period indicated. See the Funds' financial statements which are
incorporated herein by reference.

International Equity Portfolio -- For the fiscal year ended October 31,
1996: $5,007,993. For the fiscal year ended October 31, 1997: $5,305,885. For
the fiscal year ended October 31, 1998: $3,581,301.

Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1996 : $7,825,873. For the fiscal year ended October 31, 1997: $9,422,758. For
the fiscal year ended October 31, 1998: $3,584,676.

International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $904,113. For the fiscal
year ended November 30, 1998: $2,687,804.

European Equity Portfolio -- For the fiscal year ended December 31, 1996:
$3,735,998. For the fiscal year ended December 31, 1997: $3,879,040. For the
period January 1, 1998 through November 30, 1998: $166,971.

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 Portfolios contemplated by the Advisory Agreements 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
Portfolios.

DISTRIBUTOR

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

CO-ADMINISTRATOR

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

The table below sets forth for each Fund and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.

International Equity Fund -- For the period August 1, 1996 through October
31, 1996: $6,625. For the fiscal year ended October 31, 1997: $22,259. For the
fiscal year ended October 31, 1998: $11,056.

International Equity Portfolio -- For the period August 1, 1996 through
October 31, 1996: $6,212. For the fiscal year ended October 31, 1997: $21,379.
For the fiscal year ended October 31, 1998: $11,630.

Emerging Markets Equity Fund -- For the period August 1, 1996 through
October 31, 1996 : $2,593. For the fiscal year ended October 31, 1997: $11,473.
For the fiscal year ended October 31, 1998: $4,833.

Emerging Markets Equity Portfolio -- For the period August 1, 1996 through
October 31, 1996: $5,719. For the fiscal year ended October 31, 1997: $22,642.
For the fiscal year ended October 31, 1998: $7,255.

International Opportunities Fund -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $3,398. For the fiscal year
ended November 30, 1998: $8,082.

International Opportunities Portfolio -- For the period from February 26,
1997 (commencement of operations) to November 30, 1997: $3,446. For the fiscal
year ended November 30, 1998: $8,417.

European Equity Fund -- For the period August 1, 1996 through December 31,
1996: $90. For the fiscal year ended December 31, 1997: $293. For the period
January 1, 1998 through November 30, 1998: $287.

European Equity Portfolio -- For the period August 1, 1996 through December
31, 1996: $7,060. For the fiscal year ended December 31, 1997: $14,117. For the
period January 1, 1998 through November 30, 1998: $468.

International Equity Fund -- For the period November 1, 1995 through July 31,
1996: $68,651. International Equity Portfolio -- For the period November 1, 1995
through July 31, 1996: $70,197.

Emerging Markets Equity Fund -- For the period November 1, 1995 through July 31,
1996: $27,031.

Emerging Markets Equity Portfolio -- For the period November 1, 1995 through
July 31, 1996: $66,251.

European Equity Fund -- For the period February 29, 1996 (commencement of
operations) through July 31, 1996: $191.

European Equity Portfolio -- For the period January 1, 1996 through July
31, 1996: $38,675.

SERVICES AGENT

The Trust, on behalf of each Fund, and each Fund's corresponding
Portfolio have entered into Administrative Services Agreements (the "Services
Agreements") with Morgan effective December 29, 1995, as amended August 1, 1996,
pursuant to which Morgan is responsible for certain administrative and related
services provided to each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.

Under administrative services agreements in effect from December 29,
1995 through July 31, 1996, with Morgan, each Fund and its corresponding
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' average daily net assets in excess
of $7 billion. Prior to December 29, 1995, the Trust and each Portfolio had
entered into Financial and Fund Accounting Services Agreements with Morgan, the
provisions of which included certain of the activities described above.

The table below sets forth for each Fund and its corresponding
Portfolio the fees paid to Morgan, as Services Agent.

International Equity Fund For the fiscal year ended October 31, 1996:
$150,350. For the fiscal year ended October 31, 1997: $217,946. For the fiscal
year ended October 31, 1998: $142,358.

International Equity Portfolio -- For the fiscal year ended October 31,
1996: $196,299. For the fiscal year ended October 31, 1997: $274,750. For the
fiscal year ended October 31, 1998: $174,789.

Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1996:
$57,566. For the fiscal year ended October 31, 1997: $113,255. For the fiscal
year ended October 31, 1998: $61,627.

Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1996: $183,498. For the fiscal year ended October 31, 1997: $292,269. For the
fiscal year ended October 31, 1998: $106,124.

International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $35,840. For the fiscal
year ended November 30, 1998: $108,365.

International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $46,055. For the fiscal
year ended November 30, 1998: $129,873.

European Equity Fund - For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $1,161. For the fiscal year ended
December 31, 1997: $3,022. For the period January 1, 1998 through November 30,
1998: $3,948.

European Equity Portfolio -- For the fiscal year ended December 31, 1996:
$161,993. For the fiscal year ended December 31, 1997: $184,239. For the period
January 1, 1998 through November 30, 1998: $7,380.

CUSTODIAN AND TRANSFER AGENT

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each of the
Portfolio's custodian and fund accounting agent and each Fund 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 Fund with
Bankers Trust Company for the purpose of holding TENR Notes and with The Bank of
New York and Chemical Bank, N.A. for the purpose of holding certain variable
rate demand notes. In the case of foreign assets held outside the United States,
the Custodian employs various subcustodians who were approved by the Trustees of
the Portfolios in accordance with the regulations of the SEC. 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 each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a financial professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; and providing other related services.

Under the Shareholder Servicing Agreement, each Fund has agreed to pay
Morgan for these services a fee at the following annual rate of 0.10% (expressed
as a percentage of the average daily net asset values of Fund shares owned by or
for shareholders for whom Morgan is acting as shareholder servicing agent).
Morgan acts as shareholder servicing agent for all shareholders.

The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated.

International Equity Fund -- For the fiscal year ended October 31, 1996:
$596,245. For the fiscal year ended October 31, 1997: $701,585. For the fiscal
year ended October 31, 1998: $486,276.

Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1996:
$229,764. For the fiscal year ended October 31, 1997: $365,202. For the fiscal
year ended October 31, 1998: $209,870.

International Opportunities Fund -- For the period from February 26, 1997
(commencement of operations) to November 30, 1997: $117,243. For the fiscal year
ended November 30, 1998: $373,884.

European Equity Fund -- For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $4,000. For the fiscal year ended
December 31, 1997: $9,835. For the period January 1, 1998 through November 30,
1998: $13,726.

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 Funds and the Portfolios under the
Services Agreements, and the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements may raise issues under these
laws. However, JPMIM and Morgan believe that they may properly perform these
services and the other activities described herein without violation of the
Glass-Steagall Act or other applicable banking laws or regulations.

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

FINANCIAL PROFESSIONALS

Each Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on a Fund's behalf. A
Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.

INDEPENDENT ACCOUNTANTS

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

EXPENSES

In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Officers,"
"Investment Advisor," "Co-Administrator", "Distributor," "Services Agent" and
"Shareholder Servicing" above, the Funds and the Portfolios are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees,
registration fees under federal securities laws, and extraordinary expenses
applicable to the Funds or the Portfolios. For the Funds, such expenses also
include transfer, registrar and dividend disbursing costs, the expenses of
printing and mailing reports, notices and proxy statements to Fund shareholders,
and filing fees under state securities laws. For the Portfolios, such expenses
also include applicable registration fees under foreign securities laws,
custodian fees and brokerage expenses. Under fee arrangements prior to September
1, 1995, Morgan as Services Agent was responsible for reimbursements to the
Trust and the Portfolio and the usual customary expenses described above
(excluding organization and extraordinary expenses, custodian fees and brokerage
expenses).

European Equity Fund: 1.00%
International Opportunities Fund: 1.00%
Emerging Markets Equity Fund: 1.45%

These limits do not cover extraordinary expenses. These
reimbursement/waiver arrangements can be changed at any time at the option of
J.P. Morgan.

International Equity Fund For the fiscal year ended October 31, 1996:
$36,089. For the fiscal year ended October 31, 1997: N/A. For the fiscal year
ended October 31, 1998: N/A.

International Equity Portfolio -- For the fiscal year ended October 31,
1996: N/A. For the fiscal year ended October 31, 1997: N/A. For the fiscal year
ended October 31, 1998: N/A.

Emerging Markets Equity Fund -- For the fiscal year ended October 31, 1996:
N/A. For the fiscal year ended October 31, 1997: N/A. For the fiscal year ended
October 31, 1998: $75,781.

Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1996: N/A. For the fiscal year ended October 31, 1997: N/A. For the fiscal year
ended October 31, 1998: N/A.

International Opportunities Fund -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $185,072. For the fiscal
year ended November 30, 1998: $108,908.

International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $42,119. For the fiscal
year ended November 30, 1998: $2,053.

European Equity Fund - For the period February 29, 1996 (commencement of
operations) through December 31, 1996: $73,879. For the fiscal year ended
December 31, 1997: $68,752. For the period January 1, 1998 through November 30,
1998: $64,863.

European Equity Portfolio -- For the fiscal year ended December 31, 1996:
N/A. For the fiscal year ended December 31, 1997: $58,185. For the period
January 1, 1998 through November 30, 1998: $62,269.

PURCHASE OF SHARES

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

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

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

REDEMPTION OF SHARES

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

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

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

EXCHANGE OF SHARES

An investor may exchange shares from any Fund into shares of any other
J.P. Morgan Institutional Fund or J.P. Morgan 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. In the case of
investors in certain states, state securities laws may restrict the availability
of the exchange privilege. The Trust reserves the right to discontinue, alter or
limit the exchange privilege at any time.

DIVIDENDS AND DISTRIBUTIONS

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

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

NET ASSET VALUE

Each of the Funds computes its net asset value once daily on Monday
through Friday at the time in the Prospectus. The net asset value will not be
computed on the day the following legal holidays are observed: New Year's Day,
Martin Luther King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. The Funds and
the Portfolios may also close for purchases and redemptions at such other times
as may be determined by the Board of Trustees to the extent permitted by
applicable law. The days on which net asset value is determined are the Funds'
business days.

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

The value of investments listed on a domestic securities exchange, is
based on the last sale prices on such exchange. In the absence of recorded
sales, investments are valued at the average of readily available closing bid
and asked prices on such exchange. Securities listed on a foreign exchange are
valued at the last quoted sale prices on such exchange. Unlisted securities are
valued at the average of the quoted bid and asked prices in the OTC market. The
value of each security for which readily available market quotations exist is
based on a decision as to the broadest and most representative market for such
security. For purposes of calculating net asset value, all assets and
liabilities initially expressed in foreign currencies will be converted into
U.S.
dollars at the prevailing currency exchange rate on the valuation date.

Trading in securities on most foreign exchanges and OTC markets is
normally completed before the close of trading of the New York Stock Exchange
(normally 4:00 p.m.) and may also take place on days on which the New York Stock
Exchange is closed. If events materially affecting the value of securities occur
between the time when the exchange on which they are traded closes and the time
when a Portfolio's net asset value is calculated, such securities will be valued
at fair value in accordance with procedures established by and under the general
supervision of the Trustees.

PERFORMANCE DATA

From time to time, the Funds may quote performance in terms of actual
distributions, average annual and aggregate annual total returns or capital
appreciation in reports, sales literature and advertisements published by the
Trust. Shareholders may obtain current performance information by calling the
number provided on the cover page of this Statement of Additional Information.

Total Return Quotations. As required by regulations of the SEC, the
average annual total return of the Funds for a period is computed by assuming a
hypothetical initial payment of $1,000. It is then assumed that all of the
dividends and distributions by the Fund over the period are reinvested. It is
then assumed that at the end of the period, the entire amount is redeemed. The
annualized total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.

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

Historical performance information for any period prior to the
establishment of a Fund will be that of its corresponding predecessor J.P.
Morgan fund and will be presented in accordance with applicable SEC staff
interpretations.

Below is set forth historical return information for the Funds or their
predecessors for the periods indicated:

International Equity Fund: 10/31/98: Average annual total return, 1 year:
4.95%; average annual total return, 5 years: 4.87%; average annual total return,
commencement of operations * to period end: 4.77%; aggregate total return, 1
year: 4.95%; aggregate total return, 5 years: 26.84%; aggregate total return,
commencement of operations * to period end: 48.07%.

Emerging Markets Equity Fund: 10/31/98: Average annual total return, 1
year: (35.50%); average annual total return, 5 years: N/A; average annual total
return, commencement of operations ** to period end: 8.17%; aggregate total
return, 1 year: (35.50%); aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations ** to period end: (34.48%).

International Opportunities Fund: 11/30/98: Average annual total return, 1
year: 2.69%; average annual total return, 5 years: N/A; average annual total
return, commencement of operations *** to period end: 1.17%; aggregate total
return, 1 year: 2.69%; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations *** to period end: 2.07%.

European Equity Fund: 11/30/98: Average annual total return, 1 year:
22.13%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations **** to period end: 20.69%; aggregate total return, 1
year: 22.13%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations **** to period end: 67.92%.

- ---------------------------
* International Equity Fund commenced operations on June 1, 1990.
** Emerging Markets Equity Fund commenced operations on November 15, 1993.
*** International Opportunities Fund commenced operations on February 26, 1997.
**** European Equity Fund commenced operations on February 29, 1996.

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

PORTFOLIO TRANSACTIONS

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

Portfolio transactions for a Portfolio will be undertaken principally
to accomplish the Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies --
Portfolio Turnover".

In connection with portfolio transactions, the overriding objective is
to obtain the best execution of purchase and sales orders.

The Portfolios or their predecessors corresponding to the International
Equity, Emerging Markets Equity, International Opportunities and European Equity
Funds paid the following brokerage commissions for the indicated fiscal periods:

International Equity Portfolio -- For the fiscal year ended October 31,
1996: $2,303,648. For the fiscal year ended October 31, 1997: $2,008,842. For
the fiscal year ended October 31, 1998: $1,920,469.

Emerging Markets Equity Portfolio -- For the fiscal year ended October 31,
1996 : $1,840,532. For the fiscal year ended October 31, 1997: $2,855,850. For
the fiscal year ended October 31, 1998: $1,089,000.

International Opportunities Portfolio -- For the period February 26, 1997
(commencement of operations) through November 30, 1997: $1,027,285. For the
fiscal year ended November 30, 1998: $2,294,676.

European Equity Portfolio -- For the fiscal year ended December 31, 1996:
$1,189,817. For the fiscal year ended December 31, 1997: $1,562,672. For the
period January 1, 1998 through November 30, 1998: $104,556.

The increases in brokerage commissions reflected above were due to
increased portfolio activity and an increase in net investments by investors in
a Portfolio or its predecessor.

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 Portfolios 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.

MASSACHUSETTS TRUST

Effective January 1, 1998, the name of the Trust was changed from "The
JPM Institutional Funds" to "J.P. Morgan Institutional Funds". Effective January
1, 1998, the name of the funds were changed from "The JPM Institutional
International Equity Fund" to the "J.P. Morgan Institutional International
Equity Fund", "The JPM Institutional Emerging Markets Equity Fund" to the "J.P.
Morgan Institutional Emerging Markets Equity Fund", the "JPM Institutional
International Opportunities Fund" to the "J.P. Morgan Institutional
International Opportunities Fund" and the "JPM Institutional European Equity
Fund" to the "J.P. Morgan Institutional European Equity 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 a Fund is liable to a
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 a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.

DESCRIPTION OF SHARES

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

The Trustees have authorized the issuance and sale to the public of 22
series of the Trust. The Trustees have no current intention to create any
classes within the initial series or any subsequent series. The Trustees may,
however, authorize the issuance of shares of additional series and the creation
of classes of shares within any series with such preferences, privileges,
limitations and voting and dividend rights as the Trustees may determine. The
proceeds from the issuance of any additional series would be invested in
separate, independently managed portfolios with distinct investment objectives,
policies and restrictions, and share purchase, redemption and net asset
valuation procedures. Any additional classes would be used to distinguish among
the rights of different categories of shareholders, as might be required by
future regulations or other unforeseen circumstances. All consideration received
by the Trust for shares of any additional series or class, and all assets in
which such consideration is invested, would belong to that series or class,
subject only to the rights of creditors of the Trust and would be subject to the
liabilities related thereto. Shareholders of any additional series or class will
approve the adoption of any management contract or distribution plan relating to
such series or class and of any changes in the investment policies related
thereto, to the extent required by the 1940 Act.

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

As of January 31, 1999, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:

International Equity Fund: MGT of NY Deferred Profit Sharing (17.20%);
JPMIM as agent for Carnegie Corp. of NY (12.98%); Blue Cross Shield of North
Carolina as agent for Steven Cherrier (10.77%)

Emerging Markets Equity Fund: MGT of NY Deferred Profit Sharing (17.20%); JPMIM
as agent for Carnegie Corp. of NY (12.41%); JPMIM as Agent for Alfred P Sloan
Foundation (11.76%); JPMIM as agent for Ameritech Union Werfare Benefit TR
(6.48%); Morgan as Agent for Morgan Trust Bahamas LTD (5.35%).

International Opportunities Fund: MGT Co. of NY as agent for Sarah Lutz
Trust (9.78%); J.P. Morgan Delaware as agent for Diversified Growth Fund
(6.84%); J.P. Morgan Delaware as agent for JMD Delaware Inc. Trustee for M
Arison (12.61%).

European Equity Fund: Morgan Guaranty Trust Co. of NY as agent for C. Chan
Family (28.22%); Morgan Guaranty Trust Co. of NY as agent for J.G. Clarke
(8.47%); Morgan Trust Co. Florida NA as agent for J.M. Watkins (6.58%); Morgan
Guaranty Trust Co. of NY as agent for B. Price (6.29%); Charles Schwab & Co.
Inc. Special Custody Account for Benefit of Customers (5.05%).

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a 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

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

Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gains in excess of net long-term capital
losses are generally taxable to shareholders of the Funds as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
If dividend payments exceed income earned by a Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Funds
intend to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions of net long-term capital gain (i.e., net
long-term capital gain in excess of net short-term capital loss) are taxable to
shareholders of a Fund as long-term capital gain, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.

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

Any distribution of net investment income or capital gains will have
the effect of reducing the net asset value of Fund shares held by a shareholder
by the same amount as the distribution. If the net asset value of the shares is
reduced below a shareholder's cost as a result of such a distribution, the
distribution, although constituting a return of capital to the shareholder, will
be taxable as described above. Investors should thus consider the consequences
of purchasing shares in a Fund shortly before the Fund declares a sizable
dividend distribution.

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

For federal income tax purposes, the funds listed below had capital
loss carryforwards for the periods indicated:

International Equity Fund: For the fiscal year ended October 31, 1998:
$2,430,885, all of which expires in 2006.

Emerging Markets Equity Fund: For the fiscal year ended October 31, 1998:
$82,073,263, all of which expires in 2006.

International Opportunities Fund: For the fiscal year ended November 30,
1998: $31,792,671, of which $29,981 expires in 2005 and $31,762,690 in 2006.

European Equity Fund: For the fiscal year ended November 30, 1998: $44,618,
all of which expires in 2006.

To the extent that this capital loss is used to offset future capital
gains, it is probable that gains so offset will not be distributed to
shareholders.

Foreign Taxes. It is expected that the Funds may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries. So long as more than 50% in value of the total assets of a Fund
(including its share of the assets of the corresponding Portfolio) at the close
of any taxable year consists of stock or securities of foreign corporations, the
Fund may elect to treat any foreign income taxes deemed paid by it as paid
directly by its shareholders. A Fund will make such an election only if it deems
it to be in the best interest of its shareholders. A Fund will notify its
shareholders in writing each year if it makes the election and of the amount of
foreign income taxes, if any, to be treated as paid by the shareholders and the
amount of foreign taxes, if any, for which shareholders of the Fund will not be
eligible to claim a foreign tax credit because the holding period requirements
(described below) have not been satisfied. If a Fund makes the election, each
shareholder will be required to include in his income (in addition to the
dividends and distributions he receives) his proportionate share of the amount
of foreign income taxes deemed paid by the Fund and will be entitled to claim
either a credit (subject to the limitations discussed below) or, if he itemizes
deductions, a deduction for his share of the foreign income taxes in computing
federal income tax liability. (No deduction will be permitted in computing an
individual's alternative minimum tax liability.) Effective for dividends paid
after September 5, 1997, shareholders of a Fund will not be eligible to claim a
foreign tax credit with respect to taxes paid by the Fund (notwithstanding that
the Fund elects to treat the foreign taxes deemed paid by it as paid directly by
its shareholders) unless certain holding period requirements are met. A
shareholder who is a nonresident alien individual or a foreign corporation may
be subject to U.S. withholding tax on the income resulting from the election
described in this paragraph, but may not be able to claim a credit or deduction
against such U.S. tax for the foreign taxes treated as having been paid by such
shareholder. A tax-exempt shareholder will not ordinarily benefit from this
election. Shareholders who choose to utilize a credit (rather than a deduction)
for foreign taxes will be subject to the limitation that the credit may not
exceed the shareholder's U.S. tax (determined without regard to the availability
of the credit) attributable to his or her total foreign source taxable income.
For this purpose, the portion of dividends and distributions paid by a Fund from
its foreign source net investment income will be treated as foreign source
income. A Fund's gains and losses from the sale of securities will generally be
treated as derived from U.S. sources, however, and certain foreign currency
gains and losses likewise will be treated as derived from U.S. sources. The
limitation on the foreign tax credit is applied separately to foreign source
"passive income," such as the portion of dividends received from the Fund which
qualifies as foreign source income. In addition, the foreign tax credit is
allowed to offset only 90% of the alternative minimum tax imposed on
corporations and individuals. Because of these limitations, if the election is
made, shareholders may nevertheless be unable to claim a credit for the full
amount of their proportionate shares of the foreign income taxes paid by a Fund.
Effective for taxable years of a shareholder beginning after December 31, 1997,
individual shareholders of the Fund with $300 or less of creditable foreign
taxes ($600 in the case of an individual shareholder filing jointly) may elect
to be exempt from the foreign tax credit limitation rules described above (other
than the 90% limitation applicable for purposes of the alternative minimum tax),
provided that all of such individual shareholder's foreign source income is
"qualified passive income" (which generally includes interest, dividends, rents,
royalties and certain other types of income) and further provided that all of
such foreign source income is shown on one or more payee statements furnished to
the shareholder. Shareholders making this election will not be permitted to
carry over any excess foreign taxes to or from a tax year to which such an
election applies.

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.

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

The Year 2000 Initiative

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, which are being
developed in the first half of 1999, will define the infrastructure that should
be put in place for managing a failure during the millennium event itself.

The Euro

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

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

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

<PAGE>

FINANCIAL STATEMENTS

The following financial statements and the reports thereon of
PricewaterhouseCoopers LLP of the International Equity, Emerging Markets Equity,
International Opportunities and European Equity Funds are incorporated herein by
reference to their respective annual report filings made with the SEC pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the
following financial reports are available without charge upon request by calling
JP Morgan Funds Services at (800) 766-7722. Each Fund's financial statements
include the financial statements of the Fund's corresponding Portfolio.
<TABLE>
<S> <C>
- ------------------------------------------------------ -------------------------------------------------------------

Date of Annual Report; Date Annual Report Filed; and
Name of Fund Accession Number
- ------------------------------------------------------ -------------------------------------------------------------

J.P. Morgan Institutional International Equity Fund 10/31/98;
12/31/98;
0001047469-98-045675
- ------------------------------------------------------ -------------------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------------------

J.P. Morgan Institutional Emerging Markets Equity 10/31/98;
Fund 1/4/99;
0001047469-99-000050
- ------------------------------------------------------ -------------------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------------------

J.P. Morgan Institutional International 11/30/98;
Opportunities Fund 2/2/99;
0001047469-99-002972
- ------------------------------------------------------ -------------------------------------------------------------
- ------------------------------------------------------ -------------------------------------------------------------

J.P. Morgan Institutional European Equity Fund 11/30/98;
2/3/99;
0001047469-99-003104
- ------------------------------------------------------ -------------------------------------------------------------
</TABLE>

APPENDIX A

Description of Security Ratings

STANDARD & POOR'S

Corporate and Municipal Bonds

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

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

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

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

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

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

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

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

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

Commercial Paper, including Tax Exempt

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

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

Short-Term Tax-Exempt Notes

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

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

MOODY'S

Corporate and Municipal Bonds

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

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

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

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

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

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

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

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

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

Commercial Paper, including Tax Exempt

- - 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.

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL TREASURY MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 FOR THE FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM TIME TO
TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORTS RELATING
TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 1998 (FOR THE TREASURY MONEY MARKET
FUND AND THE FEDERAL MONEY MARKET FUND) AND NOVEMBER 30, 1998 (FOR THE PRIME
MONEY MARKET FUND). THE PROSPECTUS AND THESE FINANCIAL STATEMENTS FOR THE FUNDS
LISTED ABOVE, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT ON THE ANNUAL
FINANCIAL STATEMENTS, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.

<PAGE>

Table of Contents

Page

General....................................................................1
Investment Objectives and Policies.........................................1
Investment Restrictions....................................................9
Trustees and Officers......................................................13
Investment Advisor.........................................................18
Distributor................................................................20
Co-Administrator...........................................................20
Services Agent.............................................................22
Custodian and Transfer Agent...............................................23
Shareholder Servicing......................................................23
Financial Professionals. . . . . . . . . . . . . . . . . . . . . . . . . . 24
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 Prime Money Market Fund, the J.P. Morgan Institutional
Treasury Money Market Fund and the J.P. Morgan Institutional Federal Money
Market Fund (each, a "Fund" and collectively, the "Funds"). Each 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 Funds, the Trust consists of other
series representing separate investment funds (each a "J.P. Morgan Institutional
Fund"). The other J.P. Morgan Institutional Funds are covered by separate
Statements of Additional Information.

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

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

Investments in a 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 a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.

INVESTMENT OBJECTIVES AND POLICIES

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

J.P. Morgan Institutional Prime Money Market Fund (the "Prime Money
Market 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 Prime Money Market Fund's investment
objective is to maximize current income consistent with the preservation of
capital and same day liquidity. The Prime Money Market Fund attempts to achieve
this objective by investing all of its investable assets in The Prime Money
Market Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Prime Money Market Fund.

The Portfolio seeks 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
risk and have effective maturities of not more than thirteen months. The
Portfolio's ability to achieve maximum current income is affected by its high
quality standards. See "Quality and Diversification Requirements."

J.P. Morgan Institutional Treasury Money Market Fund (the "Treasury
Money Market 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 Treasury Money Market
Fund's investment objective is to provide current income, consistent with the
preservation of capital and same-day liquidity. The Treasury Money Market Fund
attempts to accomplish this objective by investing all of its investable assets
in The Treasury Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Treasury Money Market 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. Treasury securities and related repurchase
agreement transactions as described in this Statement of Additional Information
that have effective maturities of not more than thirteen months. See "Quality
and Diversification Requirements."

J.P. Morgan Institutional Federal Money Market Fund (the "Federal Money
Market 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 Federal Money Market Fund's investment
objective is to provide current income, consistent with the preservation of
capital and same-day liquidity. The Federal Money Market Fund attempts to
accomplish this objective by investing all of its investable assets in The
Federal Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Federal Money Market 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. Treasury securities and in obligations of certain
U.S. Government agencies, as described in this Statement of Additional
Information that have effective maturities of not more than thirteen months. See
"Quality and Diversification Requirements."

Money Market Instruments

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

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

Foreign Government Obligations. The Prime Money Market Fund, subject to
its applicable investment policies, may also invest in short-term obligations of
foreign sovereign governments or of their agencies, instrumentalities,
authorities or political subdivisions. See "Foreign Investments." These
securities must be denominated in the U.S. dollar.

Bank Obligations. The Prime Money Market 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). See "Foreign
Investments." The Prime Money Market Fund will not invest in obligations for
which the Advisor, or any of its affiliated persons, is the ultimate obligor or
accepting bank. The Prime Money Market Fund, may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).

Commercial Paper. The Prime Money Market 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 Prime
Money Market 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 Prime Money Market 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
Prime Money Market Fund to be liquid because they are payable upon demand. The
Prime Money Market 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.

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

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

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

Foreign Investments

The Prime Money Market Fund may invest in certain foreign securities.
All investments must be U.S. dollar-denominated. Investment in securities of
foreign issuers and in obligations of foreign branches of domestic banks
involves somewhat different investment risks from those affecting securities of
U.S. domestic issuers. There may be limited publicly available information with
respect to foreign issuers, and foreign issuers are not generally subject to
uniform accounting, auditing and financial standards and requirements comparable
to those applicable to domestic companies. Any foreign commercial paper must not
be subject to foreign withholding tax at the time of purchase.

Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.

Additional Investments

Municipal Bonds. The Prime Money Market Fund may invest in municipal bonds
issued by or on behalf of states, territories and possessions of the United
States and the District of Columbia and their political subdivisions, agencies,
authorities and instrumentalities. The Prime Money Market Fund may also invest
in municipal notes of various types, including notes issued in anticipation of
receipt of taxes, the proceeds of the sale of bonds, other revenues or grant
proceeds, as well as municipal commercial paper and municipal demand obligations
such as variable rate demand notes and master demand obligations. These
municipal bonds and notes will be taxable securities; income generated from
these investments will be subject to federal, state and local taxes.

When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities, no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, 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, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transaction defaults. It is the current
policy of each Fund (except the Treasury Money Market 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.

Loans of Portfolio Securities. Subject to applicable investment
restrictions, each Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net assets. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. Loans of
portfolio securities may be considered extensions of credit by the Funds. The
risks to each Fund with respect to borrowers of its portfolio securities are
similar to the risks to each Fund with respect to sellers in repurchase
agreement transactions. See "Repurchase Agreements". The Funds will not lend
their securities to any officer, Trustee, Director, employee or other affiliate
of the Funds, the Advisor or the Distributor, unless otherwise permitted by
applicable law.

Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Prime Money Market Fund may invest in privately placed,
restricted, Rule 144A or other unregistered securities. No Fund may acquire any
illiquid holdings if, as a result thereof, more than 10% of a Fund's net assets
would be in illiquid investments. Subject to this non-fundamental policy
limitation, the Funds may acquire investments that are illiquid or have limited
liquidity, such as the Prime Money Market Fund's investments in 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 Funds. The price the Funds pay 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 Prime Money Market 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.

Synthetic Instruments. The Prime Money Market Fund may invest in
certain synthetic instruments. Such instruments generally involve the deposit of
asset-backed securities in a trust arrangement and the issuance of certificates
evidencing interests in the trust. The certificates are generally sold in
private placements in reliance on Rule 144A. The Advisor will review the
structure of synthetic instruments to identify credit and liquidity risks and
will monitor those risks. See "Illiquid Investments, Privately Placed and
Certain Unregistered Securities".

Quality and Diversification Requirements

Each of the Funds 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 each 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 a Fund should an issuer, or a state or its related entities,
be unable to make interest or principal payments or should the market value of
such securities decline.

At the time any of the Funds 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.
Prime Money Market Fund. In order to maintain a stable net asset value,
the Prime Money Market Fund will (i) limit its investment in the securities
(other than U.S. Government securities) of any one issuer to no more than 5% of
its assets, measured at the time of purchase, except for investments held for
not more than three business days and (ii) limit investments to securities that
present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("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. A description of illustrative credit ratings is set forth
in "Appendix A." 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 (ii) 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 Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are unrated; (ii)
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 397 days; and (iii) require the Fund, in the event of certain
downgradings 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.

Treasury Money Market Fund. In order to maintain a stable net asset
value, the Treasury Money Market Fund will limit its investments to direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, and
related repurchase agreement transactions, each having a remaining maturity of
not more than thirteen months at the time of purchase and will maintain a
dollar-weighted average portfolio maturity of not more than 90 days.

Federal Money Market Fund. In order to maintain a stable net asset
value, the Federal Money Market Fund will limit its investments to direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds, and
certain U.S. Government agency securities with remaining maturities of not more
than thirteen months at the time of purchase and will maintain a dollar-weighted
average portfolio maturity of not more than 90 days.

INVESTMENT RESTRICTIONS

The Prime Money Market Fund and the Federal Money Market Fund and their
corresponding Portfolios:

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. In the case of Prime Money Market Fund,
this restriction does not apply to instruments considered to be domestic bank
money market instruments.

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;

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.

The Treasury Money Market Fund may not:

1. Enter into reverse repurchase agreements which together with any other
borrowing exceed in the aggregate one-third of the market value of the Fund's or
the Portfolio's total assets, less liabilities other than the obligations
created by reverse repurchase agreements;

2. Borrow money, except in amounts not to exceed one third of the Fund's total
assets (including the amount borrowed) less liabilities (other than borrowings)
(i) from banks for temporary or short-term purposes or for the clearance of
transactions, (ii) in connection with the redemption of Fund shares or to
finance failed settlements of portfolio trades without immediately liquidating
portfolio securities or other assets, (iii) in order to fulfill commitments or
plans to purchase additional securities pending the anticipated sale of other
portfolio securities or assets and (iv) pursuant to reverse repurchase
agreements entered into by the Fund.1

3. 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 or the
Portfolio'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. This limitation also shall
not apply to issues of the U.S. Government and repurchase agreements related
thereto;

4. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's or the Portfolio's total assets; provided, however, that the
Fund may invest all or part of its assets in an open-end management investment
company with the same investment objective and restrictions as the Fund. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities and repurchase agreements
related thereto;

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

6. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs;

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 delivery at a future date;

8. Acquire securities of other investment companies, except as permitted by the
1940 Act or in connection with a merger, consolidation, reorganization,
acquisition of assets or an offer of exchange; provided, however, that nothing
in this investment restriction shall prevent the Trust from investing all or
part of the Fund's assets in an open-end management investment company with the
same investment objective and restrictions as the Fund;

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 Treasury Money Market Fund's Portfolio has adopted substantially
similar fundamental investment restrictions, except investment restrictions
numbered 7 and 8 above are non-fundamental at the Portfolio level.
Any differences are not expected to materially impact portfolio management.

Non-Fundamental Investment Restrictions - Prime Money Market Fund and
Federal Money Market Fund. The investment restrictions described below are not
fundamental policies of the Funds and their corresponding Portfolios and may be
changed by their Trustees. These non-fundamental investment policies require
that the Funds and their corresponding Portfolios:

(i) May not acquire any illiquid securities, such as repurchase agreements with
more than seven days to maturity or fixed time deposits with a duration of over
seven calendar days, if as a result thereof, more than 10% of the market value
of the Fund's total assets would be in investments which are illiquid;

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

(iv) The Prime Money Market Fund may not borrow money, except from banks for
extraordinary or emergency purposes and then only in amounts not to exceed 10%
of the value of the Fund's total assets, taken at cost, at the time of such
borrowing. Mortgage, pledge, or hypothecate any assets except in connection with
any such borrowing and in amounts not to exceed 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 while such
borrowings are outstanding. This borrowing provision is included to facilitate
the orderly sale of portfolio securities, for example, in the event of
abnormally heavy redemption requests, and is not for investment purposes and
shall not apply to reverse repurchase agreements.

(v) The Federal Money Market Fund may not borrow money (not including reverse
repurchase agreements), except from banks for temporary or extraordinary or
emergency purposes and then only in amounts up to 10% of the value of the Fund's
or the Portfolio's total assets, taken at cost at the time of such borrowing
(and provided that such borrowings and reverse repurchase agreements do not
exceed in the aggregate one-third of the market value of the Fund's and the
Portfolio's total assets less liabilities other than the obligations represented
by the bank borrowings and reverse repurchase agreements). Mortgage, pledge, or
hypothecate any assets except in connection with any such borrowing and in
amounts up to 10% of the value of the Fund's or the Portfolio's net assets at
the time of such borrowing. The Fund or the Portfolio will not purchase
securities while borrowings exceed 5% of the Fund's or the Portfolio's total
assets, respectively; 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 while such borrowings are outstanding. This
borrowing provision is included to facilitate the orderly sale of portfolio
securities, for example, in the event of abnormally heavy redemption requests,
and is not for investment purposes.

Non-Fundamental Investment Restrictions - Treasury Money Market Fund.
The investment restriction described below is not a fundamental policy of the
Fund or the Portfolio and may be changed by their respective Trustees. This
non-fundamental investment policy requires that 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.

Notwithstanding any other fundamental or non-fundamental investment
restriction or policy, each 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.

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

TRUSTEES AND OFFICERS

The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, 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 HEALEY2--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1993. His address is Pine Tree
Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.

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 each of the
Portfolios. 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, each of the Portfolios and the J.P.
Morgan Funds up to and including creating a separate board of trustees.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below

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

Matthew Healey, Trustee(***), $20,055 $75,000
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

Michael P. Mallardi, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>

(*) Includes the Portfolio and 16 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment advisor.

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

(***) No investment company within the fund complex has a pension or retirement
plan. Currently there are 17 investment companies (14 investment companies
comprising the Master Portfolios, the J.P. Morgan Funds, the 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. Each of the Portfolios
and the Trust has entered into a Fund Services Agreement with Pierpont Group,
Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolios and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for The J.P. Morgan
Family of Funds (formerly The Pierpont Family of Funds), and the Trustees are
the equal and sole shareholders of Pierpont Group, Inc. The Trust and the
Portfolios have agreed to pay Pierpont Group, Inc. a fee in an amount
representing its reasonable costs in performing these services to the Trust, the
Portfolios and certain other registered investment companies subject to similar
agreements with Pierpont Group, Inc. These costs are periodically reviewed by
the Trustees. The principal offices of Pierpont Group, Inc. are located at 461
Fifth Avenue, New York, New York 10017.

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

Prime Money Market Fund -- For the fiscal years ended November 30, 1996,
1997 and 1998: $48,339, $43,684 and $65,619, respectively.

The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1996, 1997 and 1998: $157,428, $143,027 and $173,032, respectively.

Treasury Money Market Fund -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997 and the fiscal year ended October 31, 1998:
$543 and $5,064, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997: $800 and the fiscal year ended October
31, 1998: $543 and $15,548, respectively.

Federal Money Market Fund -- For the fiscal years ended October 31, 1996,
1997 and 1998: $6,320, $3,750 and $15,457, respectively.

The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1996, 1997 and 1998: $16,144, $12,004 and $25,893, respectively.

Officers

The Trust's and Portfolios' 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 Portfolios. The Trust and the Portfolios have no
employees.

JACQUELINE HENNING (of The Prime Money Market Portfolio only); Assistant
Secretary and Assistant Treasurer. Managing Director, State Street Cayman Trust
Company, Ltd. since October 1994. Prior to October 1994, Mrs. Henning was head
of mutual funds at Morgan Grenfell in Cayman and was Managing Director of Bank
of Nova Scotia Trust Company (Cayman) Limited prior to September 1993. Address:
P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden Road, George Town,
Grand Cayman, Cayman Islands, BWI. Her date of birth is March 24, 1942.

INVESTMENT ADVISOR

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

Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Prime Money Market Portfolio--IBC's First Tier Money
Fund Average; The Treasury Money Market Portfolio--IBC's Treasury and Repo Money
Fund Average; and The Federal Money Market Portfolio--IBC's U.S. Government and
Agency Money Fund Average.

As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's average daily net assets up to $1
billion and 0.10% of each Portfolio's average daily net assets in excess of $1
billion.

The table below sets forth for each Portfolio listed the advisory fees
paid to Morgan and JPMIM, as applicable, for the fiscal periods indicated. See
the Prospectus and below for applicable expense limitations.

The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1996, 1997 and 1998: $4,503,793, $5,063,662 and $7,199,733, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997 and the fiscal year ended October 31,
1998: $49,123 and $1,080,743, respectively.

The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1996, 1997 and 1998: $653,326, $659,707 and $1,736,610 respectively.

DISTRIBUTOR

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

CO-ADMINISTRATOR

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

The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.
See the Prospectus and below for applicable expense limitations.

Prime Money Market Fund --For the period August 1, 1996 through November 30,
1996, the fiscal year ended November 30, 1997 and the fiscal year ended November
30, 1998: $15,195, $38,699 and $51,507, respectively.

The Prime Money Market Portfolio -- For the period August 1, 1996 through
November 30, 1996, and the fiscal years ended November 30, 1997 and November 30,
1998: $33,012, $96,662 and $115,137, respectively.

Treasury Money Market Fund -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997 and the fiscal year ended October 31, 1998:
$437 and $3,897, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997 and the fiscal year ended October 31,
1998: $406 and $7,258, respectively.

Federal Money Market Fund -- For the period August 1, 1996 through October 31,
1996, the fiscal year ended October 31, 1997 and the fiscal year ended October
31, 1998: $945, $3,405 and $11,206, respectively.

The Federal Money Market Portfolio -- For the period August 1, 1996 through
October 31, 1996, the fiscal year ended October 31, 1997 and the fiscal year
ended October 31, 1996: $1,663, $6,218 and $12,377, respectively.

Prime Money Market Fund -- For the period December 1, 1995 through July 31,
1996: $97,980.

The Prime Money Market Portfolio -- For the period December 1, 1995 through July
31, 1996: $272,989.

Federal Money Market Fund -- For the period November 1, 1995 through July 31,
1996: $15,525.

The Federal Money Market Portfolio -- For period November 1, 1995 through
July 31, 1996: $28,623.

SERVICES AGENT

The Trust, on behalf of each Fund, and the Portfolios 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 each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.

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

Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, each Fund's corresponding Portfolio
(except the Treasury Money Market 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 each Portfolio (except The
Treasury Money Market Portfolio) had entered into Financial and Fund Accounting
Services Agreements with Morgan, the provisions of which included certain of the
activities described above. The table below sets forth for each Fund listed and
its corresponding Portfolio the fees paid to Morgan as Services Agent. See the
Prospectus and below for applicable expense limitations.

Prime Money Market Fund --For the fiscal years ended November 30, 1996,
1997 and 1998: $286,611, $386,048 and $696,768, respectively.

The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1996, 1997 and 1998: $891,730, $1,256,131 and $1,788,454, respectively.

Treasury Money Market Fund -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997 and for the fiscal year ended October 31,
1998: $4,761 and $51,775, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997 and for the fiscal year October 31,
1998: $7,289 and $155,752, respectively.

Federal Money Market Fund -- For the fiscal years ended October 31, 1996,
1997 and 1998: $26,536, $33,554 and $151,777.

The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1996, 1997 and 1998: $73,206, $101,963 and $264,799.

CUSTODIAN AND TRANSFER AGENT

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and each Portfolio's
custodian and fund accounting agent and each 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. 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 each of the Funds has entered into a Shareholder
Servicing Agreement with Morgan pursuant to which Morgan acts as shareholder
servicing agent for its customers and for other Fund investors who are customers
of a Financial Professional. Under this agreement, Morgan is responsible for
performing shareholder account, administrative and servicing functions, which
include but are not limited to, answering inquiries regarding account status and
history, the manner in which purchases and redemptions of Fund shares may be
effected, and certain other matters pertaining to a Fund; assisting customers in
designating and changing dividend options, account designations and addresses;
providing necessary personnel and facilities to coordinate the establishment and
maintenance of shareholder accounts and records with the Funds' transfer agent;
transmitting purchase and redemption orders to the Funds' transfer agent and
arranging for the wiring or other transfer of funds to and from customer
accounts in connection with orders to purchase or redeem Fund shares; verifying
purchase and redemption orders, transfers among and changes in accounts;
informing the Distributor of the gross amount of purchase orders for Fund
shares; monitoring the activities of the Funds' transfer agent; and providing
other related services.

Effective August 1, 1998, under the Shareholder Servicing Agreement,
each 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 values of
Fund shares owned by or for shareholders for whom Morgan is acting as
shareholder servicing agent).
Morgan acts as shareholder servicing agent for all shareholders.

The table below sets forth for each Fund listed the shareholder
servicing fees paid by each Fund to Morgan for the fiscal periods indicated. See
the Prospectus and below for applicable expense limitations.

Prime Money Market Fund -- For the fiscal years ended November 30, 1996,
1997 and 1998: $600,276, $625,222 and $1,682,644, respectively.

Treasury Money Market Fund -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997 and for the fiscal year ended October 31,
1998: $8,000 and $116,683, respectively.

Federal Money Market Fund -- For the fiscal years ended October 31, 1996,
1997 and 1998: $75,343, $54,403 and $370,516, respectively.

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 Funds and the Portfolios under the
Services Agreements, and the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements, may raise issues under
these laws. However, Morgan and JPMIM believe that they may properly perform
these services and the other activities described in the Prospectus without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations.

FINANCIAL PROFESSIONALS

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 Funds and the Portfolios are responsible for
usual and customary expenses associated with their respective operations. Such
expenses include organization expenses, legal fees, accounting and audit
expenses, insurance costs, the compensation and expenses of the Trustees, costs
associated with their registration fees under federal securities laws, and
extraordinary expenses applicable to the Funds or the Portfolios. For the Funds,
such expenses also include transfer, registrar and dividend disbursing costs,
the expenses of printing and mailing reports, notices and proxy statements to
Fund shareholders, and filing fees under state securities laws. For the
Portfolios, such expenses also include custodian fees. For additional
information regarding waivers or expense subsidies, see the Prospectus. Under
fee arrangements prior to September 1, 1995, Morgan as Services Agent was
responsible for reimbursements to the Trust and the Portfolio and the usual
customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses).

Prime Money Market Fund: 0.20%
Treasury Money Market Fund: 0.20%
Federal Money Market Fund: 0.20%

These limits do not cover extraordinary expenses. These
reimbursement/waiver arrangements can be changed at any time at the option of
J.P. Morgan

Prime Money Market Fund --For the fiscal years ended November 30, 1996,
1997 and 1998: $1,231,624, $1,069,381 and $2,571,638, respectively.

The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1996, 1997 and 1998: $9,993, N/A and N/A, respectively.

Treasury Money Market Fund -- For the period July 8, 1997 (commencement of
operations) through October 31, 1997 and for the fiscal year ended October 31,
1998: $95,577 and $297,103, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997 and for the fiscal year October 31,
1998: $118,095 and $828,462, respectively.

Federal Money Market Fund -- For the fiscal years ended October 31, 1996,
1997 and 1998: $225,001, $195,337 and $876,403.

The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1996, 1997 and 1998: $238,343, $250,377 and $415,825.

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.

REDEMPTION OF SHARES

Investors may redeem shares as described in the Prospectus.
Shareholders redeeming shares of the Funds should be aware that the Funds
attempt to maintain a stable net asset value of $1.00 per share; however, there
can be no assurance that they 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 a Fund and its corresponding Portfolio
determine that it would be detrimental to the best interest of the remaining
shareholders of a Fund to make payment wholly or partly in cash, payment of the
redemption price may be made in whole or in part by a distribution in kind of
securities from the Portfolio, in lieu of cash, in conformity with the
applicable rule of the SEC. If shares are redeemed in kind, the redeeming
shareholder might incur transaction costs in converting the assets into cash.
The method of valuing portfolio securities is described under "Net Asset Value,"
and such valuation will be made as of the same time the redemption price is
determined. The Trust on behalf of the Treasury Money Market and Federal Money
Market Funds and their corresponding Portfolios have elected to be governed by
Rule 18f-1 under the 1940 Act pursuant to which such Funds and their
corresponding Portfolios are obligated to redeem shares solely in cash up to the
lesser of $250,000 or one percent of the net asset value of such Fund during any
90-day period for any one shareholder. The Trust will redeem Fund shares in kind
only if it has received a redemption in kind from the corresponding Portfolio
and therefore shareholders of the Fund that receive redemptions in kind will
receive securities of the Portfolio. The Portfolios have advised the Trust that
the Portfolios will not redeem in kind except in circumstances in which a Fund
is permitted to redeem in kind.

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

EXCHANGE OF SHARES

An investor may exchange shares from any Fund into shares of any other
J.P. Morgan Institutional Fund 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

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

NET ASSET VALUE

Each of the Funds 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, Veteran's 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 Funds and their corresponding Portfolios would expect to close for
purchases and redemptions an hour in advance of the end of trading in the money
markets. The Funds and the Portfolios may also close for purchases and
redemptions at such other times as may be determined by the Board of Trustees to
the extent permitted by applicable law. On any business day when the Public
Securities Association ("PSA") recommends that the securities market close
early, the Funds reserve 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 Funds close 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 Funds'
business days.

The Portfolios' 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 a 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 a
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 Funds. See "Taxes."

PERFORMANCE DATA

Yield Quotations. As required by regulations of the SEC, current yield
for the Funds 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
each Fund is computed by annualizing the seven-day return with all dividends
reinvested in additional Fund shares.

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

Prime Money Market Fund (11/30/98): 7-day current yield: 5.12%; 7-day
effective yield: 5.25%.

Treasury Money Market Fund (10/31/98): 7-day current yield: 4.95%; 7-day
effective yield: 5.07%.

Federal Money Market Fund (10/31/98): 7-day current yield: 4.96%; 7-day
effective yield: 5.08%.

Total Return Quotations. Historical performance information for the Prime
Money Market 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.

Below is set forth historical return information for each Fund or its
predecessor for the periods indicated:

Prime Money Market Fund (11/30/98): Average annual total return, 1 year:
5.61%; average annual total return, 5 years: 5.30%; average annual total return,
10 years: 5.66%; aggregate total return, 1 year: 5.61%; aggregate total return,
5 years: 29.46%; aggregate total return, 10 years: 73.46%.

Treasury Money Market Fund (10/31/98): Average annual total return, 1 year:
5.53%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations to period end: 5.57%; aggregate total return, 1 year:
5.53%; aggregate total return, 5 years: N/A; aggregate total return,
commencement of operations to period end: 7.41%.

Federal Money Market Fund (10/31/98): Average annual total return, 1 year:
5.48%; average annual total return, 5 years: 5.08%; average annual total return,
commencement of operations (January 4, 1993) to period end: 4.74%; aggregate
total return, 1 year: 5.48%; aggregate total return, 5 years: 28.12%; aggregate
total return, commencement of operations (January 4, 1993) to period end:
30.98%.

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

PORTFOLIO TRANSACTIONS

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

Portfolio transactions for the Portfolios will be undertaken principally to
accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolios may engage in short-term trading
consistent with their objectives. See "Investment Objectives and Policies."

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

The Portfolios have a policy of investing only in securities with
maturities of not more than thirteen months, which will result in high portfolio
turnovers. Since brokerage commissions are not normally paid on investments
which the Portfolios make, turnover resulting from such investments should not
adversely affect the net asset value or net income of the Portfolios.

Subject to the overriding objective of obtaining best execution of
orders, the Advisor may allocate a portion of a Portfolio's brokerage
transactions to affiliates of the Advisor. In order for affiliates of the
Advisor to effect any portfolio transactions for a 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 each 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 Portfolios 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.

MASSACHUSETTS TRUST

Effective January 9, 1997, the name of The Treasury Money Market
Portfolio was changed to The Federal Money Market Portfolio. Effective May 12,
1997, the name of The Money Market Portfolio was changed to The Prime Money
Market Portfolio. Effective January 1, 1998, the name of the Trust was changed
from "The JPM Institutional Funds" to "J.P. Morgan Institutional Funds," and
each Fund's name changed accordingly.

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

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

DESCRIPTION OF SHARES

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

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 January 31, 1999, the following owned of record, or to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of:

Prime Money Market Fund: Dover Corporation (8.03%); Citibank - Private bank
(6.39%); Hare & Co. (5.49%).

Treasury Money Market Fund: Morgan as Agent for J. Robertson (32.23%);
Treasurer of State of Ohio (23.17%); Hare & Co. (19.52%); and Morgan as Agent
for F. Batten Jr. Trust(9.11%).

Federal Money Market Fund: Morgan as Agent for LAS #2 (5.19%); Morgan as
Agent R. Lauder Crot Proceeds Account (5.11%).

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a 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 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.

Each Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, a Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such securities or foreign currency; and (b) diversify its holdings
so that, at the end of each quarter of its taxable year, (i) at least 50% of the
value of the Fund's total assets is represented by cash, cash items, U.S.
Government securities, investments in other regulated investment companies, and
other securities limited, in respect of any one issuer, to an amount not greater
than 5% of the Fund's total assets, and 10% of the outstanding voting securities
of such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or securities of other regulated investment companies). As a
regulated investment company, a Fund (as opposed to its shareholders) will not
be subject to federal income taxes on the net investment income and capital 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, a Fund will be subject to a 4% excise tax on a portion
of its undistributed taxable income and capital gains if it fails to meet
certain distribution requirements by the end of the calendar year. Each Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.

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

Distributions of net investment income and realized net short-term
capital gain in excess of net long-term capital losses (other than exempt
interest dividends) are generally taxable to shareholders of the Funds as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. Distributions to corporate shareholders of the Funds 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 a 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 20% rate of tax.

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 a 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.
Except as described below, if an option written by a Portfolio lapses or is
terminated through a closing transaction, such as a repurchase by the Portfolio
of the option from its holder, the Portfolio will realize a short-term capital
gain or loss, depending on whether the premium income is greater or less than
the amount paid by the Portfolio in the closing transaction. If securities are
purchased by a Portfolio pursuant to the exercise of a put option written by it,
the Portfolio will subtract the premium received from its cost basis in the
securities purchased.

Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. Investors are urged to consult their tax advisors
concerning the limitations on the deductibility of capital losses. Additionally,
any loss realized on a redemption or exchange of shares of a Fund will be
disallowed to the extent the shares disposed of are replaced 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.

ADDITIONAL INFORMATION

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

Telephone calls to the Funds, J.P. Morgan 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 the Portfolios'
Registration Statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The Registration
Statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.

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

The Year 2000 Initiative

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, which are being
developed in the first half of 1999, will define the infrastructure that should
be put in place for managing a failure during the millennium event itself.

<PAGE>

FINANCIAL STATEMENTS

The following financial statements and the report thereon of
PricewaterhouseCoopers LLP of each Fund are incorporated herein by reference
from their respective annual report filings made with the SEC pursuant to
Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder. Any of the following
financial reports are available without charge upon request by calling JP Morgan
Funds Services at (800) 766-7722. Each Fund's financial statements include the
financial statements of the Fund's corresponding Portfolio.

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

Date of Annual Report; Date Annual Report
Name of Fund Filed; and Accession Number
- --------------------------------------------------------------------- ----------------------------------------------
- --------------------------------------------------------------------- ----------------------------------------------

J.P. Morgan Institutional Prime Money Market Fund 11/30/98
2/1/99
0001047469-99-002872
- --------------------------------------------------------------------- ----------------------------------------------
- --------------------------------------------------------------------- ----------------------------------------------

J.P. Morgan Institutional Treasury Money Market Fund 10/31/98
12/31/98
0001047469-98-045633
- --------------------------------------------------------------------- ----------------------------------------------
- --------------------------------------------------------------------- ----------------------------------------------

J.P. Morgan Institutional Federal Money Market Fund 10/31/98
01/07/99
0001047469-99-000354
- --------------------------------------------------------------------- ----------------------------------------------
</TABLE>

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-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

- 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.

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 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 SHAREHOLDER REPORTS RELATING
TO THE FUND LISTED ABOVE DATED MARCH 31, 1998 AND SEPTEMBER 30, 1998. THE
PROSPECTUS AND THESE FINANCIAL STATEMENTS, INCLUDING THE INDEPENDENT
ACCOUNTANTS' REPORT ON THE MARCH 31, 1998 FINANCIAL STATEMENTS, ARE AVAILABLE,
WITHOUT CHARGE UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN
INSTITUTIONAL FUNDS (800)221-7930.

<PAGE>

Table of Contents

Page

General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 22
Trustees and Officers . . . . . . . . . . . . 24
Investment Advisor . . . . . . . . . . . . . . 28
Distributor . . . . . . . . . . . . . . . . . 30
Co-Administrator . . . . . . . . . . . . . . . 30
Services Agent . . . . . . . . . . . . . . . . 31
Custodian and Transfer Agent . . . . . . . . . 32
Shareholder Servicing . . . . . . . . . . . . 32
Financial Professionals . . . . . . . . . . . . 33
Independent Accountants . . . . . . . . . . . 34
Expenses . . . . . . . . . . . . . . . . . . . 34
Purchase of Shares . . . . . . . . . . . . . . 34
Redemption of Shares . . . . . . . . . . . . . 35
Exchange of Shares . . . . . . . . . . . . . . 36
Dividends and Distributions . . . . . . . . . 36
Net Asset Value . . . . . . . . . . . . . . . 36
Performance Data . . . . . . . . . . . . . . . 37
Portfolio Transactions . . . . . . . . . . . . 39
Massachusetts Trust . . . . . . . . . . . . . 40
Description of Shares . . . . . . . . . . . . 41
Special Information Concerning Investment
Structure. . . . . . . . . . . . . . . . . . 43
Taxes . . . . . . . . . . . . . . . . . . . . 44
Additional Information . . . . . . . . . . . 47
Financial Statements . . . . . . . . . . . . . 48
Appendix A-Description of Security Ratings . . A-1
Appendix B-Additional Information Concerning
New York Municipal Securities . . . B-1

<PAGE>

GENERAL

This Statement of Additional Information relates only to the J.P.
Morgan Institutional New York Tax Exempt Bond 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"). The Fund is a non-diversified, open-end management
investment company. 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 Fund'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 The New York Tax Exempt Bond Portfolio
(the "Portfolio"), a corresponding non-diversified 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."
Accordingly, references below to the Fund also include the Portfolio; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.

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 this
objective.

The investment objective of the Fund is to provide a high level of tax
exempt income for New York residents consistent with moderate risk of capital.
The investment objective of the Fund and the investment objective of the
Portfolio are identical. The Fund invests primarily in New York Municipal
Securities (defined below), the income from which is exempt from federal and New
York personal income taxes. It may also invest in other municipal securities
that generate income exempt from federal income tax but not from New York income
tax. In certain circumstances, the Fund may invest in taxable debt obligations
to the extent consistent with its objective.
The Fund is designed for investors subject to federal and New York
State and New York City personal income taxes who seek a high level of income
exempt from Federal, New York State and local income taxes and who are willing
to receive some taxable income and capital gains to achieve that return.
Additionally, the Fund is designed to be an economical and convenient means of
investing in a portfolio consisting primarily of debt obligations that are
exempt from federal and New York State and New York City personal income taxes.
The Fund is not suitable for tax-deferred retirement or pension plans, including
Individual Retirement Accounts (IRAs), 401(k) plans and 403(b) plans. The Fund
is not a complete investment program and there is no assurance that the Fund
will achieve its investment objective.

The Advisor actively manages the Fund's duration, the allocation of
securities across market sectors and the selection of securities to maximize
after tax income. The Advisor adjusts the Fund's duration based upon fundamental
economic and capital markets research and the Advisor's interest rate outlook.
For example, if interest rates are expected to rise, the duration may be
shortened to lessen the Fund's exposure to the expected decrease in bond prices.
If interest rates are expected to remain stable, the Advisor may lengthen the
duration in order to enhance the Fund's yield.

Under normal market conditions, the Fund will have a duration of three
to seven years, although the maturities of individual portfolio securities may
vary widely. Duration measures the price sensitivity of the Fund's portfolio,
including expected cash flow under a wide range of interest rate scenarios. A
longer duration generally results in greater price volatility. As a result, when
interest rates increase, the prices of longer duration securities increase more
than the prices of comparable quality securities with a shorter duration.

The Advisor also attempts to enhance after tax income by allocating the
Fund's assets among market sectors. Specific securities which the Advisor
believes are undervalued are selected for purchase within sectors using advanced
quantitative tools, analysis of credit risk, the expertise of a dedicated
trading desk and the judgment of fixed income portfolio managers and analysts.

Although the Portfolio generally purchases securities in order to
generate tax exempt income, it also engages in short-term trading to the extent
consistent with its objective. The annual portfolio turnover rate of the
Portfolio is generally not expected to exceed 75%. Portfolio transactions may
generate taxable capital gains and result in increased transaction costs.

Under normal circumstances, the Fund invests at least 65% of its total
assets in New York municipal bonds. For purposes of this policy, "New York
municipal bonds" has the same meaning as "New York Municipal Securities," which
are obligations of any duration (or maturity) issued by New York, its political
subdivisions and their agencies, authorities and instrumentalities and any other
obligations, the interest from which is exempt from New York State and New York
City personal income taxes. The interest from many but not all New York
Municipal Securities is also exempt from federal income tax. The Fund may also
invest in debt obligations of state and municipal issuers outside of New York.
In general, the interest on such securities is exempt from federal income tax
but subject to New York income tax. A portion of the Fund's distributions from
interest on New York Municipal Securities and other municipal securities in
which the Fund invests may under certain circumstances be subject to federal
alternative minimum tax. See "Taxes".

Tax Exempt Obligations

Since the Fund invests primarily in New York Municipal Securities, its
performance and the ability of New York issuers to meet their obligations may be
affected by economic, political, demographic or other conditions in the State of
New York. As a result, the value of the Fund's shares may fluctuate more widely
than the value of shares of a fund investing in securities of issuers in
multiple states. The ability of state, county or local governments to meet their
obligations will depend primarily on the availability of tax and other revenues
to those governments and on their general fiscal conditions. Constitutional or
statutory restrictions may limit a municipal issuer's power to raise revenues or
increase taxes. The availability of federal, state and local aid to issuers of
New York Municipal Securities may also affect their ability to meet their
obligations. Payments of principal and interest on revenue bonds will depend on
the economic or fiscal condition of the issuer or specific revenue source from
whose revenues the payments will be made. Any reduction in the actual or
perceived ability of an issuer of New York Municipal Securities to meet its
obligations (including a reduction in the rating of its outstanding securities)
would probably reduce the market value and marketability of the Fund's portfolio
securities.

The Fund may invest in municipal securities of any maturity and type.
These include both general obligation bonds secured by the issuer's pledge of
its full faith, credit and taxing authority and revenue bonds payable from
specific revenue sources, but generally not backed by the issuer's taxing
authority. In addition, the Fund may invest in all types of municipal notes,
including tax, revenue and grant anticipation notes, municipal commercial paper,
and municipal demand obligations such as variable rate demand notes and master
demand obligations. There is no specific percentage limitation on these
investments.

Municipal Notes. The Fund may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master
demand obligations permit the investment of fluctuating amounts at periodically
adjusted interest rates. They are governed by agreements between the municipal
issuer and Morgan acting as agent, for no additional fee. Although master demand
obligations are not marketable to third parties, the Fund considers them to be
liquid because they are payable on demand. There is no specific percentage
limitation on these investments. 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.

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. 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.

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.

Non-Municipal Securities

The Fund may invest in bonds and other debt securities of domestic
issuers to the extent consistent with its investment objective and policies. The
Fund may invest in U.S. Government, bank and corporate debt obligations, as well
as asset-backed securities and repurchase agreements. The Fund will purchase
such securities only when the Advisor believes that they would enhance the after
tax income of a shareholder of the Fund in the highest federal and New York
income tax brackets. Under normal circumstances, the Fund's holdings of
non-municipal securities and securities of municipal issuers outside New York
will not exceed 35% of its total assets. A description of these investments
appears below. See "Quality and Diversification Requirements." For information
on short-term investments in these securities, see "Money Market Instruments."

Money Market Instruments

The Fund may invest in money market instruments, to the extent
consistent with its investment objective and policies, that meet the quality
requirements described below, except that short-term municipal obligations of
New York State issuers may be rated MIG-2 by Moody's or SP-2 by Standard &
Poor's. Under normal circumstances, the Fund will purchase these securities to
invest temporary cash balances or to maintain liquidity to meet withdrawals.
However, the Fund may also invest in money market instruments as a temporary
defensive measure taken during, or in anticipation of, adverse market
conditions. A description of the various types of money market instruments that
may be purchased by the Fund appears below. Also see "Quality and
Diversification Requirements."

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.

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 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 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 thirteen months. The securities which are subject to repurchase agreements,
however, may have maturity dates in excess of thirteen months from the effective
date of the repurchase agreement. The Fund will always receive securities as
collateral whose market value is, and during the entire term of the agreement
remains, at least equal to 100% of the dollar amount invested by the Fund in 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. 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.

The Fund may make investments in other debt securities, including
without limitation corporate bonds and other obligations described in this
Statement of Additional Information.

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, the 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 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. As a shareholder of another investment
company, the Fund would bear, along with other shareholders, its pro rata
portion of the other investment company's expenses, including advisory fees.
These expenses would be in addition to the advisory and other expenses that the
Fund bears directly in connection with its own operations. The Fund has applied
for exemptive relief from the SEC to permit the Fund's corresponding Portfolio
to invest in affiliated investment companies. If the requested relief is
granted, the Fund's corresponding Portfolio would then be permitted to invest in
affiliated funds, subject to certain conditions specified in the applicable
order.

Loans of Portfolio Securities. Subject to applicable investment
restrictions, the Fund is permitted to lend securities in an amount up to 331/3%
of the value of the Fund's total 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. 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 Other Unregistered
Securities. The Fund may not acquire any illiquid securities if, as a result
thereof, more than 15% of the Fund's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the Fund may
acquire investments that are illiquid or have limited liquidity, such as 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 Fund pays for illiquid securities or receives upon
resale may be lower than the price paid or received for similar securities with
a more liquid market. Accordingly the valuation of these securities will reflect
any limitations on their liquidity.

Synthetic Variable Rate 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 party 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 Fund will be that of holding the long-term bond. 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 and
(ii) the risk to the Fund will be that of holding a long-term bond.

Quality and Diversification Requirements

The Fund is registered as a non-diversified investment company which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that may be invested in the obligations of a single issuer. Thus, the
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, may be subject to greater risk with
respect to its portfolio securities. The Fund, however, will comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. See
"Taxes".

It is the current policy of the Fund that under normal circumstances at
least 90% of total assets will consist of securities that at the time of
purchase are rated Baa or better by Moody's or BBB or better by Standard &
Poor's. The remaining 10% of total assets may be invested in securities that are
rated B or better by Moody's or Standard & Poor's. See "Below Investment Grade
Debt" below. In each case, the Fund may invest in securities which are unrated,
if in the Advisor's opinion, such securities are of comparable quality.
Securities rated Baa by Moody's or BBB by Standard & Poor's are considered
investment grade, but have some speculative characteristics. Securities rated Ba
or B by Moody's and BB or B by Standard & Poor's are below investment grade and
considered to be speculative with regard to payment of interest and principal.
These standards must be satisfied at the time an investment is made. If the
quality of the investment later declines, the Fund may continue to hold the
investment.

The Fund invests principally in a portfolio of "investment grade" tax
exempt securities. An investment grade bond is rated, on the date of investment,
within the four highest ratings of Moody's, currently Aaa, Aa, A and Baa or of
Standard & Poor's, currently AAA, AA, A and BBB, while high grade debt is rated,
on the date of the investment, within the two highest of such ratings.
Investment grade municipal notes are rated, on the date of investment, MIG-1 or
MIG-2 by Standard & Poor's or SP-1 and SP-2 by Moody's. Investment grade
municipal commercial paper is rated, on the date of investment, Prime 1 or Prime
2 by Moody's and A-1 or A-2 by Standard & Poor's. The Fund may also invest up to
10% of its total assets in securities which are "below investment grade." Such
securities must be rated, on the date of investment, B or better by Moody's or
Standard & Poor's, or of comparable quality. The Fund may invest in debt
securities which are not rated or other debt securities to which these ratings
are not applicable, if in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In addition, at the
time the Fund invests in any commercial paper, bank obligation, repurchase
agreement, or any other money market instruments, the investment must have
received a short term rating of investment grade or better (currently Prime-3 or
better by Moody's or A-3 or better by Standard & Poor's) or the investment must
have been issued by an issuer that received a short term investment grade rating
or better with respect to a class of investments or any investment within that
class that is comparable in priority and security with the investment being
purchased by the Fund. If no such ratings exists, the investment must be of
comparable investment quality in the Advisor's opinion, but will not be eligible
for purchase if the issuer or its parent has long term outstanding debt rated
below BBB.

Below Investment Grade Debt. Certain lower rated securities purchased
by the Fund, such as those rated Ba or B by Moody's or BB or B by Standard &
Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of principal
and interest and to greater market fluctuations. While generally providing
higher coupons or interest rates than investments in higher quality securities,
lower quality fixed income securities involve greater risk of loss of principal
and income, including the possibility of default or bankruptcy of the issuers of
such securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Fund invests in such lower quality securities, the achievement of its
investment objective may be more dependent on the Advisor's own credit analysis.

Options and Futures Transactions

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

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

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

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

Options

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

Futures Contracts

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

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

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

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

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

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

The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by the Fund, payments by the
parties will be exchanged on a "net basis", and the Fund will receive or pay, as
the case may be, only the net amount of the two payments.

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

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

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

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

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

Risk Management

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

Special Factors Affecting the Fund

The Fund intends to invest a high proportion of its assets in municipal
obligations in New York Municipal Securities. Payment of interest and
preservation of principal is dependent upon the continuing ability of New York
issuers and/or obligors of New York Municipal Securities to meet their
obligations thereunder.

The fiscal stability of New York is related, at least in part, to the
fiscal stability of its localities and authorities. Various New York agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by New York through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such New York agencies,
authorities and localities, in the past the State has had to provide special
assistance, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. The presence of such aid in the future
should not be assumed. To the extent that New York agencies and local
governments require State assistance to meet their financial obligations, the
ability of New York to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.

For further information concerning New York Municipal Obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is based on information from an official statement of
New York general obligation municipal obligations and does not purport to be
complete.

Portfolio Turnover

The portfolio turnover rates for the fiscal years ended March 31, 1997
and 1998 were 35% and 51%, respectively. For the six months ended September 30,
1998 (unaudited): 33%. A rate of 100% indicates that the equivalent of all of
the Portfolio's assets have been sold and reinvested in a year. High portfolio
turnover may result in the realization of substantial net capital gains or
losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.

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 Fund and
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 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;

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

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

4. 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; 5. 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,
(b) invest in securities or other instruments issued by issuers that invest in
real estate and (c) make direct investments in mortgages;

6. 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

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

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

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.

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. 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 Institutional Funds, up to and including creating
a separate board of trustees.

<PAGE>

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

Matthew Healey, Trustee(***), $20,055 $75,000
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

Michael P. Mallardi, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>

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

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

The Trustees decide upon matters of general policy 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 J.P. Morgan Family of Funds
(formerly the "Pierpont Family of Funds"), and the Trustees are the equal and
sole shareholders of Pierpont Group, Inc. The Trust and the Portfolio have
agreed to pay Pierpont Group, Inc. a fee in an amount representing its
reasonable costs in performing these services. These costs are periodically
reviewed by the Trustees. The principal offices of Pierpont Group, 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 March 31, 1996, 1997 and 1998 and for the six
months ended September 30, 1998 (unaudited): $2,409, $2,907, $3,447 and $2,046,
respectively.

Portfolio -- For the fiscal years ended March 31, 1996, 1997 and 1998:
$5,530, $5,302, and $5,740, respectively. For the six months ended September 30,
1998 (unaudited): $3,379.

Officers

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 and other trusts and portfolios in the J.P. Morgan Family of
Funds. The business address of each of the officers unless otherwise noted is
Funds Distributor, Inc., 60 State Street, Suite 1300, Boston, Massachusetts
02109.

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.

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 the Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Prior to October 28, 1998, Morgan
was the Investment Advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, and manages employee benefit funds
of corporations, labor unions and state and local governments and the accounts
of other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.

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 0.30% of the
Portfolio's average daily net assets.

For the fiscal years ended March 31, 1996, 1997 and 1998 the advisory
fees paid by the Portfolio were $246,966, $380,380, and $513,516, respectively.
For the six months ended six months ended September 30, 1998 (unaudited),
$351,242.

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."

DISTRIBUTOR

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

The table below sets forth for the Fund and the Portfolio the
administrative fees paid to FDI for the fiscal periods indicated.

Fund -- For the period August 1, 1996 through March 31, 1997: $1,867. For
the fiscal year ended March 31, 1998: $2,809. For the six months ended September
30, 1998 (unaudited): $1,470.

Portfolio -- For the period August 1, 1996 through March 31, 1997: $1,914.
For the fiscal year ended March 31, 1998: $2,869. For the six months ended
September 30, 1998 (unaudited): $1,519.

The table below sets forth for the Fund and the Portfolio the
administrative fees paid 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 fiscal periods indicated.

Fund -- For the fiscal year ended March 31, 1996: $5,065. For the period
April 1, 1996 through July 31, 1996: $2,361.

Portfolio -- For the fiscal year ended March 31, 1996: $6,648. For the
period April 1, 1996 through July 31, 1996: $4,617.

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.

The table below sets forth for the Fund and the Portfolio the fees
paid to Morgan as Services Agent.

Fund -- For the fiscal years ended March 31, 1996, 1997 and 1998: $2,991,
$21,188, and $31,005, respectively. For the six months ended September 30, 1998
(unaudited): $20,432.

Portfolio -- For the fiscal years ended March 31, 1996, 1997 and 1998:
$6,153, $37,675, and $52,013, respectively. For the six months ended September
30, 1998 (unaudited): $33,560.

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. 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 an annual rate of
0.10% (expressed as a percentage of the average daily net asset value of Fund
shares owned by or for shareholders).

The shareholder servicing fees paid by the Fund to Morgan for the fiscal
years ended March 31, 1996, 1997 and 1998: $21,606, $53,364, and $76,492,
respectively. For the six months ended September 30, 1998 (unaudited): $60,135.

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 believe that they may properly perform these
services and the other activities described in the Prospectus without violating
the Glass-Steagall Act or other applicable banking laws or regulations.

If Morgan were prohibited from providing any of the services under the
Shareholder Servicing 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 record keeping 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
subacounting, answering client inquiries regarding the Trust, assisting clients
in changing dividend options, account designations and addresses, providing
periodic statements showing the client's account balance and integrating these
statements with those of other transactions and balances in the client's other
accounts serviced by the financial professional, transmitting proxy statements,
periodic reports, updated prospectuses and other communications to shareholders
and, with respect to meetings of shareholders, collecting, tabulating and
forwarding executed proxies and obtaining such other information and performing
such other services as J.P. Morgan or the financial professional's clients may
reasonably request and agree upon with the financial professional.

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

INDEPENDENT ACCOUNTANTS

EXPENSES

In addition to the ` 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
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. Under fee arrangements prior
to September 1, 1995, Morgan as Services Agent was responsible for
reimbursements to the Trust and the Portfolio and the usual customary expenses
described above (excluding organization and extraordinary expenses, custodian
fees and brokerage expenses).

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
0.50% 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 at the option of J.P. Morgan.

The table below sets forth for the Fund the fees and other expenses
J.P. Morgan reimbursed under the expense reimbursement arrangement described
above or pursuant to prior expense reimbursement arrangement for the fiscal
periods indicated.

Fund -- For the fiscal years ended March 31, 1996, 1997, and 1998: $64,161,
$100,739, and $90,130, respectively. For the six months ended September 30, 1998
(unaudited): $39,974.

Portfolio -- For the fiscal years ended March 31, 1996, 1997 and 1998: N/A,
N/A, and N/A, respectively. For the six months ended September 30, 1998
(unaudited): N/A

PURCHASE OF SHARES

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

The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor appropriate
investments for the Fund's corresponding Portfolio. In addition, securities
accepted in payment for shares must: (i) meet the investment objective and
policies of Portfolio; (ii) be acquired by the Fund for investment and not for
resale (other than for resale to the Portfolio); (iii) be liquid securities
which are not restricted as to transfer either by law or liquidity of market;
and (iv) if stock, have a value which is readily ascertainable as evidenced by a
listing on a stock exchange, OTC market or by readily available market
quotations from a dealer in such securities. 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 a Financial Professional may charge the investor a
fee for this service and other services it provides to its customers.

REDEMPTION OF SHARES

Investors may redeem shares as described in the Prospectus.

If the Trust, on behalf of the Fund, and the Portfolio determines that
it would be detrimental to the best interest of the remaining shareholders of a
Fund to make payment wholly or partly in cash, payment of the redemption price
may be made in whole or in part by a distribution in kind of securities from the
Fund, in lieu of cash, in conformity with the applicable rule of the SEC. If
shares are redeemed in kind, the redeeming shareholder might incur transaction
costs in converting the assets into cash. The method of valuing portfolio
securities is described under "Net Asset Value," and such valuation will be made
as of the same time the redemption price is determined. The Trust on behalf of
the Fund and the Portfolio have elected to be governed by Rule 18f-1 under the
1940 Act pursuant to which the Fund and the Portfolio are obligated to redeem
shares solely in cash up to the lesser of $250,000 or one percent of the net
asset value of the Fund during any 90 day period for any one shareholder. The
Trust will redeem Fund shares in kind only if it has received a redemption in
kind from the 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. For information regarding
redemption orders placed through a financial professional, please see "Financial
Professionals" above.

EXCHANGE OF SHARES

An investor may exchange shares of the Fund for shares of any J.P.
Morgan Institutional Fund, J.P. Morgan Fund or J.P. Morgan Series Trust 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. In the case of investors in certain states, state securities laws may
restrict the availability of the exchange privilege. The Fund reserves the right
to discontinue, alter or limit its exchange privilege at any time.

DIVIDENDS AND DISTRIBUTIONS

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

NET ASSET VALUE

PERFORMANCE DATA

From time to time, the Fund may quote performance in terms of yield,
tax equivalent yield, actual distributions, total returns 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. See also the Prospectus.

Yield Quotations. As required by regulations of the SEC, the annualized
yield for the Fund is computed by dividing the Fund's net investment income per
share earned during a 30-day period by the net asset value on the last day of
the period. The average daily number of shares outstanding during the period
that are eligible to receive dividends is used in determining the net investment
income per share. Income is computed by totaling the interest earned on all debt
obligations during the period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield is then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income. Annualized tax-equivalent yield reflects
the approximate annualized yield that a taxable investment must earn for
shareholders at specified federal and New York income tax levels to produce an
after-tax yield equivalent to the annualized tax-exempt yield.

Below is set forth historical yield information for the period ended
September 30, 1998: 30-day yield: 4.01%; 30-day tax equivalent yield at 39.6%
tax rate: 6.64%.

Total Return Quotations. The Fund may advertise "total return" and
non-standardized total return data. The total return shows what an investment in
a Fund would have earned over a specified period of time (one, five or ten years
or since commencement of operations, if less) assuming that all distributions
and dividends by the Fund were reinvested on the reinvestment dates during the
period and less all recurring fees. This method of calculating total return is
required by regulations of the SEC. Total return data similarly calculated,
unless otherwise indicated, over other specified periods of time may also be
used. All performance figures are based on historical earnings and are not
intended to indicate future performance.

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

Below is set forth historical return information for the Fund for the
period ended September 30, 1998: Average annual total return, 1 year: 7.36%;
average annual total return, 5 years: N/A; average annual total return,
commencement of operations (April 11, 1994) to period end: 6.83%; aggregate
total return, 1 year: 7.36%; aggregate total return, 5 years: N/A; aggregate
total return, commencement of operations (April 11, 1994) to period end: 34.25%.

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

PORTFOLIO TRANSACTIONS

Portfolio transactions for the Portfolio will be undertaken principally
to accomplish a 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."

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

Portfolio securities will not be purchased from or through or sold to
or through the 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 from any underwriting group of which the Advisor or an affiliate of
the Advisor is a member, except to the extent permitted by law.

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

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.

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

MASSACHUSETTS TRUST

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

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. Effective October 28, 1998 the name of the Fund was
changed from "J.P. Morgan Institutional New York Total Return Bond Fund" to J.P.
Morgan Institutional New York Tax Exempt Bond Fund", and the Portfolio's name
changed accordingly.

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 a Fund is liable to a
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 a Fund, except as
such liability may arise from his or its own bad faith, willful misfeasance,
gross negligence or reckless disregard of his or its duties to such third
persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of a
Fund. With the exceptions stated, the Trust's Declaration of Trust provides that
a Trustee, officer, employee, or agent is entitled to be indemnified against all
liability in connection with the affairs of a Fund.

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) without changing the proportionate beneficial interest of each
shareholder in a Fund (or in the assets of other series, if applicable). Each
share represents an equal proportional interest in a Fund with each other share.
Upon liquidation of 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 a Fund have no preemptive or conversion rights
and are fully paid and nonassessable. The rights of redemption and exchange are
described in the Prospectus and elsewhere in this Statement of Additional
Information.

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 January 31, 1999, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of the Fund:

Morgan as Agent for Trust of LHP Klotz FBO R Klotz (7.53%); Morgan as
Agent for G. Attfield (6.62%); Charles Schwab & Co. FBO Customers
(6.53%); Morgan as Agent for G. Attfield and A. Hubbard (6.38%); Morgan
as Agent for E. Greene (5.95%%); Morgan as Agent for Shubert
Organization (5.79%).

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 a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
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.

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 as the Fund or the retaining of an
investment adviser to manage the Fund's assets in accordance with the investment
policies with respect to the Portfolio described above and in each Fund's
prospectus.

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 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, (i) at least 50% of the
value of the Fund's total assets is represented by cash, U.S. Government
securities, investments in other regulated investment companies and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets, and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S. Government
securities or the securities of other regulated investment companies).

As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed.

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

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

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 consists 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. 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. To the extent that
this capital loss is used to offset future gains, it is probable that the gains
so offset will not be distributed to shareholders.

Distributions of net investment income (other than exempt-interest
dividends) and realized net short-term capital gains in excess of net long-term
capital losses are generally taxable to shareholders of the Fund as ordinary
income whether such distributions are taken in cash or reinvested in additional
shares. The Fund generally pays a monthly dividend. If dividend payments exceed
income earned by the Fund, the over distribution would be considered a return of
capital rather than a dividend payment. The Fund intends to pay dividends in
such a manner so as to minimize the possibility of a return of capital.
Distributions of net long-term capital gains (i.e., net long-term capital gains
in excess of net short-term capital losses) 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 20% rate of tax.

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

Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less (i) 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, and (ii) will be disallowed to the
extent of any exempt-interest dividends received by the shareholder with respect
to such shares. Investors are urged to consult their tax advisors concerning the
limitations on the deductibility of capital losses. In addition, no loss will be
allowed on the redemption or exchange of shares of the Fund, if within a period
beginning 30 days before the date of such redemption or exchange and ending 30
days after such date, the shareholder acquires (such as through dividend
reinvestment) securities that are substantially identical to shares of the Fund.

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

ADDITIONAL INFORMATION

Telephone calls to the Fund, J.P. Morgan or a Financial Professional as
shareholder servicing agent may be tape recorded. With respect to the securities
offered hereby, this Statement of Additional Information and the Prospectus do
not contain all the information included in the Trust's registration statement
filed with the SEC under the 1933 Act and the Trust's 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
statement including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.

Each such statement is qualified in all respects by such reference.

The Year 2000 Initiative

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, which are being
developed in the first half of 1999, will define the infrastructure that should
be put in place for managing a failure during the millennium event itself.

FINANCIAL STATEMENTS

The financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference to the Fund's
March 31, 1998 annual report filing made with the SEC on June 2, 1998 pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession Number
0001047469-98-022532) and the September 30, 1998 semi-annual report filing made
with the SEC on November 23, 1998 (Accession Number 0001047469-98-042013). 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.

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.

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

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

<PAGE>

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

Corporate and Municipal Bonds

<PAGE>

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

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

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

Commercial Paper, including Tax Exempt

- 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.

<PAGE>

APPENDIX B

ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL SECURITIES

The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the Annual Information
Statement of the State of New York dated June 26, 1998 and a supplement thereto
dated November 4, 1998. The factors affecting the financial condition of New
York State (the "State") and New York City (the "City") are complex and the
following description constitutes only a summary.

General

New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The state's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State's location and its excellent air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. Like the rest of the nation, New York has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries.

Services: The services sector, which includes entertainment, personal
services, such as health care and auto repairs, and business-related services,
such as information processing, law and accounting, is the State's leading
economic sector. The services sector accounts for more than three of every ten
nonagricultural jobs in New York and has a noticeably higher proportion of total
jobs than does the rest of the nation.

Manufacturing: Manufacturing employment continues to decline in
importance in New York, as in most other states, and New York's economy is less
reliant on this sector than is the nation. The principal manufacturing
industries in recent years produced printing and publishing materials,
instruments and related products, machinery, apparel and finished fabric
products, electronic and other electric equipment, food and related products,
chemicals and allied products, and fabricated metal products.

Trade: Wholesale and retail trade is the second largest sector in terms
of nonagricultural jobs in New York but is considerably smaller when measured by
income share. Trade consists of wholesale businesses and retail businesses, such
as department stores and eating and drinking establishments.

Finance, Insurance and Real Estate: New York City is the nation's
leading center of banking and finance and, as a result, this is a far more
important sector in the State than in the nation as a whole. Although this
sector accounts for under one-tenth of all nonagricultural jobs in the State, it
contributes over one-sixth of all nonfarm labor and proprietors' income.

Agriculture: Farming is an important part of the economy of large
regions of the State, although it constitutes a very minor part of total State
output. Principal agricultural products of the State include milk and dairy
products, greenhouse and nursery products, apples and other fruits, and fresh
vegetables. New York ranks among the nation's leaders in the production of these
commodities.

Government: Federal, State and local government together are the third
largest sector in terms of nonagricultural jobs, with the bulk of the employment
accounted for by local governments. Public education is the source of nearly
one-half of total state and local government employment.

Relative to the nation, the State has a smaller share of manufacturing
and construction and a larger share of service-related industries. The State's
finance, insurance, and real estate share, as measured by income, is
particularly large relative to the nation. The State is likely to be less
affected than the nation as a whole during an economic recession that is
concentrated in manufacturing and construction, but likely to be more affected
during a recession that is concentrated in the service-producing sector.

Economic Outlook

U. S. Economy

Economic growth during both 1998 and 1999 is expected to be slower than
it was during 1997. The financial and economic turmoil which started in Asia and
has spread to other parts of the world is expected to continue to negatively
affect U.S. trade balances throughout most of 1999. In addition, growth in
domestic consumption, which has been a major driving force behind the nation's
strong economic performance in recent years, is expected to slow in 1999 as
consumer confidence retreats from historic highs and the stock market ceases to
provide large amounts of extra discretionary income. However, the lower
short-term interest rates which are expected to be in force during 1999 should
help prevent a recession. The revised forecast projects real GDP growth of 3.4
percent in 1998, moderately below the 1997 growth rate. In 1999, real GDP growth
is expected to fall further, to 1.6 percent. The growth of nominal GDP is
projected to decline from 5.9 percent in 1997 to 4.6 percent in 1998 and 3.7
percent in 1999. The inflation rate is expected to drop to 1.7 percent in 1998
before rising to 2.7 percent in 1999. The annual rate of job growth is expected
to be 2.5 percent in 1998, almost equaling the strong growth rate experienced in
1997. In 1999, however, employment growth is forecast to slow markedly, to 1.9
percent. Growth in personal income and wages is expected to slow in 1998 and
again in 1999.

State Economy

Continued growth is projected in 1998 and 1999 for employment, wages,
and personal income, although, for 1999, a significant slowdown in the growth
rates of personal income and wages are expected. The growth of personal income
is projected to rise from 4.7 percent in 1997 to 5.0 percent in 1998, but then
drop to 3.4 percent in 1999, in part because growth in bonus payments is
expected to moderate significantly, a distinct shift from the unusually high
increases of the last few years. Overall employment growth is expected to be 2.0
percent in 1998, the strongest in a decade, but is expected to drop to 1.0
percent in 1999, reflecting the slowing growth of the national economy,
continued spending restraint in government, less robust profitability in the
financial sector and continued restructuring in the manufacturing, health care,
and banking sectors.

State Financial Plan

The State Constitution requires the Governor to submit to the
legislature a balanced executive budget which contains a complete plan of
expenditures (the "State Financial Plan") for the ensuing fiscal year and all
moneys and revenues estimated to be available therefor, accompanied by bills
containing all proposed appropriations or reappropriations and any new or
modified revenue measures to be enacted in connection with the executive budget.
A final budget must be approved before the statutory deadline of April 1. The
State Financial Plan is updated quarterly pursuant to law.

1998-99 Fiscal Year

The State's current fiscal year began on April 1, 1998 and ends on
March 31, 1999 and is referred to herein as the State's 1998-99 fiscal year. The
Legislature adopted the debt service component of the State budget for the
1998-99 fiscal year on March 30, 1998 and the remainder of the budget on April
18, 1998. In the period prior to adoption of the budget for the current fiscal
year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget. The Legislature had not overridden any of the Governor's vetoes as of
the start of the legislative recess on June 19, 1998 (under the State
Constitution, the Legislature can override one or more of the Governor's vetoes
with the approval of two-thirds of the members of each house).

General Fund disbursements in 1998-99 are now projected to grow by
$2.43 billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.

The State's enacted budget includes several new multi-year tax
reduction initiatives, including acceleration of State-funded property and local
income tax relief for senior citizens under the School Tax Relief Program
(STAR), expansion of the child care income-tax credit for middle-income
families, a phased-in reduction of the general business tax, and reduction of
several other taxes and fees, including an accelerated phase-out of assessments
on medical providers. The enacted budget also provides for significant increases
in spending for public schools, special education programs, and for the State
and City university systems. It also allocates $50 million for a new Debt
Reduction Reserve Fund (DRRF) that may eventually be used to pay debt service
costs on or to prepay outstanding State-supported bonds.

The 1998-99 State Financial Plan projects a closing balance in the
General Fund of $1.42 billion that is comprised of a reserve of $761 million
available for future needs, a balance of $400 million in the Tax Stabilization
Reserve Fund (TSRF), a balance of $158 million in the Community Projects Fund
(CPF), and a balance of $100 million in the Contingency Reserve Fund (CRF). The
TSRF can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resources to help finance any extraordinary litigation costs during the
fiscal year.

Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and organizations that are
not subject to the State's control. The State Financial Plan is also necessarily
based upon forecasts of national and State economic activity. Economic forecasts
have frequently failed to predict accurately the timing and magnitude of changes
in the national and the State economies. The Division of Budget believes that
its projections of receipts and disbursements relating to the current State
Financial Plan, and the assumptions on which they are based, are reasonable.
Actual results, however, could differ materially and adversely from the
projections set forth herein, and those projections may be changed materially
and adversely from time to time. See "Special Considerations" below for a
discussion of risks and uncertainties faced by the State.

Second Update (current fiscal year)

On October 30, 1998, the State issued the second of its three quarterly
updates to the 1998-99 Financial Plan. In the Mid-Year Update, the State
continues to project that the State Financial Plan for 1998-99 will remain in
balance. The State now projects total receipts in 1998-99 of $37.84 billion, an
increase of $29 million over the amount projected in the First Quarterly Update.
The State has made no changes to its July disbursement projections, with total
disbursements of $36.78 billion expected for the current fiscal year. The
additional receipts increase the State's projected surplus (reserve for future
needs) by $29 million over the July estimate, to $1.04 billion.

The Financial Plan now projects a closing balance in the General Fund
of $1.7 billion. The balance is comprised of the $1.04 billion reserve for
future needs, $400 million in the Tax Stabilization Reserve Fund, $100 million
in the Contingency Reserve Fund (after a planned deposit of $32 million in
1998-99), and $158 million in the Community Projects Fund.

The State ended the first six months of 1998-99 fiscal year with a
General Fund cash balance of $5.02 billion, roughly $143 million higher than
projected in the cash flow accompanying the July Update to the Financial Plan.
Total receipts, including transfers from other funds, were approximately $52
million higher than expected, with the increase comprised of additional tax
revenues ($22 million) and transfers from other funds ($30 million). Total
spending through the first six months of the fiscal year was $16.28 billion, or
$91 million lower than projected in July. This variance resulted primarily from
higher spending in Grants to Local Governments ($27 million), offset by lower
spending in State Operations ($124 million). These variances are timing-related
and should not affect total disbursements for the fiscal year.

Outyear Projections Of Receipts And Disbursements

State law requires the Governor to propose a balanced budget each year.
In recent years, the State has closed projected budget gaps of $5.0 billion
(1995-96), $3.9 billion (1996-97), $2.3 billion (1997-98), and less than $1
billion (1998-99). The State, as a part of the 1998-99 Executive Budget
projections submitted to the Legislature in February 1998, projected a 1999-00
General Fund budget gap of approximately $1.7 billion and a 2000-01 gap of $3.7
billion. As a result of changes made in the 1998-99 enacted budget, the 1999-00
gap is now expected to be roughly $1.3 billion, or about $400 million less than
previously projected, after application of reserves created as part of the
1998-99 budget process. Such reserves would not be available against subsequent
year imbalances.

Sustained growth in the State's economy could contribute to closing
projected budget gaps over the next several years, both in terms of
higher-than-projected tax receipts and in lower-than-expected entitlement
spending. However, the State's projections in 1999-00 currently assume actions
to achieve $600 million in lower disbursements and $250 million in additional
receipts from the settlement of State claims against the tobacco industry.
Consistent with past practice, the projections do not include any costs
associated with new collective bargaining agreements after the expiration of the
current round of contracts at the end of the 1998-99 fiscal year. The State
expects that the 1999-00 Financial Plan will achieve savings from initiatives by
State agencies to deliver services more efficiently, workforce management
efforts, maximization of federal and non-General Fund spending offsets, and
other actions necessary to bring projected disbursements and receipts into
balance.

The State will formally update its outyear projections of receipts and
disbursements for the 2000-01 and 2001-02 fiscal years as a part of the 1999-00
Executive Budget process, as required by law. The revised expectations for years
2000-01 and 2001-02 will reflect the cumulative impact of tax reductions and
spending commitments enacted over the last several years as well as new 1999-00
Executive Budget recommendations. The STAR program, which dedicates a portion of
personal income tax receipts to fund school tax reductions, has a significant
impact on General Fund receipts. STAR is projected to reduce personal income tax
revenues available to the General Fund by an estimated $1.3 billion in 2000-01.
Measured from the 1998-99 base, scheduled reductions to estate and gift, sales
and other taxes, reflecting tax cuts enacted in 1997-98 and 1998-99, will lower
General Fund taxes and fees by an estimated $1.8 billion in 2000-01.
Disbursement projections for the outyears currently assume additional outlays
for school aid, Medicaid, welfare reform, mental health community reinvestment,
and other multi-year spending commitments in law. See "Special Considerations"
below for a description of other risks and uncertainties associated with the
State Financial Plan process. Special Considerations

The economic and financial condition of the State may be affected by
various financial, social, economic and political factors. These factors can be
very complex, may vary from fiscal year to fiscal year, and are frequently the
result of actions taken not only by the State and its agencies and
instrumentalities, but also by entities, such as the federal government, that
are not under the control of the State. Because of the uncertainty and
unpredictability of these factors, their impact cannot, as a practical matter,
be included in the assumptions underlying the State's projections at this time.

The State Financial Plan is based upon forecasts of national and State
economic activity developed through both internal analysis and review of State
and national economic forecasts prepared by commercial forecasting services and
other public and private forecasters. Economic forecasts have frequently failed
to predict accurately the timing and magnitude of changes in the national and
the State economies. Many uncertainties exist in forecasts of both the national
and State economies, including consumer attitudes toward spending, the extent of
corporate and governmental restructuring, the condition of the financial sector,
federal fiscal and monetary policies, the level of interest rates, and the
condition of the world economy, which could have an adverse effect on the State.
There can be no assurance that the State economy will not experience results in
the current fiscal year that are worse than predicted, with corresponding
material and adverse effects on the State's projections of receipts and
disbursements.

Projections of total State receipts in the Financial Plan are based on
the State tax structure in effect during the fiscal year and on assumptions
relating to basic economic factors and their historical relationships to State
tax receipts. In preparing projections of State receipts, economic forecasts
relating to personal income, wages, consumption, profits and employment have
been particularly important. The projection of receipts from most tax or revenue
sources is generally made by estimating the change in yield of such tax or
revenue source caused by economic and other factors, rather than by estimating
the total yield of such tax or revenue source from its estimated tax base. The
forecasting methodology, however, ensures that State fiscal year collection
estimates for taxes that are based on a computation of annual liability, such as
the business and personal income taxes, are consistent with estimates of total
liability under such taxes.

Projections of total State disbursements are based on assumptions
relating to economic and demographic factors, levels of disbursements for
various services provided by local governments (where the cost is partially
reimbursed by the State), and the results of various administrative and
statutory mechanisms in controlling disbursements for State operations. Factors
that may affect the level of disbursements in the fiscal year include
uncertainties relating to the economy of the nation and the State, the policies
of the federal government, and changes in the demand for and use of State
services.

An additional risk to the State Financial Plan arises from the
potential impact of certain litigation and of federal disallowances now pending
against the State, which could adversely affect the State's projections of
receipts and disbursements. The State Financial Plan assumes no significant
litigation or federal disallowance or other federal actions that could affect
State finances, but has significant reserves in the event of such an action.

The Division of the Budget believes that its projections of receipts
and disbursements relating to the current State Financial Plan, and the
assumptions on which they are based, are reasonable. Actual results, however,
could differ materially and adversely from the projections set forth herein. In
the past, the State has taken management actions to address potential Financial
Plan shortfalls, and DOB believes it could take similar actions should variances
occur in its projections for the current fiscal year.

Despite recent budgetary surpluses recorded by the State, actions
affecting the level of receipts and disbursements, the relative strength of the
State and regional economy, and actions by the federal government have helped to
create projected structural budget gaps for the State. These gaps result from a
significant disparity between recurring revenues and the costs of maintaining or
increasing the level of support for State programs. To address a potential
imbalance in any given fiscal year, the State would be required to take actions
to increase receipts and/or or reduce disbursements as it enacts the budget for
that year, and, under the State Constitution, the Governor is required to
propose a balanced budget each year. There can be no assurance, however, that
the Legislature will enact the Governor's proposals or that the State's actions
will be sufficient to preserve budgetary balance in a given fiscal year or to
align recurring receipts and disbursements in future fiscal years. For example,
the fiscal effects of tax reductions adopted in the last several fiscal years
(including 1998-99) are projected to grow more substantially beyond the 1998-99
fiscal year, with the incremental annual cost of all currently enacted tax
reductions estimated at over $4 billion by the time they are fully effective in
State fiscal year 2002-03. These actions will place pressure on future budget
balance in New York State.

1998-99 State Financial Plan

Four governmental fund types comprise the State Financial Plan: the General
Fund, the Special Revenue Funds, the Capital Projects Funds, and the Debt
Service Funds.

General Fund

The General Fund is the principal operating fund of the State and is
used to account for all financial transactions except those required to be
accounted for in another fund. It is the State's largest fund and receives
almost all State taxes and other resources not dedicated to particular purposes.
In the State's 1998-99 fiscal year, the General Fund is expected to account for
approximately 47.6 percent of all Governmental Funds disbursements and 70.1
percent of total State Funds disbursements. General Fund moneys are also
transferred to other funds, primarily to support certain capital projects and
debt service payments in other fund types. Total receipts and transfers from
other funds are projected to be $37.56 billion, an increase of $3.01 billion
from the 1997-98 fiscal year. Total General Fund disbursements and transfers to
other funds are projected to be $36.78 billion, an increase of $2.43 billion
from the 1997-98 fiscal year.

Projected General Fund Receipts

Total General Fund receipts in 1998-99 are projected to be $37.56
billion, an increase of over $3 billion from the $34.55 billion recorded in
1997-98. This total includes $34.36 billion in tax receipts, $1.40 billion in
miscellaneous receipts, and $1.80 billion in transfers from other funds.

The transfer of a portion of the surplus recorded in 1997-98 to 1998-99
exaggerates the "real" growth in State receipts from year to year by depressing
reported 1997-98 figures and inflating 1998-99 projections. Conversely, the
incremental cost of tax reductions newly effective in 1998-99 and the impact of
statutes earmarking certain tax receipts to other funds work to depress apparent
growth below the underlying growth in receipts attributable to expansion of the
State's economy. On an adjusted basis, State tax revenues in the 1998-99 fiscal
year are projected to grow at approximately 7.5 percent, following an adjusted
growth of roughly nine percent in the 1997-98 fiscal year. The discussion below
summarizes the State's projections of General Fund taxes and other revenues for
the 1998-99 Fiscal year.

The Personal Income Tax is imposed on the income of individuals,
estates and trusts and is based with certain modifications on federal
definitions of income and deductions. This tax continues to account for over
half of the State's General Fund receipts base. Net personal income tax
collections are projected to reach $21.24 billion, nearly $3.5 billion above the
reported 1997-98 collection total. Since 1997 represented the completion of the
20 percent income tax reduction program enacted in 1995, growth from 1997 to
1998 will be unaffected by major income tax reductions. Adding to the projected
annual growth is the net impact of the transfer of the surplus from 1997-98 to
the current year which affects reported collections by over $2.4 billion on a
year-over-year basis, as partially offset by the diversion of slightly over $700
million in income tax receipts to the STAR fund to finance the initial year of
the school tax reduction program. The STAR program was enacted in 1997 to
increase the State share of school funding and reduce residential school taxes.
Adjusted for these transactions, the growth in net income tax receipts is
roughly $1.7 billion, an increase of over 9 percent. This growth is largely a
function of over 8 percent growth in income tax liability projected for 1998 as
well as the impact of the 1997 tax year settlement on 1998-99 net collections.

User taxes and fees are comprised of three-quarters of the State four
percent sales and use tax (the balance, one percent, flows to support Local
Government Assistance Corporation (LGAC) debt service requirements), cigarette,
alcoholic beverage, container, and auto rental taxes, and a portion of the motor
fuel excise levies. Also included in this category are receipts from the motor
vehicle registration fees and alcoholic beverage license fees. A portion of the
motor fuel tax and motor vehicle registration fees and all of the highway use
tax are earmarked for dedicated transportation funds.

Receipts from user taxes and fees are projected to total $7.14 billion,
an increase of $107 million from reported collections in the prior year. The
sales tax component of this category accounts for all of the 1998-99 growth, as
receipts from all other sources decline $100 million. The growth in yield of the
sales tax in 1998-99, after adjusting for tax law and other changes, is
projected at 4.7 percent. The yields of most of the excise taxes in this
category show a long-term declining trend, particularly cigarette and alcoholic
beverage taxes. These General Fund declines are exacerbated in 1998-99 by
revenue losses from scheduled and newly enacted tax reductions, and by an
increase in earmarking of motor vehicle registration fees to the Dedicated
Highway and Bridge Trust Fund.

Business taxes include franchise taxes based generally on net income of
general business, bank and insurance corporations, as well as
gross-receipts-based taxes on utilities and gallonage-based petroleum business
taxes. Beginning in 1994, a 15 percent surcharge on these levies began to be
phased out and, for most taxpayers, there is no surcharge liability for taxable
periods ending in 1997 and thereafter.

Total business tax collections in 1998-99 are now projected to be $4.96
billion, $91 million less than received in the prior fiscal year. The category
includes receipts from the largely income-based levies on general business
corporations, banks and insurance companies, gross receipts taxes on energy and
telecommunication service providers and a per-gallon imposition on petroleum
business. The year-over-year decline in projected receipts in this category is
largely attributable to statutory changes between the two years. These include
the first year of utility-tax rate cuts and the Power for Jobs tax reduction
program for energy providers, and the scheduled additional diversion of General
Fund petroleum business and utility tax receipts to other funds. In addition,
profit growth is also expected to slow in 1998.

Other taxes include estate, gift and real estate transfer taxes, a tax
on gains from the sale or transfer of certain real estate (this tax was repealed
in 1996), a pari-mutuel tax and other minor levies. They are now projected to
total $1.02 billion -- $75 million below last year's amount. Two factors account
for a significant part of the expected decline in collections from this
category. First, the effects of the elimination of the real property gains tax
collections; second, a decline in estate tax receipts, following the explosive
growth recorded in 1997-98, when receipts expanded by over 16 percent.

Miscellaneous receipts include investment income, abandoned property
receipts, medical provider assessments, minor federal grants, receipts from
public authorities, and certain other license and fee revenues. Total
miscellaneous receipts are projected to reach $1.40 billion, down almost $200
million from the prior year, reflecting the loss of non-recurring receipts in
1997-98 and the growing effects of the phase-out of the medical provider
assessments.

Transfers from other funds to the General Fund consist primarily of tax
revenues in excess of debt service requirements, particularly the one percent
sales tax used to support payments to LGAC. Transfers from other funds are
expected to total $1.8 billion, or $222 million less than total receipts from
this category during 1997-98. Total transfers of sales taxes in excess of LGAC
debt service requirements are expected to increase by approximately $51 million,
while transfers from all other funds are expected to fall by $273 million,
primarily reflecting the absence, in 1998-99, of a one-time transfer of nearly
$200 million for retroactive reimbursement of certain social services claims
from the federal government.

Projected General Fund Disbursements

General Fund disbursements in 1998-99, including transfers to support
capital projects, debt service and other funds are estimated at $36.78 billion.
This represents an increase of $2.43 billion or 7.1 percent from 1997-98. Nearly
one-half of the growth is for educational purposes, reflecting increased support
for public schools, special education programs and the State and City university
systems. The remaining increase is primarily for Medicaid, mental hygiene, and
other health and social welfare programs, including children and family
services. The 1998-99 Financial Plan also includes funds for the current
negotiated salary increases for State employees, as well as increased transfers
for debt service.

Grants to Local Governments is the largest category of General Fund
disbursements and includes financial assistance to local governments and
not-for-profit corporations, as well as entitlement benefits to individuals. The
1998-99 Financial Plan projects spending of $25.14 billion in this category, an
increase of $1.88 billion or 8.1 percent over the prior year. The largest annual
increases are for educational programs, Medicaid, other health and social
welfare programs, and community projects grants.

The 1998-99 budget provides $9.65 billion in support of public schools.
The year-to-year increase of $769 million is comprised of partial funding for a
1998-99 school year increase of $847 million as well as the remainder of the
1997-98 school year increase that occurs in State fiscal year 1998-99. Spending
for all other educational programs, which includes the State and City university
systems, the Tuition Assistance Programs, and handicapped programs, is estimated
at $3.00 billion, an increase of $270 million over 1997-98 levels.

Medicaid costs are estimated at $5.60 billion, an increase of $144
million from the prior year. After adjusting 1997-98 for the $116 million
prepayment of an additional Medicaid cycle, Medicaid spending is projected to
increase $260 million or 4.9 percent. Disbursements for all other health and
social welfare programs are projected to total $3.63 billion, an increase of
$131 million from 1997-98. This includes an increase in support for children and
families and local public health programs, offset by a decline in welfare
spending of $75 million that reflects continuing State and local efforts to
reduce welfare fraud, declining caseloads, and the impact of State and federal
welfare reform legislation.

Remaining disbursements primarily support community-based mental
hygiene programs, community and public health programs, local transportation
programs, and revenue sharing payments to local governments. Revenue sharing and
other general purpose aid to local governments are projected at $837 million, an
increase of approximately $37 million from 1997-98.

State operations spending reflects the administrative costs of
operating the State's agencies, including the prison system, mental hygiene
institutions, the State University system (SUNY), the Legislature, and the court
system. Personal service costs account for approximately 73 percent of spending
in this category. Since January 1995, the State's workforce has been reduced by
about 10 percent and is projected to remain at its current level of
approximately 191,000 persons in 1998-99.

State operations spending is projected at $6.70 billion, an increase of
$511 million of 8.3 percent from the prior year. This increase is primarily due
to an additional payroll cycle in 1998-99, a 3.5 percent general salary increase
on October 1, 1998 for most State employees, the loss of federal receipts that
would otherwise lower General Fund spending in mental hygiene programs, and a
projected 15.6 percent increase in the Judiciary's budget.

General State charges account primarily for the costs of providing
fringe benefits for State employees, including contributions to pension systems,
the employer's share of social security contributions, employer contributions
toward the cost of health insurance, and the costs of providing worker's
compensation and unemployment insurance benefits. This category also reflects
certain fixed costs such as payments in lieu of taxes, and payments of judgments
against the State or its public officers.

Disbursements in this category are estimated at $2.22 billion, a
decrease of $50 million from the prior year. This annual decline reflects
projected decreases in pension costs and Court of Claims payments, offset by
modest projected increases for health insurance contributions, social security
costs, and the loss of reimbursements due to a reduction in the fringe benefit
rate charged to positions financed by non-General Fund sources.

Debt service paid from the General Fund reflects debt service on
short-term obligations of the State, and includes only interest costs on the
State's commercial paper program. The 1998-99 debt service estimate is $11
million, reflecting relative stability in short-term interest rates. The State's
short-term TRAN borrowing program was eliminated in 1995.

Transfers to other funds from the General Fund are made primarily to
finance certain portions of State capital projects spending and debt service on
long-term bonds where these costs are not funded from other sources.

Transfers in support of debt service are projected at $2.13 billion in
1998-99, an increase of $110 million from 1997-98. The increase reflects the
impact of certain prior year bond sales (net of refunding savings), and certain
bond sales planned to occur during the 1998-99 fiscal year. The State Financial
Plan also establishes a transfer of $50 million to the new Debt Reduction
Reserve Fund. The Fund may be used, subject to enactment of new appropriations,
to pay the debt service costs on or to prepay State-supported bonds.

Transfers in support of capital projects provide General Fund support
for projects not otherwise financed through bond proceeds, dedicated taxes and
other revenues, or federal grants. These transfers are projected at $200 million
for 1998-99, comparable to last year.

Remaining transfers from the General Fund to other funds are estimated
to decline $59 million in 1998-99 to $327 million. This decline is primarily the
net impact of one-time transfers in 1997-98 to the State University Tuition
Stabilization Fund and to the Lottery Fund to support school aid, offset by a
1998-99 increase in the State subsidy to the Roswell Park Cancer Research
Institute.

Non-recurring Resources

The Division of the Budget estimates that the 1998-99 State Financial
Plan contains actions that provide non-recurring resources or savings totaling
approximately $64 million, the largest of which is a retroactive reimbursement
of federal welfare claims.

The 1998-99 Financial Plan projects a closing fund balance in the
General Fund of $1.42 billion. This fund balance is composed of a reserve of
$761 million available for future needs, a $400 million balance in the TSRF, a
$158 million balance in the CPF, and a balance of $100 million in the CRF, after
a projected deposit of $32 million in 1998-99.

Other Governmental Funds

In addition to the General Fund, the State Financial Plan includes
Special Revenue Funds, Capital Projects Funds and Debt Service Funds which are
discussed below. Amounts below do not include other sources and uses of funds
transferred to or from other fund types.

Special Revenue Funds

Special Revenue Funds are used to account for the proceeds of specific
revenue sources such as federal grants that are legally restricted, either by
the Legislature or outside parties, to expenditures for specified purposes.
Although activity in this fund type is expected to comprise approximately 41
percent of total governmental funds receipts in the 1998-99 fiscal year,
three-quarters of that activity relates to federally-funded programs.

Total disbursements for programs supported by Special Revenue Funds are
projected at $29.97 billion, an increase of $2.32 billion or 8.4 percent from
1997-98. Federal grants account for approximately three-quarters of all spending
in the Special Revenue fund type. Disbursements from federal funds are estimated
at $21.78 billion, an increase of $1.12 billion or 5.4 percent. The single
largest program in this fund group is Medicaid, which is projected at $13.65
billion, an increase of $465 million or 3.5 percent above last year. Federal
support for welfare programs is projected at $2.53 billion, similar to 1997-98.
The remaining growth in federal funds is primarily due to the new Child Health
Plus program, estimated at $197 million in 1998-99. This program will expand
health insurance coverage to children of indigent families.

State special revenue spending is projected to be $8.19 billion, an
increase of $1.20 billion or 17.2 percent from last year's levels. Most of this
projected increase in spending is due to the $704 million cost of the first
phase of the STAR program, as well as $231 million in additional operating
assistance for mass transportation, and $113 million for the State share of the
new Child Health Plus program.

Capital Projects Funds

Capital Projects Funds account for the financial resources used in the
acquisition, construction, or rehabilitation of major State capital facilities,
and for capital assistance grants to certain local governments or public
authorities. This fund type consists of the Capital Projects Fund, which is
supported by tax receipts transferred from the General Fund, and various other
capital funds established to distinguish specific capital construction purposes
supported by other revenues. In the 1998-99 fiscal year, activity in these funds
is expected to comprise 5.5 percent of total governmental receipts.

Capital Projects Funds spending in fiscal year 1998-99 is projected at
$4.14 billion, an increase of $575 million or 16.1 percent from last year. The
major components of this expected growth are transportation and environmental
programs, including continued increased spending for 1996 Clean Water/Clean Air
Bond Act projects and higher projected disbursements from the Environmental
Protection Fund (EPF). Another significant component of this projected increase
is in the area of public protection, primarily for facility rehabilitation and
construction of additional prison capacity.

Debt Service Funds

Debt Service Funds are used to account for the payment of principal and
interest on long-term debt of the State and to meet commitments under
lease-purchase and other contractual-obligation financing arrangements. This
fund type is expected to comprise 3.8 percent of total governmental fund
receipts in the 1998-99 fiscal year. Receipts in these funds in excess of debt
service requirements may be transferred to the General Fund, Capital Projects
Funds and Special Revenue Funds, pursuant to law.

Total disbursements form the Debt Service Fund type are estimated at
$3.36 billion in 1998-99, an increase of $275 million or 8.9 percent from
1997-98 levels. Of the increase, $102 million is for transportation purposes,
including debt service on bonds issued for State and local highway and bridge
programs financed through the New York State Thruway Authority and supported by
the Dedicated Highway and Bridge Trust Fund. Another $45 million is for
education purposes, including State and City University programs financed
through the Dormitory Authority of the State of New York (DASNY). The remainder
is for a variety of programs in such areas as mental health and corrections, and
for general obligation financings.

Year 2000 Compliance

New York State is currently addressing "Year 2000" data processing
compliance issues. The Year 2000 compliance issue ("Y2K") arises because most
computer software programs allocate two digits to the data field for "year" on
the assumption that the first two digits will be "19." Such programs will thus
interpret the year 2000 as the year 1900 absent reprogramming. Y2K could impact
both the ability to enter data into computer programs and the ability of such
programs to correctly process data.

In 1996, the State created the Office for Technology (OFT) to help
address statewide technology issues, including the Year 2000 issue. OFT has
estimated that investments of at least $140 million will be required to bring
approximately 350 State mission-critical and high-priority computer systems not
otherwise scheduled for replacement into Year 2000 compliance, and the State is
planning to spend $100 million in the 1998-99 fiscal year for this purpose.
Mission-critical computer applications are those which impact the health, safety
and welfare of the State and its citizens, and for which failure to be in Y2K
compliance could have a material and adverse impact upon State operations.
High-priority computer applications are those that are critical for a State
agency to fulfill its mission and deliver services, but for which they are
manual alternatives. Work has been completed on roughly 20 percent of these
systems. All remaining unfinished mission-critical and high-priority systems
have at least 40 percent or more of the work completed. Contingency planning is
underway for those systems which may be non-compliant prior to failure dates.
The enacted budget also continues funding for major systems scheduled for
replacement, including the State payroll, civil service, tax and finance and
welfare management systems, for which Year 2000 compliance is included as a part
of the project.

OFT is monitoring compliance on a quarterly basis and is providing
assistance and assigning resources to accelerate compliance for mission-critical
systems, with most compliance testing expected to be completed by mid-1999.
There can be no guarantee, however, that all of the State's mission-critical and
high-priority computer systems will be Year 2000 compliant and that there will
not be an adverse impact upon State operations or State finances as a result.

Cash-Basis Results for Prior Fiscal Years

The State reports its financial results on two bases of accounting: the
cash basis, showing receipts and disbursements; and the modified accrual basis,
prescribed by Generally Accepted Accounting Principles ("GAAP"), showing
revenues and expenditures.

General Fund 1995-96 through 1997-98

The General Fund is the principal operating fund of the State and is
used to account for all financial transactions, except those required to be
accounted for in another fund. It is the State's largest fund and receives most
State taxes and other resources not dedicated to particular purposes. General
Fund moneys are also transferred to other funds, primarily to support certain
capital projects and debt service payments in other fund types. A narrative
description of cash-basis results in the General Fund is presented below.

New York State's financial operations have improved during recent
fiscal years. During the period 1989-90 through 1991-92, the State incurred
General Fund operating deficits that were closed with receipts from the issuance
of tax and revenue anticipation notes ("TRANs"). A national recession, followed
by the lingering economic slowdown in New York and the regional economy,
resulted in repeated shortfalls in receipts and three budget deficits during
those years. During its last six fiscal years, however, the State has recorded
balanced budgets on a cash basis, with positive fund balances as described
below.

1997-98 Fiscal Year

The State ended its 1997-98 fiscal year in balance on a cash basis,
with a General Fund cash surplus as reported by DOB of approximately $2.04
billion. The cash surplus was derived primarily from higher-than-anticipated
receipts and lower spending on welfare, Medicaid, and other entitlement
programs.

The General Fund had a closing balance of $638 million, an increase of
$205 million from the prior fiscal year. The balance is held in three accounts
within the General Fund: the Tax Stabilization Reserve Fund (TSRF), the
Contingency Reserve Fund (CRF) and the Community Projects Fund (CPF). The TSRF
closing balance was $400 million, following a required deposit of $15 million
(repaying a transfer made in 1991-92) and an extraordinary deposit of $68
million made from the 1997-98 surplus. The CRF closing balance was $68 million,
following a $27 million deposit from the surplus. The CPF, which finances
legislative initiatives, closed the fiscal year with a balance of $170 million,
an increase of $95 million. The General Fund closing balance did not include
$2.39 billion in the tax refund reserve account, of which $521 million was made
available as a result of the Local Government Assistance Corporation (LGAC)
financing program and was required to be on deposit on March 31, 1998.

General Fund receipts and transfers from other funds for the 1997-98
fiscal year (including net tax refund reserve account activity) totaled $34.55
billion, an annual increase of $1.51 billion, or 4.57 percent over 1996-97.
General Fund disbursements and transfers to other funds were $34.35 billion, an
annual increase of $1.45 billion or 4.41 percent.

1996-97 Fiscal Year

The State ended its 1996-97 fiscal year on March 31, 1997 in balance on
a cash basis, with a General Fund cash surplus as reported by DOB of
approximately $1.42 billion. The cash surplus was derived primarily from
higher-than-expected receipts and lower-than-expected spending for social
services programs.

The General Fund closing balance was $433 million, an increase of $146
million from the 1995-96 fiscal year. The balance included $317 million in the
TSRF, after a required deposit of $15 million and an additional deposit of $65
million in 1996-97. In addition, $41 million remained on deposit in the CRF. The
remaining $75 million reflected amounts then on deposit in the Community
Projects Fund. The General Fund closing balance did not include $1.86 billion in
the tax refund reserve account, of which $521 million was made available as a
result of the LGAC financing program and was required to be on deposit as of
March 31, 1997.

General Fund receipts and transfers from other funds for the 1996-97
fiscal year totaled $33.04 billion, an increase of 0.7 percent from the previous
fiscal year (including net tax refund reserve account activity). General Fund
disbursements and transfers to other funds totaled $32.90 billion for the
1996-97 fiscal year, an increase of 0.7 percent from the 1995-96 fiscal year.

1995-96 Fiscal Year

The State ended its 1995-96 fiscal year on March 31, 1996 with a
General Fund cash surplus, as reported by DOB, of $445 million. The cash surplus
was derived from higher-than-expected receipts, savings generated through agency
cost controls, and lower-than-expected welfare spending.

The General Fund closing fund balance was $287 million, an increase of
$129 million from 1994-95 levels. The $129 million change in fund balance is
attributable to a $65 million voluntary deposit to the TSRF, a $15 million
required deposit to the TSRF, a $40 million deposit to the CRF, and a $9 million
deposit to the Revenue Accumulation Fund. The closing fund balance included $237
million on deposit in the TSRF. In addition, $41 million was on deposit in the
CRF. The remaining $9 million reflected amounts then on deposit in the Revenue
Accumulation Fund. The General Fund closing balance did not include $678 million
in the tax refund reserve account of which $521 million was made available as a
result of the LGAC financing program and was required to be on deposit as of
March 31, 1996.

General Fund receipts and transfers from other funds (including net
refund reserve account activity) totaled $32.81 billion, a decrease of 1.1
percent from 1994-95 levels. General Fund disbursements and transfers to other
funds totaled $32.68 billion for the 1995-96 fiscal year, a decrease of 2.2
percent from 1994-95 levels.

Other Governmental Funds (1995-96 through 1997-98)

Activity in the three other governmental funds has remained relatively
stable over the last three fiscal years, with federally-funded programs
comprising approximately two-thirds of these funds. The most significant change
in the structure of these funds has been the redirection of a portion of
transportation-related revenues from the General Fund to two new dedicated funds
in the Special Revenue and Capital Projects fund types. These revenues are used
to support the capital programs of the Department of Transportation and the
Metropolitan Transportation Authority (MTA).

In the Special Revenue Funds, disbursements increased from $26.26
billion to $27.65 billion over the last three years, primarily as a result of
increased costs for the federal share of Medicaid. Other activity reflected
dedication of taxes to a new fund for mass transportation, new lottery games,
and new fees for criminal justice programs.

Disbursements in the Capital Projects Funds declined over the three
year period from $3.97 billion to $3.56 billion as spending for miscellaneous
capital programs decreased, partially offset by increases for mental hygiene,
health and environmental programs. The composition of this fund type's receipts
also changed as the dedicated transportation taxes began to be deposited,
general obligation bond proceeds declined substantially, federal grants remained
stable, and reimbursements from public authority bonds (primarily transportation
related) increased.

Activity in the Debt Service Funds reflected increased use of bonds
during the three-year period for improvements to the State's capital facilities
and the continued costs of the LGAC fiscal reform program. The increases were
moderated by the refunding savings achieved by the State over the last several
years using strict present value savings criteria. The growth in LGAC debt
service was offset by reduced short-term borrowing costs reflected in the
General Fund.

Litigation
State Finance Policies

Insurance Law

Proceedings have been brought by two groups of petitioners challenging
regulations promulgated by the Superintendent of Insurance that established
excess medical malpractice premium rates for fiscal years 1986-87 through
1996-97 (New York State Health Maintenance Organization Conference, Inc., et al.
v. Muhl, et al. ["HMO"], and New York State Conference of Blue Cross and Blue
Shield Plans, et al. v. Muhl, et al. ["Blue Cross 'I' and 'II'"], Supreme Court,
Albany County). By order filed January 22, 1997, the Court in Blue Cross I
permitted the plaintiffs in HMO to intervene and dismissed the challenges to the
rates for the period prior to 1995-96. By decision dated July 24, 1997, the
Court in Blue Cross I held that the determination made by the Superintendent in
establishing the 1995-96 rate was arbitrary and capricious and directed that
premiums paid pursuant to that determination be returned to the payors. The
State has appealed this decision. The petitioners did not cross appeal. In Blue
Cross II, by amended judgment dated April 2, 1998, the Supreme Court annulled
the regulation setting the 1996-97 premium rate and directed that all 1996-97
excess malpractice premiums be returned to the payors. The State will not be
obligated in either case to pay moneys to any petitioner. Adverse determinations
would result in refunds from the affected insurers.

Tax Law

In New York Association of Convenience Stores, et al. v. Urbach, et
al., petitioners, New York Association of Convenience Stores, National
Association of Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek
Stores, Inc. seek to compel respondents, the Commissioner of Taxation and
Finance and the Department of Taxation and Finance, to enforce sales and excise
taxes imposed pursuant to Tax Law Articles 12-A, 20 and 28 on tobacco products
and motor fuel sold to non-Indian consumers on Indian reservations. In orders
dated August 13, 1996 and August 24, 1996, the Supreme Court, Albany County,
ordered, inter alia, that there be equal implementation and enforcement of said
taxes for sales to non-Indian consumers on and off Indian reservations, and
further ordered that, if respondents failed to comply within 120 days, no
tobacco products or motor fuel could be introduced onto Indian reservations
other than for Indian consumption or, alternately, the collection and
enforcement of such taxes would be suspended statewide. Respondents appealed to
the Appellate Division, Third Department, and invoked CPLR 5519(a)(1), which
provides that the taking of the appeal stayed all proceedings to enforce the
orders pending the appeal. Petitioner's motion to vacate the stay was denied. In
a decision entered May 8, 1997, the Third Department modified the orders by
deleting the portion thereof that provided for the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco products. The Third Department held, inter alia, that petitioners had
not sought such relief in their petition and that it was an error for the
Supreme Court to have awarded such undemanded relief without adequate notice of
its intent to do so. On May 22, 1997, respondents appealed to the Court of
Appeals on other grounds, and again invoked the statutory stay. On October 23,
1997, the Court of Appeals granted petitioners' motion for leave to cross-appeal
from the portion of the Third Department's decision that deleted the statewide
suspension of the enforcement and collection of the sales and excise taxes on
motor fuel and tobacco. The case was argued before the Court of Appeals on March
24, 1998.

Clean Water/Clean Air Bond Act of 1996

In Robert L. Schulz, et al. v. The New York State Executive, et al.
(Supreme Court, Albany County, commenced October 16, 1996), plaintiffs challenge
the enactment of the Clean Water/Clean Air Bond Act of 1996 and its implementing
legislation (1996 Laws of New York, Chapters 412 and 413). Plaintiffs claim,
inter alia, that the Bond Act and its implementing legislation violate
provisions of the State Constitution requiring that such debt be authorized by
law for some single work or purpose distinctly specified therein and forbidding
incorporation of other statutes by reference.

In an opinion dated June 9, 1998, the Court of Appeals affirmed the
July 17, 1997 order of the Appellate Division, Third Department, affirming the
lower court dismissal of this case.

Line Item Veto

In an action commenced in June 1998 by the Speaker of the Assembly of
the State of New York against the Governor of the State of New York (Silver v.
Pataki, Supreme Court, New York County), the Speaker challenges the Governor's
application of his constitutional line item veto authority to certain portions
of budget bills adopted by the State Legislature contained in Chapters 56, 57
and 58 of the Laws of 1998.

State Programs

Medicaid

Several cases challenge provisions of Chapter 81 of the Laws of 1995 which
alter the nursing home Medicaid reimbursement methodology on and after April 1,
1995. Included are New York State Health Facilities Association, et al. v.
DeBuono, et al., St. Luke's Nursing Center, et al. v. DeBuono, et al., New York
Association of Homes and Services for the Aging v DeBuono et al (three cases),
Healthcare Association of New York State v. DeBuono and Bayberry Nursing Home et
al. v. Pataki, et al. Plaintiffs allege that the changes in methodology have
been adopted in violation of procedural and substantive requirements of State
and federal law.

In a consolidated action commenced in 1992, Medicaid recipients and
home health care providers and organizations challenge promulgation by the State
Department of Social Services (DSS) in June 1992 of a home assessment resource
review instrument (HARRI), which is to be used by DSS to determine eligibility
for and the nature of home care services for Medicaid recipients, and challenge
the policy of DSS of limiting reimbursable hours of service until a patient is
assessed using the HARRI (Dowd, et al. v. Bane, Supreme Court, New York County).

In several cases, plaintiffs seek retroactive claims for reimbursement for
services provided to Medicaid recipients who were also eligible for Medicare
during the period January 1, 1987 to June 2, 1992. Included are Matter of New
York State Radiological Society v. Wing, Appel v. Wing, E.F.S. Medical Supplies
v. Dowling, Kellogg v. Wing, Lifshitz v. Wing, New York State Podiatric Medical
Association v. Wing and New York State Psychiatric Association v. Wing. These
cases were commenced after the State's reimbursement methodology was held
invalid in New York City Health and Hospital Corp. v. Perales. The State
contends that these claims are time-barred. In a judgment dated September 5,
1996, the Supreme Court, Albany County, dismissed Matter of New York State
Radiological Society v. Wing as time-barred. By order dated November 26, 1997,
the Appellate Division, Third Department, affirmed that judgment. By decision
dated June 9, 1998, the Court of Appeals denied leave to appeal.

Several cases, including Port Jefferson Health Care Facility, et al. v.
Wing (Supreme Court, Suffolk County), challenge the constitutionality of Public
Health Law ss. 2807-d, which imposes a tax on the gross receipts hospitals and
residential health care facilities receive from all patient care services.
Plaintiffs allege that the tax assessments were not uniformly applied, in
violation of federal regulations. In a decision dated June 30, 1997, the Court
held that the 1.2 percent and 3.8 percent assessments on gross receipts imposed
pursuant to Public Health Law ss.ss. 2807-d(2)(b)(ii) and 2807-d(2)(b)(iii),
respectively, are unconstitutional. An order entered August 27, 1997 enforced
the terms of the decision. The State has appealed that order.

Shelter Allowance

In an action commenced in March 1987 against State and New York City
officials (Jiggetts, et al. v. Bane, et al., Supreme Court, New York County),
plaintiffs allege that the shelter allowance granted to recipients of public
assistance is not adequate for proper housing. In a decision dated April 16,
1997, the Court held that the shelter allowance promulgated by the Legislature
and enforced through DSS regulations is not reasonably related to the cost of
rental housing in New York City and results in homelessness to families in New
York City. A judgment was entered on July 25, 1997, directing, inter alia, that
the State (i) submit a proposed schedule of shelter allowances (for the Aid to
Dependent Children program and any successor program) that bears a reasonable
relation to the cost of housing in New York City; and (ii) compel the New York
City Department of Social Services to pay plaintiffs a monthly shelter allowance
in the full amount of their contract rents, provided they continue to meet the
eligibility requirements for public assistance, until such time as a lawful
shelter allowance is implemented, and provide interim relief to other eligible
recipients of Aid to Dependent Children under the interim relief system
established in this case. The State has appealed to the Appellate Division,
First Department from each and every provision of this judgment except that
portion directing the continued provision of interim relief.

Civil Rights Claims

In an action commenced in 1980 (United States, et al. v. Yonkers Board
of Education, et al.), the United States District Court for the Southern
District of New York found, in 1985, that Yonkers and its public schools were
intentionally segregated. In 1986, the District Court ordered Yonkers to develop
and comply with a remedial educational improvement plan (EIP I). On January 19,
1989, the District Court granted motions by Yonkers and the NAACP to add the
State Education Department, the Yonkers Board of Education, and the State Urban
Development Corporation as defendants, based on allegations that they had
participated in the perpetuation of the segregated school system. On August 30,
1993, the District Court found that vestiges of a dual school system continued
to exist in Yonkers. On March 27, 1995, the District Court made factual findings
regarding the role of the State and the other State defendants (the State) in
connection with the creation and maintenance of the dual school system, but
found no legal basis for imposing liability. On September 3, 1996, the United
States Court of Appeals for the Second Circuit, based on the District Court's
factual findings, held the State defendants liable under 42 USC ss. 1983 and the
Equal Educational Opportunity Act, 20 USC ss.ss. 1701, et seq., for the unlawful
dual school system, because the State, inter alia, had taken no action to force
the school district to desegregate despite its actual or constructive knowledge
of de jure segregation. By order dated October 8, 1997, the District Court held
that vestiges of the prior segregated school system continued to exist and that,
based on the State's conduct in creating and maintaining that system, the State
is liable for eliminating segregation and its vestiges in Yonkers and must fund
a remedy to accomplish that goal. Yonkers presented a proposed educational
improvement plan (EIP II) to eradicate these vestiges of segregation. The
October 8, 1997 order of the District Court ordered that EIP II be implemented
and directed that, within 10 days of the entry of the Order, the State make
available to Yonkers $450,000 to support planning activities to prepare the EIP
II budget for 1997-98 and the accompanying capital facilities plan. A final
judgment to implement EIP II was entered on October 14, 1997. On November 7,
1997, the State appealed that judgment to the Second Circuit. The appeal is
pending. Additionally, the Court adopted a requirement that the State pay to
Yonkers approximately $9.85 million as its pro rata share of the funding of EIP
I for the 1996-97 school year. The requirement for State funding of EIP I was
reduced to an order on December 2, 1997 and reduced to a judgment on February
10, 1998. The State appealed that order to the Second Circuit on December 31,
1997 and amended the notice of appeal after entry of the judgment. That appeal
has been consolidated with the appeal of the EIP II appeal, and is also pending.

On June 15, 1998, the District Court issued an opinion setting
forth the formula for the allocation of the costs of EIP I and EIP II between
the State and the City for the school years 1997-98 through 2005-06. That
opinion has not yet been reduced to an order.

Real Property Claims

On March 4, 1985 in Oneida Indian Nation of New York, et al. v.
County of Oneida, the United States Supreme Court affirmed a judgment of the
United States Court of Appeals for the Second Circuit holding that the Oneida
Indians have a common-law right of action against Madison and Oneida Counties
for wrongful possession of 872 acres of land illegally sold to the State in
1795. At the same time, however, the Court reversed the Second Circuit by
holding that a third-party claim by the counties against the State for
indemnification was not properly before the federal courts. The case was
remanded to the District Court for an assessment of damages, which action is
still pending. The counties may still seek indemnification in the State courts.

Several other actions involving Indian claims to land in
upstate New York are also pending. Included are Cayuga Indian Nation of New York
v. Cuomo, et al., and Canadian St. Regis Band of Mohawk Indians, et al. v. State
of New York et al., both in the United States District Court for the Northern
District of New York. The Supreme Court's holding in Oneida Indian Nation of New
York may impair or eliminate certain of the State's defenses to these actions
but may enhance others.

Authorities and Localities

Public Authorities

The fiscal stability of the State is related in part to the fiscal
stability of its public authorities. For the purposes of this summary, public
authorities refer to public benefit corporations created pursuant to State law,
other than local authorities. Public authorities are not subject to the
constitutional restrictions on the incurrence of debt which apply to the State
itself and may issue bonds and notes within the amounts and restrictions set
forth in legislative authorization. The State's access to the public credit
markets could be impaired and the market price of its outstanding debt may be
materially and adversely affected if any of its public authorities were to
default on their respective obligations. As of December 31, 1997, there were 17
public authorities that had outstanding debt of $100 million or more, and the
aggregate outstanding debt, including refunding bonds, of all State authorities
was $84 billion, only a portion of which constitutes State-supported or
State-related debt.

The State has numerous public authorities with various
responsibilities, including those which finance, construct and/or operate
revenue producing public facilities. Public authorities generally pay their
operating expenses and debt service costs from revenues generated by the
projects they finance or operate, such as tolls charged for the use of highways,
bridges or tunnels, charges for public power, electric and gas utility services,
rentals charged for housing units, and charges for occupancy at medical care
facilities. Also, there are statutory arrangements providing for State local
assistance payments otherwise payable to localities to be made under certain
circumstances to public authorities. Although the State has no obligation to
provide additional assistance to localities whose local assistance payments have
been paid to public authorities under these arrangements, the affected
localities may seek additional State assistance if local assistance payments are
diverted. Some authorities also receive moneys from State appropriations to pay
for the operating costs of certain of their programs. As described below, the
MTA receives the bulk of this money in order to provide transit and commuter
services.

Beginning in 1998, the Long Island Power Authority (LIPA) assumed
responsibility for the provision of electric utility services previously
provided by Long Island Lighting Company for Nassau, Suffolk and a portion of
Queen Counties, as part of an estimated $7 billion financing plan. As of the
date of this AIS, LIPA has issued over $5 billion in bonds secured solely by
ratepayer charges. LIPA's debt is not considered either State-supported or
State-related debt.

Metropolitan Transportation Authority

The MTA oversees the operation of subway and bus lines in New York City
by its affiliates, the New York City Transit Authority and the Manhattan and
Bronx Surface Transit Operating Authority (collectively, the "TA"). The MTA
operates certain commuter rail and bus services in the New York Metropolitan
area through MTA's subsidiaries, the Long Island Rail Road Company, the
Metro-North Commuter Railroad Company, and the Metropolitan Suburban Bus
Authority. In addition, the Staten Island Rapid Transit Operating Authority, an
MTA subsidiary, operates a rapid transit line on Staten Island. Through its
affiliated agency, the Triborough Bridge and Tunnel Authority (the "TBTA"), the
MTA operates certain intrastate toll bridges and tunnels. Because fare revenues
are not sufficient to finance the mass transit portion of these operations, the
MTA has depended on, and will continue to depend on, operating support from the
State, local governments and TBTA, including loans, grants and subsidies. If
current revenue projections are not realized and/or operating expenses exceed
current projections, the TA or commuter railroads may be required to seek
additional State assistance, raise fares or take other actions.

Since 1980, the State has enacted several taxes--including a surcharge
on the profits of banks, insurance corporations and general business
corporations doing business in the 12-county Metropolitan Transportation Region
served by the MTA and a special one-quarter of 1 percent regional sales and use
tax--that provide revenues for mass transit purposes, including assistance to
the MTA. Since 1987, State law also has required that the proceeds of a
one-quarter of 1 percent mortgage recording tax paid on certain mortgages in the
Metropolitan Transportation Region be deposited in a special MTA fund for
operating or capital expenses. In 1993, the State dedicated a portion of certain
additional State petroleum business tax receipts to fund operating or capital
assistance to the MTA. For the 1998-99 fiscal year, State assistance to the MTA
is projected to total approximately $1.3 billion, an increase of $133 million
over the 1997-98 fiscal year.

State legislation accompanying the 1996-97 adopted State budget
authorized the MTA, TBTA and TA to issue an aggregate of $6.5 billion in bonds
to finance a portion of the $12.17 billion MTA capital plan for the 1995 through
1999 calendar years (the "1995-99 Capital Program"). In July 1997, the Capital
Program Review Board ("CPRB") approved the 1995-99 Capital Program (subsequently
amended in August 1997), which supersedes the overlapping portion of the MTA's
1992-96 Capital Program. The 1995-99 Capital Program is the fourth capital plan
since the Legislature authorized procedures for the adoption, approval and
amendment of MTA capital programs and is designed to upgrade the performance of
the MTA's transportation systems by investing in new rolling stock, maintaining
replacement schedules for existing assets and bringing the MTA system into a
state of good repair. The 1995-99 Capital Program assumes the issuance of an
estimated $5.2 billion in bonds under this $6.5 billion aggregate bonding
authority. The remainder of the plan is projected to be financed through
assistance from the State, the federal government, and the City of New York, and
from various other revenues generated from actions taken by the MTA.

There can be no assurance that all the necessary governmental actions
for future capital programs will be taken, that funding sources currently
identified will not be decreased or eliminated, or that the 1995-99 Capital
Program, or parts thereof, will not be delayed or reduced. Should funding levels
fall below current projections, the MTA would have to revise its 1995-99 Capital
Program accordingly. If the 1995-99 Capital Program is delayed or reduced,
ridership and fare revenues may decline, which could, among other things, impair
the MTA's ability to meet its operating expenses without additional assistance.

The City of New York

The fiscal health of the State may also be affected by the fiscal
health of New York City (the "City"), which continues to receive significant
financial assistance from the State. State aid contributes to the City's ability
to balance its budget and to meet its cash requirements. The State may also be
affected by the ability of the City and certain entities issuing debt for the
benefit of the City to market their securities successfully in the public credit
markets.

The City has achieved balanced operating results for each of its fiscal
years since 1981 as measured by the GAAP standards in force at that time. The
City prepares a four-year financial plan ("Financial Plan") annually and updates
it periodically, and prepares a comprehensive annual financial report describing
its most recent fiscal year each October.

The City of New York
Fiscal Oversight

In response to the City's fiscal crisis in 1975, the State took action
to assist the City in returning to fiscal stability. Among those actions, the
State established the Municipal Assistance Corporation for the City of New York
to provide financing assistance to the City; the New York State Financial
Control Board (the "Control Board") to oversee the City's financial affairs; and
the Office of the State Deputy Comptroller for the City of New York ("OSDC") to
assist the Control Board in exercising its powers and responsibilities. A
"control period" existed from 1975 to 1986 during which the City was subject to
certain statutorily-prescribed fiscal controls. The Control Board terminated the
Control Period in 1986 when certain statutory conditions were met. State law
requires the Control Board to reimpose a control period upon the occurrence, or
"substantial likelihood and imminence" of the occurrence, of certain events,
including (but not limited to) a City operating budget deficit of more than $100
million of impaired access to the public credit markets.

Currently, the City and its Covered Organizations (i.e., those which
received or may receive moneys from the City directly, indirectly or
contingently) operate under the Financial Plan. The City's Financial Plan
summarizes its capital, revenue and expense projections and outlines proposed
gap-closing programs for years with projected budget gaps. The City's
projections set forth in the Financial Plan are based on various assumptions and
contingencies, some of which are uncertain and may not materialize. Unforeseen
developments and changes in major assumptions could significantly affect the
city's ability to balance its budget as required by State law and to meet its
annual cash flow and financing requirements.

To successfully implement its Financial Plan, the City and certain
entities issuing debt for the benefit of the city must market their securities
successfully. The City issues securities to finance, refinance and rehabilitate
infrastructure and other capital needs, as well as for seasonal financing needs.
In 1997, the State created the New York City Transitional Finance Authority
("TFA") to finance a portion of the City's capital program because the City was
approaching its State Constitutional general debt limit. Without the additional
financing capacity of the TFA, projected contracts for City capital projects
would have exceeded the City's debt limit during City fiscal year 1997-98.
Despite this additional financing mechanism, the City currently projects that,
if no further action is taken, it will reach its debt limit in City fiscal year
1999-2000. On June 2, 1997, an action was commenced seeking a declaratory
judgment declaring the legislation establishing the TFA to be unconstitutional.
On November 25, 1997 the State Supreme Court found the legislation establishing
the TFA to be constitutional and granted the defendants' motion for summary
judgment. The plaintiffs have appealed the decision. Future developments
concerning the City or entities issuing debt for the benefit of the City, and
public discussion of such developments, as well as prevailing market conditions
and securities credit ratings, may affect the ability or cost to sell securities
issued by the City or such entities and may also affect the market for their
outstanding securities.

Monitoring Agencies

The staffs of the Control Board, OSDC and the City Comptroller issue
periodic reports on the City's Financial Plans. The reports analyze the City's
forecasts of revenues and expenditures, cash flow, and debt service
requirements, as well as evaluate compliance by the City and its Covered
Organizations with the Financial Plan. According to recent staff reports, while
economic growth in New York City has been slower than in other regions of the
country, a surge in Wall Street profitability resulted in increased tax revenues
and generated a substantial surplus for the City in City fiscal year 1996-97.
Recent staff reports also indicate that the City projects a substantial surplus
for City fiscal year 1997-98. Although several sectors of the City's economy
have expanded recently, especially tourism and business and professional
services, City tax revenues remain heavily dependent on the continued
profitability of the securities industries and the course of the national
economy. These reports have also indicated that recent City budgets have been
balanced in part through the use of non-recurring resources and that the City's
Financial Plan tends to rely on actions outside its direct control. These
reports have indicated that the City has not yet brought its long-term
expenditure growth in line with recurring revenue growth and that the City is
likely to continue to face substantial gaps between forecast revenues and
expenditures in future years that must be closed with reduced expenditures
and/or increased revenues. In addition to these monitoring agencies, the
Independent Budget Office ("IBO") has been established pursuant to the City
Charter to provide analysis to elected officials and the public on relevant
fiscal and budgetary issues affecting the City.

Other Localities

Certain localities outside New York City have experienced financial
problems and have requested and received additional State assistance during the
last several State fiscal years. The cities of Yonkers and Troy continue to
operate under State-ordered control agencies. The potential impact on the State
of any future requests by localities for additional oversight or financial
assistance is not included in the projections of the State's receipts and
disbursements for the State's 1998-99 fiscal year.

Eighteen municipalities received extraordinary assistance during the
1996 legislative session through $50 million in special appropriations targeted
for distressed cities, and twenty-eight municipalities received more than $32
million in targeted unrestricted aid in the 1997-98 budget. Both of these
emergency aid packages were largely continued through the 1998-99 budget. The
State also dispersed an additional $21 million among all cities, towns and
villages after enacting a 3.9 percent increase in General Purpose State Aid in
1997-98 and continued this increase in 1998-99.

The 1998-99 budget includes an additional $29.4 million in unrestricted
aid targeted to 57 municipalities across the State. Other assistance for
municipalities with special needs totals more than $25.6 million. Twelve upstate
cities will receive $24.2 million in one-time assistance from a cash flow
acceleration of State aid.

The appropriation and allocation of general purpose local government
aid among localities, including New York City, is currently the subject of
investigation by a State commission. While the distribution of general purpose
local government aid was originally based on a statutory formula, in recent
years both the total amount appropriated and the amounts appropriated to
localities have been determined by the Legislature. A State commission was
established to study the distribution and amounts of general purpose local
government aid and recommend a new formula by June 30, 1999, which may change
the way aid is allocated.

Municipalities and school districts have engaged in substantial
short-term and long-term borrowings. In 1996, the total indebtedness of all
localities in the State other than New York City was approximately $20.0
billion. A small portion (approximately $77.2 million) of that indebtedness
represented borrowing to finance budgetary deficits and was issued pursuant to
State enabling legislation. State law requires the Comptroller to review and
make recommendations concerning the budgets of those local government units
other than New York City that are authorized by State law to issue debt to
finance deficits during the period that such deficit financing is outstanding.
Twenty-one localities had outstanding indebtedness for deficit financing at the
close of their fiscal year ending in 1996.

Like the State, local governments must respond to changing political,
economic and financial influences over which they have little or no control.
Such changes may adversely affect the financial condition of certain local
governments. For example, the federal government may reduce (or in some cases
eliminate) federal funding of some local programs which, in turn, may require
local governments to fund these expenditures from their own resources. It is
also possible that the State, New York City, or any of their respective public
authorities may suffer serious financial difficulties that could jeopardize
local access to the public credit markets, which may adversely affect the
marketability of notes and bonds issued by localities within the State.
Localities may also face unanticipated problems resulting from certain pending
litigation, judicial decisions and long-range economic trends. Other large-scale
potential problems, such as declining urban populations, increasing
expenditures, and the loss of skilled manufacturing jobs, may also adversely
affect localities and necessitate State assistance.

J.P. MORGAN INSTITUTIONAL FUNDS

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

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999, 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 DATED AUGUST 31, 1998. THE PROSPECTUS AND THESE FINANCIAL
STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT ON THE ANNUAL
FINANCIAL STATEMENTS, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL SERVICE FUNDS (800)
221-7930.

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.

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").

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 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 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."

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 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.

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.

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.

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 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.

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 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 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");
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.

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.

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 HEALEY3--Trustee, Chairman and Chief Executive Officer;
Chairman, Pierpont Group, Inc., since prior to 1993. His address is Pine Tree
Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436,
and his date of birth is August 23, 1937.

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.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

Matthew Healey, Trustee(***), $20,055 $75,000
Chairman and Chief Executive
Officer
- --------------------------------------------------- ------------------------------ -------------------------------------------
- --------------------------------------------------- ------------------------------ -------------------------------------------

Michael P. Mallardi, Trustee $20,055 $75,000
- --------------------------------------------------- ------------------------------ -------------------------------------------
</TABLE>

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

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

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.

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.

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 paid the following advisory fees to Morgan and JPMIM, as
applicable, for the fiscal years ended August 31, 1996, 1997 and 1998:
$2,154,248, $2,267,159 and $2,710,567.

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.

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.

CO-ADMINISTRATOR

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
regulatory documents and mails Portfolio communications to Trustees and
investors; and (vi) maintains related books and records.

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.

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.

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 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, for the
fiscal period November 4, 1997 (commencement of operations) through the fiscal
year ended August 31, 1998: $392.

The Portfolio paid the following fees paid Morgan as Services Agent for
the fiscal years ended August 31, 1996, 1997 and 1998: $205,419, $397,340 and
$502,654.

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 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 for the
period November 4, 1997 (commencement of operations) through the fiscal year
ended August 31, 1998: $696.

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.

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.

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 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. 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 at the option of J.P. Morgan.

For the period November 3, 1997 (commencement of operations) through
August 31, 1998, J.P. Morgan reimbursed the Fund $72,847 in fees and other
expenses under the expense reimbursement arrangement described above.

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 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.

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
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

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.

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.

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.

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 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.

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

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 the best price and 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.

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.

DESCRIPTION OF SHARES

The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in 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.

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 January 31, 1999, the following owned of record more than 5% of the
outstanding shares of the Fund: Bank of New York FBO Mediaquest International
Corp. (26.03%); Hare & Co. (69.24%).

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.

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.

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.

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 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 20% rate of tax.

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 gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. Investors are urged to consult their tax advisors
concerning the limitations on the deductibility of capital 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.

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

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 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

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, which are being
developed in the first half of 1999, will define the infrastructure that should
be put in place for managing a failure during the millennium event itself.

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.

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

<PAGE>

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

<PAGE>

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.

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 FOR THE FUND OR FUNDS LISTED ABOVE, AS SUPPLEMENTED FROM
TIME TO TIME. ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION
INCORPORATES BY REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER
REPORTS RELATING TO THE FUNDS LISTED ABOVE DATED OCTOBER 31, 1998 AND NOVEMBER
30, 1998. THE PROSPECTUS AND THESE FINANCIAL STATEMENTS FOR THE FUNDS LISTED
ABOVE, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT ON THE ANNUAL FINANCIAL
STATEMENTS, 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 Objectives and Policies..........................................1
Investment Restrictions.....................................................9
Trustees and Officers......................................................14
Investment Advisor.........................................................18
Distributor................................................................21
Co-Administrator...........................................................21
Services Agent.............................................................22
Custodian and Transfer Agent...............................................23
Shareholder Servicing......................................................24
Service Organization.......................................................25
Independent Accountants....................................................26
Expenses...................................................................26
Purchase of Shares.........................................................27
Redemption of Shares.......................................................28
Exchange of Shares.........................................................29
Dividends and Distributions................................................29
Net Asset Value............................................................29
Performance Data...........................................................30
Portfolio Transactions.....................................................32
Massachusetts Trust........................................................33
Description of Shares......................................................34
Special Information Concerning
Investment Structure.......................................................36
Taxes......................................................................37
Additional Information.....................................................40
Appendix A - Description of Security Ratings...............................A-1

<PAGE>

GENERAL

This Statement of Additional Information relates only to the J.P.
Morgan Institutional Service Prime Money Market Fund, the J.P. Morgan
Institutional Service Treasury Money Market Fund and the J.P. Morgan
Institutional Service Federal Money Market Fund (each, a "Fund" and
collectively, the "Funds"). Each 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 Funds, the Trust consists of other series representing separate
investment funds (each a "J.P. Morgan Institutional Fund"). The other J.P.
Morgan Institutional Funds are covered by separate Statements of Additional
Information.

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

Investments in a 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 a Fund are not federally
insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board,
or any other governmental agency. An investment in a Fund is subject to risk
that may cause the value of the investment to fluctuate, and when the investment
is redeemed, the value may be higher or lower than the amount originally
invested by the investor.

INVESTMENT OBJECTIVES AND POLICIES

J.P. Morgan Institutional Service Prime Money Market Fund (the "Prime
Money Market 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 Prime Money Market
Fund's investment objective is to maximize current income consistent with the

<PAGE>

preservation of capital and same-day liquidity. The Prime Money Market
Fund attempts to achieve this objective by investing all of its investable
assets in The Prime Money Market Portfolio (the "Portfolio"), a diversified
open-end management investment company having the same investment objective as
the Prime Money Market Fund.

J.P. Morgan Institutional Service Treasury Money Market Fund (the
"Treasury Money Market 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 Treasury Money Market
Fund's investment objective is to provide current income, consistent with the
preservation of capital and same-day liquidity. The Treasury Money Market Fund
attempts to accomplish this objective by investing all of its investable assets
in The Treasury Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Treasury Money Market Fund.

J.P. Morgan Institutional Service Federal Money Market Fund (the
"Federal Money Market 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 Federal Money Market
Fund's investment objective is to provide current income, consistent with the
preservation of capital and same-day liquidity. The Federal Money Market Fund
attempts to accomplish this objective by investing all of its investable assets
in The Federal Money Market Portfolio (the "Portfolio"), a diversified open-end
management investment company having the same investment objective as the
Federal Money Market 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. Treasury securities and in obligations of certain
U.S. Government agencies, as described in this Statement of Additional
Information that have effective maturities of not more than thirteen months. See
"Quality and Diversification Requirements."

Money Market Instruments

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

U.S. Treasury Securities. Each of the Funds may invest in direct
obligations of the U.S. Treasury, including Treasury bills, notes and bonds,

<PAGE>

all of which are backed as to principal and interest payments by the
full faith and credit of the United States.

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

<PAGE>

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 Prime Money Market 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 Prime Money Market
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 Prime Money Market Fund to be liquid because
they are payable upon demand. The Prime Money Market 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.

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

<PAGE>

agreements involving U.S. Treasury securities. The Federal Money Market
Fund may only enter into repurchase agreements involving U.S. Treasury
securities and Permitted Agency Securities. The Funds will always receive
securities as collateral whose market value is, and during the entire term of
the agreement remains, at least equal to 100% of the dollar amount invested by
the Funds in each agreement plus accrued interest, and the Funds will make
payment for such securities only upon physical delivery or upon evidence of book
entry transfer to the account of the Custodian. Each 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, a Fund might incur a loss if the value of the collateral securing the
repurchase agreement declines and might incur disposition costs in connection
with liquidating the collateral. In addition, if bankruptcy proceedings are
commenced with respect to the seller of the security, realization upon disposal
of the collateral by a Fund may be delayed or limited.

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

Foreign Investments

Investors should realize that the value of the Fund's investments in
foreign securities may be adversely affected by changes in political or social
conditions, diplomatic relations, confiscatory taxation, expropriation,
nationalization, limitation on the removal of funds or assets, or imposition of
(or change in) exchange control or tax regulations in those foreign countries.
In addition, changes in government administrations or economic or monetary
policies in the United States or abroad could result in appreciation or
depreciation of portfolio securities and could favorably or unfavorably affect
the Fund's operations. Furthermore, the economies of individual foreign nations
may differ from the U.S. economy, whether favorably or unfavorably, in areas
such as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position; it may
also be more difficult to obtain and enforce a judgment against a foreign
issuer. Any foreign investments made by the Fund must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments.

Additional Investments

<PAGE>

anticipation of receipt of taxes, the proceeds of the sale of bonds,
other revenues or grant proceeds, as well as municipal commercial paper and
municipal demand obligations such as variable rate demand notes and master
demand obligations. These municipal bonds and notes will be taxable securities;
income generated from these investments will be subject to federal, state and
local taxes.

When-Issued and Delayed Delivery Securities. Each of the Funds may
purchase securities on a when-issued or delayed delivery basis. For example,
delivery of and payment for these securities can take place a month or more
after the date of the purchase commitment. The purchase price and the interest
rate payable, if any, on the securities are fixed on the purchase commitment
date or at the time the settlement date is fixed. The value of such securities
is subject to market fluctuation and for money market instruments and other
fixed income securities, no interest accrues to a Fund until settlement takes
place. At the time a Fund makes the commitment to purchase securities on a
when-issued or delayed delivery basis, it will record the transaction, reflect
the value each day of such securities in determining its net asset value and, 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, each Fund will
maintain with the Custodian a segregated account with liquid assets, consisting
of cash, U.S. Government securities or other appropriate securities, in an
amount at least equal to such commitments. On delivery dates for such
transactions, each Fund will meet its obligations from maturities or sales of
the securities held in the segregated account and/or from cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued security prior to its
acquisition, it could, as with the disposition of any other portfolio
obligation, incur a gain or loss due to market fluctuation. Also, a Fund may be
disadvantaged if the other party to the transactions defaults. It is the current
policy of each Fund (except the Treasury Money Market Fund) not to enter into
when-issued commitments exceeding in the aggregate 15% of the market value of a
Fund's total assets, less liabilities other than the obligations created by
when-issued commitments.

Loans of Portfolio Securities. Subject to applicable investment
restrictions, each Fund is permitted to lend its securities in an amount up to
33 1/3% of the value of the Fund's net assets. Each of the Funds may lend its
securities if such loans are secured continuously by cash or equivalent
collateral or by a letter of credit in favor of the Fund at least equal at all
times to 100% of the market value of the securities loaned, plus accrued
interest. While such securities are on loan, the borrower will pay the Fund any
income accruing thereon. Loans will be subject to termination by the Funds in
the normal settlement time, generally three business days after notice, or by
the borrower on one day's notice. Borrowed securities must be returned when the
loan is terminated. Any gain or loss in the market price of the borrowed
securities which occurs during the term of the loan inures to a Fund and its
respective investors. The Funds may pay reasonable finders' and custodial fees
in connection with a loan. In addition, a Fund will consider all facts and
circumstances including the creditworthiness of the borrowing financial
institution, and no Fund will make any loans in excess of one year. The risks to
each Fund with respect to borrowers of its portfolio securities are similar to
the risks to the Funds with respect to sellers in repurchase agreement
transactions. See "Repurchase Agreements". The Funds will not lend their
securities to any officer, Trustee, Director, employee or other affiliate of the
Funds, the Advisor or the Distributor, unless otherwise permitted by applicable
law.

Illiquid Investments, Privately Placed and Certain Unregistered
Securities. The Funds, except the Treasury Money Market Fund, may invest in
privately placed, restricted, Rule 144A or other unregistered securities. No
Fund may acquire any illiquid holdings if, as a result thereof, more than 10% of
a Funds' net assets would be in illiquid investments. Subject to this
fundamental policy limitation (Prime Money Market Fund only), the Portfolios 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 Portfolios. The price the Portfolios pay 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 Funds may also purchase Rule 144A securities sold to institutional
investors without registration under the 1933 Act. These securities may be

<PAGE>

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.

Quality and Diversification Requirements

Each of the Funds intends to meet the diversification requirements of
the 1940 Act. Current 1940 Act requirements require that with respect to 75% of
the assets of each 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 a Fund should an
issuer, or a state or its related entities, be unable to make interest or
principal payments or should the market value of such securities decline.

At the time any of the Funds invest 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.

Prime Money Market Fund. In order to maintain a stable net asset value,
the Prime Money Market Fund will (i) limit its investment in the securities
(other than U.S. Government securities) of any one issuer to no more than 5% of
its assets, measured at the time of purchase, except for investments held for
not more than three business days; and (ii) limit investments to securities that
present minimal credit risks and securities (other than U.S. Government
securities) that are rated within the highest short-term rating category by at
least two nationally recognized statistical rating organizations ("NRSROs") or
by the only NRSRO that has rated the security. Securities which originally had a
maturity of over one year are subject to

<PAGE>

more complicated, but generally similar rating requirements. A
description of illustrative credit ratings is set forth in "Appendix A." 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 (ii) 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 Board of Trustees to approve or ratify purchases by the Fund of
securities (other than U.S. Government securities) that are unrated; (ii)
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 (iii) require the Fund, in the event of
certain downgradings 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.

INVESTMENT RESTRICTIONS

The investment restrictions below have been adopted by the Trust with
respect to each Fund and, except as noted, by each corresponding Portfolio.
Except where otherwise noted, these investment restrictions are "fundamental"
policies which, under the 1940 Act, may not be changed without the vote of a
majority of the outstanding voting securities of the Fund or Portfolio, as the
case may be. A "majority of the outstanding voting securities" is defined in the
1940 Act as the lesser of (a) 67% or more of the voting securities present at a
meeting if the holders of more than 50% of the outstanding voting securities are
present or represented by proxy, or (b) more than 50% of the outstanding voting
securities. The percentage limitations contained in the restrictions below apply
at the time of the purchase of securities. Whenever a Fund is requested to vote
on a change in the fundamental investment restrictions of its corresponding
Portfolio, the Trust will hold a meeting of Fund shareholders and will cast its
votes as instructed by the Fund's shareholders.

<PAGE>

The Treasury Money Market 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;

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.

The Prime Money Market Fund may not:

1. 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 which are illiquid;

2. Enter into reverse repurchase agreements exceeding in the aggregate one-third
of the market value of the Fund's total assets, less liabilities other than
obligations created by reverse repurchase agreements;

3. Borrow money, except from banks for extraordinary or emergency purposes and
then only in amounts not to exceed 10% of the value of the Fund's total assets,
taken at cost, at the time of such borrowing. Mortgage, pledge, or hypothecate
any assets except in connection with any such borrowing and in amounts not to
exceed 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 while such borrowings are

<PAGE>

outstanding. This borrowing provision is included to facilitate the orderly sale
of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes and shall not apply to
reverse repurchase agreements;

5. Purchase the securities or other obligations of issuers conducting their
principal business activity in the same industry if, immediately after such
purchase, the value of its investment in such industry would exceed 25% of the
value of the Fund's total assets; 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. For
purposes of industry concentration, there is no percentage limitation with
respect to investments in U.S. Government securities, negotiable certificates of
deposit, time deposits, and bankers' acceptances of U.S. branches of U.S. banks;

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

7. Purchase or sell puts, calls, straddles, spreads, or any combination thereof,
real estate, commodities, or commodity contracts or interests in oil, gas, or
mineral exploration or development programs. However, the Fund may purchase
bonds or commercial paper issued by companies which invest in real estate or
interests therein including real estate investment trusts;

8. 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 delivery at a future date;

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

10. Act as an underwriter of securities; or

11. 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 Prime Money Market Portfolio, except as noted below, has adopted
substantially similar fundamental investment restrictions. Investment
restrictions numbered 8 and 9 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.

<PAGE>

The Federal Money Market Fund may not:

1. Enter into reverse repurchase agreements which together with any other
borrowing exceeds in the aggregate one-third of the market value of the Fund's
or the Portfolio's total assets, less liabilities other than the obligations
created by reverse repurchase agreements;

2. Borrow money (not including reverse repurchase agreements), except from banks
for temporary or extraordinary or emergency purposes and then only in amounts up
to 10% of the value of the Fund's or the Portfolio's total assets, taken at cost
at the time of such borrowing (and provided that such borrowings and reverse
repurchase agreements do not exceed in the aggregate one-third of the market
value of the Fund's and the Portfolio's total assets less liabilities other than
the obligations represented by the bank borrowings and reverse repurchase
agreements). Mortgage, pledge, or hypothecate any assets except in connection
with any such borrowing and in amounts up to 10% of the value of the Fund's or
the Portfolio's net assets at the time of such borrowing. The Fund or the
Portfolio will not purchase securities while borrowings exceed 5% of the Fund's
or the Portfolio's total assets, respectively; 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 while such borrowings are
outstanding. This borrowing provision is included to facilitate the orderly sale
of portfolio securities, for example, in the event of abnormally heavy
redemption requests, and is not for investment purposes;

7. Purchase securities on margin, make short sales of securities, or maintain a
short position, provided that this restriction shall not be deemed

<PAGE>

to be applicable to the purchase or sale of when-issued securities or of
securities for delivery at a future date;

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 Federal Money Market Portfolio, except as noted below, has adopted
substantially similar fundamental investment restrictions. Investment
restrictions numbered 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 note expected to materially affect the management of the
portfolio.

Non-Fundamental Investment Restrictions - Treasury Money Market Fund.
The investment restrictions described below are not fundamental policies of the
Fund and its 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;

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

Non-Fundamental Investment Restrictions - Prime Money Market Fund. The
investment restriction described below is not a fundamental policy of the Prime
Money Market Fund or its corresponding Portfolio and may be changed by their
respective Trustees. This non-fundamental investment policy requires that the
Prime Money Market Fund and its corresponding Portfolio may not:

(i) enter into reverse repurchase agreements or borrow money, except from
banks for extraordinary or emergency purposes, if such obligations
exceed in the aggregate one-third of the market value of the Fund's
total assets, less liabilities other than obligations created by
reverse repurchase agreements and borrowings.

Non-Fundamental Investment Restrictions - Federal Money Market. The
investment restriction described below is not a fundamental policy of the Fund

<PAGE>

or the Portfolio and 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.

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

TRUSTEES AND OFFICERS

Trustees

The Trustees of the Trust, who are also the Trustees of each of the
Portfolios, 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

<PAGE>

Country 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.

Trustee compensation expenses paid by the Trust for the calendar year
ended December 31, 1998 are set forth below.

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

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

Frederick S. Addy, Trustee $ 20,055 $ 75,000
- ------------------------------- ------------------- ----------------------------
- ------------------------------- ------------------- ----------------------------

Arthur C. Eschenlauer, Trustee $ 20,055 $ 75,000
- ------------------------------- ------------------- ----------------------------
- ------------------------------- ------------------- ----------------------------

Matthew Healey, Trustee(**), $ 20,055 $ 75,000
Chairman and Chief Executive
Officer
- ------------------------------- ------------------- ----------------------------
- ------------------------------- ------------------- ----------------------------

Michael P. Mallardi, Trustee $ 20,055 $ 75,000

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

(*) Includes the Portfolio and 16 other portfolios (collectively, the
"Master Portfolios") for which JPMIM acts as investment adviser.

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

<PAGE>

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

The aggregate fees paid to Pierpont Group, Inc. by each Fund (except
the Federal Money Market Fund) and its corresponding Portfolio during the
indicated fiscal periods are set forth below:

Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997 and for the fiscal year ended November 30,
1998: $1 and $8,475, respectively. The Prime Money Market Portfolio -- For the
fiscal years ended November 30, 1996, 1997 and 1998: $157,428, $143,027 and
$173,032, respectively.

Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997 and for the fiscal year ended October 31,
1998: $251 and $10,469, respectively. The Treasury Money Market Portfolio -- For
the period July 7, 1997 (commencement of operations) through October 31, 1997
and for the fiscal year ended October 31, 1998: $800 and $15,548, respectively.

Federal Money Market Fund -- For the period November 5, 1997 (commencement of
operations) through October 31, 1998: $264 The Federal Money Market Portfolio --
For the fiscal years ended October 31, 1996, 1997 and 1998: $16,144, $12,004 and
$25,893, respectively.

Officers

<PAGE>

JACQUELINE HENNING (of The Prime Money Market Portfolio only); Assistant
Secretary and Assistant Treasurer of the Portfolios only. Managing Director,
State Street Cayman Trust Company, Ltd. since October 1994. Prior to October
1994, Mrs. Henning was head of mutual funds at Morgan Grenfell in Cayman and was
Managing Director of Bank of Nova Scotia Trust Company (Cayman) Limited prior to
September 1993. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor,
Shedden Road, George Town, Grand Cayman, Cayman Islands, BWI. Her date of birth
is March 24, 1942.

MARY A. NELSON; Vice President and Assistant Treasurer. Vice President and
Manager of Treasury Services and Administration of FDI and Premier Mutual

<PAGE>

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.

INVESTMENT ADVISOR

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

<PAGE>

under its management are invested in commingled pension trust funds for
which Morgan serves as trustee.

Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmarks for the Portfolios in which the Funds
invest are currently: The Prime Money Market Portfolio--IBC's First Tier Money
Fund Average; The Treasury Money Market Portfolio--IBC's Treasury and Repo Money
Fund Average; and The Federal Money Market Portfolio--IBC's U.S. Government and
Agency 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.

As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreements, the Portfolio corresponding to each Fund has agreed to pay
the Advisor a fee, which is computed daily and may be paid monthly, equal to the
annual rates of 0.20% of each Portfolio's average daily net assets up to $1
billion and 0.10% of each Portfolio's average daily net assets in excess of $1
billion.

The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1996, 1997 and 1998: $4,503,793, $5,063,662 and $7,199,733, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997
(commencement of operations) through October 31, 1997 and for the fiscal year
ended October 31, 1998: $49,123 and $1,080,743, respectively.

The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1996, 1997 and 1998: $653,326, $659,707 and $1,736,610, respectively.

<PAGE>

DISTRIBUTOR

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

CO-ADMINISTRATOR

<PAGE>

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

The table below sets forth for each Fund listed and its corresponding
Portfolio the administrative fees paid to FDI for the fiscal periods indicated.

Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997 and for the fiscal year ended October 31,
1998: $3 and $6,691, respectively.

The Prime Money Market Portfolio -- For the period August 1, 1996 through
November 30, 1996, the fiscal year ended November 30, 1997 and the fiscal year
ended November 30, 1998: $33,012, $96,662 and $115,137, respectively.

Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997 and for the fiscal year ended October 31,
1998: $231 and $7,650, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997
(commencement of operations) through October 31, 1997 and for the fiscal year
ended October 31, 1998: $406 and $7,258, respectively.

Federal Money Market Fund -- For the period November 5, 1997 (commencement
of operations) through October 31, 1998: $227

The Federal Money Market Portfolio -- For the period August 1, 1996 through
October 31, 1996, the fiscal year ended October 31, 1997 and for the fiscal year
ended October 31, 1998: $1,663, $6,218 and $12,377, respectively.

The table below sets forth for each Portfolio listed (except the
Treasury Money Market Portfolio) the administrative fees paid to Signature
Broker-Dealer Services, Inc. (which provided distribution and administrative
services to the Trust and placement agent and administrative services to the
Portfolios prior to August 1, 1996) for the fiscal periods indicated. See the
Prospectus and below for applicable expense limitations.

The Prime Money Market Portfolio -- For the period December 1, 1995 through July
31, 1996: $272,989.

The Federal Money Market Portfolio -- For November 1, 1995 through July 31,
1996: $28,623.

SERVICES AGENT

The Trust, on behalf of each Fund, and the Portfolios 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 each Fund and its corresponding Portfolio. The Services
Agreements may be terminated at any time, without penalty, by the Trustees or
Morgan, in each case on not more than 60 days' nor less than 30 days' written
notice to the other party.

<PAGE>

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

Prior to December 29, 1995, the Trust and each Portfolio (except The
Treasury Money Market 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 table below sets forth for
each Fund listed and its corresponding Portfolio the fees paid to Morgan as
Services Agent. See the Prospectus and below for applicable expense limitations.

Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997 and for the fiscal year ended November 30,
1998: $36 and $93,367, respectively.

The Prime Money Market Portfolio -- For the fiscal years ended November 30,
1996, 1997 and 1998: $891,730, $1,256,131 and $1,788,454, respectively.

Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997 and for the fiscal year ended October 31,
1998: $2,510 and $103,623, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997 and for the fiscal year ended October
31, 1998: $7,289 and $155,752, respectively.

Federal Money Market Fund -- For the period November 5, 1997 (commencement of
operations) through October 31, 1998: $3,189.

The Federal Money Market Portfolio -- For the fiscal years ended October
31, 1996, 1997 and 1998: $73,206, $101,963 and $264,799, respectively.

CUSTODIAN AND TRANSFER AGENT

<PAGE>

detailing the ownership of Fund shares and for crediting income,
capital gains and other changes in share ownership to shareholder accounts.

SHAREHOLDER SERVICING

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

Under the Shareholder Servicing Agreement, each 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 values 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 table below sets forth for each Fund the shareholder servicing fees
paid by each Fund to Morgan for the fiscal periods indicated. See the Prospectus
and below for applicable expense limitations.

Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997 and for the fiscal year ended October 31,
1998: $60 and $164,079, respectively.

Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997 and for the fiscal year ended October 31,
1998: $25,501 and $180,336, respectively.

Federal Money Market Fund -- For the period November 5, 1997 (commencement of
operations) through October 31, 1998: $5,626.

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 Funds and the Portfolios under the
Services Agreements, and the activities of JPMIM in acting as Advisor to the
Portfolios under the Investment Advisory Agreements, 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.

<PAGE>

SERVICE ORGANIZATION

The Trust, on behalf of each Fund, has adopted a service plan (the
"Plan") with respect to the shares which authorizes the Funds 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 each 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 each 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 each 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).

<PAGE>

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 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, FDI and
Service Organizations under various agreements discussed under "Trustees and
Officers," "Investment Advisor," "Co-Administrator", "Distributor," "Services
Agent" and "Shareholder Servicing" above, the Funds and the Portfolios are
responsible for usual and customary expenses associated with their respective
operations. Such expenses include organization expenses, legal fees, accounting
and audit expenses, insurance costs, the compensation and expenses of the
Trustees, costs associated with their registration fees under federal securities
laws, and extraordinary expenses applicable to the Funds or the Portfolios. For
the Funds, such expenses also include transfer, registrar and dividend
disbursing costs, the expenses of printing and mailing reports, notices and
proxy statements to Fund shareholders, and filing fees under state securities
laws. For the Portfolios, such expenses also include custodian fees. Under fee
arrangements prior to September 1, 1995, Morgan as Services Agent was
responsible for reimbursements to the Trust and the Portfolio and the usual
customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses). For additional information
regarding waivers or expense subsidies, see the Prospectus.

Prime Money Market Fund: 0.45%
Treasury Money Market Fund: 0.45%
Federal Money Market Fund: 0.45%

These limits do not cover extraordinary expenses. This reimbursement/waiver
arrangements can be changed at any time at the option of J.P. Morgan.

<PAGE>

Prime Money Market Fund -- For the period October 23, 1997 (commencement of
operations) through November 30, 1997 and for the fiscal year ended November 30,
1998: $41,830 and $375,568, respectively. The Prime Money Market Portfolio --
For the fiscal years ended November 30, 1996, 1997 and 1998: $9,993, N/A and N/A
respectively.

Treasury Money Market Fund -- For the period July 7, 1997 (commencement of
operations) through October 31, 1997 and for the fiscal year ended October 31,
1998: $76,815 and $503,809, respectively.

The Treasury Money Market Portfolio -- For the period July 7, 1997 (commencement
of operations) through October 31, 1997 and for the fiscal year October 31,
1998: $118,095 and $828,462, respectively.

Federal Money Market Fund -- For the period November 5, 1997 (commencement of
operations) through October 31, 1998: $93,222.

The Federal Money Market Portfolio -- For the fiscal years ended October 31,
1996, 1997 and 1998: $238,343, $250,377 and $415,825.

PURCHASE OF SHARES

Shares may be purchased for accounts held in the name of a Service
Organization that provides certain account administration and other services to
its customers, including acting directly or through an agent as the sole
shareholder of record, maintenance or assistance in maintaining account records
and processing orders to purchase, redeem and exchange shares. Shares of each
Fund bear the cost of service fees at the annual rate of up to 0.25% of 1% of
the average daily net assets of such shares.

It is possible that an institution or its affiliate may offer shares of
different funds which invest in the same Portfolio to its customers and thus
receive different compensation with respect to different funds. Certain aspects
of the shares may be altered, after advance notice to shareholders, if it is
deemed necessary in order to satisfy certain tax regulatory requirements.

<PAGE>

REDEMPTION OF SHARES

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

<PAGE>

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 any 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

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

NET ASSET VALUE

PERFORMANCE DATA

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

Prime Money Market Fund (11/30/98): 7-day current yield: 4.88%; 7-day
effective yield: 5.00%.

Treasury Money Market Fund (10/31/98): 7-day current yield: 4.70%; 7-day
effective yield: 4.81%.

<PAGE>

Federal Money Market Fund (10/31/98): 7-day current yield: 4.71%; 7-day
effective yield: 4.82%.

Total Return Quotations. Historical performance information for periods
prior to the establishment of the J.P. Morgan Institutional Service Prime Money
Market and J.P. Morgan Institutional Service Federal Money Market Funds will be
that of the respective 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 for the Prime Money
Market and Federal Money Market Funds may reflect operating expenses which were
lower than those of the Funds. 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 Prime Money Market or J.P. Morgan Institutional
Service Federal Money Market Funds.

Below is set forth historical return information for each Fund or its
related series of the J.P. Morgan Funds for the periods indicated:

Prime Money Market Fund (11/30/98): Average annual total return, 1 year:
5.35%; average annual total return, 5 years: 5.09%; average annual total return,
10 years: 5.55%; aggregate total return, 1 year: 5.35%; aggregate total return,
5 years: 28.18%; aggregate total return, 10 years: 71.70%.

Treasury Money Market Fund (10/31/98): Average annual total return, 1 year:
5.27%; average annual total return, 5 years: N/A; average annual total return,
commencement of operations (July 7, 1997) to period end: 5.30%; aggregate total
return, 1 year: 5.27%; aggregate total return, 5 years: N/A; aggregate total
return, commencement of operations (July 7, 1997) to period end: 7.06%.

Federal Money Market Fund (10/31/98): Average annual total return, 1 year:
5.29%; average annual total return, 5 years: 4.88%; average annual total return,
commencement of operations (November 5, 1997) to period end: 4.55%; aggregate
total return, 1 year: 5.29%; aggregate total return, 5 years: 26.88%; aggregate
total return, commencement of operations (November 5, 1997) to period end:
29.56%.

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

<PAGE>

PORTFOLIO TRANSACTIONS

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

<PAGE>

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 each 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 Portfolios 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.

MASSACHUSETTS TRUST

No personal liability will attach to the shareholders under any
undertaking containing such provision when adequate notice of such provision

<PAGE>

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

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

DESCRIPTION OF SHARES

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

<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 January 31, 1999, the following owned of record, or to the knowledge
of management, beneficially owned more than 5% of the outstanding shares of:

Prime Money Market Fund: Hare & Co. (39.13%); Harris Trust and Savings Bank
(21.08%); Chicago Trust Company (15.87%); Bank of New York (56.46%).

Treasury Money Market Fund: Hare & Co. (41.11%);Fist national Bank in Sioux
Falls (5.57%); The Chicago Trust Company (47.50%).

Federal Money Market Fund: Hare & Co. (32.41%); Bank of New York FBO Amer.
Jewish Corp.(21.68%); Bank of New York FBO Charlex Inc. (7.57%).

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, each Fund is an open-end management investment company
which seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Master Portfolio, a separate registered
investment company with the same investment objective and policies as the Fund.
Generally, when a 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.

<PAGE>

TAXES

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

<PAGE>

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

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

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 Funds as
ordinary income whether such distributions are taken in cash or reinvested in
additional shares. Distributions to corporate shareholders of the Funds are not
eligible for the dividends received deduction. Distributions of net long-term
capital gains (i.e., net long-term capital gains in excess of net short-term
capital loss) are taxable to shareholders of a Fund as long-term capital gain,
regardless of whether such distributions are taken in cash or reinvested in
additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a 20% rate of tax.

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

<PAGE>

Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. Investors are urged to consult their tax advisors
concerning the limitations on the deductibility of capital losses. Additionally,
any loss realized on a redemption or exchange of shares of a Fund will be
disallowed to the extent the shares disposed of are replaced 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 withold 31% of
certain payments made or distributions declared to non-corporate shareholders.

<PAGE>

laws. Shareholders should consult their own tax advisors with respect to
any state or local taxes.

ADDITIONAL INFORMATION

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

Telephone calls to the Funds, J.P. Morgan 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 Portfolios'
registration statements filed under the 1940 Act. Pursuant to the rules and
regulations of the SEC, certain portions have been omitted. The registration
statements including the exhibits filed therewith may be examined at the office
of the SEC in Washington, D.C.

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

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

The Year 2000 Initiative

<PAGE>

2000, computers that are not year 2000 compliant will assume the year
is 1900. Systems that calculate, compare, or sort using the incorrect date will
cause erroneous results, ranging from system malfunctions to incorrect or
incomplete transaction processing. If not remedied, potential risks include
business interruption or shutdown, financial loss, reputation loss, and/or legal
liability.

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, which are being
developed in the first half of 1999, will define the infrastructure that should
be put in place for managing a failure during the millennium event itself.

<PAGE>

FINANCIAL STATEMENTS

The following financial statements and the report thereon of
PricewaterhouseCoopers LLP of each Fund (except the Federal Money Market Fund)
are incorporated herein by reference from their respective annual report filings
made with the SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1
thereunder. Any of the following financial reports are available without charge
upon request by calling JP Morgan Funds Services at (800) 766-7722. Each Fund's
financial statements include the financial statements of the Fund's
corresponding Portfolio.

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

Date of Annual Report;
Name of Fund/Portfolio Date Annual Report Filed;
and Accession Number
- ----------------------------------------------------- --------------------------
- ----------------------------------------------------- --------------------------

J.P. Morgan Institutional Service Prime Money 11/30/98
Market Fund 2/1/99
0001047469-99-002874
- ----------------------------------------------------- --------------------------
- ----------------------------------------------------- --------------------------

J.P. Morgan Institutional Service Treasury Money 10/31/98
Market Fund 12/31/98
0001047469-98-045632
- ----------------------------------------------------- --------------------------

J.P. Morgan Institutional Service Federal Money 10/31/98
Market Fund 01/07/99
0001047469-99-000356
- ----------------------------------------------------- --------------------------

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

<PAGE>

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

- 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.

<PAGE>

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.

-------- 1Mr. 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 J.P. Morgan Investment
Management Inc.

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED MARCH 1, 1999, AS SUPPLEMENTED FROM TIME TO TIME. ADDITIONALLY,
THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE THE FINANCIAL
STATEMENTS INCLUDED IN THE SHAREHOLDER REPORT RELATING TO THE FUND DATED AUGUST
31, 1998. THE PROSPECTUS AND THE FINANCIAL STATEMENTS, INCLUDING THE INDEPENDENT
ACCOUNTANTS' REPORT ON THE ANNUAL FINANCIAL STATEMENTS, ARE AVAILABLE, WITHOUT
CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN
INSTITUTIONAL FUNDS (800) 221-7930.

<PAGE>

Table of Contents

Page

General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 21
Trustees and Officers . . . . . . . . . . . . 23
Investment Advisor . . . . . . . . . . . . . . 27
Distributor . . . . . . . . . . . . . . . . . 29
Co-Administrator . . . . . . . . . . . . . . . 29
Services Agent . . . . . . . . . . . . . . . . 30
Custodian and Transfer Agent . . . . . . . . . 31
Shareholder Servicing . . . . . . . . . . . . 31
Financial Professionals . . . . . . . . . . . 32
Independent Accountants . . . . . . . . . . . 33
Expenses . . . . . . . . . . . . . . . . . . . 33
Purchase of Shares . . . . . . . . . . . . . . 33
Redemption of Shares . . . . . . . . . . . . . 34
Exchange of Shares . . . . . . . . . . . . . . 35
Dividends and Distributions . . . . . . . . . 35
Net Asset Value . . . . . . . . . . . . . . . 35
Performance Data . . . . . . . . . . . . . . . 36
Portfolio Transactions . . . . . . . . . . . . 38
Massachusetts Trust . . . . . . . . . . . . . 39
Description of Shares . . . . . . . . . . . . 40
Special Information Concerning Investment
Structure . . . . . . . . . . . . . . . . . . 42
Taxes . . . . . . . . . . . . . . . . . . . . 43
Additional Information . . . . . . . . . . . 45
Financial Statements . . . . . . . . . . . . . 47
Appendix A - Description of Securities
Ratings . . . . . . .. . . . . . . . . . . . A-1

<PAGE>

GENERAL

This Statement of Additional Information relates only to the J.P.
Morgan Institutional Tax Exempt Bond 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.

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 The Tax Exempt Bond Portfolio (the
"Portfolio"), a corresponding 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." Accordingly, references below to the Fund also
include the Portfolio; similarly, references to the Portfolio also include the
Fund unless the context requires otherwise.

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

INVESTMENT OBJECTIVE AND POLICIES

The following discussion supplements the information regarding the
Fund's investment objective and the policies to be employed to achieve this
objective by the Portfolio as set forth above and in the Prospectus. The
investment objective of the Fund and the investment objective of the Portfolio
are identical.

The Fund is designed for investors who seek tax exempt yields greater
than those generally available from a portfolio of short term tax exempt
obligations and who are willing to incur the greater price fluctuation of
longer-term instruments. Additionally, the Fund is designed to be an economical
and convenient means of making substantial investments in debt obligations that
are exempt from federal income tax. The Fund's investment objective is to
provide a high level of current income exempt from federal income tax consistent
with moderate risk of capital. See "Taxes." The Fund attempts to achieve its
investment objective by investing all of its investable assets in 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 investing
primarily in securities of states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest of which is exempt from federal income tax in the opinion of bond
counsel

<PAGE>

for the issuer, but it may invest up to 20% of its total assets in
taxable obligations. During normal market conditions, the Portfolio will invest
at least 80% of its net assets in tax exempt obligations. 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". The Portfolio attempts to invest its
assets in tax exempt municipal securities; however, under certain circumstances
the Portfolio is permitted to invest up to 20% of the value of its total assets
in securities, the interest income on which may be subject to federal, state and
local income taxes. The Portfolio will invest in taxable securities only if
there are no tax exempt securities available for purchase or if the expected
return from an investment in taxable securities exceeds the expected return on
available tax exempt securities. In abnormal market conditions, if, in the
judgment of the Advisor, tax exempt securities satisfying the Portfolio's
investment objective may not be purchased, the Portfolio may, for defensive
purposes only, temporarily invest more than 20% of its net assets in debt
securities the interest on which is subject to federal, state and 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 and other debt securities which meet
the Portfolio's quality requirements. See "Taxes". The Portfolio seeks to
maintain a current yield that is greater than that obtainable from a portfolio
of short term tax exempt obligations, subject to certain quality restrictions.
See "Quality and Diversification Requirements."

The Advisor believes that based upon current market conditions, the
Portfolio will consist of a portfolio of securities with a duration of four to
seven years. In view of the duration of the Portfolio, under normal market
conditions, the Portfolio's yield can be expected to be higher and its net asset
value less stable than those of a money market fund. Duration is a measure of
the weighted average maturity of the bonds held in the Portfolio and can be used
as a measure of the sensitivity of the Portfolio's market value to changes in
interest rates. The maturities of the individual securities in the Portfolio may
vary widely, however, as the Advisor adjusts the Portfolio's holdings of
long-term and short-term debt securities to reflect its assessment of
prospective changes in interest rates, which may adversely affect current
income.

The value of the Portfolio's investments will generally fluctuate
inversely with changes in prevailing interest rates. The value of the
Portfolio's investments will also be affected by changes in the creditworthiness
of issuers and other market factors. The quality criteria applied in the
selection of portfolio securities are intended to minimize adverse price changes
due to credit considerations. The value of the Portfolio's municipal securities
can also be affected by market reaction to legislative consideration of various
tax reform proposals. Although the net asset value of the Portfolio fluctuates,
the Portfolio attempts to preserve the value of its investments to the extent
consistent with its objective.

Tax Exempt Obligations

The Portfolio may invest in bonds issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies, authorities and instrumentalities.
These obligations may be general obligation bonds secured by the issuer's pledge
of its full faith credit and taxing power for the payment of principal and
interest, or they may be revenue bonds payable from specific revenue sources,
but not generally backed by the issuer's taxing power. These include industrial
development bonds where payment is the responsibility of the private industrial
user of the facility financed by the bonds. The Portfolio may invest more than
25% of its assets in industrial development bonds, but may not invest more than
25% of its assets in industrial development bonds in projects of similar type or
in the same state.

<PAGE>

The Portfolio will invest in tax exempt obligations. A description of the
various types of tax exempt obligations which may be purchased by the Portfolio
appears below. See "Quality and Diversification Requirements."

Municipal Notes. The Portfolio may also invest in municipal notes of
various types, including notes issued in anticipation of receipt of taxes, the
proceeds of the sale of bonds, other revenues or grant proceeds, as well as
municipal commercial paper and municipal demand obligations such as variable
rate demand notes and master demand obligations. The interest rate on variable
rate demand notes is adjustable at periodic intervals as specified in the notes.
Master demand obligations permit the investment of fluctuating amounts at
periodically adjusted interest rates. They are governed by agreements between
the municipal issuer and Morgan acting as agent, for no additional fee. Although
master demand obligations are not marketable to third parties, the Portfolio
considers them to be liquid because they are payable on demand. There is no
specific percentage limitation on these investments. 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>

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 Portfolio 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 Portfolio 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. Although there is no secondary market for master demand
obligations, such obligations are considered by the Portfolio to be liquid
because they are payable upon demand. The Portfolio has no specific percentage
limitations on investments in master demand obligations.

Premium Securities. During a period of declining interest rates, many
municipal securities in which the Portfolio invests likely will bear coupon
rates higher than current market rates, regardless of whether the securities
were initially purchased at a premium. In general, such securities have market
values greater than the principal amounts payable on maturity, which would be
reflected in the net asset value of the Portfolio's shares. The values of such
"premium" securities tend to approach the principal amount as they near
maturity.

Puts. The Portfolio 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 Portfolio's investment
objective and subject to the supervision of the Trustees, the purpose of this
practice is to permit the Portfolio 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 Portfolio, 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
Portfolio's portfolio and the yield, quality and maturity dates of the
underlying securities.

<PAGE>

The Portfolio values any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Portfolio were to invest in municipal bonds and notes with maturities of 60 days
or more that are subject to puts separate from the underlying securities, the
puts and the underlying securities would be valued at fair value as determined
in accordance with procedures established by the Board of Trustees. 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. Prior to
investing in such securities, the Portfolio, if deemed necessary based upon the
advice of counsel, will apply to the SEC for an exemptive order, which may not
be granted, relating to the valuation of such securities.

Since the value of the put is partly dependent on the ability of the
put writer to meet its obligation to repurchase, the Portfolio'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 Portfolio'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 Advisor reviews regularly the 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. Other put
writers will have outstanding debt rated Aa or better by Moody's Investors
Service, Inc. ("Moody's") or AA or better by Standard & Poor's Ratings Group
("Standard & Poor's"), or will be of comparable quality in the Advisor's opinion
or such put writers' obligations will be collateralized and of comparable
quality in the Advisor's opinion. 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 Portfolio is
unable to predict whether all or any portion of any loss sustained could
subsequently be recovered from such dealer.

Entering into a put with respect to a tax exempt security may be
treated, depending upon the terms of the put, as a taxable sale of the tax
exempt security by the Portfolio with the result that, while the put is
outstanding, the Portfolio will no longer be treated as the owner of the
security and the interest income derived with respect to the security will be
treated as taxable income to the Portfolio.

Non-Municipal Securities

The Portfolio may invest in bonds and other debt securities of domestic
issuers to the extent consistent with its investment objective and policies. The
Portfolio may invest in U.S. Government, bank and corporate debt obligations, as
well as asset-backed securities and repurchase agreements. The Portfolio will
purchase such securities only when the Advisor believes that they would enhance
the after tax returns of a shareholder of the Fund in the highest federal income
tax brackets. Under normal circumstances, the Portfolio's holdings of
non-municipal securities will not exceed 20% of its total assets. A description
of these investments appears below. See "Quality and Diversification
Requirements." For information on short-term investments in these securities,
see "Money Market Instruments."

<PAGE>

Zero Coupon, Pay-in-Kind and Deferred Payment Securities. Zero coupon
securities are securities that are sold at a discount to par value and on which
interest payments are not made during the life of the security. Upon maturity,
the holder is entitled to receive the par value of the security. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. The Portfolio accrues income with respect to zero
coupon and pay-in-kind securities prior to the receipt of cash payments.
Deferred payment securities are securities that remain zero coupon securities
until a predetermined date, at which time the stated coupon rate becomes
effective and interest becomes payable at regular intervals. While interest
payments are not made on such securities, holders of such securities are deemed
to have received "phantom income." Because the Fund will distribute "phantom
income" to shareholders, to the extent that shareholders elect to receive
dividends in cash rather than reinvesting such dividends in additional shares,
the Portfolio will have fewer assets with which to purchase income producing
securities. Zero coupon, pay-in-kind and deferred payment securities may be
subject to greater fluctuation in value and lesser liquidity in the event of
adverse market conditions than comparably rated securities paying cash interest
at regular interest payment periods.

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

Money Market Instruments

The Portfolio will invest in money market instruments, to the extent
consistent with its investment objective and policies, that meet the quality
requirements described below. Under normal circumstances, the Portfolio will
purchase these securities to invest temporary cash balances or to maintain
liquidity to meet withdrawals. However, the Portfolio may also invest in money
market instruments as a temporary defensive measure taken during, or in
anticipation of, adverse market conditions.

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

U.S. Treasury Securities. The Portfolio may invest in direct obligations of
the U.S. Treasury, including Treasury bills, notes and bonds,

<PAGE>

all of which are backed as to principal and interest payments by the
full faith and credit of the United States.

Additional U.S. Government Obligations. The Portfolio may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. 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 Portfolio must look principally to the federal agency issuing
or guaranteeing the obligation for ultimate repayment and may not be able to
assert a claim against the United States itself in the event the agency or
instrumentality does not meet its commitments. Securities in which the Portfolio
may invest that are not backed by the full faith and credit of the United States
include, but are not limited to: (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 Portfolio 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 and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). The Portfolio may not invest in obligations of
foreign branches of foreign banks. The Portfolio 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 Portfolio may invest in commercial paper,
including master demand obligations. For a description of master demand
obligations see "Tax Exempt Obligations - Municipal Notes" above. Master demand
obligations are obligations that provide for a periodic adjustment in the
interest rate paid and permit daily changes in the amount borrowed. Master
demand obligations are governed by agreements between the issuer and Morgan
acting as agent for no additional fee. The monies loaned to the borrower come
from accounts managed by Morgan or its affiliates, pursuant to arrangements with
such accounts. Interest and principal payments are credited to such accounts.
Morgan has the right to increase or decrease the amount provided to the borrower
under an obligation. The borrower has the right to pay without penalty all or
any part of the principal amount then outstanding on an obligation together with
interest to the date of payment. Since these obligations typically provide that
the interest rate is tied to the Federal Reserve commercial paper composite
rate, the rate on master demand obligations is subject to change. Repayment of a
master demand obligation to participating accounts depends on the ability of the
borrower to pay the accrued interest and principal of the obligation on demand
which is continuously monitored by Morgan. Since master demand obligations
typically are not rated by credit rating agencies, the Portfolio may invest in
such unrated obligations only if at the time of an investment the obligation is
determined by the Advisor to have a credit quality which satisfies the
Portfolio's quality restrictions. See "Quality and Diversification

<PAGE>

Requirements." Although there is no secondary market for master demand
obligations, such obligations are considered by the Portfolio to be liquid
because they are payable upon demand. It is possible that the issuer of a master
demand obligation could be a client of Morgan to whom Morgan, an affiliate of
the Advisor, in its capacity as a commercial bank, has made a loan.

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

The Portfolio may make investments in other debt securities, including
without limitation corporate bonds and other obligations described in this
Statement of Additional Information.

Additional Investments

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

<PAGE>

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, the Portfolio may be disadvantaged if the other
party to the transaction defaults. It is the current policy of the Portfolio not
to enter into when-issued commitments exceeding in the aggregate 15% of the
market value of the Portfolio's total assets, less liabilities other than the
obligations created by when-issued commitments.

Investment Company Securities. Securities of other investment companies
may be acquired by the Portfolio to the extent permitted under the 1940 Act or
any order pursuant thereto. These limits currently require that, as determined
immediately after a purchase is made, (i) not more than 5% of the value of the
Portfolio's total assets will be invested in the securities of any one
investment company, (ii) not more than 10% of the value of its total assets will
be invested in the aggregate in securities of investment companies as a group,
and (iii) not more than 3% of the outstanding voting stock of any one investment
company will be owned by the Portfolio, 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 (the 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. The Fund has applied for exemptive relief from the SEC to permit
the Portfolio to invest in affiliated investment companies. If the requested
relief is granted, the Portfolio would then be permitted to invest in affiliated
Portfolios, subject to certain conditions specified in the applicable order.

Loans of Portfolio Securities. Subject to applicable investment
restrictions, the Portfolio is permitted to lend its securities in an amount up
to 33-1/3% of the Portfolio's net assets. The Portfolio may lend its securities
if such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Portfolio at least equal at all times to 100%
of the market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in

<PAGE>

the market price of the borrowed securities which occurs during the
term of the loan inures to the Portfolio and its respective investors. The
Portfolio may pay reasonable finders' and custodial fees in connection with a
loan. In addition, the Portfolio will consider all facts and circumstances
including the creditworthiness of the borrowing financial institution, and the
Portfolio will not make any loans in excess of one year. The Portfolio will not
lend its securities to any officer, Trustee, Director, employee or other
affiliate of the Portfolio, the Advisor or the Distributor, unless otherwise
permitted by applicable law.

Illiquid Investments; Privately Placed and Other Unregistered
Securities. The Portfolio may not acquire any illiquid securities if, as a
result thereof, more than 15% of the Portfolio's net assets would be in illiquid
investments. Subject to this non-fundamental policy limitation, the 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 Portfolio may also purchase Rule 144A securities sold to
institutional investors without registration under the 1933 Act. These
securities may be determined to be liquid in accordance with guidelines
established by the Advisor and approved by the Trustees. The Trustees will
monitor the Advisor's implementation of these guidelines on a periodic basis.

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

Synthetic Instruments. The Portfolio 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 party 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. 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

<PAGE>

will terminate and (ii) the risk to the Portfolio will be that of
holding a long-term bond.

Quality and Diversification Requirements

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

The Portfolio will comply with the diversification requirements imposed by
the Internal Revenue Code of 1986, as amended (the "Code"), for qualification as
a regulated investment company. See "Taxes."

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 Portfolio 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
Portfolio 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."

It is the current policy of the Portfolio that under normal
circumstances at least 90% of total assets will consist of securities that at
the time of purchase are rated Baa or better by Moody's or BBB or better by
Standard & Poor's. The remaining 10% of total assets may be invested in
securities that are rated B or better by Moody's or Standard & Poor's. See
"Below Investment Grade Debt" below. In each case, the Portfolio may invest in
securities which are unrated, if in the Advisor's opinion, such securities are
of comparable quality. Securities rated Baa by Moody's or BBB by Standard &
Poor's are considered investment grade, but have some speculative
characteristics. Securities rated Ba or B by Moody's and BB or B by Standard &
Poor's are below investment grade and considered to be speculative with regard
to payment of interest and principal. These standards must be

<PAGE>

satisfied at the time an investment is made. If the quality of the
investment later declines, the Portfolio may continue to hold the investment.

The Portfolio invests principally in a diversified portfolio of
"investment grade" tax exempt securities. On the date of investment, with
respect to at least 90% of its total assets, (i) municipal bonds must be rated
within the four highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of
Standard & Poor's, currently AAA, AA, A and BBB, (ii) municipal notes must be
rated MIG-1 by Moody's or SP-1 by Standard & Poor's (or, in the case of New York
State municipal notes, MIG-1 or MIG-2 by Moody's or SP-1 or SP-2 by Standard &
Poor's) and (iii) at the time the Portfolio invests in any commercial paper,
bank obligation, repurchase agreement, or any other money market instruments,
the investment must have received a short term rating of investment grade or
better (currently Prime-3 or better by Moody's or A-3 or better by Standard &
Poor's) or the investment must have been issued by an issuer that received a
short term investment grade rating or better with respect to a class of
investments or any investment within that class that is comparable in priority
and security with the investment being purchased by the Portfolio. If no such
ratings exists, the investment must be of comparable investment quality in the
Advisor's opinion, but will not be eligible for purchase if the issuer or its
parent has long term outstanding debt rated below BBB. With respect to the
remaining 10% of its assets, any investment must be rated B or better by Moody's
or Standard & Poor's, or of comparable quality. The Portfolio may invest in
other tax exempt securities which are not rated if, in the opinion of the
Advisor, such securities are of comparable quality to the rated securities
discussed above. In addition, at the time the Portfolio invests in any
commercial paper, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's
parent corporation, if any, must have outstanding commercial paper rated Prime-1
by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in the Advisor's opinion.

Below Investment Grade Debt. Certain lower rated securities purchased
by the Portfolio, such as those rated Ba or B by Moody's or BB or B by Standard
& Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of principal
and interest and to greater market fluctuations. While generally providing
greater income than investments in higher quality securities, lower quality
fixed income securities involve greater risk of loss of principal and income,
including the possibility of default or bankruptcy of the issuers of such
securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Portfolio invests in such lower quality securities, the achievement of
its investment objective may be more dependent on the Advisor's own credit
analysis.

<PAGE>

Portfolio's portfolio securities for purposes of determining the
Portfolio's net asset value. See Appendix A for more detailed information on
these ratings.

Options and Futures Transactions

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

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

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

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

The Portfolio may purchase put and call options on securities, indexes
of securities and futures contracts, or purchase and sell futures contracts,
only if such options are written by other persons and if (i) the aggregate
premiums paid on all such options which are held at any time do not exceed 20%

<PAGE>

of the Portfolio's net assets, and (ii) the aggregate margin deposits
required on all such futures or options thereon held at any time do not exceed
5% of the Portfolio's total assets. In addition, the Portfolio will not purchase
or sell (write) futures contracts, options on futures contracts or commodity
options for risk management purposes if, as a result, the aggregate initial
margin and options premiums required to establish these positions exceed 5% of
the net asset value of the Portfolio.

Options

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

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

<PAGE>

out the option at a lower price. If security prices fall, the put
writer would expect to suffer a loss. This loss should be less than the loss
from purchasing and holding the underlying instrument directly, however, because
the premium received for writing the option should offset a portion of the
decline.

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

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

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

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

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

<PAGE>

Futures Contracts

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

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

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

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

Options on Futures Contracts. The Portfolio may purchase and sell put and
call options, including put and call options on futures contracts. Futures
contracts obligate the buyer to take and the seller to make delivery at a

<PAGE>

future date of a specified quantity of a financial instrument or an
amount of cash based on the value of a securities index. Currently, futures
contracts are available on various types of fixed income securities, including,
but not limited to, U.S. Treasury bonds, notes and bills, Eurodollar
certificates of deposit and on indexes of fixed income securities.

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

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

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

<PAGE>

lesser value than the securities it wishes to hedge or intends to
purchase in order to attempt to compensate for differences in volatility between
the contract and the securities, although this may not be successful in all
cases. If price changes in the Portfolio's options or futures positions are
poorly correlated with its other investments, the positions may fail to produce
anticipated gains or result in losses that are not offset by gains in other
investments.

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

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

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

<PAGE>

exposure to certain markets in the most economical way possible. The Portfolio
will not sell interest rate caps, floors or collars if it does not own
securities with coupons which provide the interest that the Portfolio may be
required to pay.

The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Portfolio is obligated to make payments more frequently than it
receives payments from the other party, it will incur incremental credit
exposure to that swap counterparty. This risk may be mitigated somewhat by the
use of swap agreements which call for a net payment to be made by the party with
the larger payment obligation when the obligations of the parties fall due on
the same date. Under most swap agreements entered into by the Portfolio,
payments by the parties will be exchanged on a "net basis", and the Portfolio
will receive or pay, as the case may be, only the net amount of the two
payments.

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

<PAGE>

performance of the Portfolio will be less favorable than if these techniques had
not been used. These instruments are typically not traded on exchanges.
Accordingly, there is a risk that the other party to certain of these
instruments will not perform its obligations to the Portfolio or that the
Portfolio may be unable to enter into offsetting positions to terminate its
exposure or liquidate its position under certain of these instruments when it
wishes to do so. Such occurrences could result in losses to the Portfolio.

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

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

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

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

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

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

<PAGE>

Risk Management

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

Portfolio Turnover

The table below sets forth the portfolio turnover rates for the
Portfolio. A rate of 100% indicates that the equivalent of all of the
Portfolio's assets have been sold and reinvested in a year. High portfolio
turnover may result in the realization of substantial net capital gains or
losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.

The Tax Exempt Bond Portfolio -- For the fiscal years ended August 31, 1997 and
1998: 25% and 16%, respectively.

INVESTMENT RESTRICTIONS

The investment restrictions below have been adopted by the Fund and 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 Portfolio's classification
as a diversified investment company under the Investment Company Act of 1940.

<PAGE>

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

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

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

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

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

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

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

Non-Fundamental Investment Restrictions. The investment restrictions
described below are not fundamental policies of the Fund and Portfolio and may
be changed by the Trustees. These non-fundamental investment policies require
that the Fund and 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 15% of the market value
of the Portfolio's net assets would be in investments which are illiquid;

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

<PAGE>

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.

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. ("Pierpont Group"), since prior to 1993. His address is
Pine Tree Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida
33436, and his date of birth is August 23, 1937.

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.

<PAGE>

Trustee. The Trustees may hold various other directorships unrelated to
these funds.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

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

Frederick S. Addy, Trustee $11,772.77 $75,000
- -------------------------------- -------------------- -------------------------
- -------------------------------- -------------------- -------------------------

William G. Burns, Trustee $11,772.77 $75,000
- -------------------------------- -------------------- -------------------------
- -------------------------------- -------------------- -------------------------

Arthur C. Eschenlauer, Trustee $11,772.77 $75,000
- -------------------------------- -------------------- -------------------------
- -------------------------------- -------------------- -------------------------

Matthew Healey, Trustee(***), $11,772.77 $75,000
Chairman and Chief Executive
Officer
- -------------------------------- -------------------- -------------------------
- -------------------------------- -------------------- -------------------------

Michael P. Mallardi, Trustee $11,772.77 $75,000
- -------------------------------- -------------------- -------------------------

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

The Trustees decide upon general policy 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 to assist
the Trustees in exercising their overall supervisory responsibilities over the
affairs of the Portfolio and the Trust. Pierpont Group was organized in July
1989 to provide services for the J.P. Morgan Family of Funds (formerly "The
Pierpont Family of Funds"), and the Trustees are the equal and sole shareholders
of Pierpont Group. The Trust and the Portfolio have agreed to pay Pierpont Group
a fee in an amount representing its reasonable costs in performing these
services. These costs are periodically reviewed by the Trustees. The principal
offices of Pierpont Group are located at 461 Fifth Avenue, New York, NY 10017.

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

The Fund -- For the fiscal years ended August 31, 1996, 1997 and 1998:
$4,527, $5,670 and $7,931, respectively.

<PAGE>

The Portfolio -- For the fiscal years ended August 31, 1996, 1997 and 1998:
$24,602, $18,912 and $21,294, respectively.

Officers

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.

<PAGE>

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.

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 Portfolio 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.

<PAGE>

INVESTMENT ADVISOR

The Fund has not retained the services of an investment advisor because
it seeks to achieve its investment objective by investing all of its investable
assets in the 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. Prior to October 28, 1998, 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 advisor under the Investment
Advisers Act of 1940, as amended, and manages employee benefit funds of
corporations, labor unions and state and local governments and the accounts of
other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.

<PAGE>

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."

The table below sets forth the advisory fees paid by the Portfolio to
the Advisor for the fiscal periods indicated.

For the fiscal years ended August 31, 1996, 1997 and 1998: $1,354,145,
$1,620,498 and 2,017415, respectively.

<PAGE>

and regulations, might prevent the Advisor from continuing to perform
such services for the Portfolio.

DISTRIBUTOR

The Distribution Agreement shall continue in effect 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.

<PAGE>

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 each has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund 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 table below sets forth the administrative fees paid to FDI for the
fiscal periods indicated.

The Fund -- For the period August 1, 1996 through August 31, 1996: $370.
For the fiscal years ended August 31, 1997 and 1998: $5,376 and 5,939.

The Portfolio -- For the period August 1, 1996 through August 31, 1996:
$920. For the fiscal years ended August 31, 1997 and 1998: $10,663 and 9,832.

The table below sets forth the administrative fees paid 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 fiscal period indicated.

The Fund -- For the period September 1, 1995 through July 31, 1996: $12,887.

The Portfolio -- For the period September 1, 1995 through July 31, 1996:
$43,154.

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 the 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 each has
agreed to pay Morgan fees equal to its allocable share of an annual complex-wide
charge. This charge is calculated daily based on the aggregate net assets of the
Master Portfolios and J.P. Morgan Series Trust in accordance with the following
annual schedule: 0.09% of the first $7 billion of their aggregate average daily
net assets and 0.04% of their 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.

<PAGE>

Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, the Fund and the Portfolio each
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.

The table below sets forth the fees paid to Morgan as Services Agent.

Fund -- For the fiscal years ended August 31, 1996, 1997 and 1998: $16,596,
$51,270 and $74,789, respectively.

Portfolio -- For the fiscal years ended August 31, 1996, 1997 and 1998:
$80,281, $169,209 and $198,156, respectively.

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. 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 an annual rate of

<PAGE>

0.10% (expressed as a percentage of the average daily net asset value
of Fund shares owned by or for shareholders).

The table below sets forth the shareholder servicing fees paid by the
Fund to Morgan for the fiscal periods indicated. See the Prospectus and below
for applicable expense limitations. The Fund -- For the fiscal years ended
August 31, 1996, 1997 and 1998: $59,743, $122,850 and $197,279, respectively.

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.

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 record keeping or
other services to certain employee benefit or retirement plans that include the
Fund as an investment alternative may also be paid a fee.

FINANCIAL PROFESSIONALS

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

<PAGE>

cases will be retained by the financial professional and will not be
remitted to the Fund or J.P. Morgan.

INDEPENDENT ACCOUNTANTS

EXPENSES

In addition to the fees payable to Pierpont Group, 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 the registration 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.
Under fee arrangements prior to September 1, 1995, Morgan as Services Agent was
responsible for reimbursements to the Trust and the Portfolio and the usual
customary expenses described above (excluding organization and extraordinary
expenses, custodian fees and brokerage expenses).

The table below sets forth the fees and other expenses J.P. Morgan
reimbursed under the expense reimbursement arrangements described above or
pursuant to prior expense reimbursement arrangements for the fiscal periods
indicated.

Fund -- For the fiscal years ended August 31, 1996, 1997 and 1998: $89,119,
$90,108 and $71,607.

<PAGE>

Portfolio -- For the fiscal years ended August 31, 1996, 1997 and 1998:
N/A, N/A and N/A.

PURCHASE OF SHARES

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

The Fund may, at its own option, accept securities in payment for
shares. The securities 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); (iii) be liquid securities which are not restricted as
to transfer either by law or liquidity of market; and (iv) if stock, have a
value which is readily ascertainable as evidenced by a listing on a stock
exchange, OTC market or by readily available market quotations from a dealer in
such securities. The Fund reserves the right to accept or reject at its own
option any and all securities offered in payment for its shares.

REDEMPTION OF SHARES

Investors may redeem shares as described in the Prospectus.

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

<PAGE>

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 reservesthe right to
suspend the right of redemption and to postpone the date of payment upon
redemption as follows: (i) for up to seven days, (ii) during periods when the
New York Stock Exchange is closed for other than weekends and holidays or when
trading on such Exchange is restricted as determined by the SEC by rule or
regulation, (iii) during periods in which an emergency, as determined by the
SEC, exists that causes disposal by the Portfolio of, or evaluation of the net
asset value of, its portfolio securities to be unreasonable or impracticable, or
(iv) for such other periods as the SEC may permit. For information regarding
redemption orders placed through a financial professional, please see "Financial
Professionals" above.

EXCHANGE OF SHARES

An investor may exchange shares of the Fund for shares of any other
J.P. Morgan Institutional Fund, J.P. Morgan Fund or J.P. Morgan Series Trust
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. In the case of investors in certain states, state securities laws may
restrict the availability of the exchange privilege. The Fund reserves the right
to discontinue, alter or limit its exchange privilege at any time.

DIVIDENDS AND DISTRIBUTIONS

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

<PAGE>

other distributions reinvested in additional shares. No interest will
accrue on amounts represented by uncashed distribution or redemption checks.

NET ASSET VALUE

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

PERFORMANCE DATA

<PAGE>

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

Fund (8/31/98): 30-day yield (net of expenses): 4.05%; 30-day tax
equivalent yield at 39.6% tax rate: 6.79%.

As required by regulations of the SEC, the annualized total return of
the Fund for a period is computed by assuming a hypothetical initial payment of
$1,000. It is then assumed that all of the dividends and distributions by the
Fund over the period are reinvested. It is then assumed that at the end of the
period, the entire amount is redeemed. The annualized total return is then
calculated by determining the annual rate required for the initial payment to
grow to the amount which would have been received upon redemption.

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

Historical performance information for the period or portion thereof
prior to the establishment of the Fund will be that of its corresponding
predecessor, the J.P. Morgan Tax Exempt Bond Fund, as permitted by applicable
SEC staff interpretations, since the J.P. Morgan Tax Exempt Bond Fund commenced
operations before the Portfolio.

Below is set forth historical return information for the Fund for the
periods indicated:

The Fund (8/31/98): Average annual total return, 1 year: 7.37%; average
annual total return, 5 years: 5.55%; average annual total return, 10 years:
7.13%; aggregate total return, 1 year: 7.37%; aggregate total return, 5 years:
31.00%; aggregate total return, 10 years: 99.17%.

<PAGE>

deposits or other investments that pay a fixed yield or return for a
stated period of time.

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; (5) descriptions of
investment strategies; (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

Portfolio transactions 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".

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

<PAGE>

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

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

<PAGE>

instrument or undertaking made on behalf of any Fund will contain a
provision to the effect that the shareholders are not personally liable
thereunder.

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.

DESCRIPTION OF SHARES

The Declaration of Trust permits the Trustees to issue an unlimited
number of full and fractional shares ($0.001 par value) of one or more series
and classes within any series and to divide or combine the shares (of any
series, if applicable) without changing the proportionate beneficial interest of
each shareholder in 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.

<PAGE>

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

The trustees have authorized the issuance and sale to the public of
shares of 22 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

<PAGE>

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 January 31, 1999, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of the Fund: Morgan as agent for Engelhard Hanovia Inc. (X.XX%); and
Morgan as agent for General Re: Employee Benefit Trust (X.XX%).

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

Unlike other mutual funds which directly acquire and manage their own
portfolio of securities, the Fund is a separate open-end management investment
company which seeks to achieve its investment objective by investing all of its
investable assets in the Portfolio, a separate registered investment company
with the same investment objective and policies as the Fund. 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 matter on which
shares of the Fund shall be entitled to vote.

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.

<PAGE>

TAXES

The Fund intends to continue 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 in other regulated
investment companies, and other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's total assets, and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies).

<PAGE>

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 (other than exempt-interest
dividends) and realized net short-term capital gains in excess of net long-term
capital losses are generally taxable to shareholders of the Fund as ordinary
income whether such distributions are taken in cash or reinvested in additional
shares. Distributions of net long-term capital gains (i.e., net long-term
capital gains in excess of net short-term capital losses) 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 20%
rate of tax.

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

<PAGE>

received by the shareholder with respect to such shares, and (ii) will
be disallowed to the extent of any exempt-interest dividends received by the
shareholder with respect to such shares. Investors are urged to consult their
tax advisors concerning the limitations on the deductibility of capital losses.
In addition, no loss will be allowed on the redemption or exchange of shares of
the Fund, if within a period beginning 30 days before the date of such
redemption or exchange and ending 30 days after such date, the shareholder
acquires (such as through dividend reinvestment) securities that are
substantially identical to shares of the Fund.

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

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 Fund 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

<PAGE>

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
Portfolio or the Distributor to make such offer in such jurisdictions.

The Year 2000 Initiative

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan will attempt
to develop business recovery/contingency plans. These plans, which are being
developed in the first half of 1999, will define the infrastructure that should
be put in place for managing a failure during the millennium event itself.

<PAGE>

FINANCIAL STATEMENTS

The following financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference to 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 0001047469-98-038760). The financial report is available without charge
upon request by calling J.P. Morgan Funds Services at (800) 521-5411. The Fund's
financial statements include the financial statements of the Portfolio.

<PAGE>

TEBSAI
A-4

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.

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

<PAGE>

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

Commercial Paper, including Tax Exempt

A-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

Corporate and Municipal Bonds

<PAGE>

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

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

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

Commercial Paper, including Tax Exempt

Prime-1 - Issuers rated Prime-1 (or related supporting institutions)
have a superior capacity for repayment of short-term
promissory obligations. Prime-1 repayment capacity will
normally be evidenced by the following characteristics:
- Leading market positions in well established industries.
- High rates of return on Portfolios 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.

<PAGE>

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 Portfolios 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.

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND

STATEMENT OF ADDITIONAL INFORMATION

MARCH 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE PROSPECTUS
DATED MARCH 1, 1999 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 DATED AUGUST 31, 1998. THE PROSPECTUS AND THESE FINANCIAL
STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT ON THE ANNUAL
FINANCIAL STATEMENTS, ARE AVAILABLE, WITHOUT CHARGE, UPON REQUEST FROM FUNDS
DISTRIBUTOR, INC., ATTENTION: J.P. MORGAN INSTITUTIONAL FUNDS (800) 221-7930.

<PAGE>

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...................................................21
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

<PAGE>

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 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.

<PAGE>

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

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

<PAGE>

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.

<PAGE>

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 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.

<PAGE>

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 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.

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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>

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.

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

<PAGE>

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>

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.

INVESTMENT RESTRICTIONS

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;

<PAGE>

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.

(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;

(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.

<PAGE>

open-end registered investment company with substantially the same
investment objective, restrictions and policies as the Fund.

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.

<PAGE>

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.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

TOTAL TRUSTEE COMPENSATION
AGGREGATE TRUSTEE ACCRUED BY THE MASTER
COMPENSATION PORTFOLIOS(*), J.P. MORGAN
PAID BY THE TRUST FUNDS, J.P. MORGAN SERIES
DURING 1998 TRUST AND THE TRUST DURING
NAME OF TRUSTEE 1998(***)
- ---------------------------------- ------------------ --------------------------
- ---------------------------------- ------------------ --------------------------
Frederick S. Addy, Trustee $20,055 $75,000
- ---------------------------------- ------------------ --------------------------
- ---------------------------------- ------------------ --------------------------

Matthew Healey, Trustee (**) $20,055 $75,000
Chairman and Chief Executive
Officer
- ---------------------------------- ------------------ --------------------------
- ---------------------------------- ------------------ --------------------------

Michael P. Mallardi, Trustee $20,055 $75,000
- ---------------------------------- ------------------ --------------------------

</TABLE>

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

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

<PAGE>

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

DOUGLAS C. CONROY; Vice President and Assistant Treasurer. Assistant Vice
President and Assistant Department Manager of Treasury Services and

<PAGE>

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.

<PAGE>

team handling over 22,000 clients. Address: 200 Park Avenue, New York, New
York 10166. Her date of birth is August 18, 1968.

INVESTMENT ADVISOR

<PAGE>

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 paid the following advisory fees to Morgan and JPMIM, as
applicable, for the fiscal years ended August 31, 1996, 1997 and 1998:
$2,154,248, $2,267,159 and $2,710,567.

<PAGE>

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.

DISTRIBUTOR

<PAGE>

"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

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. See the Prospectus and below for applicable expense limitations.

SERVICES AGENT

The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan

<PAGE>

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 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, for the
fiscal years ended August 31, 1996, 1997 and 1998: $30,085, $60,316 and
$147,096.

The Portfolio paid to Morgan, as Services Agent, the following, for the
fiscal years ended August 31, 1996, 1997 and 1998: $205,419, $397,340 and
$502,654.

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.

<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 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.

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.

The shareholder servicing fees paid by the Fund to Morgan for the
fiscal years ended August 31, 1996, 1997 and 1998 were as follows: $103,262,
$97,098 and $278,809. See "Expenses" in the Prospectus and 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, 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

<PAGE>

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

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. For additional information
regarding waivers or expense subsidies, see the Prospectus.

<PAGE>

necessary to maintain the Fund's total operating expenses at the annual rate of
0.35% of the Fund's average daily net assets. If the Portfolio's allocation of
expenses to the Fund falls below 0.20% of the Fund's average daily net assets,
J.P. Morgan will reimburse the Fund's expenses in excess of those required to
bring the Fund's total operating expenses to the annual rate of 0.20% 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 at
the option of J.P.
Morgan.

Fund -- For the fiscal years ended August 31, 1996, 1997 and 1998: $115,719,
$199,947 and $646,533.

Portfolio -- For the fiscal years ended August 31, 1996, 1997 and 1998:
N/A, N/A and N/A.

PURCHASE OF SHARES

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.

<PAGE>

REDEMPTION OF SHARES

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.

EXCHANGE OF SHARES

<PAGE>

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.

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, 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.

<PAGE>

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

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.

Historical return information for the Fund 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.

<PAGE>

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.

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

<PAGE>

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.

MASSACHUSETTS TRUST

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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.

DESCRIPTION OF SHARES

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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.

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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.

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 January 31, 1999, the following owned of record more than 5% of the
outstanding shares of the Fund: E. H. Skove (6.86%).

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.

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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.

TAXES

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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 securities or foreign currency; and (b) diversify
its holdings so that, at the end of each quarter of its taxable year, (i) at
least 50% of the value of the Fund's total assets is represented by cash, cash
items, U.S. Government securities, securities of other regulated investment
companies, and other securities limited, in respect of any one issuer, to an
amount not greater than 5% of the Fund's total assets, and 10% of the
outstanding voting securities of such issuer, and (ii) not more than 25% of the
value of its total assets is invested in the securities of any one issuer (other
than U.S. Government securities or securities of other regulated investment
companies). As a regulated investment company, 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.

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 20% rate of tax.

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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 gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less will be treated as a long-term capital loss to the
extent of any long-term capital gain distributions received by the shareholder
with respect to such shares. Investors are urged to consult their tax advisors
concerning the limitations on the deductibility of capital 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.

Foreign Shareholders. Dividends of net investment income and distributions
of realized net short-term gain in excess of net long-term loss

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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.

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

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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

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occurrence, J.P. Morgan will attempt to develop business
recovery/contingency plans. These plans, which are being developed in the first
half of 1999, will define the infrastructure that should be put in place for
managing a failure during the millennium event itself.

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 0001047469-98-038757). 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.

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

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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

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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.