JP MORGAN INSTITUTIONAL FUNDS, 485BPOS, 2000-10-27

JP MORGAN INSTITUTIONAL FUNDS
485BPOS, 2000-10-27

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<PAGE>

As filed with the Securities and Exchange Commission on October 27, 2000
Registration Nos. 033-54642 and 811-07342

U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM N-1A

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POST-EFFECTIVE AMENDMENT NO. 80

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 81

J.P. MORGAN INSTITUTIONAL FUNDS
(formerly The JPM Institutional Funds)
(Exact Name of Registrant as Specified in Charter)

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

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

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

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

It is proposed that this filing will become effective (check appropriate box):

[X] Immediately upon filing pursuant to paragraph (b)
[ ] on (date)pursuant to paragraph (b)
[ ] 60 days after filing pursuant to paragraph (a)(i)
[ ] on (date) pursuant to paragraph (a)(i)
[ ] 75 days after filing pursuant to paragraph (a)(ii)
[ ] on (date) pursuant to paragraph (a)(ii) of Rule 485.

If appropriate, check the following box:

[ ] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.

<PAGE>

EXPLANATORY NOTE

This post-effective amendment No. 80 to the registration statement of J.P.
Morgan Institutional Funds (the "Registrant") on Form N-1A is being filed to
update the Registrant's disclosure in the Prospectuses and Statements of
Additional Information relating to (i) J.P. Morgan Institutional Diversified
Fund and (ii) J.P. Morgan Diversified Fund - Advisor Series of the Registrant,
to include updated financial information for the fiscal year ended June 30,
2000,and to update other information in the registration statement.

<PAGE>

PART A

<PAGE>

NOVEMBER 1, 2000 / PROSPECTUS

J.P. MORGAN INSTITUTIONAL
DIVERSIFIED FUND

-----------------------------------
A balanced fund seeking high total
return with reduced risk

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

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

Distributed by Funds Distributor, Inc. JPMORGAN

<PAGE>

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

1 J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND

The fund's goal, investment approach, risks, expenses and performance

Fund description ..............................................................1
Performance ...................................................................2
Investor expenses .............................................................2

3 DIVERSIFIED MANAGEMENT APPROACH

J.P. Morgan ...................................................................3
J.P. Morgan Institutional Diversified Fund ....................................3
Who may want to invest ........................................................3
Investment process ............................................................4

6 YOUR INVESTMENT

Investing in the J.P. Morgan Institutional Diversified Fund

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 FUND DETAILS

More about risk and the fund's business operations

Master/feeder structure .......................................................9
Management and administration .................................................9
Risk and reward elements .....................................................10
Investments ..................................................................13
Financial highlights .........................................................15

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

<PAGE>

J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND TICKER SYMBOL: JPDVX
--------------------------------------------------------------------------------
REGISTRANT NAME: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUNDS)

[GRAPHIC] RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and its main risks, as
well as fund strategies, please see pages 10-14.

[GRAPHIC] GOAL
The fund seeks to provide a high total return from a diversified portfolio of
stocks and bonds. This goal can be changed without shareholder approval.

[GRAPHIC] PRINCIPAL STRATEGIES
INVESTMENT APPROACH

Drawing on a variety of analytical tools, the portfolio management team
allocates assets among various types of stock and bond investments, based on the
model allocation shown on the right of this page. The team periodically adjusts
the fund's actual asset allocation according to the relative attractiveness of
each asset class.

Within this asset allocation framework, the team selects the fund's securities.
With the stock portion of the portfolio, the fund keeps its economic sector
weightings in line with the markets in which it invests, while actively seeking
the most attractive stocks within each sector. In choosing individual stocks,
the team ranks them according to their relative value using a proprietary model
that incorporates research from J.P. Morgan's worldwide network of analysts.
Foreign stocks are chosen using a similar process, while also monitoring country
allocation and currency exposure.

With the bond portion of the portfolio, the team uses fundamental, economic, and
capital markets research to select securities. The team actively manages the mix
of U.S. and foreign bonds while typically keeping duration - a common
measurement of sensitivity to interest rate movements - within one year of the
average for the U.S. investment-grade bond universe (currently about 5 years).

PRINCIPAL RISKS

The value of your investment in the fund will fluctuate in response to movements
in the stock and bond markets. The fund's broad diversification among asset
classes and among individual stocks and bonds is more effective in reducing
volatility when asset classes perform differently. Fund performance will also
depend on the management team's asset allocation and securities selection.

To the extent the portfolio invests in foreign securities, it could lose money
because of foreign government actions, political instability, currency
fluctuation or lack of adequate and accurate information. While the portfolio
may engage in options, futures and foreign currency transactions for hedging or
risk management purposes only, these transactions sometimes may reduce returns
or increase volatility.

Over the long term, investors can anticipate that the fund's total return and
volatility should exceed those of bonds but remain less than those of medium-
and large-capitalization domestic stocks.

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.

MODEL ALLOCATION

[PIE CHART]

52% medium- and large-cap U.S. stocks
35% U.S. and foreign bonds
10% foreign stocks
3% small-cap U.S. stocks

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $373
billion, including more than $6.8 billion using the same strategy as the fund.

The portfolio management team is led by John M. Devlin, vice president, who
joined the team in December of 1993 and has been at J.P. Morgan since 1986, and
Anne Lester, vice president, who joined the team in June of 2000 and has been at
J.P. Morgan since 1992. Prior to managing this fund, Ms. Lester worked in the
Product Development group and as a fixed income and currency trader and
portfolio manager in Milan.

--------------------------------------------------------------------------------
BEFORE YOU INVEST

Investors considering the fund should understand that:

- The fund seeks to achieve its goal by investing its assets in a master
portfolio, which is another fund with the same goal.

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

- The fund does not represent a complete investment program.

1 / J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
<PAGE>

--------------------------------------------------------------------------------
PERFORMANCE (UNAUDITED)

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

The bar chart indicates some of the risks by showing changes in the performance
of the fund's shares from year to year for the fund's last 6 calendar years.

The table indicates some of the risks by showing how the fund's average annual
returns for the past one and five years and for the life of the fund compare to
the Fund Benchmark and the S&P 500 Index. The Fund Benchmark is a composite
benchmark of unmanaged indices that corresponds to the fund's model allocation
and that consists of the S&P 500 (52%), Russell 2000 (3%), Salomon Smith Barney
Broad Investment Grade Bond (35%), and MSCI EAFE (10%) indices. The S&P 500
Index is an unmanaged index of U.S. stocks widely 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.

<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year (1,2)
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994 1995 1996 1997 1998 1999
0.93 26.84 13.68 18.89 18.60 14.23
</TABLE>

- J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
The fund's year-to-date total return as of 9/30/00 is -1.08%. For the period
covered by this year-by-year total return chart, the fund's highest quarterly
return was 13.48% (for the quarter ended 12/98); and the lowest quarterly return
was -6.13% (for the quarter ended 9/98).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended December 31, 1999(1)
-------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund(1)
<S> <C> <C> <C>
J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND (after expenses) 14.23 18.35 14.61
FUND BENCHMARK (no expenses) 13.71 19.29 15.50
S&P 500 INDEX (no expenses) 21.04 28.55 22.96
</TABLE>

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

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

ANNUAL FUND OPERATING EXPENSES(3) (%)
(expenses that are deducted from fund assets)
<S> <C>
Management fees 0.55
Distribution (Rule 12b-1) fees none
Other expenses 0.25
---------------------------------------------
TOTAL OPERATING EXPENSES 0.80
---------------------------------------------
Fee waiver and
expense reimbursement(4) 0.15
---------------------------------------------
NET EXPENSES(4) 0.65
---------------------------------------------
</TABLE>

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, net expenses for the period
11/1/00 through 10/31/01 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.

(1) The fund commenced operations on 9/10/93 and returns reflect performance of
the fund from 9/30/93.

(2) The fund's fiscal year end is 6/30.

(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 year before and after reimbursement, expressed as a
percentage of the fund's average net assets.

(4) Reflects an agreement dated 11/1/00 by Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), an affiliate of J.P. Morgan, to reimburse the
fund to the extent total operating expenses (excluding interest, taxes and
extraordinary expenses) exceed 0.65% of the fund's average daily net assets
through 10/31/01.

J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND / 2
<PAGE>

DIVERSIFIED 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 approximately 430 research analysts,
capital market researchers, portfolio managers and traders around the world and
has more than $373 billion in assets under management, including assets managed
by the fund's advisor, J.P. Morgan Investment Management Inc.

J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND

This fund invests in a diversified portfolio of stocks and bonds by investing
through a master portfolio (another fund with the same goal). As a shareholder,
you should anticipate risks and rewards beyond those of a typical bond fund, but
less than those of most stock funds.

--------------------------------------------------------------------------------
WHO MAY WANT TO INVEST

The fund is designed for investors who:

- are pursuing a long-term goal such as retirement

- want an investment with the potential to outpace inflation

- seek less risk than a fund investing completely in stocks

- prefer to leave asset allocation decisions in the hands of an investment
professional

The fund is NOT designed for investors who:

- are looking for the higher long-term potential growth (with the higher
risks) of a fund investing completely in stocks

- require regular income or stability of principal

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

3 / DIVERSIFIED MANAGEMENT APPROACH
<PAGE>

-------------------------------------------------------------------------------
DIVERSIFIED INVESTMENT PROCESS

The J.P. Morgan Institutional Diversified Fund allocates assets among various
types of stock and bond investments. The mix of equities and fixed income is
based on the depth of J.P. Morgan's 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 equity portion of the fund, J.P. Morgan employs a three-step
process:

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

RESEARCH J.P. Morgan takes an in-depth look at company prospects over a
relatively long period - often as much as five years - rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 150 career analysts. The team of analysts
dedicated to U.S. equities includes more than 20 members, with an average of
over 11 years of experience.

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

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

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

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

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

- high potential reward compared to potential risk

- temporary mispricings caused by market overreactions

DIVERSIFIED MANAGEMENT APPROACH / 4
<PAGE>

-------------------------------------------------------------------------------
In managing the fixed income portion of the fund, J.P. Morgan employs a
three-step process that combines sector allocation, fundamental research for
identifying portfolio securities, and duration management.

[GRAPHIC]
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.

[GRAPHIC]
The 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 the fund's goal
and strategy.

[GRAPHIC]
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
securities 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.

5 / DIVERSIFIED MANAGEMENT APPROACH
<PAGE>

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

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:

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

- 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.

- 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.

OPENING YOUR ACCOUNT

BY WIRE

- Mail your completed application to the Shareholder Services Agent.

- 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.

- 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.M. Institutional Shareholder Services
ACCOUNT NUMBER: 001-57-689
FFC: your account number, name of registered owner(s) and fund name

BY CHECK

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

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

BY EXCHANGE

- Call the Shareholder Services Agent to effect an exchange.

ADDING TO YOUR ACCOUNT

BY WIRE

- Call the Shareholder Services Agent to place a purchase order. FUNDS THAT
ARE WIRED WITHOUT A PURCHASE ORDER WILL BE RETURNED UNINVESTED.

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

BY CHECK

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

- 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

- Call the Shareholder Services Agent to effect an exchange.

YOUR INVESTMENT / 6
<PAGE>

YOUR INVESTMENT
--------------------------------------------------------------------------------
SELLING SHARES
BY PHONE -- WIRE PAYMENT

- 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.

- 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

- 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

- 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.

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

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

- Mail the letter to the Shareholder Services Agent.

BY EXCHANGE

- Call the Shareholder Services Agent to effect an exchange.

REDEMPTION IN KIND

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

ACCOUNT AND TRANSACTION POLICIES

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

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

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

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

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

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

SHAREHOLDER SERVICES AGENT
Morgan Christiana Center
J.P. MORGAN FUNDS SERVICES - 2/OPS3
500 Stanton Christiana Road
Newark, DE 19713
1-800-766-7722

Representatives are available 8:00 a.m.
to 6:00 p.m. eastern time on fund
business days.

7 / YOUR INVESTMENT
<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, the proceeds are generally available the day following
execution and will be forwarded according to your instructions.

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

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

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

DIVIDENDS AND DISTRIBUTIONS

The fund typically pays income dividends four times a year and makes capital
gains distributions, 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.

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 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 income;
owned for one year or less losses are subject to special rules
--------------------------------------------------------------------------------

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

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

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

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

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

YOUR INVESTMENT / 8
<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 all 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 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.

The 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. The feeder fund's trustees
would then consider whether the feeder fund should hire its own investment
adviser, invest in a different master portfolio, or take other action.

MANAGEMENT AND ADMINISTRATION

The feeder 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:

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
<S> <C>
ADVISORY SERVICES 0.55% of the master portfolio's
average net assets

ADMINISTRATIVE SERVICES Master portfolio's and fund's
(fee shared with Funds pro-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
</TABLE>

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

9 / FUND DETAILS
<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
--------------------------------------------------------------------------------

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

- 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

- Increased trading would raise the fund's brokerage and related costs

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

DERIVATIVES

- 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

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

- The counterparty to a derivatives contract could default

- Derivatives that involve leverage could magnify losses

- Certain types of derivatives involve costs to the fund which can reduce
returns

SECURITIES LENDING

- When the fund lends a security, there is a risk that the loaned securities
may not be returned if the borrower defaults

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

(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.

--------------------------------------------------------------------------------
POTENTIAL REWARDS
--------------------------------------------------------------------------------

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

- The fund can take advantage of attractive transaction opportunities

SHORT-TERM TRADING

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

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

DERIVATIVES

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

- The fund could make money and protect against losses if management's analysis
proves correct

- Derivatives that involve leverage could generate substantial gains at low
cost

SECURITIES LENDING

- The fund may enhance income through the investment of the collateral received
from the borrower

--------------------------------------------------------------------------------
POLICIES TO BALANCE RISK AND REWARD
--------------------------------------------------------------------------------

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES

- The fund uses segregated accounts to offset leverage risk

SHORT-TERM TRADING

- The fund generally avoids short-term trading, except to take advantage of
attractive or unexpected opportunities or to meet demands generated by
shareholder activity; the turnover rate for the fund for its most recent
fiscal year end is 217%

DERIVATIVES

- The fund uses derivatives, such as futures, options, swaps and forward
foreign currency contracts, for hedging and for risk management (i.e., to
adjust duration or yield curve exposure, or to establish or adjust exposure
to particular securities, markets or currencies); risk management may include
management of the fund's exposure relative to its benchmark

- The fund only establishes hedges that it expects will be highly correlated
with underlying positions

- While the fund may use derivatives that incidentally involve leverage, it
does not use them for the specific purpose of leveraging the portfolio

SECURITIES LENDING

- J.P. Morgan maintains a list of approved borrowers

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

- The lending agents indemnify the fund against borrower default

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

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

FUND DETAILS / 10

<PAGE>

--------------------------------------------------------------------------------
POTENTIAL RISKS
--------------------------------------------------------------------------------

MARKET CONDITIONS

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

- The value of the fund's bonds (and potentially its convertible securities and
stocks) will fall when interest rates rise; the longer a bond's maturity and
the lower its credit quality, the more its value typically falls

- 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

- 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

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

CREDIT QUALITY

- The default of an issuer would leave the fund with unpaid interest or
principal

- 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

- Currency exchange rate movements could reduce gains or create losses

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

- Investment risk tends to be higher in emerging markets; these markets also
present higher liquidity and valuation risks

--------------------------------------------------------------------------------
POTENTIAL REWARDS
--------------------------------------------------------------------------------

MARKET CONDITIONS

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

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

- A diversified, balanced portfolio should mitigate the effects of wide market
fluctuations, especially when stock and bond prices move in different
directions

- Most bonds will rise in value when interest rates fall

- Mortgage-backed and asset-backed securities can offer attractive returns

MANAGEMENT CHOICES

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

CREDIT QUALITY

- Investment-grade bonds have a lower risk of default

- Junk bonds offer higher yields and higher potential gains

FOREIGN INVESTMENTS

- Favorable exchange rate movements could generate gains or reduce losses

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

- Emerging markets can offer higher returns

--------------------------------------------------------------------------------
POLICIES TO BALANCE RISK AND REWARD
--------------------------------------------------------------------------------

MARKET CONDITIONS

- Under normal circumstances the fund plans to remain fully invested, with
approximately 65% in stocks and 35% in bonds and other fixed income
securities; stock investments may include U.S. and foreign common stocks,
convertible securities, preferred stocks, trust or partnership interests,
warrants, rights, and investment company securities; bond investments may
include U.S. and foreign corporate and government bonds, mortgage-backed and
asset-backed securities, convertible securities, participation interests and
private placements

- The fund seeks to limit risk through diversification

- The fund seeks to limit risk and enhance total return or yields through
careful management, sector allocation, individual securities selection, and
duration management

- J.P. Morgan monitors interest rate trends, as well as geographic and
demographic information, related to mortgage-backed securities and mortgage
prepayments

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

MANAGEMENT CHOICES

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

CREDIT QUALITY

- The fund maintains its own policies for balancing credit quality against
potential yields and gains in light of its investment goals

- At least 75% of the fund's bonds must be investment-grade (BBB/Baa or better,
of which 65% must be A or better), and no more than 25% BB/Ba or B; the fund
may include unrated bonds of equivalent quality in these categories

- J.P. Morgan develops its own ratings of unrated securities and makes a credit
quality determination for unrated securities

FOREIGN INVESTMENTS

- The fund anticipates that total foreign investments will not exceed 30% of
assets

- The fund actively manages the currency exposure of its foreign investments
relative to its benchmark, and may hedge back into the U.S. dollar from time
to time (see also "Derivatives"), although the fund typically maintains full
currency exposure to those emerging markets in which it invests

11 / FUND DETAILS
<PAGE>

--------------------------------------------------------------------------------
POTENTIAL RISKS
--------------------------------------------------------------------------------

ILLIQUID HOLDINGS

- The fund could have difficulty valuing these holdings precisely

- The fund could be unable to sell these holdings at the time or price it
desires

--------------------------------------------------------------------------------
POTENTIAL REWARDS
--------------------------------------------------------------------------------

ILLIQUID HOLDINGS

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

--------------------------------------------------------------------------------
POLICIES TO BALANCE RISK AND REWARD
--------------------------------------------------------------------------------

ILLIQUID HOLDINGS

- The fund may not invest more than 15% of net assets in illiquid holdings

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

/ 12
<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 instruments which give 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.
--------------------------------------------------------------------------------

RISK RELATED TO CERTAIN INVESTMENTS HELD BY J.P. MORGAN INSTITUTIONAL
DIVERSIFIED FUND:

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.

13 / FUND DETAILS
<PAGE>

--------------------------------------------------------------------------------
X Permitted (and if applicable, percentage of net assets limitation)

- Permitted, but not typically used

PRINCIPAL TYPES OF RISK
--------------------------------------------------------------------------------
ASSET-BACKED SECURITIES credit, interest rate, market, prepayment X
--------------------------------------------------------------------------------
BANK OBLIGATIONS credit, currency, liquidity, political X
--------------------------------------------------------------------------------
COMMERCIAL PAPER credit, currency, interest rate, liquidity,
market, political X
--------------------------------------------------------------------------------
CONVERTIBLE SECURITIES credit, currency, interest rate, liquidity,
market, political, valuation X
--------------------------------------------------------------------------------
CORPORATE BONDS credit, currency, interest rate, liquidity,
market, political, valuation X
--------------------------------------------------------------------------------
MORTGAGES (DIRECTLY HELD) credit, environmental, extension, interest
rate, liquidity, market, natural event, political, prepayment, valuation -
--------------------------------------------------------------------------------
MORTGAGE-BACKED SECURITIES credit, currency, extension, interest
rate, leverage, liquidity, market, political, prepayment X
--------------------------------------------------------------------------------

MORTGAGE DOLLAR ROLLS currency, extension, interest rate, leverage,
liquidity, market, political, prepayment X(1)

--------------------------------------------------------------------------------
PARTICIPATION INTERESTS credit, currency, extension, interest rate,
liquidity, political, prepayment X
--------------------------------------------------------------------------------
PRIVATE PLACEMENTS credit, interest rate, liquidity, market, valuation X
--------------------------------------------------------------------------------
REITS AND OTHER REAL-ESTATE RELATED INSTRUMENTS credit, interest rate,
liquidity, market, natural event, prepayment, valuation X
--------------------------------------------------------------------------------
REPURCHASE AGREEMENTS credit X
--------------------------------------------------------------------------------

REVERSE REPURCHASE AGREEMENTS credit X(1)

--------------------------------------------------------------------------------
SOVEREIGN DEBT, BRADY BONDS, AND DEBT OF SUPRANATIONAL ORGANIZATIONS
credit, currency, interest rate, market, political X
--------------------------------------------------------------------------------
SWAPS credit, currency, interest rate, leverage, market, political X
--------------------------------------------------------------------------------
TAX EXEMPT MUNICIPAL SECURITIES credit, interest rate, market, natural
event, political -
--------------------------------------------------------------------------------
U.S. GOVERNMENT SECURITIES interest rate X
--------------------------------------------------------------------------------
ZERO COUPON, PAY-IN-KIND, AND DEFERRED PAYMENT SECURITIES credit,
currency, interest rate, liquidity, market, political, valuation X
--------------------------------------------------------------------------------

(1) All borrowing activities, including mortgage dollar rolls and reverse
repurchase agreements, are subject to an aggregate limit of 33 1/3% of the
fund's total assets.
--------------------------------------------------------------------------------

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.

FUND DETAILS / 14
<PAGE>

FINANCIAL HIGHLIGHTS

The financial tables are intended to help you understand the fund's financial
performance for the past five fiscal years. 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 report, along
with the fund's financial statements, are included in the fund's annual report,
which is available upon request.

--------------------------------------------------------------------------------
J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------
PER-SHARE DATA For fiscal years ended June 30
-----------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR ($) 11.26 12.02 13.39 14.18 14.69
-----------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.40 0.37 0.39 0.38 0.38
Net realized and unrealized gain (loss)
on investment and foreign currency ($) 1.42 1.96 1.89 1.44 0.61
===========================================================================================================
TOTAL FROM INVESTMENT OPERATIONS ($) 1.82 2.33 2.28 1.82 0.99
-----------------------------------------------------------------------------------------------------------
Less distributions to shareholders from:
Net investment income ($) (0.42) (0.36) (0.59) (0.39) (0.27)
Net realized gain ($) (0.64) (0.60) (0.90) (0.92) (0.48)
===========================================================================================================
TOTAL DISTRIBUTIONS ($) (1.06) (0.96) (1.49) (1.31) (0.75)
-----------------------------------------------------------------------------------------------------------
NET ASSET VALUE, END OF YEAR ($) 12.02 13.39 14.18 14.69 14.93
-----------------------------------------------------------------------------------------------------------

RATIOS AND SUPPLEMENTAL DATA

TOTAL RETURN (%) 16.91 20.72 18.42 13.77 6.88
-----------------------------------------------------------------------------------------------------------
NET ASSETS, END OF YEAR ($ THOUSANDS) 193,219 237,449 331,946 608,658 622,121
-----------------------------------------------------------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
-----------------------------------------------------------------------------------------------------------
Net expenses (%) 0.65 0.65 0.65 0.65 0.65
-----------------------------------------------------------------------------------------------------------
Net investment income (%) 3.34 3.34 3.12 2.55 2.48
-----------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.98 0.98 0.88 0.84 0.80
-----------------------------------------------------------------------------------------------------------
PORTFOLIO TURNOVER (%)(1) 144 100 82 144 217
-----------------------------------------------------------------------------------------------------------
</TABLE>

(1)Represents the turnover of the Diversified Portfolio.

15 / FUND DETAILS
<PAGE>

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

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

FUND DETAILS / 16
<PAGE>

FOR MORE INFORMATION

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

ANNUAL/SEMI-ANNUAL REPORTS Contain financial statements, performance data,
information on portfolio holdings, and a written analysis of market conditions
and fund performance for the fund's most recently completed fiscal year or
half-year.

STATEMENT OF ADDITIONAL INFORMATION (SAI) Provides a fuller technical and legal
description of the fund's policies, investment restrictions, and business
structure. This prospectus incorporates the SAI by reference.

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

J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND
Morgan Christiana Center
J.P. Morgan Funds Services - 2/OPS3
500 Stanton Christiana Road
Newark, DE 19713

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. (1-202-942-8090) and may
be viewed on-screen or downloaded from the SEC's Internet site at
http://www.sec.gov. The fund's investment company and 1933 Act registration
numbers are:

J.P. Morgan Institutional Diversified Fund...............811-07342 and 033-54642

J.P. MORGAN INSTITUTIONAL FUNDS AND THE MORGAN TRADITION

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

JPMORGAN
--------------------------------------------------------------------------------

J.P. MORGAN INSTITUTIONAL FUNDS

ADVISOR 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

IMPR11 11/00
<PAGE>

NOVEMBER 1, 2000 PROSPECTUS

J.P. MORGAN DIVERSIFIED FUND -
ADVISOR SERIES

----------------------------
A balanced fund seeking high
total return with reduced
risk

This prospectus contains essential information for anyone investing in the fund.

Please read it carefully and keep it for reference.

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

Distributed by Funds Distributor, Inc. JP MORGAN
<PAGE>

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

1 J.P. MORGAN DIVERSIFIED FUND - ADVISOR SERIES

The fund's goal, investment approach, Fund description ......................................................1
risks, expenses and performance
Performance ...........................................................2

Investor expenses .....................................................2

3 DIVERSIFIED MANAGEMENT APPROACH

J.P. Morgan ...........................................................3

J.P. Morgan Diversified Fund - Advisor Series .........................3

Who may want to invest ................................................3

Investment process ....................................................4

6 YOUR INVESTMENT

Investing in the J.P. Morgan Investing through a service organization ..............................6
Diversified Fund - Advisor Series
Account and transaction policies ......................................6

Dividends and distributions ...........................................6

Tax considerations ....................................................7

9 FUND DETAILS

More about risk and the fund's Business structure ....................................................8
business operations
Management and administration .........................................8

Risk and reward elements ..............................................9

Investments ..........................................................12

FOR MORE INFORMATION .........................................back cover
</TABLE>

<PAGE>

J.P. MORGAN DIVERSIFIED FUND -
ADVISOR SERIES
--------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN INSTITUTIONAL FUNDS
(J.P. MORGAN DIVERSIFIED FUND - ADVISOR SERIES)

[LOGO] RISK/RETURN SUMMARY
For a more detailed discussion of the fund's investments and its main
risks, as well as fund strategies, please see pages 9-13.

[LOGO] GOAL
The fund seeks to provide a high total return from a diversified
portfolio of stocks and bonds. This goal can be changed without
shareholder approval.

[LOGO] INVESTMENT APPROACH
PRINCIPAL STRATEGIES
Drawing on a variety of analytical tools, the portfolio management team
allocates assets among various types of stock and bond investments, based on
the model allocation shown on the right of this page. The team periodically
adjusts the fund's actual asset allocation according to the relative
attractiveness of each asset class.

With the bond portion of the portfolio, the team uses fundamental, economic, and
capital markets research to select securities. The team actively manages the mix
of U.S. and foreign bonds while typically keeping duration-a common measurement
of sensitivity to interest rate movements - within one year of the average for
the U.S. investment-grade bond universe (currently about 5 years).

PRINCIPAL RISKS

Over the long term, investors can anticipate that the fund's total return and
volatility should exceed those of bonds but remain less than those of medium-
and large-capitalization domestic stocks.

MODEL ALLOCATION

[CHART]

<TABLE>
<S> <C>
52% medium- and large-cap U.S. stocks

35% U.S. and foreign bonds

10% foreign stocks

3% small-cap U.S. stocks
</TABLE>

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages
approximately $373 billion, including more than $6.8 billion using the same
strategy as the fund.

The portfolio management team is led by John M. Devlin, Vice President, who
joined the team in December of 1993 and has been at J.P. Morgan since 1986, and
Anne Lester, Vice President, who joined the team in June of 2000 and has been at
J.P. Morgan since 1992. Prior to managing this fund, Ms. Lester worked in the
Product Development group, as a fixed income and currency trader, and as a
portfolio manager in Milan.

--------------------------------------------------------------------------------
BEFORE YOU INVEST

Investors considering the fund should understand that:

- The fund seeks to achieve its goal by investing its assets in a master
portfolio, which is another fund with the same goal.

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

- The fund does not represent a complete investment program.

1 J.P. MORGAN DIVERSIFIED FUND - ADVISOR SERIES
<PAGE>

--------------------------------------------------------------------------------
PERFORMANCE OF A RELATED FUND (UNAUDITED)

The fund commenced operations on September 15, 2000. The bar chart and table
shown below provide some indication of the risks of investing in the fund
because returns reflect the performance of the J.P. Morgan Diversified Fund, a
related fund investing in the same master portfolio, which is not offered in
this prospectus. The performance of the J.P. Morgan Diversified Fund does not
reflect the fund's higher expenses.

The bar chart indicates some of the risks by showing changes in the performance
of the J.P. Morgan Diversified Fund's shares from year to year for the last 6
calendar years.

The table indicates some of the risks by showing how the J.P. Morgan Diversified
Fund's average annual returns for the past one and five years and for the life
of the fund compare to the Fund Benchmark and the S&P 500 Index. The Fund
Benchmark is a composite benchmark of unmanaged indices that corresponds to the
J.P. Morgan Diversified Fund's model allocation and that consists of the S&P 500
(52%), Russell 2000 (3%), Salomon Smith Barney Broad Investment Grade Bond
(35%), and MSCI EAFE (10%) indices. The S&P 500 Index is an unmanaged index of
U.S. stocks widely used as a measure of overall U.S. stock market performance.

The J.P. Morgan Diversified Fund's past performance does not necessarily
indicate how the J.P. Morgan Diversified Fund - Advisor Series will perform in
the future.

<TABLE>
<CAPTION>
YEAR-BY-YEAR TOTAL RETURN (%) Shows changes in returns by calendar year(1),(2)
-------------------------------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C>
0.60 26.47 13.42 18.47 18.29 13.87
-------------------------------------------------------------------------------------------------------------------
</TABLE>

- J.P. MORGAN DIVERSIFIED FUND

The Fund's year-to-date total return from inception on 9/15/00 through
9/30/00 was -1.21%. For the period covered by this year-by-year total
return chart, the J.P. Morgan Diversified Fund's highest quarterly return
was 13.39% (for the quarter ended 12/98); and the lowest quarterly return
was -6.23% (for the quarter ended 9/98).

<TABLE>
<CAPTION>
AVERAGE ANNUAL TOTAL RETURN (%) Shows performance over time, for periods ended December 30, 1999(1)
-------------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund
<S> <C> <C> <C>
J.P. MORGAN DIVERSIFIED FUND (after expenses) 13.87 18.01 14.33
-------------------------------------------------------------------------------------------------------------------
FUND BENCHMARK (no expenses) 13.71 19.29 15.50
-------------------------------------------------------------------------------------------------------------------
S&P 500 INDEX (no expenses) 21.04 28.55 22.96%
-------------------------------------------------------------------------------------------------------------------
</TABLE>

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

The estimated expenses of the fund before and after reimbursement are shown at
right. The fund has no 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.

<TABLE>
<CAPTION>
ANNUAL FUND OPERATING EXPENSES(3) (%)
(EXPENSES THAT ARE DEDUCTED FROM FUND ASSETS)
---------------------------------------------
<S> <C>
Management fees 0.55

Distribution (Rule 12b-1) fees(4) 0.25

Service fees(5) 0.25

Other expenses 0.34
---------------------------------------------
TOTAL OPERATING EXPENSES 1.39

Fee waiver and
expense reimbursement(6) (0.29)
---------------------------------------------
NET EXPENSES(6) 1.10
---------------------------------------------
</TABLE>

EXPENSE EXAMPLE(6)
---------------------------------------------
The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, net expenses for the period
11/1/00 through 10/31/01 and total operating expenses thereafter, and all shares
sold at the end of each time period. The example is for comparison only; the
fund's actual return and your actual costs may be higher or lower.

(1) The J.P. Morgan Diversified Fund commenced operations on 12/15/93. Returns
for the period 9/30/93 through 12/31/93 reflect the performance of J.P.
Morgan Institutional Diversified Fund, another related fund investing in
the same master portfolio. These returns reflect lower operating expenses
than those of the fund. Therefore, the fund's returns would have been lower
had it existed during the same period.

(2) The fund's fiscal year end is 6/30.

(3) The fund has a master/feeder structure as described on page 8. This table
shows the fund's estimated expenses and its estimated share of master
portfolio expenses for the current fiscal year, expressed as a percentage
of the fund's estimated average net assets.

(4) The plan under Rule 12b-1 (described on page 8) allows such fees to be paid
out of the fund's assets on an ongoing basis. Over time, these fees will
increase the cost of your investment and may cost you more than paying
other types of sales charges.

(5) Service organization (described on page 6) may charge other fees to their
customers who are the beneficial owners of shares in connection with their
customer's accounts. Such fees, if any, may affect the return such
customers realize with respect to their investments.

(6) Reflects an agreement dated 11/1/00 by Morgan Guaranty Trust Company of New
York ("Morgan Guaranty"), an affiliate of J.P. Morgan, to reimburse the
fund to the extent total operating expenses (which exclude interest, taxes
and extraordinary expenses) exceed 1.10% of the fund's average daily net
assets through 10/31/01.

J.P. MORGAN DIVERSIFIED FUND - ADVISOR SERIES 2
<PAGE>

DIVERSIFIED MANAGEMENT APPROACH
--------------------------------------------------------------------------------

J.P. MORGAN

J.P. MORGAN DIVERSIFIED FUND - ADVISOR SERIES

--------------------------------------------------------------------------------
WHO MAY WANT TO INVEST

The fund is designed for investors who:

- are pursuing a long-term goal such as retirement

- want an investment with the potential to outpace inflation

- seek less risk than a fund investing completely in stocks

- prefer to leave asset allocation decisions in the hands of an investment
professional

The fund is NOT designed for investors who:

- are looking for the higher long-term potential growth (with the higher risks)
of a fund investing completely in stocks

- require regular income or stability of principal

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

3 DIVERSIFIED MANAGEMENT APPROACH
<PAGE>

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

[LOGO]
J.P. Morgan analysts develop proprietary
fundamental research

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

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

DIVERSIFIED INVESTMENT PROCESS

The J.P. Morgan Diversified Fund - Advisor Series allocates assets among various
types of stock and bond investments. The mix of equities and fixed income is
based on the depth of J.P. Morgan's 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 equity portion of the fund, J.P. Morgan employs a three-step
process:

RESEARCH J.P. Morgan takes an in-depth look at company prospects over a
relatively long period - often as much as five years - rather than focusing on
near-term expectations. This approach is designed to provide insight into a
company's real growth potential. J.P. Morgan's in-house research is developed by
an extensive worldwide network of over 150 career equity analysts. The team of
analysts dedicated to U.S. equities includes more than 20 members, with an
average of over 11 years of experience.

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

- high potential reward compared to potential risk

- temporary mispricings caused by market overreactions

DIVERSIFIED MANAGEMENT APPROACH 4
<PAGE>

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

[LOGO]
The fund invests across a range
of different types of securities

[LOGO]
The fund makes its portfolio decisions as
described earlier in this prospectus

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

In managing the fixed income portion of the fund, J.P. Morgan employs a
three-step process that combines sector allocation, fundamental research for
identifying portfolio securities, and duration management.

5 DIVERSIFIED MANAGEMENT APPROACH
<PAGE>

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

INVESTING THROUGH A SERVICE ORGANIZATION

Investors may only purchase, exchange and redeem shares of the 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. The minimum amount for initial investments in a
fund by a service organization is $2,500 and for additional investments $500,
although these minimums may be less for some investors. Service organizations
may provide the following services in connection with their customers'
investments in the fund:

- Acting, directly or through an agent, as the sole shareholder of record

- Maintaining account records for customers

- Processing orders to purchase, redeem or exchange
shares for customers

- Responding to inquiries from shareholders

- Assisting customers with investment procedures

ACCOUNT AND TRANSACTION POLICIES

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, the 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 may not be available until your check
clears. This may take up to 15 days.

REDEMPTION IN KIND The fund reserves the right to make redemptions of $250,000
in securities rather than in cash.

STATEMENTS AND REPORTS You will receive from your service organization account
statements and confirmation of each purchase or sale of shares. Every six months
the fund sends out an annual or semi-annual report containing information on its
holdings and a discussion of recent and anticipated market conditions and fund
performance.

DIVIDENDS AND DISTRIBUTIONS

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

YOUR INVESTMENT 6
<PAGE>

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

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, 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.

--------------------------------------------------------------------------------
SHAREHOLDER SERVICES AGENT
Morgan Christiana Center
J.P. MORGAN FUNDS SERVICES - 2/OPS3
500 Stanton Christiana Road
Newark, DE 19713
1-800-766-7722

Representatives are available 8:00 a.m. to 6:00 p.m. eastern
time on fund business days.

7 YOUR INVESTMENT
<PAGE>

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

BUSINESS STRUCTURE

The 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. The fund's trustees would then consider
whether the feeder fund should hire its own investment adviser, invest in a
different master portfolio, or take other action.

MANAGEMENT AND ADMINISTRATION

The 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 0.55% of the master portfolio's
average net assets

SHAREHOLDER SERVICES 0.05% of the fund's average
net assets

The 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.

The fund has adopted a distribution plan under Rule 12b-1 that allows the fund
to pay distribution fees up to 0.25% of the fund's average net assets for the
sale and distribution of its shares.

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 8
<PAGE>

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

--------------------------------------------------------------------------------
POTENTIAL RISKS
--------------------------------------------------------------------------------
MARKET CONDITIONS
- The fund's share price and performance will fluctuate in response to stock
and bond market movements

- The value of the fund's bonds (and potentially its convertible securities
and stocks) 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
- The fund could underperform its benchmark due to its securities and asset
allocation choices

CREDIT QUALITY
- The default of an issuer would leave the fund with unpaid interest or
principal

- 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

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
- 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

--------------------------------------------------------------------------------
POTENTIAL REWARDS
--------------------------------------------------------------------------------
MARKET CONDITIONS
- Stocks have generally outperformed more stable investments (such as bonds
and cash equivalents) over the long term

- Bonds have generally outperformed money market investments over the long
term, with less risk than stock

- A diversified, balanced portfolio should mitigate the effects of wide
market fluctuations, especially when stock and bond prices move in
different directions

- Most bonds will rise in value when interest rates fall

- Mortgage-backed and asset-backed securities can offer attractive returns

MANAGEMENT CHOICES
- The fund could outperform its benchmark due to these same choices

CREDIT QUALITY
- Investment-grade bonds have a lower risk of default

- Junk bonds offer higher yields and higher potential gains

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
- The fund can take advantage of attractive transaction opportunities

--------------------------------------------------------------------------------
POLICIES TO BALANCE RISK AND REWARD
--------------------------------------------------------------------------------
MARKET CONDITIONS
- Under normal circumstances the fund plans to remain fully invested, with
approximately 65% in stocks and 35% in bonds and other fixed income
securities; stock investments may include U.S. and foreign common stocks,
convertible securities, preferred stocks, trust or partnership interests,
warrants, rights, and investment company securities; bond investments may
include U.S. and foreign corporate and government bonds, mortgage-backed
and asset-backed securities, convertible securities, participation
interests and private placements

- The fund seeks to limit risk through diversification

- The fund seeks to limit risk and enhance total return or yields through
careful management, sector allocation, individual securities selection, and
duration management

- J.P. Morgan monitors interest rate trends, as well as geographic and
demographic information, related to mortgage-backed securities and mortgage
prepayments

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

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

CREDIT QUALITY
- The fund maintains its own policies for balancing credit quality against
potential yields and gains in light of its investment goals

- At least 75% of the fund's bonds must be investment-grade (BBB/Baa or
better, of which 65% must be A or better), and no more than 25% BB/Ba or B;
the fund may include unrated bonds of equivalent quality in these
categories

- J.P. Morgan develops its own ratings of unrated securities and makes a
credit quality determination for unrated securities

WHEN-ISSUED AND DELAYED DELIVERY SECURITIES
- The fund uses segregated accounts to offset leverage risk

9 FUND DETAILS
<PAGE>

--------------------------------------------------------------------------------
POTENTIAL RISKS
--------------------------------------------------------------------------------
FOREIGN INVESTMENTS
- Currency exchange rate movements could reduce gains or create losses

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

- Investment risk tend to be higher in emerging markets; these markets also
present higher liquidity and valuation risks

SHORT-TERM TRADING
- Increased trading would raise the fund's brokerage and related costs

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

DERIVATIVES
- 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

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

- The counterparty to a derivatives contract could default

- Derivatives that involve leverage could magnify losses

- Certain types of derivatives involve costs to the fund which can reduce
returns

--------------------------------------------------------------------------------
POTENTIAL REWARDS
--------------------------------------------------------------------------------
FOREIGN INVESTMENTS
- Favorable exchange rate movements could generate gains or reduce losses

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

- Emerging markets can offer higher return

SHORT-TERM TRADING
- The fund could realize gains in a short period of time

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

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

- The fund could make money and protect against losses if management's
analysis proves correct

- Derivatives that involve leverage could generate substantial gains at low
cost

--------------------------------------------------------------------------------
POLICIES TO BALANCE RISK AND REWARD
--------------------------------------------------------------------------------
FOREIGN INVESTMENTS
- The fund anticipates that total foreign investments will not exceed 30% of
assets

- The fund actively manages the currency exposure of its foreign investments
relative to its benchmark, and may hedge back into the U.S. dollar from
time to time (see also "Derivatives"), although the fund typically
maintains full currency exposure to those emerging markets in which it
invests

SHORT-TERM TRADING

DERIVATIVES
- The fund uses derivatives, such as futures, options, swaps and forward
foreign currency contracts, for hedging and for risk management (i.e., to
adjust duration or yield curve exposure, or to establish or adjust exposure
to particular securities, markets or currencies); risk management may
include management of the fund's exposure relative to its benchmark

- The fund only establishes hedges that it expects will be highly correlated
with underlying positions

- While the fund may use derivatives that incidentally involve leverage, it
does not use them for the specific purpose of leveraging the portfolio

(1) A futures contract is an agreement to buy or sell a set quantity of an
underlying instrument at a future date, or to make or receive a cash
payment based on changes in the value of a securities index. An option is
the right to buy or sell a set quantity of an underlying instrument at a
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 10
<PAGE>

--------------------------------------------------------------------------------
POTENTIAL RISKS
--------------------------------------------------------------------------------
SECURITIES LENDING
- When the fund lends a security, there is a risk that the loaned securities
may not be returned if the borrower defaults

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

ILLIQUID HOLDINGS
- The fund could have difficulty valuing these holdings precisely

- The fund could be unable to sell these holdings at the time or price it
desires

--------------------------------------------------------------------------------
POTENTIAL REWARDS
--------------------------------------------------------------------------------
SECURITIES LENDING
- The fund may enhance income through the investment of the collateral
received from the borrower

ILLIQUID HOLDINGS
- These holdings may offer more attractive yields or potential growth than
comparable widely traded securities

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

- The lending agents indemnify the fund against borrower default

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

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

ILLIQUID HOLDINGS
- The fund may not invest more than 15% of net assets in illiquid holdings

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

11 FUND DETAILS
<PAGE>

(THIS PAGE IS INTENTIONALLY LEFT BLANK)

<PAGE>

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

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

--------------------------------------------------------------------------------
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 instruments which give 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.

RISK RELATED TO CERTAIN INVESTMENTS HELD BY J.P. MORGAN DIVERSIFIED FUND -
ADVISOR SERIES:

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.

13 FUND DETAILS
<PAGE>

--------------------------------------------------------------------------------
INVESTMENTS
--------------------------------------------------------------------------------

X Permitted (and if applicable, percentage of net
assets limitation)
- Permitted, but not typically used

<TABLE>
<CAPTION>
RELATED TYPES OF RISK

--------------------------------------------------------------------------------------------
<S> <C>
credit, interest rate, market, prepayment X
--------------------------------------------------------------------------------------------
credit, currency, liquidity, political X
--------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political X

--------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, valuation X
--------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market, political, valuation X
--------------------------------------------------------------------------------------------
credit, environmental, extension, interest rate, liquidity, market, -
natural event, political, prepayment, valuation
--------------------------------------------------------------------------------------------
credit, currency, extension, interest rate, leverage, liquidity, market, X
political, prepayment
--------------------------------------------------------------------------------------------
currency, extension, interest rate, leverage, liquidity, market, political, X(1)
prepayment
--------------------------------------------------------------------------------------------
credit, currency, extension, interest rate, liquidity, political, prepayment X
--------------------------------------------------------------------------------------------
credit, interest rate, liquidity, market, valuation X
--------------------------------------------------------------------------------------------
credit, interest rate, liquidity, market, natural event, prepayment, valuation X
--------------------------------------------------------------------------------------------
credit X

--------------------------------------------------------------------------------------------
credit X(1)

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

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

--------------------------------------------------------------------------------------------
credit, interest rate, market, natural event, political -

--------------------------------------------------------------------------------------------
interest rate X

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

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

1 ALL BORROWING ACTIVITIES, INCLUDING MORTGAGE DOLLAR ROLLS AND REVERSE
REPURCHASE AGREEMENTS, ARE SUBJECT TO AN AGGREGATE LIMIT OF 33 1/3% OF THE
FUND'S TOTAL ASSETS.

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.

FUND DETAILS 14
<PAGE>

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

For investors who want more information on the fund, 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 DIVERSIFIED FUND - ADVISOR SERIES
Morgan Christiana Center
J.P. Morgan Funds Services - 2/OPS3
500 Stanton Christiana Road
Newark, DE 19713

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. (1-202-942-8090) and may be viewed
on-screen or downloaded from the SEC's Internet site at http://www.sec.gov.

The fund's investment company and 1933 Act registration numbers are:

J.P. Morgan Diversified Fund - Advisor Series............811-07342 and 033-54642

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

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.

IMPR35 11/00

<PAGE>

PART B

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN INSTITUTIONAL DIVERSIFIED FUND

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 1, 2000

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 NOVEMBER 1, 2000, 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 JUNE 30, 2000. THE PROSPECTUS AND THE FINANCIAL STATEMENTS, INCLUDING THE
INDEPENDENT ACCOUNTANTS' REPORT THEREON, 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...............................................20
TRUSTEES AND MEMBERS OF THE ADVISORY BOARD............................22
OFFICERS..............................................................24
CODES OF ETHICS.......................................................25
INVESTMENT ADVISOR....................................................25
DISTRIBUTOR...........................................................27
CO-ADMINISTRATOR......................................................27
SERVICES AGENT........................................................28
CUSTODIAN AND TRANSFER AGENT..........................................28
SHAREHOLDER SERVICING.................................................28
FINANCIAL PROFESSIONALS...............................................29
INDEPENDENT ACCOUNTANTS...............................................30
EXPENSES..............................................................30
PURCHASE OF SHARES....................................................30
REDEMPTION OF SHARES..................................................31
EXCHANGE OF SHARES....................................................31
DIVIDENDS AND DISTRIBUTIONS...........................................32
NET ASSET VALUE.......................................................32
PERFORMANCE DATA......................................................33
PORTFOLIO TRANSACTIONS................................................34
MASSACHUSETTS TRUST...................................................36
DESCRIPTION OF SHARES.................................................36
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE...................38
TAXES.................................................................39
ADDITIONAL INFORMATION................................................41
FINANCIAL STATEMENTS..................................................42
APPENDIX A...........................................................A-1

<PAGE>

GENERAL

This Statement of Additional Information relates only to J.P. Morgan
Institutional Diversified Fund (the "Fund"). The Fund is a series of shares of
beneficial interest of J.P. Morgan Institutional Funds, an open-end management
investment company organized 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 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 Diversified 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." 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 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 wish to invest for long term
objectives such as retirement and who seek to attain real appreciation in their
investments over the long term, but with somewhat less price fluctuation than a
portfolio consisting solely of equity securities. The Fund's investment
objective is to provide a high total return from a diversified portfolio of
equity and fixed income securities.

The mix of equities and fixed income is based on the risk premium model
and the anticipation of changing economic trends. The risk premium is the
difference between JPMIM's forecast of the long-term return on stocks
(determined using JPMIM's proprietary dividend discount model) and the current
nominal yield on 30-year U.S. Treasury bonds. When the risk premium is high,
more assets are allocated to stocks. When the risk premium is low, more assets
are allocated to bonds. Within U.S. equities, the allocation between large cap
and small cap stocks is based on the relative dividend discount rate spread
between large and small cap. The equity portion of the Portfolio will be
invested primarily in large and medium sized U.S. companies with market
capitalizations above $1.5 billion, with the balance in small U.S. companies
primarily included in the Russell 2000 Index and in foreign issuers primarily in
developed countries and occasionally in emerging markets. Within fixed income,
the allocation

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among sectors is based on JPMIM's analysis of their relative valuations.

INVESTMENT PROCESS FOR THE PORTFOLIO'S EQUITY COMPONENT

With respect to the equity portion of the Portfolio, JPMIM uses:

Fundamental research: JPMIM's team of domestic equity analysts includes
more than 20 members, each an industry specialist with an average of over 11
years of experience, follow 600 medium and large capitalization U.S. companies.
Their research goal is to forecast intermediate-term earnings and prospective
dividend growth rates for the most attractive companies among those researched.

Systematic 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 the "fair value" price forecasted by the estimated intermediate-term
earnings power. 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.

Disciplined portfolio construction: A broadly diversified portfolio is
constructed using disciplined buy and sell rules. Purchases are allocated among
stocks in the first three quintiles. The stocks selected reflect the portfolio
manager's judgment concerning the soundness of the underlying forecasts, the
likelihood that a perceived misvaluation will be corrected within a reasonable
time frame, and the manager's estimate of the magnitude of the risks versus the
potential rewards. A stock that falls into the fourth and fifth quintiles
generally becomes a candidate for sale, either because its price has risen or
its fundamentals have deteriorated. The Portfolio's sector weightings are
matched to those of the S&P 500 Index, reflecting JPMIM's belief that its
research has the potential to add value at the individual stock level, but not
at the sector level. JPMIM also controls the Portfolio'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 250-300
stocks.

INVESTMENT PROCESS FOR THE PORTFOLIO'S FIXED INCOME COMPONENT

Duration/yield curve management: JPMIM's duration decision begins with
an analysis of real yields, which its research indicates are generally a
reliable indicator of longer term interest rate trends. Other factors JPMIM
studies in regard to interest rates include economic growth and inflation,
capital flows and monetary policy. Based on this analysis, JPMIM forms a view of
the most likely changes in the level and shape of the yield curve -- as well as
the timing of those changes -- and sets the Portfolio's duration and maturity
structure accordingly. JPMIM typically limits the overall duration of the
Portfolio to a range between one year shorter and one year longer than that of
the Salomon Smith Barney Broad Investment Grade Bond Index. The maturities of
the individual fixed income securities in the Portfolio may vary widely,
however.

Sector allocations: Sector allocations are driven by JPMIM's
fundamental and quantitative analysis of the relative valuation of a broad array
of fixed income sectors. Specifically, JPMIM utilizes market and credit analysis
to assess whether the current risk-adjusted yield spreads of various sectors are
likely to widen or narrow. JPMIM then overweights (underweights) those sectors
its analysis indicates offer the most (least) relative value, basing the speed
and magnitude of these shifts on valuation considerations.

Security selection: Securities are selected by the portfolio manager,
with substantial input from JPMIM's fixed income analysts and traders. Using
quantitative analysis as well as traditional valuation methods, JPMIM's applied
research analysts aim to optimize security selection within the bounds of the
Portfolio's investment objective. In addition, credit analysts -- supported by
JPMIM's equity analysts -- assess the creditworthiness of issuers and
counterparties. A dedicated trading desk contributes to security selection by
tracking new issuance, monitoring dealer inventories, and identifying
attractively priced bonds. The traders also handle all transactions for the
Portfolio.

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INVESTMENT PROCESS FOR THE PORTFOLIO'S U.S. SMALL COMPANY COMPONENT

Fundamental research: JPMIM's domestic equity analysts also
continuously monitor 300-500 small cap stocks 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. Because JPMIM'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.

See "Systematic Valuation" above.

Disciplined portfolio construction: A diversified portfolio is
constructed as for the equity component, but purchases are concentrated among
the stocks in the top two quintiles of the rankings. Once a stock falls into the
third quintile, it generally becomes a candidate for sale. The portfolio manager
seeks to hold sector weightings close to those of the Russell 2000 Index. Sector
neutrality is also seen as a way to help to protect the portfolio from
macroeconomic risks and--together with diversification--represents an important
element of JPMIM's investment strategy.

INVESTMENT PROCESS FOR THE PORTFOLIO'S INTERNATIONAL EQUITY COMPONENT

Stock selection and country allocation: JPMIM's more than 30
international equity analysts, each an industry and country specialist, 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. The comparable expected returns generated by the dividend
discount model are used to rank companies 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 Morgan Stanley Capital International Europe, Australasia
and Far East Index ("EAFE"). 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. JPMIM `s country
allocation decisions are primarily driven by its stock selection process.

Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly enhancing
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 group recommends currency strategies that are implemented in
conjunction with the Portfolio's investment strategy.

FIXED INCOME INVESTMENTS

The Portfolio may invest in a broad range of debt securities of
domestic and foreign corporate and government issuers. The corporate securities
in which the Portfolio 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 Portfolio 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.

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CORPORATE BONDS AND OTHER DEBT SECURITIES

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

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

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

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

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

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

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

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

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

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

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

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 Portfolio will distribute
"phantom income" to shareholders, to the extent that shareholders elect to
receive dividends in cash rather than reinvesting such dividends in additional

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<PAGE>

shares, the Portfolio will have fewer assets with which to purchase income
producing securities.

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 may invest in money market instruments and other
short-term securities to the extent consistent with its investment objective and
policies. A description of the various types of money market instruments that
may be purchased by the Portfolio appears below. Also see "Quality and
Diversification Requirements."

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

ADDITIONAL U.S. GOVERNMENT OBLIGATIONS. The Portfolio may invest in
obligations issued or guaranteed by U.S. Government agencies or
instrumentalities. These obligations may or may not be backed by the "full faith
and credit" of the United States. 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.

FOREIGN GOVERNMENT OBLIGATIONS. The Portfolio, 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. 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 or of foreign banks of equivalent size (Euros)
and (iii) U.S. branches of foreign banks of equivalent size (Yankees). See
"Foreign Investments." The Portfolio will not invest in obligations for which
the Advisor, or any of

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its affiliated persons, is the ultimate obligor or accepting bank. The Portfolio
may also invest in obligations of international banking institutions designated
or supported by national governments to promote economic reconstruction,
development or trade between nations (e.g., the European Investment Bank, the
Inter-American Development Bank, or the World Bank).

COMMERCIAL PAPER. The Portfolio may invest in commercial paper,
including master demand obligations. Master demand obligations are obligations
that provide for a periodic adjustment in the interest rate paid and permit
daily changes in the amount borrowed. Master demand obligations are governed by
agreements between the issuer and Morgan acting as agent, for no additional fee.
The monies loaned to the borrower come from accounts managed 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 Portfolio's Advisor. Since master demand obligations typically
are not rated by credit rating agencies, the Portfolio may invest in such
unrated obligations only if at the time of an investment the obligation is
determined by the Advisor to have a credit quality which satisfies the
Portfolio's quality restrictions. See "Quality and Diversification
Requirements." Although there is no secondary market for master demand
obligations, such obligations are considered by the Portfolio to be liquid
because they are payable upon demand. The Portfolio does not have any specific
percentage limitation on investments in master demand obligations. It is
possible that the issuer of a master demand obligation could be a client of
Morgan to whom Morgan, in its capacity as a commercial bank, has made a loan.

REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Portfolio's Trustees. In a repurchase agreement, the Portfolio
buys a security from a seller that has agreed to repurchase the same security at
a mutually agreed upon date and price. The resale price normally is in excess of
the purchase price, reflecting an agreed upon interest rate. This interest rate
is effective for the period of time the Portfolio is invested in the agreement
and is not related to the coupon rate on the underlying security. A repurchase
agreement may also be viewed as a fully collateralized loan of money by the
Portfolio to the seller. The period of these repurchase agreements will usually
be short, from overnight to one week, and at no time will the Portfolio invest
in repurchase agreements for more than thirteen months. The securities which are
subject to repurchase agreements, however, may have maturity dates in excess of
thirteen months from the effective date of the repurchase agreement. The
Portfolio will 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 its
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 with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described herein.

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

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EQUITY INVESTMENTS

The Portfolio may invest in equity securities consisting of common
stock and other securities with equity characteristics comprised of preferred
stock, warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations (collectively, "Equity
Securities"). The Equity Securities in which the Portfolio invests 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 Portfolio 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 Portfolio 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 Portfolio 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 Portfolio may invest in certain foreign securities. The Portfolio
does not expect to invest more than 30% of its total assets at the time of
purchase in securities of foreign issuers and in obligations of foreign branches
of domestic banks. 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 Portfolio must be made in compliance with U.S. and
foreign currency restrictions and tax laws restricting the amounts and types of
foreign investments.

Foreign investments may be made directly in securities of foreign
issuers or in the form of American 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

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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 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 Portfolio by domestic companies.

Investors should realize that the value of the Portfolio'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 Portfolio'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 Portfolio 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 Portfolio's assets as measured in U.S. dollars may be affected
favorably or unfavorably by changes in currency rates and in exchange control
regulations, including currency blockage. The Portfolio may enter into forward
commitments for the purchase or sale of foreign currencies in connection with
the settlement of foreign securities transactions or to manage the Portfolio's
currency exposure related to foreign investments. See "Foreign Currency Exchange
Transactions" below.

The Portfolio may also invest in countries with emerging economies or
securities markets. Political and economic structures in many of such countries
may be undergoing significant evolution and rapid development, and such
countries may lack the social, political and economic stability characteristic
of more developed countries. Certain of such countries may have in the past
failed to recognize private property rights and have at times nationalized or
expropriated the assets of private companies. As a result, the risks described
above, including the

9
<PAGE>

risks of nationalization or expropriation of assets, may be heightened. In
addition, unanticipated political or social developments may affect the values
of the Portfolio investments in those countries and the availability to the
Portfolio of additional investments in those countries. The small size and
inexperience of the securities markets in certain of such countries and the
limited volume of trading in securities in those countries may make the
Portfolio investments in such countries illiquid and more volatile than
investments in more developed countries, and the Portfolio may be required to
establish special custodial or other arrangements before making certain
investments in those countries. There may be little financial or accounting
information available with respect to issuers located in certain of such
countries, and it may be difficult as a result to assess the value or prospects
of an investment in such issuers.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

Because the Portfolio may buy and sell securities and receive interest
and dividends in currencies other than the U.S. dollar, the Portfolio may enter
from time to time into foreign currency exchange transactions. The Portfolio
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 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 the
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 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 Portfolio's securities or
in foreign exchange rates, or prevent loss if the prices of these securities
should decline.

The Portfolio may enter into forward foreign currency exchange
contracts to adjust its currency exposure relative to the EAFE Index, the
benchmark for its international equity investments. The Portfolio 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. The
Portfolio 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 Portfolio 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
Portfolio 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 Portfolio to assume the
risk of fluctuations in the value of the currency purchased vis a vis the hedged
currency and the U.S. dollar. The precise matching of the forward contract
amounts and the value of the securities involved will not generally be possible
because the future value of such securities in foreign currencies will change as
a consequence of market movements in the value of such securities between the
date the forward contract is entered into and the date it matures. The
projection of currency market movements is extremely difficult, and the
successful execution of a hedging strategy is highly uncertain.

SOVEREIGN FIXED INCOME SECURITIES. The Portfolio may invest in fixed
income securities issued or guaranteed by a foreign sovereign government or its
agencies, authorities or political subdivisions. Investment in sovereign fixed
income securities involves special risks not present in corporate fixed income
securities. The issuer of the sovereign debt or the governmental authorities
that control the repayment of the debt may be unable or

10
<PAGE>

unwilling to repay principal or interest when due, and the Portfolio may have
limited recourse in the event of a default. During periods of economic
uncertainty, the market prices of sovereign debt, and the Portfolio's net asset
value, may be more volatile than prices of U.S. debt obligations. In the past,
certain foreign countries have encountered difficulties in servicing their debt
obligations, withheld payments of principal and interest and declared moratoria
on the payment of principal and interest on their sovereign debts.

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

OBLIGATIONS OF SUPRANATIONAL ENTITIES. The Portfolio may invest in
obligations of supranational entities designated or supported by governmental
entities to promote economic reconstruction or development and of international
banking institutions and related government agencies. Examples include the
International Bank for Reconstruction and Development (the "World Bank"), the
European Coal and Steel Community, the Asian Development Bank and the
Inter-American Development Bank. Each supranational entity's lending activities
are limited to a percentage of its total capital (including "callable capital"
contributed by its governmental members at the entity's call), reserves and net
income. There is no assurance that participating governments will be able or
willing to honor their commitments to make capital contributions to a
supranational entity.

ADDITIONAL INVESTMENTS

CONVERTIBLE SECURITIES. The Portfolio may invest in convertible
securities of domestic and foreign issuers. The convertible securities in which
the Portfolio 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. 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 the Portfolio until settlement takes place. At the time
the Portfolio makes the commitment to purchase securities on a when-issued or
delayed delivery basis, it will record the transaction, reflect the value each
day of such securities in determining its net asset value, and 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 its custodian
a segregated account with liquid assets, consisting of cash, U.S. Government
securities or other appropriate securities, in an amount at least equal to such
commitments. On delivery dates for such transactions, the Portfolio will meet
its obligations from maturities or sales of the securities held in the
segregated account and/or from cash flow. If the Portfolio chooses to dispose of
the right to acquire a when-issued security prior to its acquisition, it could,
as with the disposition of any other portfolio obligation, incur a gain or loss
due to market fluctuation. Also, the Portfolio may be disadvantaged if the other
party to the transaction defaults.

INVESTMENT COMPANY SECURITIES. Securities of other investment companies
may be acquired by the Portfolio to the extent permitted under the Investment
Company Act of 1940, as amended ("1940 Act"), or any order pursuant thereto.
These limits currently require that, as determined immediately after a purchase
is made, (i)

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<PAGE>

not more than 5% of the value of the Portfolio's total assets will be invested
in the securities of any one investment company, (ii) not more than 10% of the
value of its total assets will be invested in the aggregate in securities of
investment companies as a group, and (iii) not more than 3% of the outstanding
voting stock of any one investment company will be owned by the Portfolio. As a
shareholder of another investment company, the Portfolio would bear, along with
other shareholders, its PRO RATA portion of the other investment company's
expenses, including advisory fees. These expenses would be in addition to the
advisory and other expenses that the Portfolio bears directly in connection with
its own operations.

The Securities and Exchange Commission ("SEC") has granted the
Portfolio an exemptive order permitting it to invest its uninvested cash in any
of the following affiliated money market funds: J.P. Morgan Institutional Prime
Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P.
Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional
Treasury Money Market Fund. The order sets the following conditions: (1) the
Portfolio may invest in one or more of the permitted money market funds up to an
aggregate limit of 25% of its assets; and (2) the Advisor will waive and/or
reimburse its advisory fee from the Portfolio in an amount sufficient to offset
any doubling up of investment advisory, administrative and shareholder servicing
fees.

REVERSE REPURCHASE AGREEMENTS. The Portfolio may enter into reverse
repurchase agreements. In a reverse repurchase agreement, the Portfolio sells a
security and agrees to repurchase the same security at a mutually agreed upon
date and price reflecting the interest rate effective for the term of the
agreement. For purposes of the 1940 Act a reverse repurchase agreement is also
considered as the borrowing of money by the Portfolio and, therefore, a form of
leverage. Leverage may cause any gains or losses for the Portfolio to be
magnified. The Portfolio will invest the proceeds of borrowings under reverse
repurchase agreements. In addition, the Portfolio will enter into a reverse
repurchase agreement only when expected return from the investment of the
proceeds is greater than the interest expense of the transaction. The Portfolio
will not invest the proceeds of a reverse repurchase agreement for a period
which exceeds the duration of the reverse repurchase agreement. The Portfolio
will establish and maintain with its custodian a separate account with a
segregated portfolio of securities in an amount at least equal to its purchase
obligations under its reverse repurchase agreements. All forms of borrowing
(including reverse repurchase agreements, securities lending and mortgage dollar
rolls) are limited in the aggregate and may not exceed 33-1/3% of the Fund's
total assets.

MORTGAGE DOLLAR ROLL TRANSACTIONS. The Portfolio may engage in mortgage
dollar roll transactions with respect to mortgage securities issued by the
Government National Mortgage Association, the Federal National Mortgage
Association and the Federal Home Loan Mortgage Corporation. In a mortgage dollar
roll transaction, the Portfolio sells a mortgage backed security and
simultaneously agrees to repurchase a similar security on a specified future
date at an agreed upon price. During the roll period, the Portfolio will not be
entitled to receive any interest or principal paid on the securities sold. The
Portfolio is compensated for the lost interest on the securities sold by the
difference between the sales price and the lower price for the future repurchase
as well as by the interest earned on the reinvestment of the sales proceeds. The
Portfolio may also be compensated by receipt of a commitment fee. When the
Portfolio enters into a mortgage dollar roll transaction, liquid assets in an
amount sufficient to pay for the future repurchase are segregated with the
custodian. Mortgage dollar roll transactions are considered reverse repurchase
agreements for purposes of the Portfolio's investment restrictions. All forms of
borrowing (including reverse repurchase agreements, securities lending and
mortgage dollar rolls) are limited in the aggregate and may not exceed 33-1/3%
of the Fund's total assets.

LOANS OF PORTFOLIO SECURITIES. The Portfolio may lend its securities in
an amount up to 33 1/3% of the value of the Portfolio's net assets if such loans
are secured continuously by cash or equivalent collateral or by a letter of
credit in favor of the Portfolio at least equal at all times to 100% of the
market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Portfolio any income accruing
thereon. Loans will be subject to termination by the Portfolio in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Portfolio and its
investors. The Portfolio may pay reasonable finders' and custodial fees in
connection with a loan. In addition, the Portfolio will consider all facts and
circumstances including the

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<PAGE>

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, Member of the Advisory Board, Director,
employee or other affiliate of the Portfolio, the Advisor or the Distributor,
unless otherwise permitted by applicable law. All forms of borrowing (including
reverse repurchase agreements, securities lending and mortgage dollar rolls) are
limited in the aggregate and may not exceed 33-1/3% of the Fund's total assets.

ILLIQUID INVESTMENTS; PRIVATELY PLACED AND OTHER UNREGISTERED
SECURITIES. The Portfolio may not acquire any illiquid holdings 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 holding
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 holding 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.

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".

BELOW INVESTMENT GRADE DEBT. Certain lower rated securities purchased
by the Portfolio, such as those rated Ba or B by Moody's Investors Service,
("Moody's") or BB or B by Standard & Poor's Ratings Group ("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

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<PAGE>

primarily to fluctuations in the general level of interest rates. To the extent
that the Portfolio invests in such lower quality securities, the achievement of
its investment objective may be more dependent on the Advisor's own credit
analysis.

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

The Portfolio may invest in convertible debt securities, for which
there are no specific quality requirements. The fixed income portion of the
Portfolio invests in a diversified portfolio of securities with the 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 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 the Portfolio
invests in any other short-term debt securities, they must be rated A or higher
by Moody's or Standard & Poor's, or if unrated, the investment must be of
comparable quality in the Advisor's opinion.

In determining suitability of investment in a particular unrated
security, the Advisor takes into consideration asset and debt service coverage,
the purpose of the financing, history of the issuer, existence of other rated
securities of the issuer, and other relevant conditions, such as comparability
to other issuers.

OPTIONS AND FUTURES TRANSACTIONS

The Portfolio may purchase and sell (a) exchange traded and
over-the-counter ("OTC") put and call options on fixed income or equity
securities, indexes of fixed income or equity securities and futures contracts
on fixed income securities and indexes of fixed income or equity securities and
(b) futures contracts on fixed income securities and indexes of fixed income or
equity 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, writing puts and calls, and buying calls,
tend to increase market exposure. Options and futures contracts may be combined
with each other or with forward contracts in order to adjust the risk and return
characteristics of the 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.

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<PAGE>

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%
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 exists. If the option is allowed to
expire, the Portfolio will lose the entire premium it paid. If the Portfolio
exercises a put option on a security, it will sell the instrument underlying the
option at the strike price. If the Portfolio exercises an option on an index,
settlement is in cash and does not involve the actual sale of securities. 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).

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

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

If the price of the underlying instrument rises, a put writer would
generally expect to profit, although its

15
<PAGE>

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

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

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

OPTIONS ON INDEXES. The Portfolio may purchase 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 index because the Portfolio's investments generally will not match the
composition of an index.

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

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 Advisor. 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.

FUTURES CONTRACTS

The Portfolio may purchase and sell 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

16
<PAGE>

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
(write) put and call options, including put and call options on futures
contracts. Futures contracts obligate the buyer to take and the seller to make
delivery at a future date of a specified quantity of a financial instrument or
an amount of cash based on the value of a securities index. Currently, futures
contracts are available on various types of fixed income securities, including
but not limited to U.S. Treasury bonds, notes and bills, Eurodollar certificates
of deposit and on indexes of fixed income securities and indexes of equity
securities.

Unlike a futures contract, which requires the parties to buy and sell a
security or make a cash settlement payment based on changes in a financial
instrument or securities index on an agreed date, an option on a futures
contract entitles its holder to decide on or before a future date whether to
enter into such a contract. If the holder decides not to exercise its option,
the holder may close out the option position by entering into an offsetting
transaction or may decide to let the option expire and forfeit the premium
thereon. The purchaser of an option on a futures contract pays a premium for the
option but makes no initial margin payments or daily payments of cash in the
nature of "variation" margin payments to reflect the change in the value of the
underlying contract as does a purchaser or seller of a futures contract.

The seller of an option on a futures contract receives the premium paid
by the purchaser and may be required to pay initial margin. Amounts equal to the
initial margin and any additional collateral required on any options on futures
contracts sold by 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.

17
<PAGE>

order to construct a combined position whose risk and return characteristics are
similar to selling a futures contract. Another possible combined position would
involve writing a call option at one strike price and buying a call option at a
lower price, in order to reduce the risk of the written call option in the event
of a substantial price increase. Because combined options positions involve
multiple trades, they result in higher transaction costs and may be more
difficult to open and close out.

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

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

LIQUIDITY OF OPTIONS AND FUTURES CONTRACTS. There is no assurance that
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.

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

18
<PAGE>

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.

19
<PAGE>

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
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.

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.

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.

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 Portfolio will be less

20
<PAGE>

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.

RISK MANAGEMENT

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

PORTFOLIO TURNOVER

21
<PAGE>

The Portfolio's turnover rates for the fiscal years ended June 30,
1998, 1999, and 2000 were 82%, 144% and 217%, 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.

22
<PAGE>

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 and
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, the Trust will hold a meeting of Fund
shareholders and will cast its votes as instructed by the Fund's shareholders.

The Fund has the same investment restrictions as the Portfolio, unless
otherwise specified. References below to the Portfolio's investment restrictions
also include the Fund's investment restrictions unless the context requires
otherwise.

The Portfolio:

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

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

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

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

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

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

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

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

23
<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 MEMBERS OF THE ADVISORY BOARD

TRUSTEES

The Trustees of the Trust, who are also the Trustees of the Portfolio
and the other Master Portfolios as defined below, principal occupations during
the past five years and dates of birth are set forth below. The mailing address
of the Trustees is c/o Pierpont Group Inc., 461 Fifth Avenue, New York, New York
10017.

FREDERICK S. ADDY - Trustee; Retired, Former Executive Vice President
and Chief Financial Officer, Amoco Corporation. His date of birth is January 1,
1932.

WILLIAM G. BURNS - Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His date of birth is November 2, 1932.

24
<PAGE>

ARTHUR C. ESCHENLAUER - Trustee; Retired, Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His date of birth is May 23, 1934.

MATTHEW HEALEY (*) - Trustee, Chairman and Chief Executive Officer,
Chairman, Pierpont Group, Inc., since prior to 1995. His date of birth is August
23, 1937.

MICHAEL P. MALLARDI - Trustee; Retired, Prior to April 1996, Senior
Vice President, Capital Cities/ABC, Inc. and President, Broadcast Group. His
date of birth is March 17, 1934.

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

(*) Mr. Healey is an "interested person" (as defined in the 1940 Act)
of the Trust.

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 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 accrued by the Trust for the calendar
year ended December 31, 1999 are set forth below.

<TABLE>
<CAPTION>
TOTAL TRUSTEE COMPENSATION ACCRUED
AGGREGATE TRUSTEE BY THE MASTER PORTFOLIOS (*),J.P.
COMPENSATION MORGAN FUNDS, J.P. MORGAN SERIES
ACCRUED BY THE TRUST TRUST AND THE TRUST
NAME OF TRUSTEE DURING 1999 DURING 1999 (***)
--------------- ----------- -----------------
<S> <C> <C>
Frederick S. Addy, Trustee $22,488 $75,000

William G. Burns, Trustee $22,488 $75,000

Arthur C. Eschenlauer, Trustee $22,488 $75,000

$22,488 $75,000
Matthew Healey, Trustee (**)
Chairman and Chief Executive
Officer

Michael P. Mallardi, Trustee $22,488 $75,000
</TABLE>

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

(**) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as Chairman
of Pierpont Group, Inc., compensation in the amount of $153,800, contributed
$23,100 to a defined contribution plan on his behalf and paid $17,300 in
insurance premiums for his benefit.

(***) No investment company within the fund complex has a pension or retirement
plan. Currently there are 17

25
<PAGE>

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 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 June 30, 1998, 1999 and 2000: $9,571, $10,569
and $10,326 respectively.

PORTFOLIO -- For the fiscal years ended June 30, 1998, 1999 and 2000: $13,886,
$16,444 and $15,670 respectively.

MEMBERS OF THE ADVISORY BOARD

The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
member serves at the pleasure of the Trustees. The advisory board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust, but has no power to vote upon any matter
put to a vote of the Trustees. The advisory board and the members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
members thereof was designed so that the Board of Trustees will continuously
consist of persons able to assume the duties of Trustees and be fully familiar
with the business and affairs of each of the Trusts and the Master Portfolios,
in anticipation of the current Trustees reaching the mandatory retirement age of
seventy. Each member of the Advisory Board is paid an annual fee of $75,000 for
serving in this capacity for the Trust, each of the Master Portfolios, the J.P.
Morgan Funds and the J.P. Morgan Series Trust and is reimbursed for expenses
incurred in connection for such service. The members of the Advisory Board may
hold various other directorships unrelated to these funds. The mailing address
of the Members of the Advisory Board is c/o Pierpont Group, Inc., 461 Fifth
Avenue, New York, New York 10017. Their names, principal occupations during the
past five years and dates of birth are set forth below:

Ann Maynard Gray - Former President, Diversified Publishing Group and
Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.

John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.

Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.

James J. Schonbachler -- Retired; Prior to September, 1998, Managing
Director, Bankers Trust Company and Chief Executive Officer and Director,
Bankers Trust A.G., Zurich and BT Brokerage Corp. His date of birth is January
26, 1943.

OFFICERS

26
<PAGE>

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" or the "Distributor"), 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,
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,
since prior to 1993. His address is c/o Pierpont Group, Inc., 461 Fifth Avenue,
New York, New York 10017. 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. Her
date of birth is August 1, 1957.

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

KAREN JACOPPO-WOOD - Vice President and Assistant Secretary. Vice
President and Senior Counsel of FDI and an officer of certain investment
companies distributed or administered by FDI. From June 1994 to January 1996,
Ms. Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark,
Inc. Prior to May 1994, Ms. Jacoppo-Wood was a senior paralegal at The Boston
Company Advisors, Inc. ("TBCA"). Her date of birth is December 29, 1966.

CHRISTOPHER J. KELLEY - Vice President and Assistant Secretary. Vice
President and Senior Associate General Counsel of FDI and Premier Mutual and an
officer of certain investment companies distributed or administered by FDI. From
April 1994 to July 1996, Mr. Kelley was Assistant Counsel at Forum Financial
Group. Prior to April 1994, Mr. Kelley was employed by Putnam Investments in
legal and compliance capacities. His date of birth is December 24, 1964.

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

MARY A. NELSON - Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual
and an officer of certain investment companies distributed or administered by
FDI. Prior to August 1994, Ms. Nelson was an Assistant Vice President and Client
Manager for

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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.

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. His date of birth is January 2, 1955.

CHRISTINE ROTUNDO - Assistant Treasurer. Vice President, Morgan
Guaranty Trust Company of New York. Ms. Rotundo serves as Manager of the Funds
Infrastructure group and is responsible for the management of special projects.
Prior to January 2000, she served as Manager of the Tax Group in the Funds
Administration group and was responsible for U.S. mutual fund tax matters. Her
address is 60 Wall Street, New York, New York 10260. Her date of birth is
September 26, 1965.

ELBA VASQUEZ - Vice President and Assistant Secretary. Vice President
of FDI since February 1999. Ms. Vasquez served as a Sales Associate for FDI from
May 1996. Prior to that she served in various mutual fund sales and marketing
positions for U.S. Trust Company of New York. Her date of birth is December 14,
1961.

CODES OF ETHICS

The Trust, FDI and the Advisor have adopted codes of ethics pursuant to
Rule 17j-1 under the 1940 Act. Each of these codes permits personnel subject to
such code to invest in securities, including securities that may be purchased or
held by the Funds. Such purchases, however, are subject to procedures reasonably
necessary to prevent access persons from engaging in any unlawful conduct set
forth in Rule 17j-1.

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 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 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 $373 billion.

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 firm, through its
predecessor firms, has been in business for over a century and has been managing
investments since 1913. Morgan, also a wholly owned subsidiary of J.P. Morgan,
is a bank holding company organized under the laws of the State of Delaware.

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<PAGE>

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 approximately 415
research analysts, capital market researchers, portfolio managers and traders
and has one of the largest research staffs in the money management industry. The
Advisor has investment management divisions located in New York, London, Tokyo,
Frankfurt and Singapore to cover companies, industries and countries on site.
The conclusions of the equity analysts' fundamental research is quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to enable
analysts to take a longer term view. These returns, or normalized earnings, are
used to establish relative values among stocks in each industrial sector. These
values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector. The Advisor's fixed income investment process is based on
analysis of real rates, sector diversification and quantitative and credit
analysis.

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

Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The Portfolio's benchmark is comprised of 52% S&P
500, 35% Salomon Smith Barney Broad Investment Grade Bond, 3% Russell 2000 and
10% EAFE indexes.

The Portfolio is managed by employees of the Advisor who, in acting for
their customers, including the Portfolio, do not discuss their investment
decisions with any personnel of J.P. with the exception of certain other
investment management affiliates of J.P. Morgan or broker affiliates of J.P.
Morgan which executives transactions on behalf of the Fund.

As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the 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 0.55% of the
Portfolio's average daily net assets.

For the fiscal years ended June 30, 1998, 1999 and 2000 the advisory
fees paid by the Portfolio to Morgan, the Portfolio's Advisor prior to October
28, 1998, and to JPMIM, the Portfolio's current Advisor, after October 28, 1998,
1999 and 2000 were $2,359,972, $3,834,721 and $5,129,204, respectively. See the
Portfolio's June 30, 2000 Annual Report.

See "Expense" below for applicable expense limitations.

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

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<PAGE>

Under separate agreements, Morgan also 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

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 Members of
the Advisory Board" and "Officers"). The Distribution Agreement will terminate
automatically if assigned by either party thereto and is terminable at any time
without penalty by a vote of a majority of the Trustees of the Trust, a vote of
a majority of the Trustees who are not "interested persons" of the Trust, or by
a vote of the holders of a majority of the Fund's outstanding shares as defined
under "Additional Information," in any case without payment of any penalty on 60
days' written notice to the other party. The principal offices of FDI are
located at 60 State Street, Suite 1300, Boston, Massachusetts 02109.

CO-ADMINISTRATOR

Under Co-Administration Agreements with the Trust and the 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, each of the
Fund and the Portfolio has agreed to pay FDI fees equal to its allocable share
of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to the Fund or the 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 the administrative fees paid to FDI for the
fiscal periods indicated. See "Expenses" below for applicable expense
limitations.

PORTFOLIO -- For the fiscal years ended June 30, 1998, 1999 and 2000: $8,817,
$9,900 and $8,873, respectively.

FUND - For the fiscal years ended June 30, 1998, 1999 and 2000: $7,165, $17,847
and $7,858, respectively.

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<PAGE>

See "Expenses" 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
effective December 29, 1995, as amended effective August 1, 1996, 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, Morgan provides certain administrative
and related services to the Fund and the Portfolio, including services related
to tax compliance, preparation of financial statements, calculation of
performance data, oversight of service providers and certain regulatory and
Board of Trustee matters.

Under the amended Services Agreements, each of the Fund and 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 the Fund or the Portfolio is determined by the
proportionate share that its net assets bear to the total net assets of the
Trust, the Master Portfolios, other investors in the Master Portfolios for which
Morgan provides similar services and J.P. Morgan Series Trust.

The table below sets forth the fees paid to Morgan as Services Agent.
See "Expenses" below for applicable expense limitations.

PORTFOLIO -- For the fiscal years ended June 30, 1998, 1999, and 2000: $127,584,
$186,594 and $238,077, respectively.

FUND -- For the fiscal years ended June 30, 1997, 1998, and 1999: $85,827,
$121,374 and $156,038, respectively.

CUSTODIAN AND TRANSFER AGENT

The Bank of New York ("BONY"), One Wall Street, New York, New York
10286, serves as the Trust's custodian and fund accounting agent. Pursuant to
the Custodian Contract and Fund Accounting Agreement with the Trust, BONY is
responsible for holding portfolio securities and cash and maintaining the books
of account and records of the Fund's portfolio transactions.

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's transfer and dividend
disbursing agent. As transfer agent and dividend disbursing agent, State Street
is responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.

SHAREHOLDER SERVICING

The Trust on behalf of 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

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<PAGE>

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 transfer agent;
transmitting purchase and redemption orders to the 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,
the Fund has agreed to pay Morgan a fee for these services at the annual rate of
0.10% 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 were
$288,049, $455,106, and $628,625 for the fiscal years ended June 30, 1998, 1999
and 2000, respectively.

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

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

FINANCIAL PROFESSIONALS

The services provided by financial professionals may include
establishing and maintaining shareholder accounts, processing purchase and
redemption transactions, arranging for bank wires, performing shareholder
sub-accounting, 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 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

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<PAGE>

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 each of the Fund's and the Portfolio's federal and state income tax
returns and consults with the Fund and the Portfolio as to matters of accounting
and federal and state income taxation.

EXPENSES

In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees and Members of the
Advisory Board," "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 expenses, insurance costs, the compensation and expenses of the
Trustees, registration fees under federal securities laws, and extraordinary
expenses applicable to the Fund and 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 registration fees under foreign securities laws, custodian fees and
brokerage expenses.

Morgan has agreed that it will reimburse the Fund until October 31,
2001 as described in the Prospectus to the extent necessary to maintain the
Fund's total operating expenses (which include expenses of the Fund and the
Portfolio) at 0.65% of the Fund's average daily net assets. This limit does not
cover extraordinary expenses.

The table below sets forth the fees and other expenses Morgan
reimbursed under the expense reimbursement arrangements described above or
pursuant to prior interest, taxes and expense reimbursement arrangements for the
fiscal years indicated.

PORTFOLIO -- For the fiscal years ended June 30, 1998, 1999 and 2000: $247,773,
$183,744 and $238,773, respectively.

FUND -- (Includes expense reimbursement allocated from the Portfolio) For the
fiscal years ended June 30, 1998, 1999 and 2000: $507,083, $756,422 and
$924,695, respectively.

PURCHASE OF SHARES

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

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

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

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<PAGE>

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. 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.

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

Investors may redeem shares as described in the Prospectus.

If the Trust on behalf of the Fund determines 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, has 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, 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

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<PAGE>

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. The Fund generally intends to pay redemption proceeds in cash,
however, since it reserves the right at its sole discretion to pay redemptions
over $250,000 in-kind as a portfolio of representative stocks rather than in
cash, the Fund reserves the right to deny an exchange request in excess of that
amount. See "Redemption of Shares." Shareholders subject to federal income tax
who exchange shares in one fund for shares in another fund may recognize capital
gain or loss for federal income tax purposes. Shares of the fund to be acquired
are purchased for settlement when the proceeds from redemption become available.
In the case of investors in certain states, state securities laws may restrict
the availability of the exchange privilege. The 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.

The value of equity investments listed on a domestic or foreign
securities exchange, including National Association of Securities Dealers
Automated Quotations ("NASDAQ"), other than options on stock indexes, is based
on the last sale prices on the exchange on which the security is principally
traded (the "primary exchange"). If there has been no sale on the primary
exchange on the valuation date, and the spread between bid and asked quotations
on the primary exchange is less than or equal to 10% of the bid price for the
security, the security shall be valued at the average of the closing bid and
asked quotations on the primary exchange. Under all other circumstances (e.g.
there is no last sale on the primary exchange, there are no bid and asked
quotations on the primary exchange, or the spread between bid and asked
quotations is greater than 10% of the bid price), the value of the security
shall be the last sale price on the primary exchange up to ten days prior to the
valuation date unless, in the judgment of the portfolio manager, material events
or conditions since such last sale necessitate fair valuation of the security.
The value of each security for which readily available market quotations exist
is based on a decision as

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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.

Options on stock indexes traded on national securities exchanges are
valued at the close of options trading on such exchanges, which is currently
4:10 p.m. New York time. Stock index futures and related options, which are
traded on commodities exchanges, are valued at their last sales price as of the
close of such commodities exchanges, which is currently 4:15 p.m., New York
time. Options and futures traded on foreign exchanges are valued at the last
sale price available prior to the calculation of the Fund's net asset value.

Fixed income securities with a maturity of 60 days or more, are
generally valued using bid quotations generally readily available from and
supplied daily by third party pricing services or brokers of comparable
securities. If such prices are not supplied by the Fund's independent pricing
services, such securities are priced in accordance with fair value procedures
adopted by 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. Fixed income securities with a
remaining maturity of less than 60 days are valued by the amortized cost
method.

Securities or other assets for which market quotations are not readily
available (including certain illiquid securities) are valued at fair value in
accordance with procedures established by and under the general supervision and
responsibility of the Trustees. Short-term investments which mature in 60 days
or less are valued at amortized cost if their original maturity was 60 days or
less, or by amortizing their value on the 61st day prior to maturity, if their
original maturity when acquired by the Fund was more than 60 days, unless this
is determined not to represent fair value by the Trustees.

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

PERFORMANCE DATA

From time to time, the Fund 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.

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.

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.

As required by regulations of the SEC, the average annual total return
of the Fund for a period is computed

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<PAGE>

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.

Below is set forth historical return information for the Fund for the
period indicated.

(6/30/00): Average annual total return, 1 year: 6.88%; average annual total
return, 5 years: 15.24%; average annual total return, commencement of
operations(*) to period end: 13.47%; aggregate total return, 1 year: 6.88%;
aggregate total return, 5 years: 103.21%; aggregate total return, commencement
of operations(*) to period end: 138.34%.

--------------------
* The Fund commenced public investment operations on September 10, 1993.

GENERAL. The Fund's performance will vary from time to time depending
upon market conditions, the composition of the Portfolio and the Fund's
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.

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

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 Objective and Policies."

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 Portfolio's fixed income investments
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 fixed income portfolio transactions for the
Portfolio, the Advisor intends to seek best

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<PAGE>

execution on a competitive basis for both purchases and sales of securities.

In connection with transactions in Equity Securities for the Portfolio,
the overriding objective is to obtain the best execution of purchase and sale
orders.

In selecting a broker, the Advisor considers a number of factors
including: the price per unit of the security; the broker's reliability for
prompt, accurate confirmations and on-time delivery of securities; the firm's
financial condition; as well as the commissions charged. A broker may be paid a
brokerage commission in excess of that which another broker might have charged
for effecting the same transaction if, after considering the foregoing factors,
the Advisor decides that the broker chosen will provide the best execution. The
Advisor monitors the reasonableness of the brokerage commissions paid in light
of the execution received. The Trustees of the Portfolio review regularly the
reasonableness of commissions and other transaction costs incurred by the
Portfolio in light of facts and circumstances deemed relevant from time to time,
and, in that connection, will receive reports from the Advisor and published
data concerning transaction costs incurred by institutional investors generally.
Research services provided by brokers to which the Advisor has allocated
brokerage business in the past include economic statistics and forecasting
services, industry and company analyses, portfolio strategy services,
quantitative data, and consulting services from economists and political
analysts. Research services furnished by brokers are used for the benefit of all
the Advisor's clients and not solely or necessarily for the benefit of the
Portfolio. The Advisor believes that the value of research services received is
not determinable and does not significantly reduce its expenses. The Portfolio
does not reduce its fee to the Advisor by any amount that might be attributable
to the value of such services.

The Portfolio paid the following approximate brokerage commissions for
the fiscal years ended June 30, 2000: $712,450; June 30, 1999: $557,819; June
30, 1998: $314,363.

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

Portfolio securities will not be purchased from or through or sold to
or through the Co-Administrator, the Distributor or the Advisor or any other
"affiliated person" (as defined in the 1940 Act) of the Co-Administrator,
Distributor or Advisor when such entities are acting as principals, except to
the extent permitted by law. In addition, the 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 the Portfolio as well as other customers
including other Master Portfolios, the Advisor to the extent permitted by
applicable laws and regulations, may, but is not obligated to, aggregate the
securities to be sold or purchased for the Portfolio with those to be sold or
purchased for other customers in order to obtain best execution, including lower
brokerage commissions if appropriate. In such event, allocation of the
securities so purchased or sold as well as any expenses incurred in the
transaction will be made by the Advisor in the manner it considers to be most
equitable and consistent with its fiduciary obligations to the Portfolio. In
some instances, this procedure might adversely affect the Portfolio.

38
<PAGE>

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.

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.

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 on November 4, 1992 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 series (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 or
elsewhere in this Statement of Additional Information.

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

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<PAGE>

the intention of the Trust not to hold meetings of shareholders annually. The
Trustees may call meetings of shareholders for action by shareholder vote as may
be required by either the 1940 Act or the Trust's Declaration of Trust.

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

The Trustees have authorized the issuance and sale to the public of
33 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
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 Portfolio shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares."

As of September 30, 2000, the following , to the knowledge of
management, beneficially owned more than 5% of the outstanding shares of the
Fund:

Celtic Insurance Company Ltd. (7.53%); Boston Foundation Inc. (5.64%);
Morgan as Agent for UNIFI Inc. Profit Sharing Plan Trust J.P. Morgan
Institutional Dividend Fund NationsBank Master Trust (5.65%); MGT of
New York Deferred Profit Sharing Plan (31.63%); Wendel & Co. FBO: The
Marmon Retirement Master Trust DTD (7.18%)

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<PAGE>

The address of the owners 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. Fund
shareholders are entitled to one vote for each dollar of net asset value (or a
proportionate fractional vote in respect of a fractional dollar amount), on
matters on which shares of the Fund shall be entitled to vote.

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

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

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 effect on the outcome of such matters.

TAXES

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<PAGE>

The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this Statement of Additional Information.
These laws and regulations are subject to change by legislative or
administrative action, possibly on a retroactive basis.

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 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, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed in accordance with the Code's timing requirements.

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

For federal income tax purposes, dividends that are declared by the
Fund in October, November or December as of a record date in such month and
actually paid in January of the following year will be treated as if they were
paid on December 31 of the year declared. Therefore, such dividends generally
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
losses are generally taxable to shareholders of the Fund as ordinary income
whether such distributions are taken in cash or reinvested in additional shares.
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. The Fund expects that a portion of these distributions to
corporate shareholders will be eligible for the dividends-received deduction,
subject to applicable limitations under the Code. Distributions of net long-term
capital gain (i.e., net long-term capital gain in excess of net short-term
capital loss) are taxable to shareholders of the Fund as long-term capital gain,
regardless of whether such distributions are taken in cash or reinvested in
additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a 20% rate of tax. Investors should consult their tax advisors
concerning the treatment of capital gains and losses.

Gains or losses on sales of portfolio securities will be treated as
long-term capital gains or losses if the securities have been held for more than
one year except in certain cases where, if applicable, a put option 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

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<PAGE>

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

Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time the Portfolio accrues income or receivables or
expenses or other liabilities denominated in a foreign currency and the time the
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 the 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 the Portfolio may create "straddles" for U.S. federal income tax purposes and
this may affect the character and timing of gains or losses realized by the
Portfolio on forward currency contracts, options and futures contracts or on the
underlying securities.

Certain options, futures and foreign currency contracts 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. However, gain or loss recognized on certain foreign currency
contracts will be treated as ordinary income or loss.

The Portfolio may invest in equity securities of foreign issuers. If
the Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the Fund may be
subject to federal income tax on a portion of any "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 the Fund as a result of any 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 PFIC's income, whether or
not distributed to the Fund.

The Portfolio will be permitted to "mark to market" any marketable
stock held by the Portfolio in a PFIC. If the Portfolio made such an election,
the 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 taxable year
over the adjusted basis of such stock. The Fund would be allowed a deduction for
its shares in 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.

43
<PAGE>

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

FOREIGN SHAREHOLDERS. Dividends of net investment income and
distributions of realized net short-term gain in excess of net long-term loss to
a shareholder who, as to the United States, is a nonresident alien individual,
fiduciary of a foreign trust or estate, foreign corporation or foreign
partnership (a "foreign shareholder") will be subject to U.S. withholding tax at
the rate of 30% (or lower treaty rate) unless the dividends are effectively
connected with a U.S. trade or business of the shareholder, in which case the
dividends will be subject to tax on a net income basis at the graduated rates
applicable to U.S. individuals or domestic corporations.

Under United States Treasury regulations that will generally apply to
dividends paid after December 31, 2000 (the "Final Withholding Regulations"),
you must satisfy certain certification requirements in order to addition, in the
case of Fund shares held by a foreign partnership, the certification requirement
generally will also apply to the partners of the partnership and the partnership
must provide certain information. The Final Withdrawing Regulations also provide
look-through rules for tiered partnerships.

If you are eligible for a reduced rate of United States withholding tax
under a tax treaty, you may obtain a refund of any amounts withheld in excess of
that rate by filing a refund claim with United States Internal Revenue Service.

Distributions treated as long term capital gains to foreign
shareholders will not be subject to U.S. tax unless the distributions are
effectively connected with the shareholder's trade or business in the United
States or, in the case of a shareholder who is a nonresident alien individual,
the shareholder was present in the United States for more than 182 days during
the taxable year and certain other conditions are met.

In the case of a foreign shareholder who is a nonresident alien
individual or foreign entity, the Fund may be required to withhold U.S. federal
income tax as "backup withholding" at the rate of 31% from distributions treated
as long-term capital gains and from the proceeds of redemptions, exchanges or
other dispositions of Fund shares unless IRS Form W-8BEN (or any successor form)
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.

FOREIGN TAXES. It is expected that the 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.

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

44
<PAGE>

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 statement 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 Portfolio 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.

FINANCIAL STATEMENTS

The financial statements and the reports thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference from the Fund's
June 30, 2000 annual report filing made on August 25, 2000, with the SEC
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession
No. 0000912057-00-039113). The Fund's financial reports include the Portfolio's
financial statements. The annual and subsequent semi-annual reports are
available without charge upon request by calling J.P. Morgan Funds Services at
(800) 766-7722.

45
<PAGE>

APPENDIX A
DESCRIPTION OF SECURITY RATINGS

STANDARD & POOR'S

CORPORATE AND MUNICIPAL BONDS

AAA - Debt rated AAA has 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 has a very strong capacity to pay interest and repay
principal and differs from the highest rated issues only in a small degree.

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

BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest
and repay principal. Whereas it normally exhibits 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 is regarded as having less near-term vulnerability to default
than other speculative issues. However, it faces 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

A-1
<PAGE>

safety characteristics are given a "plus" (+) designation.

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

MOODY'S

CORPORATE AND MUNICIPAL BONDS

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

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

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

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

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

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

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

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

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

COMMERCIAL PAPER, INCLUDING TAX EXEMPT

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

- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on debt and
ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and high
internal cash generation.

A-2
<PAGE>

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

SHORT-TERM TAX EXEMPT NOTES

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

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

A-3
<PAGE>

J.P. MORGAN INSTITUTIONAL FUNDS

J.P. MORGAN DIVERSIFIED FUND - ADVISOR SERIES

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 1, 2000

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 NOVEMBER 1, 2000, AS SUPPLEMENTED FROM TIME TO TIME.
ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE
THE MOST RECENT ANNUAL AND SEMI-ANNUAL FINANCIAL STATEMENTS OF THE FUND'S MASTER
PORTFOLIO, INCLUDING THE INDEPENDENT ACCOUNTANT'S REPORT THEREON STATEMENTS.
THESE 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, MEMBERS OF THE ADVISORY BOARD AND OFFICERS.........................22
CODES OF ETHICS..............................................................26
INVESTMENT ADVISOR...........................................................26
DISTRIBUTOR..................................................................27
CO-ADMINISTRATOR.............................................................28
SERVICES AGENT...............................................................28
CUSTODIAN AND TRANSFER AGENT.................................................29
SHAREHOLDER SERVICING........................................................29
SERVICE ORGANIZATIONS........................................................29
DISTRIBUTION PLAN............................................................30
INDEPENDENT ACCOUNTANTS......................................................31
EXPENSES.....................................................................31
PURCHASE OF SHARES...........................................................31
REDEMPTION OF SHARES.........................................................32
EXCHANGE OF SHARES...........................................................32
DIVIDENDS AND DISTRIBUTIONS..................................................33
NET ASSET VALUE..............................................................33
PERFORMANCE DATA.............................................................34
PORTFOLIO TRANSACTIONS.......................................................35
MASSACHUSETTS TRUST..........................................................37
DESCRIPTION OF SHARES........................................................37
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE..........................39
TAXES........................................................................40
ADDITIONAL INFORMATION.......................................................43
FINANCIAL STATEMENTS.........................................................43
APPENDIX A - DESCRIPTION OF SECURITY RATINGS................................A-1

<PAGE>

GENERAL

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

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

INVESTMENT OBJECTIVE AND POLICIES

1
<PAGE>

among sectors is based on JPMIM's analysis of their relative valuations.

INVESTMENT PROCESS FOR THE PORTFOLIO'S EQUITY COMPONENT

With respect to the equity portion of the Portfolio, JPMIM uses:

INVESTMENT PROCESS FOR THE PORTFOLIO'S FIXED INCOME COMPONENT

2
<PAGE>

INVESTMENT PROCESS FOR THE PORTFOLIO'S U.S. SMALL COMPANY COMPONENT

See "Systematic Valuation" above.

INVESTMENT PROCESS FOR THE PORTFOLIO'S INTERNATIONAL EQUITY COMPONENT

Stock selection and country allocation: JPMIM's more than 30
international equity analysts, each an industry and country specialist, 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. The comparable expected returns generated by the dividend
discount model are used to rank companies 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 Morgan Stanley Capital International Europe, Australasia
and Far East Index ("EAFE"). 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. JPMIM's country
allocation decisions are primarily driven by its stock selection process.

FIXED INCOME INVESTMENTS

3
<PAGE>

that of interest bearing debt securities with the same maturity.

4
<PAGE>

CORPORATE BONDS AND OTHER DEBT SECURITIES

5
<PAGE>

6
<PAGE>

shares, the Portfolio will have fewer assets with which to purchase income
producing securities.

MONEY MARKET INSTRUMENTS

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

7
<PAGE>

REPURCHASE AGREEMENTS. The Portfolio may enter into repurchase
agreements with brokers, dealers or banks that meet the credit guidelines
approved by the Advisor. 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 its
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.

8
<PAGE>

EQUITY INVESTMENTS

COMMON STOCK WARRANTS

FOREIGN INVESTMENTS

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

9
<PAGE>

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 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.

10
<PAGE>

FOREIGN CURRENCY EXCHANGE TRANSACTIONS

11
<PAGE>

ADDITIONAL INVESTMENTS

12
<PAGE>

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

13
<PAGE>

any loans in excess of one year. The Portfolio will not lend its securities to
any officer, Trustee, Member of Advisory Board, Director, employee or other
affiliate of the Portfolio, the Advisor or the Distributor, unless otherwise
permitted by applicable law. All form of borrowing (including reverse repurchase
agreements) are limited in the aggregate must not exceed 33 1/3% of the fund's
total assets.

QUALITY AND DIVERSIFICATION REQUIREMENTS

14
<PAGE>

quality securities, the achievement of its investment objective may be more
dependent on the Advisor's own credit analysis.

OPTIONS AND FUTURES TRANSACTIONS

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 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

15
<PAGE>

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.

OPTIONS

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

16
<PAGE>

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.

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 Advisor. 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.

FUTURES CONTRACTS

17
<PAGE>

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

18
<PAGE>

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.

In addition, the Portfolio will comply with guidelines established by
the SEC with respect to coverage of options and futures contracts by mutual
funds, and if the guidelines so require, will set aside appropriate liquid
assets in a segregated custodial account in the amount prescribed. Securities
held in a segregated account cannot be sold while the futures contract or option
is outstanding, unless they are replaced with other suitable assets. As a

19
<PAGE>

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.

20
<PAGE>

SWAPS AND RELATED SWAP PRODUCTS

21
<PAGE>

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.

RISK MANAGEMENT

PORTFOLIO TURNOVER

22
<PAGE>

The Portfolio's turnover rates for the fiscal years ended June 30,
1998, 1999 and 2000 were: 82%, 144% and 217%, 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.

23
<PAGE>

INVESTMENT RESTRICTIONS

The Portfolio:

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

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

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

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

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

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

1. 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;

24
<PAGE>

2. 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

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

TRUSTEES, MEMBERS OF THE ADVISORY BOARD AND OFFICERS

TRUSTEES

The Trustees of the Trust, who are also the Trustees of the Portfolio
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. The mailing address of the Trustees is c/o Pierpont Group Inc., 461
Fifth Avenue, New York, New York 10017.

FREDERICK S. ADDY - Trustee; Retired, Former Executive Vice President
and Chief Financial Officer, Amoco Corporation. His date of birth is January 1,
1932.

WILLIAM G. BURNS - Trustee; Retired, Former Vice Chairman and Chief
Financial Officer, NYNEX. His date of birth is November 2, 1932.

25
<PAGE>

ARTHUR C. ESCHENLAUER - Trustee; Retired, Former Senior Vice President,
Morgan Guaranty Trust Company of New York. His date of birth is May 23, 1934.

MATTHEW HEALEY (*) - Trustee, Chairman and Chief Executive Officer,
Chairman, Pierpont Group, Inc., since prior to 1995. His date of birth is August
23, 1937.

MICHAEL P. MALLARDI - Trustee; Retired, Prior to April 1996, Senior
Vice President, Capital Cities/ABC, Inc. and President, Broadcast Group. His
date of birth is March 17, 1934.

------------------------
(*) Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust.

Trustee compensation accrued by the J.P. Morgan Funds for the calendar year
ended December 31, 1999 are set forth below.

<TABLE>
<CAPTION>
NAME OF TRUSTEE AGGREGATE TRUSTEE TOTAL TRUSTEE
--------------- COMPENSATION PAID BY COMPENSATION ACCRUED
THE TRUST DURING 1999 BY THE MASTER PORTFOLIOS
--------------------- (*), J.P. MORGAN
INSTITUTIONAL FUNDS, J.P.
MORGAN FUNDS AND THE
TRUST DURING 1999 (**)
----------------------
<S> <C> <C>
Frederick S. Addy, Trustee $22,488 $75,000

William G. Burns, Trustee $22,488 $75,000

Arthur C. Eschenlauer, Trustee $22,488 $75,000

Matthew Healey, Trustee (***) $22,488 $75,000
Chairman and Chief Executive Officer

Michael P. Mallardi, Trustee $22,488 $75,000
</TABLE>

(*) Includes each portfolio in which a series of J.P. Morgan Funds or J.P.
Morgan Institutional Funds invests.

(**) 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, J.P. Morgan Institutional
Funds and the Trust) in the fund complex.

26
<PAGE>

(***) During 1999, Pierpont Group, Inc. paid Mr. Healey, in his role as
Chairman of Pierpont Group, Inc., compensation in the amount of $153,800,
contributed $23,100 to a defined contribution plan on his behalf and paid
$17,300 in insurance premiums for his benefit.

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

PORTFOLIO -- For the fiscal years ended June 30, 1998, 1999 and 2000: $13,886,
$16,444 and 15,670, respectively.

MEMBERS OF THE ADVISORY BOARD

The Trustees determined as of January 26, 2000 to establish an advisory
board and appoint four members ("Members of the Advisory Board") thereto. Each
Member serves at the pleasure of the Trustees. The Advisory Board is distinct
from the Trustees and provides advice to the Trustees as to investment,
management and operations of the Trust, but has no power to vote upon any matter
put to a vote of the Trustees. The Advisory Board and the Members thereof also
serve each of the Trusts and the Master Portfolios. It is also the current
intention of the Trustees that the Members of the Advisory Board will be
proposed at the next shareholders' meeting, expected to be held within a year
from the date hereof, for election as Trustees of each of the Trusts and the
Master Portfolios. The creation of the Advisory Board and the appointment of the
Members thereof was designed so that the Board of Trustees will continuously
have available to it persons able to assume the duties of Trustees and be fully
familiar with the business and affairs of each of the Trusts and the Master
Portfolios, in anticipation of the current Trustees reaching the mandatory
retirement age of seventy. Each Member of the Advisory Board is paid an annual
fee of $75,000 for serving in this capacity for the Trust, each of the Master
Portfolios, the J.P. Morgan Funds and the J.P. Morgan Series Trust and is
reimbursed for expenses incurred in connection for such service. The Members of
the Advisory Board may hold various directorships unrelated to these funds. The
mailing address of the Members of the Advisory Board is c/o Pierpont Group,
Inc., 461 Fifth Avenue, New York, New York 10017. Their names, principal
occupations during the past five years and dates of birth are set forth below:

Ann Maynard Gray -- Former President, Diversified Publishing Group and
Vice President, Capital Cities/ABC, Inc. Her date of birth is August 22, 1945.

John R. Laird -- Retired; Former Chief Executive Officer, Shearson
Lehman Brothers and The Boston Company. His date of birth is June 21, 1942.

Gerard P. Lynch -- Retired; Former Managing Director, Morgan Stanley
Group and President and Chief Operating Officer, Morgan Stanley Services, Inc.
His date of birth is October 5, 1936.

OFFICERS

27
<PAGE>

MATTHEW HEALEY - Chairman and Chief Executive Officer, Chairman,
Pierpont Group, since prior to 1995. His address is c/o Pierpont Group Inc., 461
Fifth Avenue, New York, New York 10017. His date of birth is August 23, 1937.

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

28
<PAGE>

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.

CHRISTINE ROTUNDO - Assistant Treasurer. Vice President, Morgan
Guaranty Trust Company of New York. Ms. Rotundo serves as Manager of the Funds
Infrastructure group and is responsible for the management of special projects.
Prior to January 2000, she served as Manager of the Tax Group in the Funds
Administration 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.

ELBA VASQUEZ - Vice President and Assistant Secretary. Currently,
services as Vice President. Prior serviced as Assistant Vice President since
1997 and Sales Associate since May 1996 of FDI. (March 1990 to May 1996,
employed in various mutual fund sales and marketing positions by the U.S. Trust
Company of New York. Her date of birth is December 14, 1961.

CODES OF ETHICS

The Trust, Advisor and FDI have adopted codes of ethics pursuant to
Rule 17j-1 under the 1940 Act. Each of these codes permits personnel subject to
such code to invest in securities, including securities that may be purchased or
held by the Portfolio. Such purchases, however, are subject to procedures
reasonably necessary to prevent access persons from engaging in any unlawful
conduct set forth in Rule 17j-1.

INVESTMENT ADVISOR

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 firm,
through its predecessor firms, has been in business for over a century and
has been managing investments since 1913. Morgan, also a wholly owned

29
<PAGE>

subsidiary of J.P. Morgan which is a bank holding company organized under the
laws of the State of Delaware.

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 approximately 415
research analysts, capital market researchers, portfolio managers and traders
and one of the largest research staffs in the money management industry. The
Advisor has investment management divisions located in New York, London, Tokyo,
Frankfurt and Singapore to cover companies, industries and countries on site.
The conclusions of the equity analysts' fundamental research is quantified into
a set of projected returns for individual companies through the use of a
dividend discount model. These returns are projected for 2 to 5 years to enable
analysts to take a longer term view. These returns, or normalized earnings, are
used to establish relative values among stocks in each industrial sector. These
values may not be the same as the markets' current valuations of these
companies. This provides the basis for ranking the attractiveness of the
companies in an industry according to five distinct quintiles or rankings. This
ranking is one of the factors considered in determining the stocks purchased and
sold in each sector. The Advisor's fixed income investment process is based on
analysis of real rates, sector diversification and quantitative and credit
analysis.

The Portfolio is managed by employees 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 with the exception of certain other
investment management affiliates of J.P. Morgan or broker affiliates of J.P.
Morgan which transactions of behalf of the Fund.

As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory 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 0.55% of the
Portfolio's average daily net assets.

For the fiscal years ended June 30, 1998, 1999 and 2000 the advisory
fees paid by the Portfolio to Morgan, the Portfolio's Advisor prior to October
28, 1998, and to JPMIM, the Portfolio's current Advisor, after October 28, 1998,
were $2,359,972, $3,834,721 and $5,129,204, respectively.

See "Expenses" below for applicable expense limitations.

30
<PAGE>

DISTRIBUTOR

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

The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at least
annually thereafter (i) by a "vote of a majority of the outstanding securities"
of the Fund (as defined in the 1940 Act and below 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, Members of the Advisory Board and Officers"). The
Distribution Agreement will terminate automatically if assigned by either party.
The Distribution Agreement is also terminable with respect to the Fund at any
time without penalty by a vote of a majority of the Trustees of the Trust, a
vote of a majority of the Trustees who are not "interested persons" of the
Trust, or by a "vote of a majority of the outstanding voting securities of the
Fund", that is (i) 67% or more of the Fund's outstanding voting securities
present at a meeting if the holders of more than 50% of the Fund's outstanding
voting securities are present or represented by proxy, or (ii) more than 50% of
the Fund's outstanding voting securities, whichever is less. FDI is a wholly
owned indirect subsidiary of Boston Institutional Group, Inc. The principal
offices of FDI are located at 60 State Street, Suite 1300, Boston, Massachusetts
02109.

CO-ADMINISTRATOR

Under 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.

The table below sets forth the administrative fees paid to FDI for the
fiscal periods indicated. See "Expenses" below for applicable expense
limitations.

31
<PAGE>

PORTFOLIO -- For the period August 1, 1996 through June 30, 1997: $6,791. For
the fiscal years ended June 30, 1998, 1999 and 2000: $8,817, $9,900 and 8,873,
respectively.

See "Expenses" below for applicable expense limitations.

SERVICES AGENT

The table below sets forth the fees paid to Morgan as Services Agent.
See "Expenses" below for applicable expense limitations.

PORTFOLIO -- For the fiscal years ended June 30, 1998, 1999 and 2000:
$127,584, $186,594 and $238,077, respectively.

CUSTODIAN AND TRANSFER AGENT

SHAREHOLDER SERVICING

32
<PAGE>

Effective June 12, 2000, under the Shareholder Servicing Agreement, the
Fund has agreed to pay Morgan a fee for these services at the annual rate of
0.05% of the average daily net asset value of Fund shares owned by or for
shareholders.

The Fund is sold to or through service organizations who are customers
of J.P. Morgan ("service organizations"), 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 "Service
Organizations" below. Organizations that provide recordkeeping or other services
to certain employee benefit or retirement plans that include the Fund as an
investment alternative may also be paid a fee.

SERVICE ORGANIZATIONS

On June 12, 2000, the Trust, on behalf of the Fund, has approved 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.

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 advisors 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 advisors
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 June 12, 2000.
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

33
<PAGE>

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.

DISTRIBUTION PLAN

Rule 12b-1 (the "Rule") under the 1940 Act provides, among other
things, that an investment company may bear expenses of distributing its shares
only pursuant to a plan adopted in accordance with the Rule. On June 12, 2000,
the Trustees approved such a plan (the "Distribution Plan") with respect to the
Fund pursuant to which the Fund pays for distributing its shares at an annual
rate not to exceed 0.25% of the value of the average daily net assets of the
Fund. Under the Distribution Plan, the Fund may make payments to certain
financial institutions, securities dealers, and other industry professionals
that have entered into written agreements with the Fund in respect of these
services. The amounts to be paid to such institutions is based on the daily
value of shares owned by their clients. The fees payable under the Distribution
Plan for advertising, marketing and distributing are payable without regard to
actual expenses incurred. The Trustees believe that there is a reasonable
likelihood that the Distribution Plan will benefit the Fund and its
shareholders.

Quarterly reports of the amounts expended under the Distribution Plan,
and the purposes, for which such expenditures were incurred, will be made to the
Trustees for their review. In addition, the Distribution Plan provides that it
may not be amended to increase materially the costs which holders of the Fund's
shares may bear for distribution without approval of such shareholders and that
all material amendments of the Distribution Plan must be approved by the
Trustees, and by the Trustees who are neither "interested persons" (as defined
in the 1940 Act) of the Trust nor have any direct or indirect financial interest
in the operation of the Distribution Plan or in the related Distribution Plan
agreements, by vote cast in person at a meeting called for the purpose of
considering such amendments. The Distribution Plan and related agreements are
subject to annual approval by such vote of the Trustees cast in person at a
meeting called for the purpose of voting on the Distribution Plan and related
Agreements. The Distribution Plan is terminable at any time by vote of a
majority of the Trustees who are not "interested persons" and who have no direct
or indirect financial interest in the operation of the Distribution Plan or in
the related agreements or by vote of the holders of a majority of shares, as the
case may be. A related Distribution Plan agreement is terminable without
penalty, at any time, by such vote of the Trustees or by vote of the holders of
a majority of the Fund's shares upon not more than 60 days' written notice to
any other party to such agreement. A Distribution Plan agreement will terminate
automatically in the event of its assignment (as defined in the 1940 Act).

INDEPENDENT ACCOUNTANTS

EXPENSES

In addition to the fees payable to Pierpont Group, Inc., JPMIM, Morgan
and FDI under various agreements discussed under "Trustees, Members of Advisory
Board and Officers," "Investment Advisor," "Co-Administrator," "Distributor,"
"Services Agent," "Shareholder Servicing" "Service Organization" and
"Distribution Plan" 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 expenses,
insurance costs, the compensation and expenses of the Trustees, registration
fees under federal securities laws, and extraordinary expenses applicable to the
Fund and 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
registration fees under foreign securities laws, custodian fees and brokerage
expenses.

34
<PAGE>

Morgan has agreed that it will reimburse the Fund until October 31,
2001 as described in the Prospectus to the extent necessary to maintain the
Fund's total operating expenses (which include expenses of the Fund and the
Portfolio) at 1.10% of the Fund's average daily net assets. This limit does not
cover extraordinary expenses.

PORTFOLIO -- For the fiscal years ended June 30, 1998, 1999 and 2000:
$247,773, $183,744 and $238,773, respectively.

FUND--(Includes expense reimbursement allocated from the Portfolio). For
the fiscal years ended June 30, 1998, 1999 and 2000: $507,083, $756,422 and
$924,695, respectively.

PURCHASE OF SHARES

METHOD OF PURCHASE. Investors may open accounts with the Fund only
through Service Organizations. 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
Service Organization. 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 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 service organization 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.

Service Organizations may establish their own minimums and charge the
investor a fee for this service and other services they provide to their
customers. Morgan may pay fees to Service Organizations for services in
connection with fund investments. See "Service Organizations" above.

REDEMPTION OF SHARES

35
<PAGE>

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 by the Service Organization.
Please call your Service Organization for more details on what constitutes
proper form and on availability of redemption proceeds. 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.

EXCHANGE OF SHARES

An investor may exchange shares from the Fund into any other J.P.
Morgan Advisor 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. The Fund
generally intends to pay redemption proceeds in cash, however, since it reserves
the right at its sole discretion to pay redemptions over $250,000 in-kind as a
portfolio of representative stocks rather than in cash, the Fund reserves the
right to deny an exchange request in excess of that amount. See "Redemption of
Shares." Shareholders subject to federal income tax who exchange shares in one
fund for shares in another fund may recognize capital gain or loss for federal
income tax purposes. Shares of the fund to be acquired are purchased for
settlement when the proceeds from redemption become available. 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 his or her Service
Organization. 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 may be held pursuant to the Service Organization's procedures
regarding lost shareholders which could include automatically investing in
additional shares. No interest will accrue on amounts represented by uncashed
distribution or redemption checks.

NET ASSET VALUE

36
<PAGE>

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.

Fixed income securities with a maturity of 60 days or more, are
generally valued using bid quotations generally readily available from and
supplied daily by third party pricing services or brokers of comparable
securities. If such prices are not supplied by the Fund's independent pricing
services, such securities are priced in accordance with fair value procedures
adopted by 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. Fixed income securities with a
remaining maturity of less than 60 days are valued by the amortized cost
method.

PERFORMANCE DATA

37
<PAGE>

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 for periods prior to the establishment of the
J.P. Morgan Diversified Fund will be that of J.P. Morgan Institutional
Diversified Fund, which commenced operations before the J.P. Morgan Diversified
Fund, and will be presented in accordance with applicable SEC staff
interpretations.

Below is set forth historical return information for the J.P. Morgan
Diversified Fund for the period indicated.

J.P. MORGAN DIVERSIFIED FUND (9/30/00): Average annual total return, 1 year:
6.61%; average annual total return, 5 years: 14.91%; average annual total
return, commencement of operations(*) to period end: 13.09%; aggregate total
return, 1 year: 6.61%; aggregate total return, 5 years: 100.32%; aggregate total
return, commencement of operations(*) to period end: 133.05%.

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

*Reflects the performance of the J. P. Morgan Institutional Diversified Fund, a
separate feeder fund investing in the same master portfolio, from September 10,
1993 (the J. P. Morgan Institutional Diversified Fund's inception date) to
December 15, 1993 (the inception date of the J.P. Morgan Diversified Fund). The
performance for such period reflects the deduction of the expenses of the J.P.
Morgan Institutional Fund, which were lower than the expenses of the J.P. Morgan
Fund. Therefore, had the J.P. Morgan Diversified Fund existed during this
period, its returns would have been lower.

38
<PAGE>

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

In connection with fixed income portfolio transactions for the
Portfolio, the Advisor intends to seek best execution on a competitive basis for
both purchases and sales of securities.
In connection with transactions in Equity Securities for the Portfolio,
the overriding objective is to obtain the best execution of purchase and sale
orders.

The Portfolio paid the following approximate brokerage commissions for
the fiscal years ended June 30, 1998, 1999 and 2000: $314,363, $557,819 and
$712,450, respectively.

39
<PAGE>

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.

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

MASSACHUSETTS TRUST

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.

The Trust shall continue without limitation of time subject to the
provisions in the Declaration of Trust

40
<PAGE>

concerning termination by action of the shareholders or by action of the
Trustees upon notice to the shareholders.

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 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 non-assessable. The
rights of redemption and exchange are described in the Prospectus or
elsewhere in this Statement of Additional Information.

41
<PAGE>

such material to all shareholders with reasonable promptness after the entry of
such order and the renewal of such tender.

The Trustees have authorized the issuance and sale to the public of 33
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
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 Portfolio shares or
their redemption at the option of the Trust under certain circumstances, see
"Redemption of Shares."

As of September 30, 2000, the following are the record owners, to the
knowledge of management, of more than 5% of the outstanding shares of the Fund:

J.P. Morgan Investment Management: (33.33%); Fiduicary Audit Account:
Boston Financial Data Services (22.22%); Dividend Reinvest Audit Account: Boston
Financial Data Services (22.22%); Dividend Cash Audit Account: Boston Financial
Data Services (22.22%)

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

42
<PAGE>

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.

TAXES

43
<PAGE>

44
<PAGE>

45
<PAGE>

unless IRS Form W-8BEN (or any successor form) 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

FINANCIAL STATEMENTS

The following financial statements of the Portfolio and the report
thereon of PricewaterhouseCoopers LLP are incorporated herein by reference from
the 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 Institutional Funds
Services at (800) 766-7722.

46
<PAGE>

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
Date of Annual Report; Date Annual Date of Semi-Annual Report; Date
Name of Portfolio Report Filed; and Accession Number Semi-Annual Report Filed; and
Accession Number
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
The Diversified Portfolio 6/30/00; 8/25/00 12/31/99; 3/3/00
0000912057-00-039111 0000912057-00-009560
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

47
<PAGE>

APPENDIX A - DESCRIPTION OF SECURITY RATINGS

STANDARD & POOR'S

CORPORATE AND MUNICIPAL BONDS

AAA - Debt rated AAA has 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 has a very strong capacity to pay interest and repay
principal and differs 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.

A-1
<PAGE>

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

A-2
<PAGE>

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

A-3
<PAGE>

PART C

PART C. OTHER INFORMATION

ITEM 23. EXHIBITS.

(a) Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 25 to the Registration Statement filed on September
26, 1996 (Accession Number 0000912057-96-021281).

(a)1 Amendment No. 5 to Declaration of Trust; Amendment and Fifth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest. Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).

(a)2 Amendment No. 6 to Declaration of Trust; Amendment and Sixth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(b) to Post-Effective Amendment No. 31 to the
Registration Statement on February 28, 1997 (Accession Number
0001016964-97-000041).

(a)3 Amendment No. 7 to Declaration of Trust; Amendment and Seventh Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(c) to Post-Effective Amendment No. 32 to the
Registration Statement on April 15, 1997 (Accession Number
0001016964-97-000053).

(a)4 Amendment No. 8 to Declaration of Trust; Amendment and Eighth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(d) to Post-Effective Amendment No. 40 to the
Registration Statement on October 9, 1997 (Accession Number
0001016964-97-000158).

(a)5 Amendment No. 9 to Declaration of Trust; Amendment and Ninth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest was filed as Exhibit No. 1(e) to Post-Effective Amendment No. 50 to the
Registration Statement on December 29, 1997 (Accession Number
0001041455-97-000014).

(a)6 Amendment No. 10 to Declaration of Trust; Amendment and Tenth Amended
and Restated Establishment and Designation of Series of Shares of Beneficial
Interest and change voting procedures to dollar-based voting was filed as
Exhibit No. (a)6 to Post-Effective Amendment No. 60 to the Registration
Statement on December 31, 1998(Accession Number 0001041455-98-000097).

(a)7 Amendment No. 11 to Declaration of Trust. Incorporated herein by
reference to Post-Effective Amendment No. 63 to the Registration Statement filed
on April 29, 1999 (Accession Number 00001041455-99-000041).

(a)8 Amendment No. 12 to Declaration of Trust. Incorporated herein by
reference to Post-Effective Amendment No. 72 to the Registration Statement filed
on April 3, 2000 (Accession Number 0001041455-00-000084).
<PAGE>

(a) 9 Amendment No.13 to Declaration of Trust, incorporated herein by
reference to Post-Effective Amendment No. 78 to the Registration Statement filed
on August 1, 2000 (Accession Number 0000894088-00-000008).

(a) 10 Amendment No.14 to Declaration of Trust incorporated herein by
reference to Post-Effective Amendment No. 78 to the Registration Statement filed
on August 1, 2000 (Accession Number 0000894088-00-000008).

(b) Restated By-Laws of Registrant. Incorporated herein by reference to
Post-Effective Amendment No. 29 to the Registration Statement filed on December
26, 1996 (Accession Number 0001016964-96-000061).

(b)(1) Amendment to Restated By-laws of Registrant. Incorporated herein by
reference to Post-Effective Amendment No. 71 to the Registration Statement filed
on February 28, 2000 (Accession Number 0001041455-00-000056).

(d) Investment Advisory Contracts. Not applicable.

(e) Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI"). Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).

(f) Bonus or Profit Sharing Contracts. N/A.

(g)1 Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street"). Incorporated herein by reference to Post-Effective
Amendment No. 29 to the Registration Statement filed on December 26, 1996
(Accession Number 0001016964-96-000061).

(g)2 Custodian Contract between Registrant and The Bank of New York.
Incorporated herein by reference to Post-Effective Amendment No. 71 to the
Registration Statement filed on February 28, 2000 (Accession Number
0001041455-00-000056).

(h)1 Co-Administration Agreement between Registrant and FDI. Incorporated
herein by reference to Post-Effective Amendment No. 29 to the Registration
Statement filed on December 26, 1996 (Accession Number 0001016964-96-000061).

(h)2 Restated Shareholder Servicing Agreement between Registrant and Morgan
Guaranty Trust Company of New York ("Morgan Guaranty") filed as Exhibit (h)2 to
Post Effective Amendment No. 54 to the Registration Statement on August 25, 1998
(Accession No. 0001041455-98-000053).

(h)3 Transfer Agency and Service Agreement between Registrant and State
Street. Incorporated herein by reference to Post-Effective Amendment No. 29 to
the Registration Statement filed on December 26,1996 (Accession Number
0001016964-96-000061).

<PAGE>

(h)4 Restated Administrative Services Agreement between Registrant and
Morgan Guaranty. Incorporated herein by reference to Post-Effective Amendment
No. 29 to the Registration Statement filed on December 26, 1996 (Accession
Number 0001016964-96-000061).

(h)5 Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc. Incorporated herein by reference to Post-Effective Amendment No. 29
to the Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).

(h)6 Service Plan with respect to Registrant's Service Money Market Funds.
Incorporated herein by reference to Post-Effective Amendment No. 33 to the
Registration Statement filed on April 30, 1997 (Accession Number
00001016964-97-000059).

(h) 7 Service Plan with respect to Registrant's Small Company Fund Advisor
Series, Small Company Opportunites Fund - Advisor Series, International Equity
Fund - Advisor Series, International Opportunities Fund - Advisor Series, U.S.
Equity Fund - Advisor Series, Diversified Fund - Advisor Series incorporated
herein by reference to Post-Effective Amendment No. 78 to the Registration
Statement filed on August 1, 2000 (Accession Number 0000894088-00-000008).

(h)8 Amended Service Plan with respect to Registrant's Disciplined Equity
-Advisor Series and Direct Prime Money Market Funds. Incorporated herein by
reference to Post-Effective Amendment No. 72 to the Registration Statement filed
on April 3, 2000 (Accession Number 0001041455-00-000084).

(h)9 Amended Service Plan with respect to Registrant's J.P. Morgan Prime
Cash Management Fund. Incorporated herein by reference to Post-Effective
Amendment No.75 to Registration Statement filed on May 17, 2000 (Accession
Number 0001041455-00-000122).

(i) Opinion and consent of Sullivan & Cromwell. Incorporated herein by
reference to Post-Effective Amendment No. 29 to the Registration Statement filed
on December 26, 1996 (Accession Number 0001016964-96-000061).

(j) Consent of independent accountants.

(l) Purchase agreements with respect to Registrant's initial shares.
Incorporated herein by reference to Post-Effective Amendment No. 29 to the
Registration Statement filed on December 26, 1996 (Accession Number
0001016964-96-000061).

(m) Rule 12b-1 Plan incorporated herein by reference to Post-Effective
Amendment No. 78 to the Registration Statement filed on August 1, 2000
(Accession Number 0000894088-00-000008).

(n) Rule 18f-3. (Not applicable).

(p)(1) Code of Ethics for the Master Portfolios and the J.P. Morgan
Institutional Funds. Incorporated herein by reference to Post-Effective
Amendment No. 72 to the Registration Statement filed on April 3, 2000 (Accession
Number 0001041455-00-000084).

<PAGE>

(p)(2) Code of Ethics for J.P. Morgan Investment Management Inc.
Incorporated by Accession number 0001041455-00-000087 filed on April 4, 2000.

(p)(3) Code of Ethics for Funds Distributor, Inc. Incorporated by Accession
number 0001041455-00-000087 filed on April 4, 2000.

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

ITEM 24. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH THE FUND.

Not applicable.

ITEM 25. INDEMNIFICATION.

Reference is made to Section 5.3 of Registrant's Declaration of Trust and
Section 5 of Registrant's Distribution Agreement.

Registrant, its Trustees and officers are insured against certain expenses in
connection with the defense of claims, demands, actions, suits, or
proceedings,and certain liabilities that might be imposed as a result of such
actions, suits or proceedings.

Insofar as indemnification for liabilities arising under the Securities Act of
1933, as amended (the "1933 Act"), may be permitted to directors, trustees,
officers and controlling persons of the Registrant and the principal underwriter
pursuant to the foregoing provisions or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the 1933 Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, trustee, officer, or controlling person of the Registrant
and the principal underwriter in connection with the successful defense of any
action, suite or proceeding) is asserted against the Registrant by such
director, trustee, officer or controlling person or principal underwriter in
connection with the shares being registered, the Registrant will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the 1933 Act and
will be governed by the final adjudication of such issue.

ITEM 26. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.

The business of J.P. Morgan is summarized in the Prospectuses constituting
Part A of this Registration Statement, which is incorporated herein by
reference. The business or other connections of each director and officer of
J. P. Morgan is currently listed in the investment advisor registration on
Form ADV for J.P. Morgan (File No. 801-21011).

ITEM 27. PRINCIPAL UNDERWRITERS.

<PAGE>

(a) Funds Distributor, Inc. (the "Distributor") is the principal
underwriter of the Registrant's shares.

Funds Distributor, Inc. acts as principal underwriter for the following
investment companies other than the Registrant:

American Century California Tax-Free and Municipal Funds
American Century Capital Portfolios, Inc.
American Century Government Income Trust
American Century International Bond Funds
American Century Investment Trust
American Century Municipal Trust
American Century Mutual Funds, Inc.
American Century Premium Reserves, Inc.
American Century Quantitative Equity Funds
American Century Strategic Asset Allocations, Inc.
American Century Target Maturities Trust
American Century Variable Portfolios, Inc.
American Century World Mutual Funds, Inc.
The Brinson Funds
CDC MPT+ Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Global Funds, Inc.
Dresdner RCM Investment Funds Inc.
GMO Trust
J.P. Morgan Institutional Funds
J.P. Morgan Funds
JPM Series Trust
JPM Series Trust II
LaSalle Partners Funds, Inc.
Merrimac Series
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds I
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
National Investors Cash Management Fund, Inc.
Nomura Pacific Basin Fund, Inc.
Orbitex Group of Funds
The Saratoga Advantage Trust
SG Cowen Funds, Inc.
SG Cowen Income + Growth Fund, Inc.
SG Cowen Standby Reserve Fund, Inc.
SG Cowen Standby Tax-Exempt Reserve Fund, Inc.
SG Cowen Series Funds, Inc.
The Skyline Funds
St. Clair Funds, Inc.
TD Waterhouse Family of Funds, Inc.
TD Waterhouse Trust

<PAGE>

Funds Distributor is registered with the Securities and Exchange
Commission as a broker-dealer and is a member of the National Association of
Securities Dealers. Funds Distributor is located at 60 State Street, Suite 1300,
Boston, Massachusetts 02109. Funds Distributor is an indirect wholly-owned
subsidiary of Boston Institutional Group, Inc., a holding company all of whose
outstanding shares are owned by key employees.

(b) The following is a list of the executive officers, directors and
partners of Funds Distributor, Inc.

Positions and offices Positions and offices
Name with underwriter with fund
---- --------------------- ---------------------
<S> <C> <C>
Marie E. Connolly Director, President and Vice President and
Chief Executive Officer Assistant Treasurer

George Rio Director and Executive President and Treasurer
Vice President

Gary S. MacDonald Executive Vice President (none)
And Chief Administrative
Officer

William S. Nichols Executive Vice President (none)

Charles W. Carr Executive Vice President (none)

Joseph F. Tower, III Senior Vice President (none)
and Chief Financial
Officer

Margaret M. Chambers Senior Vice President, Vice President and
General Counsel, Chief Secretary
Compliance Officer,
Secretary and Clerk

William J. Stetter Senior Vice President and (none)
Chief Financial Officer

Christopher J. Kelley Senior Vice President, Vice President and
Deputy General Counsel Assistant Secretary

Mary A. Nelson Senior Vice President Vice President and
Assistant Treasurer

Eric A. Liik Senior Vice President (none)

John Lehning Senior Vice President (none)

John Prosperi Senior Vice President (none)

William J. Nutt Director, Chairman of the (none)
Board
</TABLE>

<PAGE>

ITEM 28. LOCATION OF ACCOUNTS AND RECORDS.

PIERPONT GROUP, INC.: 461 Fifth Avenue, New York, New York 10017 (records
relating to its assisting the Trustees in carrying out their duties in
supervising the Registrant's affairs).

MORGAN GUARANTY TRUST COMPANY OF NEW YORK: 60 Wall Street, New York, New York
10260-0060, 522 Fifth Avenue, New York, New York 10036 or 9 West 57th Street,
New York, New York 10019 (records relating to its functions as shareholder
servicing agent and administrative services agent).

STATE STREET BANK AND TRUST COMPANY: 1776 Heritage Drive, North Quincy,
Massachusetts 02171 and 40 King Street West, Toronto, Ontario, Canada M5H 3Y8
(records relating to its functions as fund accountant, custodian, transfer agent
and dividend disbursing agent).

THE BANK OF NEW YORK: 1 Wall Street New York, New York 10086, (records
relating to its functions as fund accountant and custodian).

FUNDS DISTRIBUTOR, INC.: 60 State Street, Suite 1300, Boston, Massachusetts
02109 (records relating to its functions as distributor and co-administrator).

ITEM 29. MANAGEMENT SERVICES.

Not Applicable.

ITEM 30. UNDERTAKINGS.

(a) If the information called for by Item 5A of Form N-1A is contained in the
latest annual report to shareholders, the Registrant shall furnish each person
to whom a prospectus is delivered with a copy of the Registrant's latest annual
report to shareholders upon request and without charge.

(b) The Registrant undertakes to comply with Section 16(c) of the 1940 Act as
though such provisions of the 1940 Act were applicable to the Registrant, except
that the request referred to in the third full paragraph thereof may only be
made by shareholders who hold in the aggregate at least 10% of the outstanding
shares of the Registrant, regardless of the net asset value of shares held by
such requesting shareholders.

<PAGE>

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant certifies that it meets all of
the requirements for effectiveness of this registration statement under rule
485(b) under the Securities Act and has duly caused this Amendment to the
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City New York, and the State of New York on the 27th day
of October, 2000.

J.P. MORGAN INSTITUTIONAL FUNDS,

By /s/ Christopher Kelley
----------------------------
Christopher Kelley
Vice President and Assistant Secretary

Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed below by the following persons in the capacities
indicated on October 27, 2000.

George Rio*
------------------------------
George Rio
President and Treasurer

Matthew Healey*
-----------------------------
Matthew Healey
Trustee, Chairman and Chief Executive Officer (Principal Executive Officer)

Frederick S. Addy*
------------------------------
Frederick S. Addy
Trustee

William G. Burns*
------------------------------
William G. Burns
Trustee

Arthur C. Eschenlauer*
------------------------------
Arthur C. Eschenlauer
Trustee

Michael P. Mallardi*
------------------------------
Michael P. Mallardi
Trustee

*By /s/ Christopher Kelley
----------------------------
Christopher Kelley
as attorney-in-fact pursuant to a power of attorney.

<PAGE>

EXHIBITS

Ex-99 (j) Consent of Independent Accountants