JP MORGAN FUNDS, 485BPOS, 1999-11-29

JP MORGAN FUNDS
485BPOS, 1999-11-29

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As filed with the Securities and Exchange Commission on November 29, 1999
Registration Nos. 033-54632 and 811-07340

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. 65

and

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
AMENDMENT NO. 66

J.P. MORGAN FUNDS
(formerly The JPM Pierpont 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

Margaret W. Chambers, 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):

[ ] Immediately upon filing pursuant to paragraph (b) [x] on December 1, 1999
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. 65 to the registration statement of
J.P. Morgan Funds (the "Registrant") on Form N-1A is being filed to update the
Registrant's disclosure in the Prospectus and Statement of Additional
Information relating to the J.P. Morgan Tax Exempt Bond Fund, J.P. Morgan
Emerging Markets Debt Fund and J.P. Morgan New York Tax Exempt Bond Fund and
with financial information for the fiscal years ended July 31, 1999 and to
update other information in the registration statement.

DECEMBER 1, 1999

PROSPECTUS

J.P. MORGAN FIXED INCOME FUNDS

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

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

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

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

Distributed by Funds Distributor, Inc.

JPMorgan

<PAGE>

THIS PAGE INTENTIONALLY LEFT BLANK

<PAGE>

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

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

J.P. MORGAN FIXED INCOME FUNDS
J.P. Morgan Short Term Bond Fund ................................... 2
J.P. Morgan Bond Fund .............................................. 4
J.P. Morgan Global Strategic Income Fund ........................... 6
J.P. Morgan Emerging Markets Debt Fund ............................. 8
J.P. Morgan Tax Exempt Bond Fund ................................... 10
J.P. Morgan New York Tax Exempt Bond Fund .......................... 12
J.P. Morgan California Bond Fund ................................... 14

16
Principles and techniques common
to the funds in this prospectus

FIXED INCOME MANAGEMENT APPROACH
J.P. Morgan ........................................................ 16
J.P. Morgan fixed income funds ..................................... 16
The spectrum of fixed income funds ................................. 16
Who may want to invest ............................................. 16
Fixed income investment process .................................... 17

18
Investing in the J.P. Morgan
Fixed Income funds

YOUR INVESTMENT
Investing through a financial professional ......................... 18
Investing through an employer-sponsored retirement plan ............ 18
Investing through an IRA or rollover IRA ........................... 18
Investing directly ................................................. 18
Opening your account ............................................... 18
Adding to your account ............................................. 18
Selling shares ..................................................... 19
Account and transaction policies ................................... 19
Dividends and distributions ........................................ 20
Tax considerations ................................................. 20

21
More about risk and the funds'
business operations

FUND DETAILS
Business structure ................................................. 21
Management and administration ...................................... 21
Risk and reward elements ........................................... 22
Investments ........................................................ 24
Financial highlights ............................................... 26

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

<PAGE>

J.P. MORGAN SHORT TERM BOND FUND
- --------------------------------------------------------------------------------
TICKER SYMBOL: JPSBX

REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN SHORT TERM BOND FUND)

[GRAPHIC OMITTED]
RISK/RETURN SUMMARY

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

[GRAPHIC OMITTED]
GOAL

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

[GRAPHIC OMITTED]
PRINCIPAL STRATEGIES
Investment Approach

The fund invests primarily in fixed income securities, including U.S. government
and agency securities, domestic and foreign corporate bonds, private placements,
asset-backed and mortgage-related securities, and money market instruments, that
it believes have the potential to provide a high total return over time. These
securities may be of any maturity, but under normal market conditions the fund's
duration will range between one and three years, similar to that of the Merrill
Lynch 1-3 Year Treasury Index. For a description of duration, please see fixed
income investment process on page 17.

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

PRINCIPAL RISKS

The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
duration fixed income funds will depend on the success of the investment
process, which is described on page 17.

Although any rise in interest rates is likely to cause a fall in the price of
bonds, the fund's comparatively short duration is designed to help keep its
share price within a relatively narrow range. Because it seeks to minimize risk,
the fund will generally offer less income, and during periods of declining
interest rates, may offer lower total returns than bond funds with longer
durations. Because of the sensitivity of the fund's mortgage related securities
to changes in interest rates, the performance and duration of the fund may be
more volatile than if it did not hold these securities. The fund uses futures
contracts and other derivatives to help manage duration, yield curve exposure,
and credit and spread volatility. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks, since these bonds are more sensitive to economic news
and their issuers have a less secure financial position. To the extent the fund
invests in foreign securities, it could lose money because of foreign government
actions, political instability, currency fluctuation or lack of adequate and
accurate information. The fund may engage in active and frequent trading,
leading to increased portfolio turnover and the possibility of increased capital
gains. See page 20 for further discussion on the tax treatment of capital gains.

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.

<PAGE>

PORTFOLIO MANAGEMENT

The fund's assets are managed by
J.P. Morgan, which currently manages over $326 billion, including more than $52
billion using similar strategies as the fund. The portfolio management team is
led by Connie J. Plaehn, managing director, who has been on the team since the
fund's inception and has been at

J.P. Morgan since 1984, William G. Tennille, vice president, who joined the team
in January of 1994 and has been at J.P. Morgan since 1992 and Augustus Cheh,
vice president, who has been a fixed income portfolio manager and analyst since
joining J.P. Morgan in 1994.

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

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

o The fund does not represent a complete investment program.

2 J.P. MORGAN SHORT TERM BOND FUND

<PAGE>

PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Short Term Bond 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 each of the last 5 calendar years.

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

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

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

20%

10.58
10%
4.94 6.14 6.84
0.11
0%

[ ] J.P. Morgan Short Term Bond Fund

The fund's year-to-date total return as of 9/30/99 is 1.81%. For the period
covered by this year-by-year total return chart, the fund's highest quarterly
return was 3.41% (for the quarter ended 6/30/95); and the lowest quarterly
return was -0.54% (for the quarter ended 3/31/94).

<TABLE>
<CAPTION>
Average annual total return Shows performance over time, for periods ended
December 31, 1998
- -----------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Life of fund(1)
<S> <C> <C> <C>
J.P. Morgan Short Term Bond Fund (after expenses) 6.84 5.67 5.48
- -----------------------------------------------------------------------------------------------------------
Merrill Lynch 1-3 Year Treasury Index (no expenses) 7.00 5.99 5.86
- -----------------------------------------------------------------------------------------------------------
</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)

Management fees 0.25
Marketing (12b-1) fees none
Other expenses 0.77
- --------------------------------------------
Total operating expenses 1.02

Fee waiver and expense
reimbursement(4) 0.42
- --------------------------------------------
Net expenses(4) 0.60
- --------------------------------------------

<PAGE>

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
8/1/99 through 2/28/01 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 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 61 257 497 1,186
- -------------------------------------------------------------

(1) The fund commenced operations on 7/8/93 and returns reflect performance of
the fund from 7/31/93.

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

(3) The fund has a master/feeder structure as described on page 21. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year using the current fees as if they had been in effect during
the past fiscal year, before reimbursement, expressed as a percentage of the
fund's average net assets.

(4) Reflects an agreement dated 7/30/99 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.60% of the fund's
average daily net assets through 2/28/01.

J.P. MORGAN SHORT TERM BOND FUND 3

<PAGE>

J.P. MORGAN BOND FUND
- --------------------------------------------------------------------------------
TICKER SYMBOL: PPBDX

REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN BOND FUND)

[GRAPHIC OMITTED]
RISK/RETURN SUMMARY

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

[GRAPHIC OMITTED]
GOAL

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

[GRAPHIC OMITTED]
PRINCIPAL STRATEGIES
Investment Approach

The fund invests primarily in fixed income securities, including U.S. government
and agency securities, corporate bonds, private placements, asset-backed and
mortgage-backed securities, that it believes have the potential to provide a
high total return over time. These securities may be of any maturity, but under
normal market conditions the management team will keep the fund's duration
within one year of that of the Salomon Smith Barney Broad Investment Grade Bond
Index (currently about five years). For a description of duration, please see
fixed income investment process on page 17.

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

PRINCIPAL RISKS

To the extent that the fund seeks higher returns by investing in
non-investment-grade bonds, often called junk bonds, it takes on additional
risks, since these bonds are more sensitive to economic news and their issuers
have a less secure financial position. The fund may use futures contracts and
other derivatives to help manage duration, yield curve exposure, and credit and
spread volatility. To the extent the fund invests in foreign securities, it
could lose money because of foreign government actions, political instability,
currency fluctuation or lack of adequate and accurate information. The fund may
engage in active and frequent trading, leading to increased portfolio turnover
and the possibility of increased capital gains. See page 20 for further
discussion on the tax treatment of capital gains.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $326
billion, including more than $19 billion using similar strategies as the fund.

The portfolio management team is led by William G. Tennille, vice president, who
has been at J.P. Morgan since 1992, Connie J. Plaehn, managing director, who has
been at J.P. Morgan since 1984, and John Snyder, vice president, who has been at
J.P. Morgan since 1993. Mr. Tennille and Ms. Plaehn have been on the team since
January of 1994. Mr. Snyder has been a fixed income portfolio manager since
joining J.P. Morgan.

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

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

o The fund does not represent a complete investment program.

4 J.P. MORGAN BOND FUND

<PAGE>

PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Bond 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 each of the last 10 calendar years.

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

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

Year-by-year total return (%)Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
20%
18.17
10.23 10.09 13.45

10%
9.87
6.53 9.13 7.36
3.13
0%

(2.97)

(10%)

</TABLE>

[ ] J.P. Morgan Bond Fund

The fund's year-to-date total return as of 9/30/99 is -1.52%. For the period
covered by this year-by-year total return chart, the fund's highest quarterly
return was 6.25% (for the quarter ended 6/30/95); and the lowest quarterly
return was -2.39% (for the quarter ended 3/31/94).

<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998
- ------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Past 5 yrs. Past 10
yrs.(1)
<S> <C> <C> <C>
J.P. Morgan Bond Fund (after expenses) 7.36 6.74 8.36
- ------------------------------------------------------------------------------------------------------------------------
Salomon Smith Barney Broad Investment Grade Bond Index (no expenses) 8.72 7.30 9.31
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>

INVESTOR EXPENSES

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

Annual fund operating expenses(3)(%)
(expenses that are deducted from fund
assets)
Management fees 0.30
Marketing (12b-1) fees none
Other expenses 0.40
- --------------------------------------------
Total annual fund
operating expenses 0.70
- --------------------------------------------

<PAGE>

Expense example

The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.

- -------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 72 224 390 871
- -------------------------------------------------------------

(1) The fund commenced operations on 7/12/93. Returns for the period 3/31/88
through 7/31/93 reflect performance of The Pierpont Bond Fund, the fund's
predecessor, which commenced operations on 3/11/88.

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

(3) The fund has a master/feeder structure as described on page 21. This table
is restated to show the current fee arrangements in effect as of 8/1/98, and
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year, using the current fees as if they had been in effect
during the past fiscal year, before reimbursement, expressed as a percentage
of the fund's average net assets.

J.P. MORGAN BOND FUND 5

<PAGE>

J.P. MORGAN GLOBAL STRATEGIC
INCOME FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN GLOBAL STRATEGIC INCOME FUND)

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

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

[GRAPHIC OMITTED]
PRINCIPAL STRATEGIES
Investment Approach

The fund invests in a wide range of debt securities from the U.S. and other
markets, both developed and emerging. Issuers may include governments,
corporations, financial institutions, and supranational organizations (such as
the World Bank) that the fund believes have the potential to provide a high
total return over time. The fund may invest directly in mortgages and in
mortgage-backed securities. The fund's securities may be of any maturity, but
under normal market conditions its duration will generally be similar to that of
the Lehman Brothers Aggregate Bond Index (currently about four and a half
years). For a description of duration, please see fixed income investment
process on page 17. At least 40% of assets must be invested in securities that,
at the time of purchase, are rated investment-grade (BBB/Baa or better) or are
the unrated equivalent. The balance of assets must be invested in securities
rated B or higher at the time of purchase (or the unrated equivalent), except
that the fund's emerging market component has no minimum quality rating and may
invest without limit in securities that are in the lowest rating categories (or
are the unrated equivalent).

The management team uses the process described on page 17, and also makes
country allocations, based primarily on macro-economic factors. The team uses
the model allocation shown at right as a basis for its sector allocation,
although the actual allocations are adjusted periodically within the indicated
ranges. Within each sector, a dedicated team handles securities selection. The
fund typically hedges its non-dollar investments in developed countries back to
the U.S. dollar.

PRINCIPAL RISKS

The fund's share price and total return will vary in response to changes in
global bond markets, interest rates, and currency exchange rates. How well the
fund's performance compares to that of similar fixed income funds will depend on
the success of the investment process. Because of credit and foreign and
emerging markets investment risks, the fund's performance is likely to be more
volatile than that of most fixed income funds. Foreign and emerging market
investment risks include foreign government actions, political instability,
currency fluctuations and lack of adequate and accurate information. To the
extent that the fund seeks higher returns by investing in non-investment-grade
bonds, often called junk bonds, it takes on additional risks, since these bonds
are more sensitive to economic news and their issuers have a less secure
financial position. The fund's mortgage-backed investments involve the risk of
losses due to default or to prepayments that occur earlier or later than
expected. Some investments, including directly owned mortgages, may be illiquid.
The fund has the potential for long-term total returns that exceed those of more
traditional bond funds, but investors should also be prepared for risks that
exceed those of more traditional bond funds. The fund may engage in frequent
trading, leading to increased portfolio turnover and the possibility of
increased capital gains. See page 20 for further discussion on the tax treatment
of capital gains.

<PAGE>

MODEL SECTOR ALLOCATION

9% international
non-dollar
(range 0-25%)

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

13% public/private
corporates
(range 5-25%)

16% emerging
markets
(range 0-25%)

27% high yield
corporates
(range 17-37%)

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $326
billion, including more than $3 billion using similar strategies as the fund.

The portfolio management team is led by Mark E. Smith, managing director, who
joined J.P. Morgan in 1994 from Allied Signal, Inc. where he managed fixed
income portfolios and oversaw asset allocation activities. He has been on the
team since the fund's inception.

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

Investors considering the fund should understand that:

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

o The fund does not represent a complete investment program.

6 J.P. MORGAN GLOBAL STRATEGIC INCOME FUND

<PAGE>

PERFORMANCE (unaudited)

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

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

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

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

Total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1998

20%

10%

2.31
0%

[ ] J.P. Morgan Global Strategic Income Fund

The fund's year-to-date total return as of 9/30/99 is -0.30%. For the period
covered by this total return chart, the fund's highest quarterly return was
3.04% (for the quarter ended 3/31/98); and the lowest quarterly return was
- -1.58% (for the quarter ended 9/30/98).

<TABLE>
<CAPTION>
Average annual total return Shows performance over time, for periods ended
December 31, 1998
- ----------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan Global Strategic Income Fund (after expenses) 2.31 6.75
- ----------------------------------------------------------------------------------------------
Lehman Brothers Aggregate Bond Index (no expenses) 8.67 10.91
- ----------------------------------------------------------------------------------------------
</TABLE>

INVESTOR EXPENSES

Annual fund operating expenses(3)(%)
(expenses that are deducted from fund
assets)
Management fees 0.45
Marketing (12b-1) fees none
Other expenses 1.44
- ---------------------------------------------
Total operating expenses 1.89
Fee waiver and expense
reimbursement(4) 0.89
- ---------------------------------------------
Net expenses(4) 1.00
- ---------------------------------------------

<PAGE>

Expense example

- -------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 102 454 887 2,094
- -------------------------------------------------------------

(1) The fund commenced operations on 11/5/97. For the period 3/31/97 through
11/30/97, returns reflect performance of the J.P. Morgan Institutional
Global Strategic Income Fund (a separate feeder fund investing in the same
master portfolio). These returns reflect lower operating expenses than those
of the fund. Therefore these returns may be higher than the fund's would
have been had it existed during the same period.

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

(3) The fund has a master/feeder structure as described on page 21. This table
shows the fund's expenses and its share of master portfolio expenses for the
fiscal period 11/5/97 (commencement of operations) through 10/31/98, before
reimbursement, expressed as a percentage of the fund's average net assets.

(4) Reflects an agreement dated 7/30/99 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 1.00% of the fund's
average daily net assets through 2/28/01.

J.P. MORGAN GLOBAL STRATEGIC INCOME FUND 7

<PAGE>

J.P. MORGAN EMERGING
MARKETS DEBT FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN EMERGING MARKETS DEBT FUND)

[GRAPHIC OMITTED]
RISKS/RETURN SUMMARY

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

[GRAPHIC OMITTED]
GOAL

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

[GRAPHIC OMITTED]
PRINCIPAL STRATEGIES
Investment Approach

The fund invests primarily in debt securities that it believes have the
potential to provide a high total return from countries whose economies or bond
markets are less developed. This designation currently includes most countries
in the world except Australia, Canada, Hong Kong, Japan, New Zealand, the U.S.,
the United Kingdom, and most Western European countries. Issuers of portfolio
securities may include foreign governments, corporations, and financial
institutions. These securities may be of any maturity and quality, but under
normal market conditions the fund's duration will generally range between three
and five years, similar to that of the Emerging Markets Bond Index Plus. For a
description of duration, please see fixed income investment process on page 17.
The fund does not have any minimum quality rating and may invest without limit
in securities that are rated in the lowest rating categories (or are the unrated
equivalent).

In addition to the investment process described on page 17, the management team
makes country allocation decisions, based primarily on financial and economic
forecasts and other macro-economic factors.

PRINCIPAL RISKS

The fund's share price and total return will vary in response to changes in
emerging bond markets, interest rates, and currency exchange rates. How well the
fund's performance compares to that of similar fixed income funds will depend on
the success of the investment process.

Because the fund is non-diversified and may invest more than 5% of its assets in
a single issuer and its primary securities combine the risks of emerging markets
and low credit quality, its performance is likely to be more volatile than that
of other fixed income investments. These risks and fund volatility are likely to
be compounded when the fund concentrates its investments in a small number of
countries. Emerging market investment risks include foreign government actions,
political instability, currency fluctuations and lack of adequate and accurate
information. The fund may engage in active and frequent trading, leading to
increased portfolio turnover and the possibility of increased capital gains. See
page 20 for further discussion on the tax treatment of capital gains. Since the
fund seeks higher returns by investing in non-investment-grade bonds, often
called junk bonds, it takes on additional risks, since these bonds are more
sensitive to economic news and their issuers have a less secure financial
position. Investors should be prepared to ride out periods of negative return.

<PAGE>

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $326
billion, including more than $400 million using similar strategies as the fund.

The portfolio management team is led by Michael Cembalest, managing director,
who has been at J.P. Morgan from 1988 to January 1998 and since June 1998, and
Andrew F. Goldberg, vice president, who has been at J.P. Morgan since 1990.
Prior to joining the portfolio management team, Mr. Cembalest was responsible
for sovereign debt analysis in the emerging markets group. From January 1998 to
June 1998, Mr. Cembalest was a portfolio manager at Morgan Stanley. Previously,
Mr. Goldberg oversaw the capital research group's research into fixed income and
derivatives markets.

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

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

o The fund does not represent a complete investment program.

8 J.P. MORGAN EMERGING MARKETS DEBT FUND

<PAGE>

PERFORMANCE (unaudited)

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

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

The table indicates some of the risks by showing how the fund's average annual
returns for the past year and life of fund compare to those of the Emerging
Markets Bond Index Plus. This is an unmanaged index which tracks total return
for external currency-denominated debt (Brady bonds, loans, Eurobonds and U.S.
dollar-denominated market instruments) in emerging markets.

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

Total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1998

10%

(10%)
(15.93)

(20%)

[ ] J.P. Morgan Emerging Market Debt Fund

The fund's year-to-date total return as of 9/30/99 is 10.35%. For the period
covered by this total return chart, the fund's highest quarterly return was
9.50% (for the quarter ended 12/31/98) and the lowest quarterly return was
- -21.73% (for the quarter ended 9/30/98).

<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for period ended
December 31, 1998
- -------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan Emerging Market Debt Fund (after expenses) (15.93) (8.04)
Emerging Markets Bond Index Plus (no expenses) (14.35) (4.08)
- -------------------------------------------------------------------------------------------------
</TABLE>

INVESTOR EXPENSES

Annual fund operating expenses(3)(%)
(expenses that are deducted from fund
assets)
Management fees 0.70
Marketing (12b-1) fees none
Other expenses 1.81
- --------------------------------------------
Total operating expenses 2.51
Fee waiver and expense
reimbursement(4) 1.26
- --------------------------------------------
Net expenses(4) 1.25
- --------------------------------------------

<PAGE>

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
8/1/99 through 11/28/00 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 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 127 661 1,222 2,751
- -------------------------------------------------------------

(1) The fund commenced operations on 4/17/97 and returns reflect performance of
the fund from 4/30/97.

(2) The fund's fiscal year end is 7/31. Prior to this, the fund's fiscal year
end was 12/31.

(3) The fund has a master/feeder structure as described on page 21. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year before reimbursement, expressed as a percentage of average
net assets.

(4) Reflects an agreement dated 7/30/99 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 1.25% of the fund's
average daily net assets through 11/28/00.

J.P. MORGAN EMERGING MARKETS DEBT FUND 9

<PAGE>

J.P. MORGAN TAX EXEMPT
BOND FUND
- --------------------------------------------------------------------------------
TICKER SYMBOL: PPTBX

REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN TAX EXEMPT BOND FUND)

[GRAPHIC OMITTED]
RISK/RETURN SUMMARY

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

[GRAPHIC OMITTED]
GOAL

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

[GRAPHIC OMITTED]
PRINCIPAL STRATEGIES
Investment Approach

The fund invests primarily in high quality municipal securities that it believes
have the potential to provide high current income that is free from federal
personal income tax. While the fund's goal is high tax-exempt income, the fund
may invest to a limited extent in taxable securities, including U.S. government,
government agency, corporate, or taxable municipal securities. The fund's
securities may be of any maturity, but under normal market conditions the fund's
duration will generally range between four and seven years, similar to that of
the Lehman Brothers 1-16 Year Municipal Bond Index (currently 5.4 years). For a
description of duration, please see fixed income investment process on page 17.
At least 90% of assets must be invested in securities that, at the time of
purchase, are rated investment-grade (BBB/Baa or better) or are the unrated
equivalent. No more than 10% of assets may be invested in securities rated B or
BB.

PRINCIPAL RISKS

The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
tax-exempt funds will depend on the success of the investment process, which is
described on page 17.

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

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $326
billion, including more than $1.5 billion using similar strategies as the fund.

The portfolio management team is led by Robert W. Meiselas, vice president, who
joined the team in June of 1997 and has been at J.P. Morgan since 1987, and
Benjamin Thompson, vice president, who joined the team in June of 1999. Prior to
joining J.P. Morgan, Mr. Thompson was a senior fixed income portfolio manager at
Goldman Sachs.

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

Investors considering the fund should understand that:

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

o The fund does not represent a complete investment program.

10 J.P. MORGAN TAX EXEMPT BOND FUND

<PAGE>

PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan Tax Exempt Bond 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 each of the fund's last 10 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 compare to those of the Lehman Brothers
1-16 Year Municipal Bond Index, the fund's current benchmark. Since this index
has not been in existence during all of the past ten years, the table also shows
the performance of the Lehman Quality Intermediate Municipal Bond Index, the
fund's previous benchmark. Both are unmanaged indices that measure municipal
bond market performance.

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

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

20%
10.92 13.40
9.58

10%
8.25 7.47 7.42
6.87 5.47
3.54
0%

(2.70)
(10%)

</TABLE>

[ ] J.P. Morgan Tax Exempt Bond Fund

The fund's year-to-date total return as of 9/30/99 is -0.79%. For the period
covered by this year-by-year total return chart, the fund's highest quarterly
return was 5.09% (for the quarter ended 3/31/95); and the lowest quarterly
return was -3.08% (for the quarter ended 3/31/94).

J.P. Morgan Tax Exempt Bond Fund (after expenses) 5.47 5.30 6.94
Lehman Brothers 1-16 Year Municipal Bond Index (no expenses) 6.25 5.86 N/A
Lehman Quality Intermediate Municipal Bond Index (no expenses) 6.01 5.60 7.55
- --------------------------------------------------------------------------------------------------------------------
</TABLE>

INVESTOR EXPENSES

Annual fund operating expenses(3) (%)
(expenses that are deducted from fund assets)
Management fees 0.30
Marketing (12b-1) fees none
Other expenses 0.38
- --------------------------------------------
Total annual fund
operating expenses 0.68
- --------------------------------------------

<PAGE>

Expense example

The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
unchanged, and all shares sold at the end of each time period. The example is
for comparison only; the fund's actual return and your actual costs may be
higher or lower.

- -------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 69 218 379 847
- -------------------------------------------------------------

(1) The fund commenced operations on 7/12/93. For the period 1/1/88 through
7/31/93 returns reflect performance of The Pierpont Tax Exempt Bond Fund,
the predecessor of the fund, which commenced operations on 10/3/84.

(2) The fund's fiscal year end is 7/31. Prior to this, the fund's fiscal year
end was 8/31.

(3) The fund has a master/feeder structure as described on page 21. This table
shows the fund's expenses and its share of master portfolio expenses for the
past fiscal year expressed as a percentage of average net assets.

J.P. MORGAN TAX EXEMPT BOND FUND 11

<PAGE>

J.P. MORGAN NEW YORK
TAX EXEMPT BOND FUND
- --------------------------------------------------------------------------------
TICKER SYMBOL: PPNYX

REGISTRANT: J.P. MORGAN FUNDS
(J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND)

[GRAPHIC OMITTED]
RISK/RETURN SUMMARY

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

[GRAPHIC OMITTED]
GOAL

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

[GRAPHIC OMITTED]
PRINCIPAL STRATEGIES
Investment Approach

The fund invests primarily in New York municipal securities that it believes
have the potential to provide high current income which is free from federal,
state, and New York City personal income taxes for New York residents. The fund
may also invest to a limited extent in securities of other states or
territories. To the extent that the fund invests in municipal securities of
other states, the income from such securities would be free from federal
personal income taxes for New York residents but would be subject to New York
state and New York City personal income taxes. For non-New York residents, the
income from New York municipal securities is free from federal personal income
taxes only. The fund may also invest in taxable securities. The fund's
securities may be of any maturity, but under normal market conditions the fund's
duration will generally range between three and seven years, similar to that of
the Lehman Brothers 1-16 Year Municipal Bond Index (currently 5.4 years). For a
description of duration, please see fixed income investment process on page 17.
At least 90% of assets must be invested in securities that, at the time of
purchase, are rated investment-grade (BBB/Baa or better) or are the unrated
equivalent. No more than 10% of assets may be invested in securities rated B or
BB.

PRINCIPAL RISKS

The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 17. Because most of the fund's investments will typically
be from issuers in the State of New York, its performance will be affected by
the fiscal and economic health of that state and its municipalities. The fund is
non-diversified and may invest more than 5% of assets in a single issuer, which
could further concentrate its risks. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks, since these bonds are more sensitive to economic news
and their issuers have a less secure financial condition. An investment in the
fund is not a deposit of any bank and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency. You could
lose money if you sell when the fund's share price is lower than when you
invested.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $326
billion, including more than $1.5 billion using similar strategies as the fund.

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

Investors considering the fund should understand that:

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

o The fund does not represent a complete investment program.

12 J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND

<PAGE>

PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan New York Tax Exempt Bond 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 each of the last 4 calendar years.

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

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

Year-by-year total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1995 1996 1997 1998

20%

13.03
10%
7.41
3.96 5.39
0%

[ ] J.P. Morgan New York Tax Exempt Bond Fund

The fund's year-to-date total return as of 9/30/99 is -0.68%. For the period
covered by this year-by-year total return chart, the fund's highest quarterly
return was 4.80% (for the quarter ended 3/31/95) and the lowest quarterly return
was -0.65% (for the quarter ended 3/31/96).

<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for periods ended
December 31, 1998
- --------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan New York Tax Exempt Bond Fund (after expenses) 5.39 6.36
- --------------------------------------------------------------------------------------------------
Lehman Brothers 1-16 Year Municipal Bond Index (no expenses) 6.25 7.07
- --------------------------------------------------------------------------------------------------
</TABLE>

INVESTOR EXPENSES

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

Management fees 0.30
Marketing (12b-1) fees none
Other expenses 0.48
- --------------------------------------------
Total operating expenses 0.78
Fee waiver and expense
reimbursement(4) 0.08
- --------------------------------------------
Net expenses(4) 0.70
- --------------------------------------------

<PAGE>

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
8/1/99 through 11/28/00 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 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 72 241 425 959
- -------------------------------------------------------------

(1) The fund commenced operations on 4/11/94 and returns reflect performance of
the fund from 4/30/94.

(2) The fund's fiscal year end is 7/31. Prior to this, the fund's fiscal year
end was 3/31.

(4) Reflects an agreement dated 7/30/99 by Morgan Guaranty Trust Company of New
York, an affiliate of J.P. Morgan, to reimburse the fund to the extent
expenses (excluding extraordinary expenses) exceed 0.70% of the fund's
average daily net assets through 11/28/00.

J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND 13

<PAGE>

J.P. MORGAN CALIFORNIA
BOND FUND
- --------------------------------------------------------------------------------
REGISTRANT: J.P. MORGAN SERIES TRUST
(J.P. MORGAN CALIFORNIA BOND FUND: SELECT SHARES)

[GRAPHIC OMITTED]
RISK/RETURN SUMMARY

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

[GRAPHIC OMITTED]
GOAL

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

[GRAPHIC OMITTED]
PRINCIPAL STRATEGIES
Investment Approach

The fund invests primarily in California municipal securities that it believes
have the potential to provide high current income which is free from federal and
state personal income taxes for California residents. Because the fund's goal is
high after-tax total return rather than high tax-exempt income, the fund may
invest to a limited extent in securities of other states or territories. To the
extent that the fund invests in municipal securities of other states, the income
from such securities would be free from federal personal income taxes for
California residents but would be subject to California state personal income
taxes. For non-California residents, the income from California municipal
securities is free from federal personal income taxes only. The fund may also
invest in taxable securities. The fund's securities may be of any maturity, but
under normal market conditions the fund's duration will generally range between
three and ten years, similar to that of the Lehman Brothers 1-16 Year Municipal
Bond Index (currently 5.4 years). For a description of duration, please see
fixed income investment process on page 17. At least 90% of assets must be
invested in securities that, at the time of purchase, are rated investment-grade
(BBB/Baa or better) or are the unrated equivalent. No more than 10% of assets
may be invested in securities rated B or BB.

PRINCIPAL RISKS

The fund's share price and total return will vary in response to changes in
interest rates. How well the fund's performance compares to that of similar
fixed income funds will depend on the success of the investment process, which
is described on page 17. Because most of the fund's investments will typically
be from issuers in the State of California, its performance will be affected by
the fiscal and economic health of that state and its municipalities. The fund is
non-diversified and may invest more than 5% of assets in a single issuer, which
could further concentrate its risks. To the extent that the fund seeks higher
returns by investing in non-investment-grade bonds, often called junk bonds, it
takes on additional risks, because these bonds are more sensitive to economic
news and their issuers have a less secure financial condition.

PORTFOLIO MANAGEMENT

The fund's assets are managed by J.P. Morgan, which currently manages over $326
billion, including more than $1.5 billion using similar strategies as the fund.

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

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

o The fund does not represent a complete investment program.

14 J.P. MORGAN CALIFORNIA BOND FUND

<PAGE>

PERFORMANCE (unaudited)

The bar chart and table shown below provide some indication of the risks of
investing in J.P. Morgan California Bond 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 each of the last 2 calendar years.

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

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

Total return (%) Shows changes in returns by calendar year(1,2)
- --------------------------------------------------------------------------------
1997 1998

10%
7.72
5.48
5%

[ ] J.P. Morgan California Bond Fund: Select Shares1 (a separate class of
shares)

The fund's year-to-date total return as of 9/30/99 is -0.46%. For the period
covered by this total return chart, the fund's highest quarterly return was
3.46% (for the quarter ended 9/30/98) and the lowest quarterly return was -0.34%
(for the quarter ended 3/31/97).

<TABLE>
<CAPTION>
Average annual total return (%) Shows performance over time, for period ended
December 31, 1998
- -------------------------------------------------------------------------------------------------------------------------------
Past 1 yr. Life of fund(1)
<S> <C> <C>
J.P. Morgan California Bond Fund: Select Shares (a separate class of shares) (after expenses) 5.48 6.54
- -------------------------------------------------------------------------------------------------------------------------------
Lehman Brothers 1-16 Year Municipal Bond Index (no expenses) 6.25 7.11
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>

INVESTOR EXPENSES

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

Annual fund operating expenses(3)(%)
(expenses that are deducted from fund
assets)
Management fees 0.30
Marketing (12b-1) fees none
Other expenses(4) 0.57
- --------------------------------------------
Total annual fund
operating expenses(4) 0.87
- --------------------------------------------

<PAGE>

Expense example

The example below is intended to help you compare the cost of investing in the
fund with the cost of investing in other mutual funds. The example assumes:
$10,000 initial investment, 5% return each year, total operating expenses
(before reimbursement) unchanged, and all shares sold at the end of each time
period. The example is for comparison only; the fund's actual return and your
actual costs may be higher or lower.

- -------------------------------------------------------------
1 yr. 3 yrs. 5 yrs. 10 yrs.
Your cost($) 89 278 482 1,073
- -------------------------------------------------------------

(1) The fund commenced operations on 4/21/97 and returns reflect performance of
J.P. Morgan California Bond Fund: Institutional Shares (a separate class of
shares) from 12/31/96 through 12/31/97. Performance during this period
reflects operating expenses which are 0.20% of net assets lower than those
of the fund. Accordingly, performance returns for the fund would have been
lower if an investment had been made in the fund during the same time
period.

(2) The fund's fiscal year end is 4/30.

(3) This table shows expenses for the past fiscal year before reimbursement,
expressed as a percentage of average net assets.

(4) After reimbursement, other expenses and total operating expenses are 0.35%
and 0.65%, respectively. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan.

J.P. MORGAN CALIFORNIA BOND FUND 15

<PAGE>

FIXED INCOME MANAGEMENT APPROACH
- --------------------------------------------------------------------------------
J.P. MORGAN

Known for its commitment to proprietary research and its disciplined investment
strategies, J.P. Morgan is the asset management choice for many of the world's
most respected corporations, financial institutions, governments, and
individuals. Today, J.P. Morgan employs over 380 analysts and portfolio managers
around the world and has more than $326 billion in assets under management,
including assets managed by the funds' advisor, J.P. Morgan Investment
Management Inc.

J.P. MORGAN FIXED INCOME FUNDS

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

While each fund follows its own strategy, the funds as a group share a single
investment philosophy. This philosophy, developed by the funds' advisor,
emphasizes the potential for consistently enhancing performance while managing
risk.

THE SPECTRUM OF FIXED INCOME FUNDS

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

o the types of securities they hold

o the tax status of the income they offer

o the relative emphasis on current income versus total return

Potential risk and return

Emerging Markets Debt Fund o

Global Strategic Income Fund o

o New York Tax Exempt Bond Fund*
California Bond Fund*

o Tax Exempt Bond Fund*

o Bond Fund

o Short Term Bond Fund

Risk

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

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

<PAGE>

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

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

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

o want an investment that pays monthly dividends

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

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

The funds are not designed for investors who:

o are investing for aggressive long-term growth

o require stability of principal

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

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

16 FIXED INCOME MANAGEMENT APPROACH

<PAGE>

FIXED INCOME INVESTMENT PROCESS

J.P. Morgan seeks to generate an information advantage through the depth of its
global fixed-income research and the sophistication of its analytical systems.
Using a team-oriented approach, J.P. Morgan seeks to gain insights in a broad
range of distinct areas, and when consistent with a fund's investment approach,
takes positions in many different areas, helping the funds to limit exposure to
concentrated sources of risk.

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

[GRAPHIC OMITTED]
The funds invest across a range of
different types of securities

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

[GRAPHIC OMITTED]
Each fund makes its portfolio decisions
as described earlier in this prospectus

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

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

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

FIXED INCOME MANAGEMENT APPROACH 17

<PAGE>

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

INVESTING THROUGH A FINANCIAL PROFESSIONAL

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

INVESTING THROUGH AN EMPLOYER-SPONSORED RETIREMENT PLAN

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

INVESTING THROUGH AN IRA OR ROLLOVER IRA

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

INVESTING DIRECTLY

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

o Choose a fund (or funds) and determine the amount you are investing. The
minimum amount for initial investments in a fund is $2,500 and for additional
investments $500, although these minimums may be less for some investors. For
more information on minimum investments, call 1-800-521-5411.

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

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

For answers to any questions, please speak with a J.P. Morgan Funds Services
Representative at 1-800-521-5411.

OPENING YOUR ACCOUNT

By wire

o Mail your completed application to the Shareholder Services Agent.

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

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

State Street Bank & Trust Company
Routing number: 011-000-028
Credit: J.P. Morgan Funds
Account number: 9904-226-9

<PAGE>

FFC: your account number, name of registered owner(s) and fund name

By check

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

o Mail the check with your completed application to the Transfer Agent.

By exchange

o Call the Shareholder Services Agent to effect an exchange.

ADDING TO YOUR ACCOUNT

By wire

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

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

By check

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

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

By exchange

o Call the Shareholder Services Agent to effect an exchange.

18 YOUR INVESTMENT

<PAGE>

SELLING SHARES

By phone -- wire payment

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

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

BY PHONE -- CHECK PAYMENT

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

In writing

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

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

o Make sure the letter is signed by an authorized party.

The Shareholder Services Agent may require additional information, such as a
signature guarantee.

o Mail the letter to the Shareholder Services Agent.

By exchange

o Call the Shareholder Services Agent to effect an exchange.

Redemption In Kind

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

<PAGE>

ACCOUNT AND TRANSACTION POLICIES

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

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

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

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

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

Transfer Agent Shareholder Services Agent
State Street Bank and Trust Company J.P. Morgan Funds Services
P.O. Box 8411 522 Fifth Avenue
Boston, MA 02266-8411 New York, NY 10036
Attention: J.P. Morgan Funds Services 1-800-521-5411

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

YOUR INVESTMENT 19

<PAGE>

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

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

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

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

DIVIDENDS AND DISTRIBUTIONS

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

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

<PAGE>

TAX CONSIDERATIONS

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

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

Income dividends from the Exempt from federal, state,
New York Tax Exempt Bond and New York City personal
Fund income taxes for New York
residents only

Income dividends from the Exempt from federal and state
California Bond Fund personal income taxes for
California residents only

Income dividends from the Exempt from federal personal
Tax Exempt Bond Fund income taxes

Income dividends from Ordinary income
all other funds

Short-term capital gains Ordinary income
distributions

Long-term capital gains Capital gains
distributions

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

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

Because long-term capital gains distributions are taxable as capital gains
regardless of how long you have owned your shares, you may want to avoid making
a substantial investment when a fund is about to declare a long-term capital
gains distribution. A portion of the Tax Exempt Bond, New York Tax Exempt Bond
and California Bond funds' returns may be subject to federal, state, or local
tax, or the alternative minimum tax. Every January, each fund issues tax
information on its distributions for the previous year. Any investor for whom a
fund does not have a valid taxpayer identification number will be subject to
backup withholding for taxes. The tax considerations described in this section
do not apply to tax-deferred accounts or other non-taxable entities. Because
each investor's tax circumstances are unique, please consult your tax
professional about your fund investment.

20 YOUR INVESTMENT

<PAGE>

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

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

Each master portfolio accepts investments from other feeder funds, and all the
feeders of a given master portfolio bear the portfolio's expenses in proportion
to their assets. However, each feeder can set its own transaction minimums,
fund-specific expenses and other conditions. This means that one feeder could
offer access to the same master portfolio on more attractive terms, or could
experience better performance, than another feeder. Information about other
feeders is available by calling 1-800-521-5411. Generally, when a master
portfolio seeks a vote, each of its feeder funds will hold a shareholder meeting
and cast its vote proportionately, as instructed by its shareholders. Fund
shareholders are entitled to one full or fractional vote for each dollar or
fraction of a dollar invested.

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

The California Bond Fund is a series of J.P. Morgan Series Trust, a
Massachusetts business trust. Information about other series or classes is
available by calling 1-800-521-5411. In the future, the trustees could create
other series or share classes, which would have different expenses.

MANAGEMENT AND ADMINISTRATION

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

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

<PAGE>

Advisory services Percentage of the master
portfolio's average net assets
Short Term Bond 0.25%
Bond 0.30%
Global Strategic Income 0.45%
Emerging Markets Debt 0.70%
Tax Exempt Bond 0.30%
New York Tax Exempt Bond 0.30%

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

Shareholder services 0.25% of each fund's average
net assets

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

Advisory services 0.30% of the fund's average
net assets

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

Shareholder services 0.25% of the fund's average
net assets

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

YEAR 2000

Fund operations and shareholders could be adversely affected if the computer
systems used by J.P. Morgan, the funds' other service providers and other
entities with computer systems linked to the funds do not properly process and
calculate the date January 1, 2000 and dates thereafter. J.P. Morgan is working
to avoid these problems and to obtain assurances from other service providers
that they are taking similar steps. However, it is not certain that these
actions will be sufficient to prevent these date-related problems from adversely
impacting fund operations and shareholders. In addition, to the extent that
operations of issuers of securities held by the funds are impaired by
date-related problems or prices of securities decline as a result of real or
perceived date-related problems of issuers held by the fund or generally, the
net asset value of the funds will decline. While the funds cannot predict at
this time the degree of impact, it is possible that foreign markets will be less
prepared than those in the U.S.

FUND DETAILS 21

<PAGE>

RISK AND REWARD ELEMENTS

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

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

o Each fund's share o Bonds have generally outperformed money o Under normal circumstances the funds plan to remain
price, yield, and market investments over the long term, fully invested in bonds and other fixed income
total return will with less risk than stocks securities as noted in the table on pages 24-25.
fluctuate in
response to bond o Most bonds will rise in value when o The funds seek to limit risk and enhance total
market movements interest rates fall return or yields through careful management,
sector allocation, individual securities selection,
o The value of most o Mortgage-backed and asset-backed and duration management.
bonds will fall when securities can offer attractive returns
interest rates rise; o During severe market downturns, the funds have the
the longer a bond's option of investing up to 100% of assets in
maturity and the investment-grade short-term securities
lower its credit
quality, the more o J.P. Morgan monitors interest rate trends, as well
its value typically as geographic and demographic information related to
falls mortgage-backed securities and mortgage prepayments

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

o Mortgage-backed and
asset-backed securities
(securities representing
an interest in, or
secured by, a pool of
mortgages or other assets
such as receivables)
could generate capital
losses or periods of low
yields if they are paid
off substantially earlier
or later than anticipated
</TABLE>

<PAGE>

o The default of an o Investment-grade bonds have a lower risk o Each fund maintains its own policies for balancing
issuer would leave a of default credit quality against potential yields and gains in
fund with unpaid light of its investment goals
interest or o Junk bonds offer higher yields and
principal higher potential gains o J.P. Morgan develops its own ratings of unrated
securities and makes a credit quality determination
o Junk bonds (those for unrated securities
rated BB/Ba or
lower) have a higher
risk of default,
tend to be less
liquid, and may be
more difficult to
value

Foreign investments

o A fund could lose o Foreign bonds, which represent a major o Foreign bonds are a primary investment only for the
money because of portion of the world's fixed income Global Strategic Income and Emerging Markets Debt
foreign government securities, offer attractive potential funds and may be a significant investment for the
actions, political performance and opportunities for Short Term Bond and Bond funds; the Tax Exempt Bond,
instability, or lack diversification New York Tax Exempt Bond and California Bond funds
of adequate and are not permitted to invest any assets in foreign
accurate information o Favorable exchange rate movements could bonds
generate gains or reduce losses
o Currency exchange o To the extent that a fund invests in foreign bonds,
rate movements could o Emerging markets can offer higher it may manage the currency exposure of its foreign
reduce gains or returns investments relative to its benchmark, and may hedge
create losses a portion of its foreign currency exposure into the
U.S. dollar from time to time (see also
o Currency and "Derivatives"); these currency management techniques
investment risks may not be available for certain emerging markets
tend to be higher in investments
emerging markets

Management choices

o A fund could o A fund could outperform its benchmark o J.P. Morgan focuses its active management on those
underperform its due to these same choices areas where it believes its commitment to research
benchmark due to its can most enhance returns and manage risks in a
sector, securities consistent way
or duration choices

</TABLE>

22 FUND DETAILS

<PAGE>

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

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

o Derivatives that
involve leverage could
magnify losses

Securities lending

o When a fund lends a o A fund may enhance income through the o J.P. Morgan maintains a list of approved borrowers
security, there is a investment of the collateral received
risk that the loaned from the borrower o The fund receives collateral equal to at least 100%
securities may not be of the current value of securities loaned
returned if the
borrower defaults o The lending agents indemnify a fund against borrower
default
o The collateral will be
subject to the risks o J.P. Morgan's collateral investment guidelines limit
of the securities in the quality and duration of collateral investment to
which it is invested minimize losses

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

<PAGE>

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

Short-term trading

o Increased trading o A fund could realize gains in a short o The funds may use short-term trading to take
would raise a fund's period of time advantage of attractive or unexpected opportunities
transaction costs or to meet demands generated by shareholder activity.
o A fund could protect against losses if a The turnover rate for each fund for its most recent
o Increased short-term bond is overvalued and its value later fiscal year end is as follows: Short Term Bond
capital gains falls (381%), Bond (115%), Global Strategic Income (142%),
distributions would Emerging Markets Debt, for the seven months ended
raise shareholders' 7/31/99 (555%), Tax Exempt Bond, for the eleven
income tax liability months ended 7/31/99 (29%), New York Tax Exempt Bond,
Potential rewards for the four months ended 7/31/99 (8%), and
California Bond (40%)

</TABLE>

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

FUND DETAILS 23

<PAGE>

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

- --------------------------------------------------------------------------------
Asset-backed securities Interests in a stream of payments from specific assets,
such as auto or credit card receivables.
- --------------------------------------------------------------------------------
Bank obligations Negotiable certificates of deposit, time deposits and bankers'
acceptances of domestic and foreign issuers.
- --------------------------------------------------------------------------------
Commercial paper Unsecured short term debt issued by domestic and foreign banks
or corporations. These securities are usually discounted and are rated by S&P or
Moody's.
- --------------------------------------------------------------------------------
Convertible securities Domestic and foreign debt securities that can be
converted into equity securities at a future time and price.
- --------------------------------------------------------------------------------
Corporate bonds Debt securities of domestic and foreign industrial, utility,
banking, and other financial institutions.
- --------------------------------------------------------------------------------
Mortgages (directly held) Domestic debt instrument which gives the lender a lien
on property as security for the loan payment.
- --------------------------------------------------------------------------------
Mortgage-backed securities Domestic and foreign securities (such as Ginnie Maes,
Freddie Macs, Fannie Maes) which represent interests in pools of mortgages,
whereby the principal and interest paid every month is passed through to the
holder of the securities.
- --------------------------------------------------------------------------------
Mortgage dollar rolls The purchase of domestic or foreign 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 domestic or foreign
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 domestic or foreign party agrees to
exchange periodic payments with a counterparty. Segregated accounts are used to
offset leverage risk.
- --------------------------------------------------------------------------------
Synthetic variable rate instruments Debt instruments whereby the issuer agrees
to exchange one security for another in order to change the maturity or quality
of a security in the fund.
- --------------------------------------------------------------------------------
Tax exempt municipal securities Securities, generally issued as general
obligation and revenue bonds, whose interest is exempt from federal taxation and
state and/or local taxes in the state where the securities were issued.
- --------------------------------------------------------------------------------
U.S. government securities Debt instruments (Treasury bills, notes, and bonds)
guaranteed by the U.S. government for the timely payment of principal and
interest.
- --------------------------------------------------------------------------------
Zero coupon, pay-in-kind, and deferred payment securities Domestic and foreign
securities offering non-cash or delayed-cash payment. Their prices are typically
more volatile than those of some other debt instruments and involve certain
special tax considerations.
- --------------------------------------------------------------------------------

<PAGE>

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

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

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

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

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

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

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

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

FUND DETAILS 24

<PAGE>

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

<TABLE>
<CAPTION>
Short Term Global Strategic Emerging Markets
Tax Exempt
Principal Types of Risk Bond Bond Income Debt
Bond
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
<C>
credit, interest rate, market, prepayment O O O X
X
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, liquidity, political O(1) O(1) O O X
Domestic

Only
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market,
political O(1) O(1) X X
O
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market,
political, valuation O(1) O(1) X O
- --
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market,
political, valuation O(1) O(1) O O
- --
- ---------------------------------------------------------------------------------------------------------------------------
credit, environmental, extension, interest rate,
liquidity, market, natural event, political,
prepayment, valuation O O O +
+
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, extension, interest rate, leverage,
market, political, prepayment O(1) O(1) O X
- --
- ---------------------------------------------------------------------------------------------------------------------------
currency, extension, interest rate, leverage,
liquidity, market, political, prepayment O(1)33 1/3% O(1)33 1/3% O 33 1/3% --
- --
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, extension, interest rate,
liquidity, political, prepayment O(1) O(1) O O
- --
- ---------------------------------------------------------------------------------------------------------------------------
credit, interest rate, liquidity, market, valuation O O O O
O
- ---------------------------------------------------------------------------------------------------------------------------
credit, interest rate, liquidity, market,
natural event, prepayment, valuation O O O --
- --
- ---------------------------------------------------------------------------------------------------------------------------
credit O O O O
X
- ---------------------------------------------------------------------------------------------------------------------------
credit O(3) O(3) O(3) O(3)
X(3)
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, interest rate, market, political O(1) O(1) O O
- --
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, interest rate, leverage,
market, political O(1) O(1) O O
O
- ---------------------------------------------------------------------------------------------------------------------------
credit, interest rate, leverage, liquidity, market -- -- -- --
O
- ---------------------------------------------------------------------------------------------------------------------------
credit, interest rate, market, natural event,
political X X -- --
O(2)
- ---------------------------------------------------------------------------------------------------------------------------
interest rate O O O O
O
- ---------------------------------------------------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market,
political, valuation O(1) O(1) O O
O
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
New York Tax California
Principal Types of Risk Exempt Bond Bond
- ----------------------------------------------------------------------------------
<S> <C> <C>
credit, interest rate, market, prepayment X X
- ----------------------------------------------------------------------------------
credit, currency, liquidity, political X Domestic X Domestic
Only Only
- ----------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market,
political O O
- ----------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market,
political, valuation -- --
- ----------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market,
political, valuation -- --
- ----------------------------------------------------------------------------------
credit, environmental, extension, interest rate,
liquidity, market, natural event, political,
prepayment, valuation + +
- ----------------------------------------------------------------------------------
credit, currency, extension, interest rate, leverage,
market, political, prepayment -- --
- ----------------------------------------------------------------------------------
currency, extension, interest rate, leverage,
liquidity, market, political, prepayment -- --
- ----------------------------------------------------------------------------------
credit, currency, extension, interest rate,
liquidity, political, prepayment -- --
- ----------------------------------------------------------------------------------
credit, interest rate, liquidity, market, valuation O O
- ----------------------------------------------------------------------------------
credit, interest rate, liquidity, market,
natural event, prepayment, valuation -- --
- ----------------------------------------------------------------------------------
credit X X
- ----------------------------------------------------------------------------------
credit X(3) X(3)
- ----------------------------------------------------------------------------------
credit, currency, interest rate, market, political -- --
- ----------------------------------------------------------------------------------
credit, currency, interest rate, leverage,
market, political -- --
- ----------------------------------------------------------------------------------
credit, interest rate, leverage, liquidity, market O O
- ----------------------------------------------------------------------------------
credit, interest rate, market, natural event,
political O(2) O(2)
- ----------------------------------------------------------------------------------
interest rate O 0
- ----------------------------------------------------------------------------------
credit, currency, interest rate, liquidity, market,
political, valuation O O
- ----------------------------------------------------------------------------------
</TABLE>

<PAGE>

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.

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

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

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

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

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

(2) At least 65% of the California Bond Fund's assets must be in California
municipal securities, at least 65% of the New York Tax Exempt Bond Fund's
assets must be in New York municipal securities, and at least 80% of the New
York Tax Exempt and Tax Exempt Bond Funds' assets must be in tax exempt
securities.

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

FUND DETAILS 25

<PAGE>

FINANCIAL HIGHLIGHTS

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

J.P. MORGAN SHORT TERM BOND FUND

Per-share data For periods ended
- ------------------------------------------------------------------------------------------------------------------------------------
10/31/94 10/31/95 10/31/96 10/31/97 10/31/98 4/30/99

(unaudited)
<S> <C> <C> <C> <C>
<C> <C>
Net asset value, beginning of period ($) 9.99 9.60 9.84 9.86 9.85 9.98
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.45 0.57 0.53 0.58 0.56 0.26
Net realized and unrealized gain (loss)
on investment ($) (0.39) 0.24 0.02 (0.01) 0.13 (0.09)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.06 0.81 0.55 0.57 0.69 0.17
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.45) (0.57) (0.53) (0.58) (0.56) (0.26)
Net realized gain ($) -- -- -- -- -- (0.05)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.45) (0.57) (0.53) (0.58) (0.56) (0.31)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.60 9.84 9.86 9.85 9.98 9.84
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 0.61 8.70 5.77 5.98 7.24 1.69(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 6,008 10,330 8,207 14,519 30,984 39,350
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.69 0.67 0.62 0.50 0.50 0.54(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.49 5.88 5.42 5.94 5.66 5.55(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.05 1.48 1.61 1.38 0.98 0.81(2)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Not annualized.
(2) Annualized.

26 FUND DETAILS

<PAGE>

J.P. MORGAN BOND FUND

<TABLE>
<CAPTION>
Per-share data For periods ended
- ------------------------------------------------------------------------------------------------------------------------------------
10/31/94 10/31/95 10/31/96 10/31/97 10/31/98 4/30/99

(unaudited)
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 11.00 9.64 10.41 10.30 10.42 10.59
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.55 0.64 0.62 0.66 0.65 0.30
Net realized and unrealized gain (loss)
on investment ($) (0.91) 0.77 (0.11) 0.18 0.17 (0.22)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) (0.36) 1.41 0.51 0.84 0.82 0.08
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.55) (0.64) (0.62) (0.65) (0.65) (0.30)
Net realized gain ($) (0.45) .-- .-- (0.07) .-- (0.11)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (1.00) (0.64) (0.62) (0.72) (0.65) (0.41)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.64 10.41 10.30 10.42 10.59 10.26
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) (3.50) 15.10 5.13 8.58 8.06 0.80(1)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 112,049 143,004 149,207 169,233 216,285 206,197
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.78 0.69 0.66 0.68 0.66 0.69(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 5.43 6.40 6.08 6.41 6.14 5.79(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.79 0.69 0.66 0.68 0.66 0.69(2)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Not annualized.
(2) Annualized.

<PAGE>

J.P. MORGAN GLOBAL STRATEGIC INCOME FUND

Per-share data For periods ended
- --------------------------------------------------------------------------------
10/31/98(1) 4/30/99
(unaudited)
Net asset value, beginning of period ($) 10.21 9.77
- --------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.70 0.31
Net realized and unrealized loss
on investment ($) (0.49) 0.10
- --------------------------------------------------------------------------------
Total from investment operations ($) 0.21 0.41
- --------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.63) (0.28)
Return of capital (0.02) --
- --------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.65) (0.28)
- --------------------------------------------------------------------------------
Net asset value, end of period ($) 9.77 9.90
- --------------------------------------------------------------------------------
Ratios and supplemental data
- --------------------------------------------------------------------------------
Total return (%) 1.97(2) 4.23(2)
- --------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 10,166 10,153
- --------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.00(3) 1.00(3)
- --------------------------------------------------------------------------------
Net investment income (%) 6.24(3) 6.27(3)
- --------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.89(3) 1.57(3)
- --------------------------------------------------------------------------------

(1) The fund commenced operations on 11/5/97.
(2) Not annualized.
(3) Annualized.

FUND DETAILS 27

<PAGE>

J.P. MORGAN EMERGING MARKETS DEBT FUND

For the seven
months
Per-share data For periods ended ended
- ----------------------------------------------------------------------------------------------------
12/31/97(1) 12/31/98 7/31/99
<S> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 9.76 7.30
- ----------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.58 1.15 0.49
Net realized and unrealized loss
on investment ($) (0.05) (2.64) 0.02
- ----------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.53 (1.49) 0.51
- ----------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.58) (0.81) (0.52)
Excess of net investment income ($) (0.02) (0.16) --
Net realized gain ($) (0.17) -- --
- ----------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.77) (0.97) (0.52)
- ----------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 9.76 7.30 7.29
- ----------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ----------------------------------------------------------------------------------------------------
Total return (%) 5.47(2) (15.93) 7.272
- ----------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 11,978 19,313 26,216
- ----------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 1.25(3) 1.25 1.25(3)
- ----------------------------------------------------------------------------------------------------
Net investment income (%) 9.71(3) 10.05 12.28(3)
- ----------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 2.40(3) 2.09 2.51(3)
- ----------------------------------------------------------------------------------------------------
</TABLE>
(1) The fund commenced operations on 4/17/97.
(2) Not annualized.
(3) Annualized.

<PAGE>

J.P. MORGAN TAX EXEMPT BOND FUND

For the 11
months
Per-share data For periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
8/31/94 8/31/95 8/31/96 8/31/97 8/31/98 7/31/99
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 12.04 11.45 11.73 11.63 11.85 12.15
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.51 0.55 0.55 0.55 0.54 0.46
Net realized and unrealized gain (loss)
on investment ($) (0.35) 0.29 (0.08) 0.24 0.30 (0.36)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.16 0.84 0.47 0.79 0.84 0.10
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.51) (0.55) (0.55) (0.55) (0.54) 0.46
Net realized gain ($) (0.24) (0.01) (0.02) (0.02) (0.00)(1) (0.02)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.75) (0.56) (0.57) (0.57) (0.54) (0.48)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 11.45 11.73 11.63 11.85 12.15 11.77
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 1.35 7.63 4.01 6.95 7.21 0.83(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 392,460 352,005 369,987 401,007 439,225 431,685
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.71 0.71 0.64 0.64 0.64 0.68(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.39 4.87 4.67 4.67 4.44 4.21(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) Less than $0.01 per share.
(2) Not annualized.
(3) Annualized.

28 FUND DETAILS

<PAGE>

J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
<TABLE>
<CAPTION>

For the four
months
Per-share data For periods ended ended
- ------------------------------------------------------------------------------------------------------------------------------------
3/31/95(1) 3/31/96 3/31/97 3/31/98 3/31/99 7/31/99
<S> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 10.11 10.34 10.28 10.62 10.66
- ------------------------------------------------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.40 0.46 0.46 0.46 0.42 0.13
Net realized and unrealized gain (loss)
on investment ($) 0.11 0.26 (0.03) 0.40 0.14 (0.28)
- ------------------------------------------------------------------------------------------------------------------------------------
Total from investment operations ($) 0.51 0.72 0.43 0.86 0.56 (0.15)
- ------------------------------------------------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.40) (0.46) (0.46) (0.46) (0.42) (0.13)
Net realized gain ($) -- (0.03) (0.03) (0.06) (0.10) (0.03)
- ------------------------------------------------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.40) (0.49) (0.49) (0.52) (0.52) (0.16)
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.11 10.34 10.28 10.62 10.66 10.35
- ------------------------------------------------------------------------------------------------------------------------------------
Ratios and supplemental data
- ------------------------------------------------------------------------------------------------------------------------------------
Total return (%) 5.26(2) 7.16 4.19 8.49 5.39 (1.41)(2)
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 38,137 50,523 56,198 85,161 119,152 115,690
- ------------------------------------------------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.75(3) 0.75 0.75 0.71 0.70 0.70(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Net investment income (%) 4.31(3) 4.43 4.44 4.33 3.95 3.82(3)
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 0.97(3) 0.79 0.81 0.77 0.74 0.78(3)
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1) The fund commenced operations on 4/11/94.
(2) Not annualized.
(3) Annualized.

<PAGE>

J.P. MORGAN CALIFORNIA BOND FUND

<TABLE>
<CAPTION>
Per-share data For fiscal periods ended April 30
- -----------------------------------------------------------------------------------------------
1997(1) 1998 1999
<S> <C> <C> <C>
Net asset value, beginning of period ($) 10.00 10.04 10.35
- -----------------------------------------------------------------------------------------------
Income from investment operations:
Net investment income ($) 0.01 0.41 0.40
Net realized and unrealized gain (loss)
on investment ($) 0.04 0.31 0.26
- -----------------------------------------------------------------------------------------------
Total from investment operations ($) 0.05 0.72 0.66
- -----------------------------------------------------------------------------------------------
Distributions to shareholders from:
Net investment income ($) (0.01) (0.41) (0.40)
Net realized gain ($) -- -- (0.04)
- -----------------------------------------------------------------------------------------------
Total distributions to shareholders ($) (0.01) (0.41) (0.44)
- -----------------------------------------------------------------------------------------------
Net asset value, end of period ($) 10.04 10.35 10.57
- -----------------------------------------------------------------------------------------------
Ratios and supplemental data
- -----------------------------------------------------------------------------------------------
Total return (%) 0.51(2) 7.20 6.43
- -----------------------------------------------------------------------------------------------
Net assets, end of period ($ thousands) 302 5,811 17,391
- -----------------------------------------------------------------------------------------------
Ratio to average net assets:
Net expenses (%) 0.62(3) 0.65 0.65
- -----------------------------------------------------------------------------------------------
Net investment income (%) 4.52(3) 3.94 3.76
- -----------------------------------------------------------------------------------------------
Expenses without reimbursement (%) 1.17(3) 1.00 0.87
- -----------------------------------------------------------------------------------------------
Portfolio turnover (%) 40 44 40
- -----------------------------------------------------------------------------------------------
</TABLE>

(1) The fund commenced operations on 4/21/97.
(2) Not annualized.
(3) Annualized.

FUND DETAILS 29

<PAGE>

FOR MORE INFORMATION

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

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

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

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

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

Telephone: 1-800-521-5411

Hearing impaired: 1-888-468-4015

Email: [email protected]

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

J.P. Morgan Short Term Bond Fund ...................... 811-07340 and 033-54632
J.P. Morgan Bond Fund ................................. 811-07340 and 033-54632
J.P. Morgan Global Strategic Income Fund .............. 811-07340 and 033-54632
J.P. Morgan Emerging Markets Debt Fund ................ 811-07340 and 033-54632
J.P. Morgan Tax Exempt Bond Fund ...................... 811-07340 and 033-54632
J.P. Morgan New York Tax Exempt Bond Fund ............. 811-07340 and 033-54632
J.P. Morgan California Bond Fund ...................... 811-07795 and 333-11125

J.P. MORGAN FUNDS AND THE MORGAN TRADITION
The J.P. Morgan 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 Funds offer a broad array of distinctive opportunities for mutual fund
investors.

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

Advisor Distributor
J.P. Morgan Investment Management Inc. Funds Distributor, Inc.
522 Fifth Avenue 60 State Street
New York, NY 10036 Boston, MA 02109
1-800-521-5411 1-800-221-7930

IM0689

<PAGE>

J.P. MORGAN FUNDS

J.P. MORGAN TAX EXEMPT BOND FUND

STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED DECEMBER 1, 1999, AS SUPPLEMENTED FROM TIME TO TIME.
ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE
THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORT RELATING TO THE FUND
DATED JULY 31, 1999. 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 FUNDS (800)
221-7930.

<PAGE>

Table of Contents

Page

General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 22
Trustees and Officers . . . . . . . . . . . . 24
Investment Advisor . . . . . . . . . . . . . . 28
Distributor . . . . . . . . . . . . . . . . . 30
Co-Administrator . . . . . . . . . . . . . . . 30
Services Agent . . . . . . . . . . . . . . . . 31
Custodian and Transfer Agent . . . . . . . . . 32
Shareholder Servicing . . . . . . . . . . . . 32
Financial Professionals . . . . . . . . . . . . 33
Independent Accountants . . . . . . . . . . . 34
Expenses . . . . . . . . . . . . . . . . . . . 34
Purchase of Shares . . . . . . . . . . . . . . 34
Redemption of Shares . . . . . . . . . . . . . 35
Exchange of Shares . . . . . . . . . . . . . . 36
Dividends and Distributions . . . . . . . . . 36
Net Asset Value . . . . . . . . . . . . . . . 36
Performance Data . . . . . . . . . . . . . . . 37
Portfolio Transactions . . . . . . . . . . . . 39
Massachusetts Trust . . . . . . . . . . . . . 40
Description of Shares . . . . . . . . . . . . 41
Special Information Concerning Investment
Structure . . . . . . . . . . . . . . . . . 43
Taxes . . . . . . . . . . . . . . . . . . . . 44
Additional Information . . . . . . . . . . . 46
Financial Statements . . . . . . . . . . . . . 48
Appendix A - Description of Securities
Ratings . . . . . . . . . . . . . . . . . . . A-1

<PAGE>

GENERAL

This Statement of Additional Information relates only to the J.P. Morgan
Tax Exempt Bond Fund (the "Fund"). The Fund is a series of shares of beneficial
interest of the J.P. Morgan Funds, an open-end management investment company
formed as a Massachusetts business trust (the "Trust"). In addition to the Fund,
the Trust consists of other series representing separate investment funds (each
a "J.P. Morgan Fund"). The other J.P. Morgan 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 Tax Exempt Bond Portfolio(the
"Portfolio"), a corresponding diversified open-end management investment company
having the same investment objective as the Fund. The Fund invests in the
Portfolio through a two-tier master-feeder investment fund structure. See
"Special Information Concerning Investment Structure."

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

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

INVESTMENT OBJECTIVE AND POLICIES

The following discussion supplements the information regarding the
Fund's investment objective and the policies to be employed to achieve this
objective by the Portfolio as set forth above and in the Prospectus. The
investment objective of the Fund and the investment objective of the Portfolio
are identical. 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 Fund is designed for investors who seek tax exempt yields greater
than those generally available from a portfolio of short term tax exempt
obligations and who are willing to incur the greater price fluctuation of
longer-term instruments. Additionally, the Fund is designed to be an economical
and convenient means of making substantial investments in debt obligations that
are exempt from federal income tax. The Fund's investment objective is to
provide a high level of current income exempt from federal income tax consistent
with moderate risk of capital. See "Taxes." The Fund attempts to achieve its
investment objective by investing all of its investable assets in The Tax Exempt
Bond Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund.

The Fund attempts to achieve its investment objective by investing
primarily in securities of states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities, the
interest of which is exempt from federal income tax in the opinion of bond
counsel for the issuer, but it may invest up to 20% of its total assets in
taxable obligations. During normal market conditions, the Fund will invest at
least 80% of its net assets in tax exempt obligations. Interest on these
securities may be subject to state and local taxes. For more detailed
information regarding tax matters, including the applicability of the
alternative minimum tax, see "Taxes". The Fund attempts to invest its assets in
tax exempt municipal securities; however, under certain circumstances the Fund
is permitted to invest up to 20% of the value of its total assets in securities,
the interest income on which may be subject to federal, state and local income
taxes. The Fund will invest in taxable securities only if there are no tax
exempt securities available for purchase or if the expected return from an
investment in taxable securities exceeds the expected return on available tax
exempt securities. In abnormal market conditions, if, in the judgment of the
Advisor, tax exempt securities satisfying the Fund's investment objective may
not be purchased, the Fund may, for defensive purposes only, temporarily invest
more than 20% of its net assets in debt securities the interest on which is
subject to federal, state and local income taxes. The taxable investments
permitted for the Fund include obligations of the U.S. Government and its
agencies and instrumentalities, bank obligations, commercial paper and
repurchase agreements and other debt securities which meet the Fund's quality
requirements. See "Taxes". The Fund seeks to maintain a current yield that is
greater than that obtainable from a portfolio of short term tax exempt
obligations, subject to certain quality restrictions. See "Quality and
Diversification Requirements."

The Advisor believes that based upon current market conditions, the
Fund will consist of a portfolio of securities with a duration of four to seven
years. In view of the duration of the Fund, under normal market conditions, the
Fund's yield can be expected to be higher and its net asset value less stable
than those of a money market fund. Duration is a measure of the weighted average
maturity of the bonds held in the Fund and can be used as a measure of the
sensitivity of the Fund's market value to changes in interest rates. The
maturities of the individual securities in the Fund may vary widely, however, as
the Advisor adjusts the Fund's holdings of long-term and short-term debt
securities to reflect its assessment of prospective changes in interest rates,
which may adversely affect current income.

The value of the Fund's investments will generally fluctuate inversely
with changes in prevailing interest rates. The value of the Fund's investments
will also be affected by changes in the creditworthiness of issuers and other
market factors. The quality criteria applied in the selection of portfolio
securities are intended to minimize adverse price changes due to credit
considerations. The value of the Fund's municipal securities can also be
affected by market reaction to legislative consideration of various tax reform
proposals. Although the net asset value of the Fund fluctuates, the Fund
attempts to preserve the value of its investments to the extent consistent with
its objective.

Tax Exempt Obligations

The Fund may invest in bonds issued by or on behalf of states,
territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies, authorities and instrumentalities.
These obligations may be general obligation bonds secured by the issuer's pledge
of its full faith credit and taxing power for the payment of principal and
interest, or they may be revenue bonds payable from specific revenue sources,
but not generally backed by the issuer's taxing power. These include industrial
development bonds where payment is the responsibility of the private industrial
user of the facility financed by the bonds. The Fund may invest more than 25% of
its assets in industrial development bonds, but may not invest more than 25% of
its assets in industrial development bonds in projects of similar type or in the
same state.

The Fund will invest in tax exempt obligations. A description of the
various types of tax exempt obligations which may be purchased by the Fund
appears below. See "Quality and Diversification Requirements."

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

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

Municipal Notes. The Fund may also invest in municipal notes of various
types, including notes issued in anticipation of receipt of taxes, the proceeds
of the sale of bonds, other revenues or grant proceeds, as well as municipal
commercial paper and municipal demand obligations such as variable rate demand
notes and master demand obligations. The interest rate on variable rate demand
notes is adjustable at periodic intervals as specified in the notes. Master
demand obligations permit the investment of fluctuating amounts at periodically
adjusted interest rates. They are governed by agreements between the municipal
issuer and Morgan acting as agent, for no additional fee. Although master demand
obligations are not marketable to third parties, the Fund considers them to be
liquid because they are payable on demand. There is no specific percentage
limitation on these investments. Municipal notes are subdivided into three
categories of short-term obligations: municipal notes, municipal commercial
paper and municipal demand obligations.

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

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

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

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

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

Premium Securities. During a period of declining interest rates, many
municipal securities in which the Fund invests likely will bear coupon rates
higher than current market rates, regardless of whether the securities were
initially purchased at a premium. In general, such securities have market values
greater than the principal amounts payable on maturity, which would be reflected
in the net asset value of the Fund's shares. The values of such "premium"
securities tend to approach the principal amount as they near maturity.

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

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

The Fund values any municipal bonds and notes subject to puts with
remaining maturities of less than 60 days by the amortized cost method. If the
Fund were to invest in municipal bonds and notes with maturities of 60 days or
more that are subject to puts separate from the underlying securities, the puts
and the underlying securities would be valued at fair value as determined in
accordance with procedures established by the Board of Trustees. The Board of
Trustees would, in connection with the determination of the value of a put,
consider, among other factors, the creditworthiness of the writer of the put,
the duration of the put, the dates on which or the periods during which the put
may be exercised and the applicable rules and regulations of the SEC. Prior to
investing in such securities, the Fund, if deemed necessary based upon the
advice of counsel, will apply to the SEC for an exemptive order, which may not
be granted, relating to the valuation of such securities.

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

Entering into a put with respect to a tax exempt security may be
treated, depending upon the terms of the put, as a taxable sale of the tax
exempt security by the Fund with the result that, while the put is outstanding,
the Fund will no longer be treated as the owner of the security and the interest
income derived with respect to the security will be treated as taxable income to
the Fund.

Non-Municipal Securities

The Fund may invest in bonds and other debt securities of domestic
issuers to the extent consistent with its investment objective and policies. The
Fund may invest in U.S. Government, bank and corporate debt obligations, as well
as asset-backed securities and repurchase agreements. The Fund will purchase
such securities only when the Advisor believes that they would enhance the after
tax returns of a shareholder of the Fund in the highest federal income tax
brackets. Under normal circumstances, the Fund's holdings of non-municipal
securities will not exceed 20% of its total assets. A description of these
investments appears below. See "Quality and Diversification Requirements." For
information on short-term investments in these securities, see "Money Market
Instruments."

Zero Coupon, Pay-in-Kind and Deferred Payment Securities. Zero coupon
securities are securities that are sold at a discount to par value and on which
interest payments are not made during the life of the security. Upon maturity,
the holder is entitled to receive the par value of the security. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. The Fund accrues income with respect to zero coupon and
pay-in-kind securities prior to the receipt of cash payments. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. While interest payments are not
made on such securities, holders of such securities are deemed to have received
"phantom income." Because the Fund will distribute "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the Fund will have
fewer assets with which to purchase income producing securities. Zero coupon,
pay-in-kind and deferred payment securities may be subject to greater
fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.

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

Money Market Instruments

The Fund will invest in money market instruments, to the extent
consistent with its investment objective and policies, that meet the quality
requirements described below. Under normal circumstances, the Fund will purchase
these securities to invest temporary cash balances or to maintain liquidity to
meet withdrawals. However, the Fund may also invest in money market instruments
as a temporary defensive measure taken during, or in anticipation of, adverse
market conditions. A description of the various types of money market
instruments that may be purchased by the Fund appears below. Also see "Quality
and Diversification Requirements."

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

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

Bank Obligations. The Fund 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 and are
organized under the laws of the United States or any state, (ii) foreign
branches of these banks (Euros) and (iii) U.S. branches of foreign banks of
equivalent size (Yankees). The Fund may not invest in obligations of foreign
branches of foreign banks. The Fund will not invest in obligations for which the
Advisor, or any of its affiliated persons, is the ultimate obligor or accepting
bank.

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

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

The Fund may make investments in other debt securities, including without
limitation corporate bonds and other obligations described in this Statement of
Additional Information. Additional Investments

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

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

The Securities and Exchange Commission ("SEC") has granted the
Portfolios 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 forth 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 and shareholder servicing fees.

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

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

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

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

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

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

Quality and Diversification Requirements

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

The Fund will comply with the diversification requirements imposed by the
Internal Revenue Code of 1986, as amended (the "Code"), for qualification as a
regulated investment company. See "Taxes."

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

It is the current policy of the Fund that under normal circumstances at
least 90% of total assets will consist of securities that at the time of
purchase are rated Baa or better by Moody's or BBB or better by Standard &
Poor's. The remaining 10% of total assets may be invested in securities that are
rated B or better by Moody's or Standard & Poor's. See "Below Investment Grade
Debt" below. In each case, the Fund may invest in securities which are unrated,
if in the Advisor's opinion, such securities are of comparable quality.
Securities rated Baa by Moody's or BBB by Standard & Poor's are considered
investment grade, but have some speculative characteristics. Securities rated Ba
or B by Moody's and BB or B by Standard & Poor's are below investment grade and
considered to be speculative with regard to payment of interest and principal.
These standards must be satisfied at the time an investment is made. If the
quality of the investment later declines, the Fund may continue to hold the
investment.

The Portfolio invests principally in a diversified portfolio of
"investment grade" tax exempt securities. On the date of investment, with
respect to at least 90% of its total assets, (i) municipal bonds must be rated
within the four highest ratings of Moody's, currently Aaa, Aa, A and Baa, or of
Standard & Poor's, currently AAA, AA, A and BBB, (ii) municipal notes must be
rated MIG-1 by Moody's or SP-1 by Standard & Poor's (or, in the case of New York
State municipal notes, MIG-1 or MIG-2 by Moody's or SP-1 or SP-2 by Standard &
Poor's) and (iii) at the time the Portfolio invests in any commercial paper,
bank obligation, repurchase agreement, or any other money market instruments,
the investment must have received a short term rating of investment grade or
better (currently Prime-3 or better by Moody's or A-3 or better by Standard &
Poor's) or the investment must have been issued by an issuer that received a
short term investment grade rating or better with respect to a class of
investments or any investment within that class that is comparable in priority
and security with the investment being purchased by the Portfolio. If no such
ratings exists, the investment must be of comparable investment quality in the
Advisor's opinion, but will not be eligible for purchase if the issuer or its
parent has long term outstanding debt rated below BBB. With respect to the
remaining 10% of its assets, any investment must be rated B or better by Moody's
or Standard & Poor's, or of comparable quality. The Portfolio may invest in
other tax exempt securities which are not rated if, in the opinion of the
Advisor, such securities are of comparable quality to the rated securities
discussed above. In addition, at the time the Portfolio invests in any
commercial paper, bank obligation or repurchase agreement, the issuer must have
outstanding debt rated A or higher by Moody's or Standard & Poor's, the issuer's
parent corporation, if any, must have outstanding commercial paper rated Prime-1
by Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in the Advisor's opinion.

Below Investment Grade Debt. Certain lower rated securities purchased
by the Fund, such as those rated Ba or B by Moody's or BB or B by Standard &
Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of principal
and interest and to greater market fluctuations. While generally providing
greater income than investments in higher quality securities, lower quality
fixed income securities involve greater risk of loss of principal and income,
including the possibility of default or bankruptcy of the issuers of such
securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Fund invests in such lower quality securities, the achievement of its
investment objective may be more dependent on the Advisor's own credit analysis.

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

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

Options and Futures Transactions

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

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

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

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

The Fund may purchase put and call options on securities, indexes of
securities and futures contracts, or purchase and sell futures contracts, only
if such options are written by other persons and if (i) the aggregate premiums
paid on all such options which are held at any time do not exceed 20% of the
Fund's net assets, and (ii) the aggregate margin deposits required on all such
futures or options thereon held at any time do not exceed 5% of the Fund's total
assets. In addition, the Fund will not purchase or sell (write) futures
contracts, options on futures contracts or commodity options for risk management
purposes if, as a result, the aggregate initial margin and options premiums
required to establish these positions exceed 5% of the net asset value of the
Fund.

Options

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

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

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

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

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

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

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

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

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

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

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

Futures Contracts

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

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

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

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

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

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

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

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

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

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

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

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

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

In addition, the Fund will comply with guidelines established by the
SEC with respect to coverage of options and futures contracts by mutual funds,
and if the guidelines so require, will set aside appropriate liquid assets in a
segregated custodial account in the amount prescribed. Securities held in a
segregated account cannot be sold while the futures contract or option is
outstanding, unless they are replaced with other suitable assets. As a result,
there is a possibility that segregation of a large percentage of the Fund's
assets could impede portfolio management or a Fund's ability to meet redemption
requests or other current obligations.

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

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

Swap agreements are two-party contracts entered into primarily by
institutional counterparties for periods ranging from a few weeks to several
years. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) that would be earned or realized on
specified notional investments or instruments. The gross returns to be exchanged
or "swapped" between the parties are calculated by reference to a "notional
amount," i.e., the return on or increase in value of a particular dollar amount
invested at a particular interest rate, in a particular foreign currency or
commodity, or in a "basket" of securities representing a particular index. The
purchaser of an interest rate cap or floor, upon payment of a fee, has the right
to receive payments (and the seller of the cap is obligated to make payments) to
the extent a specified interest rate exceeds (in the case of a cap) or is less
than (in the case of a floor) a specified level over a specified period of time
or at specified dates. The purchaser of an interest rate collar, upon payment of
a fee, has the right to receive payments (and the seller of the collar is
obligated to make payments) to the extent that a specified interest rate falls
outside an agreed upon range over a specified period of time or at specified
dates. The purchaser of an option on an interest rate swap, upon payment of a
fee (either at the time of purchase or in the form of higher payments or lower
receipts within an interest rate swap transaction) has the right, but not the
obligation, to initiate a new swap transaction of a pre-specified notional
amount with pre-specified terms with the seller of the option as the
counterparty.

The "notional amount" of a swap transaction is the agreed upon basis
for calculating the payments that the parties have agreed to exchange. For
example, one swap counterparty may agree to pay a floating rate of interest
(e.g., 3 month LIBOR) calculated based on a $10 million notional amount on a
quarterly basis in exchange for receipt of payments calculated based on the same
notional amount and a fixed rate of interest on a semi-annual basis. In the
event the Fund is obligated to make payments more frequently than it receives
payments from the other party, it will incur incremental credit exposure to that
swap counterparty. This risk may be mitigated somewhat by the use of swap
agreements which call for a net payment to be made by the party with the larger
payment obligation when the obligations of the parties fall due on the same
date. Under most swap agreements entered into by the Fund, payments by the
parties will be exchanged on a "net basis", and the Fund will receive or pay, as
the case may be, only the net amount of the two payments.

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

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

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

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

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

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

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

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

Risk Management

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

Portfolio Turnover

The Portfolio's turnover rates for the fiscal years ended August 31,
1997 and 1998 and for eleven months ended July 31, 1999: 25%, 16%, and 29%,
respectively. A rate of 100% indicates that the equivalent of all of the
Portfolio's assets have been sold and reinvested in a year. High portfolio
turnover may result in the realization of substantial net capital gains or
losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.

INVESTMENT RESTRICTIONS

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

The investment restrictions below have been adopted by the Fund and
Portfolio. Except where otherwise noted, these investment restrictions are
"fundamental" policies which, under the 1940 Act, may not be changed without the
vote of a majority of the outstanding voting securities of the Fund or
Portfolio, as the case may be. A "majority of the outstanding voting securities"
is defined in the 1940 Act as the lesser of (a) 67% or more of the voting
securities present at a meeting if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy, or (b) more
than 50% of the outstanding voting securities. The percentage limitations
contained in the restrictions below apply at the time of the purchase of
securities. Whenever the Fund is requested to vote on a change in the
fundamental investment restrictions of the Portfolio, the Trust will hold a
meeting of Fund shareholders and will cast its votes as instructed by the Fund's
shareholders.

The Fund and its corresponding Portfolio:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

TRUSTEES AND OFFICERS

Trustees

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

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

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

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

MATTHEW HEALEY1--Trustee, Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc., since prior to 1993. His address is Pine Tree Country Club
Estates, 10286 Saint Andrews Road, Boynton Beach, Florida 33436, and his date of
birth is August 23, 1937.

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

The Trustees of the Trust are the same as the Trustees of the
Portfolio. A majority of the disinterested Trustees have adopted written
procedures reasonably appropriate to deal with potential conflicts of interest
arising from the fact that the same individuals are Trustees of the Trust, the
Portfolio and the J.P. Morgan Institutional Funds, up to and including creating
a separate board of trustees.

Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), J.P. Morgan Institutional Funds and J.P. Morgan
Series Trust and is reimbursed for expenses incurred in connection with service
as a Trustee. The Trustees may hold various other directorships unrelated to the
Fund.

<PAGE>

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

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

Frederick S. Addy, Trustee $14,363 $75,000
- -------------------------------- -------------------- --------------------------
- -------------------------------- -------------------- --------------------------

William G. Burns, Trustee $14,363 $75,000
- -------------------------------- -------------------- --------------------------
- -------------------------------- -------------------- --------------------------

Arthur C. Eschenlauer, Trustee $14,363 $75,000
- -------------------------------- -------------------- --------------------------
- -------------------------------- -------------------- --------------------------

Matthew Healey, Trustee(***), $14,363 $75,000
Chairman and Chief Executive
Officer
- -------------------------------- -------------------- --------------------------
- -------------------------------- -------------------- --------------------------

Michael P. Mallardi, Trustee $14,363 $75,000
- -------------------------------- -------------------- --------------------------

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

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

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

The Trustees decide upon matters of general policy and are responsible
for overseeing the Trust's and the 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, NY 10017.

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

Fund -- For the fiscal years ended August 31, 1996, 1997, 1998 and for the
eleven months ended July 31, 1999: $20,062, $13,245, $13,354 and $9,770,
respectively.

Portfolio -- For the fiscal years ended August 31, 1996, 1997, 1998 and for the
eleven months ended July 31, 1999: $24,602, $18,912, $21,294 and $17,915,
respectively.

Officers

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

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

MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group,
since prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews
Road, Boynton Beach, Florida 33436. His date of birth is August 23, 1937.

MARGARET W. CHAMBERS; Vice President and Secretary. Senior Vice President
and General Counsel of FDI since April, 1998. From August 1996 to March 1998,
Ms. Chambers was Vice President and Assistant General Counsel for Loomis, Sayles
& Company, L.P. From January 1986 to July 1996, she was an associate with the
law firm of Ropes & Gray. Her date of birth is October 12, 1959.

MARIE E. CONNOLLY; Vice President and Assistant Treasurer. President, Chief
Executive Officer, Chief Compliance Officer and Director of FDI, Premier Mutual
Fund Services, Inc., an affiliate of FDI ("Premier Mutual") and an officer of
certain investment companies advised 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. His date of birth is March 31,
1969.

JOHN P. COVINO; Vice President and Assistant Treasurer. Vice President and
Treasury Group Manager of Treasury Servicing and Administration of FDI. Prior to
November 1998, Mr. Covino was employed by Fidelity Investments where he held
multiple positions in their Institutional Brokerage Group. Prior to joining
Fidelity, Mr. Covino was employed by SunGard Brokerage systems where he was
responsible for the technology and development of the accounting product group.
His date of birth is October 8, 1963.

JACQUELINE HENNING; Assistant Secretary and Assistant Treasurer of the
Portfolio only. Managing Director, State Street Cayman Trust Company, Ltd. since
October 1994. Address: P.O. Box 2508 GT, Elizabethan Square, 2nd Floor, Shedden
Road, George Town, Grand Cayman, Cayman Islands, BWI. Her date of birth is March
27, 1942.

KAREN JACOPPO-WOOD; Vice President and Assistant Secretary. Vice President
and Senior Counsel of FDI and an officer of certain investment companies
distributed or administered by FDI. From June 1994 to January 1996, Ms.
Jacoppo-Wood was a Manager of SEC Registration at Scudder, Stevens & Clark, Inc.
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. 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.
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. 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.

STEPHANIE D. PIERCE; Vice President and Assistant Secretary. Vice President
and Client Development Manager for FDI since April 1998. From April 1997 to
March 1998, Ms. Pierce was employed by Citibank, NA as an officer of Citibank
and Relationship Manager on the Business and Professional Banking team handling
over 22,000 clients. Address: 200 Park Avenue, New York, New York 10166. Her
date of birth is August 18, 1968.

GEORGE A. RIO; President and Treasurer. Executive Vice President and Client
Service Director of FDI since April 1998. From June 1995 to March 1998, Mr. Rio
was Senior Vice President and Senior Key Account Manager for Putnam Mutual
Funds. From May 1994 to June 1995, Mr. Rio was Director of Business Development
for First Data Corporation. His date of birth is January 2, 1955.

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

INVESTMENT ADVISOR

The Fund has not retained the services of an investment adviser because
it seeks to achieve its investment objective by investing all of its investable
assets in the Portfolio. Subject to the supervision of the Portfolio's Trustees,
the Advisor makes the Portfolio's day-to-day investment decisions, arranges for
the execution of Portfolio transactions and generally manages the Portfolio's
investments. Prior to October 28, 1998, Morgan was the Investment Advisor.

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

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 $326 billion.

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

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

The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 300
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification, and quantitative and credit analysis.

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

Sector weightings are generally similar to a benchmark with the
emphasis on security selection as the method to achieve investment performance
superior to the benchmark. The benchmark for the Portfolio in which the Fund
invests is currently: Lehman Brothers 1-16 Year Municipal Bond Index.

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 or any personnel of other divisions
of the Advisor or with any of its affiliated persons, with the exception of
certain investment management affiliates of J.P. Morgan.

As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Investment
Advisory Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.30% of the
Portfolio's average daily net assets.

For the fiscal years ended August 31, 1996, 1997, 1998 and for the
eleven months ended July 31, 1999, the advisory fees paid by the Portfolio were
$1,354,145, $1,620,498, $2,017,415 and $2,295,351.

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

The Glass-Steagall Act and other applicable laws generally prohibit banks
and their subsidiaries, such as the Advisor, from engaging in the business of
underwriting or distributing securities, and the Board of Governors of the
Federal Reserve System has issued an interpretation to the effect that under
these laws a bank holding company registered under the federal Bank Holding
Company Act or subsidiaries thereof may not sponsor, organize, or control a
registered open-end investment company continuously engaged in the issuance of
its shares, such as the Trust. The interpretation does not prohibit a holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreement without
violation of the Glass-Steagall Act or other applicable banking laws or
regulations. On November 12, 1999, the Gramm-Leach-Bliley Act was signed into
law, the relevant provisions of which go into effect March 11, 2000. Until March
11, 2000, federal banking law, specifically the Glass-Steagall Act and the Bank
Holding Company Act, generally prohibits banks and bank holding companies and
their subadvisories, such as the Advisor, from engaging in the business of
underwriting or distributing securities. Pursuant to interpretations issued
under these laws by the Board of Governors of the Federal Reserve System, such
entities also may not sponsor, organize or control a registered open-end
investment company continuously engaged in the issuance of its shares (together
with underwriting and distributing securities, the "Prohibited Activities"),
such as the Trust. These laws and interpretations do not prohibit a bank holding
company or a subsidiary thereof from acting as investment advisor and custodian
to such an investment company. The Advisor believes that it may perform the
services for the Portfolio contemplated by the Advisory Agreement without
violation of the laws in effect until March 11, 2000. Effective March 11, 2000,
the sections of the Glass-Steagall Act which prohibited the Prohibited
Activities are repealed, and the Bank Holding Company Act is amended to permit
bank holding companies which satisfy certain capitalization, managerial and
other criteria (the "Criteria") to engage in the Prohibited Activities; bank
holding companies which do not satisfy the Criteria may continue to engage in
any activity that was permissible for a bank holding company under the Bank
Holding Company Act as of November 11, 1999. Because the services to be
performed for the Portfolio under the Advisory Agreement were permissible for a
bank holding company as of November 11, 1999, the Advisor believes that it also
may perform such services after March 11, 2000 whether or not the Advisor's
parent satisfies the Criteria. State laws on this issue may differ from the
interpretation of relevant federal law, and banks and financial institutions may
be required to register as dealers pursuant to state securities laws.

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

DISTRIBUTOR

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

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

CO-ADMINISTRATOR

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

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

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

The table below sets forth for the Fund and the Portfolio the
administrative fees paid to FDI for the fiscal periods indicated.

Fund -- For the period August 1, 1996 through August 31, 1996: $1,169. For the
fiscal years ended August 31, 1997, 1998 and for the eleven months ended July
31, 1999: $12,383, $9,860 and $6,691, respectively.

Portfolio -- For the period August 1, 1996 through August 31, 1996: $920. For
the fiscal years ended August 31, 1997, 1998 and for the eleven months ended
July 31, 1999: $10,663, $9,832 and $7,665, respectively.

SERVICES AGENT

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

Under prior administrative services agreements in effect from December
29, 1995 through July 31, 1996, with Morgan, the Portfolio paid Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This charge
was calculated daily based on the aggregate net assets of Master Portfolios in
accordance with the following schedule: 0.06% of the first $7 billion of the
Master Portfolios' aggregate average daily net assets, and 0.03% of the Master
Portfolios' aggregate average daily net assets in excess of $7 billion.

The table below sets forth for the Fund and the Portfolio the fees paid
to Morgan as Services Agent.

Fund -- For the fiscal years ended August 31, 1996, 1997, 1998 and for the
eleven months ended July 31, 1999: $63,000, $117,520, $122,927 and $110,004,
respectively.

Portfolio -- For the fiscal years ended August 31, 1996, 1997, 1998 and for the
eleven months ended July 31, 1999: $80,281, $169,209, $198,156 and $203,283,
respectively.

CUSTODIAN AND TRANSFER AGENT

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

SHAREHOLDER SERVICING

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

Effective August 1, 1998, under the Shareholder Servicing Agreement,
the Fund has agreed to pay Morgan for these services a fee at an annual rate of
0.25% (expressed as a percentage of the average daily net asset value of Fund
shares owned by or for shareholders).

The shareholder servicing fees paid by the Fund to Morgan for the
fiscal years ended August 31, 1996, 1997, 1998 and for the eleven months ended
July 31, 1999: $702,939, $750,088, $851,806 and $1,034,199, respectively.

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

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

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

FINANCIAL PROFESSIONALS

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

Although there is no sales charge levied directly by the Fund,
financial professionals may establish their own terms and conditions for
providing their services and may charge investors a transaction-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 will not be
remitted to the Fund or J.P. Morgan.

The Fund has authorized one or more brokers to accept purchase and
redemption orders on its behalf. Such brokers are authorized to designate other
intermediaries to accept purchase and redemption orders on the Fund's behalf.
The Fund will be deemed to have received a purchase or redemption order when an
authorized broker or, if applicable, a broker's authorized designee, accepts the
order. These orders will be priced at the Fund's net asset value next calculated
after they are so accepted.

INDEPENDENT ACCOUNTANTS

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

EXPENSES

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

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

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

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

REDEMPTION OF SHARES

Investors may redeem shares as described in the Prospectus.

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

Further Redemption Information. Investors should be aware that
redemptions from the Fund may not be processed if a redemption request is not
submitted in proper form. To be in proper form, the Fund must have received the
shareholder's taxpayer identification number and address. In addition, if a
shareholder sends a check for the purchase of fund shares and shares are
purchased before the check has cleared, the transmittal of redemption proceeds
from the shares will occur upon clearance of the check which may take up to 15
days. The Trust, on behalf of the Fund, and the Portfolio 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 of the Fund for shares of any J.P.
Morgan Fund, J.P. Morgan Institutional Fund or J.P. Morgan Series Trust fund
without charge. An exchange may be made so long as after the exchange the
investor has shares, in each fund in which he or she remains an investor, with a
value of at least that fund's minimum investment amount. Shareholders should
read the prospectus of the fund into which they are exchanging and may only
exchange between fund accounts that are registered in the same name, address and
taxpayer identification number. Shares are exchanged on the basis of relative
net asset value per share. Exchanges are in effect redemptions from one fund and
purchases of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. 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 a Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. The 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 Fund's 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 Fund values securities that are listed on an exchange using prices
supplied daily by an independent pricing service that are based on the last
traded price on a national securities exchange or in the absence of recorded
trades, at the readily available mean of the bid and asked prices on such
exchange, if such exchange or market constitutes the broadest and most
representative market for the security. Securities listed on a foreign exchange
are valued at the last traded price or, in the absence of recorded trades, at
the readily available mean of the bid and asked prices on such exchange
available before the time when net assets are valued. Independent pricing
service procedures may also include the use of prices based on yields or prices
of securities of comparable quality, coupon, maturity and type, indications as
to values from dealer, operating data, and general market conditions. Unlisted
securities may be valued at the quoted bid price in the over-the-counter market
provided by a principal market maker or dealer. If prices are not supplied by
the Portfolio's independent pricing service or principal market maker or dealer,
such securities are priced using fair values in accordance with procedures
adopted by the Portfolio's Trustees. All short-term securities with a remaining
maturity of sixty days or less are valued by the amortized cost method.

PERFORMANCE DATA

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

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

Yield Quotations. As required by regulations of the SEC, the annualized
yield for the Fund is computed by dividing the Fund's net investment income per
share earned during a 30-day period by the net asset value on the last day of
the period. The average daily number of shares outstanding during the period
that are eligible to receive dividends is used in determining the net investment
income per share. Income is computed by totaling the interest earned on all debt
obligations during the period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield is then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.

The historical yield information for the Fund at July 31, 1999: 30-day
yield: 4.08%; 30-day tax equivalent yield at 39.6% tax rate: 6.75%.

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 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 at July 31,
1999: Average annual total return, 1 year: 2.37%; average annual total return, 5
years: 5.37%; average annual total return, 10 years: 6.25%; aggregate total
return, 1 year: 2.37%; aggregate total return, 5 years: 29.91%; aggregate total
return, 10 years: 83.43%.

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

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

PORTFOLIO TRANSACTIONS

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

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

Portfolio transactions for the Portfolio will be undertaken principally
to accomplish a Portfolio's objective in relation to expected movements in the
general level of interest rates. The Portfolio may engage in short-term trading
consistent with its objective. See "Investment Objective and Policies --
Portfolio Turnover."

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

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

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

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

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

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

MASSACHUSETTS TRUST

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

Effective October 10, 1996, the name of the Trust was changed from "The
Pierpont Funds" to "The JPM Pierpont Funds," and the Fund's name changed
accordingly. Effective January 1, 1998, the name of the Trust was changed from
"The JPM Pierpont Funds" to "J.P. Morgan 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 the Fund is liable to
the Fund or to a shareholder, and that no Trustee, officer, employee, or agent
is liable to any third persons in connection with the affairs of the Fund,
except as such liability may arise from his or its own bad faith, willful
misfeasance, gross negligence or reckless disregard of his or its duties to such
third persons. It also provides that all third persons shall look solely to Fund
property for satisfaction of claims arising in connection with the affairs of
the Fund. With the exceptions stated, the Trust's Declaration of Trust provides
that a Trustee, officer, employee, or agent is entitled to be indemnified
against all liability in connection with the affairs of the Fund.

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

DESCRIPTION OF SHARES

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

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

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

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

The trustees have authorized the issuance and sale to the public of
shares of 18 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.

As of October 31, 1999, to the knowledge of management, there were no
beneficial owners of more than 5% of the outstanding shares of the Fund.

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

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 Portfolio, a separate registered investment company
with the same investment objective and policies as the Fund. Fund shareholders
are entitled to one vote for each dollar of net asset value (or a proportionate
fractional vote in respect of a fractional dollar amount), on matter on which
shares of the Fund shall be entitled to vote.

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) 521-5411.

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

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

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

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

TAXES

The following discussion of tax consequences is based on U.S. federal
tax laws in effect on the date of this 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 continue to qualify and remain qualified as a
regulated investment company under Subchapter M of the Code. As a regulated
investment company, a Fund must, among other things, (a) derive at least 90% of
its gross income from dividends, interest, payments with respect to loans of
stock and securities, gains from the sale or other disposition of stock,
securities or foreign currency and other income (including but not limited to
gains from options, futures, and forward contracts) derived with respect to its
business of investing in such stock, securities or foreign currency; and (b)
diversify its holdings so that, at the end of each fiscal quarter of its taxable
year, (i) at least 50% of the value of the Fund's total assets is represented by
cash, cash items, U.S. Government securities, investments in other regulated
investment companies, and other securities limited, in respect of any one
issuer, to an amount not greater than 5% of the Fund's total assets, and 10% of
the outstanding voting securities of such issuer, and (ii) not more than 25% of
the value of its total assets is invested in the securities of any one issuer
(other than U.S. Government securities or securities of other regulated
investment companies).

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

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

Distributions of net investment income (other than exempt-interest
dividends) and realized net short-term capital gains in excess of net long-term
capital losses are generally taxable to shareholders of the Fund as ordinary
income whether such distributions are taken in cash or reinvested in additional
shares. Distributions of net long-term capital gains (i.e., net long-term
capital gains in excess of net short-term capital losses) are taxable to
shareholders of the Fund as long-term capital gains, regardless of whether such
distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax.

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

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

Any gain or loss realized on the redemption or exchange of Fund shares
by a shareholder who is not a dealer in securities will be treated as long-term
capital gain or loss if the shares have been held for more than one year, and
otherwise as short-term capital gain or loss. Long-term capital gain of an
individual holder is subject to maximum tax rate of 20%. However, any loss
realized by a shareholder upon the redemption or exchange of shares in the Fund
held for six months or less (i) will be treated as a long-term capital loss to
the extent of any long-term capital gain distributions received by the
shareholder with respect to such shares, and (ii) will be disallowed to the
extent of any exempt-interest dividends received by the shareholder with respect
to such shares. Investors are urged to consult their tax advisors concerning the
limitations on the deductibility of capital losses. In addition, no loss will be
allowed on the redemption or exchange of shares of the Fund, if within a period
beginning 30 days before the date of such redemption or exchange and ending 30
days after such date, the shareholder acquires (such as through dividend
reinvestment) securities that are substantially identical to shares of the Fund.

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

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.

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

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

ADDITIONAL INFORMATION

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

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

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

The Year 2000 Initiative

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

J.P. Morgan has undertaken a firmwide initiative to address the year
2000 issue and has developed a comprehensive plan to prepare, as appropriate,
its computer systems. Each business line has taken responsibility for
identifying and fixing the problem within its own area of operation and for
addressing all interdependencies. A multidisciplinary team of internal and
external experts supports the business teams by providing direction and firmwide
coordination. Working together, the business and multidisciplinary teams have
completed a thorough education and awareness initiative and a global inventory
and assessment of J.P. Morgan's technology and application portfolio to
understand the scope of the year 2000 impact at J.P. Morgan. J.P. Morgan
presently is renovating and testing these technologies and applications in
partnership with external consulting and software development organizations, as
well as with year 2000 tool providers. J.P. Morgan has substantially completed
renovation, testing, and validation of its key systems and is preparing to
participate in industry-wide testing (or streetwide testing) in 1999. J.P.
Morgan is also working with key external parties, including clients,
counterparties, vendors, exchanges, depositories, utilities, suppliers, agents
and regulatory agencies, to stem the potential risks the year 2000 problem poses
to J.P. Morgan and to the global financial community. For potential failure
scenarios where the risks are deemed significant and where such risk is
considered to have a higher probability of occurrence, J.P. Morgan is attempting
to develop business recovery/contingency plans. These plans will define the
infrastructure that should be put in place for managing a failure during the
millennium event itself.

Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $93.3 million in 1997, $132.7 million in 1998 and $36.6
million for the first eight months of 1999. Over the next month J.P. Morgan will
continue its efforts to prepare its systems for the year 2000. The total cost to
become year-2000 compliant is estimated at $300 million, for internal systems
renovation and testing, testing equipment and both internal and external
resources working on the project. The costs associated with J.P. Morgan becoming
year-2000 compliant will be borne by J.P. Morgan and not the Fund.

FINANCIAL STATEMENTS

The following financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference to the Fund's
July 31, 1999 annual report filing made with the SEC on October 6, 1999
(Accession Number 0001047469-99-037884) made pursuant to Section 30(b) of the
1940 Act and Rule 30b2-1 thereunder. The financial reports are available without
charge upon request by calling J.P. Morgan Funds Services at (800) 521-5411. The
Fund's financial statements include the financial statements of the Portfolio.

<PAGE>

APPENDIX A

Description of Security Ratings

STANDARD & POOR'S

Corporate and Municipal Bonds

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

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

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

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

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

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

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

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

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

Commercial Paper, including Tax Exempt

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

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

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

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

Short-Term Tax-Exempt Notes

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

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

MOODY'S

Corporate and Municipal Bonds

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

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

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

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

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

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

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

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

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

Commercial Paper, including Tax Exempt

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

- Leading market positions in well established industries.
- High rates of return on funds employed.
- Conservative capitalization structures with moderate reliance on
debt and ample asset protection.
- Broad margins in earnings coverage of fixed financial charges and
high internal cash generation.
- Well established access to a range of financial markets and assured
sources of alternate liquidity.

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

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

Short-Term Tax Exempt Notes

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

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

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

<PAGE>

J.P. MORGAN FUNDS

J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND

STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED DECEMBER 1, 1999, AS SUPPLEMENTED FROM TIME TO TIME.
ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE
THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORT RELATING TO THE FUND
DATED JULY 31, 1999. 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 FUNDS (800)
221-7930.

<PAGE>

Table of Contents

Page

General . . . . . . . . . . . . . . . . . . . 1
Investment Objective and Policies . . . . . . 1
Investment Restrictions . . . . . . . . . . . 23
Trustees and Officers . . . . . . . . . . . . 25
Investment Advisor . . . . . . . . . . . . . . 29
Distributor . . . . . . . . . . . . . . . . . 31
Co-Administrator . . . . . . . . . . . . . . . 31
Services Agent . . . . . . . . . . . . . . . . 32
Custodian and Transfer Agent . . . . . . . . . 33
Shareholder Servicing . . . . . . . . . . . . 33
Financial Professionals. . . . . . . . . . . . 34
Independent Accountants . . . . . . . . . . . 35
Expenses . . . . . . . . . . . . . . . . . . . 35
Purchase of Shares . . . . . . . . . . . . . . 36
Redemption of Shares . . . . . . . . . . . . . 36
Exchange of Shares . . . . . . . . . . . . . . 37
Dividends and Distributions . . . . . . . . . 38
Net Asset Value . . . . . . . . . . . . . . . 38
Performance Data . . . . . . . . . . . . . . . 39
Portfolio Transactions . . . . . . . . . . . . 41
Massachusetts Trust . . . . . . . . . . . . . 42
Description of Shares . . . . . . . . . . . . 43
Special Information Concerning Investment
Structure. . . . . . . . . . . . . . . . . . . 45
Taxes . . . . . . . . . . . . . . . . . . . . 46
Additional Information . . . . . . . . . . . 49
Financial Statements . . . . . . . . . . . . . 50
Appendix A-Description of Security Ratings . . A-1
Appendix B - Additional Information
Concerning New York Municipal Securities . . B-1

<PAGE>

GENERAL

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

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

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

INVESTMENT OBJECTIVE AND POLICIES

The following discussion supplements the information regarding
the investment objective of the Fund and the policies to be employed to achieve
this objective. Since the investment characteristics and expenses of the Fund
correspond directly with those of the Portfolio, the discussion in the Statement
of Additional Information focuses on the investments and investment policies of
the Portfolio. 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 investment objective of the Fund is to provide a high level of tax
exempt income for New York residents consistent with moderate risk of capital.
The investment objective of the Fund and the investment objective of the
Portfolio are identical. The Fund invests primarily in New York Municipal
Securities (defined below), the income from which is exempt from federal and New
York personal income taxes. It may also invest in other municipal securities
that generate income exempt from federal income tax but not from New York income
tax. In certain circumstances, the Fund may invest in taxable debt obligations
to the extent consistent with its objective.

The Fund is designed for investors subject to federal and New York
State and New York City personal income taxes who seek a high level of income
exempt from Federal, New York State and local income taxes and who are willing
to receive some taxable income and capital gains to achieve that return.
Additionally, the Fund is designed to be an economical and convenient means of
investing in a portfolio consisting primarily of debt obligations that are
exempt from federal and New York State and New York City personal income taxes.
The Fund is not suitable for tax-deferred retirement or pension plans, including
Individual Retirement Accounts (IRAs), 401(k) plans and 403(b) plans. The Fund
is not a complete investment program and there is no assurance that the Fund
will achieve its investment objective.

The Advisor actively manages the Fund's duration, the allocation of
securities across market sectors and the selection of securities to maximize
after tax income. The Advisor adjusts the Fund's duration based upon fundamental
economic and capital markets research and the Advisor's interest rate outlook.
For example, if interest rates are expected to rise, the duration may be
shortened to lessen the Fund's exposure to the expected decrease in bond prices.
If interest rates are expected to remain stable, the Advisor may lengthen the
duration in order to enhance the Fund's yield.

Under normal market conditions, the Fund will have a duration of three
to seven years, although the maturities of individual portfolio securities may
vary widely. Duration measures the price sensitivity of the Fund's portfolio,
including expected cash flow under a wide range of interest rate scenarios. A
longer duration generally results in greater price volatility. As a result, when
interest rates increase, the prices of longer duration securities increase more
than the prices of comparable quality securities with a shorter duration.

The Advisor also attempts to enhance after tax income by allocating the
Fund's assets among market sectors. Specific securities which the Advisor
believes are undervalued are selected for purchase within sectors using advanced
quantitative tools, analysis of credit risk, the expertise of a dedicated
trading desk and the judgment of fixed income portfolio managers and analysts.

Although the Fund generally purchases securities in order to generate
tax exempt income, it also engages in short-term trading to the extent
consistent with its objective. The annual portfolio turnover rate of the Fund is
generally not expected to exceed 75%. Portfolio transactions may generate
taxable capital gains and result in increased transaction costs.

Under normal circumstances, the Fund invests at least 65% of its total
assets in New York municipal bonds. For purposes of this policy, "New York
municipal bonds" has the same meaning as "New York Municipal Securities," which
are obligations of any duration (or maturity) issued by New York, its political
subdivisions and their agencies, authorities and instrumentalities and any other
obligations, the interest from which is exempt from New York State and New York
City personal income taxes. The interest from many but not all New York
Municipal Securities is also exempt from federal income tax. The Fund may also
invest in debt obligations of state and municipal issuers outside of New York.
In general, the interest on such securities is exempt from federal income tax
but subject to New York income tax. A portion of the Fund's distributions from
interest on New York Municipal Securities and other municipal securities in
which the Fund invests may under certain circumstances be subject to federal
alternative minimum tax. See "Taxes".

Tax Exempt Obligations

Since the Fund invests primarily in New York Municipal Securities, its
performance and the ability of New York issuers to meet their obligations may be
affected by economic, political, demographic or other conditions in the State of
New York. As a result, the value of the Fund's shares may fluctuate more widely
than the value of shares of a fund investing in securities of issuers in
multiple states. The ability of state, county or local governments to meet their
obligations will depend primarily on the availability of tax and other revenues
to those governments and on their general fiscal conditions. Constitutional or
statutory restrictions may limit a municipal issuer's power to raise revenues or
increase taxes. The availability of federal, state and local aid to issuers of
New York Municipal Securities may also affect their ability to meet their
obligations. Payments of principal and interest on revenue bonds will depend on
the economic or fiscal condition of the issuer or specific revenue source from
whose revenues the payments will be made. Any reduction in the actual or
perceived ability of an issuer of New York Municipal Securities to meet its
obligations (including a reduction in the rating of its outstanding securities)
would probably reduce the market value and marketability of the Fund's portfolio
securities.

The Fund may invest in municipal securities of any maturity and type.
These include both general obligation bonds secured by the issuer's pledge of
its full faith, credit and taxing authority and revenue bonds payable from
specific revenue sources, but generally not backed by the issuer's taxing
authority. In addition, the Fund may invest in all types of municipal notes,
including tax, revenue and grant anticipation notes, municipal commercial paper,
and municipal demand obligations such as variable rate demand notes and master
demand obligations. There is no specific percentage limitation on these
investments.

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

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

Non-Municipal Securities

The Fund may invest in bonds and other debt securities of domestic
issuers to the extent consistent with its investment objective and policies. The
Fund may invest in U.S. Government, bank and corporate debt obligations, as well
as asset-backed securities and repurchase agreements. The Fund will purchase
such securities only when the Advisor believes that they would enhance the after
tax income of a shareholder of the Fund in the highest federal and New York
income tax brackets. Under normal circumstances, the Fund's holdings of
non-municipal securities and securities of municipal issuers outside New York
will not exceed 35% of its total assets. A description of these investments
appears below. See "Quality and Diversification Requirements." For information
on short-term investments in these securities, see "Money Market Instruments."

Zero Coupon, Pay-in-Kind and Deferred Payment Securities. Zero coupon
securities are securities that are sold at a discount to par value and on which
interest payments are not made during the life of the security. Upon maturity,
the holder is entitled to receive the par value of the security. Pay-in-kind
securities are securities that have interest payable by delivery of additional
securities. Upon maturity, the holder is entitled to receive the aggregate par
value of the securities. The Fund accrues income with respect to zero coupon and
pay-in-kind securities prior to the receipt of cash payments. Deferred payment
securities are securities that remain zero coupon securities until a
predetermined date, at which time the stated coupon rate becomes effective and
interest becomes payable at regular intervals. While interest payments are not
made on such securities, holders of such securities are deemed to have received
"phantom income." Because a Fund will distribute "phantom income" to
shareholders, to the extent that shareholders elect to receive dividends in cash
rather than reinvesting such dividends in additional shares, the applicable Fund
will have fewer assets with which to purchase income producing securities. Zero
coupon, pay-in-kind and deferred payment securities may be subject to greater
fluctuation in value and lesser liquidity in the event of adverse market
conditions than comparably rated securities paying cash interest at regular
interest payment periods.

Money Market Instruments

The Fund may invest in money market instruments, to the extent
consistent with its investment objective and policies, that meet the quality
requirements described below, except that short-term municipal obligations of
New York State issuers may be rated MIG-2 by Moody's or SP-2 by Standard &
Poor's. Under normal circumstances, the Fund will purchase these securities to
invest temporary cash balances or to maintain liquidity to meet withdrawals.
However, the Fund may also invest in money market instruments as a temporary
defensive measure taken during, or in anticipation of, adverse market
conditions. A description of the various types of money market instruments that
may be purchased by the Fund appears below. Also see "Quality and
Diversification Requirements."

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

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

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

The Fund may make investments in other debt securities, including
without limitation corporate bonds and other obligations described in this
Statement of Additional Information.

Additional Investments

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

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 forth 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 and shareholder servicing fees.

Loans of Portfolio Securities. Subject to applicable investment
restrictions, the Fund is permitted to lend securities in an amount up to 331/3%
of the value of the Fund's total assets. The Fund may lend its securities if
such loans are secured continuously by cash or equivalent collateral or by a
letter of credit in favor of the Fund at least equal at all times to 100% of the
market value of the securities loaned, plus accrued interest. While such
securities are on loan, the borrower will pay the Fund any income accruing
thereon. Loans will be subject to termination by the Fund in the normal
settlement time, generally three business days after notice, or by the borrower
on one day's notice. Borrowed securities must be returned when the loan is
terminated. Any gain or loss in the market price of the borrowed securities
which occurs during the term of the loan inures to the Fund and its respective
investors. The Fund may pay reasonable finders' and custodial fees in connection
with a loan. In addition, the Fund will consider all facts and circumstances
including the creditworthiness of the borrowing financial institution, and the
Fund will not make any loans in excess of one year. The Fund will not lend its
securities to any officer, Trustee, Director, employee or other affiliate of the
Fund, the Advisor or the Distributor, unless otherwise permitted by applicable
law.

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

Quality and Diversification Requirements

The Fund is registered as a non-diversified investment company which
means that the Fund is not limited by the 1940 Act in the proportion of its
assets that may be invested in the obligations of a single issuer. Thus, the
Fund may invest a greater proportion of its assets in the securities of a
smaller number of issuers and, as a result, may be subject to greater risk with
respect to its portfolio securities. The Fund, however, will comply with the
diversification requirements imposed by the Internal Revenue Code of 1986, as
amended (the "Code"), for qualification as a regulated investment company. See
"Taxes".

The Fund invests principally in a portfolio of "investment grade" tax
exempt securities. An investment grade bond is rated, on the date of investment,
within the four highest ratings of Moody's, currently Aaa, Aa, A and Baa or of
Standard & Poor's, currently AAA, AA, A and BBB, while high grade debt is rated,
on the date of the investment, within the two highest of such ratings.
Investment grade municipal notes are rated, on the date of investment, MIG-1 or
MIG-2 by Standard & Poor's or SP-1 and SP-2 by Moody's. Investment grade
municipal commercial paper is rated, on the date of investment, Prime 1 or Prime
2 by Moody's and A-1 or A-2 by Standard & Poor's. The Fund may also invest up to
10% of its total assets in securities which are "below investment grade." Such
securities must be rated, on the date of investment, B or better by Moody's or
Standard & Poor's, or of comparable quality. The Fund may invest in debt
securities which are not rated or other debt securities to which these ratings
are not applicable, if in the opinion of the Advisor, such securities are of
comparable quality to the rated securities discussed above. In addition, at the
time the Fund invests in any commercial paper, bank obligation, repurchase
agreement, or any other money market instruments, the investment must have
received a short term rating of investment grade or better (currently Prime-3 or
better by Moody's or A-3 or better by Standard & Poor's) or the investment must
have been issued by an issuer that received a short term investment grade rating
or better with respect to a class of investments or any investment within that
class that is comparable in priority and security with the investment being
purchased by the Fund. If no such ratings exists, the investment must be of
comparable investment quality in the Advisor's opinion, but will not be eligible
for purchase if the issuer or its parent has long term outstanding debt rated
below BBB.

Below Investment Grade Debt. Certain lower rated securities purchased
by the Fund, such as those rated Ba or B by Moody's or BB or B by Standard &
Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of principal
and interest and to greater market fluctuations. While generally providing
higher coupons or interest rates than investments in higher quality securities,
lower quality fixed income securities involve greater risk of loss of principal
and income, including the possibility of default or bankruptcy of the issuers of
such securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Fund invests in such lower quality securities, the achievement of its
investment objective may be more dependent on the Advisor's own credit analysis.

Options and Futures Transactions

The Fund may use futures contracts and options for hedging and risk
management purposes. The Fund 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 Fund's return. While the use of these instruments by
the Fund may reduce certain risks associated with owning its portfolio
securities, these techniques themselves entail certain other risks. If the
Advisor applies a strategy at an inappropriate time or judges market conditions
or trends incorrectly, options and futures strategies may lower the Fund's
return. Certain strategies limit the Fund's possibilities to realize gains as
well as its exposure to losses. A Fund could also experience losses if the
prices of its options and futures positions were poorly correlated with its
other investments, or if it could not close out its positions because of an
illiquid secondary market. In addition, the Fund will incur transaction costs,
including trading commissions and option premiums, in connection with its
futures and options transactions and these transactions could significantly
increase the Fund's turnover rate.

Options

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

Futures Contracts

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

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

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

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

Risk Management

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

Special Factors Affecting the Fund

The Fund intends to invest a high proportion of its assets in municipal
obligations in New York Municipal Securities. Payment of interest and
preservation of principal is dependent upon the continuing ability of New York
issuers and/or obligors of New York Municipal Securities to meet their
obligations thereunder.

The fiscal stability of New York is related, at least in part, to the
fiscal stability of its localities and authorities. Various New York agencies,
authorities and localities have issued large amounts of bonds and notes either
guaranteed or supported by New York through lease-purchase arrangements, other
contractual arrangements or moral obligation provisions. While debt service is
normally paid out of revenues generated by projects of such New York agencies,
authorities and localities, in the past the State has had to provide special
assistance, in some cases of a recurring nature, to enable such agencies,
authorities and localities to meet their financial obligations and, in some
cases, to prevent or cure defaults. The presence of such aid in the future
should not be assumed. To the extent that New York agencies and local
governments require State assistance to meet their financial obligations, the
ability of New York to meet its own obligations as they become due or to obtain
additional financing could be adversely affected.

For further information concerning New York Municipal Obligations, see
Appendix B to this Statement of Additional Information. The summary set forth
above and in Appendix B is based on information from an official statement of
New York general obligation municipal obligations and does not purport to be
complete.

Portfolio Turnover

The Portfolio's turnover rates for the fiscal years ended March 31,
1997, 1998, 1999 and for the four months ended July 31, 1999 were: 35%, 51%, 44%
and 8%, respectively. A rate of 100% indicates that the equivalent of all of the
Portfolio's assets have been sold and reinvested in a year. High portfolio
turnover may result in the realization of substantial net capital gains or
losses. To the extent net short term capital gains are realized, any
distributions resulting from such gains are considered ordinary income for
federal income tax purposes. See "Taxes" below.

INVESTMENT RESTRICTIONS

The Fund and its corresponding Portfolio:

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

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

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

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

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

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

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

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

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

TRUSTEES AND OFFICERS

Trustees

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

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

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

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 are set forth below.

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

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

Frederick S. Addy, Trustee $14,363 $75,000
- ------------------------------- --------------------- --------------------------
- ------------------------------- --------------------- --------------------------

William G. Burns, Trustee $14,363 $75,000
- ------------------------------- --------------------- --------------------------
- ------------------------------- --------------------- --------------------------

Arthur C. Eschenlauer, Trustee $14,363 $75,000
- ------------------------------- --------------------- --------------------------
- ------------------------------- --------------------- --------------------------

Matthew Healey, Trustee(***), $14,363 $75,000
Chairman and Chief Executive
Officer
- ------------------------------- --------------------- --------------------------
- ------------------------------- --------------------- --------------------------

Michael P. Mallardi, Trustee $14,363 $75,000
- ------------------------------- --------------------- --------------------------

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

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 periods are set forth below:

Fund -- For the fiscal years ended March 31, 1997, 1998, 1999 and for the
four months ended July 31, 1999: $2,391, $2,291, $2,559 and $870, respectively.

Portfolio -- For the fiscal years ended March 31, 1997, 1998, 1999 and for
the four months ended July 31, 1999: $5,302, $5,740, $6,630 and $2,300,
respectively.

Officers

INVESTMENT ADVISOR

The Fund has not retained the services of an investment adviser because
each Fund seeks to achieve its investment objective by investing all of its
investable assets in a corresponding Portfolio. Subject to the supervision of
the Portfolio's Trustees, the Advisor makes the Portfolio's day-to-day
investment decisions, arranges for the execution of Portfolio transactions and
generally manages the Portfolio's investments. Prior to October 28, 1998, Morgan
was the Investment Advisor. JPMIM, a wholly owned subsidiary of J.P. Morgan &
Co. Incorporated ("J.P. Morgan"), is a registered investment adviser under the
Investment Advisers Act of 1940, as amended, and manages employee benefit funds
of corporations, labor unions and state and local governments and the accounts
of other institutional investors, including investment companies. Certain of the
assets of employee benefit accounts under its management are invested in
commingled pension trust funds for which Morgan serves as trustee.

The basis of the Advisor's investment process is fundamental investment
research as the firm believes that fundamentals should determine an asset's
value over the long term. J.P. Morgan currently employs over 100 full time
research analysts, among the largest research staffs in the money management
industry, in its investment management divisions located in New York, London,
Tokyo, Frankfurt and Singapore to cover companies, industries and countries on
site. In addition, the investment management divisions employ approximately 380
capital market researchers, portfolio managers and traders. The Advisor's fixed
income investment process is based on analysis of real rates, sector
diversification, and quantitative and credit analysis.

For the fiscal years ended March 31, 1997, 1998, 1999 and for the four
months ended July 31, 1999, the advisory fees paid by the Portfolio were
$380,380, $513,516, $796,521 and $298,444, respectively.

DISTRIBUTOR

CO-ADMINISTRATOR

The table below sets forth for the Fund and the Portfolio the
administrative fees paid to FDI for the fiscal periods indicated.

Fund -- For the period August 1, 1996 through March 31, 1997: $1,340. For
the fiscal years ended March 31, 1998 and 1999: $1,878 and $1,863, respectively.
For the four months ended July 31, 1999: $556.

Portfolio -- For the period August 1, 1996 through March 31, 1997: $1,914.
For the fiscal years ended March 31, 1998 and 1999: $2,869 and $3,052,
respectively. For the four months ended July 31, 1999: $880.

The table below sets forth for the Fund and the Portfolio the
administrative fees paid to Signature Broker-Dealer Services, Inc. (which
provided distribution and administrative services to the Trust and placement
agent and administrative services to the Portfolio prior to August 1, 1996) for
the fiscal periods indicated.

Fund -- For the period April 1, 1996 through July 31, 1996: $2,246.

Portfolio -- For the period April 1, 1996 through July 31, 1996: $4,617.

SERVICES AGENT

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

The table below sets forth for the Fund and the Portfolio the fees paid
to Morgan as Services Agent.

Fund -- For the fiscal years ended March 31, 1997, 1998 and 1999 and for
the four months ended July 31, 1999: $16,259, $20,882, $28,071 and $9,858,
respectively.

Portfolio -- For the fiscal years ended March 31, 1997, 1998, 1999 and for
the four months ended July 31, 1999: $37,675, $52,013, $73,366 and $25,575,
respectively.

CUSTODIAN AND TRANSFER AGENT

SHAREHOLDER SERVICING

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

The shareholder servicing fees paid by the Fund to Morgan for the
fiscal years ended March 31, 1997, 1998, 1999 and for the four months ended July
31, 1999: $110,663, $137,549, $238,894 and $95,896, respectively.

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

FINANCIAL PROFESSIONALS

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

INDEPENDENT ACCOUNTANTS

EXPENSES

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

J.P. Morgan has agreed that it will reimburse the Fund until November
28, 2000, 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 the annual rate of 0.70% of the Fund's average daily net assets.
This limit does not cover extraordinary expenses.

The table below sets forth for the Fund listed the fees and other
expenses J.P. Morgan reimbursed under the expense reimbursement arrangement
described above or pursuant to prior expense reimbursement arrangements for the
fiscal periods indicated.

Fund -- For the fiscal years ended March 31, 1997, 1998, 1999 and for the
four months ended July 31, 1999: $32,956, $39,505, $41,794 and $29,456,
respectively.

Portfolio -- For the fiscal years ended March 31, 1997, 1998, 1999 and for
the four months ended July 31, 1999: N/A, N/A, N/A and N/A, respectively.

PURCHASE OF SHARES

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

REDEMPTION OF SHARES

Investors may redeem shares as described in the Prospectus.

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

EXCHANGE OF SHARES

An investor may exchange shares of the Fund for shares of any J.P.
Morgan Institutional Fund, J.P. Morgan Fund or J.P. Morgan Series Trust fund
without charge. An exchange may be made so long as after the exchange the
investor has shares, in each fund in which he or she remains an investor, with a
value of at least that fund's minimum investment amount. Shareholders should
read the prospectus of the fund into which they are exchanging and may only
exchange between fund accounts that are registered in the same name, address and
taxpayer identification number. Shares are exchanged on the basis of relative
net asset value per share. Exchanges are in effect redemptions from one fund and
purchases of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. The Funds generally intend to pay
redemption proceeds in cash, however, since they reserve the right at their sole
discretion to pay redemptions over $250,000 in-kind as a portfolio of
representative stocks rather than in cash, each 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 a Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. Each Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.

NET ASSET VALUE

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

PERFORMANCE DATA

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

The historical yield information at July 31, 1999: 30-day yield: 4.15%;
30-day tax equivalent yield at 39.6% tax rate: 6.87%.

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

The historical return information for the Fund at July 31, 1999: Average
annual total return, 1 year: 2.48%; average annual total return, 5 years: 5.36%;
average annual total return, commencement of investment operations2 (April 15,
1994) to period end: 5.46%; aggregate total return, 1 year: 2.48%; aggregate
total return, 5 years: 29.84%; aggregate total return, commencement of
investment operations (April 15, 1994) to period end: 32.47%.

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

PORTFOLIO TRANSACTIONS

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

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

MASSACHUSETTS TRUST

Effective January 1, 1998, the name of the Trust was changed from "The
JPM Pierpont Funds" to "J.P. Morgan Funds", and the Fund's name changed
accordingly. Effective October 28, 1998 the name of the Fund was changed from
"J.P. Morgan New York Total Return Bond Fund" to "J.P. Morgan New York Tax
Exempt Bond Fund", and the Portfolio's name changed accordingly.

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

DESCRIPTION OF SHARES

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

The Trustees have authorized the issuance and sale to the public of
shares of 18 series of the Trust. The Trustees have no current intention to
create any classes within the initial series or any subsequent series. The
Trustees may, however, authorize the issuance of shares of additional series and
the creation of classes of shares within any series with such preferences,
privileges, limitations and voting and dividend rights as the Trustees may
determine. The proceeds from the issuance of any additional series would be
invested in separate, independently managed portfolios with distinct investment
objectives, policies and restrictions, and share purchase, redemption and net
asset valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be required
by future regulations or other unforeseen circumstances. All consideration
received by the Trust for shares of any additional series or class, and all
assets in which such consideration is invested, would belong to that series or
class, subject only to the rights of creditors of the Trust and would be subject
to the liabilities related thereto. Shareholders of any additional series or
class will approve the adoption of any management contract or distribution plan
relating to such series or class and of any changes in the investment policies
related thereto, to the extent required by the 1940 Act.

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

As of October 31, 1999, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of the Fund:

MGT of NY as Agent for H. Maut: 5.35%.

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

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

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

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

TAXES

The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency and (b) diversify its
holdings so that, at the end of each fiscal quarter, (i) at least 50% of the
value of the Fund's total assets is represented by cash, U.S. Government
securities, investments in other regulated investment companies and other
securities limited, in respect of any one issuer, to an amount not greater than
5% of the Fund's total assets, and 10% of the outstanding voting securities of
such issuer, and (ii) not more than 25% of the value of its total assets is
invested in the securities of any one issuer (other than U.S.
Government securities or the securities of other regulated investment
companies).

As a regulated investment company, the Fund (as opposed to its
shareholders) will not be subject to federal income taxes on the net investment
income and capital gains that it distributes to its shareholders, provided that
at least 90% of its net investment income and realized net short-term capital
gains in excess of net long-term capital losses for the taxable year is
distributed.
Under the Code, the Fund will be subject to a 4% excise tax on a
portion of its undistributed taxable income and capital gains if it fails to
meet certain distribution requirements by the end of the calendar year. The Fund
intends to make distributions in a timely manner and accordingly does not expect
to be subject to the excise tax.

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

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

Distributions of net investment income (other than exempt-interest
dividends) and realized net short-term capital gains in excess of net long-term
capital losses are generally taxable to shareholders of the Fund as ordinary
income whether such distributions are taken in cash or reinvested in additional
shares. The Fund generally pays a monthly dividend. If dividend payments exceed
income earned by the Fund, the over distribution would be considered a return of
capital rather than a dividend payment. The Fund intends to pay dividends in
such a manner so as to minimize the possibility of a return of capital.
Distributions of net long-term capital gains (i.e., net long-term capital gains
in excess of net short-term capital losses) are taxable to shareholders of the
Fund as long-term capital gains, regardless of whether such distributions are
taken in cash or reinvested in additional shares and regardless of how long a
shareholder has held shares in the Fund. In general, long-term capital gain of
an individual shareholder will be subject to a 20% rate of tax.

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

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.

ADDITIONAL INFORMATION

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

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.

The Year 2000 Initiative

Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $93.3 million in 1997, $132.7 million in 1998 and $36.6
million for the first eight months of 1999. Over the next month, J.P. Morgan
will continue its efforts to prepare its systems for the year 2000. The total
cost to become year-2000 compliant is estimated at $300 million, for internal
systems renovation and testing, testing equipment and both internal and external
resources working on the project. The costs associated with J.P. Morgan becoming
year-2000 compliant will be borne by J.P. Morgan and not the Fund.

FINANCIAL STATEMENTS

The financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference to the Fund's
July 31, 1999 annual report filing made with the SEC on October 4, 1999 pursuant
to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession Number
0001047469-99-037584). The financial statements are available without charge
upon request by calling J.P. Morgan Funds Services at (800) 521-5411. The Fund's
financial statements include the financial statements of the Portfolio.

<PAGE>

APPENDIX A

Description of Security Ratings

STANDARD & POOR'S

Corporate and Municipal Bonds

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

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

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

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

Commercial Paper, including Tax Exempt

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

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

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

Short-Term Tax-Exempt Notes

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

MOODY'S

Corporate and Municipal Bonds

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

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

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

Commercial Paper, including Tax Exempt

Short-Term Tax Exempt Notes

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

<PAGE>

APPENDIX B

ADDITIONAL INFORMATION CONCERNING NEW YORK MUNICIPAL OBLIGATIONS

The following information is a summary of special factors affecting
investments in New York municipal obligations. It does not purport to be a
complete description and is based on information from the supplement (dated
February 9, 1999) to the Annual Information Statement of the State of New York
dated June 26, 1998, and other sources of information. The factors affecting the
financial condition of New York State and New York City are complex and the
following description constitutes only a summary.

General

New York is the third most populous state in the nation and has a
relatively high level of personal wealth. The State's economy is diverse, with a
comparatively large share of the nation's finance, insurance, transportation,
communications and services employment, and a very small share of the nation's
farming and mining activity. The State's location and its excellent air
transport facilities and natural harbors have made it an important link in
international commerce. Travel and tourism constitute an important part of the
economy. Like the rest of the nation, New York has a declining proportion of its
workforce engaged in manufacturing, and an increasing proportion engaged in
service industries.

Services: The services sector, which includes entertainment, personal
services, such as health care and auto repairs, and business-related services,
such as information processing, law and accounting, is the State's leading
economic sector. The services sector accounts for more than three of every ten
nonagricultural jobs in New York and has a noticeably higher proportion of total
jobs than does the rest of the nation.

Manufacturing: Manufacturing employment continues to decline in
importance in New York, as in most other states, and New York's economy is less
reliant on this sector than is the nation. The principal manufacturing
industries in recent years produced printing and publishing materials,
instruments and related products, machinery, apparel and finished fabric
products, electronic and other electric equipment, food and related products,
chemicals and allied products, and fabricated metal products.

Trade: Wholesale and retail trade is the second largest sector in terms
of nonagricultural jobs in New York but is considerably smaller when measured by
income share. Trade consists of wholesale businesses and retail businesses, such
as department stores and eating and drinking establishments.

Finance, Insurance and Real Estate: New York City is the nation's
leading center of banking and finance and, as a result, this is a far more
important sector in the State than in the nation as a whole. Although this
sector accounts for under one-tenth of all nonagricultural jobs in the State, it
contributes over one-sixth of all nonfarm labor and proprietors' income.

Agriculture: Farming is an important part of the economy of large
regions of the State, although it constitutes a very minor part of total State
output. Principal agricultural products of the State include milk and dairy
products, greenhouse and nursery products, apples and other fruits, and fresh
vegetables. New York ranks among the nation's leaders in the production of these
commodities.

Government: Federal, State and local government together are the third
largest sector in terms of nonagricultural jobs, with the bulk of the employment
accounted for by local governments. Public education is the source of nearly
one-half of total state and local government employment.

Relative to the nation, the State has a smaller share of manufacturing
and construction and a larger share of service-related industries. The State's
finance, insurance, and real estate share, as measured by income, is
particularly large relative to the nation. The State is likely to be less
affected than the nation as a whole during an economic recession that is
concentrated in manufacturing and construction, but likely to be more affected
during a recession that is concentrated in the service-producing sector.

State Financial Plan

The requirements of the State budget process are set forth in Article
VII of the State Constitution and the State Finance Law. The process begins with
the Governor's submission of the Executive Budget to the Legislature each
January, in preparation for the start of the fiscal year on April 1. (The
submission date is February 1 in years following a gubernatorial election). The
budget must contain a complete plan of available receipts and projected
disbursements for the ensuing fiscal year (State Financial Plan). The proposed
State Financial Plan must be balanced on a cash basis and must be accompanied by
bills that: (i) set forth all proposed appropriations and reappropriations ,
(ii) provide for any new or modified revenue measures, and (iii) make any other
changes to existing law necessary to implement the budget recommended by the
Governor.

In acting on the bills submitted by the Governor, the Legislature has
the power to alter both recommended appropriations and proposed changes to
substantive law. The Legislature may strike out or reduce an item of
appropriation recommended by the Governor. The Legislature may add items of
appropriation, provided such additions are stated separately. These additional
items are then subject to line-item veto by the Governor. If the Governor vetoes
an appropriation or a bill (or portion thereof) related to the budget, these can
be reconsidered in accordance with the rules of each house of the Legislature.
If approved by two-thirds of the members of each house, the measure will become
law notwithstanding the Governor's veto.

Once the appropriation bills and other bills become law, the State
Division of the Budget (DOB) revises the State Financial Plan to reflect the
Legislature's actions, and begins the process of implementing the budget.
Throughout the fiscal year, DOB monitors actual receipts and disbursements, and
may adjust the estimates in the State Financial Plan. Adjustments also may be
made to the State Financial Plan to reflect changes in the economy, as well as
new actions taken by the Governor or the Legislature. The Governor is required
to submit to the Legislature quarterly budget updates which include a revised
cash-basis State Financial Plan, and an explanation of any changes from the
previous State Financial Plan. As required by the State Financial Law, the
Governor updates the State Financial Plan within 30 days of the close of each
quarter of the fiscal year, generally issuing reports by July 30, October 30,
and in January, as part of the Executive Budget.

The Legislature may enact, subject to approval by the Governor,
additional appropriation bills or revenue measures, including tax reductions,
during any regular session or, if called into session for that purpose, any
special session of the Legislature. If additional appropriation bills or revenue
measures are disapproved by the Governor, the Legislature has authority to
override the Governor's veto upon the vote of two-thirds of the members of each
house of the Legislature. The Governor may present deficiency appropriation
bills to the Legislature near the end of the fiscal year to supplement
inadequate appropriations or to provide new appropriations for purposes not
covered by the regular and supplemental appropriation bills.

The legislature adopted the debt service component of the State budget
for the 1998-99 fiscal year on March 30, 1998 and the remainder of the budget on
April 18, 1998. In the period prior to adoption of the budget for the current
fiscal year, the Legislature also enacted appropriations to permit the State to
continue its operations and provide for other purposes. On April 25, 1998, the
Governor vetoed certain items that the Legislature added to the Executive
Budget.

General Fund disbursements in 1998-99 are now projected to grow by
$2.43 billion over 1997-98 levels, or $690 million more than proposed in the
Governor's Executive Budget, as amended. The change in General Fund
disbursements from the Executive Budget to the enacted budget reflects
legislative additions (net of the value of the Governor's vetoes), actions taken
at the end of the regular legislative session, as well as spending that was
originally anticipated to occur in 1997-98 but is now expected to occur in
1998-99. The State projects that the 1998-99 State Financial Plan is balanced on
a cash basis, with an estimated reserve for future needs of $761 million.

The State's enacted budget includes several new multi-year tax
reduction initiatives, including acceleration of State-funded property and local
income tax relief for senior citizens under the School Tax Relief Program
(STAR), expansion of the child car income-tax credit for middle-income families,
a phased-in reduction of the general business tax, and reduction of several
other taxes and fees, including an accelerated phase-out of assessments on
medical providers. The enacted budget also provides for significant increases in
spending for public schools, special education programs, and for the State and
New York City university systems. It also allocates $50 million for a new Debt
Reduction Reserve Fund (DRRF) that may eventually be used to pay debt service
costs on or to prepay outstanding State-supported bonds.

The 1998-99 State Financial Plan projects a closing balance in the
General Fund of $1.42 billion that is comprised of a reserve of $761 million
available for future needs, a balance of $400 million in the Tax Stabilization
Reserve Fund (TSRF), a balance of $158 million in the Community Projects Fund
(CPF), and a balance of $100 million in the Contingency Reserve Fund (CRF). The
TSRF can be used in the event of an unanticipated General Fund cash operating
deficit, as provided under the State Constitution and State Finance Law. The CPF
is used to finance various legislative and executive initiatives. The CRF
provides resources to help finance any extraordinary litigation costs during the
fiscal year.

Prior Quarterly Updates

The State issued its First Quarterly Update to the cash-basis 1998-99
State Financial Plan on July 30, 1998. The update reported that the State's
Financial Plan remained balanced. In the update, the State made several
revisions to its receipts estimates, which, had the net effect of increasing
projected General Fund receipts by $250 million over the Financial Plan issued
with the enacted budget (June 25, 1998). Stronger-than-expected personal income
tax and sales tax collections in the first quarter were the main reason for the
revision to the receipts estimate. The State made no changes to its disbursement
projections in the 1998-99 Financial Plan.

As updated in July, the Financial Plan projected a closing balance in
the General Fund of $1.67 billion, with the balance comprised of a $1.01 billion
reserve for future needs, $400 million in the TSRF, $100 million in the CRF
(after a planned deposit of $32 million in 1998-99), and $158 million in the
CPF.

On October 30, 1998, the State issued the second of its three quarterly
updates to the 1998-99 Financial Plan (Mid-Year Update). In the Mid-Year Update,
the State projected that the Financial Plan would remain in balance, with
projected total receipts and transfers from other funds of $37.84 billion, an
increase of $29 million over the amount projected in the First Quarterly Update.
No changes were made to the July disbursement projections, with total
disbursements and transfers to other funds of $36.78 billion expected at that
time.

The Mid-Year Update projected a closing balance in the General Fund of
$1.7 billion, with the balance comprised of $1.04 billion reserved for future
needs, $400 million in the TSRF, $100 million in the CPF.

Third Quarterly Update

The State revised the cash-basis 1998-99 State Financial Plan on
January 27, 1999, with the release of the 1999-2000 Executive Budget. The
changes from prior quarterly updates reflect actual results through December
1998, as well as updated economic and spending projections for the balance of
the current fiscal year.

The 1998-99 Financial Plan currently projects a year-end available cash
surplus of $1.79 billion in the General Fund, an increase of $749 million over
the surplus estimate in the Mid-Year Update. Strong growth in receipts as well
as lower-than-expected disbursements during the first nine months of the fiscal
year account for the higher surplus estimate, as described in more detail below.

The 1999-2000 Executive Budget proposes using the projected available
surplus from 1998-99 to offset a portion of the incremental loss of tax receipts
from enacted tax cuts scheduled to be effective for the 2000-01 and 2001-02
fiscal years. To make this surplus available for the tax reduction program, the
State plans to deposit $1.79 billion in the tax refund reserve to pay tax
refunds in 1999-2000 from overpayments of taxes in 1998-99. This action has the
effect of decreasing reported personal income receipts in 1998-99, while
increasing reported receipts in 1999-2000, as these refunds will no longer be a
charge against current revenues in 1999-2000. The 1999-2000 Financial Plan
assumes that these additional receipts will become a part of the 1999-2000
closing fund balance, and not used to support 1999-2000 operations.

Revisions to 1998-99 Receipts Estimates

Total receipts and transfers from other funds to be deposited in the
General Fund in 1998-99 are projected to be $36.78 billion, $1.06 billion less
than projected at the time of the Mid-Year Update. The forecast for 1998-99 tax
receipts has been increased by $729 million, but this increase is more than
offset by the decision to create reserves for the payment of $1.79 billion in
personal income tax refunds for the 1998 tax year, which has the effect of
reducing reported receipts (as discussed above). The balance of the tax refund
reserve on March 31, 1999 is now projected to be $2.32 billion, including $521
million as a result of the Local Government Assistance Corporation (LGAC).

Prior to refund reserve transactions, personal income tax collections
for 1998-99 are now projected at $20.69 billion, an increase of 13 percent from
comparable 1997-98 receipt levels. After reflecting the tax refund reserve
transactions discussed above, reported income tax receipts are projected at
$20.18 billion, or $1.26 billion less than projected in October. Projected
business tax receipts have been increased by $4 million, to $4.79 billion, and
user tax collections by $23 million, to $7.23 billion. Other tax receipts are
projected to increase by $27 million from the Mid-Year Update and are now
expected to total $1.10 billion for the fiscal year. Miscellaneous receipts and
transfers from other funds are projected to reach $3.48 billion, $145 million
higher than in the Mid-Year Update.

Revisions to 1998-99 Disbursements Estimates

The State now projects total General Fund disbursements and transfers
to other funds of $36.62 billion in 1998-99, a reduction of $161 million from
the Mid-Year Update. The State has lowered its estimate of disbursements for
local assistance by $248 million and for State operations by $54 million. Higher
projected spending for general State charges ($71 million) and transfers to
other funds ($70 million) partially offset these reductions.

In local assistance, spending from the CPF, which pays primarily for
legislative initiatives, has lagged behind earlier projections and accounts for
$68 million of the $248 million downward revision. Similarly, special education
claims from school districts are running below projections, leading the State to
lower its spending estimate by $32 million for 1998-99. Lower-than-expected
program and administrative costs in welfare ($99 million), Medicaid ($32
million), and Children and Families Services ($21 million) account for most of
the remaining downward revisions in projected local assistance spending.

In State operations, projected spending is lower by $54 million
primarily due to savings from the Statewide hiring freeze, agency attrition
management, and continued nonpersonal service efficiencies.

Revised higher spending for fringe benefits ($71 million) reflects
higher-than-anticipated costs for employee benefits and health insurance.
Transfers for debt service decline $29 million because of higher refunding
savings and other debt management activities. Capital projects transfers
increase by $5 million, while other transfers increase by $94 million primarily
to cover unanticipated shortfalls in the State Lottery Fund ($80 million) and
the Oil Spill Fund ($10 million).

Closing General Fund Balance

The State now projects a closing balance of $799 million in the General
Fund, a decrease of $899 million from the Mid-Year Update. The decline reflects
the payment of the $1.04 billion undesignated reserve identified in October plus
additional surplus monies projected in the January Update into the tax refund
reserve (as described above). The projected closing balance of $799 million in
the General Fund is comprised of $473 million in the TSRF, following a new $73
million deposit in 1998-99; $100 million in the CRF, following a planned $32
million deposit; and the remaining balance of $226 million in the CPF.

1999-2000 Fiscal Year (Executive Budget Forecast)

The Governor presented his 1999-2000 Executive Budget to the
Legislature on January 27, 1999. The Executive Budget contains financial
projections for the State's 1998-99 through 2001-02 fiscal years, and a proposed
Capital Program and Financing Plan for the 1999-2000 through 2003-04 fiscal
years. The Governor will prepare amendments to his Executive Budget, as
permitted under law. There can be no assurance that the Legislature will enact
into law the Executive Budget as proposed by the Governor, or that the State's
adopted budget projections will not differ materially and adversely from current
projections. For a more detailed discussion of the State's budgetary process and
uncertainties involving its forecasts and projections, see "Special
Considerations" below.

The 1999-2000 Financial Plan is projected to have receipts in excess of
disbursements on a cash basis in the General Fund, after accounting for the
transfer of available receipts from 1998-99 to 1999-2000. Total General Fund
receipts, including transfers from other funds, are projected to be $38.66
billion, an increase of $1.88 billion over projected receipts in the current
fiscal year. General Fund disbursements, including transfer to other funds, are
recommended to grow by 1.3 percent to $37.10 billion, an increase of $482
million over 1998-99. State Funds spending is projected to total $49.33 billion,
an increase of $867 million or 1.8 percent from the current year. Under the
Governor's recommendations, spending from All Governmental Funds is also
expected to grow by 1.8 percent, increasing by $1.25 billion to $72.66 billion.

The State is projected to close the 1999-2000 fiscal year with a
balance in the General Fund of $2.36 billion. The balance is comprised of $1.79
billion in tax reduction reserves, $473 million in the TSRF and $100 million in
the CRF.

Economic Outlook

U.S. Economy

The State has updated its mid-year forecast of national and State
economic activity through the end of calendar year 2000. At the national level,
although the current projected nominal growth rate for 1999 represents only a
small change from the earlier forecast, in real, inflation-adjusted terms, the
annual growth rate is now anticipated to be significantly higher than had been
previously predicted. However, even with the upward adjustment in the forecast,
economic growth nationally during both 1999 and 2000 is still expected to be
slower than it was during 1998. The financial and economic turmoil which started
in Asia and has spread to other parts of the world is expected to continue to
negatively affect U.S. trade balances throughout most of 1999 and could reduce
U.S. economic growth even more than projected. In addition, growth in domestic
consumption, which has been a major driving force behind the nation's strong
economic performance in recent years, is forecasted to slow in 1999 as consumer
confidence retreats from historic highs and stock market gains cease to provide
massive amounts of extra discretionary income. However, the lower short-term
interest rates which are projected to be in force during 1999 are expected to
help prevent a more severe drop in overall economic growth.

The revised forecast projects real Gross Domestic Product (GDP) growth
of 2.4 percent in 1999, well below the projected 1998 growth rate of 3.7
percent. In 2000, real GDP growth is expected to continue at a similar pace,
increasing by 2.3 percent. The growth of nominal GDP is projected to decline
from 4.8 percent in 1998 to 3.6 percent in 1999, then rise somewhat to 4.0
percent in 2000. Inflation is expected to exceed the extremely low rate of 1998,
but still stay well controlled, with price increases of slightly over two
percent in both 1999 and 2000. The annual rate of job growth is expected to
decrease from 2.6 percent in 1998 to 2.0 percent in 1999 and 1.5 percent in
2000. Growth in both personal income and wages also is expected to slow somewhat
in 1999 and again in 2000, while corporate profits are projected to continue the
lackluster performance which began in 1998.

State Economy

The State economic forecast has been modified for 1999 and 2000 from
the one used in earlier updates of the Financial Plan. Continued growth is
projected in 1999 and 2000 for employment, wages, and personal income, although
the growth is expected to moderate from the 1998 pace. However, a continuation
of international financial and economic turmoil may result in a sharper slowdown
than currently projected. Personal income is estimated to have grown by 4.9
percent in 1998, fueled in part by a continued large increase in financial
sector bonus payments at the beginning of the year, and is projected to grow by
4.2 percent in 1999 and 4.0 percent in 2000. Increases in bonus payments in 1999
and 2000 are projected to be modest, a distinct shift from the torrid rate of
the last few years. Overall employment growth is anticipated to continue at a
modest rate, reflecting the slowing growth in the national economy, continued
spending restraint in government, and restructuring in the manufacturing, health
care, social service, and banking sectors.

Many uncertainties exist in any forecast of the national and State
economies. Given the recent volatility in the international economy and domestic
financial markets, such uncertainties are particularly present at this time. The
timing and impact of changes in economic conditions are difficult to estimate
with a high degree of accuracy. Unforeseeable events may occur. The actual rate
of change in any, or all, of the categories that form the basis of these
forecasts may differ substantially and adversely from the outlook described
herein.

Receipts

The 1999-2000 Financial Plan projects General Fund receipts (including
transfers from other funds) of $38.66 billion, an increase of $1.88 billion over
the estimated 1998-99 level. After adjusting for tax law and administrative
changes, recurring growth in the General Fund tax base is projected to be
approximately three percent during 1999-2000.

The forecast of General Fund receipts in 1999-2000 reflects the next
stage of the STAR tax reduction program, which has an incremental cost of $638
million in 1999-2000, as well as the continuing impact of earlier tax reductions
totaling approximately $2 billion. In addition, the Executive Budget reflects
several new tax reduction proposals that are projected to have only a modest
impact on receipts in 1999-2000 and 2000-01, but are expected to reduce receipts
by $1.04 billion annually when fully phased in at the end of 2003-04.

The largest new tax cut proposals call for further reductions in the
personal income tax to benefit middle income taxpayers. These proposals increase
the income threshold where the top tax rate of 6.85 percent applies and doubles
the value of the dependent exemption to $2,000. The fully effective annual cost
of these proposals is $600 million in fiscal year 2003-04. In addition, the
Executive Budget includes several other targeted tax cut proposals, including:
reducing certain energy taxes; lowering the alternative minimum tax on
corporations from 3 percent to 2.5 percent; extending the business tax rate
reductions enacted for general corporations last year to banks and insurance
companies; creating a New York Capital Asset Exclusion for investments in a New
York business; creating a new credit for job creation in cities; expanding the
Qualified Emerging Technology Credit; conforming the estate tax to recent
federal changes; eliminating several nuisance taxes and fees, including minimum
taxes imposed on petroleum and aviation businesses; and expanding the income tax
credit benefits provided to farmers to ease school property tax burdens.
Together, these targeted reductions will have a full annual value of
approximately $440 million.

Personal income tax collections for 1999-2000 are projected to reach
$22.83 billion, an increase of $2.65 billion (13.2 percent) over 1998-99. This
increase is due in part to refund reserve transactions (including those
described earlier) which serve to increase reported 1999-2000 personal income
tax receipts by $1.77 billion. Collections also benefit from the estimated
increase in income tax liability of 13.5 percent in 1998 and 5.3 percent in
1999. The large increases in liability in recent years have been supported by
the continued surge in taxable capital gains realizations. This activity is
related at least partially to recent changes in the federal tax treatment of
such income. The growth in capital gains income is expected to plateau in 1999.
Growth in 1999-2000 personal income tax receipts is partially offset by the
diversion of such receipts into the School Tax Relief Fund, which finances the
STAR tax reduction program. For 1999-2000, $1.22 billion will be deposited into
this fund, an increase of $638 million.

User tax and fees are projected at $7.16 billion in 1999-2000, a
decrease of $72 million from the current year. The decline in this category
reflects the incremental impact of already-enacted tax reductions, and the
diversion of $30 million of additional motor vehicle registration fees to the
Dedicated Highway and Bridge Trust Fund. Adjusted for these changes, the
underlying growth of user taxes and fees is projected at 2.5 percent. The
largest source of receipts in this category is the sales and use tax, which
accounts for nearly 80 percent of projected receipts. The continuing base of the
sales tax is projected to grow 4.4 percent in the coming year, and assumes the
Legislature will not enact additional "sales-tax free" weeks that would affect
receipts before December 1, 1999, when the sales and use tax on clothing and
footwear under $110 is eliminated.

Business tax receipts are expected to total $4.53 billion in 1999-2000,
$267 million below 1998-99 estimated results. The impact of tax reductions
scheduled in law, as well as slower growth in the underlying tax base, explain
the decline in this category of the Financial Plan.

Receipts from other taxes, which are comprised primarily of receipts
from estate and gift taxes and pari mutuel taxes on wagering, are expected to
decline $119 million to $980 million in 1999-2000. The ongoing effect of tax
cuts already in law is the main reason for the decline. In addition, this
category formerly included receipts from the real property gains tax that was
repealed in 1996, and receipts from the real property transfer tax that, since
1996, have been earmarked to support various environmental programs.

Miscellaneous receipts includes license revenues, income from fees and
fines, abandoned property proceeds, investment income, and a portion of the
assessments levied on medical providers. Miscellaneous receipts are expected to
total $1.24 billion in 1999-2000, a decline of $292 million from 1998-99.
Roughly $165 million of this decline is attributable to the ongoing phase-out of
medical provider assessments. In addition, the Executive Budget proposes
eliminating medical provider assessments on April 1, 1999, one year earlier than
planned, which accounts for another $26 million of the year-to-year decline in
miscellaneous receipts (the remainder of the provider assessment savings is
reflected in lower General Fund disbursements).

Transfers to the General Fund consist primarily of tax revenues in
excess of debt service requirements. State sales tax proceeds in excess of
amounts needed to support debt service payments for LGAC account for 82 percent
of the 1999-2000 receipts in this category. Transfers to the General Fund
decline $63 million in 1999-2000, reflecting lower projected receipts from the
real estate transfer tax.

Disbursements

The 1999-2000 Financial Plan projects General Fund disbursements and
transfers to other funds of $37.10 billion, an increase of $482 million over
projected spending for the current year. Grants to local governments constitute
approximately 67 percent of all General Fund spending, and include payments to
local governments, non-profit providers and individuals. Disbursements in this
category are projected to decrease $87 million (0.4 percent) to $24.81 billion
in 1999-2000, in part due to a $175 million decline in proposed spending for
legislative initiatives.

General Fund spending for school aid is projected at $9.99 billion on a
State fiscal year basis, an increase of $292 million (3.0 percent) from the
current fiscal year. The Executive Budget recommends additional funding for
operating aid, building aid, and textbook and computer aids. It also funds the
remainder of aid payable for the 1998-99 school year. These increases are
partially offset by the elimination of categorical grants, reductions in BOCES
aid, and other formula modifications. A new Educational Improvement block grant
replaces categorical programs such as pre-kindergarten and minor maintenance to
give school districts greater flexibility in meeting locally-determined needs.

Medicaid spending is estimated to total $5.50 billion in 1999-2000, a
modest decline of $87 million or 1.6 percent from 1998-99. To achieve program
savings, the Executive Budget recommends a series of cost containment actions,
including restructuring rates paid to providers for certain services, shifting
treatments for certain services to outpatient settings, and maximizing allowable
federal funds. At the same time, medical providers would benefit from the
proposed acceleration of the phase-out of provider assessments already scheduled
in law. The State had planned to eliminate provider assessments on April 1,
2000; the Executive Budget proposes eliminating them one year earlier. As a
result, health care providers will not be required to pay $223 million in
assessments in 1999-2000.

Spending on welfare is projected at $1.49 billion, a decline of $41
million (2.7 percent) from 1998-99. Since 1994-95, State spending on welfare has
fallen by $709 million, or 32 percent, driven by significant welfare changes
initiated at the State and federal levels and a large, steady decline in the
number of people receiving benefits. Several trends have contributed to falling
caseloads, including the State's strong economic performance over the past three
years; State, federal and local welfare-to-work initiatives that have expanded
training and support services to assist recipients in becoming self-sufficient;
tightened eligibility review for applicants; and aggressive fraud prevention
measures.

Local assistance spending for Children and Families Services is
projected at $864 million in 1999-2000, down $42 million (4.7 percent) from
1998-99. The decline in General Fund spending is offset by higher spending on
child care and child welfare services that is occurring with federal Temporary
Assistance for Needy Families funds, which has allowed the State to lower
General Fund spending while still expanding services in this area.

In Mental Health, the State projects spending of $619 million in
1999-2000, an increase of $40 million (7 percent) over 1998-99, including $23
million in additional funding for the Community Reinvestment Program. Mental
Retardation and Developmental Disabilities spending increases by $17 million to
$576 million. Major components of spending growth include an inflation
adjustment for Medicaid programs, annualization of new community services from
1998-99, and the first year of the NYS-CARES initiative that is projected to
invest $129 million in State funds over the next five years to develop
community-based beds for persons on waiting lists.

Spending for all other local assistance programs will total $5.72
billion in 1999-2000, a decline of $266 million from 1998-99. Lower spending of
$175 million for legislative member items in 1999-2000 accounts for the majority
of the year-to-year change. Proposed actions to restructure the State's tuition
assistance program produce a decline of $17 million from the previous fiscal
year. Unrestricted aid to local governments is estimated at $822 million, $9
million below 1998-99 levels.

State Operations reflect the costs of running the Executive,
Legislative and Judicial branches of government. Spending in this category is
projected to increase $225 million or 3.4 percent above 1998-99, and reflects
the annualized costs of 1998-99 collective bargaining agreements, the decline in
federal receipts that offset General Fund spending for mental hygiene programs,
the costs of staffing a new State prison, and growth in the Legislative and
Judiciary budgets. The State's overall workforce is projected to remain stable
at approximately 191,200 persons.

Personal service costs are projected to be $5.01 billion, an increase
of $128 million from the current year. No funding is included in the Financial
Plan for incremental costs from new collective bargaining agreements after the
current labor contracts expire on April 1, 1999. Nonpersonal service is
projected to be $1.87 billion, with the increase of $97 million used primarily
to fund Year 2000 compliance and related activities in the Office for
Technology.

Total spending for general State charges is projected to grow by $47
million (2.1 percent) in 1999-2000. The increase is comprised of higher payments
for health insurance, Court of Claims settlements and taxes on State-owned
lands, offset by decreases for pension contributions and higher reimbursements
for fringe benefit costs charged to positions financed by non-General funds,
which lower General Fund expenses.

Transfers in support of debt service are projected to grow
approximately $185 million or 9 percent in 1999-2000, from $2.10 billion to
$2.29 billion. The reclassification of SUNY community college debt service ($36
million) from local assistance accounts for a portion of this annual increase.
The remainder reflects annualized costs from prior borrowings and a portion of
the Governor's proposed debt reduction program, which has the effect of
increasing costs in the short-term in order to reduce outstanding debt more
rapidly. Transfers in support of capital projects for 1999-2000 are estimated to
total $438 million and are comprised of $188 million for direct capital spending
to finance a variety of recreational, educational and cultural projects and $250
million as the second annual deposit to the DRRF that was created in 1998-99.
Other transfers decline by $71 million from 1998-99, as the one-time transfers
in the current year for the Lottery and Oil Spill Funds do not recur in
1999-2000.

Closing General Fund Balance

The State is projected to close the 1999-2000 fiscal year with a
General Fund balance of $2.36 billion. The balance is comprised of $1.79 billion
that the Governor is proposing to set aside as a tax reduction reserve, $473
million in the TSRF and $100 million in the CRF. The entire $226 million balance
in the CPF is expected to be used in 1999-2000, with $80 million spent to pay
for existing projects and the remaining balance of $146 million, against which
there are currently no appropriations as a result of the Governor's 1998 vetoes,
used to fund other expenditures in 1999-2000.

Non-recurring Resources

The Division of the Budget projects that the 1999-2000 Financial Plan
contains only $33 million in non-recurring resources, or less than one-tenth of
one percent of General Fund disbursements. In 1999-2000, the largest one-time
resources consist of a $15 million loan repayment from the Long Island Power
Authority and $8 million from the anticipated sale of State property at 270
Broadway in New York City. The remaining amounts include various routine
transfers to the General Fund.

Special Revenue Funds

For 1999-2000, the Financial Plan projects disbursements of $30.54
billion from Special Revenue Funds ("SRFs") derived from either State or federal
sources, an increase of $537 million or 1.8 percent over 1998-99. Disbursements
from State SRFs are projected at $8.61 billion, an increase of $315 million or
3.8 percent from 1998-99. The STAR program, disbursements for which increase by
$638 million from 1998-99, accounts for most of the year-to-year growth in State
SRF spending. The elimination of medical provider assessments on April 1, 1999
partially offsets this growth. Disbursements from federal SRFs, which account
for approximately three-quarters of all special revenue spending, are estimated
at $21.93 billion in 1999-2000, an increase of $222 million or 1.0 percent from
1998-99. The year-to-year growth in federal SRF spending is primarily due to
increases in federal contributions for Children and Family Assistance ($123
million), education ($170 million), labor ($89 million) and the expanded Child
Health Plus program ($96 million), offset by a decrease in welfare ($259
million).

Capital Projects Funds

Disbursements from Capital Projects funds in 1999-2000 are estimated at
$4.41 billion, or $145 million higher than 1998-99. The proposed spending plan
includes: $2.61 billion in disbursements for transportation purposes, including
State and local highway and bridge programs; $709 million for environmental
activities; $348 million for correctional services; $272 million for the State
University of New York (SUNY) and the City University of New York (CUNY); and
$271 million for mental hygiene projects.

Approximately 22 percent of capital projects spending in 1999-2000 is
proposed to be financed with State "pay-as-you-go" resources. State-supported
bond issuances, including general obligation bonds and
lease-purchase/contractual obligations, finance 46 percent of capital projects
spending, with federal grants financing the remaining 32 percent.

Debt Service Funds

Disbursements from Debt Service Funds are estimated at $3.68 billion in
1999-2000, an increase of $384 million in debt service costs from 1998-99. The
increase in debt service is primarily attributable to bonds previously issued in
support of the following: $131 million for State and local highway and bridge
programs financed by the Dedicated Highway and Bridge Trust Fund; $80 million
for SUNY and CUNY higher education purposes, and $38 million for the mental
hygiene programs financed through the Mental Health Services Fund. Disbursements
on bonds for SUNY's upstate community colleges, previously appropriated as local
aid, have now been reclassified as debt service spending.

Out-year Projections Of Receipts And Disbursements

The Division of the Budget projects budget gaps of $1.11 billion in
2000-01 and $2.08 billion in 2001-02. These estimates assume that the
Legislature will enact the 1999-2000 Executive Budget and accompanying
legislation in its entirety. The gaps also include $500 million in unspecified
annual spending efficiencies, which is comparable to the Governor's Executive
Budget assumptions in previous fiscal years. Future Financial Plans also are
likely to count on savings from efficiencies, workforce management efforts,
aggressive efforts to maximize federal and other non-General Fund resources, and
other efforts to control State spending. Nearly all the actions proposed by the
Governor to balance the 1999-2000 Financial Plan recur and grow in value in
future years. The Division of the Budget projects that, if the projected budget
gap for 2000-01 is closed with recurring actions, the 2001-02 budget gap would
be reduced to $963 million under current projections. The Executive Budget
assumes the use of the $1.79 billion tax reduction reserve to offset the
incremental loss in tax receipts resulting from previously enacted and proposed
tax reductions beginning in 2000-01. The Financial Plan currently assumes that
$589 million of the reserves (about one-third of the amount available) will be
applied in 2000-01, with the remaining $1.2 billion used in 2001-02. The State
may alter how it apportions the reserves across the three years of the
projection period.

The Governor is required by law to propose a balanced budget each year
and will propose steps necessary to address any potential remaining budget gaps
in subsequent budgets. The Division of the Budget estimates that the State has
closed projected budget gaps of $5.0 billion, $3.9 billion and $2.3 billion in
its 1995-96, 1996-97 and 1997-98 fiscal years, respectively, and ended each of
these years with a cash surplus.

Receipts

General Fund receipts fall to an estimated $35.99 billion in 2000-01
reflecting the incremental impact of already enacted tax reductions, the impact
of prior tax refund reserve transactions and the earmarking of receipts for
dedicated highway purposes. Receipts are projected to grow modestly to $36.20
billion in 2001-02, again reflecting the impact of enacted tax cuts on normal
receipts growth, as well as the incremental impact of tax reductions recommended
with the Executive Budget.

Personal income tax receipts are projected to decline to $20.72 billion
in 2000-01. The decline from 1999-2000 reflects the positive impact of tax
refund reserve transactions on 1999-2000 receipts and reduced growth in
underlying liability. The slowdown in liability growth results from a moderate
slowdown in personal income and wage increases and an end to the rapid
escalation in taxable capital gains realizations. In addition, receipts are
reduced by the incremental value of the STAR tax reduction plan and the required
deposit of personal income tax receipts into the STAR Fund. Personal income tax
receipts for 2001-02 are projected to increase to $20.94 billion. The modest
increase results from continued normal growth in liability offset by increasing
deposits to the STAR Fund.

Receipts from user taxes and fees are estimated to total $6.88 billion
in 2000-01, a decline of $281 million from 1999-2000. This decline results, in
part, from the dedication of an increased portion of motor fuel tax receipts to
the Dedicated Highway and Bridge Trust Fund. Further, receipts growth is reduced
due to the incremental impact of already-enacted tax reductions such as the
elimination of the sales tax on clothing and shoes priced under $110. User taxes
and fees receipts increase to an estimated $7.10 billion by 2001-02. Moderate
economic growth projected over the next several years will keep underlying
growth in the sales tax base in the 4 to 5 percent range over the 2000-01 and
2001-02 periods.

Business tax receipts are estimated to decline to $4.33 billion in
2000-01 as the impact of recently enacted tax reductions begin to take effect.
Receipts are projected to fall to $4.19 billion in 2001-02, reflecting the
ongoing effect of business tax reductions and the recommended changes associated
with energy tax reform and reduction, as well as other business tax reductions
proposed in the 1999-2000 Executive Budget.

Other taxes are projected to decline to $813 million in 2000-01 as the
impact of estate tax reductions and the elimination of the gift tax begin to
affect receipts. Further, the remainder of receipts from the real property gains
tax will fall off as prior year liabilities and assessments are drawn down.
Other tax receipts fall to an estimated $772 million in 2001-02 as the impact of
estate and gift tax reduction provisions enacted in 1997 are fully phased in.

Miscellaneous receipts are estimated to total $1.20 billion in 2000-01,
a decline of $38 million from the prior year. Receipts in this category are
projected to reach $1.17 billion in 2001-02.

Transfers from other funds are estimated to grow to $2.04 billion in
2000-01, including the transfer back to the General Fund of CPF resources.
Transfers fall slightly in 2001-02 as normal growth in LGAC transfers associated
with the sales tax is offset by declines in other transfers.

Disbursements

The State currently projects spending to grow by $1.09 billion (2.9
percent) in 2000-01 and an additional $1.8 billion (4.7 percent) in 2001-02.
General Fund spending increases at a higher rate in 2001-02 than in 2000-01,
driven primarily by higher growth rates for Medicaid, welfare, Children and
Families Services, and Mental Retardation, as well as the loss of federal money
that offsets General Fund spending.

Local assistance spending accounts for most of the projected growth in
General Fund spending in the out-years, increasing by $1.04 billion in 2000-01
and $1.46 billion in 2001-02. School aid, which accounts for the largest share
of General Fund spending, is projected to grow by $612 million (6.1 percent) in
2000-01 and $578 million (5.5 percent) in 2001-02. Continuing growth in building
aid and selected operating aid drives most of this higher spending. Other
education spending, particularly in pre-school handicapped programs, also is
expected to grow strongly, increasing by roughly $70 million (8 to 9 percent)
annually, as enrollment growth and higher per pupil costs produce higher growth.

Medicaid is the next largest General Fund program. Spending is expected
to grow by $313 million (5.7 percent) in 2000-01 and $452 million (7.8 percent)
in 2001-02. Consistent with national trends, underlying growth in health care
costs is projected at 6.5 percent over the projection period. The State expects
proposed cost containment and managed care to reduce the Medicaid programs
spending base, but not to alter the underlying forces driving the rise in health
care costs. In welfare, spending is expected to increase by less than 3 percent
in 2000-01, but grow at 6 percent in 2001-02 as caseloads stabilize and federal
work participation rules require additional State resources. Spending on
Children and Families Services is expected to increase rapidly in both 2000-01
and 2001-02, reflecting welfare-to-work investments and the loss of federal
money in 2001-02 that is currently used to offset General Fund spending. Mental
hygiene programs continue to grow faster than inflation because of recently
enacted community investment commitments, as well as the continued loss of
federal offsets. Most other programs are expected to grow at historical rates,
generally around inflation.

State operations costs are projected to increase by $179 million (2.6
percent) in 2000-01 and $171 million (2.4 percent) in 2001-02. Most of this
increase reflects the costs of staffing additional correctional facilities, the
loss of federal money used to offset General Fund spending in mental hygiene
agencies, modest inflationary increases in non-personal service costs, and
additional spending for computer systems and technology initiatives. Consistent
with past practice, the State's out-year projections do not assume any new costs
from collective bargaining agreements negotiated after the current round of
contracts expire in April.

General State charges are projected to increase by $95 million in
2000-01 and $76 million in 2001-02. The growth reflects inflationary increases
for health insurance and other benefits for State employees. The projections do
not assume any changes in existing benefits.

Capital project transfers are expected to increase as a result of the
Governor's proposed debt reduction initiatives that drive higher pay-as-you-go
spending in the future. Other transfers show little change in the out-years.

Special Considerations

Many complex political, social and economic forces influence the
State's economy and finances, which may in turn affect the State's Financial
Plan. These forces may affect the State unpredictably from fiscal year to fiscal
year and are influenced by governments, institutions, and events that are not
subject to the State's control. The Financial Plan also is necessarily based
upon forecasts of national and State economic activity. Economic forecasts have
frequently failed to predict accurately the timing and magnitude of changes in
the national and the State economies.

The Division of Budget believes that its projections of receipts and
disbursements relating to the 1999-2000 Executive Budget, and the assumptions on
which they are based, are reasonable. The projections assume no changes in
federal tax law, which could substantially alter the current receipts forecast.
In addition, these projections do not include funding for new collective
bargaining agreements after the current contracts expire on April 1, 1999. Each
percentage increase in employee wages would add roughly $70 million in new
Financial Plan costs. Collective bargaining commitments at current inflationary
rates would increase labor costs by approximately $480 million by the end of the
projection period.

The State's out-year projections may change substantially as the budget
process for 1999-2000 continues. For example, the Governor will propose
amendments to the 1999-2000 Executive Budget, as permitted under law. These
amendments, which will be reflected in a revised Financial Plan to be released
on or before February 26, 1999, may materially and adversely impact the
projections set forth in this Update and are likely to include additional
funding for public schools. Actual results for the fiscal year also may differ
materially and adversely from current projections. Finally, the Legislature may
not enact the Governor's proposals or the State's actions may be insufficient to
preserve budgetary balance or to align recurring receipts and disbursements in
either 1999-2000 or in future fiscal years.

The fiscal effects of tax reductions adopted in the last several fiscal
years and those proposed by the Governor in the 1999-2000 Executive Budget are
projected to grow more substantially beyond the 1999-2000 fiscal year. The
incremental annual cost of enacted or proposed tax reductions is estimated to
peak at $2.1 billion in 2000-01, then gradually decline to about $1 billion in
2003-04.

Over the long-term, uncertainties with regard to the economy present
the largest potential risk to future budget balance in the State. For example, a
downturn in the financial markets or the wider economy is possible, a risk that
is heightened by the lengthy expansion currently underway. The securities
industry is more important to the New York economy than the national economy,
potentially amplifying the impact of an economic downturn. A large change in
stock market performance during the forecast horizon could result in wage and
unemployment levels that are significantly different from those embodied in the
forecast. Merging and downsizing by firms, as a consequence of deregulation or
continued foreign competition, may also have more significant adverse effects on
employment than expected. Finally, a "forecast error" of one percentage point in
the estimated growth of receipts could cumulatively raise or lower results by
over $1 billion by 2002.
An ongoing risk to the State Financial Plan arises from the potential
impact of certain litigation and federal disallowances now pending against the
State, which could produce adverse effects on the State's projections of
receipts and disbursements. The Financial Plan assumes no significant federal
disallowances or other federal actions that could affect State finances. For
more information on certain litigation pending against the State, see
"Litigation."

To guard against these risks, the State has projected reserves of $2.36
billion in 1999-2000, comprised of $1.79 billion that the Governor is proposing
to set aside as a tax reduction reserve, $473 million in the TSRF and $100
million in the CRF.

Year 2000 Compliance

The State is currently addressing Year 2000 (Y2K) data processing
compliance issues. Since its inception, the computer industry has used a
two-digit date convention to represent the year. In the year 2000, the date
field will contain "00" and, as a result, many computer systems and equipment
may not be able to process dates properly or may fail since they may not be able
to distinguish between the years 1900 and 2000. The Y2K issue not only affects
computer programs, but also the hardware, software and networks on which they
operate on. In addition, any system or equipment that is dependent on an
embedded chip, such as telecommunication equipment and security systems, also
may be adversely affected.

In 1996, the State established the Year 2000 Date Change Initiative to
facilitate and coordinate New York State's Y2K compliance effort. The Office for
Technology (OFT), under the direction of the Governor's Office of State
Operations, is responsible for monitoring the State's compliance progress and
for providing assistance and resources to State agencies. Each agency is
responsible for bringing their individual systems into Y2K compliance. Y2K
compliance has been identified by the Governor as New York State's number one
technology priority.

In 1997, OFT completed a risk assessment of 712 State data processing
systems and prioritized those systems for purposes of Y2K compliance. The State
has estimated that investments of at least $140 million will be required to
bring the State's approximately 350 mission critical and high priority systems
into Year 2000 compliance. Mission-critical systems are those that may impact
the public health, safety and welfare of the State and its citizens, and for
which failure could have a material and adverse impact on State operations.
High-priority systems are critical for a State agency to fulfill its mission or
deliver services. The State allocated over $117 million in centralized Y2K
funding in 1998-99 to those agencies that maintain mission-critical and
high-priority systems. Agencies also are expending funds from their capital
budgets to address the Y2K compliance issue. The State is planning to spend an
additional $19 million in 1999-2000 for Year 2000 embedded chip compliance, and
also is making a contingent appropriation available for unforeseen emergencies.
The Y2K compliance effort may require additional funding above amounts assumed
in the State Financial Plan, but those amounts are not assumed to be material.

OFT is monitoring compliance progress for the State's mission-critical
and high-priority systems and is reporting compliance progress to the Governor's
office on a quarterly basis. As of December 1998, the State had completed 93
percent of overall compliance effort for its mission-critical systems; 18
systems are now Y2K compliant and the remaining systems are on schedule to be
compliant by the first quarter of 1999. As of December 1998, the State has
completed 70 percent of overall compliance effort on the high-priority systems;
168 systems are Y2K compliant and the remaining systems are on schedule to be
compliant by the second quarter of 1999. Y2K compliance testing is expected to
be completed by the end of calendar year 1999.

The State also is addressing a number of issues related to bringing its
mission critical systems into compliance, including: testing throughout 1999 of
over 800 data exchange interfaces with federal, state, local and private data
partners; completion of an inventory of priority equipment and systems that may
depend on embedded chips and may therefore need remediation in 1999; and
contacting critical vendors and supply partners to obtain Y2K compliance status
information and assurances.

Since problems could be identified during the compliance testing phase
that could produce compliance delays, the State also is requiring its agencies
to complete contingency plans for priority systems and business processes by the
first quarter of 1999. These plans will be integrated into the State Emergency
Response Plan and coordinated by the State Emergency Management Office. In
addition, the State Public Service Commission has ordered that all State
regulated utilities complete Y2K activities for mission-critical systems,
including contingency plans, by July 1, 1999. The State also has been working
with local governments since December 1996 to raise awareness, promote action
and provide assistance with Y2K compliance.

While the State is taking what it believes to be appropriate action to
address Y2K compliance, there can be no guarantee that all of the State's
systems and equipment will be Y2K compliant and that there will not be an
adverse impact upon State operations or finances as a result. Since Y2K
compliance by outside parties is beyond the State's control to remediate, the
failure of outside parties to achieve Y2K compliance could have an adverse
impact on State operations or finances as well.

GAAP-Basis Financial Plan

The General Fund and All Governmental Funds Financial Plans also are
prepared in accordance with Generally Accepted Accounting Principles (GAAP). The
GAAP projections for both years are based on the accounting principles applied
by the State Comptroller in the financial statements issued for the 1997-98
State fiscal year and do not reflect any pending proposals of the Governmental
Accounting Standards Board.

The GAAP projections indicate that the State will have three
consecutive years of a GAAP accumulated surplus in the General Fund, eliminating
the GAAP deficit of $3.3 billion that existed on March 31, 1995. In 1998-99, the
General Fund GAAP Financial Plan projects total revenues of $36.63 billion,
total expenditures of $36.07 billion, and net other financing uses of $106
million. In 1999-2000, projections reflect total revenues of $36.14 billion,
total expenditures of $36.18 billion and net other financing uses of $466
million. The net impact of the additional 1998-99 cash surplus accounts for most
of the change in projected operating results across the two fiscal years. At the
end of 1999-2000, the accumulated General Fund GAAP surplus is projected to be
$512 million.

GAAP-Basis Results for Prior Fiscal Years

1997-98 Fiscal Year

The State completed its 1997-98 fiscal year with a combined
Governmental Funds operating surplus of $1.80 billion, which included operating
surpluses in the General Fund ($1.56 billion), in CPFs ($232 million) and in
SRFs ($49 million), offset in part by an operating deficit in Debt Service Funds
($43 million).

General Fund

The State reported a General Fund operating surplus of $1.56 billion
for the 1997-98 fiscal year, as compared to an operating surplus of $1.93
billion for the 1996-97 fiscal year. As a result, the State reported an
accumulated surplus of $567 million in the General Fund for the first time since
it began reporting its operations on a GAAP basis. The 1997-98 fiscal year
operating surplus resulted in part from higher-than-anticipated personal income
tax receipts, an increase in taxes receivable of $681 million, an increase in
other assets of $195 million and a decrease in pension liabilities of $144
million. These gains were partially offset by an increase in payables to local
governments of $308 million and tax refunds payable of $147 million.

Revenues increased $617 million (1.8 percent) over the prior fiscal
year, with increases in personal income, consumption and use, and business
taxes, and decreases reported for other taxes, federal grants and miscellaneous
revenues. Personal income taxes grew $746 million, an increase of nearly 4.2
percent. The increase in personal income taxes resulted from strong employment
and wage growth and the strong performance by the financial markets during 1997.
Consumption and use taxes increased $334 million, or 5.0 percent, spurred by
increased consumer confidence. Business taxes grew $28 million, an increase of
0.5 percent. Other taxes fell primarily because revenues for estate and gift
taxes decreased. Miscellaneous revenues decreased $380 million, or 12.7 percent
decrease, due to a decline in receipts from the Medical Malpractice Insurance
Association and from medical provider assessments.

Expenditures increased $147 million (0.4 percent) from the prior fiscal
year, with the largest increases occurring in education and social services.
Education expenditures grew $391 million (3.6 percent), mainly due to an
increase in State support for public schools. This growth was offset, in part,
by a reduction in spending for municipal and community colleges. Social services
expenditures increased $233 million (2.6 percent) to fund growth in these
programs. Increases in other State aid spending were offset by a decline in
general purpose aid of $235 million (28.8 percent) due to statutory changes in
the payment schedule. Increases in personal and non-personal service costs were
offset by a decrease in pension contributions of $660 million, a result of the
refinancing of the State's pension amortization that occurred in 1997.

Net other financing sources decreased $841 million (68.2 percent) due
to the nonrecurring use of bond proceeds ($769 million) provided by the
Dormitory Authority of the State of New York (DASNY) to pay the outstanding
pension amortization liability incurred in 1997.

Special Revenue, Debt Service and Capital Projects Fund Types

An operating surplus of $49 million was reported for the SRFs for the
1997-98 fiscal year, which increased the accumulated fund balance to $581
million. Revenues rose by $884 million over the prior fiscal year (3.3 percent)
as a result of increases in tax and federal grant revenues. Expenditures
increased $795 million (3.3 percent) as a result of increased local assistance
grants. Net other financing uses decreased $105 million (3.3 percent).

Debt Service Funds ended the 1997-98 fiscal year with an operating
deficit of $43 million and, as a result, the accumulated fund balance declined
to $1.86 billion. Revenues increased $246 million (10.6 percent) as a result of
increases in dedicated taxes. Debt service expenditures increased $341 million
(14.4 percent). Net other financing sources increased $89 million (401.3
percent) due primarily to savings achieved through advance refundings of
outstanding bonds.

An operating surplus of $232 million was reported in the CPFs for the
State's 1997-98 fiscal year and, as a result, the accumulated deficit in this
fund type decreased to $381 million. Revenues increased $180 million (8.6
percent) primarily as a result of a $54 million increase in dedicated tax
revenues and an increase of $101 million in federal grants for transportation
and local waste water treatment projects. Expenditures increased $146 million
(4.5 percent) primarily as a result of increased capital construction spending
for transportation and local waste-water treatment projects. Net other financing
sources increased by $100 million primarily as a result of a decrease in
transfers to certain public benefit corporations engaged in housing programs.

Debt & Other Financing Activities

1998-99 Borrowing Plan

Section 22-c of the State Finance Law, as amended by Chapter 389 of the
Laws of 1997, requires the Governor to submit the five-year Capital Program and
Financing Plan with the Executive Budget. That Plan is required to be updated by
the later of July 30 or 90 days after the enactment of the State Budget.

The proposed 1998-99 through 2003-04 Capital Program and Financing Plan
was released with the Executive Budget on January 27, 1999. The recommended
five-year Capital Program and Financing Plan reflects debt reduction initiatives
that would reduce future State-supported debt issuances by significantly
increasing the share of the Plan financed with pay-as-you-go resources. Compared
to the last year of the July 1998 update to the Plan, outstanding
State-supported debt would be reduced by $4.7 billion (from $41.9 billion to
$37.2 billion).

As described below, efforts to reduce debt, unanticipated delays in the
advancement of certain projects and revisions to estimated proceeds needs will
modestly reduce projected borrowings in 1998-99. The State's 1998-99 borrowing
plan now projects issuances of $331 million in general obligation bonds
(including $154 million for purposes of redeeming outstanding BANs) and $154
million in general obligation commercial paper. The State has issued $179
million in Certificates of Participation to finance equipment purchases
(including costs of issuance, reserve funds, and other costs) during the 1998-99
fiscal year. Of this amount, it is anticipated that approximately $83 million
will be used to finance agency equipment acquisitions, and $96 million to
address Statewide technology issues related to Y2K compliance. Approximately
$228 million for information technology related to welfare reform, originally
anticipated to be issued during the 1998-99 fiscal year, is now expected to be
delayed until 1999-2000.

Borrowings by public authorities pursuant to lease-purchase and
contractual-obligation financings for capital programs of the State are
projected to total approximately $2.85 billion, including costs of issuance,
reserve funds, and other costs, net of anticipated refundings and other
adjustments in 1998-99. Included therein are borrowings by: (i) DASNY for SUNY;
CUNY; health, mental health and educational facilities including the State
Education Department; new facilities for the Office of the State Comptroller and
the New York State and Local Retirement Systems; and for parking facilities;
(ii) the Thruway Authority for the Dedicated Highway and Bridge Trust Fund and
Consolidated Highway Improvement Program; (iii) Urban Development Corporation
(UDC) (doing business as the Empire State Development Corporation) for prison
and sports facilities; (iv) Housing Finance Authority (HFA) for housing
programs; and (v) the Environmental Facilities Corporation (EFC) and the Energy
Research and Development Authority (ERDA) for environmental projects. This
includes an estimated $247 million to be issued for the Community Enhancement
Facilities Assistance Program (CEFAP) for economic development purposes,
consisting of sports facilities, cultural institutions, transportation,
infrastructure and other community facility projects. Four public authorities
(the Thruway Authority, DASNY, UDC and HFA) are authorized to issue bonds to
finance a total of $425 million of CEFAP projects under this program. The
1999-2000 Executive Budget proposes reducing CEFAP by $75 million to $350
million.

The projection of State borrowings for the 1998-99 fiscal year is
subject to change as market conditions, interest rates and other factors vary
through the end of the fiscal year.

Authorities and Localities

The City of New York

Fiscal Oversight

To successfully implement its Financial Plan, the City of New York and
certain entities issuing debt for the benefit of the City must market their
securities successfully. The City issues securities to finance, refinance and
rehabilitate infrastructure and other capital needs, as well as for seasonal
financing needs. In 1997, the State created the New York City Transitional
Finance Authority (TFA) to finance a portion of the City's capital program
because the City was approaching its State Constitutional general debt limit.
Without the additional financing capacity of the TFA, projected contracts for
City capital projects would have exceeded the City's debt limit during City
fiscal year 1997-98. Despite this additional financing mechanism, the City
currently projects that, if no further action is taken, it will reach its debt
limit in City fiscal year 1999-2000.

On June 2, 1997, an action was commenced seeking a declaratory judgment
declaring the legislation establishing the TFA to be unconstitutional. On
November 25, 1997 the State Supreme Court found the legislation establishing the
TFA to be constitutional and granted the defendants' motion for summary
judgment. The plaintiffs appealed the decision. On July 30, 1998, the Appellate
Division, Third Department, affirmed the Supreme Court decision. Plaintiffs
filed a notice of appeal with the New York Court of Appeals asserting an appeal
as of right of the Appellate Division order. That appeal was dismissed on
September 22, 1998. Plaintiffs subsequently filed a motion for leave to appeal
to the Court of Appeals. That motion was denied on December 22, 1998.

Other Localities

On June 30, 1998, the City of Yonkers satisfied the statutory
conditions for ending the supervision of its finances by a State-ordered control
board. Pursuant to State law, the control board's powers over City finances
lapsed six months after the satisfaction of these conditions, on December 31,
1998.

Litigation

In its General Purpose Financial Statements, the State reports its
estimated liability for awarded and anticipated unfavorable judgments. The
General Purpose Financial Statements for the 1997-98 fiscal year were released
on July 28, 1998.

With respect to pending and threatened litigation, the State has
reported liabilities of $872 million for awarded and anticipated unfavorable
judgments, of which $90 million is expected to be paid within the 1998-99 fiscal
year. The remainder, $782 million, is reported as a long-term obligation of the
State and represents an increase of $552 million from the prior year.

Adverse developments in the proceedings described below, other
proceedings for which there are unanticipated, unfavorable and material
judgments, or the initiation of new proceedings could affect the ability of the
State to maintain a balanced 1998-99 Financial Plan. The State believes that the
Financial Plan includes sufficient reserves to offset the costs associated with
the payment of judgments that may be required during the 1998-99 fiscal year.
These reserves include (but are not limited to) projected fund balances in the
General Fund, as discussed in the section entitled "Closing General Fund
Balance." In addition, any amounts ultimately required to be paid by the State
may be subject to settlement or may be paid over a multi-year period. There can
be no assurance, however, that adverse decisions in legal proceedings against
the State would not exceed the amount of all potential Financial Plan resources
available for the payment of judgments, and could therefore affect the ability
of the State to maintain a balanced Financial Plan.

State Finance Policies

Tax Law

In New York Association of Convenience Stores, et al. v. Urbach, et
al., petitioners, New York Association of Convenience Stores, National
Association of Convenience Stores, M.W.S. Enterprises, Inc. and Sugarcreek
Stores, Inc. is seeking to compel respondents, the Commissioner of Taxation and
Finance and the Department of Taxation and Finance, to enforce sales and excise
taxes imposed, pursuant to Tax Law Articles 12-A, 20 and 28, on tobacco products
and motor fuel sold to non-Indian consumers on Indian reservations. In orders
dated August 13, 1996 and August 24, 1996, the Supreme Court, Albany County,
ordered, inter alia, that there be equal implementation and enforcement of said
taxes for sales to non-Indian consumers on and off Indian reservations, and
further ordered that, if respondents failed to comply within 120 days, no
tobacco products or motor fuel could be introduced onto Indian reservations
other than for Indian consumption or, alternately, the collection and
enforcement of such taxes would be suspended statewide. Respondents appealed to
the Appellate Division, Third Department, and invoked CPLR 5519(a)(1), which
provides that the taking of the appeal stayed all proceedings to enforce the
orders pending the appeal. Petitioner's motion to vacate the stay was denied. In
a decision entered May 8, 1997, the Third Department modified the orders by
deleting the portion thereof that provided for the statewide suspension of the
enforcement and collection of the sales and excise taxes on motor fuel and
tobacco products. The Third Department held, inter alia, that petitioners had
not sought such relief in their petition and that it was an error for the
Supreme Court to have awarded such undemanded relief without adequate notice of
its intent to do so. On May 22, 1997, respondents appealed to the Court of
Appeals on other grounds, and again invoked the statutory stay. On October 23,
1997, the Court of Appeals granted petitioners' motion for leave to cross-appeal
from the portion of the Third Department's decision that deleted the statewide
suspension of the enforcement and collection of the sales and excise taxes on
motor fuel and tobacco. On July 9, 1998, the New York Court of Appeals reversed
the order of the Appellate Division, Third Department, and remanded the matter
to the Supreme Court, Albany County, for further proceedings. The Court held
that the petitioners had standing to assert an equal protection claim, but that
their claim did not implicate racial discrimination. The Court remanded the case
to Supreme Court, Albany County, for resolution of the question of whether there
was a rational basis for the Tax Department's policy of non-enforcement of the
sales and excise taxes on reservation sales of cigarettes and motor fuel to
non-Indians. In a footnote, the Court stated that, in view of its disposition of
the case, petitioners' cross-appeal regarding the statewide suspension of the
taxes is "academic."

Clean Water/Clean Air Bond Act of 1996

In Robert L. Schulz, et al. v. The New York State Executive, et al.
(Supreme Court, Albany County, commenced October 16, 1996), plaintiffs challenge
the enactment of the Clean Water/Clean Air Bond Act of 1996 and its implementing
legislation (1996 Laws of New York, Chapters 412 and 413). Plaintiffs claim,
inter alia, that the Bond Act and its implementing legislation violate
provisions of the State Constitution requiring that such debt be authorized by
law for some single work or purpose distinctly specified therein and forbidding
incorporation of other statutes by reference.

In an opinion dated June 9, 1998, the Court of Appeals affirmed the
July 17, 1997 order of the Appellate Division, Third Department, affirming the
lower court dismissal of this case. On September 9, 1998, plaintiff sought
review of this decision from the United States Supreme Court. On November 2,
1998, the United States Supreme Court denied certiorari.

State Programs

Medicaid

In several cases, plaintiffs seek retroactive claims for reimbursement for
services provided to Medicaid recipients who also were eligible for Medicare
during the period January 1, 1987 to June 2, 1992. Included are Matter of New
York State Radiological Society v. Wing, Appel v. Wing, E.F.S. Medical Supplies
v. Dowling, Kellogg v. Wing, Lifshitz v. Wing, New York State Podiatric Medical
Association v. Wing and New York State Psychiatric Association v. Wing. These
cases were commenced after the State's reimbursement methodology was held
invalid in New York City Health and Hospital Corp. v. Perales. The State
contends that these claims are time-barred. In a judgment dated September 5,
1996, the Supreme Court, Albany County, dismissed Matter of New York State
Radiological Society v. Wing as time-barred. By order dated November 26, 1997,
the Appellate Division, Third Department, affirmed that judgment. By decision
dated June 9, 1998, the Court of Appeals denied leave to appeal. The time in
which to seek further review has expired in the latter case. By decision and
order dated December 15, 1998, the Appellate Division, First Department
dismissed Appel v. Wing, E.F.S. Medical Supplies v. Dowling, Kellogg v. Wing,
Lifshitz v. Wing, New York State Podiatric Medical Association v. Wing and New
York Psychiatric Association v. Wing as time barred.

Several cases, including Port Jefferson Health Care Facility, et al. v.
Wing (Supreme Court, Suffolk County), challenge the constitutionality of Public
Health Law ss. 2807-d, which imposes a tax on the gross receipts hospitals and
residential health care facilities receive from all patient care services.
Plaintiffs allege that the tax assessments were not uniformly applied, in
violation of federal regulations. In a decision dated June 30, 1997, the Court
held that the 1.2 percent and 3.8 percent assessments on gross receipts imposed
pursuant to Public Health Law ss.ss. 2807-d(2)(b)(ii) and 2807d(2)(b)(iii),
respectively, are unconstitutional. An order entered August 27, 1997, enforced
the terms of the decision. The State appealed that order. By decision and order
dated August 31, 1998, the Appellate Division, Second Department, affirmed that
order. On September 30, 1998, the State moved for re-argument or, in the
alternative, for a certified question for the Court of Appeals to review. By
order dated January 7, 1999, the motion was denied. A final order was entered in
Supreme Court on January 26, 1999. The time for the State to appeal from the
January 26, 1999 order has not yet expired.

Line Item Veto

In an action commenced in June 1998 by the Speaker of the Assembly of the
State of New York against the Governor of the State of New York (Silver v.
Pataki, Supreme Court, New York County), the Speaker challenges the Governor's
application of his constitutional line item veto authority to certain portions
of budget bills adopted by the State Legislature contained in Chapters 56, 57
and 58 of the Laws of 1998. On July 10, 1998, the State filed a motion to
dismiss this action. By order entered January 7, 1999, the court denied the
State's motion to dismiss. On January 27, 1999, the State appealed that order.

Real Property Claims

On March 4, 1985 in Oneida Indian Nation of New York, et al. v. County
of Oneida, the United States Supreme Court affirmed a judgment of the United
States Court of Appeals for the Second Circuit holding that the Oneida Indians
have a common-law right of action against Madison and Oneida Counties for
wrongful possession of 872 acres of land illegally sold to the State in 1795. At
the same time, however, the Court reversed the Second Circuit by holding that a
third-party claim by the counties against the State for indemnification was not
properly before the federal courts. The case was remanded to the District Court
for an assessment of damages, which action is still pending. The counties may
still seek indemnification in the State courts.

In 1998, the United States filed a complaint in intervention in Oneida
Indian Nation of New York. In December 1998, both the United States and the
tribal plaintiffs moved for leave to amend their complaints to assert claims for
250,000 acres, to add the State as a defendant, and to certify a class made up
of all individuals who currently purport to hold title within said 250,000 acre
area. These motions are returnable March 29, 1999.

Several other actions involving Indian claims to land in upstate New
York are also pending. Included are Cayuga Indian Nation of New York v. Cuomo,
et al., and Canadian St. Regis Band of Mohawk Indians, et al. v. State of New
York, et al., both in the United States District Court for the Northern District
of New York. The Supreme Court's holding in Oneida Indian Nation of New York may
impair or eliminate certain of the State's defenses to these actions but may
enhance others.

- --------
1 Mr. Healey is an "interested person" (as defined in the 1940 Act) of the
Trust. Mr. Healey is also an "interested person" (as defined in the 1940 Act) of
the Advisor due to his son's affiliation with JPMIM. 2 The inception date of the
fund was April 11, 1994, commencement of investment operations was April 15,
1994.

<PAGE>

J.P. MORGAN FUNDS

J.P. MORGAN EMERGING MARKETS DEBT FUND

STATEMENT OF ADDITIONAL INFORMATION

DECEMBER 1, 1999

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED DECEMBER 2, 1999, AS SUPPLEMENTED FROM TIME TO TIME.
ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY REFERENCE
THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORT RELATING TO THE FUND
LISTED ABOVE DATED JULY 31, 1999. THE PROSPECTUS AND THE FINANCIAL STATEMENTS,
ARE AVAILABLE, WITHOUT CHARGE UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J.P. MORGAN FUNDS (800) 221-7930.

<PAGE>

Table of Contents

Page

General.....................................................................1
Investment Objective and Policies...........................................1
Investment Restrictions....................................................24
Trustees and Officers......................................................26
Investment Advisor.........................................................30
Distributor................................................................32
Co-Administrator...........................................................33
Services Agent.............................................................33
Custodian and Transfer Agent...............................................34
Shareholder Servicing......................................................34
Financial Professionals ...................................................35
Independent Accountants....................................................36
Expenses...................................................................36
Purchase of Shares.........................................................36
Redemption of Shares.......................................................37
Exchange of Shares.........................................................38
Dividends and Distributions................................................38
Net Asset Value............................................................39
Performance Data...........................................................40
Portfolio Transactions.....................................................41
Massachusetts Trust........................................................42
Description of Shares......................................................43
Special Information Concerning Investment Structure........................44
Taxes......................................................................45
Additional Information.....................................................50
Financial Statements.......................................................52
Appendix A - Description of Securities Ratings............................A-1

<PAGE>

GENERAL

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

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

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

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

INVESTMENT OBJECTIVE AND POLICIES

The Fund is designed for the aggressive investor seeking to diversify
an investment portfolio by investing in fixed income securities of emerging
markets issuers. The Fund's investment objective is high total return from a
portfolio of fixed income securities of emerging markets issuers. The Fund seeks
to achieve its objective by investing all of its investable assets in The
Emerging Markets Debt Portfolio (the "Portfolio"), a non-diversified open-end
management investment company having the same investment objective as the Fund.
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 Fund invests in lower quality debt instruments ("junk bonds"),
which are subject to higher risks of untimely interest and principal payments,
default and price volatility than higher quality securities and may present
liquidity and valuation problems. Investments in securities of issuers in
emerging markets, investments in unrated and lower rated debt obligations and
investments denominated or quoted in foreign currencies, as well as the Fund's
use of interest rate and currency management techniques, entail risks in
addition to those that are customarily associated with investing in
dollar-denominated fixed income securities of U.S. issuers. Interest rate and
currency management techniques may be unavailable or ineffective in mitigating
risks inherent in the Fund. The Fund may not be able to achieve its investment
objective. The Fund is intended for investors who can accept a high degree of
risk and is not suitable for all investors.

Primary Investments. In normal circumstances, substantially all and at
least 65% of the value of the Fund's total assets are invested in debt
obligations of governments, government-related agencies and corporate issuers
located in emerging markets around the world. The Advisor considers "emerging
markets" to be any country which is generally considered to be an emerging or
developing country by the World Bank, the International Finance Corporation or
the United Nations or its authorities. These countries generally include every
country in the world except Australia, Austria, Belgium, Canada, Denmark,
Finland, France, Germany, Ireland, Italy, Japan, Netherlands, New Zealand,
Norway, Spain, Sweden, Switzerland, United Kingdom and United States. An
emerging market issuer is one that (i) has its principal securities trading
market in an emerging market country; (ii) is organized under the laws of an
emerging market country; (iii) derives 50% or more of its total revenue from
either goods produced, sales made or services performed in emerging market
countries; (iv) has at least 50% of its assets located in emerging markets; or
(v) is a government, governmental authority or agency of an emerging market
country.

Debt obligations in which the Fund may invest include (i) fixed and
floating rate bonds, notes and debentures of corporate issuers, including
convertible securities; (ii) commercial paper and bank certificates of deposit;
(iii) loans and interests therein, including loan participations; (iv)
obligations issued or guaranteed by a foreign government or its agencies,
instrumentalities, political subdivisions and authorities, including obligations
of central banks and Brady bonds; (v) structured notes, bonds and debentures
issued or guaranteed by governmental or corporate issuers; and (vi) any other
debt securities issued or guaranteed by an emerging markets issuer.

Emerging market securities may be denominated in foreign currencies or
the U.S. dollar. The Advisor will not routinely attempt to manage the Fund's
exposure to currencies of emerging markets. However, the Fund may from time to
time decide to engage in forward foreign currency exchange transactions if the
Advisor believes these transactions would be in the Fund's best interest.

The Fund may invest without limit in fixed income securities rated
below investment grade by one or more internationally recognized rating agencies
such as Standard & Poor's Ratings Group ("S&P") or Moody's Investors Service,
Inc. ("Moody's") or in unrated securities determined to be of comparable credit
quality by the Advisor. These below investment grade securities may include
obligations of sovereign and corporate issuers. Below investment grade
obligations, commonly called "junk bonds," are considered speculative and may
include obligations that are unrated or in default.

For temporary defensive purposes, the Fund may invest up to 100% of its
assets in cash and money market instruments or invest all or a portion of its
assets in debt securities of the U.S. government or corporate issuers. The Fund
may engage in defensive investing if the Advisor determines that economic or
market conditions in emerging markets significantly limit opportunities for
total return or pose undue risk to investors.

Foreign Investments

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

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

The U.S. dollar value of foreign securities denominated in a foreign
currency will vary with changes in currency exchange rates, which can be
volatile. Accordingly, changes in the value of these currencies against the U.S.
dollar will result in corresponding changes in the U.S. dollar value of the
Fund's assets quoted in those currencies. Exchange rates are generally affected
by the forces of supply and demand in the international currency markets, the
relative merits of investing in different countries and the intervention or
failure to intervene of U.S. foreign governments and central banks. Some
countries in emerging markets also may have managed currencies, which are not
free floating against the U.S. dollar. In addition, emerging markets may
restrict the free conversion of their currencies into other currencies. Any
devaluations in the currencies in which the Fund's securities are denominated
may have a detrimental impact on the Fund's net asset value.

The Fund may invest any portion of its assets in securities denominated
in foreign currencies or in a particular currency. The Fund may enter into
forward foreign currency exchange transactions in an attempt to manage the
Fund's foreign currency exposure.

Sovereign and Corporate Debt Obligations. Investment in sovereign debt
obligations involves special risks not present in corporate debt obligations.
The issuer of the sovereign debt or the governmental authorities that control
the repayment of the debt may be unable or unwilling to repay principal or
interest when due, and the Fund may have limited recourse in the event of a
default. During periods of economic uncertainty, the market prices of sovereign
debt, and the Fund's net asset value, may be more volatile than prices of U.S.
debt obligations. In the past, certain emerging markets have encountered
difficulties in servicing their debt obligations, withheld payments of principal
and interest and declared moratoria on the payment of principal and interest on
their sovereign debts.

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

Corporate debt obligations, including obligations of industrial,
utility, banking and other financial issuers, are subject to the risk of an
issuer's inability to meet principal and interest payments on the obligations
and may also be subject to price volatility due to such factors as market
interest rates, market perception of the creditworthiness of the issuer and
general market liquidity.

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

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

Investing in Emerging Markets

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

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

Investments in foreign issuers may be affected by changes in currency
rates, changes in foreign or U.S. laws or restrictions applicable to these
investments and in exchange control regulations (e.g., currency blockage). In
addition, clearance and settlement procedures may be different in foreign
countries and, in certain markets, these procedures have on occasion been unable
to keep pace with the volume of securities transactions, thus making it
difficult to conduct securities transactions.

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

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

Restrictions on Investment and Repatriation. Certain emerging markets
require governmental approval prior to investments by foreign persons or limit
investments by foreign persons to only a specified percentage of an issuer's
outstanding securities or a specific class of securities which may have less
advantageous terms (including price) than securities of the company available
for purchase by nationals. Repatriation of investment income and capital from
certain emerging markets is subject to certain governmental consents. Even where
there is no outright restriction on repatriation of capital, the mechanics of
repatriation may affect the operation of the Fund.

Investment in Lower Rated Obligations

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

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

Corporate Bonds and Other Debt Securities

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

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

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

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

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

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

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

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

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

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

While interest payments are not made on such securities, holders of
such securities are deemed to have received "phantom income." Because the Fund
will distribute "phantom income" to shareholders, to the extent that
shareholders elect to receive dividends in cash rather than reinvesting such
dividends in additional shares, the Portfolio will have fewer assets with which
to purchase income producing securities.

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

Money Market Instruments

The Fund may invest in money market instruments to the extent
consistent with its investment objective and policies. Under normal
circumstances, the Fund will purchase these securities to invest temporary cash
balances or to maintain liquidity to meet withdrawals. However, the Fund may
also invest in money market instruments as a temporary defensive measure taken
during, or in anticipation of, adverse market conditions. A description of the
various types of money market instruments that may be purchased by the Fund
appears below.

Foreign Government Obligations. The Fund, subject to its investment
policies, may also invest in short-term obligations of foreign sovereign
governments or of their agencies, instrumentalities, authorities or political
subdivisions. These securities may be denominated in the U.S. dollar or in
another currency. See "Foreign Investments."

Bank Obligations. The Fund unless otherwise noted in the Prospectus or
below, may invest in negotiable certificates of deposit, time deposits and
bankers' acceptances of (i) foreign branches of U.S. banks and U.S. savings and
loans associations or of foreign banks (Euros) and (ii) U.S. branches of foreign
banks (Yankees). See "Foreign Investments." The Fund will not invest in
obligations for which the Advisor, or any of its affiliated persons, is the
ultimate obligor or accepting bank. The Fund may also invest in obligations of
international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development Bank
or the World Bank).

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

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

The Fund may make investments in other debt securities, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described herein.

Additional Investments

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

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

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

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

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

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

Loan Participations. The Fund may invest in fixed- and floating-rate
loans arranged through private negotiations between an issuer of emerging market
debt instruments and one or more financial institutions ("lenders"). Generally,
the Fund's investments in loans are expected to take the form of loan
participations and assignments of portions of loans from third parties. When
investing in a participation, the Fund will have the right to receive payments
only from the lender to the extent the lender receives payments from the
borrower, and not from the borrower itself. Likewise, the Fund will be able to
enforce its rights only through the lender, and not directly against the
borrower. As a result, the Fund will assume the credit risk of both the borrower
and the lender that is selling the participation. When the Fund purchases
assignments from lenders, it will acquire direct rights against the borrower,
but these rights and the Portfolio's obligations may differ from, and be more
limited than, those held by the assigning lender. Loan participations and
assignments may be illiquid and subject to the Fund's restrictions applicable to
illiquid securities.

Synthetic Instruments. The Fund may invest in certain synthetic
instruments. Such instruments generally involve the deposit of asset-backed
securities in a trust arrangement and the issuance of certificates and/or notes
evidencing interests in the trust. These securities are generally sold in
private placements in reliance on Rule 144A.

Quality and Diversification Requirements

Although the Fund is not limited by the diversification requirements of the
1940 Act, the Fund will comply with the diversification requirements imposed by
the Code for qualification as a regulated investment company. See "Taxes."

The higher total return sought by the Fund is generally obtainable from
high yield high risk securities in the lower rating categories of the
established rating services. These securities are rated below Baa by Moody's or
below BBB by Standard & Poor's. The Fund may invest in securities that are
speculative to a high degree and in default. Lower rated securities are
generally referred to as junk bonds. See the Appendix attached to this Statement
of Additional Information for a description of the characteristics of the
various ratings categories. The credit ratings of Moody's and Standard & Poor's
(the "Rating Agencies"), such as those ratings described in this Statement of
Additional Information, may not be changed by the Rating Agencies in a timely
fashion to reflect subsequent economic events. The credit ratings of securities
do not evaluate market risk. The Fund may also invest in unrated securities,
which, in the opinion of the Advisor, offer comparable yields and risks to the
rated securities in which the Fund may invest.

Below Investment Grade Debt. Certain lower rated securities purchased
by the Fund, such as those rated Ba or B by Moody's or BB or B by Standard &
Poor's (commonly known as junk bonds), may be subject to certain risks with
respect to the issuing entity's ability to make scheduled payments of principal
and interest and to greater market fluctuations. While generally providing
higher coupons or interest rates than investments in higher quality securities,
lower quality fixed income securities involve greater risk of loss of principal
and income, including the possibility of default or bankruptcy of the issuers of
such securities, and have greater price volatility, especially during periods of
economic uncertainty or change. These lower quality fixed income securities tend
to be affected by economic changes and short-term corporate and industry
developments to a greater extent than higher quality securities, which react
primarily to fluctuations in the general level of interest rates. To the extent
that the Fund invests in such lower quality securities, the achievement of its
investment objective may be more dependent on the Advisor's own credit analysis.

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

Derivative Instruments

The Fund may purchase derivative securities to enhance return and enter
into derivative contracts to hedge against fluctuations in securities prices or
currency exchange rates, to change the duration of the Fund's fixed income
holdings or as a substitute for the purchase or sale of securities or currency.
The Fund's investments in derivative securities may include structured
securities.

All of the Fund's transactions in derivative instruments involve a risk
of loss or depreciation due to unanticipated adverse changes in interest rates,
securities prices or currency exchange rates. The loss on derivative contracts
(other than purchased options) may substantially exceed the Fund's initial
investment in these contracts. In addition, the Fund may lose the entire premium
paid for purchased options that expire before they can be profitably exercised
by the Fund.

Structured Securities. The Fund may invest in structured securities,
including currency linked securities. The interest rate or, in some cases, the
principal payable at the maturity of a structured security may change positively
or inversely in relation to one or more interest rates, financial indices,
currency rates or other financial indicators (reference prices). A structured
security may be leveraged to the extent that the magnitude of any change in the
interest rate or principal payable on a structured security is a multiple of the
change in the reference price. Thus, structured securities may decline in value
due to adverse market changes in currency exchange rates and other reference
prices.

Derivative Contracts. The Fund may purchase and sell a variety of
derivative contracts, including futures contracts on securities, indices or
currency; options on futures contracts; options on securities, indices or
currency; forward contracts to purchase or sell securities or currency; and
interest rate, currency, index and total return swaps. The Fund incurs liability
to a counterparty in connection with transactions in futures contracts, forward
contracts and swaps and in selling options. The Fund pays a premium for
purchased options. In addition, the Fund incurs transaction costs in opening and
closing positions in derivative contracts.

Risks Associated with Derivative Securities and Contracts

The risks associated with the Fund's transactions in derivative
securities and contracts may include some or all of the following: market risk,
leverage and volatility risk, correlation risk, credit risk, and liquidity and
valuation risk.

Market Risk. Investments in structured securities are subject to the
market risks described above. Entering into a derivative contract involves a
risk that the applicable market will move against the Fund's position and that
the Fund will incur a loss. For derivative contracts other than purchased
options, this loss may substantially exceed the amount of the initial investment
made or the premium received by the Fund.

Leverage and Volatility Risk. Derivative instruments may sometimes
increase or leverage the Fund's exposure to a particular market risk. Leverage
enhances the price volatility of derivative instruments held by the Fund. If the
Fund enters into futures contracts, writes options or engages in certain foreign
currency exchange transactions, it is required to maintain a segregated account
consisting of cash or liquid assets, hold offsetting portfolio securities or
currency positions or cover written options which may partially offset the
leverage inherent in these transactions.

Correlation Risk. The Fund's success in using derivative contracts to
hedge portfolio assets depends on the degree of price correlation between the
derivative contract and the hedged asset. Imperfect correlation may be caused by
several factors, including temporary price disparities among the trading markets
of the derivative contract, the assets underlying the derivative contract and
the Fund's assets.

Credit Risk. Derivative securities and OTC derivative contracts involve a
risk that the issuer or counterparty will fail to perform its contractual
obligations.

Liquidity and Valuation Risk. Some derivative securities are not
readily marketable or may become illiquid under adverse market conditions. In
addition, during periods of extreme market volatility, a commodity exchange may
suspend or limit trading in an exchange-traded derivative contract, which may
make the contract temporarily illiquid and difficult to price. The Fund's
ability to terminate OTC derivative contracts may depend on the cooperation of
the counterparties to such contracts. For thinly traded derivative securities
and contracts, the only source of price quotations may be the selling dealer or
counterparty. Segregation of a large percentage of assets could impede portfolio
management or the ability to meet redemption requests.

Options and Futures Transactions

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

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

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

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

Options

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

Futures Contracts

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

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

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

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

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

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

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

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

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

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

Risk Management

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

Portfolio Turnover

The Portfolio's turnover rate for the period March 7, 1997
(commencement of operations) through December 31, 1997, for the fiscal year
ended December 31, 1998 and for the seven months ended July 31, 1999 was 182%,
791% and 555%, respectively.

The Fund may sell a portfolio security without regard to the length of
time such security has been held if, in the Advisor's view, the security meets
the criteria for sale. A rate of 100% indicates that the equivalent of all of
the Fund'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. This policy is subject to certain requirements so
that certain investors can qualify as regulated investment companies under the
Internal Revenue Code of 1986, as amended (the "Code"). See "Taxes" below.

INVESTMENT RESTRICTIONS

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

The Fund and its corresponding Portfolio:

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

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

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

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

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

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

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

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 accordingly. For instance, personal credit finance companies
and business credit finance companies are deemed to be separate industries and
wholly owned finance companies are considered to be in the industry of their
parents if their activities are primarily related to financing the activities of
their parents.

TRUSTEES AND OFFICERS

Trustees

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

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

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

MATTHEW HEALEY1--Trustee, Chairman and Chief Executive Officer; Chairman,
Pierpont Group, Inc., ("Pierpont Group") since prior to 1993. His address is
Pine Tree Country Club Estates, 10286 Saint Andrews Road, Boynton Beach, Florida
33436, and his date of birth is August 23, 1937.

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, and
the Portfolio and the J.P. Morgan Institutional Funds, up to and including
creating a separate board of trustees.

Each Trustee is currently paid an annual fee of $75,000 (adjusted as of
April 1, 1997) for serving as Trustee of the Trust, each of the Master
Portfolios (as defined below), the J.P. Morgan Institutional Funds and the J.P.
Morgan Series Trust and is reimbursed for expenses incurred in connection with
service as a Trustee.
The Trustees may hold various other directorships unrelated to these funds.

Trustee compensation expenses paid by the Trust for the calendar year ended
December 31, 1998 is set forth below.

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

Matthew Healey, Trustee (***) $14,363 $75,000
Chairman and Chief Executive
Officer
- -------------------------------- -------------------- --------------------------
- -------------------------------- -------------------- --------------------------

Michael P. Mallardi, Trustee $14,363 $75,000
- -------------------------------- -------------------- --------------------------

(*) Includes the Portfolio and 18 other portfolios (collectively the "Master
Portfolios") for which JPMIM acts as investment advisor. (**) No investment
company within the fund complex has a pension or retirement plan. Currently
there are 17 investment companies (14 investment companies comprising the Master
Portfolios, the Trust, the J.P. Morgan Institutional Funds and J.P. Morgan
Series Trust) in the fund complex.

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

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

Fund -- For the period April 17, 1997 (commencement of operations) through
December 31, 1997: $183. For fiscal year ended December 31, 1998: $422. For the
seven months ended July 31, 1999: $211.

Portfolio -- For the period March 7, 1997 (commencement of operations)
through December 31, 1997: $3,074. For fiscal year ended December 31, 1998:
$423. For the seven months ended July 31, 1999: $217.

Officers

MATTHEW HEALEY; Chief Executive Officer; Chairman, Pierpont Group, since
prior to 1993. His address is Pine Tree Club Estates, 10286 Saint Andrews Road,
Boynton Beach, Florida 33436. His date of birth is August 23, 1937.

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.

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 an annual rate of 0.70% of the
Portfolio's average daily net assets. The advisory fees paid by the Portfolio to
the Advisor for the period March 7, 1997 (commencement of operations) through
December 31, 1997 was $652,074. For the fiscal year ended December 31, 1998:
$106,372. For the seven months ended July 31, 1999: $73,273.

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

CO-ADMINISTRATOR

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

The table below sets forth the administrative fees paid to FDI for the
fiscal period indicated.

Fund -- For the period April 17, 1997 (commencement of operations) through
December 31, 1997: $158. For the fiscal year ended December 31, 1998: $311. For
the seven months ended July 31, 1999: $151.

Portfolio -- For the period March 7, 1997 (commencement of operations)
through December 31, 1997: $2,152. For the fiscal year ended December 31, 1998:
$274. For the seven months ended July 31, 1999: $129.

SERVICES AGENT

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

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

The table below sets forth the service fees paid to Morgan for the
fiscal periods indicated.

Fund -- For the period April 17, 1997 (commencement of operations) through
December 31, 1997: $1,688. For the fiscal year ended December 31, 1998: $4,314.
For the seven months ended July 31, 1999: $2,677.

Portfolio -- For the period March 7, 1997 (commencement of operations)
through December 31, 1997: $28,564. For the fiscal year ended December 31, 1998:
$4,349. For the seven months ended July 31, 1999: $2,702.

CUSTODIAN AND TRANSFER AGENT

State Street Bank and Trust Company ("State Street"), 225 Franklin
Street, Boston, Massachusetts 02110, serves as the Trust's and the Portfolio's
custodian and fund accounting agent and the Fund's transfer and dividend
disbursing agent. Pursuant to the custodian contracts, State Street is
responsible for maintaining the books of account and records of portfolio
transactions and holding portfolio securities and cash. In the case of foreign
assets held outside the United States, the custodian employs various
subcustodians who were approved by the Trustees of the Portfolio in accordance
with the regulations of the SEC. The custodian maintains portfolio transaction
records. As transfer agent and dividend disbursing agent, State Street is
responsible for maintaining account records detailing the ownership of Fund
shares and for crediting income, capital gains and other changes in share
ownership to shareholder accounts.

SHAREHOLDER SERVICING

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

The shareholder servicing fees paid by the Fund to Morgan for the period
April 17, 1997 (commencement of operations) through December 31, 1997 were
$13,814 and for the fiscal year ended December 31, 1998: $37,680. For the seven
months ended July 31, 1999: $25,923.

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

FINANCIAL PROFESSIONALS

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

INDEPENDENT ACCOUNTANTS

EXPENSES

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

J.P. Morgan has agreed that it will reimburse the Fund until November
28, 2000, 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 1.25% of the Fund's average daily net assets. This limit does not
cover extraordinary expenses.

The table below sets forth for the Fund the fees and other expenses
J.P. Morgan reimbursed under the expense reimbursement arrangements described
above or pursuant to prior expense reimbursement arrangements for the fiscal
periods indicated.

Fund -- For the period April 17, 1997 (commencement of operations) through
December 31, 1997: $63,410. For the fiscal year ended December 31, 1998:
$126,703. For the seven months ended July 31, 1999: $129,413.

Portfolio -- For the period March 7, 1997 (commencement of operations)
through December 31, 1997: N/A. For the fiscal year ended December 31, 1998:
$27,722. For the seven months ended July 31, 1999: $47,534.

PURCHASE OF SHARES

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

The Fund may, at its own option, accept securities in payment for
shares. The securities delivered in such a transaction are valued by the method
described in "Net Asset Value" as of the day the Fund receives the securities.
This is a taxable transaction to the shareholder. Securities may be accepted in
payment for shares only if they are, in the judgment of the Advisor, appropriate
investments for the Portfolio. In addition, securities accepted in payment for
shares must: (i) meet the investment objective and policies of the 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) have a value which is
readily ascertainable as evidenced by a listing on a stock exchange, OTC market
or by readily available market quotations from a dealer in such securities. The
Fund reserves the right to accept or reject at its own option any and all
securities offered in payment for its shares.

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

REDEMPTION OF SHARES

Investors may redeem shares as described in the Prospectus.

If the Trust, on behalf of the Fund, and the Portfolio determine that
it would be detrimental to the best interest of the remaining shareholders of
the Fund to make payment wholly or partly in cash, payment of the redemption
price may be made in whole or in part by a distribution in kind of securities
from the Fund, in lieu of cash, in conformity with the applicable rule of the
SEC. If shares are redeemed in kind, the redeeming shareholder might incur
transaction costs in converting the assets into cash. The method of valuing
portfolio securities is described under "Net Asset Value," and such valuation
will be made as of the same time the redemption price is determined. The Trust,
on behalf of the Fund, has elected to be governed by Rule 18f-1 under the 1940
Act pursuant to which the Fund is obligated to redeem shares solely in cash up
to the lesser of $250,000 or one percent of the net asset value of the Fund
during any 90-day period for any one shareholder. The Trust will redeem Fund
shares in kind only if it has received a redemption in kind from the Portfolio,
and therefore shareholders of the Fund that receive redemptions in kind will
receive Portfolio holdings. The Portfolio has advised the Trust that the
Portfolio will not redeem in kind except in circumstances in which the Fund is
permitted to redeem in kind. The Trust is in the process of seeking exemptive
relief from the SEC with respect to redemptions in kind by the Fund. If the
requested relief is granted, the Fund would then be permitted to pay redemptions
to greater than 5% shareholders in securities, rather than in cash, to the
extent permitted by the SEC and applicable law. The method of valuing portfolio
securities is described under "Net Asset Value," and such valuation will be made
as of the same time the redemption price is determined.

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

EXCHANGE OF SHARES

An investor may exchange shares from the Fund into any other J.P.
Morgan Fund, J.P. Morgan Institutional Fund or J.P. Morgan Series Trust fund
without charge. An exchange may be made so long as after the exchange the
investor has shares, in each fund in which he or she remains an investor, with a
value of at least that fund's minimum investment amount. Shareholders should
read the prospectus of the fund into which they are exchanging and may only
exchange between fund accounts that are registered in the same name, address and
taxpayer identification number. Shares are exchanged on the basis of relative
net asset value per share. Exchanges are in effect redemptions from one fund and
purchases of another fund and the usual purchase and redemption procedures and
requirements are applicable to exchanges. 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 a Fund are
automatically reinvested in additional shares of the Fund unless the shareholder
has elected to have them paid in cash. Dividends and distributions to be paid in
cash are credited to the shareholder's account at Morgan or at his financial
professional or, in the case of certain Morgan customers, are mailed by check in
accordance with the customer's instructions. Each Fund reserves the right to
discontinue, alter or limit the automatic reinvestment privilege at any time.

NET ASSET VALUE

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

PERFORMANCE DATA

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

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

The Fund may advertise "total return" and non-standardized total return
data. The total return shows what an investment in the Fund would have earned
over a specified period of time (one, five or ten years or since commencement of
operations, if less) assuming that all distributions and dividends by the Fund
were reinvested on the reinvestment date 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 the specified periods of time may also be used. All performance
figures are based on historical earnings and are not intended to indicate future
performance.

Yield Quotations. As required by regulations of the SEC, the annualized
yield for a Fund is computed by dividing the Fund's net investment income per
share earned during a 30-day period by the net asset value on the last day of
the period. The average daily number of shares outstanding during the period
that are eligible to receive dividends is used in determining the net investment
income per share. Income is computed by totaling the interest earned on all debt
obligations during the period and subtracting from that amount the total of all
recurring expenses incurred during the period. The 30-day yield is then
annualized on a bond-equivalent basis assuming semi-annual reinvestment and
compounding of net investment income.

The historical yield information at July 31, 1999: 30-day yield: 10.07.

Total Return Quotations. As required by regulations of the SEC, the
average annual total return of a 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 distributed 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.

Historical Performance

The historical return information for the Fund at July 31, 1999:
Average annual total return, 1 year: (9.10%); average annual total return, 5
years: N/A; average annual total return, commencement of operations (April 17,
1997) to period end: (2.17%); aggregate total return, 1 year: (9.10%); aggregate
total return, 5 years: N/A; aggregate total return, commencement of operations
(April 17, 1997) to period end: (4.89%).

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

PORTFOLIO TRANSACTIONS

The Advisor places orders for the Fund for all purchases and sales of
portfolio securities, enters into repurchase agreements, and may enter into
reverse repurchase agreements and execute loans of portfolio securities on
behalf of the Fund. See "Investment 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 Fund will be undertaken principally to
accomplish the Fund's objective in relation to expected movements in the general
level of interest rates. The Fund may engage in short-term trading consistent
with its objective. See "Investment Objective and Policies -- Portfolio
Turnover."

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

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

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 Fund will not purchase securities
during the existence of any underwriting group relating thereto of which the
Advisor or an affiliate of the Advisor is a member, except to the extent
permitted by law.

Investment decisions made by the Advisor are the product of many
factors in addition to basic suitability for the particular fund or other client
in question. Thus, a particular security may be bought or sold for certain
clients even though it could have been bought or sold for other clients at the
same time. Likewise, a particular security may be bought for one or more clients
when one or more other clients are selling the same security. The Fund may only
sell a security to other portfolios or accounts managed by the Advisor or its
affiliates in accordance with procedures adopted by the Trustees. For the fiscal
year ended December 31, 1998: $311.

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

If the Fund 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
Fund 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 Fund 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 each Fund is a
separate and distinct series. A copy of the Declaration of Trust for the Trust
is on file in the office of the Secretary of The Commonwealth of Massachusetts.
Under Massachusetts law, shareholders of such a trust may, under certain
circumstances, be held personally liable as partners for the obligations of the
trust. However, the Trust's Declaration of Trust provides that the shareholders
will not be subject to any personal liability for the acts or obligations of any
Fund and that every written agreement, obligation, instrument or undertaking
made on behalf of the 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 Pierpont Funds" to "J.P. Morgan 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.

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) without changing the proportionate beneficial interest of each
shareholder in the Fund (or in the assets of other series, if applicable). Each
share represents an equal proportional interest in the Fund with each other
share. Upon liquidation of the Fund, holders are entitled to share pro rata in
the net assets of the Fund available for distribution to such shareholders. See
"Massachusetts Trust." Shares of the Fund have no preemptive or conversion
rights and are fully paid and nonassessable. The rights of redemption and
exchange are described in the Prospectus and elsewhere in this Statement of
Additional Information.

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

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

As of October 31, 1999, the following owned of record or, to the
knowledge of management, beneficially owned more than 5% of the outstanding
shares of the Fund: JPMIM as Agent for Ameritech Union Werfare Benefit Trust
(21.53%); JPMIM as agent for SDI Investments LLC (20.30%); Charles Schwab & Co.
Inc. Special Custody Account for Benefit of Customers (12.79%); Morgan Guaranty
Trust as Agent for Jeffrey Soros (12.38%); JPMIM as agent for the Pritzker
Foundation (11.94%) and Norman Lear Trust (8.96%).

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

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

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

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

TAXES

The Fund intends to qualify and remain qualified as a regulated
investment company under Subchapter M of the Code. As a regulated investment
company, the Fund must, among other things, (a) derive at least 90% of its gross
income from dividends, interest, payments with respect to loans of stock and
securities, gains from the sale or other disposition of stock, securities or
foreign currency and other income (including but not limited to gains from
options, futures, and forward contracts) derived with respect to its business of
investing in such stock, securities or foreign currency; (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).

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 a Fund, the over distribution would
be considered a return of capital rather than a dividend payment. The Fund
intends to pay dividends in such a manner so as to minimize the possibility of a
return of capital. Distributions to corporate shareholders of the Fund are not
eligible for the dividends received deduction. Distributions of net long-term
capital gain (i.e., net long-term capital gain in excess of net short-term
capital loss) are taxable to shareholders of the Fund as long-term capital gain,
regardless of whether such distributions are taken in cash or reinvested in
additional shares and regardless of how long a shareholder has held shares in
the Fund. In general, long-term capital gain of an individual shareholder will
be subject to a 20% rate of tax.

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

For federal income tax purposes, the Fund had a capital loss
carryforward of $4,224,557 at December 31, 1998, which will expire in the year
2006. To the extent that this capital loss is used to offset future capital
gains, it is probable that the gains so offset sill not be distributed to
shareholders.

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

Certain options, futures and foreign currency contracts held by 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.

For taxable years of the Portfolio beginning after 1997, 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.

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

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

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. So long as more than 50% in value of the total assets of the Fund
(including its share of the assets of the Portfolio) at the close of any taxable
year consists of stock or securities of foreign corporations, the Fund may elect
to treat any foreign income taxes deemed paid by it as paid directly by its
shareholders. The Fund will make such an election only if they deem it to be in
the best interest of their respective shareholders. The Fund will notify its
shareholders in writing each year if they make the election and of the amount of
foreign income taxes, if any, to be treated as paid by the shareholders and the
amount of foreign taxes, if any, for which shareholders of the Fund will not be
eligible to claim a foreign tax credit because the holding period requirements
(described below) have not been satisfied. If the Fund makes the election, each
shareholder will be required to include in his income (in addition to the
dividends and distributions he receives) his proportionate share of the amount
of foreign income taxes deemed paid by the Fund and will be entitled to claim
either a credit (subject to the limitations discussed below) or, if he or she
itemizes deductions, a deduction for his or her share of the foreign income
taxes in computing federal income tax liability (no deduction will be permitted
in computing an individual's alternative minimum tax liability). Effective for
dividends paid after September 5, 1997, shareholders of the Fund will not be
eligible to claim a foreign tax credit with respect to taxes paid by the Fund
(notwithstanding that the Fund elects to treat the foreign taxes deemed paid by
it as paid directly by its shareholders) unless certain holding period
requirements are met. A shareholder who is a nonresident alien individual or a
foreign corporation may be subject to U.S. withholding tax on the income
resulting from the election described in this paragraph, but may not be able to
claim a credit or deduction against such U.S. tax for the foreign taxes treated
as having been paid by such shareholder. A tax-exempt shareholder will not
ordinarily benefit from this election. Shareholders who choose to utilize a
credit (rather than a deduction) for foreign taxes will be subject to the
limitation that the credit may not exceed the shareholder's U.S. tax (determined
without regard to the availability of the credit) attributable to his or her
total foreign source taxable income. For this purpose, the portion of dividends
and distributions paid by Fund from its foreign source net investment income
will be treated as foreign source income. The Fund's gains and losses from the
sale of securities will generally be treated as derived from U.S. sources,
however, and certain foreign currency gains and losses likewise will be treated
as derived from U.S. sources. The limitation on the foreign tax credit is
applied separately to foreign source "passive income," such as the portion of
dividends received from the Fund which qualifies as foreign source income. In
addition, the foreign tax credit is allowed to offset only 90% of the
alternative minimum tax imposed on corporations and individuals. Because of
these limitations, if the election is made, shareholders may nevertheless be
unable to claim a credit for the full amount of their proportionate shares of
the foreign income taxes paid by the Fund. Effective for taxable years of a
shareholder beginning after December 31, 1997, individual shareholders of the
Fund with $300 or less of creditable foreign taxes ($600 in the case of an
individual shareholder filing jointly) may elect to be exempt from the foreign
tax credit limitation rules described above (other than the 90% limitation
applicable for purposes of the alternative minimum tax), provided that all of
such individual shareholder's foreign source income is "qualified passive
income" (which generally includes interest, dividends, rents, royalties and
certain other types of income) and further provided that all of such foreign
source income is shown on one or more payee statements furnished to the
shareholder. Shareholders making this election will not be permitted to carry
over any excess foreign taxes to or from a tax year to which such an election
applies.

ADDITIONAL INFORMATION

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.

The Year 2000 Initiative.

Costs associated with efforts to prepare J.P. Morgan's systems for the
year 2000 approximated $93.3 million in 1997, $132.7 million in 1998 and $36.6
million for the first eight months of 1999. Over the next month, J.P. Morgan
will continue its efforts to prepare its systems for the year 2000. The total
cost to become year-2000 compliant is estimated at $300 million, for internal
systems renovation and testing, testing equipment and both internal and external
resources working on the project. The costs associated with J.P. Morgan becoming
year-2000 compliant will be borne by J.P. Morgan and not the Fund.

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

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

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

FINANCIAL STATEMENTS

The Fund's financial statements and the report thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference to the Fund's
July 31, 1999 annual report filing made with the SEC on September 23, 1999
pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder (Accession
No. 0001047469-99-036629). The annual report is available without charge upon
request by calling J.P. Morgan Funds Services at (800) 521-5411. The Fund's
financial statements include the financial statements of the Portfolio.

<PAGE>

APPENDIX A

Description of Security Ratings

STANDARD & POOR'S

Corporate and Municipal Bonds

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

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

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

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

Commercial Paper, including Tax Exempt

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

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

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

Short-Term Tax-Exempt Notes

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

MOODY'S

Corporate and Municipal Bonds

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

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

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

Commercial Paper, including Tax Exempt

Short-Term Tax Exempt Notes

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

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

<PAGE>

PART C

ITEM 23. EXHIBITS.

(a) Declaration of Trust, as amended, was filed as Exhibit No. 1 to
Post-Effective Amendment No. 26 to the Registration Statement filed on September
27, 1996 (Accession Number 0000912057-96-021331).

(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.*

(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. 32 to the
Registration Statement on February 28, 1997 (Accession Number
0001016964-97-000038).

(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. 34 to the
Registration Statement on April 30, 1997 (Accession Number
0001019694-97-000063).

(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. 41 to the
Registration Statement on October 21, 1997 (Accession Number
0001042058-97-000006).

(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. 45 to the
Registration Statement on December 29, 1997 (Accession Number
0001041455-97-000013).

(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. 59 to the Registration
Statement on December 30, 1998 (Accession Number 0001041455-98-000098).

(b) Restated By-Laws of Registrant.*

(e) Distribution Agreement between Registrant and Funds Distributor, Inc.
("FDI").*

(g) Custodian Contract between Registrant and State Street Bank and Trust
Company ("State Street").*

(h)1 Co-Administration Agreement between Registrant and FDI.*

(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. 53 to the Registration Statement on August 25, 1998
(Accession No. 0001041455-98-000052).

(h)3 Transfer Agency and Service Agreement between Registrant and State
Street.*

(h)4 Restated Administrative Services Agreement between Registrant and
Morgan Guaranty.*

(h)5 Fund Services Agreement, as amended, between Registrant and Pierpont
Group, Inc.*

(i) Opinion and consent of Sullivan & Cromwell.*

(j) Consent of independent accountants (filed herewith).

(l) Purchase agreements with respect to Registrant's initial shares.*

(n) Financial Data Schedules (not applicable).
- ------------------------
* Incorporated herein by reference to Post-Effective Amendment No.
30 to the Registration Statement
filed on December 27, 1996 (Accession Number 0001016964-96-000066).

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.

Not Applicable.

ITEM 27. PRINCIPAL UNDERWRITERS.

(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.
BJB Investment Funds
The Brinson Funds
Dresdner RCM Capital Funds, Inc.
Dresdner RCM Equity Funds, Inc.
Founders Funds, Inc.
Harris Insight Funds Trust
HT Insight Funds, Inc. d/b/a Harris Insight Funds
J.P. Morgan Institutional Funds
J.P. Morgan Series Trust
J.P. Morgan Series Trust II
LaSalle Partners Funds, Inc.
Monetta Fund, Inc.
Monetta Trust
The Montgomery Funds
The Montgomery Funds II
The Munder Framlington Funds Trust
The Munder Funds Trust
The Munder Funds, Inc.
Orbitex Group of Funds
St. Clair Funds, Inc.
The Skyline Funds
Waterhouse Investors Family of Funds, Inc.
WEBS Index Fund, Inc.

Funds Distributor, Inc. does not act as depositor or investment adviser to
any of the investment companies.

Funds Distributor, Inc. 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, Inc. is located at 60 State Street, Suite
1300, Boston, Massachusetts 02109. Funds Distributor, Inc. 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.:

Director, President and Chief Executive Officer: Marie E. Connolly
Executive Vice President: George Rio
Executive Vice President: Donald R. Roberson
Executive Vice President: William S. Nichols
Senior Vice President: Michael S. Petrucelli
Director, Senior Vice President, Treasurer and
Chief Financial Officer: Joseph F. Tower, III
Senior Vice President: Paula R. David
Senior Vice President: Allen B. Closser
Senior Vice President: Bernard A. Whalen
Director: William J. Nutt

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).

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 has duly caused this registration statement
to be signed on its behalf by the undersigned, thereto duly authorized, in the
City of New York and State of New York on the 29th day of November, 1999.

J.P. Morgan Funds, The Tax Exempt Bond Portfolio, The New York Tax Exempt
Bond Portfolio, The Series Portfolio

By /s/ Stephanie D. Pierce
-----------------------------
Stephanie D. Pierce
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 November 29, 1999.

George Rio*
- ------------------------------
George Rio
President and Treasurer
Officer of the Portfolios

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/ Stephanie D. Pierce
----------------------------
Stephanie D. Pierce
as attorney-in-fact pursuant to a power of attorney.

<PAGE>

INDEX TO EXHIBITS

Exhibit No. Description of Exhibit
- ------------- ------------------------

EX-99.(j) Consent of Independent Accountants

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A of our report dates September 15, 1999, relating to the
financial statements and financial highlights which appears in the July 31, 1999
Annual Report to Shareholders of J.P. Morgan Institutional Tax Exempt Bond Fund
and financial statements and supplementary data of The Tax Exempt Bond
Portfolio, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" in the Prospectus and "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.

We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A or our report dated September 15, 1999, relating to the
financial statements and financial highlights which appears in the July 31, 1999
Annual Report to Shareholders of J.P. Morgan Institutional New York Tax Exempt
Bond Fund and financial statements and supplementary data of The New York Tax
Exempt Bond Portfolio, which are also incorporated by reference into the
Registration Statement. We also consent to the references to us under the
headings "Financial Highlights" in the Prospectus and "Independent Accountants"
and "Financial Statements" in the Statement of Additional Information.

We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A or our report dated September 15, 1999, relating to the
financial statements and financial highlights which appears in the July 31, 1999
Annual Report to Shareholders of J.P. Morgan Tax Exempt Bond Fund and financial
statements and supplementary data of The Tax Exempt Bond Portfolio, which are
also incorporated by reference into the Registration Statement. We also consent
to the references to us under the headings "Financial Highlights" in the
Prospectus and "Independent Accountants" and "Financial Statements" in the
Statement of Additional Information.

We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A or our report dated September 15, 1999, relating to the
financial statements and financial highlights which appears in the July 31, 1999
Annual Report to Shareholders of J.P. Morgan New York Tax Exempt Bond Fund and
financial statements and supplementary data of The New York Tax Exempt Bond
Portfolio, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" in the Prospectus and "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.

We hereby consent to the incorporation by reference in this Registration
Statement on Form N-1A or our report dated September 15, 1999, relating to the
financial statements and financial highlights which appears in the July 31, 1999
Annual Report to Shareholders of J.P. Morgan Emerging Markets Debt Fund and
financial statements and supplementary data of The Emerging Markets Debt
Portfolio, which are also incorporated by reference into the Registration
Statement. We also consent to the references to us under the headings "Financial
Highlights" in the Prospectus and "Independent Accountants" and "Financial
Statements" in the Statement of Additional Information.

We hereby consent to the references to us under the heading "Financial
Highlights" in the Prospectus of the J.P. Morgan Institutional Fixed Income
Funds relating to J.P. Morgan Institutional Short Term Bond Fund, J.P. Morgan
Institutional Bond Fund, J.P. Morgan Global Strategic Income Fund and J.P.
Morgan California Bond Fund.

/s/PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
November 29, 1999