PART B

J. P. MORGAN FUNDS

J. P. MORGAN DIVERSIFIED FUND

STATEMENT OF ADDITIONAL INFORMATION

NOVEMBER 1, 2000

THIS STATEMENT OF ADDITIONAL INFORMATION IS NOT A PROSPECTUS, BUT CONTAINS
ADDITIONAL INFORMATION WHICH SHOULD BE READ IN CONJUNCTION WITH THE FUND'S
PROSPECTUS DATED NOVEMBER 1, 2000, AS SUPPLEMENTED FROM TIME TO TIME,
ADDITIONALLY, THIS STATEMENT OF ADDITIONAL INFORMATION INCORPORATES BY
REFERENCE THE FINANCIAL STATEMENTS INCLUDED IN THE SHAREHOLDER REPORT
RELATING TO THE FUND DATED JUNE 30, 2000. THE PROSPECTUS AND THE FINANCIAL
STATEMENTS, INCLUDING THE INDEPENDENT ACCOUNTANTS' REPORT THEREON, ARE
AVAILABLE WITHOUT CHARGE, UPON REQUEST FROM FUNDS DISTRIBUTOR, INC.,
ATTENTION: J. P. MORGAN FUNDS (800) 221-7930.

TABLE OF CONTENTS

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GENERAL......................................................................1
INVESTMENT OBJECTIVE AND POLICIES............................................1
INVESTMENT RESTRICTIONS.....................................................21
TRUSTEES AND MEMBERS OF THE ADVISORY BOARD..................................22
OFFICERS....................................................................24
CODES OF ETHICS.............................................................26
INVESTMENT ADVISOR..........................................................26
DISTRIBUTOR.................................................................27
CO-ADMINISTRATOR............................................................28
SERVICES AGENT..............................................................28
CUSTODIAN AND TRANSFER AGENT................................................29
SHAREHOLDER SERVICING.......................................................29
FINANCIAL PROFESSIONALS.....................................................30
INDEPENDENT ACCOUNTANTS.....................................................30
EXPENSES....................................................................30
PURCHASE OF SHARES..........................................................31
REDEMPTION OF SHARES........................................................31
EXCHANGE OF SHARES..........................................................32
DIVIDENDS AND DISTRIBUTIONS.................................................32
NET ASSET VALUE.............................................................33
PERFORMANCE DATA............................................................34
PORTFOLIO TRANSACTIONS......................................................35
MASSACHUSETTS TRUST.........................................................37
DESCRIPTION OF SHARES.......................................................37
SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE.........................39
TAXES.......................................................................39
ADDITIONAL INFORMATION......................................................42
FINANCIAL STATEMENTS........................................................43
APPENDIX A.................................................................A-1

GENERAL

This Statement of Additional Information relates only to J. P. Morgan
Diversified Fund (the "Fund"). The Fund is a series of shares of beneficial
interest of J. P. Morgan Funds, an open-end management investment company
organized as a Massachusetts business trust (the "Trust"). In addition to the
Fund, the Trust consists of other series representing separate investment
funds (each a "J. P. Morgan 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 Diversified Portfolio (the
"Portfolio"), a corresponding diversified open-end management investment
company having the same investment objective as the Fund. The Fund invests in
the Portfolio through a two-tier master-feeder investment fund structure. See
"Special Information Concerning Investment Structure." Accordingly,
references below to the Fund also include the Portfolio; similarly,
references to the Portfolio also include the Fund unless the context requires
otherwise.

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

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

INVESTMENT OBJECTIVE AND POLICIES

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

The Fund is designed for investors who wish to invest for long term
objectives such as retirement and who seek to attain real appreciation in
their investments over the long term, but with somewhat less price
fluctuation than a portfolio consisting solely of equity securities. The
Fund's investment objective is to provide a high total return from a
diversified portfolio of equity and fixed income securities.

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

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

INVESTMENT PROCESS FOR THE PORTFOLIO'S EQUITY COMPONENT

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

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

Systematic valuation: The analysts' forecasts are converted into
comparable expected returns using a proprietary dividend discount model,
which calculates the intermediate-term earnings by comparing a company's
current stock price with the "fair value" price forecasted by the estimated
intermediate-term earnings power. Within each sector, companies are ranked
according to their relative value and grouped into quintiles: those with the
highest expected returns (Quintile 1) are deemed the most undervalued
relative to their long-term earnings power, while those with the lowest
expected returns (Quintile 5) are deemed the most overvalued.

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

INVESTMENT PROCESS FOR THE PORTFOLIO'S FIXED INCOME COMPONENT

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

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

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

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

Fundamental research: JPMIM's domestic equity analysts also continuously
monitor 300-500 small cap stocks with the aim of identifying companies that
exhibit superior financial strength and operating returns. Meetings with
management and on-site visits play a key role in shaping their assessments.
Because JPMIM's analysts follow both the larger and smaller companies in
their industries -- in essence, covering their industries from top to bottom
- -- they are able to bring broad perspective to the research they do on both.

See "Systematic Valuation" above.

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

INVESTMENT PROCESS FOR THE PORTFOLIO'S INTERNATIONAL EQUITY COMPONENT

Stock selection and country allocation: JPMIM's more than 30
international equity analysts, each an industry and country specialist,
forecast normalized earnings and dividend payouts for roughly 1,200 non-U.S.
companies -- taking a long-term perspective rather than the short time frame
common to consensus estimates. The comparable expected returns generated by
the dividend discount model are used to rank companies from most to least
attractive by industry and country. A diversified portfolio is constructed
using disciplined buy and sell rules. The portfolio manager's objective is to
concentrate the purchases in the stocks deemed most undervalued and to keep
sector weightings close to those of the Morgan Stanley Capital International
Europe, Australasia and Far East Index ("EAFE"). Once a stock falls into the
bottom half of the rankings, it generally becomes a candidate for sale. Where
available, warrants and convertibles may be purchased instead of common stock
if they are deemed a more attractive means of investing in an undervalued
company. JPMIM's country allocation decisions are primarily driven by its
stock selection process.

Currency management: Currency is actively managed, in conjunction with
country and stock allocation, with the goal of protecting and possibly
enhancing return. JPMIM's currency decisions are supported by a proprietary
tactical model which forecasts currency movements based on an analysis of
four fundamental factors -- trade balance trends, purchasing power parity,
real short-term interest differentials and real bond yields -- plus a
technical factor designed to improve the timing of transactions. Combining
the output of this model with a subjective assessment of economic, political
and market factors, JPMIM's currency group recommends currency strategies
that are implemented in conjunction with the Portfolio's investment strategy.

FIXED INCOME INVESTMENTS

The Portfolio may invest in a broad range of debt securities of domestic
and foreign corporate and government issuers. The corporate securities in
which the Portfolio may invest include debt securities of various types and
maturities, e.g., debentures, notes, mortgage securities, equipment trust
certificates and other collateralized securities and zero coupon securities.
Collateralized securities are backed by a pool of assets such as loans or
receivables which generate cash flow to cover the payments due on the
securities. Collateralized securities are subject to certain risks, including
a decline in the value of the collateral backing the security, failure of the
collateral to generate the anticipated cash flow or in certain cases more
rapid prepayment because of events affecting the collateral, such as
accelerated prepayment of mortgages or other loans backing these securities
or destruction of equipment subject to equipment trust certificates. In the
event of any such prepayment the Portfolio will be required to reinvest the
proceeds of prepayments at interest rates prevailing at the time of
reinvestment, which may be lower. In addition, the value of zero coupon
securities which do not pay interest is more volatile than that of interest
bearing debt securities with the same maturity.

CORPORATE BONDS AND OTHER DEBT SECURITIES

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

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

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

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

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

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

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

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

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

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

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

ZERO COUPON, PAY-IN-KIND AND DEFERRED PAYMENT SECURITIES. Zero coupon
securities are securities that are sold at a discount to par value and on
which interest payments are not made during the life of the security. Upon
maturity, the holder is entitled to receive the par value of the security.
Pay-in-kind securities are securities that have interest payable by delivery
of additional securities. Upon maturity, the holder is entitled to receive
the aggregate par value of the securities. The Portfolio accrues income with
respect to zero coupon and pay-in-kind securities prior to the receipt of
cash payments. Deferred payment securities are securities that remain zero
coupon securities until a predetermined date, at which time the stated coupon
rate becomes effective and interest becomes payable at regular intervals.
While interest payments are not made on such securities, holders of such
securities are deemed to have received "phantom income." Because the
Portfolio will distribute "phantom income" to shareholders, to the extent
that shareholders elect to receive dividends in cash rather than reinvesting
such dividends in additional shares, the Portfolio will have fewer assets
with which to purchase income producing securities.

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

MONEY MARKET INSTRUMENTS

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

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

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

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

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

international banking institutions designated or supported by national
governments to promote economic reconstruction, development or trade between
nations (e.g., the European Investment Bank, the Inter-American Development
Bank, or the World Bank).

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

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

The Portfolio may make investments in other debt securities with
remaining effective maturities of not more than thirteen months, including
without limitation corporate and foreign bonds, asset-backed securities and
other obligations described herein.

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

EQUITY INVESTMENTS

The Portfolio may invest in equity securities consisting of common stock
and other securities with equity characteristics comprised of preferred
stock, warrants, rights, convertible securities, trust certificates, limited
partnership interests and equity participations (collectively, "Equity
Securities"). The Equity Securities in which the Portfolio invests include
those listed on any domestic or foreign securities exchange or traded in the
over-the-counter (OTC) market as well as certain restricted or unlisted
securities.

EQUITY SECURITIES. The Equity Securities in which the Portfolio may
invest may or may not pay dividends and may or may not carry voting rights.
Common stock occupies the most junior position in a company's capital
structure.

The convertible securities in which the Portfolio may invest include any
debt securities or preferred stock which may be converted into common stock
or which carry the right to purchase common stock. Convertible securities
entitle the holder to exchange the securities for a specified number of
shares of common stock, usually of the same company, at specified prices
within a certain period of time.

The terms of any convertible security determine its ranking in a
company's capital structure. In the case of subordinated convertible
debentures, the holders' claims on assets and earnings are subordinated to
the claims of other creditors, and are senior to the claims of preferred and
common shareholders. In the case of convertible preferred stock, the holders'
claims on assets and earnings are subordinated to the claims of all creditors
and are senior to the claims of common shareholders.

COMMON STOCK WARRANTS

The Portfolio may invest in common stock warrants that entitle the
holder to buy common stock from the issuer of the warrant at a specific price
(the strike price) for a specific period of time. The market price of
warrants may be substantially lower than the current market price of the
underlying common stock, yet warrants are subject to similar price
fluctuations. As a result, warrants may be more volatile investments than the
underlying common stock.

Warrants generally do not entitle the holder to dividends or voting
rights with respect to the underlying common stock and do not represent any
rights in the assets of the issuer company. A warrant will expire worthless
if it is not exercised on or prior to the expiration date.

FOREIGN INVESTMENTS

The Portfolio may invest in certain foreign securities. The Portfolio
does not expect to invest more than 30% of its total assets at the time of
purchase in securities of foreign issuers and in obligations of foreign
branches of domestic banks. The economies of individual foreign nations may
differ from the U.S. economy, whether favorably or unfavorably, in areas such
as growth of gross national product, rate of inflation, capital reinvestment,
resource self-sufficiency and balance of payments position; it may also be
more difficult to obtain and enforce a judgment against a foreign issuer. Any
foreign investments made by the Portfolio must be made in compliance with
U.S. and foreign currency restrictions and tax laws restricting the amounts
and types of foreign investments.

Foreign investments may be made directly in securities of foreign
issuers or in the form of American Depositary Receipts ("ADRs"), European
Depositary Receipts ("EDRs") and Global Depositary Receipts ("GDRs") or other
similar securities of foreign issuers. ADRs are securities, typically issued
by a U.S. financial institution (a "depositary"), that evidence ownership
interests in a security or a pool of securities issued by a foreign issuer
and deposited with the depositary. ADRs include American Depositary Shares
and New York Shares. EDRs are receipts issued by a European financial
institution. GDRs, which are sometimes referred to as Continental Depositary
Receipts ("CDRs"), are securities, typically issued by a non-U.S. financial
institution, that evidence ownership interests in a security or a pool of
securities issued by either a U.S. or foreign issuer. ADRs, EDRs, GDRs and
CDRs may be available for investment through "sponsored" or "unsponsored"
facilities. A sponsored facility is established jointly by the issuer of the
security underlying the receipt and a depositary, whereas an unsponsored
facility may be established by a depositary without participation by the
issuer of the receipt's

underlying security. An unsponsored depositary may not provide the same
shareholder information that a sponsored depositary is required to provide
under its contractual arrangements with the issuer of the underlying foreign
security. Generally, ADRs, in registered form, are designed for use in the
U.S. securities markets, and EDRs, in bearer form, are designed for use in
European securities markets.

Holders of an unsponsored depositary receipt generally bear all costs of
the unsponsored facility. The depositary of an unsponsored facility
frequently is under no obligation to distribute shareholder communications
received from the issuer of the deposited security or to pass through to the
holders of the receipts voting rights with respect to the deposited
securities.

Investment in securities of foreign issuers and in obligations of
foreign branches of domestic banks involves somewhat different investment
risks from those affecting securities of U.S. domestic issuers. There may be
limited publicly available information with respect to foreign issuers, and
foreign issuers are not generally subject to uniform accounting, auditing and
financial standards and requirements comparable to those applicable to
domestic companies. Dividends and interest paid by foreign issuers may be
subject to withholding and other foreign taxes which may decrease the net
return on foreign investments as compared to dividends and interest paid to
the Portfolio by domestic companies.

Investors should realize that the value of the Portfolio's investments
in foreign securities may be adversely affected by changes in political or
social conditions, diplomatic relations, confiscatory taxation,
expropriation, nationalization, limitation on the removal of funds or assets,
or imposition of (or change in) exchange control or tax regulations in those
foreign countries. In addition, changes in government administration or
economic or monetary policies in the United States or abroad could result in
appreciation or depreciation of portfolio securities and could favorably or
unfavorably affect the Portfolio's operations. Furthermore, the economies of
individual foreign nations may differ from the U.S. economy, whether
favorably or unfavorably, in areas such as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency and
balance of payments position; it may also be more difficult to obtain and
enforce a judgment against a foreign issuer. Any foreign investment made by
the Portfolio must be made in compliance with U.S. and foreign currency
restrictions and tax laws restricting the amounts and types of foreign
investments.

In addition, while the volume of transactions effected on foreign
exchanges has increased in recent years, in most cases it remains appreciably
below that of domestic security exchanges. Accordingly, the Portfolio's
foreign investments may be less liquid and their prices may be more volatile
than comparable investments in securities of U.S. companies. Moreover, the
settlement periods for foreign securities, which are often longer than those
for securities of U.S. issuers, may affect portfolio liquidity. In addition,
there is generally less government supervision and regulation of securities
exchanges, brokers and issuers located in foreign countries than in the
United States.

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

The Portfolio may also invest in countries with emerging economies or
securities markets. Political and economic structures in many of such
countries may be undergoing significant evolution and rapid development, and
such countries may lack the social, political and economic stability
characteristic of more developed countries. Certain of such countries may
have in the past failed to recognize private property rights and have at
times nationalized or expropriated the assets of private companies. As a
result, the risks described above, including the risks of nationalization or
expropriation of assets, may be heightened. In addition, unanticipated
political or social developments may affect the values of the Portfolio
Investments in those countries and the availability to the Portfolio of
additional investments in those countries. The small size and inexperience of
the securities markets in certain of such countries and the limited volume of
trading in securities in those countries may make the Portfolio

investments in such countries illiquid and more volatile than investments in
more developed countries, and the Portfolio may be required to establish
special custodial or other arrangements before making certain investments in
those countries. There may be little financial or accounting information
available with respect to issuers located in certain of such countries, and
it may be difficult as a result to assess the value or prospects of an
investment in such issuers.

FOREIGN CURRENCY EXCHANGE TRANSACTIONS.

Because the Portfolio may buy and sell securities and receive interest
and dividends in currencies other than the U.S. dollar, the Portfolio may
enter from time to time into foreign currency exchange transactions. The
Portfolio either enters into these transactions on a spot (i.e., cash) basis
at the spot rate prevailing in the foreign currency exchange market or uses
forward contracts to purchase or sell foreign currencies. The cost of the
Portfolio's spot currency exchange transactions is generally the difference
between the bid and offer spot rate of the currency being purchased or sold.

A forward foreign currency exchange contract is an obligation by the
Portfolio to purchase or sell a specific currency at a future date, which may
be any fixed number of days from the date of the contract. Forward foreign
currency exchange contracts establish an exchange rate at a future date.
These contracts are derivative instruments, as their value derives from the
spot exchange rates of the currencies underlying the contract. These
contracts are entered into in the interbank market directly between currency
traders (usually large commercial banks) and their customers. A forward
foreign currency exchange contract generally has no deposit requirement and
is traded at a net price without commission. Neither spot transactions nor
forward foreign currency exchange contracts eliminate fluctuations in the
prices of the Portfolio's securities or in foreign exchange rates, or prevent
loss if the prices of these securities should decline.

The Portfolio may enter into forward foreign currency exchange contracts
to adjust its currency exposure relative to the EAFE Index, the benchmark for
its international equity investments. The Portfolio may enter into foreign
currency exchange transactions in an attempt to protect against changes in
foreign currency exchange rates between the trade and settlement dates of
specific securities transactions or anticipated securities transactions. The
Portfolio may also enter into forward contracts to hedge against a change in
foreign currency exchange rates that would cause a decline in the value of
existing investments denominated or principally traded in a foreign currency.
To do this, the Portfolio would enter into a forward contract to sell the
foreign currency in which the investment is denominated or principally traded
in exchange for U.S. dollars or in exchange for another foreign currency. The
Portfolio will only enter into forward contracts to sell a foreign currency
for another foreign currency if the Advisor expects the foreign currency
purchased to appreciate against the U.S. dollar.

Although these transactions are intended to minimize the risk of loss
due to a decline in the value of the hedged currency, at the same time they
limit any potential gain that might be realized should the value of the
hedged currency increase. In addition, forward contracts that convert a
foreign currency into another foreign currency will cause the Portfolio to
assume the risk of fluctuations in the value of the currency purchased vis a
vis the hedged currency and the U.S. dollar. The precise matching of the
forward contract amounts and the value of the securities involved will not
generally be possible because the future value of such securities in foreign
currencies will change as a consequence of market movements in the value of
such securities between the date the forward contract is entered into and the
date it matures. The projection of currency market movements is extremely
difficult, and the successful execution of a hedging strategy is highly
uncertain.

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

moratoria on the payment of principal and interest on their sovereign debts.

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

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

ADDITIONAL INVESTMENTS

CONVERTIBLE SECURITIES. The Portfolio may invest in convertible
securities of domestic and foreign issuers. The convertible securities in
which the Portfolio may invest include any debt securities or preferred stock
which may be converted into common stock or which carry the right to purchase
common stock. Convertible securities entitle the holder to exchange the
securities for a specified number of shares of common stock, usually of the
same company, at specified prices within a certain period of time.

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

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

advisory fees. These expenses would be in addition to the advisory and other
expenses that the Portfolio bears directly in connection with its own
operations.

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

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

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

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

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

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

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

QUALITY AND DIVERSIFICATION REQUIREMENTS

The Portfolio intends to meet the diversification requirements of the
1940 Act. Current 1940 Act diversification requirements require that with
respect to 75% of the assets of the 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 Portfolio will comply with the diversification requirements imposed
by the Internal Revenue Code of 1986, as amended (the "Code"), for
qualification as a regulated investment company. See "Taxes".

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

Lower quality fixed income securities are affected by the market's
perception of their credit quality,

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

The Portfolio may invest in convertible debt securities, for which there
are no specific quality requirements. The fixed income portion of the
Portfolio invests in a diversified portfolio of securities with the ratings
described in the Prospectus. These securities are considered "high grade",
"investment grade" and "below investment grade" as described in Appendix A.
In addition, at the time the Portfolio invests in any commercial paper, bank
obligation or repurchase agreement, the issuer must have outstanding debt
rated A or higher by Moody's or Standard & Poor's, the issuer's parent
corporation, if any, must have outstanding commercial paper rated Prime-1 by
Moody's or A-1 by Standard & Poor's, or if no such ratings are available, the
investment must be of comparable quality in the Advisor's opinion. At the
time the Portfolio invests in any other short-term debt securities, they must
be rated A or higher by Moody's or Standard & Poor's, or if unrated, the
investment must be of comparable quality in the Advisor's opinion.

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

OPTIONS AND FUTURES TRANSACTIONS

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

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

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

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

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

OPTIONS

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

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

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

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

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

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

current value is greater, a call writer gives up some ability to participate
in security price increases.

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

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

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

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

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

FUTURES CONTRACTS

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

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

The purchaser or seller of a futures contract is not required to deliver
or pay for the underlying instrument

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

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

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

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

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

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

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

other investments.

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

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

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

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

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

SWAPS AND RELATED SWAP PRODUCTS

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

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

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

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

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

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

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

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

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

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

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

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

RISK MANAGEMENT

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

PORTFOLIO TURNOVER

The Portfolio's turnover rates for the fiscal years ended June 30, 1998,
1999 and 2000 were 82%, 144% and 217%, respectively. A rate of 100% indicates
that the equivalent of all of the Portfolio's assets have been sold and
reinvested in a year. High portfolio turnover may result in the realization
of substantial net capital gains or losses. To the extent net short term
capital gains are realized, any distributions resulting from such gains are
considered ordinary income for federal income tax purposes. See "Taxes" below.

INVESTMENT RESTRICTIONS

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

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

The Portfolio:

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

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

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

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

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

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

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

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

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

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

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

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

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

For purposes of the fundamental investment restriction regarding
industry concentration, JPMIM may classify issuers by industry in accordance
with classifications set forth in the DIRECTORY OF COMPANIES FILING ANNUAL
REPORTS WITH THE SECURITIES AND EXCHANGE COMMISSION or other sources. In the
absence of such classification or if JPMIM determines in good faith based on
its own information that the economic characteristics affecting a particular
issuer make it more appropriately considered to be engaged in a different
industry, JPMIM may classify an issuer accordingly. For instance, personal
credit finance companies and business credit finance companies are deemed to
be separate industries and wholly owned finance companies are considered to
be in the industry of their parents if their activities are primarily related
to financing the activities of their parents.

TRUSTEES AND MEMBERS OF THE ADVISORY BOARD

TRUSTEES

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

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

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

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

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

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

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

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

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

Each Trustee is currently paid an annual fee of $75,000 for serving as
Trustee of the Trust, each of the

Master Portfolios (as defined below), The J. P. Morgan Institutional Funds
and J. P. Morgan Series Trust and is reimbursed for expenses incurred in
connection with service as a Trustee. The Trustees may hold various other
directorships unrelated to these funds.

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

TOTAL TRUSTEE
COMPENSATION ACCRUED
BY THE MASTER
AGGREGATE PORTFOLIOS (*), THE J.P.
TRUSTEE MORGAN INSTITUTIONAL
COMPENSATION FUNDS, J.P. MORGAN
ACCRUED BY THE SERIES TRUST AND THE
NAME OF TRUSTEE TRUST DURING 1999 TRUST DURING 1999 (***)
- ----------------------------------------------------- ------------------------- -----------------------------------

Frederick S. Addy, Trustee $12,720 $75,000

William G. Burns, Trustee $12,720 $75,000

Arthur C. Eschenlauer, Trustee $12,720 $75,000

Matthew Healey, Trustee (**) $12,720 $75,000
Chairman and Chief Executive
Officer

Michael P. Mallardi, Trustee $12,720 $75,000

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

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

(***)No investment company within the fund complex has a pension or
retirement plan. Currently there are 17 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 policy and are responsible
for overseeing the Trust's and Portfolio's business affairs. The Portfolio
and the Trust have entered into a Fund Services Agreement with Pierpont
Group, Inc. to assist the Trustees in exercising their overall supervisory
responsibilities over the affairs of the Portfolio and the Trust. Pierpont
Group, Inc. was organized in July 1989 to provide services for the J.P.
Morgan Family of Funds (formerly "The Pierpont Family of Funds"), and the
Trustees are the equal and sole shareholders of Pierpont Group, Inc. The
Trust and the Portfolio have agreed to pay Pierpont Group, Inc. a fee in an
amount representing its reasonable costs in performing these services. These
costs are periodically reviewed by the Trustees. The principal offices of
Pierpont Group, Inc. are located at 461 Fifth Avenue, New York, New York
10017.

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

FUND -- For the fiscal years ended June 30, 1998, 1999 and 2000: $4,318,
$5,873 and $5,344, respectively.

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

MEMBERS OF THE ADVISORY BOARD

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

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

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

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

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

OFFICERS

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

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

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

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

MARIE E. CONNOLLY - Vice President and Assistant Treasurer. President,
Chief Executive Officer, Chief Compliance Officer and Director of FDI,
Premier Mutual Fund Services, Inc., an affiliate of FDI ("Premier Mutual")
and an officer of certain investment companies distributed or administered by
FDI. Her date of birth is August 1, 1957.

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

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

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

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

MARY A. NELSON - Vice President and Assistant Treasurer. Vice President
and Manager of Treasury Services and Administration of FDI and Premier Mutual
and an officer of certain investment companies distributed or administered by
FDI. Prior to August 1994, Ms. Nelson was an Assistant Vice President and
Client Manager for The Boston Company, Inc. Her date of birth is April 22,
1964.

MARY JO PACE - Assistant Treasurer. Vice President, Morgan Guaranty
Trust Company of New York since 1990. Ms. Pace serves in the Funds
Administration group as a Manager for the Budgeting and Expense Processing
Group. Prior to September 1995, Ms. Pace served as a Fund Administrator for
Morgan Guaranty Trust Company of New York. Her address is 60 Wall Street, New
York, New York 10260. Her date of birth is March 13, 1966.

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

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

ELBA VASQUEZ - Vice President and Assistant Secretary. Vice President of
FDI since February 1999. Ms. Vasquez served as a Sales Associate for FDI from
May 1996. Prior to that she served in various mutual fund

sales and marketing positions for U.S. Trust Company of New York. Her date of
birth is December 14, 1961.

CODES OF ETHICS

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

INVESTMENT ADVISOR

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

J.P. Morgan, through the Advisor and other subsidiaries, acts as
investment advisor to individuals, governments, corporations, employee
benefit plans, mutual funds and other institutional investors with combined
assets under management of approximately $373 billion.

Morgan, whose principal offices are at 60 Wall Street, New York, New
York 10260, is a New York trust company which conducts a general banking and
trust business. Morgan is subject to regulation by the New York State Banking
Department and is a member bank of the Federal Reserve System. Through
offices in New York City and abroad, Morgan offers a wide range of services,
primarily to governmental, institutional, corporate and high net worth
individual customers in the United States and throughout the world. The firm,
through its predecessor firms, has been in business for over a century and
has been managing investments since 1913. Morgan, also a wholly owned
subsidiary of J.P. Morgan, is a bank holding company organized under the laws
of the State of Delaware.

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

The investment advisory services the Advisor provides to the Portfolio
are not exclusive under the terms of the Advisory Agreement. The Advisor is
free to and does render similar investment advisory services to others. The
Advisor serves as investment advisor to personal investors and other
investment companies and acts as fiduciary for trusts, estates and employee
benefit plans. Certain of the assets of trusts and estates under management
are invested in common trust funds for which the Advisor serves as trustee.
The accounts which are managed or

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

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

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

As compensation for the services rendered and related expenses such as
salaries of advisory personnel borne by the Advisor under the Advisory
Agreement, the Portfolio has agreed to pay the Advisor a fee, which is
computed daily and may be paid monthly, equal to the annual rate of 0.55% of
the Portfolio's average daily net assets.

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

See "Expenses" below for applicable expense limitations.

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

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

DISTRIBUTOR

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

The Distribution Agreement shall continue in effect with respect to the
Fund for a period of two years after execution only if it is approved at
least annually thereafter (i) by a vote of the holders of a majority of the
Fund's outstanding shares or by its Trustees and (ii) by a vote of a majority
of the Trustees of the Trust who are not "interested persons" (as defined by
the 1940 Act) of the parties to the Distribution Agreement, cast in person at
a meeting called for the purpose of voting on such approval (see "Trustees
and Members of the Advisory Board" and "Officers"). The Distribution
Agreement will terminate automatically if assigned by either party thereto
and is

terminable at any time without penalty by a vote of a majority of the
Trustees of the Trust, a vote of a majority of the Trustees who are not
"interested persons" of the Trust, or by a vote of the holders of a majority
of the Fund's outstanding shares as defined under "Additional Information,"
in any case without payment of any penalty on 60 days' written notice to the
other party. The principal offices of FDI are located at 60 State Street,
Suite 1300, Boston, Massachusetts 02109.

CO-ADMINISTRATOR

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

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

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

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

FUND -- For the fiscal years ended June 30, 1998, 1999 and 2000: $3,367,
$4,072 and $4,108, respectively.

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

See "Expenses" below for applicable expense limitations.

SERVICES AGENT

The Trust, on behalf of the Fund, and the Portfolio have entered into
Administrative Services Agreements (the "Services Agreements") with Morgan
effective December 29, 1995, as amended effective August 1, 1996, pursuant to
which Morgan is responsible for certain administrative and related services
provided to the Fund and Portfolio. The Services Agreements may be terminated
at any time, without penalty, by the Trustees or Morgan, in each case on not
more than 60 days' nor less than 30 days' written notice to the other party.

Under the Services Agreements, Morgan provides certain administrative
and related services to the Fund and the Portfolio, including services
related to tax compliance, preparation of financial statements, calculation
of performance data, oversight of service providers and certain regulatory
and Board of Trustee matters.

Under the amended Services Agreements, each of the Fund and Portfolio
has agreed to pay Morgan fees equal to its allocable share of an annual
complex-wide charge. This charge is calculated daily based on the aggregate
net assets of the Master Portfolios and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% of the first $7 billion
of their aggregate average daily net assets and 0.04% of their aggregate

average daily net assets in excess of $7 billion, less the complex-wide fees
payable to FDI. The portion of this charge payable by the Fund or the
Portfolio is determined by the proportionate share that its net assets bear
to the total net assets of the Trust, the Master Portfolios, other investors
in the Master Portfolios for which Morgan provides similar services and J.P.
Morgan Series Trust.

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

FUND -- For the fiscal years ended June 30, 1998, 1999 and 2000: $41,692,
$65,110 and $81,975, respectively.

CUSTODIAN AND TRANSFER AGENT

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

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

SHAREHOLDER SERVICING

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

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

The shareholder servicing fees paid by the Fund to Morgan were $352,054,
$604,341 and $826,692 for the fiscal years ended June 30, 1998, 1999 and
2000, respectively.

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

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

FINANCIAL PROFESSIONALS

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

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

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

INDEPENDENT ACCOUNTANTS

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

EXPENSES

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

The table below sets forth the fees and other expenses Morgan reimbursed
pursuant to expense reimbursement arrangements in effect for the fiscal years
indicated.

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

FUND -- (Includes expense reimbursement allocated from the Portfolio) For the
fiscal years ended June 30, 1998, 1999 and 2000: $55,495, $82,276 and
$57,741, respectively.

PURCHASE OF SHARES

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

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

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

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

Prospective investors may purchase shares with the assistance of a
financial professional, and the financial professional may establish its own
minimums and charge the investor a fee for this service and other services it
provides to its customers. Morgan may pay fees to financial professionals for
services in connection with fund investments. See "Financial Professionals"
above.

REDEMPTION OF SHARES

Investors may redeem shares as described in the Prospectus.

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

FURTHER REDEMPTION INFORMATION. Investors should be aware that
redemptions from the Fund may not be

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

For information regarding redemption orders placed through a financial
professional, please see "Financial Professionals" above.

EXCHANGE OF SHARES

An investor may exchange shares from the Fund into any other J. P.
Morgan 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 the Fund are
automatically reinvested in additional shares of the Fund unless the
shareholder has elected to have them paid in cash. Dividends and
distributions to be paid in cash are credited to the shareholder's account at
Morgan or at his financial professional or, in the case of certain Morgan
customers, are mailed by check in accordance with the customer's
instructions. The Fund reserves the right to discontinue, alter or limit the
automatic reinvestment privilege at any time.

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

NET ASSET VALUE

The Fund computes its net asset value separately for each class of
shares outstanding once daily as of the close of trading on the New York
Stock Exchange (normally 4:00 p.m. eastern time) on each business day as
described in the prospectus. The net asset value will not be computed on the
day the following legal holidays are observed: New Year's Day, Martin Luther
King, Jr. Day, Presidents' Day, Good Friday, Memorial Day,

Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. On days
when U.S. trading markets close early in observance of these holidays, the
Fund will close for purchases and redemptions at the same time. The Fund and
the Portfolio may also close for purchases and redemptions at such other
times as may be determined by the Board of Trustees to the extent permitted
by applicable law. The days on which net asset value is determined are the
Funds' business days.

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

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

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

Fixed income securities with a maturity of 60 days or more, are
generally valued using bid quotations generally readily available from and
supplied daily by third party pricing services or brokers of comparable
securities. If such prices are not supplied by the Fund's independent pricing
services, such securities are priced in accordance with fair value procedures
adopted by the Trustees. Such procedures include the use of independent
pricing services, which use prices based upon yields or prices of securities
of comparable quality, coupon, maturity and type; indications as to values
from dealers; and general market conditions. Fixed income securities with a
remaining maturity of less than 60 days are valued by the amortized cost
method.

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

PERFORMANCE DATA

From time to time, the Fund may quote performance in terms of actual
distributions, total return or capital appreciation in reports, sales
literature and advertisements published by the Trust. Shareholders may obtain
current performance information by calling the number provided on the cover
page of this Statement of Additional Information. See also the Prospectus.

Comparative performance information may be used from time to time in
advertising the Funds' shares,

including appropriate market indices including the benchmarks indicated under
"Investment Advisor" above or data from Lipper Analytical Services, Inc.,
Micropal, Inc., Ibbotson Associates, Morningstar Inc., the Dow Jones
Industrial Average and other industry publications.

TOTAL RETURN QUOTATIONS. The Fund may advertise "total return" and
non-standardized total return data. The total return shows what an investment
in a Fund would have earned over a specified period of time (one, five or ten
years or since commencement of operations, if less) assuming that all
distributions and dividends by the Fund were reinvested on the reinvestment
dates during the period and less all recurring fees. This method of
calculating total return is required by regulations of the SEC. Total return
data similarly calculated, unless otherwise indicated, over other specified
periods of time may also be used. All performance figures are based on
historical earnings and are not intended to indicate future performance.

As required by regulations of the SEC, the average annual total return
of the Fund for a period is computed by assuming a hypothetical initial
payment of $1,000. It is then assumed that all of the dividends and
distributions by the Fund over the period are reinvested. It is then assumed
that at the end of the period, the entire amount is redeemed. The average
annual total return is then calculated by determining the annual rate
required for the initial payment to grow to the amount which would have been
received upon redemption.

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

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

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

(6/30/00): Average annual total return, 1 year: 6.61%; average annual total
return, 5 years: 14.91%; average annual total return, commencement of
operations(*) to period end: 13.09%; aggregate total return, 1 year: 6.61%;
aggregate total return, 5 years: 100.32%; aggregate total return,
commencement of operations(*) to period end: 133.05%.

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

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

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

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

including risk adjusted measures. The Fund may also include calculations,
such as hypothetical compounding examples, which describe hypothetical
investment results in such communications. Such performance examples will be
based on an express set of assumptions and are not indicative of the
performance of the Fund.

PORTFOLIO TRANSACTIONS

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

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

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

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

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

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

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

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

to provide that any commissions, fees, or other remuneration paid to such
affiliates are consistent with the foregoing standard.

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

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

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

MASSACHUSETTS TRUST

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". Effective October 10, 1996, the
name of the Fund was changed from "The Pierpont Diversified Fund" to "The JPM
Pierpont Diversified Fund." 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 was changed from "The JPM Pierpont Diversified Fund" to "J.P.
Morgan Diversified Fund."

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

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

DESCRIPTION OF SHARES

The Trust is an open-end management investment company organized as a
Massachusetts business trust on November 2, 1992 in which the Fund represents
a separate series of shares of beneficial interest. See "Massachusetts Trust."

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

The shareholders of the Trust are entitled to one vote for each dollar
of net asset value (or a proportionate fractional vote in respect of a
fractional dollar amount), on matters on which shares of the Fund shall be
entitled to vote. Subject to the 1940 Act, the Trustees themselves have the
power to alter the number and the terms of office of the Trustees, to
lengthen their own terms, or to make their terms of unlimited duration
subject to certain removal procedures, and appoint their own successors,
PROVIDED, HOWEVER, that immediately after such appointment the requisite
majority of the Trustees have been elected by the shareholders of the Trust.
The voting rights of shareholders are not cumulative so that holders of more
than 50% of the shares voting can, if they choose, elect all Trustees being
selected while the shareholders of the remaining shares would be unable to
elect any Trustees. It is 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 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
authorize the issuance of shares of additional series and the creation of
classes of shares within any series with such preferences, privileges,
limitations and voting and dividend rights as the Trustees may determine. The
proceeds from the issuance of any additional series would be invested in
separate, independently managed portfolios with distinct investment objectives,
policies and restrictions, and share purchase, redemption and net asset
valuation procedures. Any additional classes would be used to distinguish
among the rights of different categories of shareholders, as might be
required by future regulations or other unforeseen circumstances. All
consideration received by the Trust for shares of any additional series or
class, and all assets in which such consideration is invested, would belong
to that series or class, subject only to the rights of creditors of the Trust
and would be subject to the liabilities related thereto. Shareholders of any
additional series or class will approve the adoption of any management
contract or distribution plan relating to such series or class and of any
changes in the investment policies related thereto, to the extent required by
the 1940 Act.

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

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

National Financial Services Corp For the Exclusive Benefit of our
Customers, (15.14%); Ferrell Companies Inc. 401(K) Investment Plan,
(10.85%); Insilco Corp Employee Thrift Plan, (6.03%)

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

SPECIAL INFORMATION CONCERNING INVESTMENT STRUCTURE

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

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

Certain changes in the Portfolio's fundamental investment policies or
restrictions, or a failure by the Fund's shareholders to approve such change
in the Portfolio's investment restrictions, may require withdrawal of the
Fund's

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

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

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

TAXES

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

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

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

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

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

Distributions of net investment income, certain foreign currency gains,
and realized net short-term capital gain in excess of net long-term capital
losses are generally taxable to shareholders of the Fund as ordinary income
whether such distributions are taken in cash or reinvested in additional
shares. If dividend payments exceed income earned by the Fund, the over
distribution would be considered a return of capital rather than a dividend
payment. The Fund intends to pay dividends in such a manner so as to minimize
the possibility of a return of capital. The Fund expects that a portion of
these distributions to corporate shareholders will be eligible for the
dividends-received deduction, subject to applicable limitations under the
Code. Distributions of net long-term capital gain (i.e., net long-term
capital gain in excess of net short-term capital loss) are taxable to
shareholders of the Fund as long-term capital gain, regardless of whether
such distributions are taken in cash or reinvested in additional shares and
regardless of how long a shareholder has held shares in the Fund. In general,
long-term capital gain of an individual shareholder will be subject to a 20%
rate of tax. Investors should consult their tax advisors concerning the
treatment of capital gains and losses.

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

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

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

Under the Code, gains or losses attributable to disposition of foreign
currency or to certain foreign currency contracts, or to fluctuations in
exchange rates between the time the Portfolio accrues income or receivables
or expenses or other liabilities denominated in a foreign currency and the
time the Portfolio actually collects such income or pays such liabilities,
are generally treated as ordinary income or ordinary loss. Similarly, gains
or losses on the disposition of debt securities held by the Portfolio, if
any, denominated in foreign currency, to the extent attributable to
fluctuations in exchange rates between the acquisition and disposition dates
are also treated as ordinary income or loss.

Forward currency contracts, options and futures contracts entered into
by the Portfolio may create "straddles" for U.S. federal income tax purposes
and this may affect the character and timing of gains or losses realized by
the Portfolio on forward currency contracts, options and futures contracts or
on the underlying securities.

Certain options, futures and foreign currency contracts held by the
Portfolio at the end of each taxable year

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

The Portfolio may invest in equity securities of foreign issuers. If the
Portfolio purchases shares in certain foreign corporations (referred to as
passive foreign investment companies ("PFICs") under the Code), the Fund may
be subject to federal income tax on a portion of any "excess distribution"
from such foreign corporation including any gain from the disposition of such
shares, even though a portion of such income may have to be distributed as a
taxable dividend by the Fund to its shareholders. In addition, certain
interest charges may be imposed on the Fund as a result of any such
distributions. Alternatively, a Fund may in some cases be permitted to
include each year in its income and distribute to shareholders a pro rata
portion of the PFIC's income, whether or not distributed to the Fund.

The Portfolio will be permitted to "mark to market" any marketable stock
held by the Portfolio in a PFIC. If the Portfolio made such an election, the
Fund would include in income each year an amount equal to its share of the
excess, if any of the fair market value of the PFIC stock as of the taxable
year over the adjusted basis of such stock. The Fund would be allowed a
deduction for its shares in excess, if any, of the adjusted basis of the PFIC
stock over its fair market value as of the close of the taxable year, but
only to the extent of any net mark-to-market gains with respect to the stock
included by the Fund for prior taxable years.

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

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

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

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

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

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

estate tax purposes.

FOREIGN TAXES. It is expected that the Fund may be subject to foreign
withholding taxes or other foreign taxes with respect to income (possibly
including, in some cases, capital gains) received from sources within foreign
countries.

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

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

ADDITIONAL INFORMATION

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

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

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

FINANCIAL STATEMENTS

The financial statements and the reports thereon of
PricewaterhouseCoopers LLP are incorporated herein by reference from the
Fund's June 30, 2000 annual report filing made on August 25, 2000 with the
SEC pursuant to Section 30(b) of the 1940 Act and Rule 30b2-1 thereunder
(Accession No. 0000912057-00-039114). The Fund's financial reports include
the Portfolio's financial statements. The annual and subsequent semi-annual
reports are available without charge upon request by calling J.P. Morgan
Funds Services at (800) 521-5411.

APPENDIX A
DESCRIPTION OF SECURITY RATINGS

STANDARD & POOR'S

CORPORATE AND MUNICIPAL BONDS
- -----------------------------

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

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

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

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

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

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

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

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

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

COMMERCIAL PAPER, INCLUDING TAX EXEMPT

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

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

SHORT-TERM TAX-EXEMPT NOTES
- ---------------------------

SP-1 - The short-term tax-exempt note rating of SP-1 is the highest rating
assigned by Standard & Poor's and has a very strong or strong capacity to pay
principal and interest. Those issues determined to possess overwhelming
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.

A-1

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.

SHORT-TERM TAX EXEMPT NOTES
- ---------------------------

A-2

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

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

A-3