<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
December 1, 1997
Dear Shareholder:
We are pleased to report that The JPM Institutional Federal Money Market Fund
outperformed its benchmark, the IBC U.S. Government & Agency Money Market
Fund Average,* for the fiscal year ended October 31, 1997. The Fund returned
5.41% for the year versus a benchmark return of 4.78%. We believe that
security selection and active maturity management contributed to the Fund's
return for the year and that these investment decisions have helped the Fund
to consistently outperform its benchmark (see table on page 2).
The Fund's net asset value remained $1.00 per share. The fund's net assets
were approximately $137.3 million while the net assets of The Federal Money
Market Portfolio, in which the Fund invests, totaled approximately $377.0
million on October 31, 1997, the end of the reporting period.
Highlights during the course of the year included obtaining ratings of AAA by
Standard & Poor's and Aaa by Moody's in May and June, respectively, the
highest rating these agencies assign to money market funds. Also, the
Trustees broadened the list of allowable agency holdings to include offerings
from the Tennessee Valley Authority and the Student Loan Marketing
Association, both of which offer the tax-advantaged status of the Portfolio's
other investments.
We also call your attention to the portfolio manager Q&A on page 3, in which
Skip Johnson, the lead portfolio manager, discusses some of the events
affecting the market and how the portfolio was positioned to respond to them.
As chairman and president of Asset Management Services, we look forward to
sharing Morgan's insights regarding financial markets with you. If you have
any comments or questions, please call your Morgan representative or J.P.
Morgan Funds Services at (800) 766-7722.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
*REPRESENTS THE IBC U.S. TREASURY &REPO MONEY MARKET FUND AVERAGE THROUGH
12/31/95 AND THE IBC U.S. GOVERNMENT & AGENCY MONEY MARKET FUND AVERAGE
THEREAFTER.
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . . . 1 FUND FACTS AND HIGHLIGHTS . . . . . 5
FUND PERFORMANCE . . . . . . . . . . 2 FINANCIAL STATEMENTS. . . . . . . . 8
PORTFOLIO MANAGER Q&A. . . . . . . . 3
1
<PAGE>
Fund performance
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes a fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing
at a constant rate each year. Average annual total returns represent the
average yearly change of a fund's value over a specified time period,
typically 1, 5, or 10 years (or since inception). Total returns for periods
of less than one year are not annualized and provide a picture of how a fund
has performed over the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- ------------------------------
THREE SIX ONE THREE SINCE
AS OF OCTOBER 31, 1997 MONTHS MONTHS YEAR YEARS INCEPTION*
- -------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
The JPM Institutional Federal
Money Market Fund 1.36% 2.72% 5.41% 5.44% 4.62%
IBC U.S. Government & Agency
Money Market Fund Average** 1.20% 2.40% 4.78% 4.88% 4.14%
Lipper Institutional U.S. Treasury
Money Market Fund Average 1.28% 2.57% 5.09% 5.22% 4.46%
AS OF SEPTEMBER 30, 1997
- -------------------------------------------------------- ------------------------------
The JPM Institutional Federal
Money Market Fund 1.35% 2.69% 5.38% 5.42% 4.60%
IBC U.S. Government & Agency
Money Market Fund Average** 1.20% 2.39% 4.76% 4.85% 4.13%
Lipper Institutional U.S. Treasury
Money Market Fund Average 1.28% 2.55% 5.07% 5.20% 4.45%
</TABLE>
*1/4/93 -- COMMENCEMENT OF OPERATIONS (AVERAGE ANNUAL TOTAL RETURNS BASED ON
MONTH END FOLLOWING INCEPTION). THE FUND'S AVERAGE ANNUAL TOTAL RETURN SINCE
ITS COMMENCEMENT OF OPERATIONS OF 1/4/93 THRU 10/31/97 IS 4.59%.
**REPRESENTS THE IBC U.S. TREASURY & REPO MONEY MARKET FUND AVERAGE THROUGH
12/31/95 AND THE IBC U.S. GOVERNMENT & AGENCY MONEY MARKET FUND AVERAGE
THEREAFTER.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET
OF FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT REIMBURSEMENT
OF CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS.
PERFORMANCE OF THE IBC U.S. GOVERNMENT & AGENCY MONEY MARKET FUND AVERAGE IS
THAT OF AN AVERAGE OF FUNDS MANAGED SIMILARLY TO THE FUND. IBC IS A
NATIONALLY-RECOGNIZED SOURCE OF MONEY MARKET FUND DATA. LIPPER ANALYTICAL
SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
Portfolio manager Q&A
[PHOTOGRAPH]
Following is an interview with ROBERT R. ("SKIP") JOHNSON, a member of the
portfolio management team for The Federal Money Market Portfolio, in which
the Fund invests. Prior to joining Morgan in 1988, he held senior positions
with the Bank of Montreal and U.S. Steel. This interview was conducted on
November 28, 1997 and reflects Skip's views on that date.
HOW WOULD YOU CHARACTERIZE THE SHORT-TERM FIXED INCOME MARKETS OVER THE PAST
12 MONTHS?
RRJ: All through 1996 and the first quarter of 1997, short-term interest
rates rose. The Federal Reserve tightened monetary policy by raising interest
rates 25 basis points on March 25th, its last move so far, and since then,
further tightening has been expected. However, economic growth for the year
may be slowing down from its brisk pace. It was perceived to be slowing in
June and interest rates rallied a bit. Then in August, there was new concern
that the economy may be experiencing higher growth and thus the need for the
Fed to tighten again.
The Fed tightening earlier this year may have increased short-term rates by
25 basis points, but there has been a significant rally in the market since
then and short-term yields have fallen as investors sought comfort in the
Treasury bill market. Some of the movement into money market funds was a
result of the stock-market turbulence, followed by concerns about the
currency crisis in the Pacific Rim. Also, the supply of Treasury bills has
decreased due to an improvement in the Federal budget deficit. And, as
always, many people just want to hold Treasury bills, regardless of the level
of interest rates.
However, events in the Far East may have an impact on our own economy, and
thus interest-rate levels. The strong third quarter real GDP growth rate of
three and a half percent will be carefully watched to see if any erosion
results from the events overseas. Some have forecast as much as a half a
percent decline in real GDP due to the happenings in the Far East. Of course,
our economy may be slowing on its own. We are forecasting slower growth and
lower profit margins in 1998.
DO YOU THINK THAT THE FED HAS ANOTHER SURPRISE HIKE IN RATES IN MIND LIKE THE
ONE EARLIER THIS YEAR?
RRJ: Over recent months, the yield of Treasury bills has been slightly lower
than we had anticipated, and we would expect that there will not be much
change in rates going forward. I think the Fed is probably on hold as far as
a tightening is concerned, until we see some evidence of inflation.
We think that we may see rates go up a bit, and we wouldn't rule out the
Fed tightening another 25 basis points next year, depending on levels of
inflation. But you could very well see, twelve months from now, interest
rates at the same level they're at today.
3
<PAGE>
WHAT ARE THE PROSPECTS FOR INFLATION?
RRJ: Inflation has been held in check by a strong dollar as well as things
like moderate health-care inflation. It's a sector that has been very well
behaved and we're watching that very closely, as we are the strength of the
dollar, which has made imported goods cheaper. There is almost no inflation
in the pipeline of raw materials and intermediate materials, so we've been
living in a very comfortable world as far as inflation is concerned.
THE BIG FOCUS HAS BEEN ON LABOR MARKET TIGHTNESS AND POTENTIAL WAGE
INFLATION. RIGHT?
RRJ: I think that's the key. We feel that's where the pressure will begin.
With the strains on capacity and the tight work force, pressure will be seen
on wages before it's seen anywhere else.
HOW WILL THIS OUTLOOK AFFECT THE POSITIONING OF THE PORTFOLIO?
RRJ: For the most part we have kept the Portfolio at our mid-range duration,
and we may position it a little shorter to take advantage of what we feel
will be year-end pressure in the market. We want to be sure to take advantage
of those rates as they rise. I think selecting the proper securities plays a
role in investment performance; however we are constrained to buying only
four Government agencies and Treasury securities; so the major contributor to
outperformance of the benchmark will be our ability to manage the Portfolio's
average maturity during fluctuations in the level of interest rates.
THE FOUR AGENCIES THE FUND CAN INVEST IN ARE THOSE WHICH HAVE ADVANTAGES FOR
MANY INVESTORS, ISN'T THAT CORRECT?
RRJ: That's right. The agencies we can invest in are the Federal Farm Credit
Bank, the Federal Home Loan Bank, the Tennessee Valley Authority, and the
Student Loan Marketing Association. These were selected as having
pass-through status in many states. As with Treasuries, income from these
securities is usually exempt from state and local taxes.*
* INVESTORS SHOULD CONSULT WITH THEIR TAX ADVISOR TO DETERMINE ANY APPLICABLE
STATE TAXES.
4
<PAGE>
Fund facts
INVESTMENT OBJECTIVE
The JPM Institutional Federal Money Market Fund seeks to provide current
income, maintain a high level of liquidity, and preserve capital. It is
designed for investors who seek to preserve capital and earn current income
from a portfolio of direct obligations of the U.S. Treasury and obligations
of certain U.S. government agencies.
- ----------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
1/4/93
- ----------------------------------------------------------------------------
NET ASSETS AS OF 10/31/97
$137,306,051
- ----------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- ----------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
MONTHLY
LONG-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/19/97
EXPENSE RATIO
The Fund's annualized expense ratio of 0.20% covers shareholders' expenses
for custody, tax reporting, investment advisory, and shareholder services,
after reimbursement. The Fund is no-load and does not charge any sales,
redemption, or exchange fees. There are no additional charges for buying,
selling, or safekeeping Fund shares, or for wiring redemption proceeds from
the Fund.
Fund highlights
ALL DATA AS OF OCTOBER 31, 1997
DAYS TO MATURITY
(PERCENTAGE OF TOTAL INVESTMENTS)
0-30 days 29.0%
31-60 days 43.1%
61-90 days 0.0%
90+ days 27.9%
AVERAGE 7-DAY YIELD
5.35%
AVERAGE LIFE
43 days
5
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW
YORK SERVES AS AN INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN
ITS CAPACITY AS SHAREHOLDER SERVICING AGENT. SHARES OF THE FUND ARE NOT BANK
DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC.
WHILE THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE,
THERE IS NO ASSURANCE THAT IT WILL CONTINUE TO DO SO.
Past performance is no guarantee for future performance. Returns are net of
fees, assume the reinvestment of fund distributions and may reflect the
reimbursement of fund expenses as described in the prospectus. Had expenses
not been subsidized, returns would have been lower. The fund invests through
a master portfolio (another fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ IT CAREFULLY BEFORE INVESTING.
6
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Federal Money Market Portfolio
("Portfolio"), at value $137,473,618
Receivable for Expense Reimbursements 28,361
Deferred Organization Expenses 3,742
Prepaid Trustees' Fees 3,713
Prepaid Expenses and Other Assets 504
------------
Total Assets 137,509,938
------------
LIABILITIES
Dividends and Distributions Payable to
Shareholders 144,234
Shareholder Servicing Fee Payable 6,027
Administrative Services Fee Payable 3,608
Administration Fee Payable 634
Fund Services Fee Payable 185
Accrued Expenses 49,199
------------
Total Liabilities 203,887
------------
NET ASSETS
Applicable to 137,307,762 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $137,306,051
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $137,307,762
Accumulated Net Realized Loss on Investment (1,711)
------------
Net Assets $137,306,051
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $5,870,628
Allocated Portfolio Expenses (Net of
Reimbursement of $82,364) (217,613)
----------
Net Investment Income Allocated from
Portfolio 5,653,015
FUND EXPENSES
Shareholder Servicing Fee $ 54,403
Administrative Services Fee 33,554
Registration Fees 31,000
Amortization of Organization Expenses 21,334
Transfer Agent Fees 17,349
Professional Fees 15,349
Printing Expenses 9,330
Fund Services Fee 3,750
Administration Fee 3,405
Miscellaneous 5,863
--------
Total Fund Expenses 195,337
Less: Reimbursement of Expenses (195,337)
--------
NET FUND EXPENSES --
----------
NET INVESTMENT INCOME 5,653,015
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 13,629
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $5,666,644
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 5,653,015 $ 6,268,240
Net Realized Gain on Investment Allocated from
Portfolio 13,629 62,022
---------------- ----------------
Net Increase in Net Assets Resulting from
Operations 5,666,644 6,330,262
---------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (5,653,015) (6,268,240)
Net Realized Gain (74,867) (38,279)
---------------- ----------------
Total Distributions to Shareholders (5,727,882) (6,306,519)
---------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT
A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 345,870,202 285,173,420
Reinvestment of Dividends and Distributions 3,801,546 3,692,242
Cost of Shares of Beneficial Interest Redeemed (321,354,830) (324,946,743)
---------------- ----------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest 28,316,918 (36,081,081)
---------------- ----------------
Total Increase (Decrease) in Net Assets 28,255,680 (36,057,338)
NET ASSETS
Beginning of Fiscal Year 109,050,371 145,107,709
---------------- ----------------
End of Fiscal Year $ 137,306,051 $ 109,050,371
---------------- ----------------
---------------- ----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
JANUARY 4, 1993
FOR THE FISCAL YEAR ENDED OCTOBER 31, (COMMENCEMENT OF
----------------------------------------- OPERATIONS) TO
1997 1996 1995 1994 OCTOBER 31, 1993
-------- -------- -------- -------- ----------------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0521 0.0508 0.0555 0.0354 0.0220
Net Realized Gain (Loss) on Investment 0.0001 0.0006 0.0003 (0.0000)(a) 0.0000(a)
-------- -------- -------- -------- ----------------
Total from Investment Operations 0.0522 0.0514 0.0558 0.0354 0.0220
-------- -------- -------- -------- ----------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0521) (0.0508) (0.0555) (0.0354) (0.0220)
Net Realized Gain (0.0007) (0.0003) -- (0.0001) --
-------- -------- -------- -------- ----------------
Total Distributions to Shareholders (0.0528) (0.0511) 0.0555 0.0355 (0.0220)
-------- -------- -------- -------- ----------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
-------- -------- -------- -------- ----------------
-------- -------- -------- -------- ----------------
Total Return 5.41% 5.23% 5.69% 3.61% 2.23%(b)
-------- -------- -------- -------- ----------------
-------- -------- -------- -------- ----------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $137,306 $109,050 $145,108 $ 80,146 $ 25,477
Ratios to Average Net Assets
Expenses 0.20% 0.20% 0.20% 0.20% 0.27%(c)
Net Investment Income 5.19% 5.09% 5.56% 3.81% 2.81%(c)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.26% 0.26% 0.31% 0.47% 0.76%(c)
</TABLE>
- ------------------------
(a) Less than $0.0001.
(b) Not Annualized.
(c) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Institutional Federal Money Market Fund (the "Fund") is a separate
series of The JPM Institutional Funds, a Massachusetts business trust (the
"Trust") which was organized on November 4, 1992. The Trust is registered under
the Investment Company Act of 1940, as amended, as an open-end management
investment company. The Fund commenced operations on January 4, 1993. Prior to
January 9, 1997, the Fund's name was The JPM Institutional Treasury Money Market
Fund.
The Fund invests all of its investable assets in The Federal Money Market
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
Fund's proportionate interest in the net assets of the Portfolio (36% at October
31, 1997). The performance of the Fund is directly affected by the performance
of the Portfolio. The financial statements of the Portfolio, including the
Schedule of Investments, are included elsewhere in this report and should be
read in conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Fund:
a) Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The Fund records its share of net investment income, realized gain and
loss and adjusts its investment in the Portfolio each day. All the net
investment income and realized gain and loss of the Portfolio is allocated
pro rata among the Fund and other investors in the Portfolio at the time
of such determination.
c) Substantially all the Fund's net investment income and net realized
capital gain, if any, are declared as dividends daily and paid monthly.
Net short-term capital gains, if any, will be distributed in accordance
with the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), and may be reflected in the Fund's daily dividends.
Substantially all the realized net long-term capital gains, if any, of the
Fund are declared and paid on an annual basis, except that an additional
capital gains distribution may be made in a given year to the extent
necessary to avoid the imposition of federal excise tax on the Fund.
d) The Fund incurred organization expenses in the amount of $104,282. Morgan
Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Fund. The Fund has agreed to reimburse Morgan
for these costs which are being deferred and will be amortized on a
straight-line basis over a period not to exceed five years beginning with
the commencement of operations of the Fund.
e) The Fund is treated as a separate entity for federal income tax purposes.
The Fund intends to comply with the provisions of the Code, as amended,
applicable to regulated investment companies and to distribute
substantially all of its income, including net realized capital gains, if
any, within the prescribed time periods. Accordingly, no provision for
federal income or excise tax is necessary.
12
<PAGE>
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
f) Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
2. TRANSACTIONS WITH AFFILIATES
a) The Trust, on behalf of the Fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the Fund. Under a Co-Administration Agreement between FDI
and the Trust on behalf of the Fund, FDI provides administrative services
necessary for the operations of the Fund, furnishes office space and
facilities required for conducting the business of the Fund and pays the
compensation of the Fund's officers affiliated with FDI. The Fund 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 is based on the ratio of the Fund's net
assets to the aggregate net assets of the Trust and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended October 31, 1997, the fee for these services amounted to
$3,405.
b) The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the Fund. Under
the Services Agreement, the Fund has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
Portfolio and the other portfolios in which the Trust and The JPM Pierpont
Funds invest (the "Master Portfolios") and JPM Series Trust in accordance
with the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of the 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 is
determined by the proportionate share that its net assets bear to the net
assets of the Trust, the Master Portfolios, other investors in the Master
Portfolios for which Morgan provides similar services, and JPM Series
Trust. For the fiscal year ended October 31, 1997, the fee for these
services amounted to $33,554.
Morgan has agreed to reimburse the Fund to the extent necessary to
maintain the total operating expenses of the Fund, including the expenses
allocated to the Fund from the Portfolio, at no more than 0.20% of the
average daily net assets of the Fund through February 28, 1998. For the
fiscal year ended October 31, 1997, Morgan has agreed to reimburse the
Fund $195,337 for expenses under this agreement.
c) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance service to Fund shareholders. The agreement provides for the
Fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.05% of the average daily net assets of
the Fund. For the fiscal year ended October 31, 1997, the fee for these
services amounted to $54,403.
13
<PAGE>
THE JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
d) The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees
of the Trust represent all the existing shareholders of Group. The Fund's
allocated portion of Group's costs in performing its services amounted to
$3,750 for the fiscal year ended October 31, 1997.
e) An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Pierpont Funds, the Master Portfolios and
JPM Series Trust. The Trustees' Fees and Expenses shown in the financial
statements represents the Fund's allocated portion of these total fees and
expenses. Prior to April 1, 1997, the aggregate annual Trustee Fee was
$65,000. The Trust's Chairman and Chief Executive Officer also serves as
Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $800.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The JPM Institutional Federal Money Market Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The JPM Institutional Federal Money Market Fund (one of the series constituting
part of The JPM Institutional Funds, hereafter referred to as the "Fund") at
October 31, 1997, the results of its operations for the year then ended, the
changes in its net assets for each of the two years in the period then ended and
the financial highlights for each of the four years in the period then ended and
for the period January 4, 1993 (commencement of operations) to October 31, 1993,
in conformity with generally accepted accounting principles. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with generally
accepted auditing standards which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 17, 1997
15
<PAGE>
The Federal Money Market Portfolio
Annual Report October 31, 1997
(The following pages should be read in conjunction
with The JPM Institutional Federal Money Market Fund
Annual Financial Statements)
16
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION DATE RATE VALUE
- -------------- ------------------------------------------------- --------- ----------- ------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (99.8%)
$ 10,000 Federal Farm Credit Bank......................... 12/02/97 5.400% $ 9,997,371
11,000 Federal Farm Credit Bank Discount Note........... 12/05/97 5.380 10,944,108
9,000 Federal Farm Credit Bank Discount Note........... 12/11/97 5.380 8,946,200
16,000 Federal Farm Credit Bank Discount Note........... 12/16/97 5.380 15,892,400
10,000 Federal Farm Credit Bank Discount Note........... 11/05/97 5.400 9,994,000
25,000 Federal Home Loan Bank (due 9/17/98)............. 11/17/97(a) 5.400 24,982,757
50,000 Federal Home Loan Bank (due 8/18/98)............. 11/18/97(a) 5.405 49,970,603
25,000 Federal Home Loan Bank (due 12/16/97)............ 11/16/97(a) 5.465 24,999,063
15,000 Federal Home Loan Bank........................... 10/16/98 5.682 14,984,510
5,000 Federal Home Loan Bank........................... 06/12/98 5.800 4,998,857
10,000 Federal Home Loan Bank........................... 06/09/98 5.960 9,997,649
15,000 Student Loan Marketing Association Discount
Note........................................... 11/12/97 5.000 14,974,883
41,785 Student Loan Marketing Association Discount
Note........................................... 12/03/97 5.380 41,585,175
84,300 Student Loan Marketing Association Discount
Note........................................... 11/03/97 5.630 84,273,633
50,000 Tennessee Valley Authority Discount Note......... 12/11/97 5.430 49,698,333
------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE
(99.8%).......................................... 376,239,542
OTHER ASSETS IN EXCESS OF LIABILITIES (0.2%)..... 744,265
------------
NET ASSETS (100.0%) $376,983,807
------------
------------
</TABLE>
- ------------------------------
(a)The date listed under the heading maturity date represents the next interest
rate reset date. The actual maturity date is indicated in the security
description.
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $376,239,542
Cash 4,289
Interest Receivable 830,545
Receivable for Expense Reimbursement 25,492
Prepaid Trustees' Fees 1,788
Deferred Organization Expenses 974
Prepaid Expenses and Other Assets 1,931
------------
Total Assets 377,104,561
------------
LIABILITIES
Advisory Fee Payable 66,863
Custody Fee Payable 16,814
Administrative Services Fee Payable 10,031
Administration Fee Payable 854
Fund Services Fee Payable 549
Accrued Expenses 25,643
------------
Total Liabilities 120,754
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $376,983,807
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $17,760,327
EXPENSES
Advisory Fee $659,707
Administrative Services Fee 101,963
Custodian Fees and Expenses 66,249
Professional Fees and Expenses 38,631
Fund Services Fee 12,004
Administration Fee 6,218
Amortization of Organization Expenses 5,552
Trustees' Fees and Expenses 5,273
Miscellaneous 14,487
--------
Total Expenses 910,084
Less: Reimbursement of Expenses (250,377)
--------
NET EXPENSES 659,707
-----------
NET INVESTMENT INCOME 17,100,620
NET REALIZED GAIN ON INVESTMENTS 36,079
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $17,136,699
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1997 OCTOBER 31, 1996
---------------- ----------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 17,100,620 $ 16,581,846
Net Realized Gain on Investments 36,079 169,188
---------------- ----------------
Net Increase in Net Assets Resulting from
Operations 17,136,699 16,751,034
---------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 2,410,983,122 1,895,749,425
Withdrawals (2,346,071,346) (1,935,444,581)
---------------- ----------------
Net Increase (Decrease) from Investors'
Transactions 64,911,776 (39,695,156)
---------------- ----------------
Total Increase (Decrease) in Net Assets 82,048,475 (22,944,122)
NET ASSETS
Beginning of Fiscal Year 294,935,332 317,879,454
---------------- ----------------
End of Fiscal Year $ 376,983,807 $ 294,935,332
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR ENDED JANUARY 4, 1993
OCTOBER 31, (COMMENCEMENT OF
------------------------- OPERATIONS) TO
1997 1996 1995 1994 OCTOBER 31, 1993
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.20% 0.20% 0.20% 0.22% 0.26%(a)
Net Investment Income 5.18% 5.08% 5.55% 3.65% 2.75%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.08% 0.07% 0.06% 0.05% 0.07%(a)
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Federal Money Market Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on November 4, 1992. The Portfolio commenced operations on
January 4, 1993. The Portfolio's investment objective is to provide current
income, maintain a high level of liquidity and preserve capital. The Declaration
of Trust permits the Trustees to issue an unlimited number of beneficial
interests in the Portfolio. Prior to January 9, 1997 the Portfolio's name was
The Treasury Money Market Portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a) Investments are valued at amortized cost which approximates market value.
The amortized cost method of valuation values a security at its cost at
the time of purchase and thereafter assumes a constant amortization to
maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instruments.
The Portfolio's custodian or designated subcustodians, as the case may be
under triparty repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
Portfolio. It is the policy of the Portfolio to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the Portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
b) Securities transactions are recorded on a trade date basis. Investment
income consists of interest income, which includes the amortization of
premiums and discounts, and is recorded on an accrual basis. For financial
and tax reporting purposes, realized gains and losses are determined on
the basis of specific lot identification.
c) The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on its
share of the Portfolio's ordinary income and capital gains. It is intended
that the Portfolio's assets will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The cost of securities is substantially the
same for book and tax purposes.
d) The Portfolio incurred organization expenses in the amount of $27,491.
Morgan Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Portfolio. The Portfolio has agreed to
reimburse Morgan for these costs which are being deferred and will be
amortized on a straight-line basis over a period not to exceed five years
beginning with the commencement of operations of the Portfolio.
21
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The Portfolio has an Investment Advisory Agreement with Morgan. Under the
terms of the agreement, the Portfolio pays Morgan at an annual rate of
0.20% of the Portfolio's average daily net assets up to $1 billion and
0.10% on any excess over $1 billion. For the fiscal year ended October 31,
1997, such fees amounted to $659,707.
b) The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the officers
affiliated with FDI. 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 Portfolio is based on
the ratio of the Portfolio's net assets to the aggregate net assets of the
Portfolio, and certain other investment companies subject to similar
agreements with FDI. For the fiscal year ended October 31, 1997, the fee
for these services amounted to $6,218.
c) The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio has agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated based on the aggregate average daily net assets of the
Portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "Master Portfolios") and JPM Series Trust in accordance with
the following annual schedule: 0.09% on 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 Portfolio is
determined by the proportionate share that its net assets bear to the net
assets of the Master Portfolios, other investors in the Master Portfolios
for which Morgan provides similar services, and JPM Series Trust. For the
fiscal year ended October 31, 1997, the fee for these services amounted to
$101,963.
Morgan has agreed to reimburse the Portfolio to the extent necessary to
maintain the total operating expenses of the Portfolio at no more than
0.20% of the average daily net assets of the Portfolio through February
28, 1998. For the fiscal year ended October 31, 1997, Morgan has agreed to
reimburse the Portfolio $250,377 for expenses under this agreement.
d) The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $12,004 for the fiscal year ended October 31, 1997.
e) An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee Fee was $65,000. The Portfolio's
22
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
Chairman and Chief Executive Officer also serves as Chairman of Group and
receives compensation and employee benefits from Group in his role as
Group's Chairman. The allocated portion of such compensation and benefits
included in the Fund Services Fee shown in the financial statements was
$2,400.
23
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Federal Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Federal Money Market Portfolio (the
"Portfolio") at October 31, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the four years in the
period then ended and for the period January 4, 1993 (commencement of
operations) to October 31, 1993, in conformity with generally accepted
accounting principles. These financial statements and supplementary data
(hereafter referred to as "financial statements") are the responsibility of the
Portfolio's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1997 by correspondence with the
custodian, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 17, 1997
24
<PAGE>
JPM INSTITUTIONAL FEDERAL MONEY MARKET FUND
JPM INSTITUTIONAL PRIME MONEY MARKET FUND
JPM INSTITUTIONAL TAX EXEMPT MONEY MARKET FUND
JPM INSTITUTIONAL TREASURY MONEY MARKET FUND
JPM INSTITUTIONAL BOND FUND
JPM INSTITUTIONAL GLOBAL STRATEGIC INCOME FUND
JPM INSTITUTIONAL NEW YORK TOTAL RETURN BOND FUND
JPM INSTITUTIONAL SHORT TERM BOND FUND
JPM INSTITUTIONAL TAX EXEMPT BOND FUND
JPM INSTITUTIONAL SHARES: CALIFORNIA BOND FUND
JPM INSTITUTIONAL DIVERSIFIED FUND
JPM INSTITUTIONAL DISCIPLINED EQUITY FUND
JPM INSTITUTIONAL U.S. EQUITY FUND
JPM INSTITUTIONAL U.S. SMALL COMPANY FUND
JPM INSTITUTIONAL EMERGING MARKETS EQUITY FUND
JPM INSTITUTIONAL EUROPEAN EQUITY FUND
JPM INSTITUTIONAL INTERNATIONAL BOND FUND
JPM INSTITUTIONAL INTERNATIONAL EQUITY FUND
JPM INSTITUTIONAL INTERNATIONAL OPPORTUNITIES FUND
JPM INSTITUTIONAL JAPAN EQUITY FUND
The
JPM Institutional
Federal Money
Market Fund
FOR MORE INFORMATION ON THE JPM INSTITUTIONAL FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT (800)766-7722.
ANNUAL REPORT
OCTOBER 31, 1997
