<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL
MONEY MARKET FUND
June 1, 1998
Dear Shareholder:
We are pleased to provide the J.P. Morgan Institutional Service Federal Money
Market fund shareholder letter and semi-annual report for the period November 5,
1997 (commencement of operations) through April 30, 1998.
The fund's net asset value remained $1.00 per share. The fund's total net assets
were approximately $12.4 million while the net assets of the Federal Money
Market Portfolio, in which the fund invests, totaled approximately $995.0
million on April 30, 1998 the end of the reporting period.
We call your attention to the portfolio manager Q&A on page two, in which Robert
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 appreciate your
investment in the fund. 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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . . .1 FUND FACTS AND HIGHLIGHTS . . . . .5
PORTFOLIO MANAGER Q&A . . . . . . .2 FINANCIAL STATEMENTS. . . . . . . .8
GLOSSARY OF TERMS . . . . . . . . .4
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
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 May 20, 1998
and reflects Skip's views on that date.
COULD YOU DESCRIBE THE ENVIRONMENT FOR SHORT-TERM FIXED-INCOME MARKETS DURING
THE SIX-MONTH REPORTING PERIOD?
RRJ: Interest rates rose late in 1997 and have declined so far in 1998. Most of
that decline was in January, as prices for short-term securities rallied
strongly. Overall, rates have declined over 20 basis points on the very front
end of the yield curve. More recently, rates have been stable, and investors
have refocused on the intentions of the Federal Reserve.
WE'VE HEARD A LOT ABOUT ASIA IN THE FINANCIAL PRESS. HOW HAVE EVENTS IN ASIA
AFFECTED YOUR MARKET?
RRJ: The consensus was that weaker economies and currencies in Asia would
result in a drop off in demand for U.S. products, which would in turn slow down
U.S. growth. If the Asian crisis had not occurred, many believe the Fed would
have raised interest rates to accomplish the same thing. Even though inflation
has been very well behaved, the Fed tries to anticipate inflation before it
appears. And the Fed seems concerned over labor pressures and employment costs.
The other consequence the Asian turmoil had on the markets was the so called
flight to quality. This triggered the rally we saw in January. Demand was
strong for short-term Treasury securities during this period, and other
short-term securities followed.
YOU SAID RATES ARE CURRENTLY STABLE. HOW DOES THIS AFFECT THE WAY YOU MANAGE
MONEY?
RRJ: When there's no immediate threat of Fed tightening, it usually allows us
to extend the average maturity of the fund further out on the yield curve. Right
now, however, the yield curve is very flat, and there's little or no reward for
extending the portfolio's maturity.
2
<PAGE>
HOW HAVE YOU BEEN MANAGING THE FUND'S PORTFOLIO IN THIS ENVIRONMENT?
RRJ: We have kept the portfolio's maturity in the 40-50 day range in
anticipation of a stable Fed. While the next move in interest rates is likely to
be upward, we currently don't think the Fed will make a move until August.
FOR THE REPORTING PERIOD, THE FUND HAS OUTPERFORMED ITS PEERS, AS MEASURED BY
THE IBC U.S. GOVERNMENT & AGENCY MONEY FUND AVERAGE. WHAT FACTORS CONTRIBUTED TO
THE STRONG PERFORMANCE?
RRJ: Our duration management has been effective during the period. Our timing
has been good in buying longer agencies with slightly higher yields. We've also
kept the mix of agencies the same. Another contributor to performance was the
effective management of the portfolio's liquidity. We've been able to space out
maturity dates so that we don't have excess cash on hand at times when rates
were not attractive. Conversely, we've been able to have cash ready when
reinvestment rates were favorable.
WHAT IS YOUR OUTLOOK FOR THE UPCOMING MONTHS?
RRJ: The threat of Fed tightening at some point should eventually lead to rates
moving up a bit, which will prevent us from extending the portfolio's average
maturity too far. Currently, the portfolio's maturity is what we would consider
neutral. If we see continued strength in economy, concerns over Fed tightening
will grow.
* INVESTORS SHOULD CONSULT WITH THEIR TAX ADVISOR TO DETERMINE ANY APPLICABLE
STATE TAXES.
3
<PAGE>
GLOSSARY OF TERMS
AVERAGE MATURITY: The weighted average time to maturity of the entire portfolio
with the weights equal to the percentage of the portfolio invested in each
security (see Maturity).
CREDIT RATING: The rating assigned to a bond or note by independent rating
agencies such as Standard & Poor's Corporation and Moody's Investors Service. In
evaluating creditworthiness, these agencies assess the issuer's present
financial condition and future ability and willingness to make principal and
interest payments when due.
CREDIT RISK: Financial risk that an obligation will not be paid and a loss will
result.
LETTER OF CREDIT: Instrument or document issued by a bank guaranteeing the
payment of a customer's drafts up to a stated amount and eliminating the
seller's risk.
MATURITY: The date on which the life of a financial instrument ends through cash
or physical settlement or expiration with no value or the date a security comes
due and fully payable.
VARIABLE RATE DEMAND NOTE: Note representing borrowings that is payable on
demand and that bears interest tied to a base money market rate, usually the
bank prime rate. The rate on the note is adjusted upward or downward each time
the base rate changes.
YIELD: Coupon rate of interest on a bond divided by the purchase price. As a
bond's price falls, its yield rises and vice versa.
YIELD CURVE: A graph showing the term structure or level of interest rates
ranging from the shortest to the longest maturities. The resulting curve shows
if short--term interest rates are higher or lower than long-term rates.
Normally, the longer the bond, the higher the yield it offers, resulting in a
positive yield curve. An inverted yield curve can occur when there are
supply/demand imbalances for various maturities, which results in short-term
rates at higher levels than longer-term instruments.
YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.00% and a municipal is yielding 5.00%,
the yield spread is 1.00% or 100 basis points.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Institutional Service 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
11/5/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/98
$12,429,324
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 4/30/98
$995,030,475
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
MONTHLY
LONG-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/11/98
EXPENSE RATIO
The fund's current annualized expense ratio of 0.45% 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 APRIL 30, 1998
DAYS TO MATURITY
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
0-30 days 78.8%
31-60 days 6.4%
90 + days 14.8%
</TABLE>
AVERAGE LIFE
48 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.
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 THE PROSPECTUS CAREFULLY BEFORE INVESTING.
6
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Federal Money Market Portfolio
("Portfolio"), at value $12,463,998
Deferred Organization Expenses 9,934
Receivable for Expense Reimbursements 6,464
-----------
Total Assets 12,480,396
-----------
LIABILITIES
Organization Expenses Payable 11,000
Dividends Payable to Shareholders 6,099
Service Organization Fee Payable 267
Shareholder Servicing Fee Payable 53
Administrative Services Fee Payable 22
Administration Fee Payable 9
Fund Services Fee Payable 2
Accrued Expenses 33,620
-----------
Total Liabilities 51,072
-----------
NET ASSETS
Applicable to 12,429,321 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $12,429,324
-----------
-----------
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $12,429,321
Accumulated Net Realized Gain on Investment 3
-----------
Net Assets $12,429,324
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD NOVEMBER 5, 1997 (COMMENCEMENT OF OPERATIONS) TO APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $23,862
Allocated Portfolio Expenses (Net of
Reimbursement of $212) (864)
-------
Net Investment Income Allocated from
Portfolio 22,998
FUND EXPENSES
Transfer Agent Fees $10,932
Registration Fees 10,310
Printing Expenses 7,330
Professional Fees 5,545
Service Organization Fee 1,067
Amortization of Organization Expenses 1,066
Shareholder Servicing Fee 213
Administrative Services Fee 114
Trustees' Fees and Expenses 11
Administration Fee 9
Fund Services Fee 8
Miscellaneous 2,453
-------
Total Fund Expenses 39,058
Less: Reimbursement of Expenses (38,002)
-------
NET FUND EXPENSES 1,056
-------
NET INVESTMENT INCOME 21,942
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 3
-------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $21,945
-------
-------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 5, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1998
(UNAUDITED)
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 21,942
Net Realized Gain on Investment Allocated from
Portfolio 3
-------------------
Net Increase in Net Assets Resulting from
Operations 21,945
-------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (21,942)
-------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT
A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 25,900,445
Cost of Shares of Beneficial Interest Redeemed (13,471,134)
-------------------
Net Increase from Transactions in Shares of
Beneficial Interest 12,429,311
-------------------
Total Increase in Net Assets 12,429,314
NET ASSETS
Beginning of Period 10
-------------------
End of Period $ 12,429,324
-------------------
-------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITIUTIONAL SERVICE FEDERAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
NOVEMBER 5, 1997
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1998
(UNAUDITED)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00
-------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0261
Net Realized Gain on Investment 0.0000(a)
-------------------
Total from Investment Operations 0.0261
-------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0261)
-------------------
Total Distributions to Shareholders (0.0261)
-------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
-------------------
-------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 2.63%(b)
Net Assets, End of Period (in thousands) $ 12,429
Ratios to Average Net Assets
Expenses 0.45%(c)
Net Investment Income 5.14%(c)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 8.96%(c)(d)
</TABLE>
- ------------------------
(a) Less than $0.0001.
(b) Not Annualized.
(c) Annualized.
(d) Ratio decrease is substantially impacted by the short period covered, and is
not representative of current reimbursement ratio policy.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Institutional Service Federal Money Market Fund (the "fund") is
a separate series of the J.P. Morgan 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
November 5, 1997. Prior to January 1, 1998 the trust's and the fund's names were
The JPM Institutional Funds and The JPM Institutional Service Federal Money
Market Fund, respectively.
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 (1% at April
30, 1998). 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 1a 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 gains, 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 annually, 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 $11,000. Morgan
Guaranty Trust Company of New York ("Morgan") has paid the organization
expenses of the fund. The fund has agreed to reimburse Morgan for these
costs which are being deferred and amortized on a straight-line basis over
a period not to exceed five year beginning with the commencement of
operations of the fund.
e) The fund is treated as a separate entity for federal income tax purposes
and 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>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
f) Expenses incurred by the trust with respect to any two or more funds 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 the 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
period November 5, 1997 (commencement of operations) to April 30, 1998,
the fee for these services amounted to $9.
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 J.P. Morgan
Funds (formerly The JPM Pierpont Funds) invest (the "master portfolios")
and J.P. Morgan Series Trust (formerly 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 J.P. Morgan
Series Trust. For the period November 5, 1997 (commencement of operations)
to April 30, 1998, the fee for these services amounted to $114.
In addition, 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
0.45% of the average daily net assets of the fund through February 28,
1999. For the period November 5, 1997 (commencement of operations) to
April 30, 1998, Morgan has agreed to reimburse the fund $38,002 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 period November 5, 1997 (commencement of operations) to
April 30, 1998, the fee for these services amounted to $213.
13
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
d) The trust on behalf of the fund, has a Service Plan with respect to fund
shares which authorizes it to compensate Service Organizations for
providing account administration and other services to their customers who
are beneficial owners of such shares. The fund will enter into agreements
with Service Organizations which purchase shares on behalf of their
customers ("Service Agreements"). The Service Agreements provide that the
fund pay Service Organizations a fee which is computed daily and paid
monthly at an annual rate of up to 0.25% of the average daily net assets
of the fund with respect to the shares of the fund attributable to or held
in the name of the Service Organization for its customers. For the period
November 5, 1997 (commencement of operations) to April 30, 1998 the fee
for these services amounted to $1,067.
e) 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
$8 for the period November 5, 1997 (commencement of operations) to April
30, 1998.
f) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the master portfolios, and
J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the fund's allocated portion of these
total fees and expenses. 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 $2.
14
<PAGE>
The Federal Money Market Portfolio
Semi-annual Report April 30, 1998
(unaudited)
(The following pages should be read in conjunction
with J.P. Morgan Institutional Service Federal Money Market Fund
Semi-annual Financial Statements)
15
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<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 (101.7%)
$ 25,000 Federal Farm Credit Bank (due 1/14/99)........... 05/01/98 5.540%(a) $ 24,994,879
50,000 Federal Farm Credit Bank (due 2/10/99)........... 05/01/98 5.510(a) 49,982,934
40,000 Federal Farm Credit Bank......................... 03/02/99-05/03/99 5.375-5.600 39,954,995
50,010 Federal Farm Credit Bank Discount Note........... 05/28/98-06/05/98 5.380-5.390 49,778,122
100,000 Federal Home Loan Bank (due 3/10/99)............. 05/01/98 5.270(a) 99,949,749
50,000 Federal Home Loan Bank (due 2/11/99)............. 05/11/98 5.456(a) 49,973,171
25,000 Federal Home Loan Bank (due 9/17/98)............. 05/17/98 5.431(a) 24,992,510
50,000 Federal Home Loan Bank (due 8/18/98)............. 05/18/98 5.436(a) 49,988,951
84,500 Federal Home Loan Bank........................... 06/09/98-04/27/99 5.415-5.960 84,474,568
29,910 Federal Home Loan Bank Discount Note............. 05/15/98 5.400 29,847,189
50,000 Student Loan Marketing Association (due
1/27/99)....................................... 05/01/98 5.290(a) 49,985,454
39,700 Student Loan Marketing Association............... 09/16/98-02/10/99 5.400-5.854 39,687,756
193,472 Student Loan Marketing Association Discount
Note........................................... 05/01/98 5.430 193,472,000
224,900 Tennessee Valley Authority Discount Note......... 05/01/98-06/03/98 5.380-5.440 224,372,390
---------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (101.7%).............................. 1,011,454,668
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.7%)....................................... (16,424,193)
---------------
NET ASSETS (100.0%)................................................................. $ 995,030,475
---------------
---------------
</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.
16
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $1,011,454,668
Cash 3,831
Interest Receivable 3,726,520
Receivable for Expense Reimbursement 36,867
Prepaid Trustees' Fees 1,841
Prepaid Expenses and Other Assets 563
--------------
Total Assets 1,015,224,290
--------------
LIABILITIES
Payable for Investments Purchased 19,981,400
Advisory Fee Payable 159,892
Administrative Services Fee Payable 23,843
Administration Fee Payable 1,358
Fund Services Fee Payable 3,200
Accrued Expenses 24,122
--------------
Total Liabilities 20,193,815
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $ 995,030,475
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $18,389,876
EXPENSES
Advisory Fee $658,839
Administrative Services Fee 97,914
Custodian Fees and Expenses 35,506
Professional Fees and Expenses 20,472
Fund Services Fee 9,640
Administration Fee 4,908
Trustees' Fees and Expenses 4,107
Amortization of Organization Expenses 974
Miscellaneous 5,006
--------
Total Expenses 837,366
Less: Reimbursement of Expenses (175,288)
--------
NET EXPENSES 662,078
-----------
NET INVESTMENT INCOME 17,727,798
NET REALIZED GAIN ON INVESTMENTS 154
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $17,727,952
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 1998 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1997
-------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 17,727,798 $ 17,100,620
Net Realized Gain on Investments 154 36,079
-------------- ----------------
Net Increase in Net Assets Resulting from
Operations 17,727,952 17,136,699
-------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 2,623,664,030 2,410,983,122
Withdrawals (2,023,345,314) (2,346,071,346)
-------------- ----------------
Net Increase from Investors' Transactions 600,318,716 64,911,776
-------------- ----------------
Total Increase in Net Assets 618,046,668 82,048,475
NET ASSETS
Beginning of Period 376,983,807 294,935,332
-------------- ----------------
End of Period $ 995,030,475 $ 376,983,807
-------------- ----------------
-------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FISCAL YEAR ENDED JANUARY 4, 1993
SIX MONTHS ENDED OCTOBER 31, (COMMENCEMENT OF
APRIL 30, 1998 ------------------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 1995 1994 OCTOBER 31, 1993
---------------- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.20%(a) 0.20% 0.20% 0.20% 0.22% 0.26%(a)
Net Investment Income 5.36%(a) 5.18% 5.08% 5.55% 3.65% 2.75%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 0.05%(a) 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.
19
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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's investment objective
is to provide current income, maintain a high level of liquidity and preserve
capital. The portfolio commenced operations on January 4, 1993. The Declaration
of Trust permits the trustees to issue an unlimited number of beneficial
interests in the 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 rated on the market value of the instruments.
The portfolio's custodian or designated subcustodians, as the case may be
under tri-party 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. Interest
income, which includes the amortization of premiums and discounts, if any,
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 paid the
organization expenses of the portfolio. The portfolio has agreed to
reimburse Morgan for these costs which are being deferred and amortized on
a straight-line basis over a period not to exceed five years beginning
with the commencement of operations of the portfolio.
20
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
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 six months ended April 30,
1998, such fees amounted to $658,839.
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 six months ended April 30, 1998, the fee for
these services amounted to $4,908.
c) The portfolio 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 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 J.P. Morgan Series Trust (formerly
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 J.P. Morgan Series Trust. For the six months ended April 30,
1998, the fee for these services amounted to $97,914.
In addition, 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, 1999. For the six months ended April 30, 1998, Morgan has
agreed to reimburse the portfolio $175,288 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 $9,640 for the six months ended April 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds (formerly, The JPM Pierpont
Funds), the J.P. Morgan Institutional Funds (formerly The JPM
Institutional Funds), the master portfolios and J.P. Morgan Series Trust.
The Trustees' Fees and Expenses shown in the financial statements
represents the portfolio's allocated portion of the total fees and
expenses. The portfolio'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 $2,000.
21
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FUNDS
PRIME MONEY MARKET FUND
TREASURY MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
J.P. MORGAN
INSTITUTIONAL
SERVICE FEDERAL
MONEY MARKET FUND
FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT
(800)766-7722.
SEMI-ANNUAL REPORT
APRIL 30, 1998
