<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY
MARKET FUND
July 1, 1998
Dear Shareholder:
We are pleased to report that the J.P. Morgan Institutional Service Prime Money
Market Fund produced a total return of 2.68% for the period ended May 31, 1998,
outperforming the 2.49% return of its benchmark*. In a changing interest rate
environment, active management of the portfolio's average maturity, as well as
its security selection, were the reasons for the fund's relative success during
the period.
The fund maintained a stable $1.00 net asset value over the period while paying
approximately $0.03 per share in dividends from ordinary income. The fund's
total net assets were approximately $606.2 million, while the net assets of The
Prime Money Market Portfolio, in which the fund invests, totaled approximately
$7.2 billion on May 31, 1998, at the end of the reporting period.
In this report, we have included a portfolio manager Q&A with Robert R.
("Skip") Johnson, a member of our portfolio management team and lead
portfolio manager for the fund. In this interview, Skip answers some commonly
asked questions about the fund, discusses portfolio activity over the
reporting period and offers an outlook for the months ahead.
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
*IBC Taxable Money Fund Average through November 30, 1995, and the IBC First
Tier Money Fund Average thereafter.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . . 1 FUND FACTS AND HIGHLIGHTS. . . . . .5
FUND PERFORMANCE. . . . . . . . . 2 FINANCIAL STATEMENTS . . . . . . . .8
PORTFOLIO MANAGER Q&A . . . . . . 3
- --------------------------------------------------------------------------------
</TABLE>
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 the 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 various time periods, typically one, five,
or ten 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 FIVE TEN
AS OF MAY 31, 1998 MONTHS MONTHS* YEAR* YEARS* YEARS* YEARS*
- -------------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan Inst. Service Prime
Money Market Fund 1.33% 2.68% 5.45% 5.41% 4.84% 5.68%
IBC First Tier Money Fund Average** 1.23% 2.49% 5.08% 5.05% 4.55% 5.39%
Lipper Institutional Money Fund Average 1.32% 2.66% 5.40% 5.35% 4.86% 5.72%
AS OF MARCH 31, 1998
- -------------------------------------------------------------- ------------------------------------
J.P. Morgan Inst. Service Prime
Money Market Fund 1.32% 2.70% 5.46% 5.44% 4.75% 5.70%
IBC First Tier Money Fund Average** 1.24% 2.51% 5.09% 5.09% 4.48% 5.42%
Lipper Institutional Money Fund Average 1.31% 2.67% 5.39% 5.38% 4. 77% 5.74%
</TABLE>
10/23/97 -- COMMENCEMENT OF OPERATIONS (ACTUAL AVERAGE ANNUAL RETURN SINCE
INCEPTION IS 3.26%).
*CONSISTENT WITH APPLICABLE REGULATORY GUIDANCE, PERFORMANCE FOR THE PERIOD
PRIOR TO 10/23/97, J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND'S
INCEPTION, REFLECTS THE PERFORMANCE OF J.P. MORGAN PRIME MONEY MARKET FUND, THE
PREDECESSOR ENTITY TO THE PRIME MONEY MARKET PORTFOLIO, WHICH HAD A SIMILAR
INVESTMENT OBJECTIVE AND RESTRICTIONS AS THE PORTFOLIO. THE PERFORMANCE FOR SUCH
PERIOD REFLECTS DEDUCTION OF THE EXPENSES OF J.P. MORGAN PRIME MONEY MARKET
FUND, WHICH WERE HIGHER THAN THE EXPENSES FOR J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND, AFTER REIMBURSEMENT.
**IBC TAXABLE MONEY FUND AVERAGE THROUGH NOVEMBER 30, 1995, AND THE IBC FIRST
TIER MONEY FUND AVERAGE THEREAFTER.
PAST PERFORMANCE IS NO 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. HAD EXPENSES
NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. IBC FIRST TIER MONEY 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
[PHOTO]
Following is an interview with ROBERT R. ("SKIP") JOHNSON, a member of the
portfolio management team for The Prime 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 June 19, 1998
and reflects Skip's views on that date.
HOW WOULD YOU SUMMARIZE THE SHORT-TERM FIXED INCOME MARKETS SINCE THE END OF
NOVEMBER 1997, WHEN WE LAST SPOKE?
RRJ: We've continued to see the same conditions in the short-term fixed market
that we saw develop late last year and continue through first quarter of 1998:
strong growth in the economy -- around 4.8% real growth during the first quarter
- -- and a continued flight to quality in the fixed income market, which is
primarily a result of the Asian crisis that hit in the second half of last year
and has now included Japan.
WERE THERE ANY MARKET-RELATED EVENTS THAT SIGNIFICANTLY AFFECTED THE FUND'S
PERFORMANCE OVER THE LAST SIX MONTHS?
RRJ: There's no doubt that the Asian situation had an impact on the short-term
fixed income markets. In general, the bond market continues to rally.
In addition to the Asian sitution, another very significant event that occurred
in the market at large was the Federal Reserve's and the Bank of Japan's
intervention to support the Japanese yen. This is probably the first
intervention of this nature the Fed has taken in several years.
HOW IS THIS SIGNIFICANT?
RRJ: It's significant in that this sort of thing doesn't happen very often.
Also, what one worries about is that we have had this virtuous cycle of growth
and no inflation versus weakness going on globally around us. The fact that
governments may be forced to raise rates to protect their currency, affecting
budget deficits and economic growth, is one to keep an eye on.
3
<PAGE>
LATELY, THERE'S BEEN SPECULATION ABOUT ACTION BY THE FED IN THE NEAR FUTURE ON
DOMESTIC RATES. WOULD YOU COMMENT ON THIS?
RRJ: Right now, we are faced with a Fed that has a tightening bias, but it
appears they're on hold. It doesn't appear that there is much chance in the near
future for them to move. What we're concerned about is that we have 4.8% real
growth in the economy, and if that doesn't slow, they might tighten.
IN TERMS OF MANAGING THE FUND, WERE THERE ANY NOTABLE CHANGES OR SHIFTS IN THE
FUND'S COMPOSITION?
RRJ: First, the fund itself grew tremendously. In November of 1997, it was $4.3
billion; now it's roughly $7.1 billion in assets. That's a substantial increase.
Our view is that whenever there's global turmoil investors turn to money market
funds, even if just for a short time period.
Second, we have taken a closer look at a segment of the market -- asset-backed
commercial paper -- which is top-rated and fits all the quality ratings
requirements for the fund, but which we had not formerly purchased for the fund.
We increased our purchases of this type of commercial paper, which has grown
faster than any other segment of the commercial paper markets. This move gave us
a liquid, well-structured, top-rated security that fit in with our investment
objectives for the fund.
Over the last six months, we have continued to be in the right place on
liquidity management. We shortened a bit in June to take advantage of some
quarter-end pressures. We're now out to probably 53 to 55 days in the average
maturity of the fund.
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
RRJ: We forecast the economy slowing down to two percent at the end of the
second quarter, which would be in line with the Fed's target. For the second
half of 1998, it looks like it might slow a bit further, maybe down to one
percent growth. What could change that is if consumer spending stays very
strong, and late cycle pressures accelerate.
Whatever happens, money market funds are a relatively stable, liquid vehicle in
a market experiencing turmoil. We believe that this, along with being in the
right place in terms of liquidity management and showing strong performance,
could all point to a successful 1998 for the fund.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Institutional Service Prime 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 high quality money market instruments.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
10/23/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 5/31/98
$606,174,373
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 5/31/98
$7,167,156,433
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN PAYABLE DATES (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 MAY 31, 1998
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<CAPTION>
<S> <C>
FLOATING RATE NOTES 37.3%
COMMERCIAL PAPER - DOMESTIC 25.4%
TIME DEPOSITS - FOREIGN 13.7%
CERTIFICATES OF DEPOSIT - FOREIGN 9.5%
COMMERCIAL PAPER - FOREIGN 6.8%
TIME DEPOSITS - DOMESTIC 3.9%
CERTIFICATES OF DEPOSIT - DOMESTIC 2.1%
TAXABLE MUNICIPALS 1.3%
</TABLE>
AVERAGE 7-DAY CURRENT YIELD
5.23%*
AVERAGE MATURITY
38 days
*YIELD REFLECTS THE REIMBURSEMENT OF CERTAIN FUND EXPENSES AS DESCRIBED IN THE
PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, THE AVERAGE 7-DAY CURRENT YIELD
WOULD HAVE BEEN 5.13%.
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 PRIME MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Prime Money Market Portfolio
("Portfolio"), at value $608,607,837
Receivable for Expense Reimbursements 56,747
Deferred Organization Expenses 9,669
Prepaid Trustees' Fees 120
------------
Total Assets 608,674,373
------------
LIABILITIES
Dividends Payable to Shareholders 2,277,414
Service Organization Fee Payable 111,564
Shareholder Servicing Fee Payable 22,313
Administrative Services Fee Payable 12,621
Organization Expenses Payable 10,750
Administration Fee Payable 1,379
Fund Services Fee Payable 250
Accrued Expenses 63,709
------------
Total Liabilities 2,500,000
------------
NET ASSETS
Applicable to 606,175,777 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $606,174,373
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $606,175,777
Distributions in Excess of Net Investment Income (10)
Accumulated Net Realized Loss on Investment (1,394)
------------
Net Assets $606,174,373
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $5,336,967
Allocated Portfolio Expenses (158,139)
----------
Net Investment Income Allocated from
Portfolio 5,178,828
FUND EXPENSES
Service Organization Fee $234,185
Shareholder Servicing Fee 46,837
Administrative Services Fee 26,650
Registration Fees 22,522
Transfer Agent Fees 9,851
Administration Fee 2,011
Fund Services Fee 1,939
Amortization of Organization Expenses 1,096
Trustees' Fees and Expenses 302
Miscellaneous 14,727
--------
Total Fund Expenses 360,120
Less: Reimbursement of Expenses (96,725)
--------
NET FUND EXPENSES 263,395
----------
NET INVESTMENT INCOME 4,915,433
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (1,285)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $4,914,148
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX OCTOBER 23, 1997
MONTHS ENDED (COMMENCEMENT OF
MAY 31, 1998 OPERATIONS) THROUGH
(UNAUDITED) NOVEMBER 30, 1997
-------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 4,915,433 $ 6,288
Net Realized Loss on Investment Allocated from
Portfolio (1,285) (6)
-------------- -------------------
Net Increase in Net Assets Resulting from
Operations 4,914,148 6,282
-------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (4,915,443) (6,288)
Net Realized Gain (103) --
-------------- -------------------
Total Distributions to Shareholders (4,915,546) (6,288)
-------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT
A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 1,114,425,681 3,952,259
Reinvestment of Dividends and Distributions 81,705 --
Cost of Shares of Beneficial Interest Redeemed (508,716,005) (3,567,863)
-------------- -------------------
Net Increase from Transactions in Shares of
Beneficial Interest 605,791,381 384,396
-------------- -------------------
Total Increase in Net Assets 605,789,983 384,390
NET ASSETS
Beginning of Period 384,390 --
-------------- -------------------
End of Period $ 606,174,373 $ 384,390
-------------- -------------------
-------------- -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITIUTIONAL SERVICE PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23,
1997
(COMMENCEMENT
FOR THE OF
SIX MONTHS OPERATIONS)
ENDED THROUGH
MAY 31, 1998 NOVEMBER 30,
(UNAUDITED) 1997
--------------- ---------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
--------------- ---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0265 0.0057
Net Realized Loss on Investment (0.0000)(c) (0.0000)(c)
--------------- ---------------
Total from Investment Operations 0.0265 0.0057
--------------- ---------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0265) (0.0057)
Net Realized Gain (0.0000)(c) --
--------------- ---------------
Total Distributions to Shareholders (0.0265) (0.0057)
--------------- ---------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
--------------- ---------------
--------------- ---------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 2.68%(a) 0.57%(a)
Net Assets, End of Period (in thousands) $606,174 $ 384
Ratios to Average Net Assets
Expenses 0.45%(b) 0.45%(b)
Net Investment Income 5.25%(b) 5.28%(b)
Expenses without reimbursement 0.55%(b) 35.55%(b),(d)
</TABLE>
- ------------------------
(a) Not Annualized.
(b) Annualized.
(c) Less than $0.0001.
(d) Not representative of ongoing reimbursement ratio since period covers less
than two months.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MAY 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Institutional Service Prime 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 October 23,
1997. Prior to January 1, 1998 the trust's and fund's names were The JPM
Institutional Funds and The JPM Institutional Service Prime Money Market Fund.
The fund invests all of its investable assets in The Prime 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 (9% at May 31,
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, 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 years 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 PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
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 administration 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 six
months ended May 31, 1998, the fee for these services amounted to $2,011.
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 their aggregate average
daily net asets 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 six months ended May 31, 1998, the fee for these services amounted
to $26,650.
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 March 31, 1999.
For the six months ended May 31, 1998, Morgan has agreed to reimburse the
fund $96,725 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 six months ended May 31, 1998, the fee for these
services amounted to $46,837.
13
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 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 six
months ended May 31, 1998 the fee for these services amounted to $234,185.
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
$1,939 for the six months ended May 31, 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 the 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 $400.
14
<PAGE>
The Prime Money Market Portfolio
Semi-annual Report May 31, 1998
(unaudited)
(The following pages should be read in conjunction
with J.P. Morgan Institutional Service Prime Money Market Fund
Semi-annual Financial Statements)
15
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- DOMESTIC (2.1%)
$ 101,600 Nationsbank Corp................................. 09/04/98-12/28/98 5.600-5.830% $ 101,583,955
50,000 Regions Bank..................................... 06/25/98 6.000 49,999,058
---------------
TOTAL CERTIFICATES OF DEPOSIT -- DOMESTIC.... 151,583,013
---------------
CERTIFICATES OF DEPOSIT -- FOREIGN (9.5%)
26,500 Bank of Montreal................................. 07/07/98 5.580 26,501,176
67,500 Bayerische Vereinsbank AG........................ 02/02/99 5.600 67,465,264
200,000 Canadian Imperial Bank of Commerce............... 06/22/98-04/01/99 5.530-5.750 199,952,152
25,000 Commerzbank AG................................... 03/05/99 5.670 24,990,909
165,000 Deutsche Bank.................................... 03/04/99-04/15/99 5.650-5.730 164,936,642
45,000 Landesbank Hessen Thuringen...................... 06/09/98-06/19/98 5.940-6.080 44,999,225
20,000 Norinchukin Bank................................. 06/05/98 5.910 20,000,022
32,000 Swiss Bank Corp.................................. 06/04/98 5.820 32,000,583
100,000 Westpac Banking Corp............................. 03/04/99-04/09/99 5.640-5.680 99,955,884
---------------
TOTAL CERTIFICATES OF DEPOSIT -- FOREIGN..... 680,801,857
---------------
COMMERCIAL PAPER -- DOMESTIC (25.3%)
236,867 Alpine Securitization Corp....................... 06/02/98-06/11/98 5.500-5.530 236,609,874
145,000 Aspen Funding Corp............................... 06/08/98-06/17/98 5.530 144,747,310
14,000 Bank of New York................................. 03/26/99 5.640 13,993,426
78,955 Bavaria Trading Corp............................. 06/04/98-06/15/98 5.540-5.550 78,869,422
75,000 BBL North America Inc............................ 06/15/98 5.510 74,839,292
248,750 CXC Inc.......................................... 06/03/98-08/12/98 5.500-5.530 247,722,486
28,000 Dupont EI de Nemours & Co........................ 06/05/98 5.460 27,983,013
98,623 Enterprise Funding Corp.......................... 06/08/98-06/19/98 5.500-5.520 98,412,245
150,000 General Electric Capital Corp.................... 08/19/98 5.380 148,229,083
69,000 General Motors Acceptance Corp................... 06/03/98 5.500 68,978,917
73,379 Receivables Capital Corp......................... 06/17/98-07/23/98 5.510-5.520 73,140,715
312,482 Trident Capital Finance Inc...................... 06/03/98-08/07/98 5.520-5.530 311,964,497
290,208 Windmill Funding Corp............................ 06/03/98-06/24/98 5.510-5.530 289,536,717
---------------
TOTAL COMMERCIAL PAPER -- DOMESTIC........... 1,815,026,997
---------------
COMMERCIAL PAPER -- FOREIGN (6.7%)
182,500 Banque et Caisse D' Epargne...................... 06/09/98-08/12/98 5.380-5.510 180,846,206
22,500 Barclays Funding................................. 06/17/98 5.500 22,445,000
25,000 Caisse D' Amortissement.......................... 08/03/98 5.370 24,765,063
50,000 Commonwealth Bank of Australia (Series A)........ 07/20/98 5.400 49,631,819
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER -- FOREIGN (CONTINUED)
$ 157,000 Diageo PLC....................................... 07/06/98-07/24/98 5.440-5.490% $ 156,094,217
50,000 Halifax Building Society......................... 06/17/98 5.480 49,878,222
---------------
TOTAL COMMERCIAL PAPER -- FOREIGN............ 483,660,527
---------------
FLOATING RATE NOTES (37.2%) (V)
38,000 American Express Centurion Bank, (resets monthly
to one month LIBOR -6 basis points, due
05/07/99)...................................... 06/08/98(a) 5.592 38,000,000
50,000 American Express Centurion Bank, (resets monthly
to one month LIBOR -6 basis points, due
05/10/99)...................................... 06/10/98(a) 5.592 50,000,000
50,000 American Express Centurion Bank, (resets monthly
to one month LIBOR -6 basis points, due
06/18/99)...................................... 06/18/98(a) 5.596 50,000,000
25,000 American Express Centurion Bank, (resets daily to
one month LIBOR +5 basis points, due
09/16/98)...................................... 06/01/98(a) 5.706 25,008,025
27,800 Asset Backed Securities Investment Trust, Series
1995-A, Class 2, (resets monthly to one month
LIBOR -3 basis points, due 08/10/98)........... 06/10/98(a) 5.615 27,798,317
100,000 Asset Backed Securities Investment Trust, Series
1997-C, (resets monthly to one month LIBOR, due
06/15/98) (144A)............................... 06/15/98(a) 5.656 100,000,000
50,000 Asset Backed Securities Investment Trust, Series
1997-E, Class N, (resets monthly to one month
LIBOR, due 08/17/98) (144A).................... 06/15/98(a) 5.656 50,000,000
100,000 BankBoston Corp., (resets daily to Fed Funds rate
+5 basis points, due 04/08/99)................. 06/01/98(a) 5.450 99,958,420
64,000 Bankers Trust, (resets daily to Fed Funds rate +5
basis points, due 07/07/98).................... 06/01/98(a) 5.550 63,993,290
100,000 Bayerische Landesbank, (resets monthly to one
month LIBOR -10 basis points, due 06/26/98).... 06/26/98(a) 5.558 99,994,672
50,000 Corestates Bank, (resets monthly to one month
LIBOR -5.5 basis points, due 04/20/99)......... 06/20/98(a) 5.647 50,000,000
100,000 Corestates Bank, (resets monthly to one month
LIBOR -5.5 basis points, due 05/07/99)......... 06/08/98(a) 5.597 100,000,000
15,000 Corestates Bank, (resets monthly to one month
LIBOR -5.5 basis points, due 05/14/99)......... 06/14/98(a) 5.601 15,000,000
50,000 Corestates Bank, (resets monthly to one month
LIBOR +3 basis points, due 04/21/99)........... 06/21/98(a) 5.678 50,000,000
25,000 FCC National Bank, (resets monthly to one month
LIBOR -12 basis points, due 07/02/98).......... 06/02/98(a) 5.536 24,998,520
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
FLOATING RATE NOTES (CONTINUED)
$ 35,000 FCC National Bank, (resets daily to Fed Funds
rate +20 basis points, due 07/23/98)........... 06/01/98(a) 5.888% $ 35,003,891
5,000 First USA Bank, (resets quarterly to three month
LIBOR +30 basis points, due 07/29/98).......... 07/16/98(a) 5.988 5,002,614
15,000 First USA Bank, (resets quarterly to three month
LIBOR +30 basis points, due 09/03/98).......... 06/17/98(a) 5.984 15,013,552
16,000 Ford Motor Credit, (resets daily to Fed Funds
rate +45 basis points, due 04/19/99)........... 06/01/98(a) 6.138 16,046,798
91,000 General Electric Capital Corp., (resets daily to
Prime rate -289 basis points, due 05/04/99).... 06/01/98(a) 5.610 91,000,000
112,592 Greentree Financial Corp., (resets monthly to one
month LIBOR +3 basis points, due 11/15/98)..... 06/15/98(a) 5.686 112,566,639
43,000 Household Finance Corp., (resets quarterly to
three month LIBOR -12 basis points, due
03/30/99)...................................... 06/30/98(a) 5.591 42,974,187
200,000 Key Bank, (resets daily to Prime rate -295 basis
points, due 02/24/99).......................... 06/01/98(a) 5.550 199,900,142
65,000 Key Bank, (resets daily to Fed Funds rate +4.5
basis points, due 04/16/99).................... 06/01/98(a) 6.138 64,962,932
135,101 Liquid Asset Backed Securities Trust, Series
1997-2, (resets monthly to one month LIBOR, due
06/30/98) (144A)............................... 06/30/98(a) 5.656 135,101,368
187,036 Money Store Equity Trust, Series 1997-A36,
(resets monthly to one month LIBOR +3 basis
points, due 11/15/98).......................... 06/15/98(a) 5.686 187,028,986
94,622 Natwest Asset Trust Securities, Series R-13/14A,
(resets monthly to one month LIBOR +2 basis
points, due 10/15/01) (144A)................... 06/15/98(a) 5.676 94,622,000
66,500 Old Kent Bank, (resets daily to Prime rate -285
basis points, due 11/04/98).................... 06/01/98(a) 5.650 66,500,000
50,000 PNC Bank, N.A., (resets daily to Fed Funds rate
+7 basis points, due 06/04/98)................. 06/01/98(a) 5.758 49,999,775
200,000 PNC Bank, N.A., (resets daily to Prime rate -290
basis points, due 01/19/99).................... 06/01/98(a) 5.600 199,968,478
100,000 Racers 97-MM-8-6, (resets monthly to one month
LIBOR -2 basis points, due 08/28/98) (144A).... 06/28/98(a) 5.632 99,997,655
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
FLOATING RATE NOTES (CONTINUED)
$ 245,000 Societe Generale, (resets monthly to one month
LIBOR +8.5 basis points, due 05/26/99)......... 06/26/98(a) 5.563% $ 244,833,801
161,500 Triangle Funding Ltd., Series 1997-1, (resets
quarterly to three month LIBOR, due 11/15/98)
(144A)......................................... 07/15/98(a) 5.687 161,496,451
---------------
TOTAL FLOATING RATE NOTES.................... 2,666,770,513
---------------
TAXABLE MUNICIPALS (1.3%)(V)
44,200 Jacksonville Health Facility Hospital, (resets
weekly, due 08/15/14).......................... 06/03/98(a) 5.650 44,200,000
39,240 Sacramento County, (resets quarterly to three
month LIBOR, due 08/15/14)..................... 08/14/98(a) 5.699 39,236,968
6,200 Wake Forest University, (resets weekly, due
07/01/17), LOC Wachovia Bank................... 06/09/98(a) 5.600 6,200,000
---------------
TOTAL TAXABLE MUNICIPALS..................... 89,636,968
---------------
TIME DEPOSITS -- DOMESTIC (3.9%)
276,343 Suntrust Bank.................................... 06/01/98 5.687 276,343,000
---------------
TIME DEPOSITS -- FOREIGN (13.7%)
325,000 Bank of Montreal................................. 06/01/98 5.687-5.718 325,000,000
125,000 Bank of Nova Scotia.............................. 06/01/98 5.687 125,000,000
150,000 Bayerische Vereinsbank........................... 06/01/98 5.687 150,000,000
231,848 Credit Agricole Grand Cayman..................... 06/01/98 5.687 231,848,000
150,000 Westdeutsche Landesbank.......................... 06/01/98 5.687 150,000,000
---------------
TOTAL TIME DEPOSITS -- FOREIGN............... 981,848,000
---------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (99.7%).................................. 7,145,670,875
OTHER ASSETS IN EXCESS OF LIABILITIES (0.3%)........................................... 21,485,558
---------------
NET ASSETS (100.0%).................................................................... $ 7,167,156,433
---------------
---------------
</TABLE>
- ------------------------------
(a)The date listed under the heading maturity date represents an optional tender
date or the next interest rate reset date. The final maturity date is
indicated in the security description.
(v)Rate shown reflects current rate on variable or floating rate instrument or
instrument with step coupon rate.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
LOC -- Letter of Credit
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $7,145,670,875
Interest Receivable 28,459,621
Prepaid Trustees' Fees 2,573
Prepaid Expenses and Other Assets 7,425
--------------
Total Assets 7,174,140,494
--------------
LIABILITIES
Payable to Custodian 6,042,748
Advisory Fee Payable 621,913
Administrative Services Fee Payable 155,082
Custody Fee Payable 108,454
Administration Fee Payable 13,424
Fund Services Fee Payable 5,278
Accrued Expenses 37,162
--------------
Total Liabilities 6,984,061
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $7,167,156,433
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED MAY 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $156,414,646
EXPENSES
Advisory Fee $3,222,153
Administrative Services Fee 804,085
Custodian Fees and Expenses 363,162
Fund Services Fee 79,660
Administration Fee 54,547
Trustees' Fees and Expenses 38,019
Miscellaneous 51,977
----------
Total Expenses 4,613,603
------------
NET INVESTMENT INCOME 151,801,043
NET REALIZED LOSS ON INVESTMENTS (10,308)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $151,790,735
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
MAY 31, 1998 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1997
---------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 151,801,043 $ 220,786,337
Net Realized Loss on Investments (10,308) (105,748)
---------------- -----------------
Net Increase in Net Assets Resulting from
Operations 151,790,735 220,680,589
---------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 22,499,826,610 22,011,079,297
Withdrawals (19,804,106,719) (21,760,363,996)
---------------- -----------------
Net Increase from Investors' Transactions 2,695,719,891 250,715,301
---------------- -----------------
Total Increase in Net Assets 2,847,510,626 471,395,890
NET ASSETS
Beginning of Period 4,319,645,807 3,848,249,917
---------------- -----------------
End of Period $ 7,167,156,433 $ 4,319,645,807
---------------- -----------------
---------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FOR THE FISCAL YEAR ENDED JULY 12, 1993
SIX MONTHS ENDED NOVEMBER 30, (COMMENCEMENT OF
MAY 31, 1998 ------------------------- OPERATIONS) THROUGH
(UNAUDITED) 1997 1996 1995 1994 NOVEMBER 30, 1993
---------------- ---- ---- ---- ---- -------------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.17%(a) 0.18% 0.19% 0.19% 0.20% 0.19%(a)
Net Investment Income 5.57%(a) 5.43% 5.29% 5.77% 3.90% 2.98%(a)
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MAY 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Prime Money Market Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, 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
maximize current income and maintain a high level of liquidity. The portfolio
commenced operations on July 12, 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 rates on the market value of the instruments.
The portfolio's custodian 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.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("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 May 31, 1998, such fees amounted to
$3,222,153.
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
23
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 1998
- --------------------------------------------------------------------------------
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
May 31, 1998, the fee for these services amounted to $54,547.
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 May 31,
1998, the fee for these services amounted to $804,085.
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
March 31, 1999. For the six months ended May 31, 1998, there was no
reimbursement 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 $79,660 for the six months ended May 31, 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 $16,700.
24
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FUNDS
FEDERAL MONEY MARKET FUND
PRIME MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TREASURY MONEY MARKET FUND
FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT
(800) 766-7722.
J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND
SEMI-ANNUAL REPORT
MAY 31, 1998
