<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL SERVICE TREASURY
MONEY MARKET FUND
December 1, 1998
Dear Shareholder:
We are pleased to report that the J.P. Morgan Institutional Service Treasury
Money Market Fund outperformed its benchmark, the IBC U.S. Treasury & Repo
Money Fund Average, for the fiscal year ended October 31, 1998. The fund
returned 5.27% for the period versus a benchmark return of 4.82%. Security
selection and active maturity management contributed to the fund's
outperformance for the period (see table on page 2).
The fund maintained a stable $1.00 net asset value over the period. The fund's
total net assets were approximately $471.3 million while the net assets of the
Treasury Money Market Portfolio, in which the fund invests, totaled
approximately $705.0 million on October 31, 1998, the end of the reporting
period.
We call your attention to the Portfolio manager Q&A on page three, 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 GLOSSARY OF TERMS.............5
FUND PERFORMANCE................2 FUND FACTS AND HIGHLIGHTS.....6
PORTFOLIO MANAGER Q&A...........3 FINANCIAL STATEMENTS..........8
- -------------------------------------------------------------------------------
</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 SINCE
AS OF OCTOBER 31, 1998 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------------------- -------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Institutional Service Treasury
Money Market Fund 1.27% 2.59% 5.27% 5.31%
IBC U.S. Treasury
& Repo Money Fund Average 1.15% 2.35% 4.82% 4.82%
Lipper Institutional U.S.
Treasury Money Market Fund Average 1.23% 2.51% 5.12% 5.14%
AS OF SEPTEMBER 30, 1998
- ------------------------------------------------------------------------- -------------------------------
J.P. Morgan Institutional Service Treasury
Money Market Fund 1.31% 2.61% 5.32% 5.34%
IBC U.S. Treasury
& Repo Money Fund Average 1.19% 2.39% 4.85% 4.85%
Lipper Institutional U.S.
Treasury Money Market Fund Average 1.27% 2.54% 5.16% 5.17%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON JULY 7, 1997 AND HAS PROVIDED A TOTAL RETURN
OF 5.30% FROM THAT DATE THROUGH OCTOBER 31, 1998. FOR THE PURPOSE OF COMPARISON,
THE "SINCE INCEPTION" RETURNS IN THE TABLE ABOVE ARE CALCULATED FROM JULY 31,
1997, THE FIRST DATE WHEN DATA FOR THE FUND, ITS BENCHMARK, AND ITS LIPPER
CATEGORY AVERAGE WERE ALL AVAILABLE.
PERFORMANCE OF THE IBC U.S. TREASURY & REPO MONEY FUND AVERAGE IS THAT OF AN
AVERAGE OF FUNDS MANAGED SIMILARLY TO THE FUND.
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 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 Treasury Money Market Portfolio, in which the
fund invests. Prior to joining Morgan in 1988, Skip held senior positions with
the Bank of Montreal and U.S. Steel. This interview was conducted on November
16, 1998 and reflects his views on that date.
WOULD YOU BRIEFLY DESCRIBE MARKET EVENTS THAT OCCURRED FOR THE PERIOD UNDER
REVIEW?
RJ: Throughout most of the past 12 months, the economy grew at a strong pace
while inflation remained low - setting the stage for a possible Federal Reserve
tightening. In fact, during the early part of the period the Fed held a
tightening bias, although it did not do so, largely due to the favorable level
of inflation. In mid-year, considering the fallout from the Asian and Russian
crises and the contagion effect thereof, the Fed moved to an easing mode and
did, in fact, ease twice, bringing the federal funds rate down to 5%. As a
result, the financial markets saw for the first time in many months some
stability. For the money markets, the flight to quality heightened toward the
end of the period, particularly in late August and through September, due to the
precipitous drop in the U.S. equity market at that time, general investor
sentiment and risk aversion, and perhaps most significantly, the anticipation of
a rate cut by the Fed. This rally was significant - and we saw an inverted yield
curve as short-term rates tied to the federal funds rate and LIBOR remained
above longer-term levels.
WHAT WERE THE IMPLICATIONS OF THESE EVENTS FOR THE PORTFOLIO, PARTICULARLY IN
TERMS OF ITS PERFORMANCE?
RJ: The first notable effect of the markets on the fund was a significant
increase in the fund's assets, most dramatically in the third quarter. Investors
moved to safer havens throughout most of this period but more markedly toward
the end of the summer. In addition, we saw a good amount of money come into the
fund from people who qualified for state and local tax exemptions in some of the
higher-tax states. In general, the fund performed very well throughout the
period. This was due to a combination of the general flight to quality in the
financial markets but also because of how the portfolio was structured and
managed throughout the period.
3
<PAGE>
PLEASE EXPLAIN.
RJ: We kept our focus on liquidity management and appropriately structuring the
portfolio throughout the period. For example, we kept a neutral bias while the
Fed was in a tightening mode earlier on. We thought the market was fairly valued
to Fed expectations at the time. This proved to be the right choice. Later on,
we extended our durations when we realized that the Fed would most likely have
to ease to calm financial markets. At the end of the third quarter we were long,
with expectations for further eases.
In addition, throughout the year we maintained a disciplined structure of
laddered investments in order to hedge ourselves against any unforeseen events.
We did this primarily to ensure that we had enough liquidity should there be
redemptions. We're confident this approach substantially contributed to the
fund's competitive performance during the entire period.
Specifically, we had a high degree of repos up until late in the third quarter,
when we increased our non-repo holdings to take advantage of expected further
easings in monetary policy.
WHAT IS YOUR OUTLOOK MOVING FORWARD? HOW WILL YOU POSITION THE PORTFOLIO IN
LIGHT OF THAT OUTLOOK?
RJ: A big factor in our portfolio construction is to have a high degree of
liquidity. We're also going to maintain our longer bias, as we're expecting
further eases in monetary policy. This is largely because we anticipate a
slowdown in the economy, which could lead to another Fed ease, so it makes sense
that our bias would be to have a longer portfolio; the market is fairly priced
for that. The market is now pricing in eases, but not to the extent it did prior
to the September 29th meeting of the Fed. Overall, we believe during the months
ahead the fund will continue to perform competitively, relative to the benchmark
and to our competitors.
4
<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.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Institutional Service Treasury Money Market Fund seeks to provide
high current income consistent with the preservation of capital and same-day
liquidity. 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 INVESTMENT OPERATIONS
7/7/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/98
$471,279,044
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 10/31/98
$705,046,674
- --------------------------------------------------------------------------------
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 expense ratio of 0.37% 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, 1998
DAYS TO MATURITY
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
0-30 DAYS 82.4%
90+ DAYS 17.6%
</TABLE>
AVERAGE 7-DAY YIELD
4.70%*
AVERAGE LIFE
34.5 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 4.56%.
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. 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.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. 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.
7
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Treasury Money Market Portfolio
("Portfolio"), at value $473,330,259
Receivable for Expense Reimbursements 94,568
Deferred Organization Expenses 8,679
Prepaid Expenses and Other Assets 3,971
------------
Total Assets 473,437,477
------------
LIABILITIES
Dividends Payable to Shareholders 1,856,306
Service Organization Fee Payable 104,398
Shareholder Servicing Fee Payable 20,880
Administrative Services Fee Payable 11,777
Administration Fee Payable 1,104
Trustees' Fee Payable 719
Fund Services Fee Payable 411
Accrued Expenses 162,838
------------
Total Liabilities 2,158,433
------------
NET ASSETS
Applicable to 471,283,352 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $471,279,044
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $471,283,352
Accumulated Net Realized Loss on Investment (4,308)
------------
Net Assets $471,279,044
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $19,756,169
Allocated Portfolio Expenses (Net of
Reimbursement of $544,663) (424,627)
-----------
Net Investment Income Allocated from
Portfolio 19,331,542
FUND EXPENSES
Service Organization Fee $ 901,680
Shareholder Servicing Fee 180,336
Registration Fees 144,007
Administrative Services Fee 103,623
Professional Fees and Expenses 17,803
Transfer Agent Fees 13,632
Fund Services Fee 10,469
Administration Fee 7,650
Trustees' Fees and Expenses 5,302
Amortization of Organization Expenses 2,357
Miscellaneous 17,616
----------
Total Fund Expenses 1,404,475
Less: Reimbursement of Expenses (503,809)
----------
NET FUND EXPENSES 900,666
-----------
NET INVESTMENT INCOME 18,430,876
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (4,308)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $18,426,568
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 7, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 18,430,876 $ 449,821
Net Realized Gain (Loss) on Investment Allocated
from Portfolio (4,308) 1,037
---------------- -------------------
Net Increase in Net Assets Resulting from
Operations 18,426,568 450,858
---------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (18,430,876) (449,821)
Net Realized Gain (974) (63)
---------------- -------------------
Total Distributions to Shareholders (18,431,850) (449,884)
---------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
(AT A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 4,249,895,488 69,740,321
Reinvestment of Dividends and Distributions 675,097 54,475
Cost of Shares of Beneficial Interest Redeemed (3,815,268,896) (33,813,133)
---------------- -------------------
Net Increase from Transactions in Shares of
Beneficial Interest 435,301,689 35,981,663
---------------- -------------------
Total Increase in Net Assets 435,296,407 35,982,637
NET ASSETS
Beginning of Period 35,982,637 --
---------------- -------------------
End of Period $ 471,279,044 $ 35,982,637
---------------- -------------------
---------------- -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 7, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
------------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0514 0.0169
Net Realized Gain (Loss) on Investment (0.0000)(a) 0.0000(a)
------------------- -------------------
Total from Investment Operations 0.0514 0.0169
------------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0514) (0.0169)
Net Realized Gain (0.0000)(a) (0.0000)(a)
------------------- -------------------
Total Distributions to Shareholders (0.0514) (0.0169)
------------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
------------------- -------------------
------------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 5.27% 1.71%(b)
Net Assets, End of Period (in thousands) $ 471,279 $ 35,983
Ratios to Average Net Assets
Expenses 0.37% 0.28%(c)
Net Investment Income 5.11% 5.29%(c)
Expenses without reimbursement 0.66% 1.71%(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>
J. P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J. P. Morgan Institutional Service Treasury Money Market Fund (the "fund") is a
separate series of 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 July 7, 1997.
The fund invests all of its investable assets in The Treasury 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 (67% at October
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 $11,741 which
were deferred and are 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. For United States federal
income tax purposes, the fund had a capital loss carryforward at October
31, 1998 of $4,308, which expires in 2006. To the extent that this capital
loss is used to offset future capital gains, it is probable that gains so
offset will not be distributed to shareholders.
12
<PAGE>
J. P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 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 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
fiscal year ended October 31, 1998, the fee for these services amounted to
$7,650.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. 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 invest (the
"master portfolios") and J. P. Morgan 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 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 fiscal year ended October 31, 1998, the fee for
these services amounted to $103,623.
In addition, J.P. 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 the
following respective percentages of average daily net assets of the fund
for the periods indicated below:
<TABLE>
<S> <C>
November 1, 1997-November 30, 1997.......................... 0.30%
December 1, 1997-July 31, 1998.............................. 0.35%
August 1, 1998-November 30, 1998............................ 0.40%
December 1, 1998-February 28, 1999.......................... 0.45%
</TABLE>
13
<PAGE>
J. P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
For the fiscal year ended October 31, 1998, J.P. Morgan has agreed to
reimburse the fund $503,809 for expenses under this agreement. The total
operating expenses for the fund is a blended ratio which is based on
reimbursements in effect for the fiscal year ended October 31, 1998 and
may not necessarily represent the actual amount incurred by the
shareholder. This reimbursement arrangement can be changed or terminated
at any time after February 28, 1999 at the option of J.P. Morgan.
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, 1998, the fee for these
services amounted to $180,336.
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 fiscal
year ended October 31, 1998 the fee for these services amounted to
$901,680.
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
$10,469 for the fiscal year ended October 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 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 $2,200.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Institutional Service Treasury 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
J.P. Morgan Institutional Service Treasury Money Market Fund (one of the series
constituting part of J.P. Morgan Institutional Funds, hereafter referred to as
the "fund") at October 31, 1998, the results of its operations for the year then
ended, and the changes in its net assets and the financial highlights for the
year then ended and for the period July 7, 1997 (commencement of operations)
through October 31, 1997, 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.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1998
15
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE TREASURY MONEY MARKET FUND
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
A Joint Special Meeting of Shareholders of the J.P. Morgan Family of Funds was
held on August 20, 1998. Each of the applicable funds voted in favor of adopting
the following proposals, therefore, the results are aggregated for the trust
unless otherwise specified. The meeting was held for the following purposes:
1. To elect a slate of five trustees to hold office for a term of unlimited
duration subject to the current retirement age of 70.
2a.To approve the amendment of the fund's investment restriction relating to
diversification of assets.
2b.To approve the amendment of the fund's investment restriction relating to
concentration of assets in a particular industry.
2c.To approve the amendment of the fund's investment restriction relating to the
issuance of senior securities.
2d.To standardize the borrowing ability of the fund to the extent permitted by
applicable law.
2e.To approve the amendment of the fund's investment restriction relating to
underwriting.
2f.To approve the amendment of the fund's investment restriction relating to
investment in real estate.
2g.To approve the amendment of the fund's investment restriction relating to
commodities.
2h.To approve the amendment of the fund's investment restriction relating to
lending.
2i.To approve the reclassification of the fund's other fundamental restrictions
as nonfundamental.
3. To approve the reclassification of the fund's investment objective from
fundamental to nonfundamental.
4. To approve a new investment advisory agreement of the fund.
5. To amend the Declaration of Trust to provide dollar-based voting rights.
6. To ratify the selection of independent accountants, PricewaterhouseCoopers
LLP.
The results of the proxy solicitation on the above matters were as follows:
<TABLE>
<CAPTION>
DIRECTORS/MATTER VOTES FOR VOTES AGAINST ABSTENTIONS
- ------------------------------------------------- ------------- ------------- -----------
<S> <C> <C> <C>
1. Frederick S. Addy............................. 2,592,561,591 8,840,251 --
William G. Burns................................ 2,592,561,591 8,840,251 --
Arthur C. Eschenlauer........................... 2,592,561,591 8,840,251 --
Matthew Healey.................................. 2,592,561,591 8,840,251 --
Michael P. Mallardi............................. 2,592,561,591 8,840,251 --
2. Amending of Investment Restrictions:
a. Relating to diversification of assets....... 286,646,379 0 0
b. Relating to concentration of assets......... 286,646,379 0 0
c. Relating to issuance of senior securities... 286,646,379 0 0
d. Relating to borrowing....................... 286,646,379 0 0
e. Relating to underwriting.................... 286,646,379 0 0
f. Relating to investment in real estate....... 286,646,379 0 0
g. Relating to commodities..................... 286,646,379 0 0
h. Relating to lending......................... 286,646,379 0 0
i.Reclassification of other restrictions as
nonfundamental............................. 286,646,379 0 0
3. Reclassification of investment objectives..... N/A N/A N/A
4. Investment advisory agreement................. 286,646,379 0 0
5. Dollar-based voting rights.................... 2,411,567,264 7,638,329 179,591,823
6.Independent accountants,
PricewaterhouseCoopers LLP................... 2,402,592,025 19,567,729 179,242,087
</TABLE>
16
<PAGE>
The Treasury Money Market Portfolio
Annual Report October 31, 1998
(The following pages should be read in conjunction
with J.P. Morgan Institutional Service Treasury Money Market Fund
Annual Financial Statements)
17
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION DATE RATE VALUE
- -------------- ------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
U.S. TREASURY OBLIGATIONS (17.4%)
$ 15,000 U.S. Treasury Notes.............................. 1/31/99 5.875% $ 15,015,151
15,000 U.S. Treasury Notes.............................. 2/28/99 5.875 15,014,293
30,000 U.S. Treasury Notes.............................. 4/30/99 6.375 30,123,283
42,500 U.S. Treasury Notes.............................. 5/31/99 6.250 42,659,852
20,000 U.S. Treasury Notes.............................. 7/31/99 5.875 20,052,397
-------------
TOTAL U.S. TREASURY OBLIGATIONS.............. 122,864,976
-------------
REPURCHASE AGREEMENTS (81.3%)
30,000 Bear Stearns Repurchase Agreement, dated
10/30/98, at 5.400%, proceeds include interest
$30,009,000 (collateralized by $44,257,000 U.S.
Treasury Strips, 7.625% through 7.750%, due
2/15/99 through 2/15/25, valued at
$30,633,062)................................... 11/2/98 5.400 30,000,000
30,000 Chase Repurchase Agreement, dated 10/30/98, at
5.380%, proceeds include interest $30,008,967
(collateralized by $28,224,000 U.S. Treasury
Notes, 5.875% through 6.375%, due 7/31/02
through 9/30/02, valued at $30,601,836)........ 11/2/98 5.380 30,000,000
32,000 Credit Suisse First Boston Repurchase Agreement,
dated 10/30/98, at 5.350%, proceeds include
interest $32,009,511 (collateralized by
$29,598,000 U.S. Treasury Notes, 7.500% through
7.875%, due 8/15/01 through 11/15/01, valued at
$32,949,612)................................... 11/2/98 5.350 32,000,000
160,288 Goldman Sachs Repurchase Agreement, dated
10/30/98, at 5.380%, proceeds include interest
$160,335,908 (collateralized by $154,408,000
U.S. Treasury Notes, 5.500% through 7.875%, due
5/31/99 through 12/31/00, valued at
$160,288,810).................................. 11/2/98 5.380 160,288,000
32,000 Greenwich Capital Repurchase Agreement, dated
10/30/98, at 5.420%, proceeds include interest
$32,009,636 (collateralized by $30,490,000 U.S.
Treasury Notes, 5.625% through 7.750%, due
11/30/99 through 5/15/08, valued at
$32,645,455)................................... 11/2/98 5.420 32,000,000
30,000 HSBC Repurchase Agreement, dated 10/30/98, at
5.420%, proceeds include interest $30,009,033
(collateralized by $21,015,000 U.S. Treasury
Bond, 8.875%, due 2/15/19, valued at
$30,600,760)................................... 11/2/98 5.420 30,000,000
34,000 Lehman Brothers Repurchase Agreement, dated
10/30/98, at 5.420%, proceeds include interest
$34,010,238 (collateralized by $33,820,000 U.S.
Treasury Note, 5.125%, due 8/31/00, valued at
$34,678,167)................................... 11/2/98 5.420 34,000,000
165,000 Merrill Lynch Repurchase Agreement, dated
10/30/98, at 5.350%, proceeds include interest
$165,049,042 (collateralized by $576,797,000
U.S. Treasury Strips, 7.125% through 8.750%,
due 5/15/20 through 2/15/23, valued at
$168,300,036).................................. 11/2/98 5.350 165,000,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION DATE RATE VALUE
- -------------- ------------------------------------------------- --------- --------- -------------
<C> <S> <C> <C> <C>
REPURCHASE AGREEMENTS (CONTINUED)
$ 30,000 State Street Repurchase Agreement, dated
10/30/98, at 5.350%, proceeds include interest
$30,008,917 (collateralized by $26,935,000 U.S.
Treasury Note, 6.500%, due 8/15/05, valued at
$30,604,894)................................... 11/2/98 5.350% $ 30,000,000
30,000 Westdeutshe Landesbank Repurchase Agreement,
dated 10/30/98, at 5.420%, proceeds include
interest $30,009,003(e)........................ 11/2/98 5.420 30,000,000
-------------
TOTAL REPURCHASE AGREEMENTS.................. 573,288,000
-------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (98.7%)................... 696,152,976
OTHER ASSETS IN EXCESS OF LIABILITIES (1.3%)............................ 8,893,698
-------------
NET ASSETS (100.0%)..................................................... $ 705,046,674
-------------
-------------
</TABLE>
- ------------------------------
(e) Collateralized partially by:
FMAC $75,000,000, 6.000% due 3/15/25
U.S. Treasury Bonds $379,000, 7.250% through 12.000%, due 8/15/13 through
11/15/21
U.S. Treasury Notes $3,379,000, 4.500% through 6.250%, due 2/28/99 through
12/31/02
Valued at $77,481,606
Abbreviations used in the Schedule of Investments are as follows:
FMAC-First Home Mortgage Acceptance Corp.
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $122,864,976
Repurchase Agreements at Amortized Cost and Value 573,288,000
Cash 437
Receivable for Investments Sold 5,900,000
Interest Receivable 3,096,810
Receivable for Expense Reimbursement 129,452
Prepaid Expenses and Other Assets 5,357
------------
Total Assets 705,285,032
------------
LIABILITIES
Advisory Fee Payable 124,936
Custody Fee Payable 67,101
Administrative Services Fee Payable 17,739
Administration Fee Payable 1,486
Trustees' Fee Payable 1,316
Fund Services Fee Payable 630
Accrued Expenses 25,150
------------
Total Liabilities 238,358
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $705,046,674
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $29,552,603
EXPENSES
Advisory Fee $1,080,743
Administrative Services Fee 155,752
Custodian Fees and Expenses 126,938
Professional Fees and Expenses 49,488
Fund Services Fee 15,548
Trustees' Fees and Expenses 8,100
Administration Fee 7,258
Amortization of Organization Expenses 1,603
Miscellaneous 9,828
----------
Total Expenses 1,455,258
Less: Reimbursement of Expenses (828,462)
----------
NET EXPENSES 626,796
-----------
NET INVESTMENT INCOME 28,925,807
NET REALIZED LOSS ON INVESTMENTS (11,600)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $28,914,207
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 7, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 28,925,807 $ 1,356,330
Net Realized Gain (Loss) on Investments (11,600) 3,337
---------------- -------------------
Net Increase in Net Assets Resulting from
Operations 28,914,207 1,359,667
---------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 5,803,822,953 154,888,508
Withdrawals (5,244,794,486) (39,144,175)
---------------- -------------------
Net Increase from Investors' Transactions 559,028,467 115,744,333
---------------- -------------------
Total Increase in Net Assets 587,942,674 117,104,000
NET ASSETS
Beginning of Period 117,104,000 --
---------------- -------------------
End of Period $ 705,046,674 $ 117,104,000
---------------- -------------------
---------------- -------------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 7, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- -------------------
<S> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.12% 0.04%(a)
Net Investment Income 5.35% 5.52%(a)
Expenses without reimbursement 0.27% 0.52%(a)
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Treasury Money Market Portfolio (the "portfolio") is one of two subtrusts
("portfolios") comprising Series Portfolio II. Series Portfolio II 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 January 9, 1997. The portfolio commenced operations on
July 7, 1997. The portfolio's investment objective is to provide high current
income consistent with the preservation of capital and same-day liquidity. 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 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 $14,000
which were deferred and are amortized on a straight-line basis over a
period not to exceed five years beginning with the commencement of
operations of the portfolio.
23
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 1, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
Under the terms of the agreement, the portfolio paid 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. Effective October 1, 1998 the
portfolio's investment advisor is J.P. Morgan Investment Management Inc.,
("JPMIM"), an affiliate of Morgan and a wholly owned subsidiary of J.P.
Morgan, and the terms of the agreement have remained the same. For the
fiscal year ended October 31, 1998, such fees amounted to $1,080,743.
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, 1998, the fee
for these services amounted to $7,258.
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 JPMIM acts as investment
advisor (the "master portfolios") and J.P. Morgan 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 fiscal year ended October 31, 1998, the fee
for these services amounted to $155,752.
In addition, J.P. Morgan has agreed to reimburse the portfolio to the
extent necessary to maintain the total operating expenses of the portfolio
at no more than the following respective percentages of average daily net
assets of the portfolio for the periods indicated below:
<TABLE>
<S> <C>
November 1, 1997-November 30, 1997......................... 0.05%
December 1, 1997-July 31, 1998............................. 0.10%
August 1, 1998-November 30, 1998........................... 0.15%
December 1, 1998-February 28, 1999......................... 0.20%
</TABLE>
For the fiscal year ended October 31, 1998, J.P. Morgan has agreed to
reimburse the portfolio $828,462 for expenses under this agreement. The
total operating expenses for the portfolio is a blended ratio
24
<PAGE>
THE TREASURY MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
which is based on reimbursements in effect for the fiscal year ended
October 31, 1998 and may not necessarily represent the actual amount
incurred by an interest holder. This reimbursement arrangement can be
changed or terminated at any time after February 28, 1999 at the option of
J.P. Morgan.
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 $15,548 for the fiscal year ended October 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, the J.P. Morgan
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 $3,300.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Treasury 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 Treasury Money Market Portfolio (the
"portfolio") at October 31, 1998, the results of its operations for the year
then ended, and the changes in its net assets and the supplementary data for the
year then ended and for the period July 7, 1997 (commencement of operations)
through October 31, 1997, 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, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1998
26
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FUNDS
PRIME MONEY MARKET FUND
TREASURY MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT 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 TREASURY
MONEY MARKET FUND
ANNUAL REPORT
OCTOBER 31, 1998
