<PAGE>
LETTER TO THE SHAREHOLDERS OF J.P. MORGAN INSTITUTIONAL SERVICE
PRIME MONEY MARKET FUND
January 4, 1999
Dear Shareholder:
We are pleased to report that J.P. Morgan Institutional Service Prime Money
Market Fund produced a total return of 5.35% for the fiscal year ended November
30, 1998, outperforming the 4.93% return of its benchmark, the IBC First Tier
Money Fund Average. In a changing interest rate environment, active management
of the portfolio's average maturity, its security selection, and careful
liquidity management 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 $0.05 per share in dividends from ordinary income. The fund's
total net assets were approximately $470.9 million, while the net assets of The
Prime Money Market Portfolio, in which the fund invests, totaled approximately
$7.8 billion on November 30, 1998, 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
<TABLE>
<CAPTION>
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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 NOVEMBER 30, 1998 MONTHS MONTHS YEAR YEARS* YEARS* YEARS*
- ---------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan Inst. Service Prime
Money Market Fund 1.27% 2.60% 5.35% 5.34% 5.09% 5.55%
IBC First Tier Money Fund Average** 1.16% 2.39% 4.93% 4.95% 4.77% 5.27%
Lipper Institutional Money Fund Average 1.27% 2.61% 5.34% 5.29% 5.11% 5.60%
AS OF SEPTEMBER 30, 1998
- ---------------------------------------------------------------- -------------------------------------------
J.P. Morgan Inst. Service Prime
Money Market Fund 1.32% 2.65% 5.41% 5.37% 5.01% 5.60%
IBC First Tier Money Fund Average** 1.21% 2.44% 5.00% 4.98% 4.70% 5.32%
Lipper Institutional Money Fund Average 1.33% 2.66% 5.40% 5.32% 5.03% 5.65%
</TABLE>
10/23/97 -- COMMENCEMENT OF OPERATIONS (ACTUAL AVERAGE ANNUAL RETURN SINCE
INCEPTION IS 5.38%).
*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, Skip held senior positions
with the Bank of Montreal and U.S. Steel. This interview was conducted on
December 15, 1998 and reflects his views on that date.
WOULD YOU BRIEFLY HIGHLIGHT THE EVENTS OF THE LAST 12 MONTHS, PERTAINING
SPECIFICALLY TO THE SHORT-TERM FIXED INCOME MARKETS?
RRJ: I believe many people would agree the past 12 months have been eventful
for the markets in general, to say the least. Earlier in the period, we had a
Federal Reserve more concerned about inflation than economic growth, which
remained firm in the early part of the year. It appeared, though, that the
global environment was of concern to the Fed - and with good reason. The
Asian crisis, Russia's solvency problems and then Japan's banking and
currency issues were severe enough to warrant intervention by the Fed and the
Bank of Japan to support the Yen. Against this backdrop, the Fed felt it
necessary to ease rates - three times, to be exact - between September 29th
and November 17th. Other policymakers around the world lent their support of
this move, such as the Bank of England, which also made a 50 basis point rate
cut. This momentum helped restore relative calm to the financial markets.
Later in the year, however, economic growth slowed a bit. We end the period
under review with the lowest level in commodity prices in two decades. And
corporate earnings concerns in the U.S. have repeatedly swayed the Dow Jones
Industrial Average over the period, among other factors, of course. We believe
the debate in the months ahead will be in terms of how much more slowing we'll
see here in the U.S. in economic growth.
In general, the volatility in U.S. equities benefited U.S. bonds and the money
markets over the period, as we experienced a flight to quality that sent
investors to safer havens throughout most of the period - namely, to Treasuries.
We had a flat to inverted yield curve most of the year.
PLEASE TELL US ABOUT THE PORTFOLIO AND HOW YOU'VE POSITIONED IT THROUGHOUT THE
PERIOD.
RRJ: First, it's important to mention the fund's assets nearly doubled over
the period. In terms of positioning, in response to the yield curve we saw
this year, we increased our holdings of floating rate notes and of asset
backed commercial paper. While we maintained an average maturity near the
high end of the portfolio's range, we were sensitive to maintaining liquidity
to take advantage of quarter-end and year-end pressures. We kept a laddered
portfolio throughout most of the year.
3
<PAGE>
THE PORTFOLIO PERFORMED WELL IN RELATION TO ITS PEERS AND TO THE BENCHMARK.
TO WHAT FACTORS DO YOU ATTRIBUTE THESE FAVORABLE RESULTS?
RRJ: We believe the fact that we kept the portfolio laddered contributed to
good performance. This strategy allowed a smaller amount of overnight
securities to be repriced at lower rates brought about by the Fed's easing,
particularly the second time.
HOW WILL YOU POSITION THE PORTFOLIO IN THE MONTHS AHEAD?
RRJ: We'll continue our current strategy of holding floating rate notes and
asset backed paper. We also expect the Fed to be, for the most part, on hold
for the next few months, so we'll stay near the top of the range in our
average maturity.
HOW DOES THIS STRATEGY RELATE TO YOUR OUTLOOK FOR THE NEXT YEAR?
RRJ: Going forward, we're anticipating not much inflation - not unlike what
we had during the period under review. Therefore, we'd like to be in a
position to again take advantage of any future quarter-end pressures.
Liquidity will remain a key priority. As for our holdings, we still believe
that asset backed securities offer us a liquid, well-structured, high quality
security that fits in with our objectives 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 INVESTMENT OPERATIONS
10/23/97
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 11/30/98
$470,863,407
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 11/30/98
$7,780,223,906
- --------------------------------------------------------------------------------
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 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 NOVEMBER 30, 1998
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
FLOATING RATE NOTES 45.5%
COMMERCIAL PAPER - DOMESTIC 32.3%
CERTIFICATE OF DEPOSIT - FOREIGN 12.0%
COMMERCIAL PAPER - FOREIGN 4.2%
CERTIFICATE OF DEPOSIT - DOMESTIC 2.5%
TIME DEPOSITS 1.6%
TAXABLE MUNICIPALS 1.2%
CORPORATE BONDS 0.7%
</TABLE>
AVERAGE 7-DAY CURRENT YIELD
4.88%*
AVERAGE MATURITY
56.8 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 4.43%.
5
<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 CAN
BE 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.
6
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Prime Money Market Portfolio
("Portfolio"), at value $3,464,283,100
Receivable for Expense Reimbursements 1,252,460
Prepaid Trustees' Fees 3,829
Prepaid Expenses and Other Assets 21,333
--------------
Total Assets 3,465,560,722
--------------
LIABILITIES
Dividends Payable to Shareholders 5,847,322
Registration Fee Payable 657,922
Shareholder Servicing Fee Payable 280,161
Administrative Services Fee Payable 77,974
Administration Fee Payable 9,681
Fund Services Fee Payable 2,723
Accrued Expenses 51,106
--------------
Total Liabilities 6,926,889
--------------
NET ASSETS
Applicable to 3,458,885,731 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $3,458,633,833
--------------
--------------
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $3,458,895,799
Accumulated Distribution in Excess of Realized
Gain (208,780)
Accumulated Net Realized Loss on Investment (53,186)
--------------
$3,458,633,833
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $136,626,759
Allocated Portfolio Expenses (4,039,525)
------------
Net Investment Income Allocated from
Portfolio 132,587,234
FUND EXPENSES
Shareholder Servicing Fee $ 1,682,644
Registration Fees 711,207
Administrative Services Fee 696,768
Fund Services Fee 65,619
Professional Fees 55,083
Administration Fee 51,507
Trustees' Fees and Expenses 24,394
Transfer Agent Fees 15,896
Amortization of Organization Expenses 6,323
Miscellaneous 56,965
-----------
Total Fund Expenses 3,366,406
Less: Reimbursement of Expenses (2,571,638)
-----------
NET FUND EXPENSES 794,768
------------
NET INVESTMENT INCOME 131,792,466
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (18,981)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $131,773,485
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 131,792,466 $ 67,847,560
Net Realized Loss on Investment Allocated from
Portfolio (18,981) (34,205)
----------------- -----------------
Net Increase in Net Assets Resulting from
Operations 131,773,485 67,813,355
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (131,715,350) (67,847,560)
Net Realized Gain -- (371,699)
----------------- -----------------
Total Distributions to Shareholders (131,715,350) (68,219,259)
----------------- -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT A CONSTANT $1.00
PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 25,120,215,964 6,802,404,676
Reinvestment of Dividends and Distributions 76,006,341 46,622,108
Cost of Shares of Beneficial Interest Redeemed (23,125,438,778) (6,681,230,111)
----------------- -----------------
Net Increase from Transactions in Shares of
Beneficial Interest 2,070,783,527 167,796,673
----------------- -----------------
Total Increase in Net Assets 2,070,841,662 167,390,769
NET ASSETS
Beginning of Fiscal Year 1,387,792,171 1,220,401,402
----------------- -----------------
End of Fiscal Year $ 3,458,633,833 $ 1,387,792,171
----------------- -----------------
----------------- -----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each year are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED NOVEMBER 30,
----------------------------------------------------------
1998 1997 1996 1995 1994
---------- ---------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0547 0.0543 0.0529 0.0577 0.0385
Net Realized Gain (Loss) on Investment (0.0000)(a) (0.0000)(a) 0.0001 0.0003 (0.0000)(a)
---------- ---------- ---------- -------- --------
Total from Investment Operations 0.0547 0.0543 0.0530 0.0580 0.0385
---------- ---------- ---------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0547) (0.0543) (0.0529) (0.0577) (0.0385)
Net Realized Gain -- (0.0003) (0.0003) -- --
---------- ---------- ---------- -------- --------
Total Distributions to Shareholders (0.0547) (0.0546) (0.0532) (0.0577) (0.0385)
---------- ---------- ---------- -------- --------
NET ASSET VALUE, END OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------- ---------- ---------- -------- --------
---------- ---------- ---------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Total Return 5.61% 5.59% 5.46% 5.93% 3.92%
Net Assets, End of Period (in thousands) $3,458,634 $1,387,792 $1,220,401 $999,746 $584,867
Ratios to Average Net Assets
Net Expenses 0.20% 0.20% 0.20% 0.20% 0.21%
Net Investment Income 5.45% 5.42% 5.28% 5.77% 4.42%
Expenses without reimbursement 0.31% 0.29% 0.31% 0.35% 0.52%
</TABLE>
- ------------------------
(a) Less than $0.0001.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Institutional Prime 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 12, 1993.
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 (44% at
November 30, 1998). The performance of the fund is directly affected by the
performance of the portfolio. The financial statements of the portfolio,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized gain and
loss and adjusts its investment in the portfolio each day. All the net
investment income and realized gain and loss of the portfolio is allocated
pro rata among the fund and other investors in the portfolio at the time
of such determination.
c) Substantially all the fund's net investment income and net realized
capital gains, if any, are declared as dividends daily and paid monthly.
Net short-term capital gains, if any, will be distributed in accordance
with the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), and may be reflected in the fund's daily dividends.
Substantially all the realized net long-term capital gains, if any, 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 $51,045, 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 November
30, 1998 of $53,186, of which $34,205 expires in the year 2005 and $18,981
expires in the year 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 PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 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
fiscal year ended November 30, 1998, the fee for these services amounted
to $51,507.
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 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 fiscal year ended November 30, 1998, the fee for these services
amounted to $696,768.
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
0.20% of the average daily net assets of the fund. For the fiscal year
ended November 30, 1998, J.P. Morgan has agreed to reimburse the fund
$2,571,638 for expenses under this agreement. This reimbursement
arrangement can be changed or termininated at any time after March 31,
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.This rate was 0.05% of the average daily
net assets of the fund from December 1, 1997 through July 31, 1998.
Effective August 1, 1998 the rate was increased to 0.10%. For the fiscal
year ended November 30, 1998, the fee for these services amounted to
$1,682,644.
13
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
d) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$65,619 for the fiscal year ended November 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, 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 $13,800.
3. CONCENTRATION IN SHARES OF BENEFICIAL INTEREST
From time to time, the fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the fund and the portfolio.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Institutional Prime 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 Prime Money Market Fund (one of the series
constituting part of the J.P. Morgan Institutional Funds, hereafter referred to
as the "fund") at November 30, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, 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
January 19, 1999
15
<PAGE>
J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
SUPPLEMENTAL PROXY INFORMATION (UNAUDITED)
- --------------------------------------------------------------------------------
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....... 1,001,365,158 37,478,178 120,867,833
b. Relating to concentration of assets......... 1,000,652,522 38,191,008 120,867,639
c. Relating to issuance of senior securities... 1,001,365,158 37,478,178 120,867,833
d. Relating to borrowing....................... 1,001,244,590 37,598,746 120,867,833
e. Relating to underwriting.................... 1,001,365,158 37,478,178 120,867,833
f. Relating to investment in real estate....... 1,000,652,329 38,191,008 120,867,832
g. Relating to commodities.................... 1,001,365,158 37,478,178 120,867,833
h. Relating to lending......................... 1,001,244,590 37,598,746 120,867,833
i.Reclassification of other restrictions as
nonfundamental............................. 1,000,653,683 38,189,654 120,867,832
3. Reclassification of investment objectives..... 1,007,476,198 31,369,103 120,865,869
4. Investment advisory agreement................. 1,032,019,907 31,369,103 120,865,869
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 Prime Money Market Portfolio
Annual Report November 30, 1998
(The following pages should be read in conjunction
with J.P. Morgan Institutional Prime Money Market Fund
Annual Financial Statements)
17
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT YIELD TO
(IN MATURITY/
THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------- ------------------------------------------------------------ ----------------- ----------- --------------
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- DOMESTIC (2.5%)
$150,000 Dresdner Bank............................................... 11/09/99 4.950% $ 149,945,586
45,000 Nationsbank Corp............................................ 12/22/98-12/28/98 5.830 44,998,102
--------------
TOTAL CERTIFICATES OF DEPOSIT -- DOMESTIC................... 194,943,688
--------------
CERTIFICATES OF DEPOSIT -- FOREIGN (12.0%)
150,000 Abbey National PLC.......................................... 06/11/99-07/27/99 5.650-5.720 149,948,475
14,000 Bank of New York............................................ 03/26/99 5.640 13,997,463
60,000 Bank of Nova Scotia......................................... 06/07/99 5.142 59,975,719
207,500 Bayerische Landesbank....................................... 02/02/99-07/22/99 5.600-5.720 207,448,771
100,000 Canadian Imperial Bank...................................... 04/01/99 5.750 99,980,955
25,000 Commerzbank................................................. 03/05/99 5.670 24,996,915
150,000 Credit Suisse First Boston.................................. 07/20/99 5.710 150,000,000
165,000 Deutsche Bank............................................... 03/04/99 5.730 164,976,276
34,400 Rabobank Nederland.......................................... 02/03/99 5.620 34,399,598
25,000 Westpac Banking Corp........................................ 03/04/99 5.680 24,997,558
--------------
TOTAL CERTIFICATES OF DEPOSIT -- FOREIGN.................... 930,721,730
--------------
COMMERCIAL PAPER -- DOMESTIC (32.1%)
150,000 ABB Treasury Centre......................................... 12/14/98-02/18/99 5.040-5.340 148,797,583
206,506 Alpine Securitization Corp.................................. 12/01/98-12/03/98 5.220-5.350 206,472,303
99,000 Aspen Funding Corp.......................................... 12/07/98-12/18/98 5.350 98,805,468
75,000 Associates Corp. of North America........................... 12/09/98-02/17/99 5.030-5.410 74,667,431
166,000 Bank Brussels Lambert....................................... 12/04/98-12/21/98 5.200-5.300 165,611,328
369,955 Bavaria Trust............................................... 12/01/98-03/02/99 5.220-5.570 366,256,149
125,000 CXC Inc..................................................... 12/08/98-02/24/99 5.220-5.270 123,739,764
325,000 Citibank Capital Market..................................... 02/17/99-03/10/99 5.200-5.350 320,685,792
213,500 General Electric Capital Corp............................... 12/16/98 5.410 213,018,735
15,000 Monsanto Co................................................. 04/15/99-04/20/99 4.950 14,718,125
200,000 Newport Funding Corp........................................ 03/15/99 5.300 196,937,778
39,500 Receivable Capital Corp..................................... 02/05/99 5.310 39,115,467
225,000 Trident Capital Finance..................................... 02/11/99-02/24/99 5.150-5.250 222,315,729
309,297 Windmill Funding Corp....................................... 12/02/98-03/10/99 5.240-5.450 305,966,085
--------------
TOTAL COMMERCIAL PAPER -- DOMESTIC.......................... 2,497,107,737
--------------
COMMERCIAL PAPER -- FOREIGN (4.2%)
125,000 Cregem North America Inc.................................... 12/15/98-12/29/98 5.150-5.340 124,692,195
54,000 Generale Bank............................................... 12/16/98 5.340 53,879,850
50,000 Royal Bank of Scotland PLC.................................. 12/09/98 5.180 49,942,444
100,000 Union Bank of Switzerland................................... 04/19/99 4.951 98,088,364
--------------
TOTAL COMMERCIAL PAPER --FOREIGN............................ 326,602,853
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT YIELD TO
(IN MATURITY/
THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------- ------------------------------------------------------------ ----------------- ----------- --------------
<C> <S> <C> <C> <C>
CORPORATE BONDS (0.6%)
$50,000 IBM Credit Corp............................................. 08/10/99 5.625% $ 49,967,896
--------------
FLOATING RATE NOTES (45.3%)(v)
38,000 American Express Centurion Bank, (resets monthly to one
month LIBOR -6 basis points, due 05/07/99)................. 12/07/98 (a) 5.222 38,000,000
50,000 American Express Centurion Bank, (resets monthly to one
month LIBOR -6 basis points, due 05/10/99)................. 12/10/98 (a) 5.190 50,000,000
50,000 American Express Centurion Bank, (resets monthly to one
month LIBOR -6 basis points, due 06/18/99)................. 12/18/98 (a) 5.216 50,000,000
50,000 ABSIT Series 97-E N, (resets monthly to one month LIBOR due
08/15/99) (144A)........................................... 12/15/98 (a) 5.273 50,000,000
100,000 BankBoston Corp., (resets daily to Fed Funds rate +5 basis
points, due 04/08/99)...................................... 12/01/98 (a) 4.890 99,982,886
27,500 Bankers Trust, (resets daily to Prime rate -293 basis
points, due 05/14/99)...................................... 12/01/98 (a) 4.820 27,491,726
235,000 Barclays Bank PLC, (resets monthly to one month LIBOR -14
basis points, due 06/04/99)................................ 12/04/98 (a) 5.135 234,906,142
75,000 Barclays Bank PLC, (resets daily to Prime rate (296 basis
points, due 08/24/99))..................................... 12/01/98 (a) 4.790 74,961,740
51,000 CIT Group Inc., (resets daily to Prime rate -280 basis
points, due 10/22/99)...................................... 12/01/98 (a) 4.950 51,004,378
25,000 CIT Group Inc., (resets daily to Prime rate -282 basis
points, due 11/02/99)...................................... 12/01/98 (a) 5.180 24,990,652
100,000 Corestates Bank, (resets monthly to one month LIBOR -5.5
basis points, due 05/07/99)................................ 12/07/98 (a) 5.202 100,000,000
15,000 Corestates Bank, (resets monthly to one month LIBOR -5.5
basis points, due 05/14/99)................................ 12/14/98 (a) 5.005 15,000,000
50,000 Corestates Bank, (resets monthly to one month LIBOR -5.5
basis points, due 04/20/99)................................ 12/21/98 (a) 5.005 50,000,000
50,000 Corestates Bank, (resets monthly to one month LIBOR -5.5
basis points, due 04/21/99)................................ 12/21/98 (a) 5.005 50,000,000
16,000 Ford Motor Credit, (resets daily to Fed Funds rate +45 basis
points, due 04/19/99)...................................... 12/01/98 (a) 5.290 16,020,202
91,000 General Electric Capital Corp., (resets daily to Prime rate
(289 basis points, due 05/04/99)).......................... 12/01/98 (a) 4.860 91,000,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT YIELD TO
(IN MATURITY/
THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------- ------------------------------------------------------------ ----------------- ----------- --------------
<C> <S> <C> <C> <C>
FLOATING RATE NOTES (continued)
$43,000 Household Finance Corp., (resets quarterly to three month
LIBOR -12 basis points, due 03/30/99)...................... 12/30/98 (a) 5.192% $ 42,989,829
100,000 IBM Corp., (resets quarterly to three month LIBOR -3.5 basis
points, due 10/22/99)...................................... 01/22/99 (a) 5.153 99,951,829
200,000 Key Bank, (resets daily to Prime rate -295 basis points, due
02/24/99).................................................. 12/01/98 (a) 4.800 199,968,329
65,000 Key Bank, (resets daily to Fed funds +4.5 basis points, due
04/16/99).................................................. 12/01/98 (a) 4.800 64,984,197
48,000 Key Bank, (resets daily to Prime rate -291.5 basis points,
due 02/24/99).............................................. 12/01/98 (a) 4.835 47,991,118
25,000 Key Bank, (resets daily to Prime rate -287 basis points, due
10/13/99).................................................. 12/01/98 (a) 4.880 24,997,218
225,000 LINCS, Series 98-4 Class 1, (resets monthly to one month
LIBOR, due 02/18/99) (144A)................................ 12/18/98 (a) 5.060 224,994,229
225,000 LINCS, Series 98-3, (resets monthly to one month LIBOR, due
01/29/99).................................................. 12/29/98 (a) 5.276 225,000,000
200,000 PNC Bank, N.A., (resets daily to Prime rate -290 basis
points, due 01/19/99)...................................... 12/01/98 (a) 4.850 199,993,342
150,000 Pepsico Inc., (resets quarterly to three month LIBOR (19
basis points, due 08/19/99))............................... 02/19/99 (a) 5.209 149,878,967
200,000 RACERS 98-MM-8-5, (resets monthly to one month LIBOR -1
basis point, due 09/02/99) (144A).......................... 12/02/98 (a) 5.240 200,000,000
220,000 RACERS 98-MM-7-1, (resets monthly to one month LIBOR -1
basis point, due 08/13/99) (144A).......................... 12/17/98 (a) 5.263 220,000,000
245,000 Societe Generale, (resets monthly to one month LIBOR - 8.5
basis points, due 05/26/99)................................ 12/28/98 (a) 4.949 244,918,521
175,000 SPARCS Series 98-5, (resets quarterly to 3 month LIBOR +22
basis points, due 05/24/99)................................ 02/24/99 (a) 5.470 174,974,765
97,480 STEERS Series 97-A-34, (resets monthly to one month LIBOR +3
basis points, due 11/15/99)................................ 12/15/98 (a) 5.347 97,479,763
153,053 STEERS Series 97-A-36, (resets monthly to one month LIBOR +3
basis points, due 11/15/99)................................ 12/15/98 (a) 5.347 153,053,435
28,000 STEERS Series 98-A-40 (resets monthly to one month LIBOR,
due 01/15/99).............................................. 12/15/98 (a) 5.347 28,000,000
100,000 Toyota Motor Credit Corp., (resets quarterly to three month
LIBOR + 4 basis points, due 10/22/99)...................... 01/22/99 (a) 5.240 100,000,000
--------------
TOTAL FLOATING RATE NOTES................................... 3,522,533,268
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT YIELD TO
(IN MATURITY/
THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------- ------------------------------------------------------------ ----------------- ----------- --------------
<C> <S> <C> <C> <C>
TAXABLE MUNICIPALS (1.2%)(v)
$43,690 Jacksonville Health Facility Hospital, (resets weekly, due
08/15/19).................................................. 12/02/98 (a) 5.100% $ 43,690,000
41,145 Sacramento County, (resets quarterly to three month LIBOR,
due 08/15/14).............................................. 02/15/99 (a) 5.450 41,142,062
6,200 Wake Forest University, (resets weekly, due 07/01/17), LOC
Wachovia Bank.............................................. 12/02/98 (a) 5.260 6,200,000
--------------
TOTAL TAXABLE MUNICIPALS.................................... 91,032,062
--------------
TIME DEPOSITS -- DOMESTIC (1.6%)
124,931 Suntrust Bank Cayman........................................ 12/01/98 4.875 124,931,000
--------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (99.5%)......................................... 7,737,840,234
OTHER ASSETS IN EXCESS OF LIABILITIES (0.5%).................................................. 42,383,672
--------------
NET ASSETS (100.0%)........................................................................... $7,780,223,906
--------------
--------------
</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
LIBOR -- London Interbank Offered Rate.
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $7,737,840,234
Cash 19,472
Interest Receivable 43,479,692
Prepaid Trustees' Fees 5,898
Prepaid Expenses and Other Assets 46,829
--------------
Total Assets 7,781,392,125
--------------
LIABILITIES
Advisory Fee Payable 715,332
Custody Fee Payable 209,379
Administrative Services Fee Payable 175,676
Administration Fee Payable 8,420
Fund Services Fee Payable 6,754
Accrued Expenses 52,658
--------------
Total Liabilities 1,168,219
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $7,780,223,906
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $350,050,856
EXPENSES
Advisory Fee $7,199,733
Administrative Services Fee 1,788,454
Custodian Fees and Expenses 825,693
Fund Services Fee 173,032
Professional Fees and Expenses 137,361
Administration Fee 115,137
Trustees' Fees and Expenses 74,479
Miscellaneous 37,576
----------
Total Expenses 10,351,465
------------
NET INVESTMENT INCOME 339,699,391
NET REALIZED LOSS ON INVESTMENTS (55,967)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $339,643,424
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1998 NOVEMBER 30, 1997
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 339,699,391 $ 220,786,337
Net Realized Loss on Investments (55,967) (105,748)
----------------- -----------------
Net Increase in Net Assets Resulting from
Operations 339,643,424 220,680,589
----------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 48,705,487,837 22,011,079,297
Withdrawals (45,584,553,162) (21,760,363,996)
----------------- -----------------
Net Increase from Investors' Transactions 3,120,934,675 250,715,301
----------------- -----------------
Total Increase in Net Assets 3,460,578,099 471,395,890
NET ASSETS
Beginning of Fiscal Year 4,319,645,807 3,848,249,917
----------------- -----------------
End of Fiscal Year $ 7,780,223,906 $ 4,319,645,807
----------------- -----------------
----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
NOVEMBER 30,
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.17% 0.18% 0.19% 0.19% 0.20%
Net Investment Income 5.48% 5.43% 5.29% 5.77% 3.90%
Expenses without reimbursement 0.17% 0.18% 0.19% 0.19% 0.20%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 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 while maintaining 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 or designated subcustodians, as the case may be
under the 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.
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
25
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
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 November 30, 1998, such fees amounted
to $7,199,733.
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 November 30, 1998, the fee
for these services amounted to $115,137.
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 November 30, 1998, the fee
for these services amounted to $1,788,454.
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 $173,032 for the fiscal year ended November 30, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, 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 $36,300.
26
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The Prime 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 Prime Money Market Portfolio (the
"portfolio") at November 30, 1998, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the five years in the
period then ended, 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
November 30, 1998 by correspondence with the custodian, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
January 19, 1999
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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
ANNUAL REPORT
NOVEMBER 30, 1998
ISPMMFR-9811
