<PAGE>
LETTER TO THE SHAREHOLDERS OF J.P. MORGAN INSTITUTIONAL PRIME MONEY MARKET FUND
January 4, 1999
Dear Shareholder:
We are pleased to report that J.P. Morgan Institutional Prime Money Market Fund
produced a total return of 5.61% 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.
As seen in the accompanying table, the fund also produced competitive returns
over the long term, outperforming its benchmark for the three, five, and
ten-year periods ended November 30, 1998.
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 $3.5 billion, 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>
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 Institutional Prime
Money Market Fund 1.33% 2.73% 5.61% 5.55% 5.30% 5.66%
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 Institutional Prime
Money Market Fund 1.38% 2.77% 5.67% 5.58% 5.22% 5.71%
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>
7/12/93 -- COMMENCEMENT OF OPERATIONS (ACTUAL AVERAGE ANNUAL RETURN SINCE
INCEPTION IS 5.22%).
*CONSISTENT WITH APPLICABLE REGULATORY GUIDANCE, PERFORMANCE FOR THE PERIOD
PRIOR TO 7/12/93, J.P. MORGAN INSTITUTIONAL 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 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. MorganInstitutional 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
7/12/93
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 11/30/98
$3,458,633,833
- --------------------------------------------------------------------------------
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 0.20% covers shareholders' expenses for
custody, tax reporting, investment advisory, and shareholder services, after
reimbursement. The fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping fund shares or for wiring redemption proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF 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
5.12%*
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 4.92%.
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>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE 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 $472,574,886
Receivable for Expense Reimbursements 162,387
Deferred Organization Expenses 8,567
Prepaid Trustees' Fees 424
Prepaid Expenses and Other Assets 2,798
------------
Total Assets 472,749,062
------------
LIABILITIES
Dividends Payable to Shareholders 1,581,321
Registration Fee Payable 136,593
Service Organization Fee Payable 99,940
Shareholder Servicing Fee Payable 19,988
Administrative Services Fee Payable 10,996
Organization Expenses Payable 10,750
Administration Fee Payable 2,458
Fund Services Fee Payable 477
Accrued Expenses 23,132
------------
Total Liabilities 1,885,655
------------
NET ASSETS
Applicable to 470,868,791 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $470,863,407
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $470,866,357
Accumulated Net Realized Loss on Investment (5,281)
Accumulated Undistributed Net Investment Income 2,331
------------
Net Assets $470,863,407
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $18,441,811
Allocated Portfolio Expenses (545,447)
-----------
Net Investment Income Allocated from
Portfolio 17,896,364
FUND EXPENSES
Service Organization Fee $ 820,398
Shareholder Servicing Fee 164,079
Registration Fees 158,070
Administrative Services Fee 93,367
Professional Fees 16,176
Printing Expenses 16,107
Transfer Agent Fees 15,950
Fund Services Fee 8,475
Administration Fee 6,691
Trustees' Fees and Expenses 2,597
Amortization of Organization Expenses 2,199
Miscellaneous 2,731
----------
Total Fund Expenses 1,306,840
Less: Reimbursement of Expenses (375,568)
----------
NET FUND EXPENSES 931,272
-----------
NET INVESTMENT INCOME 16,965,092
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (5,275)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $16,959,817
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
NOVEMBER 30, 1998 NOVEMBER 30, 1997
----------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 16,965,092 $ 6,288
Net Realized Loss on Investment Allocated from
Portfolio (5,275) (6)
----------------- -------------------
Net Increase in Net Assets Resulting from
Operations 16,959,817 6,282
----------------- -------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (16,965,092) (6,288)
Net Realized Gain (103) --
----------------- -------------------
Total Distributions to Shareholders (16,965,195) (6,288)
----------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT A CONSTANT $1.00
PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 2,428,915,670 3,952,259
Reinvestment of Dividends and Distributions 1,769,059 --
Cost of Shares of Beneficial Interest Redeemed (1,960,200,334) (3,567,863)
----------------- -------------------
Net Increase from Transactions in Shares of
Beneficial Interest 470,484,395 384,396
----------------- -------------------
Total Increase in Net Assets 470,479,017 384,390
NET ASSETS
Beginning of Period 384,390 --
----------------- -------------------
End of Period $ 470,863,407 $ 384,390
----------------- -------------------
----------------- -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
OCTOBER 23, 1997
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
NOVEMBER 30, 1998 NOVEMBER 30, 1997
----------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00
----------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0523 0.0057
Net Realized Loss on Investment (0.0000)(a) (0.0000)(a)
----------------- -------------------
Total from Investment Operations 0.0523 0.0057
----------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0523) (0.0057)
Net Realized Gain (0.0000)(a) --
----------------- -------------------
Total Distributions to Shareholders (0.0523) (0.0057)
----------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00
----------------- -------------------
----------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 5.35% 0.57%(b)
Net Assets, End of Period (in thousands) $ 470,863 $ 384
Ratios to Average Net Assets
Net Expenses 0.45% 0.45%(c)
Net Investment Income 5.17% 5.28%(c)
Expenses without reimbursement 0.56% 35.55%(c)(d)
</TABLE>
- ------------------------
(a) Less than $0.0001.
(b) Not Annualized.
(c) Annualized.
(d) Not representative of ongoing reimbursement ratio since period covers less
than two months.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Institutional Service Prime Money Market Fund (the "fund") is a
separate series of the J.P. Morgan Institutional Funds, a Massachusetts business
trust (the "trust") which was organized on November 4, 1992. The trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The fund commenced operations on October 23,
1997.
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 (6% 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 $11,000. Morgan
Guaranty Trust Company of New York ("Morgan"), a wholly owned subsidiary
of J.P. Morgan & Co. Incorporated ("J.P. Morgan"), has paid the
organization expenses of the fund. The fund has agreed to reimburse Morgan
for these costs which are being deferred and will be amortized on a
straight-line basis over a period not to exceed five years beginning with
the commencement of operations of the fund.
e) The fund is treated as a separate entity for federal income tax purposes
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 $5,281,
12
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
of which $6 expires in the year 2005 and $5,275 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.
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.
g) The fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investments Companies." The effect of applying
this statement was to decrease Paid-in Capital by $2,434, decrease
Accumulated Net Realized Loss on Investment by $103 and increase
Undistributed Net Investment Income by $2,331. Net investment income, net
realized gains and net assets were not affected by this change.
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 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 $6,691.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan, under which Morgan is responsible
for certain aspects of the administration and operation of the fund. Under
the Services Agreement, the fund has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and the other portfolios in which the trust and the J.P. Morgan
Funds 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 November 30, 1998, the fee
for these services amounted to $93,367.
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
0.45% of the average daily net assets of the fund. For the fiscal year
ended November 30,
13
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------
1998, J.P. Morgan has agreed to reimburse the fund $375,568 for expenses
under this agreement. This reimbursement arrangement can be changed or
terminated 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 of 0.05% of the average daily net assets of
the fund. For the fiscal year ended November 30, 1998, the fee for these
services amounted to $164,079.
d) The trust on the 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 November 30, 1998 the fee for these services amounted to
$820,398.
e) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$8,475 for the fiscal year ended November 30, 1998.
f) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the master portfolios, and
J.P Morgan Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the fund's allocated portion of 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 $1,800.
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 Board of Directors and Shareholders of
J.P. Morgan Institutional Service 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 Service 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 and the changes in its net assets and the financial highlights for
the year then ended and for the period October 23, 1997 (commencement of
operations) through November 30, 1998, 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 SERVICE 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....... 127,982,811 0 398,629
b. Relating to concentration of assets......... 127,982,811 0 398,629
c. Relating to issuance of senior securities... 127,982,811 0 398,629
d. Relating to borrowing....................... 127,982,811 0 398,629
e. Relating to underwriting.................... 127,982,811 0 398,629
f. Relating to investment in real estate....... 127,982,811 0 398,629
g. Relating to commodities..................... 127,982,811 0 398,629
h. Relating to lending......................... 127,982,811 0 398,629
i.Reclassification of other restrictions as
nonfundamental............................... 127,982,811 0 398,629
3. Reclassification of investment objectives..... 126,950,455 672,855 758,130
4. Investment advisory agreement................. 127,623,310 0 758,130
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 Service 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
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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
27
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J.P. MORGAN INSTITUTIONAL FUNDS
PRIME MONEY MARKET FUND
TREASURY MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: INSTITUTIONAL SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
TAX AWARE DISCIPLINED EQUITY FUND:
INSTITUTIONAL SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
SMARTINDEX 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
PRIME MONEY
MARKET FUND
ANNUAL REPORT
NOVEMBER 30, 1998
IPMMFR-9811
