<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL
MONEY MARKET FUND
June 1, 2000
Dear Shareholder,
During the six-month period ended April 30, 2000, J.P. Morgan Institutional
Service Federal Money Market Fund posted a 2.68% return, in line with the
2.70% return of the Lipper Institutional U.S. Government Money Market Funds
Average. The fund's current seven-day yield is 5.65%.
The fund maintained a stable net asset value of $1.00 over the period. On
April 30, 2000, the net assets of the fund were approximately $39 million,
while the assets of The Federal Money Market Portfolio, in which the fund
invests, amounted to approximately $3.0 billion. Dividends of approximately
$0.03 per share were paid from ordinary income.
This report includes a discussion with Mark Settles, the portfolio manager
primarily responsible for The Federal Money Market Portfolio. In this
interview, Mark talks about the events of the previous six months that had
the greatest effect on the portfolio and discusses his investment strategy.
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 OF CONTENTS
LETTER TO THE SHAREHOLDERS......1 GLOSSARY OF TERMS .............5
FUND PERFORMANCE ...............2 FUND FACTS AND HIGHLIGHTS......6
PORTFOLIO MANAGER Q&A ..........3 FINANCIAL STATEMENTS...........8
--------------------------------------------------------------------------------
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 a 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 a specified time period,
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 FIVE SINCE
AS OF APRIL 30, 2000 MONTHS MONTHS YEAR YEARS* INCEPTION*
--------------------------------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Institutional Service Federal
Money Market Fund 1.36% 2.68% 5.11% 5.14% 4.65%
Lipper Institutional U.S. Government
Money Market Funds Average** 1.37% 2.70% 5.15% 5.24% 4.77%
AS OF MARCH 31, 2000
--------------------------------------------------------------------- -------------------------------------------
J.P. Morgan Institutional Service Federal
Money Market Fund 1.34% 2.64% 5.01% 5.14% 4.63%
Lipper Institutional U.S. Government
Money Market Funds Average** 1.35% 2.65% 5.06% 5.23% 4.76%
</TABLE>
*REFLECTS PERFORMANCE OF THE J.P. MORGAN FEDERAL MONEY MARKET FUND FROM
JANUARY 4, 1993 (COMMENCEMENT OF OPERATIONS), THROUGH NOVEMBER 5, 1997, THE
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND'S INCEPTION. THE
PERFORMANCE FOR SUCH PERIOD REFLECTS THE DEDUCTION OF THE EXPENSES OF THE
J.P. MORGAN FEDERAL MONEY MARKET FUND, WHICH WERE LOWER THAN THE EXPENSES OF
THE FUND; THEREFORE, PERFORMANCE OF THE FUND FOR THIS PERIOD WOULD HAVE BEEN
LOWER. THE FUND HAS PROVIDED A TOTAL RETURN OF 4.63% THROUGH APRIL 30, 2000.
FOR THE PURPOSE OF COMPARISON, THE "SINCE INCEPTION" RETURNS IN THE TITLE
ABOVE ARE CALCULATED FROM JANUARY 31, 1993, THE FIRST DATE WHEN DATA FROM THE
FUND AND ITS LIPPER CATEGORY AVERAGE WERE AVAILABLE.
**DESCRIBES THE AVERAGE TOTAL RETURN FOR ALL FUNDS INDICATED IN THE INDICATED
LIPPER CATEGORY, AS DEFINED BY LIPPER INC., AND DOES NOT TAKE INTO ACCOUNT
APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA.
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. THE SEVEN-DAY
YIELD MORE CLOSELY REFLECTS THE CURRENT EARNINGS OF THE MONEY MARKET FUND
THAN THE TOTAL RETURN QUOTATION.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The following is an interview with MARK SETTLES, vice president and member of
the portfolio management team for The Federal Money Market Portfolio, in
which the fund invests. Mark joined Morgan in 1994. He spent five years
trading dollar- and euro-denominated fixed income products in our New York and
London offices before coming to J.P. Morgan Investment Management. Prior to
joining Morgan, he was a foreign exchange trader at The First National Bank
of Chicago and a teacher of government at The Paideia School in Atlanta,
Georgia. Mark holds a B.A. in Economics from Columbia University and a
Masters of Management from Northwestern University. This interview was
conducted on May 12, 2000, and reflects Mark's views on that date.
LET'S REVIEW THE PAST SIX MONTHS. IT'S BEEN AN INCREDIBLY TURBULENT PERIOD IN
FIXED INCOME MARKETS. WHAT CAUSED IT?
MS: There were three main themes that dominated and destabilized fixed income
markets during this period. The first was interest rates. The Federal Reserve
Board has raised rates five times, in quarter point installments, since last
June. The common perception is that it will continue to raise rates, perhaps
substantially, by summer's end, in order to slow our economy and curb
inflationary growth.
The second central theme was the government's announcement that it would use
part of the budget surplus to retire much of its long-term debt, its first
such effort in 70 years. This promise has been held to fairly aggressively.
And, in fact, the Treasury recently affirmed its intention to retire $30
billion in debt this year. It was also announced that fewer auctions would be
held in the future, thereby further reducing security supplies. This
significant reduction in supply, coupled with strong investor demand, led to
a decline in long-term yields, to the point where they are now less than
short-term yields. In other words, we are experiencing a classic inverted
yield curve, one that has driven many investors to chase Treasuries, or to
sit out of the market altogether, at the expense of spread products.
The final major theme, although there were several minor ones, was
speculation about whether the government would withdraw its support of the
quasi-governmental housing agencies. Public comments suggesting this might
happen caused gyrations in the credit markets. This said, we don't think a
withdrawal of support would be politically digestible, particularly during an
election year.
HOW DID THE PORTFOLIO PERFORM OVER THIS PERIOD?
MS: The portfolio benefited greatly from a significant concentration in
floating rate notes, which are reset upward with each upward rate movement by
the Fed. As we felt interest rates would continue to rise, we also maintained
duration on the shorter end of the range during this period. This strategy
paid off very well.
3
<PAGE>
WHAT ABOUT THE MUCH ANTICIPATED, EVEN DREADED, TURNING OF THE NEW YEAR? DID
Y2K END UP HAVING ANY EFFECT ON THE FIXED INCOME MARKETS?
MS: No, not really. It turned out to be a non-event, largely because of the
extensive preparation for it that was undertaken by our government and the
financial services community.
WE'VE HEARD A LOT ABOUT THE FLIGHT TO QUALITY, WHEN NERVOUS INTERNATIONAL
INVESTORS SEEK TREASURIES AND OTHER DOMESTIC FIXED INCOME INVESTMENTS DURING
TIMES OF TROUBLE. GIVEN THE VOLATILITY HERE LATELY, HAVE YOU SEEN ANY OF THE
REVERSE: A FLIGHT FROM QUALITY?
MS: No. International investors are big buyers of agency paper and so were
justifiably nervous when questions arose about government guarantees that
back these instruments. Extreme volatility in our equity markets didn't help
matters. But, despite market turbulence, they have not withdrawn their
capital, which is very good as it would aggravate an already problematical
current account deficit.
HOW DO YOU SEE FIXED INCOME MARKETS AND THE OVERALL ECONOMY MOVING OVER THE
NEXT 3-6 MONTHS?
MS: There's little doubt that the Fed will continue to raise rates until it
sees some sign that the economy is slowing. When that will be, and how high
rates will go in the meantime, is anyone's guess. For our part, we feel that
rates will increase by 75 basis points, to 6.75%, by the end of the summer,
thereby perpetuating the severe inversion in the yield curve that we've
experienced for some time now. The economy will continue along on a brisk
pace, but we feel that there will be a sequential slowing of growth as the
year progresses. And, in fact, GDP growth slowed to 5.4% in the first
quarter, down significantly from 7.5% in the fourth quarter of last year. We
expect it will end the year at around 4.75% and slow further in 2001,
although this number could change at any time given the volatility we've been
experiencing lately.
Inflation will likely remain under control, but risks have risen. As measured
by the Employment Cost Index, companies saw their labor costs rise 1.4%
during the first quarter, the biggest jump in over 10 years. Elsewhere, the
GDP price deflator, which tends to track inflation, grew by 2.7% during the
first quarter, much higher than the 1.9% pace of the fourth quarter of 1999.
So, we have some inflationary pressures building that may encourage the Fed
to take more severe action than it has in the recent past.
IN LIGHT OF THE ABOVE, HOW ARE YOU POSITIONING THE FUND?
MS: We will maintain our current strategy of holding a significant
concentration in floating rate notes and being defensive in our weighted
average maturity. Rounding out the portfolio, we will also maintain our
existing concentration in short-dated, overnight securities, while looking to
buy opportunistically in the 1-year area. This barbell strategy has served
the portfolio well since the Fed began raising rates last summer, and we see
no reason to change it now.
4
<PAGE>
GLOSSARY OF TERMS
AVERAGE MATURITY: The weighted average time to maturity of the entire
portfolio with the weights equal to the percentage of the portfolio invested
in each security (see Maturity).
CREDIT RATING: The rating assigned to a bond or note by independent rating
agencies such as Standard & Poor's Corporation and Moody's Investors Service.
In evaluating creditworthiness, these agencies assess the issuer's present
financial condition and future ability and willingness to make principal and
interest payments when due.
CREDIT RISK: Financial risk that an obligation will not be paid and a loss
will result.
LETTER OF CREDIT: Instrument or document issued by a bank guaranteeing the
payment of a customer's drafts up to a stated amount and virtually
eliminating the seller's risk.
MATURITY: The date on which the life of a financial instrument ends through
cash or physical settlement or expiration with no value or the date a
security comes due and fully payable.
VARIABLE RATE DEMAND NOTE: Note representing borrowings that is payable on
demand and that bears interest tied to a base money market rate, usually the
bank prime rate. The rate on the note is adjusted upward or downward each
time the base rate changes.
YIELD: Coupon rate of interest on a bond divided by the purchase price. As a
bond's price falls, its yield rises and vice versa.
YIELD CURVE: A graph showing the term structure or level of interest rates
ranging from the shortest to the longest maturities. The resulting curve
shows if short-term interest rates are higher or lower than long-term rates.
Normally, the longer the bond, the higher the yield it offers, resulting in a
positive yield curve. An inverted yield curve can occur when there are
supply/demand imbalances for various maturities, which results in short-term
rates at higher levels than longer-term instruments.
YIELD SPREAD: The difference in yield between different types of securities.
For example, if a Treasury bond is yielding 6.00% and a municipal is yielding
5.00%, the yield spread is 1.00% or 100 basis points.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Institutional Service Federal Money Market Fund seeks to provide
high current income consistent with the preservation of capital and same-day
liquidity. It is designed for investors who seek to preserve capital and earn
current income from a portfolio of direct obligations of the U.S. Treasury
and obligations of certain U.S. government agencies.
--------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
11/5/97
--------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/00
$38,992,833
--------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 4/30/00
$3,045,250,192
--------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
--------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
MONTHLY
LONG-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/00
EXPENSE RATIO
The fund's current annualized expense ratio of 0.45% covers shareholders'
expenses for custody, tax reporting, investment advisory, and shareholder
services, after reimbursement. The fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for
buying, selling, or safekeeping fund shares, or for wiring redemption
proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF APRIL 30, 2000
DAYS TO MATURITY
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
0-30 days 70.4%
31-60 days 8.2%
61-90 days 10.6%
90+ days 10.8%
CURRENT 7-DAY YIELD
5.65%*
AVERAGE MATURITY
52 days
*YIELD REFLECTS THE REIMBURSEMENT OF CERTAIN FUND EXPENSES AS DESCRIBED IN
THE PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, THE CURRENT 7-DAY YIELD
WOULD HAVE BEEN LOWER. YIELDS REPRESENT PAST PERFORMANCE AND WILL FLUCTUATE.
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND
ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. WHILE THE
FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING IN THIS FUND.
Opinions expressed herein and other fund data presented are based on current
market conditions and are subject to change without notice. The fund invests
through a master portfolio (another fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Federal Money Market Portfolio
("Portfolio"), at value $39,210,212
Receivable for Expense Reimbursements 14,109
Deferred Organization Expenses 6,199
Prepaid Trustees' Fees 47
Prepaid Expenses and Other Assets 111
-----------
Total Assets 39,230,678
-----------
LIABILITIES
Dividends Payable to Shareholders 194,708
Service Organization Fee Payable 8,640
Shareholder Servicing Fee Payable 1,728
Administrative Services Fee Payable 868
Administration Fee Payable 36
Fund Services Fee Payable 8
Accrued Expenses 31,857
-----------
Total Liabilities 237,845
-----------
NET ASSETS
Applicable to 38,997,230 Shares of Beneficial
Interest Outstanding
(par value $0.0001, unlimited shares
authorized) $38,992,833
===========
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $38,997,230
Undistributed Net Investment Income 27
Accumulated Net Realized Loss on Investment (4,424)
-----------
Net Assets $38,992,833
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $504,354
Allocated Portfolio Expenses (15,049)
--------
Net Investment Income Allocated from
Portfolio 489,305
FUND EXPENSES
Service Organization Fee $21,443
Transfer Agent Fees 8,463
Registration Fees 6,392
Professional Fees 5,619
Shareholder Servicing Fee 4,289
Administrative Services Fee 2,113
Amortization of Organization Expenses 1,228
Administration Fee 99
Fund Services Fee 92
Trustees' Fees and Expenses 82
Miscellaneous 10,205
-------
Total Fund Expenses 60,025
Less: Reimbursement of Expenses (36,470)
-------
NET FUND EXPENSES 23,555
--------
NET INVESTMENT INCOME 465,750
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 44
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $465,794
========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE FISCAL
MONTHS ENDED YEAR ENDED
APRIL 30, 2000 OCTOBER 31,
(UNAUDITED) 1999
-------------- --------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 465,750 $ 1,301,867
Net Realized Gain (Loss) on Investment Allocated
from Portfolio 44 (4,361)
----------- ------------
Net Increase in Net Assets Resulting from
Operations 465,794 1,297,506
----------- ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (465,723) (1,301,867)
Net Realized Gain -- (80)
----------- ------------
Total Distributions to Shareholders (465,723) (1,301,947)
----------- ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT
A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 98,610,373 235,307,175
Reinvestment of Dividends and Distributions 8,652 328,005
Cost of Shares of Beneficial Interest Redeemed (68,820,720) (255,895,536)
----------- ------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest 29,798,305 (20,260,356)
----------- ------------
Total Increase (Decrease) in Net Assets 29,798,376 (20,264,797)
NET ASSETS
Beginning of Period 9,194,457 29,459,254
----------- ------------
End of Period (including undistributed net
investment income of $27 and $0, respectively) $38,992,833 $ 9,194,457
=========== ============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE NOVEMBER 5, 1997
SIX MONTHS ENDED FOR THE FISCAL (COMMENCEMENT OF
APRIL 30, 2000 YEAR ENDED OPERATIONS) THROUGH
(UNAUDITED) OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ---------------- -------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00
-------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0265 0.0460 0.0517
Net Realized Gain (Loss) on Investment 0.0000(a) (0.0000)(a) (0.0000)(a)
-------- -------- --------
Total from Investment Operations 0.0265 0.0460 0.0517
-------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0265) (0.0460) (0.0517)
Net Realized Gain -- (0.0000)(a) --
-------- -------- --------
Total Distributions to Shareholders (0.0265) (0.0460) (0.0517)
-------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00
======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Total Return 2.68%(b) 4.70% 5.24%(b)
Net Assets, End of Period (in thousands) $ 38,993 $ 9,194 $ 29,459
Ratio to Average Net Assets
Net Expenses 0.45%(c) 0.45% 0.45%(c)
Net Investment Income 5.42%(c) 4.54% 5.07%(c)
Expenses without Reimbursement 0.87%(c) 0.78% 1.32%(c)
</TABLE>
------------------------
(a) Less than $0.0001.
(b) Not Annualized.
(c) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Institutional Service Federal Money Market Fund (the "fund") is
a separate series of the J.P. Morgan Institutional Funds, a Massachusetts
business trust (the "trust") which was organized on November 4, 1992. The trust
is registered under the Investment Company Act of 1940, as amended, as an
open-end management investment company. The fund commenced operations on
November 5, 1997.
The fund invests all of its investable assets in The Federal Money Market
Portfolio (the "portfolio"), a diversified open-end management investment
company having the same investment objective as the fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
fund's proportionate interest in the net assets of the portfolio (1% at
April 30, 2000). 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 (the "Code"),
as amended, 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 which
were deferred and are being amortized on a straight-line basis over a
period not to exceed five-years beginning with the commencement of
operations of the fund.
e) 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.
f) 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 in come, including net realized capital gains, if
any, within the prescribed time periods. Accordingly, no provision for
federal income or excise tax is necessary.
12
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
g) For federal income tax purposes, the fund had a capital loss carryforward
at October 31, 1999 of $4,388, in which $27 expires in the year 2006 and
$4,361 expires in 2007. 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.
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 administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the six
months ended April 30, 2000, the fee for these services amounted to $99.
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. Inc. (J.P.
Morgan), under which Morgan is responsible for certain aspects of the
administration and operation of the fund. Under the Services Agreement,
the fund has agreed to pay Morgan a fee equal to its allocable share of an
annual complex-wide charge. This charge is calculated based on the
aggregate average daily net assets of the portfolio and the other
portfolios in which the trust and the J.P. Morgan Funds invest (the
"master portfolios") and J.P. Morgan Series Trust in accordance with the
following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge payable by the fund is
determined by the proportionate share that its net assets bear to the net
assets of the trust, the master portfolios, other investors in the master
portfolios for which Morgan provides similar services, and J.P. Morgan
Series Trust. For the six months ended April 30, 2000, the fee for these
services amounted to $2,113.
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 through February 28,
2001. This reimbursement arrangement can be changed or terminated at any
time after February 28, 2001, at the option of J.P. Morgan. For the six
months ended April 30, 2000, J.P. Morgan has agreed to reimburse the fund
$36,470 for expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance service to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.10% of the average daily net assets of
the fund. For the six months ended April 30, 2000, the fee for these
services amounted to $4,289.
13
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
d) The trust on behalf of the fund, has a Service Plan with respect to fund
shares which authorizes it to compensate Service Organizations for
providing account administration and other services to their customers who
are beneficial owners of such shares. The fund will enter into agreements
with Service Organizations which purchase shares on behalf of their
customers ("Service Agreements"). The Service Agreements provide that the
fund pay Service Organizations a fee which is computed daily and paid
monthly at an annual rate of up to 0.25% of the average daily net assets
of the fund with respect to the shares of the fund attributable to or held
in the name of the Service Organization for its customers. For the six
months ended April 30, 2000, the fee for these services amounted to
$21,443.
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
$92 for the six months ended April 30, 2000.
f) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morg an Funds, the master portfolios, and
J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the fund's allocated portion of these
total fees and expenses. The trust's Chairman and Chief Executive Officer
also serves as Chairman of Group and receives compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $100.
14
<PAGE>
The Federal Money Market Portfolio
Semiannual Report April 30, 2000
(unaudited)
(The following pages should be read in conjunction
with J.P. Morgan Institutional Service Federal Money Market Fund
Semiannual Financial Statements)
15
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
-------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (99.6%)
$ 143,300 Federal Farm Credit Bank......................... 02/01/01-03/01/01 6.350-6.600% $ 143,256,698
100,000 Federal Farm Credit Bank (due 05/03/00).......... 05/03/00(a) 5.953 99,999,782
250,000 Federal Farm Credit Bank (due 07/03/00).......... 05/01/00(a) 5.972 250,000,000
40,000 Federal Farm Credit Bank (due 12/01/00).......... 05/01/00(a) 6.075 39,990,646
35,000 Federal Farm Credit Bank (due 02/14/01).......... 05/01/00(a) 6.000 34,992,149
25,000 Federal Farm Credit Bank (due 04/10/01).......... 05/10/00(a) 5.960 24,997,689
100,000 Federal Farm Credit Bank (due 04/25/01).......... 05/25/00(a) 5.970 100,000,000
21,658 Federal Farm Credit Bank Discount Note........... 05/15/00 5.490 21,608,560
187,370 Federal Home Loan Bank........................... 05/17/00-04/26/01 4.980-6.668 186,984,942
90,000 Federal Home Loan Bank (due 05/11/00)............ 05/01/00(a) 6.055 89,999,009
100,000 Federal Home Loan Bank (due 09/01/00)............ 05/01/00(a) 6.130 99,986,822
150,000 Federal Home Loan Bank (due 10/04/00)............ 05/04/00(a) 6.130 149,955,838
100,000 Federal Home Loan Bank (due 10/10/00)............ 05/01/00(a) 6.130 99,969,594
94,000 Federal Home Loan Bank (due 10/25/00)............ 05/25/00(a) 5.930 93,972,011
200,000 Federal Home Loan Bank (due 02/09/01)............ 05/01/00(a) 6.000 199,955,331
1,134,809 Federal Home Loan Bank Discount Note............. 05/03/00-07/21/00 3.910-5.990 1,128,308,811
47,398 Student Loan Marketing Association............... 02/14/01 6.550 47,385,340
81,119 Student Loan Marketing Association Discount
Note........................................... 05/05/00-06/12/00 4.680-5.890 80,552,874
140,000 Tennessee Valley Authority Discount Note......... 05/05/00-05/18/00 4.690-5.550 139,697,233
--------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (99.6%)................................. 3,031,613,329
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%).......................................... 13,636,863
--------------
NET ASSETS (100.0%)................................................................... $3,045,250,192
==============
</TABLE>
------------------------------
(a) Date listed represents the next interest rate reset date. The actual
maturity date is indicated in the security description.
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $3,031,613,329
Cash 558
Interest Receivable 14,101,664
Prepaid Trustees' Fees 6,538
Prepaid Expenses and Other Assets 5,400
--------------
Total Assets 3,045,727,489
--------------
LIABILITIES
Advisory Fee Payable 353,502
Administrative Services Fee Payable 65,909
Fund Services Fee Payable 2,224
Administration Fee Payable 1,765
Accrued Expenses 53,897
--------------
Total Liabilities 477,297
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $3,045,250,192
==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $78,271,678
EXPENSES
Advisory Fee $1,848,827
Administrative Services Fee 331,148
Custodian Fees and Expenses 131,202
Professional Fees and Expenses 24,055
Fund Services Fee 22,030
Trustees' Fees and Expenses 10,937
Administration Fee 9,363
Miscellaneous 6,873
----------
Total Expenses 2,384,435
-----------
NET INVESTMENT INCOME 75,887,243
NET REALIZED GAIN ON INVESTMENTS 6,699
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $75,893,942
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 2000 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1999
-------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 75,887,243 $ 90,037,557
Net Realized Gain (Loss) on Investments 6,699 (93,004)
-------------- ---------------
Net Increase in Net Assets Resulting from
Operations 75,893,942 89,944,553
-------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 6,061,602,203 9,653,493,366
Withdrawals (5,373,069,003) (8,926,190,523)
-------------- ---------------
Net Increase from Investors' Transactions 688,533,200 727,302,843
-------------- ---------------
Total Increase in Net Assets 764,427,142 817,247,396
NET ASSETS
Beginning of Period 2,280,823,050 1,463,575,654
-------------- ---------------
End of Period $3,045,250,192 $ 2,280,823,050
============== ===============
</TABLE>
--------------------------------------------------------------------------------
SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31,
APRIL 30, 2000 --------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.18%(a) 0.20% 0.20% 0.20% 0.20% 0.20%
Net Investment Income 5.60%(a) 4.85% 5.31% 5.18% 5.08% 5.55%
Expenses without Reimbursement 0.18%(a) 0.20% 0.25% 0.28% 0.27% 0.26%
</TABLE>
------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Federal Money Market Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on November 4, 1992. The portfolio's investment objective
is to provide high current income consistent with the preservation of capital
and same-day liquidity. The portfolio commenced operations on January 4, 1993.
The Declaration of Trust permits the trustees to issue an unlimited number of
beneficial interests in the portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) Investments are valued at amortized cost which approximates market value.
The amortized cost method of valuation values a security at its cost at
the time of purchase and thereafter assumes a constant amortization to
maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instruments.
The portfolio's custodian or designated subcustodians, as the case may be
under tri-party repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
portfolio. It is the policy of the portfolio to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
b) Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
c) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The cost of securities is substantially the
same for book and tax purposes.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management, Inc. ("JPMIM"), an affiliate of 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 pays JPMIM at an annual rate of 0.20% of the
portfolio's average daily net assets up to $1 billion and 0.10% on any
excess over $1 billion. For the six months ended April 30, 2000, such fees
amounted to $1,848,827.
20
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 2000
--------------------------------------------------------------------------------
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the officers
affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the portfolio is based on
the ratio of the portfolio's net assets to the aggregate net assets of the
portfolio and certain other investment companies subject to similar
agreements with FDI. For the six months ended April 30, 2000, the fee for
these services amounted to $9,363.
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 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 six months ended April 30, 2000, the fee for these services
amounted to $331,148.
In addition, J.P. Morgan has agreed to reimburse the portfolio to the
extent necessary to maintain the total operating expenses of the portfolio
at no more than 0.20% of the average daily net assets of the portfolio
through February 28, 2001. This reimbursement arrangement can be changed
or terminated at any time after February 28, 2001 at the option of J.P.
Morgan. For the six months ended April 30, 2000 J.P. Morgan was not
required to reimburse the portfolio for expenses under this agreement.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $22,030 for the six months ended April 30, 2000.
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 $4,200.
21
<PAGE>
J.P. MORGAN INSTITUTIONAL SERVICE FUNDS
PRIME MONEY MARKET FUND
TREASURY MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL FUNDS, CALL J.P. MORGAN
FUNDS SERVICES AT (800)766-7722.
IMSAR367
J.P. MORGAN INSTITUTIONAL SERVICE FEDERAL MONEY MARKET FUND
SEMIANNUAL REPORT
APRIL 30, 2000
