<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY
MARKET FUND
July 1, 2000
Dear Shareholder,
The J.P. Morgan Institutional Direct Prime Money Market Fund commenced
operations April 24, 2000. For the 1-month period ended May 31, 2000, the fund
posted a 0.51% return, in line with the 0.50% return of the Lipper Institutional
Money Market Funds Average. The fund's current 7-day yield is 6.24%.
The fund maintained a stable net asset value of $1.00 over the period. On May
31, 2000, the net assets of the fund were approximately $2.7 million, while the
assets of The Prime Money Market Portfolio, in which the fund invests, amounted
to approximately $18.1 billion. Dividends of approximately $0.01 per share were
paid from ordinary income.
This report includes a discussion with Mark Settles, the portfolio manager
primarily responsible for The Prime 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................6
FUND PERFORMANCE.................2 FUND FACTS AND HIGHLIGHTS........7
PORTFOLIO MANAGER Q&A............3 FINANCIAL STATEMENTS............10
--------------------------------------------------------------------------------
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
------------------ -------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF MAY 31, 2000 MONTHS* MONTHS* YEAR* YEARS* YEARS* YEARS*
---------------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan Inst. Direct Prime 1.45% 2.85% 5.39% 5.30% 5.34% 5.02%
Money Market Fund
Lipper Institutional Money Market Funds Average** 1.34% 2.61% 4.94% 4.86% 4.91% 4.70%
AS OF MARCH 31, 2000
---------------------------------------------------------------------- -------------------------------------
J.P. Morgan Inst. Direct Prime 1.39% 2.73% 5.17% 5.29% 5.34% 5.06%
Money Market Fund
Lipper Institutional Money Market Funds Average** 1.27% 2.50% 4.72% 4.82% 4.93% 4.73%
</TABLE>
*THE FUND'S TOTAL RETURN SINCE ITS INCEPTION ON APRIL 24, 2000 THROUGH MAY 31,
2000 WAS 0.63%. PERFORMANCE FOR THE PERIOD PRIOR TO APRIL 24, 2000, THE FUND'S
INCEPTION, REFLECTS THE PERFORMANCE OF J.P. MORGAN PRIME MONEY MARKET FUND, A
SEPERATE FEEDER FUND INVESTING IN THE SAME MASTER PORTFOLIO, WHICH HAD A HIGHER
EXPENSE RATIO.
**DESCRIBES THE AVERAGE TOTAL RETURN FOR ALL FUNDS 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 7-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 Prime 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 June 12, 2000 and reflects Mark's views on that date.
OVER THE PAST SIX MONTHS AND MORE, THE FIXED INCOME MARKETS HERE HAVE BEEN
ROCKED BY A SERIES OF EVENTS THAT HAVE UPSET THEIR USUAL DECORUM. WHAT WOULD YOU
SAY WERE THE MOST SIGNIFICANT AMONG THESE, AND HOW HAVE THEY IMPACTED THE
MARKETPLACE?
MS: Basically, three major themes have dominated the fixed income markets over
the past six months: continuing increases in interest rates by the Federal
Reserve Board; major changes in how the U.S. Treasury is managing the national
debt; and the effects of both in bringing on structural changes in both the
Treasury and corporate yield curves.
Over the past six months, the Federal Reserve Board has continued with its
incremental tightening of interest rates to address what it feels to be
unsustainable growth in the U.S. economy. This process began last June with a
quarter-point increase in rates, continued on through four more quarter-point
increases, and culminated, at least thus far, in a half-point increase on May 16
of this year.
For its part, the U.S. Treasury has implemented, or is in the process of
implementing, a number of changes that may fundamentally alter the
government-backed investment landscape. One of these is its fairly aggressive
use of the budget surplus to buy back long-term government debt, the first such
repurchase effort in 70 years. The second would be its announcement that in the
future there would be less issuance of such debt. This has taken the form of
reduced auction schedules of U.S. Treasury bills, notes, and bonds. The natural
effect of both actions has been and continues to be a marked reduction in the
supply of debt backed by the full faith and credit of the United States, seen
globally as THE risk-free investment alternative. Finally, there has been some
questioning of the nature of the federal guarantees that implicitly stand behind
the quasi-governmental housing agencies. So far, there hasn't been any action in
this regard, but the questions alone have contributed to marked uncertainty in
the mortgage and agency sectors.
The final theme would be the major impact that these Federal Reserve and
Treasury initiatives have had on the Treasury and corporate credit curves. In
the former case, the yield curve inverted and has remained so for some time,
with long-term Treasury bonds outperforming short-term Treasury notes. This is
largely due to diminished supply, coupled with strong demand from institutional
investors who require guarantees that
3
<PAGE>
only the government can supply. Adding to it is increased demand from market
weary investors seeking the safe haven of Treasuries on both the long and short
end of the curve.
On the corporate side, issuance has been rising juxtaposed to a diminishing
supply of Treasuries, thereby putting pressure on spreads. Also, competition for
capital, spurred on by a booming economy, has driven corporate borrowing rates
up at the same time that Treasury rates have been falling, contributing to a
growing gap in spreads.
Rising corporate borrowing rates and an associated cooling of the domestic stock
market have conspired to slow the economy, and I would say that the Federal
Reserve and its tightening of economic policy have had a great deal to do with
it.
WHAT ABOUT INFLATION? THERE HAVE BEEN SEVERAL REPORTS, SOMETIMES CONFLICTING,
THAT SUGGEST INFLATION MAY HAVE BEGUN TO CREEP AHEAD FOR THE FIRST TIME IN A
WHILE. WHAT IS YOUR TAKE ON THIS EVERGREEN ISSUE?
MS: Inflationary risks, as distinct from inflation itself, have indeed risen in
recent months, but more economic data is needed to really know if the Fed has
fallen behind in its much expressed mission to keep inflation under control.
ON THAT LAST POINT, IT SEEMS SOMEWHAT PECULIAR THAT TALK ABOUT INFLATION HAS
ACCELERATED, EVEN IN THE FACE OF THE FED'S RECENT AND FAIRLY STEEP HALF-POINT
INCREASE IN INTEREST RATES, ONE AIMED AT STOPPING INFLATION IN ITS TRACKS. WHAT
DOES THIS PORTEND? HAS THE FED LOST ITS PUNCH IN THE MINDS OF INVESTORS?
MS: For its own inscrutable reasons, the Fed has until recently taken a
gradualist approach to taming inflation, as is witnessed by its string of
comparatively small interest rate increases over the past year. As inflationary
risks have risen, it has had to become more aggressive in its monetary
tightening policy; witness the half-point increase I mentioned earlier. For our
part, we feel some additional tightening may be in order by summer's end, or
shortly thereafter, from the 175 basis point increase we've experienced since
June 1999, to perhaps an aggregate 250 point increase by the end of the present
tightening cycle.
As for what is in the minds of investors, I can't presume to say. I will note
that the market can at times be very fickle. For example, the perception
lately has been that the Fed was AHEAD of the curve when it upped rates by 50
basis points in May. This belief resulted in an improved equity environment,
a lowering of bond yields, and a major increase in corporate issuance. On the
flip side, if you looked at the market a week before the 50 basis point
increase, you would have heard people say that a 50 basis point increase was
necessary merely to CATCH UP with inflation. This constant attempt to see
behind the sealed door of the FOMC can move markets in ways that virtually
nothing else can. So, no, I don't think the Fed has in any way lost its punch
in the minds of investors.
IN TERMS OF FIXED INCOME MARKETS, WE'VE SEEN BENCHMARKS MOVE TOWARD BASING ON
10-YEAR BONDS IN FAVOR OF THE MORE TRADITIONAL 30-YEAR. HAS THIS HAD ANY IMPACT
ON THE WAY YOU'RE APPROACHING THE MARKET?
MS: For our part, not really. We don't buy long-dated securities in the
portfolio, being limited to bonds with 397 days and lower in maturity. These are
most affected by interest rate developments, as opposed to issuance on the
longer end of the Treasury curve.
4
<PAGE>
WHAT IMPACT, IF ANY, HAS STOCK MARKET VOLATILITY OVER THE PAST SIX MONTHS OR SO
HAD ON THE PORTFOLIO?
MS: Stock market volatility has certainly benefited the fund from an asset
gathering perspective. The sheer volume of cash created by energetic IPOs has
led a number of investors to entrust the more conservative portion of their
newfound wealth to the fund. And, we have benefited from defensiveness on the
part of investors generally who are concerned about protecting their profits in
the equity markets. So, we have seen a significant increase in the assets of The
Prime Money Market Portfolio over the past six months relating to these events.
HOW HAS YOUR PERFORMANCE BEEN OVER THE PAST SIX MONTHS?
MS: Our performance relative to our peers has been excellent. We have received
the highest rating from Fitch (AAA/V1+), Moody's (Aaa), and Standard & Poor's
(AAAm) for a money market fund and have money market fund and have continued to
benefit from the barbell strategy we instituted last summer. As part of this
strategy, we keep a significant concentration in maturities on the shorter end
of the curve, while opportunistically extending on price declines in the 1-year
area. The portfolio has also benefited from a significant concentration in
floating rate notes, mostly pegged to the 3-month London Inter-bank Borrowing
Rate (LIBOR). Every time the coupon has reset in this rising interest rate
environment, we have been able to capture a good deal of the upside.
THIS BARBELL STRATEGY HAS BEEN WORKING WELL IN THE PRESENT ENVIRONMENT. WHAT
WOULD HAVE TO HAPPEN TO CAUSE YOU TO RECONSIDER IT?
MS: We will maintain the barbell as long as we see the Fed on a path of monetary
tightening. When we see rates beginning to plateau and the economy slowing, then
we'll likely begin to extend the weighted average maturity of the entire
portfolio, using shorter-dated securities to extend out to longer-dated
securities, yet still remaining within the 397-day maturity limit. We may also
lower our concentration in floating rate notes.
5
<PAGE>
GLOSSARY OF TERMS
AVERAGE MATURITY: The weighted average time to maturity of the entire portfolio
with the weights equal to the percentage of the portfolio invested in each
security (see Maturity).
CREDIT RATING: The rating assigned to a bond or note by independent rating
agencies such as Standard & Poor's Corporation and Moody's Investors Service. In
evaluating creditworthiness, these agencies assess the issuer's present
financial condition and future ability and willingness to make principal and
interest payments when due.
CREDIT RISK: Financial risk that an obligation will not be paid and a loss will
result.
LETTER OF CREDIT: Instrument or document issued by a bank guaranteeing the
payment of a customer's drafts up to a stated amount and eliminating the
seller's risk.
MATURITY: The date on which the life of a financial instrument ends through cash
or physical settlement or expiration with no value or the date a security comes
due and fully payable.
VARIABLE RATE DEMAND NOTE: Note representing borrowings that is payable on
demand and that bears interest tied to a base money market rate, usually the
bank prime rate. The rate on the note is adjusted upward or downward each
time the base rate changes.
YIELD: Coupon rate of interest on a bond divided by the purchase price. As a
bond's price falls, its yield rises and vice versa.
YIELD CURVE: A graph showing the term structure or level of interest rates
ranging from the shortest to the longest maturities. The resulting curve shows
if short-term interest rates are higher or lower than long-term rates. Normally,
the longer the bond, the higher the yield it offers, resulting in a positive
yield curve. An inverted yield curve can occur when there are supply/demand
imbalances for various maturities, which results in short-term rates at higher
levels than longer-term instruments.
YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.00% and a municipal is yielding 5.00%,
the yield spread is 1.00% or 100 basis points.
6
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Institutional Direct Prime Money Market Fund seeks to maximize
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 high quality money market instruments.
--------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
4/24/00
--------------------------------------------------------------------------------
FUND NET ASSETS AS OF 5/31/00
$2,719,348
--------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 5/31/00
$18,105,573,665
--------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
--------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
MONTHLY
LONG-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/00
EXPENSE RATIO
The fund's current expense ratio of 0.30% covers shareholders' expenses for
custody, tax reporting, investment advisory, and shareholder services, after
reimbursement. The fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping fund shares or for wiring redemption proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF MAY 31, 2000
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[GRAPH]
FLOATING RATE NOTES 43.3%
COMMERCIAL PAPER - DOMESTIC 25.2%
CERTIFICATES OF DEPOSIT - FOREIGN 14.1%
TIME DEPOSITS - FOREIGN 5.2%
COMMERCIAL PAPER - FOREIGN 4.4%
TIME DEPOSITS - DOMESTIC 3.2%
CERTIFICATES OF DEPOSIT - DOMESTIC 1.9%
REPURCHASE AGREEMENTS 1.3%
CORPORATE BONDS 1.1%
TAXABLE MUNICIPALS 0.3%
CURRENT 7-DAY YIELD
6.24%*
AVERAGE MATURITY
48 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 WILL FLUCTUATE.
7
<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.
8
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Prime Money Market Portfolio
("Portfolio"), at value $2,719,670
Receivable for Expense Reimbursement 17,760
----------
Total Assets 2,737,430
----------
LIABILITIES
Service Organization Fee Payable 182
Shareholder Servicing Fee Payable 123
Administrative Services Fee Payable 49
Administration Fee Payable 2
Fund Services Fee Payable 2
Accrued Expenses 17,724
----------
Total Liabilities 18,082
----------
NET ASSETS
Applicable to 2,719,351 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $2,719,348
==========
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $2,719,351
Accumulated Net Realized Loss on Investment (3)
----------
Net Assets $2,719,348
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD APRIL 24, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $$15,553
Allocated Portfolio Expenses (350)
-------
Net Investment Income Allocated from
Portfolio 15,203
FUND EXPENSES
Registration Fees $ 8,838
Printing Expenses 2,526
Financial and Fund Accounting Services Fee 2,073
Professional Fees 1,998
Transfer Agent Fees 1,818
Service Organization Fee 224
Shareholder Servicing Fee 143
Trustees' Fees and Expenses 122
Administrative Services Fee 49
Fund Services Fee 3
Administration Fee 2
Miscellaneous 349
--------
Total Fund Expenses 18,145
Less: Reimbursement of Expenses (17,760)
--------
NET FUND EXPENSES 385
-------
NET INVESTMENT INCOME 14,818
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (3)
-------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $14,815
=======
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 24, 2000
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 2000
(UNAUDITED)
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 14,818
Net Realized Loss on Investment Allocated from
Portfolio (3)
------------------
Net Increase in Net Assets Resulting from
Operations 14,815
------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM (AT A CONSTANT
$1.00 PER SHARE)
Net Investment Income (14,818)
------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 2,704,534
Reinvestment of Dividends and Distributions 14,817
------------------
Net Increase from Transactions in Shares of
Beneficial Interest 2,719,351
------------------
Total Increase in Net Assets 2,719,348
NET ASSETS
Beginning of Period --
------------------
End of Period $ 2,719,348
==================
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 24, 2000
(COMMENCEMENT OF
OPERATIONS) THROUGH
MAY 31, 2000
(UNAUDITED)
-------------------
<S> <C>
NET ASSET VALUE , BEGINNING OF PERIOD $ 1.00
------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0068
Net Realized Loss on Investments (0.0000)(a)
------------------
Total from Investment Operations 0.0068
------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0068)
------------------
NET ASSET VALUE, END OF PERIOD $ 1.00
==================
RATIOS AND SUPPLEMENTAL DATA
Total Return 0.63%(b)
Net Assets, End of Period (in thousands) $ 2,719
Ratio to Average Net Assets
Net Expenses 0.30%(c)
Net Investment Income 6.05%(c)
Expenses without Reimbursement 14.80%(c)(d)
</TABLE>
------------------------
(a) Less than $0.0001
(b) Not Annualized.
(c) Annualized.
(d) Not representative of ongoing reimbursements since period covers less than
two months.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MAY 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Institutional Direct Prime Money Market Fund (the "fund") is a
separate series of J.P. Morgan Institutional Funds, a Massachusetts business
trust (the "trust") which was organized on November 4, 1992. The trust is
registered under the Investment Company Act of 1940, as amended, as an open-end
management investment company. The fund commenced operations on April 24, 2000.
The fund invests all of its investable assets in The Prime Money Market
Portfolio (the "portfolio"), a no-load 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 (0% at May
31, 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) 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.
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.
14
<PAGE>
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 2000
--------------------------------------------------------------------------------
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
period April 24, 2000 (commencement of operations) through May 31, 2000,
the fee for these services amounted to $2.
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 subsidary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), under which Morgan is responsible for certain aspects of
the administration and operation of the fund. Under the Services
Agreement, the fund has agreed to pay Morgan a fee equal to its allocable
share of an annual complex-wide charge. This charge is calculated based on
the aggregate average daily net assets of the portfolio and the other
portfolios in which the trust and the J.P. Morgan Funds invest (the
"master portfolios") and J.P. Morgan Series Trust in accordance with the
following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net asets in excess of $7 billion less the complex-wide fees payable
to FDI. The portion of this charge payable by the fund is determined by
the proportionate share that its net assets bear to the net assets of the
trust, the master portfolios, other investors in the master portfolios for
which Morgan provides similar services, and J.P. Morgan Series Trust. For
the period April 24, 2000 (commencement of operations) through May 31,
2000, the fee for these services amounted to $49.
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
0.30% of the average daily net assets of the fund. For the period April
24, 2000 (commencement of operations) through May 31, 2000, J.P. Morgan
has agreed to reimburse the fund $17,760 for expenses under this
agreement. This reimbursement arrangement can be changed or termininated
at any time after February 28, 2001 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 period April 24, 2000 (commencement of operations)
through May 31, 2000, the fee for these services amounted to $143.
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
15
<PAGE>
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 2000
--------------------------------------------------------------------------------
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 0.10% 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 period April 24, 2000
(commencement of operations) through May 31, 2000, the fee for these
services amounted to $224.
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
$3 for the period April 24, 2000 (commencement of operations) through May
31, 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. 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 less than $1.
16
<PAGE>
The Prime Money Market Portfolio
Semiannual Report May 31, 2000
(The following pages should be read in conjunction
with J.P. Morgan Institutional Direct Prime Money Market Fund
Semiannual Financial Statements)
17
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
--------------------- ---------------------------------------- --------------------- ----------- ---------------
<C> <S> <C> <C> <C>
CERTIFICATES OF DEPOSIT -- DOMESTIC (1.9%)
$216,000 Bank America Corp....................... 06/20/00-08/17/00 6.180-6.750% $ 216,000,000
133,000 SunTrust Bank Atlanta................... 06/22/00-04/18/01 6.520-6.770 133,011,891
---------------
349,011,891
---------------
CERTIFICATE OF DEPOSIT -- FOREIGN (14.0%)
300,000 Abbey National PLC, (MTN, Series 1A).... 01/08/01 6.450 299,913,639
452,000 Bayerische Landesbank................... 08/04/00-10/02/00 5.875-5.930 451,815,672
170,000 Credit Communal De Belgique............. 02/22/01-05/03/01 6.760-7.055 169,943,817
350,000 Deutsche Bank........................... 12/01/00-02/22/01 6.190-6.755 349,881,810
205,000 Landesbank Hessen-Thueringen............ 05/08/01 7.143 204,986,428
381,000 Rabobank Nederland...................... 02/15/01-05/02/01 6.660-7.050 380,888,169
526,500 Union Bank of Switzerland............... 07/03/00-04/30/01 5.760-6.880 526,408,902
149,000 Westdeutsche Landesbank Girozentra...... 06/06/00-06/21/00 6.030-6.190 149,000,000
---------------
TOTAL CERTIFICATES OF DEPOSIT --
FOREIGN........................... 2,532,838,437
---------------
COMMERCIAL PAPER -- DOMESTIC (25.1%) (y)
600,714 Alpine Securitization Corp.............. 06/01/00-06/20/00 6.104-6.533 599,524,574
93,000 Asset Securitization Corp............... 06/05/00-06/07/00 5.687-6.510 92,930,875
147,100 Bavaria Trust Corp...................... 06/02/00-06/27/00 5.510-6.161 146,912,417
197,500 BBL North America Funding Corp.......... 06/07/00-08/23/00 6.522-6.624 195,905,286
207,500 Citibank Capital Markets Corp........... 06/01/00-08/22/00 6.184-6.621 205,630,960
85,000 CXC, Inc................................ 08/17/00 6.541 83,789,175
136,763 Enterprise Funding Corp................. 06/07/00-06/30/00 5.535-6.578 139,139,784
100,000 Eureka Securitization Corp.............. 06/08/00-06/27/00 6.226-6.523 99,704,694
155,000 General Electric Capital Corp........... 06/09/00-06/20/00 6.524-6.549 154,710,403
150,000 General Motors Acceptance Corp.......... 06/02/00-06/14/00 6.510-6.530 149,822,979
181,902 HD Real Estate Funding Corp............. 11/21/00 6.831 175,957,847
25,000 Merrill Lynch & Co...................... 06/01/00 6.512 25,000,000
154,409 Monte Rosa Capital Corp................. 06/05/00-08/21/00 6.520-6.621 152,788,782
402,000 Morgan Stanley Dean Witter & Co......... 06/01/00-06/19/00 6.523-6.546 401,499,296
50,000 Newport Funding Corp.................... 06/07/00 6.522 49,950,417
119,687 Parthenon Receivable Funding LLC........ 06/19/00-07/05/00 6.141-6.584 119,181,445
30,000 Private Export Funding Corp............. 06/01/00 6.512 30,000,000
258,097 Receivable Capital Corp................. 06/08/00-06/26/00 5.866-6.523 257,307,181
50,000 SBC Communications, Inc................. 06/16/00-08/21/00 6.001-6.551 123,747,875
160,000 Salomon Smith Barney, Inc............... 06/01/00-06/07/00 6.520-6.667 159,915,278
52,000 Southern California Edison Corp......... 06/02/00 6.510 51,991,406
471,650 Trident Capital, Inc.................... 06/16/00-06/23/00 6.001-6.147 470,118,029
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
--------------------- ---------------------------------------- --------------------- ----------- ---------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER -- DOMESTIC (CONTINUED)
$430,744 Windmill Funding Corp................... 06/05/00-07/05/00 6.184-6.520% $ 429,299,021
230,000 Wisconsin Energy Corp................... 06/01/00-06/29/00 6.102-6.180 229,219,223
---------------
TOTAL COMMERCIAL PAPER-DOMESTIC..... 4,544,046,947
---------------
COMMERCIAL PAPER -- FOREIGN (4.4%) (y)
100,000 Bank of Nova Scotia..................... 06/30/00 6.504 99,470,428
46,500 CDC Commercial Paper Corp............... 06/12/00 5.895 46,407,646
66,500 CS First Boston, Inc.................... 06/16/00-08/21/00 6.521-6.551 66,211,869
335,101 France Telecommunication................ 06/08/00-06/20/00 6.085-6.524 334,231,358
25,000 Halifax Building Society................ 06/06/00 6.521 24,979,410
95,000 Lloyds Bank PLC......................... 06/02/00 6.510 94,984,325
161,000 Province of Quebec...................... 06/01/00-06/16/00 6.512-6.537 70,849,279
52,000 Royal Bank of Scotland Group............ 06/08/00 5.687 51,934,076
---------------
TOTAL COMMERCIAL PAPER -- FOREIGN... 789,068,391
---------------
CORPORATE BOND -- DOMESTIC (0.5%)
85,000 General Electric Capital Corp. (MTN,
Series A)............................. 05/23/01 7.380 85,000,000
---------------
CORPORATE BOND -- FOREIGN (0.5%)
79,389 Inter-American Development Bank......... 02/22/01 5.125 78,572,055
20,625 Ontario Province........................ 06/28/00 6.125 20,623,714
---------------
TOTAL CORPORATE BOND -- FOREIGN..... 99,195,769
---------------
FLOATING RATE NOTES (43.0%) (v)
100,000 American Express Centurion Bank, (due
03/06/01)............................. 06/01/00(a) 6.670 100,000,000
150,000 American Express Centurion Bank, (due
02/09/01)............................. 06/09/00(a) 6.400 149,989,839
25,000 American Express Centurion Bank, (due
04/12/01)............................. 06/12/00(a) 6.455 24,997,837
25,000 American Express Centurion Bank, (due
02/14/01)............................. 06/14/00(a) 6.483 24,996,475
202,500 American Express Centurion Bank......... 06/12/00-07/12/00 6.720-6.750 202,500,241
25,000 AT&T Corp., (due 03/08/01).............. 06/08/00(a) 6.366 24,996,274
25,000 AT&T Capital Corp., (MTN, Series F)..... 06/14/00 7.594 25,012,540
21,500 AT&T Capital Corp., (MTN, Series G, due
12/01/00)............................. 07/07/00(a) 6.971 21,574,065
56,300 AT&T Capital Corp., (MTN, Series G, due
04/09/01)............................. 07/10/00(a) 6.441 56,391,856
470,000 Bank of America NA, (due 04/03/01)...... 06/01/00(a) 6.670 470,000,000
500,000 Bank of Austria, (Series CD, due
02/16/01)............................. 06/16/00(a) 6.450 499,826,952
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
--------------------- ---------------------------------------- --------------------- ----------- ---------------
<C> <S> <C> <C> <C>
FLOATING RATE NOTES (CONTINUED)
$384,500 Bank of Scotland Treasury, (MTN, due
03/05/01) (144A)...................... 06/05/00(a) 6.079% $ 384,484,994
25,000 BankBoston Corp., (MTN, due 03/09/01)... 06/09/00(a) 6.197 25,009,029
139,500 Bayerische Landesbank New York,
(Series CD, due 12/15/00)............. 06/15/00(a) 6.447 139,441,315
270,000 Bayerische Landesbank New York,
(Series CD, due 02/22/01)............. 08/22/00(a) 6.625 269,894,213
142,000 CIT Group, Inc., (MTN, due 01/19/01).... 07/19/00(a) 6.660 141,942,555
200,000 CIT Group, Inc., (MTN, due 02/14/01).... 08/14/00(a) 6.600 199,876,228
175,000 CIT Group, Inc., MTN.................... 08/14/00 6.750 174,965,864
16,590 Caterpillar Financial Services Corp.,
(MTN, Series F, due 10/12/00)......... 06/12/00(a) 6.170 16,595,310
10,000 Caterpillar Financial Services Corp.,
(MTN, Series F, due 09/15/00)......... 06/15/00(a) 6.150 10,001,228
325,000 Chasers-00-1, (due 01/04/01) (144A)..... 07/05/00(a) 6.700 325,000,000
228,000 Citicorp, (MTN, Series F, due
08/02/00)............................. 06/02/00(a) 6.227 228,000,000
8,000 Citicorp, (MTN, Series C, due
02/08/01)............................. 02/08/01(a) 6.923 8,016,616
140,000 Citigroup, Inc., (MTN, Series A, due
04/04/01)............................. 06/05/00(a) 6.315 140,000,000
150,000 Citigroup, Inc., (MTN, Series A, due
06/06/01)............................. 06/10/00(a) 6.431 150,000,000
5,000 Comerica Bank........................... 06/12/00 6.660 4,999,859
53,000 Comerica Bank, (due 02/14/01)........... 06/14/00(a) 6.437 52,979,067
500,000 Commerzbank, (Series CD, due
04/26/01)............................. 06/26/00(a) 6.560 499,911,746
10,000 Commerzbank, (Series CD, due
03/01/01)............................. 06/28/00(a) 6.531 9,996,352
400,000 CS First Boston, Inc. LINCS,
(Series 1998-4, Class 1, due
08/18/00) (144A)...................... 06/19/00(a) 6.584 400,000,000
550,000 CS First Boston, Inc. SPARCS,
(Series 2000, Class 1, due
07/24/00)............................. 07/24/00(a) 6.360 550,000,000
364,000 Deutsche Bank, (Series CD, due
02/16/01)............................. 06/16/00(a) 6.445 363,870,378
20,000 Deutsche Bank........................... 12/13/00(a) 6.452 19,996,286
10,000 First Union National Bank, (due
02/13/01)............................. 08/14/00(a) 6.780 10,006,267
36,500 First Union National Bank, (due
11/13/00)............................. 08/16/00(a) 6.960 36,537,623
81,000 Fleet Financial Group, (MTN, Series P,
due 03/13/01)......................... 06/13/00(a) 6.037 80,922,676
40,000 Fleet Financial Group, (MTN, Series N,
due 10/13/00)......................... 07/13/00(a) 6.343 40,011,220
163,000 Fleet Financial Group, (MTN,
Series N)............................. 07/28/00 6.445 163,025,057
350,000 General Electric Capital Corp., (due
01/02/01)............................. 07/07/00(a) 6.221 350,000,000
6,000 Household Finance Corp., (MTN, due
09/27/00)............................. 06/27/00(a) 6.378 6,004,041
5,000 Household Finance Corp., (due
04/03/01)............................. 07/03/00(a) 6.440 5,005,745
15,000 Household Finance Corp., (due
04/09/01)............................. 07/10/00(a) 6.617 15,022,114
75,000 Key Bank NA, (due 09/07/00)............. 06/07/00(a) 6.150 75,009,016
24,500 Key Bank NA, (due 11/02/00)............. 08/02/00(a) 6.641 24,528,874
220,000 Lehman RACERS 1998-MM-7-1, (due 8/11/00)
(144A)................................ 06/19/00(a) 6.620 220,000,000
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
--------------------- ---------------------------------------- --------------------- ----------- ---------------
<C> <S> <C> <C> <C>
FLOATING RATE NOTES (CONTINUED)
$292,000 Lehman RACERS 1999-25-MM-MBS, (due
09/06/00) (144A)...................... 06/06/00(a) 6.506% $ 292,000,000
165,000 Lehman RACERS 1999-35-MM, (Class A-1,
due 12/15/00) (144A).................. 06/15/00(a) 6.622 165,000,000
34,775 Nationsbank NA, (due 02/26/01).......... 08/29/00(a) 6.870 34,799,973
52,000 Toyota Motor Credit Corp., (MTN, due
01/09/01)............................. 07/10/00(a) 6.181 51,971,967
75,000 US Bank NA Minnesota, (due 04/04/01).... 07/05/00(a) 6.625 74,972,711
100,000 US Bank NA North Dakota, (due
04/04/01)............................. 07/05/00(a) 6.645 99,971,663
342,000 Westdeutsche Landesbank New York,
(Series CD, due 03/23/01)............. 06/23/00(a) 6.530 341,865,213
---------------
TOTAL FLOATING RATE NOTES........... 7,801,921,279
---------------
REPURCHASE AGREEMENT (1.3%)
232,533 Lehman Brothers Repurchase Agreement,
proceeds $232,574,791 (collateralized
by 239,647,908 Federal Home Loan
Mortgage Corp., 6.500%-12.220% due
06/15/06 - 02/15/29, valued at
$87,827,762; $329,486,717 Federal
National Mortgage Association,
6.500%-8.000% due 12/25/04 - 04/25/29
valued at $85,113,896; $135,336,660
Government National Mortgage
Association, 7.500%-8.000% due
02/16/26 - 08/16/29 valued at
$64,244,462).......................... 06/01/00 6.470 232,533,000
---------------
TAXABLE MUNICIPALS (0.3%) (v)
41,145 Sacramento County, (Series A, due
08/15/14), MBIA Insured............... 08/15/00(a) 6.770 41,142,342
6,200 Wake Forest University, (Series 1997,
due 07/01/17), LOC-Wachovia Bank...... 06/07/00(a) 6.640 6,200,000
---------------
TOTAL TAXABLE MUNICIPALS............ 47,342,342
---------------
TIME DEPOSIT -- DOMESTIC (3.2%)
575,000 Suntrust Bank Cayman.................... 06/01/00 6.813-6.875 575,000,000
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
--------------------- ---------------------------------------- --------------------- ----------- ---------------
<C> <S> <C> <C> <C>
TIME DEPOSIT -- FOREIGN (5.2%)
$100,000 Bank of America Grand Cayman............ 06/01/00 6.813% $ 100,000,000
273,379 Banque Nationale De Paris Georgeto...... 06/01/00 6.813 273,379,000
319,000 Chase Nassau............................ 06/01/00 6.813 319,000,000
250,000 Credit Suisse Grand Cayman.............. 06/01/00 6.781 250,000,000
---------------
TOTAL TIME DEPOSITS -- FOREIGN...... 942,379,000
---------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (99.4%)........................... 17,998,337,056
OTHERS ASSETS IN EXCESS OF LIABILITIES (0.6%)................................... 107,236,609
---------------
NET ASSETS (100.0%)............................................................. $18,105,573,665
===============
</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.
(y) Yield to Maturity
144A - Securities restricted for resale to Qualified Institutional Buyers.
LOC - Letter of Credit.
MBIA - Municipal Bond Investors Assurance Corp.
MTN - Medium Term Note.
RACERS - Restructured Asset Certificates.
SPARCS - Structured Product Asset Return.
STEERS - Structured Enhanced Return Trust.
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $17,998,337,056
Interest Receivable 114,573,578
Prepaid Trustees' Fees 36,579
Prepaid Expenses and Other Assets 34,376
---------------
Total Assets 18,112,981,589
---------------
LIABILITIES
Due to Custodian 5,273,919
Advisory Fee Payable 1,594,099
Administrative Services Fee Payable 355,145
Fund Services Fee Payable 14,558
Accrued Expenses 170,203
---------------
Total Liabilities 7,407,924
---------------
NET ASSETS
Applicable to Investors' Beneficial Interests $18,105,573,665
===============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED MAY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $519,977,465
EXPENSES
Advisory Fee $9,078,499
Administrative Services Fee 2,010,483
Custodian Fees and Expenses 764,557
Fund Services Fee 139,027
Trustees' Fees and Expenses 67,111
Administration Fee 64,660
Miscellaneous 73,636
----------
Total Expenses 12,197,973
------------
NET INVESTMENT INCOME 507,779,492
NET REALIZED LOSS ON INVESTMENTS (49,875)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $507,729,617
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
MAY 31, 2000 YEAR ENDED
(UNAUDITED) NOVEMBER 30, 1999
---------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 507,779,492 $ 620,496,096
Net Realized Loss on Investments (49,875) (502,599)
---------------- -----------------
Net Increase in Net Assets Resulting from
Operations 507,729,617 619,993,497
---------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 55,908,757,325 108,543,399,809
Withdrawals (53,736,623,250) (101,517,907,239)
---------------- -----------------
Net Increase from Investors' Transactions 2,172,134,075 7,025,492,570
---------------- -----------------
Total Increase in Net Assets 2,679,863,692 7,645,486,067
NET ASSETS
Beginning of Period 15,425,709,973 7,780,223,906
---------------- -----------------
End of Period $ 18,105,573,665 $ 15,425,709,973
================ =================
</TABLE>
--------------------------------------------------------------------------------
SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED NOVEMBER 30,
MAY 31, 2000 --------------------------------------
(UNAUDITED) 1999 1998 1997 1996 1995
---------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.14%(a) 0.15% 0.17% 0.18% 0.19% 0.19%
Net Investment Income 5.90%(a) 5.07% 5.48% 5.43% 5.29% 5.77%
</TABLE>
------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
MAY 31, 2000
--------------------------------------------------------------------------------
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 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 maximize current income consistent with the preservation of capital and
same-day 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) 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") and a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
26
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
MAY 31, 2000
--------------------------------------------------------------------------------
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 May 31, 2000 such fees
amounted to $9,078,499.
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 May 31, 2000, the fee for
these services amounted to $64,660.
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 May 31, 2000, the fee for these services amounted
to $2,010,483.
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 $139,027 for the six months ended May 31, 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 $26,400.
27
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
DIRECT PRIME MONEY MARKET FUND
FOR MORE INFORMATION ON THE J.P. MORGAN INSTITUTIONAL FUNDS, CALL J.P. MORGAN
FUNDS SERVICES AT (800) 766-7722.
IMSAR1154
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
SEMIANNUAL REPORT
MAY 31, 2000