<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN PRIME MONEY MARKET FUND
January 7, 1998
Dear Shareholder:
Your Fund has changed its name. The JPM Pierpont Prime Money Market Fund is now
the J.P. Morgan Prime Money Market Fund. When J.P. Morgan began advising mutual
funds over 15 years ago, regulatory restrictions prevented us from using our
name in the title of any mutual fund, which led to the JPM acronym and the use
of the name Pierpont, the middle name of J.P. Morgan, our founder. With the
evolution of today's financial marketplace, we are now able to proudly include
the full J.P. Morgan name in the title of your Fund.
We are pleased to report that the J.P. Morgan Prime Money Market Fund produced a
total return of 5.40% for the fiscal year ended November 30, 1997, outperforming
the 5.02% return of its benchmark*. In a changing interest rate environment,
active management of the Portfolio's average maturity, as well as its security
selection, were the reasons for the Fund's relative success during the period.
As seen in the accompanying table, the Fund also produced competitive returns
over the long term, outperforming its benchmark for the three-, five-, and
ten-year periods ended November 30, 1997.
In this report, we have included a portfolio manager Q&A with Robert R. ("Skip")
Johnson, a member of our portfolio management team and lead portfolio manager
for the Fund. In this interview, Skip answers some commonly asked questions
about the Fund, discusses portfolio activity over the twelve month reporting
period and offers an outlook for the months ahead. As always, we welcome your
comments, questions or any suggestions on how we can further improve your
financial reports. Please call J.P. Morgan Funds Services, toll free, at (800)
521-5411.
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
* IBC Taxable Money Fund Average through November 30, 1995, and the IBC First
Tier Money Fund Average thereafter.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . .1 FUND FACTS AND HIGHLIGHTS. . . . .5
FUND PERFORMANCE . . . . . . . . .2 SPECIAL FUND-BASED SERVICES. . . .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 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 in a fund's value over various time periods, typically 1, 5, or 10
years (or since inception). Total returns for periods of less than one year are
not annualized and provide a picture of how a fund has performed over the short
term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
-------------------- ---------------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF NOVEMBER 30, 1997 MONTHS MONTHS YEAR YEARS YEARS YEARS
- ----------------------------------------------------------------- ---------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan Prime Money Market Fund 1.34% 2.70% 5.40% 5.46% 4.59% 5.74%
IBC First Tier Money Fund Average* 1.24% 2.53% 5.02% 5.13% 4.32% 5.46%
Lipper Retail Money Fund Average 1.21% 2.45% 4.88% 5.05% 4.28% 5.42%
AS OF SEPTEMBER 30, 1997
- ----------------------------------------------------------------- ---------------------------------------------
J.P. Morgan Prime Money Market Fund 1.35% 2.69% 5.35% 5.42% 4.52% 5.77%
IBC First Tier Money Fund Average* 1.27% 2.52% 4.98% 5.10% 4.25% 5.48%
Lipper Retail Money Fund Average 1.23% 2.44% 4.86% 5.03% 4.20% 5.44%
</TABLE>
*IBC TAXABLE MONEY FUND AVERAGE THROUGH NOVEMBER 30, 1995, AND THE IBC FIRST
TIER MONEY FUND AVERAGE THEREAFTER.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS. IBC AND LIPPER ANALYTICAL
SERVICES, INC. ARE LEADING SOURCES FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with ROBERT R. ("SKIP") JOHNSON, a member of the
portfolio management team for The Prime Money Market Portfolio, in which the
Fund invests. Prior to joining Morgan in 1988, he held senior positions with the
Bank of Montreal and U.S. Steel. This interview was conducted on January 6, 1998
and reflects Skip's views on that date.
HOW WOULD YOU CHARACTERIZE THE SHORT-TERM FIXED INCOME MARKETS OVER THE PAST 12
MONTHS?
RRJ: All through 1996 and the first quarter of 1997, short-term interest rates
rose. The Federal Reserve tightened monetary policy by raising interest rates 25
basis points on March 25th, and further tightening was expected. However,
economic growth was perceived to be slowing in June and interest rates rallied a
bit. Then in August, there was new concern that the economy may be experiencing
higher growth and thus the need for the Fed to tighten again.
The Fed tightening last March may have increased short-term rates by 25 basis
points, but there has been a significant rally in the market since then and
short-term yields have fallen as investors sought comfort in the Treasury bill
market. Some of the movement into money market funds was a result of the stock
market turbulence, followed by concerns about the currency crisis in the Pacific
Rim. Also, the supply of Treasury bills has decreased due to an improvement in
the Federal budget deficit. And, as always, many people just want to hold
Treasury bills, regardless of the level of interest rates.
The summer rally ended on September 25, with the 3-month Treasury bill hitting a
low of 4.91%. Since then, fears of an overheated U.S. economy again pushed rates
up. Towards the end of the reporting period, in November, seasonal upward
pressures contributed to the back up in rates.
THE FUND HANDILY BEAT IT'S BENCHMARK, THE IBC FIRST TIER MONEY FUND AVERAGE, AND
THE LIPPER INSTITUTIONAL MONEY FUND AVERAGE. WHAT WERE THE MAIN REASONS FOR THIS
STRONG SHOWING?
RRJ: There were two main reasons. First, our average maturity decisions were
right on target. The Portfolio was longer than the benchmark throughout the
summer rally. Then we shortened the Portfolio's average maturity in August. This
allowed the Portfolio to take advantage of seasonal pressures by locking in
higher yields in December. Calling that right helped quite a bit.
The other half of the story was security selection. The Portfolio held several
issues with above average yields. That included some sovereign Korean commercial
paper, which we held to maturity. While distress in the
3
<PAGE>
Korean financial markets made headlines, the Korean sovereign debt we held was
never called into question. When that matured, the Portfolio was able to add
incremental yield by purchasing Japanese bank paper. We are purchasing paper
from the Bank of Tokyo (A1/P1) and Norinchukin Bank (A1+/P1), the two strongest
banks in Japan.
DO YOU THINK THE FED WILL RAISE RATES THIS YEAR?
RRJ: The Fed appears to be in a holding pattern and I don't think we'll see a
tightening without evidence of inflation. The strong dollar really helped put a
lid on inflation in 1997 and that's still intact. Recently, with signs that our
economy may be slowing, the possibility of easing has been mentioned. But the
Fed is still in the restrictive camp, making that even more unlikely without
evidence of a recession.
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
RRJ: The Asian turmoil may put an additional drag on the U.S. economy, which
may be slowing somewhat on its own. We are forecasting slower growth and lower
profit margins in 1998. In the near term, we are in the process of locking in
higher yields as the year-end rise in rates appears to be cresting. As I
mentioned earlier, we anticipated this rise due to seasonal pressures and
protected the Portfolio against it. With these pressures peaking, we have begun
to purchase 9-to-12 month securities, lengthening the Portfolio's average
maturity and seeking to take advantage of these seasonal pressures subsiding.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Prime Money Market Fund seeks to provide current income, maintain
a high level of liquidity, and preserve capital. It is designed for investors
who seek to preserve capital and earn current income from a portfolio of high
quality money market instruments.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
10/01/82
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 11/30/97
$2,318,436,259
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 11/30/97
$4,319,645,807
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
MONTHLY
LONG-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/19/97
EXPENSE RATIO
The Fund's annualized expense ratio of 0.38% covers shareholders' expenses for
custody, tax reporting, investment advisory, and shareholder services. The Fund
is no-load and does not charge any sales, redemption, or exchange fees. There
are no additional charges for buying, selling, or safekeeping Fund shares or for
wiring redemption proceeds from the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF NOVEMBER 30, 1997
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
FLOATING RATE NOTES 36.2%
CERTIFICATES OF DEPOSIT-FOREIGN 17.7%
COMMERCIAL PAPER-FOREIGN 16.2%
COMMERCIAL PAPER-DOMESTIC 14.1%
TIME DEPOSITS-FOREIGN 6.3%
TIME DEPOSITS-DOMESTIC 2.6%
REPURCHASE AGREEMENTS 2.5%
CERTIFICATES OF DEPOSIT-DOMESTIC 1.5%
TAXABLE MUNICIPALS 1.5%
OTHER 1.4%
AVERAGE 7-DAY YIELD
5.40%
AVERAGE MATURITY
34 days
5
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- make investments through the J.P. Morgan Funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in the J.P. Morgan
Funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build
well-balanced long-term investment portfolios, diversified across a wide array
of mutual funds. From money markets to emerging markets, the J.P. Morgan Funds
provide an excellent way to help you accumulate long-term wealth for retirement.
KEOGH
Keoghs provide another excellent vehicle to help individuals who are
self-employed or are employees of unincorporated businesses to accumulate
retirement savings. A Keogh is a tax-deferred pension plan that can allow you to
contribute the lesser of $30,000 or 25% of your annual earned gross
compensation. The J.P. Morgan Funds can help you build a comprehensive
investment program designed to maximize the retirement dollars in your Keogh
account.
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW
YORK SERVES AS AN INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS
CAPACITY AS SHAREHOLDER SERVICING AGENT. SHARES OF THE FUND ARE NOT BANK
DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC.
WHILE THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE,
THERE IS NO ASSURANCE THAT IT WILL CONTINUE TO DO SO.
Past performance is no guarantee for future performance. Returns are net of
fees, assume the reinvestment of fund distributions and may reflect the
reimbursement of the fund expenses as described in the prospectus. Had expenses
not been subsidized, returns would have been lower. The fund invests through a
master portfolio(another fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ IT CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN PRIME MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Prime Money Market Portfolio
("Portfolio"), at value $2,320,289,372
Prepaid Trustees' Fees 3,911
Prepaid Expenses and Other Assets 13,872
--------------
Total Assets 2,320,307,155
--------------
LIABILITIES
Dividends Payable to Shareholders 1,402,234
Shareholder Servicing Fee Payable 266,931
Administrative Services Fee Payable 55,777
Administration Fee Payable 11,182
Fund Services Fee Payable 2,980
Accrued Expenses 131,792
--------------
Total Liabilities 1,870,896
--------------
NET ASSETS
Applicable to 2,318,655,623 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $2,318,436,259
--------------
--------------
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $2,319,015,642
Distributions in Excess of Realized Gain (522,566)
Accumulated Net Realized Loss on Investment (56,817)
--------------
Net Assets $2,318,436,259
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN PRIME MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $127,400,779
Allocated Portfolio Expenses (4,154,046)
------------
Net Investment Income Allocated from
Portfolio 123,246,733
FUND EXPENSES
Shareholder Servicing Fee $3,262,834
Administrative Services Fee 700,635
Transfer Agent Fees 166,213
Registration Fees 90,431
Fund Services Fee 80,429
Administration Fee 70,148
Trustees' Fees and Expenses 43,564
Professional Fees 39,879
Miscellaneous 51,933
----------
Total Fund Expenses 4,506,066
------------
NET INVESTMENT INCOME 118,740,667
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (56,817)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $118,683,850
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN PRIME MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 118,740,667 $ 107,555,270
Net Realized Gain (Loss) on Investment Allocated
from Portfolio (56,817) 164,473
----------------- -----------------
Net Increase in Net Assets Resulting from
Operations 118,683,850 107,719,743
----------------- -----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (118,740,667) (107,555,270)
Net Realized Gain (614,694) (1,163,884)
----------------- -----------------
Total Distributions to Shareholders (119,355,361) (108,719,154)
----------------- -----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT
A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 13,832,380,862 11,935,880,480
Reinvestment of Dividends and Distributions 103,579,455 106,615,817
Cost of Shares of Beneficial Interest Redeemed (13,772,210,572) (12,039,607,579)
----------------- -----------------
Net Increase from Transactions in Shares of
Beneficial Interest 163,749,745 2,888,718
----------------- -----------------
Total Increase in Net Assets 163,078,234 1,889,307
NET ASSETS
Beginning of Fiscal Year 2,155,358,025 2,153,468,718
----------------- -----------------
End of Fiscal Year $ 2,318,436,259 $ 2,155,358,025
----------------- -----------------
----------------- -----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each fiscal year are as
follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED NOVEMBER 30,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0524 0.0509 0.0557 0.0367 0.0281
Net Realized Gain (Loss) on Investment (0.0000)(a) 0.0001 0.0005 (0.0000)(a) 0.0003
----------- ----------- ----------- ----------- -----------
Total from Investment Operations 0.0524 0.0510 0.0562 0.0367 0.0284
----------- ----------- ----------- ----------- -----------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0524) (0.0509) (0.0557) (0.0367) (0.0281)
Net Realized Gain (0.0003) (0.0005) -- -- (0.0003)
----------- ----------- ----------- ----------- -----------
Total Distributions to Shareholders (0.0527) (0.0514) (0.0557) (0.0367) (0.0284)
----------- ----------- ----------- ----------- -----------
NET ASSET VALUE, END OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
RATIOS AND SUPPLEMENTAL DATA
Total Return 5.40% 5.27% 5.71% 3.73% 2.89%
Net Assets, End of Year (in thousands) $ 2,318,436 $ 2,155,358 $ 2,153,469 $ 2,003,690 $ 2,562,713
Ratios to Average Net Assets
Expenses 0.38% 0.40% 0.41% 0.43% 0.43%
Net Investment Income 5.25% 5.09% 5.56% 3.64% 2.82%
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- 0.00%(b) 0.00%(b) 0.01% 0.01%
</TABLE>
- ------------------------
(a) Less than $0.0001.
(b) Less than 0.01%
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Prime Money Market Fund (the "Fund") is a separate series of the
J.P. Morgan 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, prior to its tax-free reorganization on July 11, 1993 to a series of
the Trust, operated as a stand-alone mutual fund. Costs related to the
reorganization were borne by Morgan Guaranty Trust Company of New York
("Morgan"). Prior to January 1, 1998, the Trust's name was The JPM Pierpont
Funds. On December 1, 1996, the Fund's name was The JPM Pierpont Money Market
Fund. The name changed on May 12, 1997 to The JPM Pierpont Prime Money Market
Fund, and on January 1, 1998 to J.P. Morgan Prime Money Market Fund.
The Fund invests all of its investable assets in The Prime Money Market
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
Fund's proportionate interest in the net assets of the Portfolio (54% at
November 30, 1997). 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 1 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 gain, if any, are declared as dividends daily and paid monthly.
Net short-term capital gains, if any, will be distributed in accordance
with the requirements of the Internal Revenue Code of 1986, as amended
(the "Code"), and may be reflected in the Fund's daily dividends.
Substantially all the realized net long-term capital gains, if any, of the
Fund are declared and paid on an annual basis, 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 is treated as a separate entity for federal income tax purposes.
The Fund intends to comply with the provisions of the Code, as amended,
applicable to regulated investment companies and to distribute
substantially all of its income, including net realized capital gains, if
any, within the prescribed time periods. Accordingly, no provision for
federal income or excise tax is necessary. For federal income
12
<PAGE>
J.P. MORGAN PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
tax purposes, the Fund had a capital loss carryforward at November 30,
1997 of $56,817, all of which expires in the year 2005. 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.
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 accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investments Companies." The effect of applying
this statement was to increase Paid-in Capital by $9,203 and increase
Accumulated Net Realized Loss on Investment by $9,203. Net investment
income, net realized gains and net assets were not affected by this
change.
2. TRANSACTIONS WITH AFFILIATES
a) The Trust, on behalf of the Fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the Fund. Under a Co-Administration Agreement between FDI
and the Trust on behalf of the Fund, FDI provides administrative services
necessary for the operations of the Fund, furnishes office space and
facilities required for conducting the business of the Fund, and pays the
compensation of the Fund's officers affiliated with FDI. The Fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund is based on the ratio of the Fund's net
assets to the aggregate net assets of the Trust and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended November 30, 1997, the fee for these services amounted
to $70,148.
b) The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
Fund. Under the Services Agreement, the Fund had agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate average daily net assets
of the Portfolio and the other portfolios in which the Trust and the J.P.
Morgan Institutional Funds invest (the "Master Portfolios") and J.P.
Morgan Series Trust in accordance with the following annual schedule:
0.09% on the first $7 billion of their aggregate average daily net assets
and 0.04% of their aggregate average daily net assets in excess of $7
billion less the complex-wide fees payable to FDI. The portion of this
charge payable by the Fund is determined by the proportionate share that
its net assets bear to the net assets of the Trust, the Master Portfolios,
other investors in the Master Portfolios for which Morgan provides similar
services, and J.P. Morgan Series Trust. For the fiscal year ended November
30, 1997, the fee for these services amounted to $700,635.
c) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services to Fund shareholders. The
13
<PAGE>
J.P. MORGAN PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
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 0.15% of the
Fund's average daily net assets up to and including $2 billion and 0.10%
of any excess over $2 billion. For the fiscal year ended November 30,
1997, the fee for these services amounted to $3,262,834.
Morgan, Charles Schwab & Co. ("Schwab") and the Trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
Fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the Services Agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the Trust and Morgan is terminated, the Fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
d) The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees
of the Trust represent all the existing shareholders of Group. The Fund's
allocated portion of Group's costs in performing its services amounted to
$80,429 for the fiscal year ended November 30, 1997.
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 Institutional 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. Prior to April 1, 1997, the aggregate
annual Trustee Fee was $65,000. 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 $16,200.
3. CONCENTRATION IN SHARES OF BENEFICIAL INTEREST
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund and Portfolio.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Prime Money Market Fund
(formerly The JPM Pierpont Prime Money Market Fund)
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The J.P. Morgan Prime Money Market Fund (one of the series constituting part of
the J.P. Morgan Funds, formerly The JPM Pierpont Funds, hereafter referred to as
the "Fund") at November 30, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the financial highlights for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and financial highlights (hereafter referred to as
"financial statements") are the responsibility of the Fund's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these financial statements in accordance
with generally accepted auditing standards which require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
New York, New York
January 20, 1998
15
<PAGE>
The Prime Money Market Portfolio
Annual Report November 30, 1997
(The following pages should be read in conjunction
with J.P. Morgan Prime Money Market Fund
Annual Financial Statements)
16
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
BANKERS ACCEPTANCE -- FOREIGN (1.1%)
$ 50,000 Dai-Ichi Kangyo Bank............................. 12/29/97 5.620% $ 49,781,444
---------------
CERTIFICATES OF DEPOSIT -- DOMESTIC (1.5%)
64,000 Regions Bank..................................... 12/05/97-06/25/98 5.650-6.00 63,991,878
---------------
CERTIFICATES OF DEPOSIT -- FOREIGN (17.6%)
115,000 Deutsche Bank.................................... 12/17/97-02/03/98 5.570-5.760 114,999,621
45,000 Landesbank Hessen Thuringen...................... 06/09/98-06/19/98 5.940-6.080 44,988,746
11,000 National Westminster Bank, PLC................... 03/05/98-05/26/98 5.660-6.060 10,999,041
180,000 Norinchukin Bank................................. 02/13/98 6.020 180,003,645
10,000 Rabobank Nederland Inst. CTF..................... 03/24/98 5.990 9,998,521
10,000 Royal Bank of Canada............................. 05/12/98 6.140 9,998,730
5,000 San Paolo Bank................................... 12/10/97 5.820 5,000,000
125,000 Societe Generale................................. 12/02/97 5.560 125,000,000
75,000 Sumitomo Bank Yankee CD.......................... 12/09/97 5.600 75,000,000
150,000 Swiss Bank Corp.................................. 03/19/98 5.760-5.980 149,997,172
35,000 Westpac Banking Corp............................. 03/23/98 5.970 34,991,776
---------------
TOTAL CERTIFICATES OF DEPOSIT -- FOREIGN......... 760,977,252
---------------
COMMERCIAL PAPER -- DOMESTIC (14.1%)
40,000 Associate Corp. of North America................. 12/18/97 5.510 39,895,922
205,000 CXC Inc.......................................... 12/10/97-02/20/98 5.520-5.690 203,687,303
28,000 Dupont EI de Nemours & Co........................ 06/05/98 5.460 27,210,120
81,399 Enterprise Funding Corp.......................... 12/01/97-12/05/97 5.510-5.540 81,371,204
109,400 General Electric Capital Corp.................... 01/23/98-02/06/98 5.700 108,350,282
10,385 Southern Co...................................... 02/23/98 5.700 10,246,879
25,000 Trident Capital Finance Inc...................... 01/23/98 5.770 24,787,632
112,943 Windmill Funding Corp............................ 12/05/97-02/13/98 5.520-5.800 111,908,318
---------------
TOTAL COMMERCIAL PAPER -- DOMESTIC............... 607,457,660
---------------
COMMERCIAL PAPER -- FOREIGN (16.1%)
110,000 Bank of Montreal................................. 12/04/97 5.592 109,948,740
199,000 Cregem North America Inc......................... 12/18/97-02/17/98 5.515-5.700 197,958,010
6,692 Den Danske Bank.................................. 12/15/97 5.520 6,677,635
175,000 Export Import Bank of Korea...................... 12/17/97 6.010 174,532,556
25,000 Halifax Building Society......................... 12/08/97 5.640 24,972,583
15,500 KFW International Finance, Inc................... 12/04/97 5.520 15,492,870
28,000 Korea Development Bank........................... 12/23/97 6.000 27,897,333
35,000 Rabobank Nederland N.V........................... 04/29/98 5.550 34,196,021
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
COMMERCIAL PAPER -- FOREIGN (CONTINUED)
$ 47,523 UBS Finance Delaware, Inc........................ 12/01/97 5.760% $ 47,523,000
58,000 Westpac Capital Corp............................. 12/05/97 5.640 57,963,653
---------------
TOTAL COMMERCIAL PAPER -- FOREIGN................ 697,162,401
---------------
FLOATING RATE NOTES (36.1%)(a)
100,000 Asset Backed Securities Investment Trust, Series
1997-C, (resets monthly to one month LIBOR, due
06/15/98) (144A)................................ 12/15/97(b) 5.688 100,000,000
50,000 Asset Backed Securities Investment Trust, Series
1997-E, Class N, (resets monthly to one month
LIBOR, due 08/15/98) (144A)..................... 12/15/97(b) 5.625 50,000,000
27,800 Asset Backed Securities Investment Trust, Series
1995-A, Class 2, (resets monthly to one month
LIBOR -3 basis points, due 08/10/98)............ 12/10/97(b) 5.607 27,793,943
60,000 Bankers Trust, (resets daily to Prime rate -281
basis points, due 04/23/98)..................... 12/01/97(b) 5.690 59,988,623
64,000 Bankers Trust, (resets daily to Fed Fund rate +5
basis points, due 07/07/98)..................... 12/01/97(b) 5.580 63,959,367
100,000 Bayerische Landesbank, (resets monthly to one
month LIBOR -13 basis points, due 06/26/98)..... 12/26/97(b) 5.558 99,955,883
31,500 Corestates Bank, (resets monthly to one month
LIBOR +3 basis points, due 04/21/98)............ 12/31/97(b) 5.598 31,500,000
10,000 Den Danske Bank, (resets monthly to one month
LIBOR -5 basis points, due 03/25/98)............ 12/25/97(b) 5.598 9,999,900
25,000 FCC National Bank, (resets monthly to one month
LIBOR -12 basis points, due 07/02/98)........... 12/01/97(b) 5.536 24,989,828
35,000 FCC National Bank, (resets daily to Fed Fund rate
+20 basis points, due 07/23/98)................. 12/01/97(b) 5.770 35,017,508
25,000 First USA Bank, (resets quarterly to three month
LIBOR +28 basis points, due 02/17/98)........... 02/17/98(b) 6.125 25,017,090
20,000 First USA Bank, (resets quarterly to three month
LIBOR +9 basis points, due 04/28/98)............ 01/28/98(b) 5.930 20,011,181
7,000 First USA Bank, (resets monthly to one month
LIBOR +5 basis points, due 05/07/98)............ 12/16/97(b) 5.738 7,002,667
50,000 First USA Bank, (resets monthly to one month
LIBOR +7 basis points, due 05/13/98)............ 12/15/97(b) 5.758 50,024,139
5,000 First USA Bank, (resets quarterly to three month
LIBOR + 30 basis points, due 07/29/98).......... 01/16/98(b) 6.144 5,010,816
15,000 First USA Bank, (resets quarterly to three month
LIBOR + 30 basis points, due 09/03/98).......... 12/17/97(b) 6.081 15,039,791
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
FLOATING RATE NOTES (CONTINUED)
$ 20,000 First Union Bank of North Carolina, (resets
monthly to one month LIBOR -3 basis points, due
12/19/97)....................................... 12/19/97(b) 5.720% $ 20,000,000
44,200 Jacksonville Health Facility Hospital, (resets
monthly, due 08/15/14).......................... 12/03/97(b) 5.830 44,200,000
162,500 Korea Development Bank, (resets quarterly, due
06/16/98)....................................... 12/16/97(b) 5.843 162,482,994
138,689 Liquid Asset Backed Securities Trust, Series
1997-2, (resets monthly to one month LIBOR, due
06/30/98) (144A)................................ 12/30/97(b) 5.688 138,689,231
94,622 Natwest Asset Trust Securities, Series R-13/14A,
(resets monthly to one month LIBOR + 2 basis
points, due 10/15/01) (144A).................... 12/15/97(b) 5.708 94,622,000
66,500 Old Kent, (resets daily to Prime rate -285 basis
points, due 11/04/98)........................... 12/01/97(b) 5.650 66,500,000
50,000 PNC Bank, N.A., (resets daily to Fed Fund rate +
7 basis points, due 06/04/98)................... 12/01/97(b) 5.720 49,986,098
100,000 Racers 97-MM-8-6, (resets monthly to one month
LIBOR -2 basis points, due 08/28/98) (144A)..... 12/28/97(b) 5.615 99,992,805
75,000 Short Term Card Account Trust, (resets monthly to
one month LIBOR + 2 basis points, due 01/15/98)
(144A).......................................... 12/15/97(b) 5.504 75,001,364
45,000 Societe Generale, (resets daily to Fed Fund rate
+ 9 basis points, due 01/18/98)................. 12/01/97(b) 5.610 44,997,802
137,000 Triangle Funding Ltd. Series 1997-1, (resets
quarterly to three month LIBOR, due 11/15/98)
(144A).......................................... 01/15/98(b) 5.750 137,000,000
---------------
TOTAL FLOATING RATE NOTES........................ 1,558,783,030
---------------
TAXABLE MUNICIPALS (1.5%) (a)
39,240 Sacramento, (resets quarterly to three month
LIBOR, due 08/15/14)............................ 02/14/98(b) 5.500 39,236,875
25,000 Wake Forest University, (resets weekly, due
07/01/17), LOC Wachovia Bank.................... 12/03/97(b) 5.970 25,000,000
---------------
TOTAL TAXABLE MUNICIPALS......................... 64,236,875
---------------
TIME DEPOSITS -- DOMESTIC (2.5%)
110,000 Suntrust Bank.................................... 12/01/97 5.500-5.625 110,000,000
---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
TIME DEPOSITS -- FOREIGN (6.3%)
$ 100,000 Deutsche Bank.................................... 12/01/97 5.750% $ 100,000,000
100,000 Wachovia Bank & Trust, Grand Cayman.............. 12/01/97 5.510 100,000,000
70,000 Westdeutsche Landesbank.......................... 12/02/97 5.594 70,000,000
---------------
TOTAL TIME DEPOSITS -- FOREIGN................... 270,000,000
---------------
U.S. GOVERNMENT AGENCY OBLIGATIONS (0.3%)
11,725 Student Loan Marketing Association............... 12/01/97 5.630 11,725,000
---------------
REPURCHASE AGREEMENTS (2.5%)
6,129 Goldman Sachs Repurchase Agreement, dated
11/28/97, proceeds include interest $6,131,809
(collateralized by $6,027,000 U.S. Treasury
Notes 6.250%, due 05/31/99 valued at
$6,251,824)..................................... 12/01/97 5.500 6,129,000
100,000 Greenwich Capital Repurchase Agreement, dated
11/28/97, proceeds include interest $100,047,917
(collateralized by $128,432,714 GNMA
7.00%-8.250%, due 12/15/08-11/20/27 valued at
$102,000,205)................................... 12/01/97 5.750 100,000,000
---------------
106,129,000
---------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (99.6%).................................. 4,300,244,540
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%)........................................... 19,401,267
---------------
NET ASSETS (100.0%).................................................................... $ 4,319,645,807
---------------
---------------
</TABLE>
- ------------------------------
(a)The Coupon rate shown on floating or adjustable rate securities represents
the rate at the end of the reporting period. The due date in the security
description reflects the final maturity date.
(b) Reflects the next interest rate reset date.
144A -- Securities restricted for resale to Qualified Institutional Buyers.
LOC -- Letter of Credit
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $4,300,244,540
Cash 487,430
Interest Receivable 19,627,584
Prepaid Trustees' Fees 6,851
Prepaid Expenses and Other Assets 22,379
--------------
Total Assets 4,320,388,784
--------------
LIABILITIES
Advisory Fee Payable 428,293
Custody Fee Payable 150,688
Administrative Services Fee Payable 104,558
Fund Services Fee Payable 5,582
Administration Fee Payable 4,315
Accrued Expenses 49,541
--------------
Total Liabilities 742,977
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $4,319,645,807
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $228,228,783
EXPENSES
Advisory Fee $5,063,662
Administrative Services Fee 1,256,131
Custodian Fees and Expenses 686,535
Fund Services Fee 143,027
Administration Fee 96,662
Professional Fees and Expenses 92,381
Trustees' Fees and Expenses 70,918
Miscellaneous 33,130
----------
Total Expenses 7,442,446
------------
NET INVESTMENT INCOME 220,786,337
NET REALIZED LOSS ON INVESTMENTS (105,748)
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $220,680,589
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
NOVEMBER 30, 1997 NOVEMBER 30, 1996
----------------- -----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 220,786,337 $ 185,209,978
Net Realized Gain (Loss) on Investments (105,748) 267,432
----------------- -----------------
Net Increase in Net Assets Resulting from
Operations 220,680,589 185,477,410
----------------- -----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 22,011,079,297 18,847,392,256
Withdrawals (21,760,363,996) (18,519,575,165)
----------------- -----------------
Net Increase from Investors' Transactions 250,715,301 327,817,091
----------------- -----------------
Total Increase in Net Assets 471,395,890 513,294,501
NET ASSETS
Beginning of Fiscal Year 3,848,249,917 3,334,955,416
----------------- -----------------
End of Fiscal Year $ 4,319,645,807 $ 3,848,249,917
----------------- -----------------
----------------- -----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 12, 1993
FOR THE FISCAL YEAR ENDED (COMMENCEMENT OF
NOVEMBER 30, OPERATIONS) TO
----------------------------- NOVEMBER 30,
1997 1996 1995 1994 1993
----- ----- ----- ----- ----------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.18% 0.19% 0.19% 0.20% 0.19%(a)
Net Investment Income 5.43% 5.29% 5.77% 3.90% 2.98%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- 0.00%(b) -- 0.00%(b) --
</TABLE>
- ------------------------
(a) Annualized.
(b) Less than 0.01%.
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Prime Money Market Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no-load, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio's investment objective is to maximize
current income and maintain a high level of liquidity. The Portfolio commenced
operations on July 12, 1993. The Declaration of Trust permits the Trustees to
issue an unlimited number of beneficial interests in the Portfolio. Prior to May
12, 1997, the Portfolio's name was The Money Market 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 triparty repurchase agreements, take 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 Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the Portfolio pays Morgan at an annual rate of 0.20% of the Portfolio's
average daily net assets up to $1 billion and 0.10% on any excess over $1
billion. For the fiscal year ended November 30, 1997, this fee amounted to
$5,063,662.
24
<PAGE>
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
NOVEMBER 30, 1997
- --------------------------------------------------------------------------------
b) The Portfolio has retained Funds Distributor Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the officers
affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the Portfolio is based on
the ratio of the Portfolio's net assets to the aggregate net assets of the
Portfolio and certain other investment companies subject to similar
agreements with FDI. For the fiscal year ended November 30, 1997, the fee
for these services amounted to $96,662.
c) The Portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the Portfolio.
Under the Services Agreement, the Portfolio had agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated based on the aggregate average daily net assets of the
Portfolio and certain other portfolios for which Morgan acts as investment
advisor (the "Master Portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the Portfolio is determined by the proportionate share that its net assets
bear to the net assets of the Master Portfolios, other investors in the
Master Portfolios for which Morgan provides similar services, and J.P.
Morgan Series Trust. For the fiscal year ended November 30, 1997, the fee
for these services amounted to $1,256,131.
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 March 31,
1998. For the fiscal year ended November 30, 1997, there was no
reimbursement 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 $143,027 for the fiscal year ended November 30, 1997.
e) An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the J.P. Morgan Funds, 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. Prior to April 1, 1997,
the aggregate annual Trustee Fee was $65,000. 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 $28,900.
25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Prime Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Prime Money Market Portfolio (the
"Portfolio") at November 30, 1997, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended, and the supplementary data for each of the four years in the
period then ended and for the period July 12, 1993 (commencement of operations)
through November 30, 1993, in conformity with generally accepted accounting
principles. These financial statements and supplementary data (hereafter
referred to as "financial statements") are the responsibility of the Portfolio's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these financial
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at November 30, 1997 by correspondence with the
custodian and brokers and the application of alternative auditing procedures
where confirmations from brokers were not received, provide a reasonable basis
for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
January 20, 1998
26
<PAGE>
J.P. MORGAN FUNDS
FEDERAL MONEY MARKET FUND
PRIME MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
EMERGING MARKETS DEBT FUND
GLOBAL STRATEGIC INCOME FUND
NEW YORK TOTAL RETURN BOND FUND
SHORT TERM BOND FUND
TAX EXEMPT BOND FUND
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
JAPAN EQUITY FUND
FOR MORE INFORMATION ON HOW THE J.P. MORGAN
FUNDS CAN HELP YOU PLAN FOR YOUR FUTURE, CALL
J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
J.P. MORGAN
PRIME MONEY
MARKET FUND
ANNUAL REPORT
NOVEMBER 30, 1997
