<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN FEDERAL MONEY MARKET FUND
June 1, 1999
Dear Shareholder,
The previous six-month period was marked by continued strength in the U.S.
economy, coupled with benign inflation and a steepening yield curve. During
this period, the J.P. Morgan Federal Money Market Fund posted a 2.27% return,
besting the 2.13% return of the IBC U.S. Government & Agency Money Market Fund
Average and the 2.14% return of the Lipper U.S. Government Money Market Funds
Average. The fund's current average seven-day yield is 4.39%.
The fund maintained a stable net asset value of $1.00 over the period. On
April 30, 1999, the net assets of the fund were approximately $780 million,
while the assets of The Federal Money Market Portfolio, in which the fund
invests, amounted to approximately $1.75 billion. Dividends of approximately
$0.0225 per share were paid from ordinary income.
This report includes a discussion with Robert Johnson, the portfolio manager
primarily responsible for The Federal Money Market Portfolio. In this
interview, Skip 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) 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
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS . . . .1 GLOSSARY OF TERMS . . . . . . . . . . .5
FUND PERFORMANCE . . . . . . . . .2 FUND FACTS AND HIGHLIGHTS . . . . . . .6
PORTFOLIO MANAGER Q&A. . . . . . .3 FINANCIAL STATEMENTS. . . . . . . . . .8
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes a fund's actual (or cumulative) return and shows what
would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over a specified time period, typically one,
five, or ten years (or since inception). Total returns for periods of less than
one year are not annualized and provide a picture of how a fund has performed
over the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- -------------------------------------
THREE SIX ONE FIVE SINCE
AS OF APRIL 30, 1999 MONTHS MONTHS YEAR YEARS INCEPTION*
- ------------------------------------------------------------- -------------------------------------
<S> <C> <C> <C> <C> <C>
J.P. Morgan Federal Money Market Fund 1.09% 2.27% 4.91% 5.05% 4.56%
IBC U.S. Government & Agency
Money Market Fund Average 1.04% 2.13% 4.57% 4.71% 4.11%
Lipper U.S. Government
Money Market Funds Average 1.03% 2.14% 4.64% 4.83% 4.39%
AS OF MARCH 31, 1999
- ------------------------------------------------------------- -------------------------------------
J.P. Morgan Federal Money Market Fund 1.11% 2.32% 4.98% 5.03% 4.57%
IBC U.S. Government & Agency
Money Market Fund Average 1.05% 2.17% 4.63% 4.69% 4.11%
Lipper U.S. Government
Money Market Funds Average 1.05% 2.19% 4.72% 4.81% 4.39%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON JANUARY 4, 1993, AND HAS PROVIDED A TOTAL
RETURN OF 4.55% FROM THAT DATE THROUGH APRIL 30, 1999. FOR THE PURPOSE OF
COMPARISON, THE "SINCE INCEPTION" RETURNS IN THE TITLE ABOVE ARE CALCULATED FROM
JANUARY 31, 1993, THE FIRST DATE WHEN DATA FROM THE FUND, ITS BENCHMARK, AND ITS
LIPPER CATEGORY AVERAGE WERE ALL AVAILABLE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT REIMBURSEMENT OF
CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES
NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. IBC IS A
NATIONALLY-RECOGNIZED SOURCE OF MONEY MARKET FUND DATA. LIPPER ANALYTICAL
SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The following is an interview with ROBERT R. ("SKIP") JOHNSON, vice president, a
member of the portfolio management team for The Federal Money Market Portfolio,
in which the fund invests. Prior to joining Morgan in 1988, Skip held positions
with the Bank of Montreal and U.S. Steel, and founded the merchant banking firm
of R.R. Johnson Associates. He is a graduate of Dartmouth College. This
interview was conducted on May 18, 1999, and reflects Skip's views on that date.
WHAT FACTORS HAVE MOST INFLUENCED THE MONEY MARKETS OVER THE PAST SIX MONTHS?
RRJ: In the U.S., the economy has continued to be strong, even stronger than we
had expected. The strength of the equity markets, and the tremendous wealth
effect that has resulted for both households and corporations, has driven this
economic growth. Our economist believes this wealth effect was a major reason
the U.S. was able to shrug off the economic sluggishness seen globally. Such
persistent strength, particularly when coupled with signs of a rebound in global
economic growth like we have been seeing, would often incite the Federal Reserve
to bump up interest rates. But with inflation remaining in check, the Fed has
maintained its neutral stance, although it just announced a shift to a
tightening bias from a neutral one. But since tightening is not expected to take
place in the near term, we saw a modest steepening of the yield curve during the
period, particularly in the past few months.
Globally, things are beginning to settle down. The Fed was forced to ease
short-term rates three times in the fourth quarter of 1998 in response to global
economic crises. Of late, however, there are indications that the global economy
is beginning to stabilize, as evinced by industrial production growth in Japan
and firming prices of oil and other commodities. This, combined with benign
inflation, is bolstering investor confidence and our confidence that non-U.S.
growth is bottoming.
TO WHAT DO YOU ATTRIBUTE THE PORTFOLIO'S PERFORMANCE OVER THE PERIOD?
RRJ: Performance was strong over the past six months. Since the portfolio
invests entirely in the obligations of the handful of U.S. government agencies,
performance is mostly derived from our ability to manage the portfolio's
maturity and liquidity. We increased the mix of overnight floating-rate
securities in the portfolio, to about one-half from one-third, as the stronger
domestic economy has caused rates to rise. At the same time, we extended the
maturity of our longer-term holdings, while still maintaining a laddered profile
in the longer-term segment of the portfolio. Overall, we kept the average
maturity long within its 60-day limit throughout the six-month period. As
always, we kept focused on managing the portfolio's liquidity so we can have
assets available to take advantage of any investment opportunities that may
arise and to meet redemptions.
3
<PAGE>
WHAT DO YOU SEE ON THE HORIZON IN THE MONEY MARKETS, AND HOW WILL YOU POSITION
THE PORTFOLIO?
RRJ: We expect the U.S. economy to continue to be strong; in fact, we recently
raised our 1999 GDP forecast again. But since we also expect inflation to
continue to be benign, we think the Fed will stick with its patient approach to
rates and remain on hold in the near term, despite its shift to a tightening
bias. This should result in continued steepening of the yield curve. Regardless,
we believe that concern in the market about the economy's continued strength may
override recent indications that inflation remains in check. As a result, we
expect the 30-year Treasury bond to trade between 5.40% and 6.00%, with risk on
the upside of that range.
4
<PAGE>
GLOSSARY OF TERMS
AVERAGE MATURITY: The weighted average time to maturity of the entire portfolio
with the weights equal to the percentage of the portfolio invested in each
security (see Maturity).
CREDIT RATING: The rating assigned to a bond or note by independent rating
agencies such as Standard & Poor's Corporation and Moody's Investors Service. In
evaluating creditworthiness, these agencies assess the issuer's present
financial condition and future ability and willingness to make principal and
interest payments when due.
CREDIT RISK: Financial risk that an obligation will not be paid and a loss will
result.
LETTER OF CREDIT: Instrument or document issued by a bank guaranteeing the
payment of a customer's drafts up to a stated amount and eliminating the
seller's risk.
MATURITY: The date on which the life of a financial instrument ends through cash
or physical settlement or expiration with no value or the date a security comes
due and fully payable.
VARIABLE RATE DEMAND NOTE: Note representing borrowings that is payable on
demand and that bears interest tied to a base money market rate, usually the
bank prime rate. The rate on the note is adjusted upward or downward each time
the base rate changes.
YIELD: Coupon rate of interest on a bond divided by the purchase price. As a
bond's price falls, its yield rises and vice versa.
YIELD CURVE: A graph showing the term structure or level of interest rates
ranging from the shortest to the longest maturities. The resulting curve shows
if short-term interest rates are higher or lower than long-term rates. Normally,
the longer the bond, the higher the yield it offers, resulting in a positive
yield curve. An inverted yield curve can occur when there are supply/demand
imbalances for various maturities, which results in short-term rates at higher
levels than longer-term instruments.
YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.00% and a municipal is yielding 5.00%,
the yield spread is 1.00% or 100 basis points.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Federal Money Market Fund seeks to provide high current income
consistent with the preservation of capital and same-day liquidity. It is
designed for investors who seek to preserve capital and earn current income from
a portfolio of direct obligations of the U.S. Treasury and obligations of
certain U.S. government agencies.
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
1/4/93
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/99
$780,132,690
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 4/30/99
$1,746,121,178
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
SHORT-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
MONTHLY
LONG-TERM CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/99
EXPENSE RATIO
The fund's current annualized expense ratio of 0.47% covers shareholders'
expenses for custody, tax reporting, investment advisory, and shareholder
services, after reimbursement. The fund is no-load and does not charge any
sales, redemption, or exchange fees. There are no additional charges for buying,
selling, or safekeeping fund shares, or for wiring redemption proceeds from the
fund.
FUND HIGHLIGHTS
ALL DATA AS OF APRIL 30, 1999
DAYS TO MATURITY
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
0-30 DAYS 68.2%
31-60 DAYS 13.3%
61-90 DAYS 6.8%
90+ DAYS 11.7%
</TABLE>
AVERAGE 7-DAY CURRENT YIELD
4.39%
AVERAGE LIFE
44 days
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. WHILE THE FUND SEEKS
TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, THERE IS NO ASSURANCE
THAT IT WILL CONTINUE TO DO SO.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. The fund invests through a master portfolio (another
fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Federal Money Market Portfolio
("Portfolio"), at value $782,494,642
Prepaid Trustees' Fees 726
Prepaid Expenses and Other Assets 2,795
------------
Total Assets 782,498,163
------------
LIABILITIES
Dividends Payable to Shareholders 2,086,461
Shareholder Servicing Fee Payable 173,998
Administrative Services Fee Payable 17,462
Fund Services Fee Payable 331
Administration Fee Payable 612
Accrued Expenses 86,609
------------
Total Liabilities 2,365,473
------------
NET ASSETS
Applicable to 780,153,331 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $780,132,690
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $780,153,330
Accumulated Net Realized Loss on Investment (20,640)
------------
Net Assets $780,132,690
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $17,100,359
Allocated Portfolio Expenses (Net of
Reimbursement of $10,232) (682,495)
-----------
Net Investment Income Allocated from
Portfolio 16,417,864
FUND EXPENSES
Shareholder Servicing Fee $ 858,070
Administrative Services Fee 89,967
Registration Fees 16,810
Transfer Agent Fees 14,725
Professional Fees 8,435
Fund Services Fee 7,024
Administration Fee 5,294
Trustees' Fees and Expenses 3,182
Miscellaneous 13,825
----------
Total Fund Expenses 1,017,332
Less: Reimbursement of Expenses (96,130)
----------
NET FUND EXPENSES 921,202
-----------
NET INVESTMENT INCOME 15,496,662
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (16,620)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $15,480,042
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 15,496,662 $ 19,235,356
Net Realized Loss on Investment Allocated from
Portfolio (16,620) (581)
-------------- ----------------
Net Increase in Net Assets Resulting from
Operations 15,480,042 19,234,775
-------------- ----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (15,496,662) (19,235,356)
Net Realized Gain (3,440) (1,057)
-------------- ----------------
Total Distributions to Shareholders (15,500,102) (19,236,413)
-------------- ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT
A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 2,345,324,190 2,782,024,862
Reinvestment of Dividends and Distributions 6,037,487 12,322,474
Cost of Shares of Beneficial Interest Redeemed (2,034,094,351) (2,570,534,440)
-------------- ----------------
Net Increase from Transactions in Shares of
Beneficial Interest 317,267,326 223,812,896
-------------- ----------------
Total Increase in Net Assets 317,247,266 223,811,258
NET ASSETS
Beginning of Period 462,885,424 239,074,166
-------------- ----------------
End of Period $ 780,132,690 $ 462,885,424
-------------- ----------------
-------------- ----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED OCTOBER 31,
APRIL 30, 1999 ----------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0225 0.0513 0.0501 0.0489 0.0536 0.0333
Net Realized Gain (Loss) on Investment (0.0000)(a) (0.0000)(a) 0.0001 0.0006 0.0004 (0.0000)(a)
---------------- -------- -------- -------- -------- --------
Total from Investment Operations 0.0225 0.0513 0.0502 0.0495 0.0540 0.0333
---------------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0225) (0.0513) (0.0501) (0.0489) (0.0536) (0.0333)
Net Realized Gain (0.0000)(a) (0.0000)(a) (0.0005) (0.0003) -- (0.0002)
---------------- -------- -------- -------- -------- --------
Total Distributions to Shareholders (0.0225) (0.0513) (0.0506) (0.0492) (0.0536) (0.0335)
---------------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
---------------- -------- -------- -------- -------- --------
---------------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Total Return 2.27%(b) 5.25% 5.17% 5.03% 5.49% 3.41%
Net Assets, End of Period (in thousands) $ 780,133 $462,885 $239,074 $185,424 $171,120 $118,631
Ratios to Average Net Assets
Net Expenses 0.47%(c) 0.43% 0.40% 0.40% 0.40% 0.40%
Net Investment Income 4.51%(c) 5.11% 5.00% 4.89% 5.36% 3.40%
Expenses without Reimbursement 0.50%(c) 0.51% 0.52% 0.53% 0.55% 0.62%
</TABLE>
- ------------------------
(a) Less than $0.0001.
(b) Not Annualized.
(c) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Federal 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 commenced operations on January 4, 1993.
The fund invests all of its investable assets in The Federal Money Market
Portfolio (the "portfolio"), a diversified open-end management investment
company having the same investment objective as the fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
fund's proportionate interest in the net assets of the portfolio (45% at April
30, 1999). 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.
f) For federal income tax purposes, the fund had a capital loss carryforward
at October 31, 1998 of $581, all of which expires in the year 2006. To the
extent that this capital loss is used to offset future capital gains, it
is probable that gains so offset will not be distributed to shareholders.
12
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the six
months ended April 30, 1999, the fee for these services amounted to
$5,294.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), under which Morgan is responsible for certain aspects of
the administration and operation of the fund. Under the Services
Agreement, the fund has agreed to pay Morgan a fee equal to its allocable
share of an annual complex-wide charge. This charge is calculated based on
the aggregate average daily net assets of the portfolio and the other
portfolios in which the trust and the J.P. Morgan 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 six months ended April 30, 1999, the fee for
these services amounted to $89,967.
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
0.55% of the average daily net assets of the fund. Prior to March 1, 1999,
the percentage was 0.45%. The total operating expenses is a blended ratio
which is based on reimbursements in effect for the six months ended April
30, 1999, and may not necessarily represent the actual amount incurred by
the shareholder. This reimbursement arrangement can be changed or
terminated at any time at the option of J.P. Morgan. For the six months
ended April 30, 1999, J.P. Morgan has agreed to reimburse the fund
$106,362 for expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services 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 0.25% of the average daily net assets of
the fund. For the six months ended April 30, 1999, the fee for these
services amounted to $858,070.
13
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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
$7,024 for the six months ended April 30, 1999.
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. The trust's Chairman and Chief Executive
Officer also serves as Chairman of Group and receives compensation and
employee benefits from Group in his role as Group's Chairman. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown in the financial statements was $1,500.
14
<PAGE>
The Federal Money Market Portfolio
Semiannual Report April 30, 1999
(unaudited)
(The following pages should be read in conjunction
with J.P. Morgan Federal Money Market Fund
Semiannual Financial Statements)
15
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30,1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL YIELD TO
AMOUNT MATURITY/
(IN THOUSANDS) SECURITY DESCRIPTION MATURITY DATES RATE VALUE
- -------------- ------------------------------------------------- --------------------- ------------ ---------------
<C> <S> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (105.2%)
$ 173,350 Federal Farm Credit Bank......................... 05/03/99-04/03/00 4.717-5.600% $ 173,275,180
80,000 Federal Farm Credit Bank (due 08/24/99).......... 05/24/99(a) 4.692 79,982,860
45,000 Federal Farm Credit Bank (due 09/01/99).......... 06/01/99(a) 4.830 44,994,062
125,000 Federal Farm Credit Bank (due 12/01/99).......... 06/01/99(a) 4.820 125,000,000
200,000 Federal Farm Credit Bank (due 02/01/00).......... 05/01/99(a) 4.768 199,970,207
100,000 Federal Farm Credit Bank (due 05/03/00).......... 06/03/99(a) 4.791 99,960,400
260,850 Federal Home Loan Bank........................... 05/05/99-02/24/00 4.727-5.705 260,988,073
120,000 Federal Home Loan Bank (due 01/26/00)............ 05/03/99(a) 4.850 120,000,000
75,000 Federal Home Loan Bank (due 04/14/00)............ 05/03/99(a) 4.955 74,964,242
156,550 Federal Home Loan Bank Discount Note............. 05/03/99-05/19/99 4.670-4.900 156,374,896
84,015 Student Loan Marketing Association............... 06/02/99-02/08/00 4.930-5.630 84,055,250
100,000 Student Loan Marketing Association (due
10/29/99)...................................... 05/03/99(a) 4.920 100,000,000
94,990 Student Loan Marketing Association Discount
Note........................................... 05/03/99-05/04/99 4.630-4.650 94,959,079
223,367 Tennessee Valley Authority Discount Note......... 05/05/99-05/21/99 4.640-4.700 222,930,516
---------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (105.2%)................................. 1,837,454,765
LIABILITIES IN EXCESS OF OTHER ASSETS (-5.2%).......................................... (91,333,587)
---------------
NET ASSETS (100.0%).................................................................... $ 1,746,121,178
---------------
---------------
</TABLE>
- ------------------------------
(a)Date listed represents the next interest rate reset date. The actual maturity
date is indicated in the security description.
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $1,837,454,765
Interest Receivable 8,951,175
Receivable for Expense Reimbursement 2,532
Prepaid Trustees' Fees 655
Prepaid Expenses and Other Assets 6,762
--------------
Total Assets 1,846,415,889
--------------
LIABILITIES
Due to Custodian 2,318
Payable for Investments Purchased 99,960,400
Advisory Fee Payable 239,584
Administrative Services Fee Payable 40,494
Administration Fee Payable 1,603
Fund Services Fee Payable 781
Accrued Expenses 49,531
--------------
Total Liabilities 100,294,711
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,746,121,178
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $44,171,875
EXPENSES
Advisory Fee $1,382,858
Administrative Services Fee 233,543
Custodian Fees and Expenses 98,203
Professional Fees and Expenses 26,486
Fund Services Fee 18,626
Trustees' Fees and Expenses 9,803
Administration Fee 8,639
Miscellaneous 7,781
----------
Total Expenses 1,785,939
Less: Reimbursement of Expenses (26,521)
----------
NET EXPENSES 1,759,418
-----------
NET INVESTMENT INCOME 42,412,457
NET REALIZED LOSS ON INVESTMENTS (50,274)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $42,362,183
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
--------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 42,412,457 $ 48,874,713
Net Realized Gain (Loss) on Investments (50,274) 178
--------------- ----------------
Net Increase in Net Assets Resulting from
Operations 42,362,183 48,874,891
--------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 5,059,524,611 6,623,456,255
Withdrawals (4,819,341,270) (5,585,739,299)
--------------- ----------------
Net Increase from Investors' Transactions 240,183,341 1,037,716,956
--------------- ----------------
Total Increase in Net Assets 282,545,524 1,086,591,847
NET ASSETS
Beginning of Period 1,463,575,654 376,983,807
--------------- ----------------
End of Period $ 1,746,121,178 $ 1,463,575,654
--------------- ----------------
--------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE FISCAL YEAR ENDED
SIX MONTHS ENDED OCTOBER 31,
APRIL 30, 1999 --------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.20%(a) 0.20% 0.20% 0.20% 0.20% 0.22%
Net Investment Income 4.78%(a) 5.31% 5.18% 5.08% 5.55% 3.65%
Expenses without Reimbursement 0.20%(a) 0.25% 0.28% 0.27% 0.26% 0.27%
</TABLE>
- ------------------------
(a) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30,1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Federal Money Market Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on November 4, 1992. The portfolio's investment objective
is to provide high current income consistent with the preservation of capital
and same-day liquidity. The portfolio commenced operations on January 4, 1993.
The Declaration of Trust permits the trustees to issue an unlimited number of
beneficial interests in the portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) Investments are valued at amortized cost which approximates market value.
The amortized cost method of valuation values a security at its cost at
the time of purchase and thereafter assumes a constant amortization to
maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instruments.
The portfolio's custodian or designated subcustodians, as the case may be
under tri-party repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the
portfolio. It is the policy of the portfolio to value the underlying
collateral daily on a mark-to-market basis to determine that the value,
including accrued interest, is at least equal to the repurchase price plus
accrued interest. In the event of default of the obligation to repurchase,
the portfolio has the right to liquidate the collateral and apply the
proceeds in satisfaction of the obligation. Under certain circumstances,
in the event of default or bankruptcy by the other party to the agreement,
realization and/or retention of the collateral or proceeds may be subject
to legal proceedings.
b) Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
c) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The cost of securities is substantially the
same for book and tax purposes.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management, Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan"), and a wholly owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
20
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1999
- --------------------------------------------------------------------------------
agreement, the portfolio pays JPMIM at an annual rate of 0.20% of the
portfolio's average daily net assets up to $1 billion and 0.10% on any
excess over $1 billion. For the six months ended April 30, 1999, such fees
amounted to $1,382,858.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the officers
affiliated with FDI. The portfolio has agreed to pay FDI fees equal to its
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the portfolio is based on
the ratio of the portfolio's net assets to the aggregate net assets of the
portfolio and certain other investment companies subject to similar
agreements with FDI. For the six months ended April 30,1999, the fee for
these services amounted to $8,639.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for certain
aspects of the administration and operation of the portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and other portfolios for which JPMIM acts as investment advisor
(the "master portfolios") and J.P. Morgan Series Trust in accordance with
the following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge payable by the portfolio is
determined by the proportionate share that its net assets bear to the net
assets of the master portfolios, other investors in the master portfolios
for which Morgan provides similar services, and J.P. Morgan Series Trust.
For the six months ended April 30, 1999, the fee for these services
amounted to $233,543.
In addition, J.P. Morgan has agreed to reimburse the portfolio to the
extent necessary to maintain the total operating expenses of the portfolio
at no more than 0.20% of the average daily net assets of the portfolio.
This reimbursement arrangement can be changed or terminated at any time at
the option of J.P. Morgan. For the six months ended April 30, 1999, J.P.
Morgan has agreed to reimburse the portfolio $26,521 for expenses under
this agreement.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $9,803 for the six months ended April 30, 1999.
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
21
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1999
- --------------------------------------------------------------------------------
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 $3,900.
22
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
IM0399-M
J.P. MORGAN
FEDERAL MONEY
MARKET FUND
SEMIANNUAL REPORT
APRIL 30, 1999
