<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN FEDERAL MONEY MARKET FUND
December 1, 1999
Dear Shareholder:
The fiscal year ended October 31, 1999 was a volatile one for bonds and the
J.P. Morgan Federal Money Market Fund. The fund returned 4.66% for the
period, outperforming the Lipper U.S. Government Money Market Funds Average's
return of 4.39%. Security selection and active maturity management
contributed to the fund's return for the period. The fund's current average
seven-day yield is 4.87%
The fund's net asset value remained $1.00 per share. The fund's total net
assets were approximately $869.7 million while the net assets of the
portfolio, in which the fund invests, totaled approximately $2.3 billion on
October 31, 1999, the end of the reporting period. Diviends of approximately
$0.05 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 events in the fixed income markets, portfolio
performance, and what he sees on the horizon.
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 OCTOBER 31, 1999 MONTHS MONTHS YEAR YEARS INCEPTION*
.................................................................................... .....................................
<S> <C> <C> <C> <C> <C>
J.P. Morgan Federal Money Market Fund 1.21% 2.34% 4.66% 5.12% 4.58%
Lipper U.S. Government
Money Market Funds Average 1.13% 2.20% 4.39% 4.90% 4.39%
AS OF SEPTEMBER 30, 1999
.................................................................................... .....................................
J.P. Morgan Federal Money Market Fund 1.18% 2.28% 4.65% 5.11% 4.57%
Lipper U.S. Government
Money Market Funds Average 1.11% 2.16% 4.39% 4.90% 4.40%
</TABLE>
*Average annual total returns are based on the month end following inception.
The fund's average annual total return since its commencement of operations
on January 4, 1993 through October 31, 1999 is 4.56%.
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. 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
and member of the portfolio management team for the Federal Money Market
Portfolio, in which the fund invests. Prior to joining Morgan in 1988, Skip
founded R.R. Johnson Associates, merchant bankers. He also held senior
positions with the Bank of Montreal and U.S. Steel. This interview was
conducted on November 3, 1999 and reflects Skip's views on that date.
WHAT FACTORS HAVE MOST INFLUENCED THE MONEY MARKETS OVER THE PAST TWELVE
MONTHS?
RJ: The past year has been a volatile one for the financial markets and has
kept the U.S. Federal Reserve on its toes. The crises that plagued the global
economy from August through October last year prompted the Fed to act three
times in the last four months of 1998, lowering the federal funds rate 75
basis points to 4.75%. The ensuing pace of global recovery surprised many
market participants, but the Fed's actions served its purposes: keeping the
global economy on an even keel and promoting growth within the U.S. economy.
The Fed then found itself with an economy growing above trend albeit with
benign inflation and subdued wage pressures. In an effort to slow growth and
create a "soft landing" the Fed raised rates twice (in June and August),
bringing the fed funds rate back to 5.25%.
At the same time that the Fed is tightening monetary policy, however, a
liquidity crunch is developing. Market makers, leery of taking risks
following last fall's crises, have dramatically reduced their inventories. In
addition, there is a general undercurrent of "what if Y2K really is a
problem" that has both investors and issuers heading for the sidelines for
the remainder of the year. Also - and this is a longer-term trend - because
of the budget surplus, the Treasury has been able to reduce issuance. This
reduced issuance has carried over into agencies and two of the four we invest
in, Sallie Mae and TVA, significantly cut back on issuance during this time.
HOW DID THE PORTFOLIO PERFORM OVER THE YEAR? TO WHAT DO YOU ATTRIBUTE THIS?
RJ: The portfolio performed well over the year. Although Sallie Mae and TVA
both cut back on issuance, this has not affected our ability to find
compelling investments as Federal Home Loan and Federal Farmers Credit Bank
have taken up much of the slack. We have been investing a bit further out the
yield curve over the past twelve months and have an average life-to-maturity
of 40-60 days. We positioned the portfolio to be able to take advantage of
attractive opportunities at the "longer" end of the yield curve.
3
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE MONEY MARKETS? HOW WILL YOU POSITION THE
PORTFOLIO AS A RESULT?
RJ: The Fed is caught in an interesting position: it has to provide liquidity
at a time when it must also raise interest rates to dampen growth. The Fed
will be adding liquidity through a currency facility, a bank loan facility
(through the discount loan window), and a temporarily expanded repo facility.
In addition to the accommodative actions of the Fed, the Treasury is issuing
cash management bills over the year-end and Fannie Mae has instituted weekly
3- and 6-month auctions. At this point, we anticipate demand to outstrip
supply, driving down the yields on these securities. We still expect the Fed
to raise rates at least one more time in the next few months. While wage
pressures may still be in check, the size of the current account deficit and
the weakening dollar, and, of course, the continued strength of the economy,
are concerns for the Fed.
We do not intend to make any significant changes to the portfolio in the
coming months. In anticipation of potential Y2K-related inflows (or outflows)
around year-end, we are evaluating and monitoring shareholder sentiment as
well as dealer positions. We will continue to manage liquidity to handle
cashflows and to take advantage of investment opportunities. The challenge we
face, should we see very large inflow ahead of Y2K, is finding attractive
investments.
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 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 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 10/31/99
$869,737,929
...............................................................................
PORTFOLIO NET ASSETS AS OF 10/31/99
$2,280,823,050
...............................................................................
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 expense ratio of 0.48% 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 OCTOBER 31, 1999
DAYS TO MATURITY
(PERCENTAGE OF TOTAL INVESTMENTS)
- - 0-30 DAYS 57.2%
- - 31-60 DAYS 12.1%
- - 61-90 DAYS 13.0%
- - 90+ DAYS 17.7%
AVERAGE 7-DAY CURRENT YIELD
4.87%*
AVERAGE LIFE
43 days
*Yield reflects the reimbursement of certain fund expenses as described in
the prospectus. Had expenses not been subsidized, the average 7-day current
yield would have been lower.
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND
ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. WHILE THE
FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING IN THE FUND.
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
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Federal Money Market Portfolio
("Portfolio"), at value $872,591,322
Prepaid Trustees' Fees 1,145
Prepaid Expenses and Other Assets 2,915
------------
Total Assets 872,595,382
------------
LIABILITIES
Dividends Payable to Shareholders 2,522,593
Shareholder Servicing Fee Payable 180,925
Administrative Services Fee Payable 17,779
Administration Fee Payable 969
Fund Services Fee Payable 459
Accrued Expenses 134,728
------------
Total Liabilities 2,857,453
------------
NET ASSETS
Applicable to 869,778,075 Shares of Beneficial
Interest Outstanding
(par value $0.0001, unlimited shares
authorized) $869,737,929
============
Net Asset Value, Offering and Redemption Price
Per Share $1.00
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $869,778,075
Accumulated Net Realized Loss on Investment (40,146)
------------
Net Assets $869,737,929
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $37,319,659
Allocated Portfolio Expenses (Net of
Reimbursement of $26,429) (1,457,825)
-----------
Net Investment Income Allocated from
Portfolio 35,861,834
FUND EXPENSES
Shareholder Servicing Fee $1,849,530
Administrative Services Fee 191,101
Registration Fees 34,629
Transfer Agent Fees 31,830
Professional Fees 16,997
Fund Services Fee 14,921
Administration Fee 10,975
Trustees' Fees and Expenses 6,214
Miscellaneous 42,379
----------
Total Fund Expenses 2,198,576
Less: Reimbursement of Expenses (96,130)
----------
NET FUND EXPENSES 2,102,446
-----------
NET INVESTMENT INCOME 33,759,388
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (36,125)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $33,723,263
===========
</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 FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 33,759,388 $ 19,235,356
Net Realized Loss on Investment Allocated from
Portfolio (36,125) (581)
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 33,723,263 19,234,775
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (33,759,388) (19,235,356)
Net Realized Gain (3,440) (1,057)
--------------- ---------------
Total Distributions to Shareholders (33,762,828) (19,236,413)
--------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST (AT
A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 4,311,235,470 2,782,024,862
Reinvestment of Dividends and Distributions 11,844,674 12,322,474
Cost of Shares of Beneficial Interest Redeemed (3,916,188,074) (2,570,534,440)
--------------- ---------------
Net Increase from Transactions in Shares of
Beneficial Interest 406,892,070 223,812,896
--------------- ---------------
Total Increase in Net Assets 406,852,505 223,811,258
NET ASSETS
Beginning of Fiscal Year 462,885,424 239,074,166
--------------- ---------------
End of Fiscal Year $ 869,737,929 $ 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 FISCAL YEAR ENDED OCTOBER 31,
----------------------------------------------------------------------------------
1999 1998 1997 1996 1995
-------------- -------------- -------------- -------------- --------------
<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 0.0456 0.0513 0.0501 0.0489 0.0536
Net Realized Gain (Loss) on Investment (0.0000)(a) (0.0000)(a) 0.0001 0.0006 0.0004
-------- -------- -------- -------- --------
Total from Investment Operations 0.0456 0.0513 0.0502 0.0495 0.0540
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0456) (0.0513) (0.0501) (0.0489) (0.0536)
Net Realized Gain (0.0000)(a) (0.0000)(a) (0.0005) (0.0003) --
-------- -------- -------- -------- --------
Total Distributions to Shareholders (0.0456) (0.0513) (0.0506) (0.0492) (0.0536)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
======== ======== ======== ======== ========
RATIOS AND SUPPLEMENTAL DATA
Total Return 4.66% 5.25% 5.17% 5.03% 5.49%
Net Assets, End of Year (in thousands) $869,738 $462,885 $239,074 $185,424 $171,120
Ratio to Average Net Assets
Net Expenses 0.48% 0.43% 0.40% 0.40% 0.40%
Net Investment Income 4.57% 5.11% 5.00% 4.89% 5.36%
Expenses without Reimbursement 0.50% 0.51% 0.52% 0.53% 0.55%
</TABLE>
- ------------------------
(a) Less than $0.0001.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 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 (38% at
October 31, 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, 1999 of $36,706, in which $581 expires in the year 2006 and
$36,125 expires in the year 2007. To the extent that this capital loss is
used to offset future capital gains, it is probable that gains so offset
will not be distributed to shareholders.
12
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 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
fiscal year ended October 31, 1999, the fee for these services amounted to
$10,975.
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 fiscal year ended October 31, 1999, the fee
for these services amounted to $191,101.
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 through February 28,
2001. 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 fiscal year ended October 31, 1999, and may not necessarily
represent the actual amount incurred by the shareholder. This
reimbursement arrangement can be changed or terminated at any time after
February 28, 2001 at the option of J.P. Morgan. For the fiscal year ended
October 31, 1999, J.P. Morgan has agreed to reimburse the fund $122,559
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 fiscal year ended October 31, 1999, the fee for these
services amounted to $1,849,530.
13
<PAGE>
J.P. MORGAN FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 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
$14,921 for the fiscal year ended October 31, 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 $2,800.
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Federal 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 Federal Money Market Fund (one of the series constituting part
of The J.P. Morgan Funds, hereafter referred to as the "fund") at October 31,
1999, 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.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
15
<PAGE>
The Federal Money Market Portfolio
Annual Report October 31, 1999
(The following pages should be read in conjunction
with J.P. Morgan Federal Money Market Fund
Annual Financial Statements)
16
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 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 (99.6%)
$ 180,000 Federal Farm Credit Bank......................... 12/01/99-04/03/00 4.800-5.302% $ 179,980,104
200,000 Federal Farm Credit Bank (due 02/01/2000)........ 11/01/99(a) 5.230 199,990,069
100,000 Federal Farm Credit Bank (due 05/03/2000)........ 11/03/99(a) 5.220 99,980,092
15,000 Federal Farm Credit Bank Discount Note........... 11/09/99 5.140 14,982,867
100,000 Federal Farm Credit Bank Discount Note (due
10/10/2010).................................... 11/10/99(a) 5.239 100,000,000
90,000 Federal Home Loan Bank........................... 02/08/00-05/17/00 4.915-5.100 89,965,764
120,000 Federal Home Loan Bank (due 01/26/2000).......... 11/01/99(a) 5.350 120,000,000
75,000 Federal Home Loan Bank (due 04/14/2000).......... 11/01/99(a) 5.355 74,983,094
90,000 Federal Home Loan Bank (due 05/11/2000).......... 11/01/99(a) 5.305 89,981,115
100,000 Federal Home Loan Bank (due 09/01/2000).......... 11/01/99(a) 5.380 99,967,500
100,000 Federal Home Loan Bank (due 10/10/2000).......... 11/03/99(a) 5.380 99,935,731
150,000 Federal Home Loan Bank (due 10/04/2000).......... 12/04/99(a) 5.924 149,904,737
901,008 Federal Home Loan Bank Discount Note............. 11/01/99-03/15/00 5.100-5.540 892,578,953
40,000 Student Loan Marketing Association............... 02/08/00 4.930 40,000,000
20,300 Tennessee Valley Authority Discount Note......... 11/08/99 5.050 20,280,066
--------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (99.6%)................................. 2,272,530,092
OTHER ASSETS IN EXCESS OF LIABILITIES (0.4%).......................................... 8,292,958
--------------
NET ASSETS (100.0%)................................................................... $2,280,823,050
==============
</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.
17
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $2,272,530,092
Cash 616
Interest Receivable 8,692,199
Prepaid Trustees' Fees 1,916
Prepaid Expenses and Other Assets 7,389
--------------
Total Assets 2,281,232,212
--------------
LIABILITIES
Advisory Fee Payable 267,870
Administrative Services Fee Payable 45,945
Administration Fee Payable 1,449
Fund Services Fee Payable 1,165
Accrued Expenses 92,733
--------------
Total Liabilities 409,162
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $2,280,823,050
==============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $93,690,613
EXPENSES
Advisory Fee $2,858,791
Administrative Services Fee 480,385
Custodian Fees and Expenses 242,170
Professional Fees and Expenses 50,369
Fund Services Fee 36,961
Administration Fee 16,872
Trustees' Fees and Expenses 16,454
Miscellaneous 14,081
----------
Total Expenses 3,716,083
Less: Reimbursement of Expenses (63,027)
----------
NET EXPENSES 3,653,056
-----------
NET INVESTMENT INCOME 90,037,557
NET REALIZED (LOSS) ON INVESTMENTS (93,004)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $89,944,553
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
OCTOBER 31, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 90,037,557 $ 48,874,713
Net Realized Gain (Loss) on Investments (93,004) 178
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 89,944,553 48,874,891
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 9,653,493,366 6,623,456,255
Withdrawals (8,926,190,523) (5,585,739,299)
--------------- ---------------
Net Increase from Investors' Transactions 727,302,843 1,037,716,956
--------------- ---------------
Total Increase in Net Assets 817,247,396 1,086,591,847
NET ASSETS
Beginning of Fiscal Year 1,463,575,654 376,983,807
--------------- ---------------
End of Fiscal Year $ 2,280,823,050 $ 1,463,575,654
=============== ===============
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each year are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED OCTOBER 31,
---------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.20% 0.20% 0.20% 0.20% 0.20%
Net Investment Income 4.85% 5.31% 5.18% 5.08% 5.55%
Expenses without Reimbursement 0.20% 0.25% 0.28% 0.27% 0.26%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 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"), a wholly owned subsidiary of J.P.
Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
21
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 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 fiscal year ended October 31, 1999, such
fees amounted to $2,858,791.
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 October 31, 1999, the fee
for these services amounted to $16,872.
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 fiscal year ended October 31, 1999, the fee for these services
amounted to $480,385.
In addition, J.P. Morgan has agreed to reimburse the portfolio to the
extent necessary to maintain the total operating expenses of the portfolio
at no more than 0.20% of the average daily net assets of the portfolio
through February 28, 2001. This reimbursement arrangement can be changed
or terminated at any time after February 28, 2001 at the option of J.P.
Morgan. For the fiscal year ended October 31, 1999, J.P. Morgan has agreed
to reimburse the portfolio $63,027 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 $36,961 for the fiscal year ended October 31, 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
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 $7,600.
22
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Federal 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 Federal Money Market Portfolio (the
"portfolio") at October 31, 1999, the results of its operations for the year
then ended, the changes in its net assets for each of the two years in the
period then ended and the supplementary data for each of the five years in the
period then ended, in conformity with generally accepted accounting principles.
These financial statements and supplementary data (hereafter referred to as
"financial statements") are the responsibility of the portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards, which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits, which included confirmation
of securities at October 31, 1999 by correspondence with the custodian, provide
a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1999
23
<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.
IM0778-M
J.P. MORGAN
FEDERAL MONEY MARKET FUND
ANNUAL REPORT
OCTOBER 31, 1999
