<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<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 (99.7%)
$ 25,000 Federal Farm Credit Bank (due 01/14/99).......... 11/02/98(a) 5.040% $ 24,998,531
50,000 Federal Farm Credit Bank (due 02/10/99).......... 11/02/98(a) 5.010 49,993,952
40,000 Federal Farm Credit Bank......................... 03/02/99-05/03/99 5.375-5.600 39,980,250
25,000 Federal Farm Credit Bank (due 05/20/99).......... 11/20/98(a) 5.017 24,989,863
80,000 Federal Farm Credit Bank (due 08/24/99).......... 11/24/98(a) 4.999 79,955,885
45,000 Federal Farm Credit Bank (due 09/01/99).......... 12/01/98(a) 5.498 44,985,323
261,389 Federal Farm Credit Bank Discount Note........... 11/16/98-01/14/99 4.730-5.100 260,108,968
50,000 Federal Home Loan Bank (due 02/11/99)............ 11/11/98(a) 5.210 49,990,432
100,000 Federal Home Loan Bank (due 03/10/99)............ 11/02/98(a) 5.180 99,979,289
50,000 Federal Home Loan Bank (due 05/05/99)............ 11/05/98(a) 5.165 49,981,344
65,000 Federal Home Loan Bank........................... 12/17/98-07/06/99 5.415-5.825 64,978,591
362,730 Federal Home Loan Bank Discount Note............. 11/04/98-02/16/99 4.740-5.080 360,590,933
50,000 Student Loan Marketing Association (due
01/27/99)...................................... 11/02/98(a) 5.200 49,995,330
10,000 Student Loan Marketing Association............... 02/10/99 5.400 9,997,573
100,000 Student Loan Marketing Association (due
10/29/99)...................................... 11/02/98(a) 5.250 100,000,000
50,000 Student Loan Marketing Association Discount
Note........................................... 01/19/99 4.990 49,452,486
100,000 Tennessee Valley Authority Discount Note......... 11/30/98-12/18/98 4.750-5.320 99,475,652
---------------
TOTAL INVESTMENTS AT AMORTIZED COST AND VALUE (99.7%)..................................... 1,459,454,402
OTHER ASSETS IN EXCESS OF LIABILITIES (0.3%).............................................. 4,121,252
---------------
NET ASSETS (100.0%)....................................................................... $ 1,463,575,654
---------------
---------------
</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.
18
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $1,459,454,402
Cash 5,693
Interest Receivable 4,351,587
Receivable for Expense Reimbursement 58,115
Prepaid Trustees' Fees 1,067
Prepaid Expenses and Other Assets 9,146
--------------
Total Assets 1,463,880,010
--------------
LIABILITIES
Advisory Fee Payable 212,708
Administrative Services Fee Payable 35,783
Custody Fee Payable 26,194
Administration Fee Payable 3,181
Fund Services Fee Payable 1,223
Accrued Expenses 25,267
--------------
Total Liabilities 304,356
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $1,463,575,654
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $50,716,068
EXPENSES
Advisory Fee $1,736,610
Administrative Services Fee 264,799
Custodian Fees and Expenses 141,173
Professional Fees and Expenses 52,676
Fund Services Fee 25,893
Administration Fee 12,377
Trustees' Fees and Expenses 11,800
Amortization of Organization Expenses 974
Miscellaneous 10,878
----------
Total Expenses 2,257,180
Less: Reimbursement of Expenses (415,825)
----------
NET EXPENSES 1,841,355
-----------
NET INVESTMENT INCOME 48,874,713
NET REALIZED GAIN ON INVESTMENTS 178
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $48,874,891
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<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, 1998 OCTOBER 31, 1997
---------------- ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 48,874,713 $ 17,100,620
Net Realized Gain on Investments 178 36,079
---------------- ----------------
Net Increase in Net Assets Resulting from
Operations 48,874,891 17,136,699
---------------- ----------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 6,623,456,255 2,410,983,122
Withdrawals (5,585,739,299) (2,346,071,346)
---------------- ----------------
Net Increase from Investors' Transactions 1,037,716,956 64,911,776
---------------- ----------------
Total Increase in Net Assets 1,086,591,847 82,048,475
NET ASSETS
Beginning of Fiscal Year 376,983,807 294,935,332
---------------- ----------------
End of Fiscal Year $ 1,463,575,654 $ 376,983,807
---------------- ----------------
---------------- ----------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
OCTOBER 31,
--------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.20% 0.20% 0.20% 0.20% 0.22%
Net Investment Income 5.31% 5.18% 5.08% 5.55% 3.65%
Expenses without Reimbursement 0.25% 0.28% 0.27% 0.26% 0.27%
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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 current income, maintain a high level of liquidity and preserve
capital. 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.
d) The portfolio incurred organization expenses in the amount of $27,491
which were deferred and are amortized on a straight-line basis over a
period not to exceed five years beginning with the commencement of
operations of the portfolio.
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 1, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co.
22
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
Incorporated ("J.P. Morgan"). Under the terms of the agreement, the
portfolio paid 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. Effective October 1, 1998 the portfolio's investment advisor is
J.P. Morgan Investment Management Inc. ("JPMIM"), an affiliate of Morgan
and a wholly owned subsidiary of J.P. Morgan, and the terms of the
agreement have remained the same. For the fiscal year ended October 31,
1998, such fees amounted to $1,736,610.
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, 1998, the fee
for these services amounted to $12,377.
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 certain 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, 1998, the fee
for these services amounted to $264,799.
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, 1999. For the fiscal year ended October 31, 1998,
J.P. Morgan has agreed to reimburse the portfolio $415,825 for expenses
under this agreement. This reimbursement arrangement can be changed or
terminated at any time after February 28, 1999 at the option of J.P.
Morgan.
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 $25,893 for the fiscal year ended October 31, 1998.
23
<PAGE>
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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 $5,400.
24
<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, 1998, 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, 1998 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1998
25
