[front cover]
J.P. MORGAN
INSTITUTIONAL FEDERAL MONEY MARKET FUND
[jp morgan logo]
Annual Report
October 31, 2000
LETTER TO THE SHAREHOLDERS
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December 1, 2000
Dear Shareholder,
We are pleased to report that the J.P. Morgan Institutional Federal Money
Market Fund outperformed its benchmark, the Lipper Institutional U.S.
Government Money Market Funds Average, for the 12 months ended October 31,
2000. The Fund provided a total return of 6.10% for the fiscal period, while its
benchmark had a return of 5.90%.
The Fund maintained a stable net asset value of $1.00 throughout the period.
On October 31, 2000, the net assets of the Fund were approximately $2.1 billion,
while the assets of the Federal Money Market Portfolio, in which the Fund
invests, amounted to approximately $3.7 billion. Dividends of approximately
$0.06 per share were paid from ordinary income during the period.
On the pages that follow, the Fund's lead portfolio manager, Mark Settles,
discusses the fixed-income market in detail. Mark also explains the factors
that influenced fund performance during the fiscal period, and provides insight
in regard to positioning the Fund for the coming months.
As chairman and president of Asset Management Services, we appreciate your
investment in the Fund. If you have any comments or questions, please contact
your Morgan representative, or call J.P. Morgan Funds Services at (800)
766-7722.
Sincerely yours,
/signature/ /signature/
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
TABLE OF CONTENTS
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Letter to the Shareholders 1
Fund Performance 2
Portfolio Manager Q&A 3
Fund Facts & Highlights 5
Financial Statements 6
1
FUND PERFORMANCE
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EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This calculation takes the Fund's actual return and shows what would
have happened if the Fund had achieved that return by performing at a constant
rate each year. Average annual total returns represent the average yearly change
in a fund's value over various time periods, typically one, five, or ten years
(or since inception).
PERFORMANCE
AVERAGE ANNUAL TOTAL RETURNS
------------------------------------
ONE THREE FIVE SINCE
YEAR YEARS YEARS INCEPTION*
AS OF OCTOBER 31, 2000
J.P. Morgan Institutional Federal
Money Market Fund 6.10% 5.51% 5.44% 4.96%
Lipper Institutional U.S. Government
Money Market Funds Average** 5.90% 5.32% 5.30% 4.88%
AS OF SEPTEMBER 30, 2000
J.P. Morgan Institutional Federal
Money Market Fund 5.99% 5.48% 5.42% 4.94%
Lipper Institutional U.S. Government
Money Market Funds Average** 5.78% 5.29% 5.28% 4.86%
* 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, 2000 is 4.94%.
** Describes the average total return for all funds in the indicated Lipper
category, as defined by Lipper, Inc., and does not take into account applicable
sales charges. Lipper Analytical Services, Inc. is a leading source for mutual
fund data.
Past performance is no guarantee of future results. Fund returns are net of
fees, assume the reinvestment of distributions and reflect reimbursement
of certain fund and portfolio expenses as described in the prospectus. Had
expenses not been subsidized, returns would have been lower.
2
PORTFOLIO MANAGER Q&A
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[photo of Mark Settles]
The following is an interview with MARK SETTLES, vice president and member
of the portfolio management team for the Federal Money Market Portfolio. Mark
joined Morgan in 1994, and spent five years trading fixed-income products in our
New York and London offices before coming to J.P. Morgan Investment Management.
Prior to joining Morgan, he was a foreign exchange trader at The First National
Bank of Chicago, and a teacher of government at the Paideia School in Atlanta,
Georgia. Mark holds a B.A. in economics from Columbia University, and a
Masters of Management from Northwestern University. This interview was conducted
on November 15, 2000, and reflects Mark's views on that date.
WHAT THEMES DOMINATED FIXED INCOME MARKETS OVER THE PAST YEAR?
One key theme of interest to our clients was the announcement--and
subsequent implementation-- of a program by the U.S. Treasury to buy back
government debt and issue fewer securities in the future. An effective reduction
in the supply, of what is globally perceived to be the lowest-risk investment,
profoundly affected the fixed income markets. This has spurred a search for
investment alternatives that can take the place of Treasuries in conservative
portfolios and hedging strategies.
Another key theme surfaced last spring when a senior Treasury official
questioned the nature of implied guarantees associated with certain government
sponsored entities. These agencies have traditionally funded themselves at
quasi-government type levels due to their near "risk-free" status. This
questioning of the government's commitment led to significant volatility in the
agency and mortgage-backed securities markets.
Also during this period, the Federal Reserve continued to raise interest
rates in an effort to tame economic growth. The Fed's last increase of 50 basis
points (0.50%) to 6.5% in May 2000, marked the sixth consecutive rate
increase--totaling 175 basis points (1.75%)--since June 1999. These moves, along
with an announced bias toward further tightening, served to markedly increase
volatility in U.S. and global equity markets. Around the same time, evidence
emerged that our economy was indeed slowing from its previous red-hot pace, and
that global growth was following suit.
As we moved toward the end of this reporting period, we also experienced a
major surge in energy prices. For the most part, corporations lacked the pricing
power to pass along higher costs, and we began to hear talk of a hard landing
for the U.S. economy. The equity markets fell, and the Treasury curve
steepened.
YOU MENTIONED THE REDUCTION OF DEBT ISSUANCE BY THE U.S. TREASURY. IS THIS
ACROSS THE ENTIRE MATURITY SPECTRUM, OR IS IT FOCUSED ON SPECIFIC SEGMENTS?
The U.S. Treasury is attempting to use the budget surplus to shorten the
average maturity of the country's outstanding debt. As a consequence, the very
existence of the 30-year bond and the Treasury Inflation Protected Securities
(TIPs) program has been called into question, and auctions for the 1-year bill,
and 2-, 5-, and 10-year notes have all been reduced. For example, the
traditional monthly auction for the 1-year bill has now moved to a quarterly
auction.
HOW WAS THE FUND POSITIONED OVER THIS PERIOD?
We maintained a barbell structure in the portfolio over the course of the
year just ended, keeping a significant concentration in short-term securities.
We also looked to opportunistically extend the maturity of the portfolio on
price declines in the one-year sector. This strategy allowed us to take
advantage of higher rates on the very short end of the curve as the Fed funds
rate continued to increase. It also allowed us to purchase one-year yields at
attractive levels. The Fund also benefited by holding Agencies, which
contributed to performance during the course of the year.
3
PORTFOLIO MANAGER Q&A
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(Continued)
HOW ARE FIXED INCOME MARKETS ADJUSTING TO THESE AND OTHER CHANGING DYNAMICS?
Short-term fixed income mandates revolve around three essential
requirements: safety, liquidity, and return. With the present and expected
future decline in the availability of low risk Treasuries, all three of these
requirements have to be reevaluated and reintegrated into an investment
strategy. For example, we, and other bond investors, are searching for
acceptable alternatives to Treasuries, such as Agency bonds.
HOW ARE YOU DEALING WITH THESE CHANGES AT J.P. MORGAN?
We're spending a good deal of time educating our clients on the uses of
credit in a conservative portfolio, in particular, the tools and strategies
needed to outperform in this market environment.
We've also taken significant steps toward reengineering our credit process
to take advantage of changing market dynamics. One of these steps has been the
development and implementation of improved guidelines on concentration limits
per credit.
Beyond this, we are continuing to forge closer relationships with both buy-
and sell-side analysts, and we're examining new electronic-based trading
solutions. These steps and others are helping us to fine-tune our credit
process so that we can meet the demands of today's marketplace.
HOW DO YOU SEE THINGS PLAYING OUT IN THE FIXED INCOME MARKETS OVER THE COMING
MONTHS?
We anticipate a bond friendly environment, one marked by continued
moderation in U.S. economic growth. As far as the Fed is concerned, the present
behavior of the market for Fed fund futures suggests that its next move might be
an easing of credit conditions. However, we believe the recent surge in energy
prices, the firmness in unit labor costs, and associated inflationary fears,
should keep the Fed on hold for the time being.
HOW ARE YOU POSITIONING THE FUND IN LIGHT OF THIS OUTLOOK?
We are looking for additional opportunities to extend into the one-year
area, as the LIBOR curve steepens. This is only sensible, when you consider that
the 2-year note presently stands at 5.91%, the 5-year at 5.82%, the 10-year at
5.78%, and long bonds at 5.81%. None of these is close to 6.5%, so we're keeping
as much as possible in short dated maturities.
4
FUND FACTS
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INVESTMENT OBJECTIVE
J.P. Morgan Institutional 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, along with obligations
of select U.S. government agencies.
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Inception Date: 1/4/1993
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Fund Net Assets as of 10/31/2000:
$2,068,563,563
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Portfolio Net Assets as of 10/31/2000:
$3,720,801,285
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Dividend Payable Dates: MONTHLY
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Short-term Capital Gain Payable Date
(if applicable): MONTHLY
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Long-term Capital Gain Payable Date
(if applicable): 12/13/2000
EXPENSE RATIO
The Fund's current expense ratio of 0.20% 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
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All data as of October 31, 2000
DAYS TO MATURITY
(As a percentage of total investment securities)
[data from pie chart]
0-30 Days 54.5%
31-60 Days 18.4%
61-90 Days 3.4%
90+ Days 23.7%
-
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Average 7-day current yield: 6.36%*
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Average Maturity: 45 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. Yields represent past performance and will fluctuate.
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT INSURED BY THE FDIC,
ARE NOT BANK DEPOSITS OR OTHER OBLIGATIONS OF THE FINANCIAL INSTITUTION AND ARE
NOT GUARANTEED BY THE FINANCIAL INSTITUTION. SHARES OF THE FUND ARE SUBJECT TO
INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF THE PRINCIPAL INVESTED. WHILE THE
FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00 PER SHARE, IT IS
POSSIBLE TO LOSE MONEY BY INVESTING IN THIS FUND.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. The Fund invests through a master portfolio (another
fund with the same objective).
CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
5
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
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OCTOBER 31, 2000
ASSETS
Investment in The Federal Money Market
Portfolio (''Portfolio''), at value $2,069,731,516
Receivable for Expense Reimbursements 232,705
Prepaid Trustees' Fees and Expenses 2,269
Prepaid Expenses and Other Assets 2,002
---------------------
TOTAL ASSETS 2,069,968,492
---------------------
LIABILITIES
Dividends Payable to Shareholders 1,014,391
Shareholder Servicing Fee Payable 182,969
Administrative Services Fee Payable 43,843
Fund Services Fee Payable 1,410
Administration Fee Payable 1,017
Accrued Expenses and Other Liabilities 161,299
---------------------
TOTAL LIABILITIES 1,404,929
---------------------
NET ASSETS
Applicable to 2,068,618,651 Shares of
Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $2,068,563,563
=====================
Net Asset Value, Offering and Redemption
Price Per Share $1.00
=====================
ANALYSIS OF NET ASSETS
Paid-in Capital $2,068,617,726
Accumulated Net Realized Loss on Investment (54,163)
---------------------
NET ASSETS $2,068,563,563
=====================
The Accompanying Notes are an Integral Part of the Financial Statements.
6
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF OPERATIONS
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FOR THE YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
INCOME
Allocated Interest Income $105,293,886
Allocated Portfolio Expenses (2,955,510)
---------------------
Net Investment Income Allocated from Portfolio 102,338,376
---------------------
FUND EXPENSES
Shareholder Servicing Fee 1,702,406
Administrative Services Fee 413,001
Registration Fees 209,432
Fund Services Fee 25,843
Transfer Agent Fees 24,401
Professional Fees 20,131
Administration Fee 19,041
Trustees' Fees and Expenses 16,618
Financial and Fund Accounting Services Fee 12,688
Printing Expenses 8,174
Miscellaneous 9,823
---------------------
Total Fund Expenses 2,461,558
Less: Reimbursement of Expenses (2,011,356)
---------------------
Net Fund Expenses 450,202
---------------------
NET INVESTMENT INCOME 101,888,174
---------------------
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 2,861
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $101,891,035
=====================
The Accompanying Notes are an Integral Part of the Financial Statements.
7
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
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FOR THE YEARS ENDED OCTOBER 31
INCREASE IN NET ASSETS 2000 1999
FROM OPERATIONS
Net Investment Income $ 101,888,174 $ 52,767,854
Net Realized Gain (Loss) on Investment
Allocated from Portfolio 2,861 (52,518)
------------------- ------------------
Net Increase in Net Assets
Resulting from Operations 101,891,035 52,715,336
------------------- ------------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (101,888,174) (52,767,854)
Net Realized Gain - (4,506)
------------------- ------------------
Total Distributions to Shareholders (101,888,174) (52,772,360)
------------------- ------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
(AT A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 7,373,293,975 5,106,950,721
Reinvestment of Dividends and Distributions 80,082,403 43,567,694
Cost of Shares of Beneficial Interest Redeemed (6,782,400,660) (4,722,749,543)
------------------- ------------------
Net Increase from Transactions in
Shares of Beneficial Interest 670,975,718 427,768,872
------------------- ------------------
Total Increase in Net Assets 670,978,579 427,711,848
------------------- ------------------
NET ASSETS
Beginning of Year 1,397,584,984 969,873,136
------------------- ------------------
End of Year $2,068,563,563 $1,397,584,984
=================== ==================
The Accompanying Notes are an Integral Part of the Financial Statements.
8
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
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SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
EACH YEAR ARE AS FOLLOWS:
FOR THE YEARS ENDED OCTOBER 31
2000 1999 1998 1997 1996
-------------------------------------------------------------------
NET ASSET VALUE PER SHARE, BEGINNING OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
---------------------------------------------------------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06 0.05 0.05 0.05 0.05
Net Realized Gain (Loss) on Investment 0.00(a) (0.00)(a) 0.00(a) 0.00(a) 0.00(a)
---------------------------------------------------------------------
Total from Investment Operations 0.06 0.05 0.05 0.05 0.05
---------------------------------------------------------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.06) (0.05) (0.05) (0.05) (0.05)
Net Realized Gain - (0.00)(a) - (0.00)(a) (0.00)(a)
---------------------------------------------------------------------
Total Distributions to Shareholders (0.06) (0.05) (0.05) (0.05) (0.05)
---------------------------------------------------------------------
NET ASSET VALUE PER SHARE, END OF YEAR $1.00 $1.00 $1.00 $1.00 $1.00
=====================================================================
RATIOS AND SUPPLEMENTAL DATA
Total Return 6.10% 4.96% 5.48% 5.41% 5.23%
Net Assets, End of Year (in thousands) $2,068,564 $1,397,585 $969,873 $137,306 $109,050
Ratios to Average Net Assets
Net Expenses 0.20% 0.20% 0.20% 0.20% 0.20%
Net Investment Income 5.99% 4.87% 5.31% 5.19% 5.09%
Expenses without Reimbursement 0.32% 0.34% 0.41% 0.46% 0.46%
(a) Less than $0.005.
The Accompanying Notes are an Integral Part of the Financial Statements.
9
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
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OCTOBER 31, 2000
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--The J.P. Morgan Institutional Federal Money Market Fund (the
"Fund'') is a separate series of the J.P. Morgan Institutional Funds, a
Massachusetts business trust (the "Trust'') which was organized on November 4,
1992. The trust is registered under the Investment Company Act of 1940, as
amended, as an open-end management investment company. The Fund commenced
operations on 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 (approximately
55% at October 31, 2000). The performance of the Fund is directly affected by
the performance of the Portfolio. The financial statements of the Portfolio,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States 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:
SECURITY VALUATION--Valuation of securities by the Portfolio is discussed in
Note 1 of the Portfolio's Notes to Financial Statements that are included
elsewhere in this report.
INVESTMENT INCOME -- The Fund earns income, net of expenses, daily on its
investment in the Portfolio. All net investment income, realized and unrealized
gains and losses of the Portfolio is allocated pro-rata among the Fund and other
investors in the Portfolio at the time of such determination.
EXPENSES -- 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.
INCOME TAX STATUS -- It is the Fund's policy to distribute all net
investment income and net realized gains to shareholders and to otherwise
qualify as a regulated investment company under the provisions of the Internal
Revenue Code. Accordingly, no provision has been made for federal or state
income taxes.
DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded
on the ex-dividend date. Distributions from net investment income are declared
daily and paid monthly. Distributions from net short-term realized 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. Distributions from net long-term realized gains, if any,
will be distributed 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.
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2. TRANSACTIONS WITH AFFILIATES
ADMINISTRATIVE SERVICES -- The Trust has an Administrative Services
Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of New
York ("Morgan"), under which Morgan is responsible for certain aspects of the
administration and operation of the Fund. Under the Services Agreement, the
Trust 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 Trust and certain other registered investment companies
for which J.P. Morgan Investment Management, Inc. ("JPMIM") acts as investment
advisor 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 Funds Distributor, Inc. 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 and certain other investment companies for which Morgan
provides similar services.
Morgan has agreed to reimburse the Fund to the extent necessary to maintain
the total operating expenses (which excludes interest and dividend expenses,
taxes and extraordinary items) of the Fund, including the expenses allocated to
the Fund from the Portfolio, at no more than 0.20% of the average daily net
assets of the Fund. This reimbursement arrangement can be changed or terminated
at any time after February 28, 2001 at the option of Morgan.
10
J.P. MORGAN INSTITUTIONAL FEDERAL MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
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(Continued)
OCTOBER 31, 2000
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2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
ADMINISTRATION -- The Trust has retained Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, to serve as the co-administrator and distributor for
the Fund. Under a Co-Administration Agreement between FDI and the Trust, 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 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 and certain other
investment companies for which FDI provides similar services.
SHAREHOLDER SERVICING -- The Trust has a Shareholder Servicing Agreement
with Morgan under which Morgan provides account administration and personal
account maintenance service to Fund shareholders. The agreement provides for the
Fund to pay Morgan a fee for these services that is computed daily and paid
monthly at an annual rate of 0.10% of the average daily net assets of the
Fund.
FUND SERVICES --The Trust has a Fund Services Agreement with Pierpont Group,
Inc. ("PGI") 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 PGI.
Each Trustee receives an aggregate annual fee of $75,000 for serving on the
boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional
Funds, and other registered investment companies in which they invest. The
Trustees' Fees and Expenses shown in the financial statements represent the
Fund's allocated portion of the total Trustees' fees and expenses. The Trust's
Chairman and Chief Executive Officer also serves as Chairman of PGI and
receives compensation and employee benefits from PGI. The allocated portion of
such compensation and benefits included in the Fund Services Fee shown on the
Statement of Operations was $4,900.
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3. FEDERAL INCOME TAXES
For federal income tax purposes, the Fund had a capital loss carryforward as
of October 31, 2000, of approximately $49,657 which expires in 2007.
Accordingly, no capital gains distribution is expected to be paid to
shareholders until net gains have been realized in excess of this amount.
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4. SUBSEQUENT EVENTS
On September 13, 2000, J.P. Morgan & Co. Incorporated and The Chase
Manhattan Corporation announced that they have entered into an agreement and
plan of merger. The transaction is expected to close in December 2000 and is
subject to approval by shareholders of both companies.
11
REPORT OF INDEPENDENT ACCOUNTANTS
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To the Trustees and Shareholders of
J.P. Morgan Institutional 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
J.P. Morgan Institutional Federal Money Market Fund (one of the series
constituting part of the J.P. Morgan Institutional Funds, hereafter referred to
as the "Fund") at October 31, 2000, 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 accounting principles generally accepted
in the United States of America. 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 auditing standards
generally accepted in the United States of America, 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 our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 21, 2000
12
THE FEDERAL MONEY MARKET PORTFOLIO
Annual Report October 31, 2000
(The following pages should be read in conjunction with J.P. Morgan
Institutional Federal Money Market Fund Annual Financial Statements)
13
THE FEDERAL MONEY MARKET PORTFOLIO - SCHEDULE OF INVESTMENTS
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OCTOBER 31, 2000
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------
U.S. GOVERNMENT AGENCY SECURITIES - 100.0%
$100,000,000 FFCB, 6.35%, 2/1/01 $ 99,986,186
88,300,000 FFCB, 6.60%, 3/1/01 88,295,306
2,075,000 FFCB, 5.13%, 4/2/01
50,000,000 FFCB, 5.88%, 7/2/01 49,755,712
250,000,000 FFCB Undivided Interest in Demand Note,
6.47%, 7/3/01 249,999,999
144,354,000 FFCB Discount Notes, 6.42%-6.52%,
11/3/00 to 3/8/01(y) 142,912,762
35,000,000 FFCB, Floater, 6.50%, 11/1/00, resets
daily off PRIME minus 3.00% with no caps 34,997,150
40,000,000 FFCB, Floater, 6.58%, 11/1/00, resets
daily off PRIME minus 2.925% with no caps 39,998,661
25,000,000 FFCB, VRN, 6.45%, 11/10/00, resets
monthly off the 1-month
LIBOR minus 0.17% with no caps 24,998,919
100,000,000 FFCB, VRN, 6.43%, 11/11/00, resets
monthly off the 1-month
LIBOR minus 0.19% with no caps 99,981,558
100,000,000 FFCB, VRN, 6.44%, 11/25/00, resets
monthly off the 1-month
LIBOR minus 0.19% with no caps 100,000,000
47,370,000 FHLB, 4.98%, 11/17/00 47,343,182
40,000,000 FHLB, 6.67%, 4/6/01 39,999,825
50,000,000 FHLB, 6.50%, 4/26/01 49,973,943
1,468,753,000 FHLB Discount Notes, 6.41%-6.62%,
11/1/00 to 3/7/01(y) 1,454,282,870
130,000,000 FHLB, Floater, 6.47%, 11/1/00, resets
daily off PRIME minus 3.03% with no caps 129,943,437
100,000,000 FHLB, Floater, 6.49%, 11/1/00,
resets quarterly off the 3-month
LIBOR minus 0.22% with no caps 99,954,997
100,000,000 FHLB, Floater, 6.42%, 11/15/00,
resets monthly off the 1-month
LIBOR minus 0.20% with no caps 99,945,548
50,000,000 FHLB, Floater, 6.43%, 11/17/00,
resets monthly off the 1-month LIBOR
minus 0.19% with no caps 49,978,795
100,000,000 FHLB, Floater, 6.43%, 11/26/00,
resets monthly off the 1-month
LIBOR minus 0.19% with no caps 99,947,146
125,000,000 FHLB, Floater, 6.55%, 1/19/01,
resets quarterly off the 3-month
LIBOR minus 0.22% with no caps 124,917,726
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------
$200,000,000 FHLB, VRN, 6.50%, 11/1/00, resets daily
off PRIME minus 3.00% with no caps $ 199,984,280
100,000,000 FHLB, VRN, 6.50%, 11/1/00, resets
daily off PRIME minus 3.01% with no caps 99,993,600
100,000,000 FHLB, VRN, 6.43%, 11/20/00, resets
monthly off the 3-month
T-Bill rate minus 0.19% with no caps 99,956,932
130,609,000 SLMA Discount Notes, 6.42%-6.45%,
11/1/00 to 11/22/00(y) 130,329,883
47,398,000 SLMA, MTN, 6.55%, 2/14/01 47,393,344
--------------------
TOTAL INVESTMENTS AT AMORTIZED
COST AND VALUE - 100.0% $3,706,932,326
====================
(Cost $3,706,932,326)
FHLB - Federal Home Loan Bank
FFCB - Federal Farm Credit Bank
LIBOR - London Interbank Offered Rate
MTN - Medium Term Note
resets - The frequency with which a security's coupon changes, based on current
market conditions or an underlying index.
SLMA - Student Loan Marketing Association
VRN - Variable Rate Note. Interest reset date is indicated and used in
calculating the weighted average portfolio maturity. Rate shown is effective
October 31, 2000.
(y) Yield at Maturity
The Accompanying Notes are an Integral Part of the Financial Statements.
14
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
OCTOBER 31, 2000
ASSETS
Investments at Amortized Cost and Value $3,706,932,326
Dividend and Interest Receivable 15,762,543
Prepaid Trustees' Fees and Expenses 2,430
Prepaid Expenses and Other Assets 3,456
---------------------
TOTAL ASSETS 3,722,700,755
---------------------
LIABILITIES
Due to Custodian 1,281,747
Advisory Fee Payable 411,493
Administration Service Fee Payable 78,222
Fund Services Fee Payable 2,546
Administration Fee Payable 1,036
Accrued Expenses and Other Liabilities 124,426
---------------------
TOTAL LIABILITIES 1,899,470
---------------------
NET ASSETS
Applicable to Investors' Beneficial Interests $3,720,801,285
=====================
The Accompanying Notes are an Integral Part of the Financial Statements.
15
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED OCTOBER 31, 2000
INVESTMENT INCOME
INCOME
Interest Income $187,204,325
---------------------
EXPENSES
Advisory Fee 4,031,308
Administrative Services Fee 735,431
Custodian Fees and Expenses 315,249
Professional Fees 53,051
Fund Services Fee 46,373
Trustees' Fees and Expenses 32,457
Administration Fee 19,778
Printing Expenses 9,583
Insurance Expenses 3,813
Miscellaneous 646
---------------------
Total Expenses 5,247,689
---------------------
NET INVESTMENT INCOME 181,956,636
---------------------
NET REALIZED GAIN ON INVESTMENTS 5,077
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $181,961,713
=====================
The Accompanying Notes are an Integral Part of the Financial Statements.
16
THE FEDERAL MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED OCTOBER 31
INCREASE IN NET ASSETS 2000 1999
FROM OPERATIONS
Net Investment Income $ 181,956,636 $ 90,037,557
Net Realized Gain (Loss) on Investments 5,077 (93,004)
------------------- -------------------
Net Increase in Net Assets Resulting from Operations 181,961,713 89,944,553
------------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 15,453,027,028 9,653,493,366
Withdrawals (14,195,010,506) (8,926,190,523)
------------------- -------------------
Net Increase from Investors' Transactions 1,258,016,522 727,302,843
------------------- -------------------
Total Increase in Net Assets 1,439,978,235 817,247,396
------------------- -------------------
NET ASSETS
Beginning of Year 2,280,823,050 1,463,575,654
------------------- -------------------
End of Year $3,720,801,285 $2,280,823,050
=================== ===================
SUPPLEMENTARY DATA
FOR THE YEARS ENDED OCTOBER 31
2000 1999 1998 1997 1996
---------------------------------------------------
Ratios to Average Net Assets
Net Expenses 0.17% 0.20% 0.20% 0.20% 0.20%
Net Investment Income 6.00% 4.85% 5.31% 5.18% 5.08%
Expenses without Reimbursement 0.17% 0.20% 0.25% 0.28% 0.27%
The Accompanying Notes are an Integral Part of the Financial Statements.
17
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
OCTOBER 31, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION -- 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 accounting
principles generally accepted in the United States 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:
SECURITY VALUATIONS -- 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.
SECURITY TRANSACTIONS -- Security transactions are accounted for as of the
trade date. Realized gains and losses are determined on the identified cost
basis, which is also used for federal income tax purposes.
INVESTMENT INCOME -- Interest income is recorded on the accrual basis and
includes accretion of discounts and amortization of premiums.
INCOME TAX STATUS -- 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 provisions of the Internal
Revenue Code.
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
ADVISORY -- 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 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.
ADMINISTRATIVE SERVICES -- 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 registered investment companies for which JPMIM acts as
investment advisor 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 Funds Distributor, Inc. 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 Trust and certain other investment
companies for which Morgan provides similar services.
ADMINISTRATION -- The Portfolio has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as the co-administrator and
distributor for the Fund. 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 Portfolio's
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 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 Trust and certain other investment companies for which FDI provides
similar services.
FUND SERVICES -- The Portfolio has a Fund Services Agreement with Pierpont
Group, Inc. ("PGI") 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 PGI.
18
THE FEDERAL MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Continued)
OCTOBER 31, 2000
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
Each Trustee receives an aggregate annual fee of $75,000 for serving on the
boards of the Trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds,
and other registered investment companies in which they invest. The Trustees'
Fees and Expenses shown in the financial statements represent the Fund's
allocated portion of the total Trustees' fees and expenses. The Trust's Chairman
and Chief Executive Officer also serves as Chairman of PGI and receives
compensation and employee benefits from PGI. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown on the
Statement of Operations was $8,800.
- --------------------------------------------------------------------------------
3. SUBSEQUENT EVENTS
On September 13, 2000, J.P. Morgan & Co. Incorporated and The Chase
Manhattan Corporation announced that they have entered into an agreement and
plan of merger. The transaction is expected to close in December 2000 and is
subject to approval by shareholders of both companies.
19
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, 2000, 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 accounting principles generally accepted
in the United States of America. 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 auditing standards generally accepted
in the United States of America, 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, 2000 by correspondence with the custodian, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
December 21, 2000
20
[back cover]
J.P. MORGAN INSTITUTIONAL FUNDS
Federal Money Market Fund
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Prime Money Market Fund
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Treasury Money Market Fund
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Tax Aware Enhanced Income Fund:
Institutional Shares
---------------------------------------------------------------------
Tax Exempt Money Market Fund
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Short Term Bond Fund
---------------------------------------------------------------------
Bond Fund
---------------------------------------------------------------------
Global Strategic Income Fund
---------------------------------------------------------------------
Tax Exempt Bond Fund
---------------------------------------------------------------------
California Bond Fund:
Institutional Shares
---------------------------------------------------------------------
New York Tax Exempt Bond Fund
---------------------------------------------------------------------
Diversified Fund
---------------------------------------------------------------------
Disciplined Equity Fund
---------------------------------------------------------------------
Large Cap Growth Fund:
Institutional Shares
---------------------------------------------------------------------
Market Neutral Fund:
Institutional Shares
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Tax Aware Disciplined Equity Fund:
Institutional Shares
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U.S. Equity Fund
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U.S. Small Company Fund
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Emerging Markets Equity Fund
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European Equity Fund
---------------------------------------------------------------------
International Equity Fund
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International Opportunities Fund
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SmartIndex(tm) Fund:
Institutional Shares
---------------------------------------------------------------------
For more information on the J.P. Morgan
Institutional Funds, call J.P.
Morgan Funds Services at (800) 766-7722.
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Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-ANN-23755 1000