[front cover]
J.P. Morgan Institutional Direct
Prime Money Market Fund
Annual Report
November 30, 2000
LETTER TO THE SHAREHOLDERS
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January 8, 2001
Dear Shareholder,
We are pleased to report that the J.P. Morgan Institutional Direct Prime
Money Market Fund outperformed its peer group, as measured by the Lipper
Institutional Money Market Funds Average, for the period April 30, 2000 to
November 30, 2000. The Fund provided a total return of 3.79% for the period,
while its peer group had a return of 3.67% for the same time period.
The Fund maintained a stable net asset value of $1.00 throughout the fiscal
year. On November 30, 2000, the net assets of the Fund were approximately $49
million, while the net assets of The Prime Money Market Portfolio, in which the
Fund invests, amounted to approximately $21 billion. Dividends of approximately
$0.04 per share were paid from ordinary income during the period.
On the pages that follow, The Prime Money Market Portfolio's lead portfolio
manager, Mark Settles, discusses the fixed-income market in detail. Mark
explains the factors that influenced investment performance during the fiscal
period, and provides insight in regard to positioning the Portfolio 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,
/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
of a fund's value over various time periods, typically one, five, and ten years,
(or since inception).
PERFORMANCE
TOTAL AVERAGE ANNUAL
RETURNS TOTAL RETURNS
---------- -----------------------------------
ONE THREE FIVE TEN
YEAR* YEARS* YEARS* YEARS*
AS OF NOVEMBER 30, 2000
J.P. Morgan Institutional Direct Prime Money Market Fund 6.22% 5.50% 5.43% 4.96%
Lipper Institutional Money Market Funds Average** 6.08% 5.44% 5.39% 4.99%
AS OF SEPTEMBER 30, 2000
J.P. Morgan Institutional Direct Prime Money Market Fund 5.99% 5.44% 5.40% 4.98%
Lipper Institutional Money Market Funds Average** 5.89% 5.40% 5.38% 5.01%
* The Fund's total return since its inception on April 24, 2000 through November
30, 2000 was 3.91%. Performance for the period prior to April 24, 2000, the
Fund's inception, reflects the performance of J.P. Morgan Prime Money Market
Fund, a separate feeder Fund investing in the same master portfolio, which had a
higher expense ratio.
** Describes the average annual 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 and assume the reinvestment of distributions and reflect reimbursement of
certain fund expenses as described in the prospectus. Had expenses not been
subsidized, returns would have been lower. The 7-day yield more closely reflects
the current earnings of the money market fund than the total return quotation.
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 Prime Money Market Portfolio, in which
the Fund invests. Mark joined Morgan in 1994, and spent five years trading
dollar- and euro-denominated 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 December 11, 2000
and reflects Mark's views on that date.
WHAT HAPPENED IN THE FIXED-INCOME MARKETS DURING THE YEAR ENDED NOVEMBER 30,
2000?
Four key themes characterized the fixed-income markets during the last
year--the incremental tightening of U.S. monetary policy by the Federal
Reserve; buybacks and less issuance by the U.S. Treasury; the U.S. Treasury
calling into question the nature of federal guarantees for government-sponsored
entities (GSEs); and a reduced commitment of capital to the secondary market by
broker-dealers.
Throughout the year, the Federal Reserve continued to raise interest rates
in an attempt to slow the robust U.S. economy, an effort that seems to have been
successful. The Federal Funds rate now stands at 6.5%--a full percentage point
higher than it was at the beginning of the year.
The U.S. Treasury made two moves that may fundamentally change the
landscape for money market investing. First, it used part of the current budget
surplus and began to buy back $30 billion in long-term government bonds. Second,
it announced that less Treasury debt would be issued in the future, which will
reduce the auction schedules of U.S. Treasury bills, notes, and bonds. The
effect of both actions has been to reduce the supply of bonds, which are backed
by the full faith and credit of the U.S. government, and seen by investors
worldwide as the risk-free investment of choice.
The U.S. Treasury also called into question the nature of the federal
guarantee on GSEs, such as Fannie Mae (FMNA) and Freddie Mac (FHLMC), both of
which are huge, well-funded housing agencies. Even though such housing agencies
are not explicitly guaranteed by the U.S. government, the perception in the
marketplace is that they would be bailed out if they ever get into financial
trouble. Mortgage lenders, who compete with these agencies, are lobbying
Congress in protest of their disadvantageous funding status. The U.S. Treasury
is now examining the issue, and has begun to question whether these entities are
passing through the benefits of their size and market position to mortgage
buyers or only to shareholders.
Throughout the year, risk-averse broker-dealers continued to commit less
capital to proprietary and secondary market trading. Their concern, which began
with the Asian financial crisis two years ago, has been reinforced by events
such as the Russian default, the failure of Long-Term Capital, and the pressure
this year on investment-grade corporate bonds. In broker-dealers' efforts to
insulate themselves from these kinds of crises, they have stunted liquidity in
the fixed-income marketplace.
HAVE THE ACTIONS OF THE U.S. TREASURY HAD AN IMPACT ON CORPORATE ISSUES?
Because of the dwindling supply of Treasuries, corporate bond issuance
rose--putting pressure on yield spreads. At the same time, competition for
capital and the booming economy drove up corporate borrowing rates and created
an even greater gap in spreads. And despite some narrowing toward the end of
the year, spreads remain very wide by historic standards.
3
PORTFOLIO MANAGER Q&A
- --------------------------------------------------------------------------------
(Continued)
THERE HAS BEEN A LOT OF TALK ABOUT THE "INVERTED YIELD CURVE." COULD YOU PUT
THAT PHENOMENON INTO CONTEXT?
Over the course of the year, a number of factors combined to create an
inverted yield curve. In an inverted yield curve, long-term Treasury bonds yield
less than short-term Treasury notes. The front end of the curve--short-term
rates--increased because of the one percentage point rise in the Federal Funds
rate. The pressure on the long end was caused by the U.S. Treasury bond buyback
HOW WAS THE PORTFOLIO AFFECTED?
The Portfolio was affected mostly from an asset-gathering perspective.
Higher interest rates and the inverted yield curve attracted a lot of assets
into money market funds during the year. Equity volatility and election
uncertainty also conspired to cause a traditional flight to quality. The return
available by investing in a money market fund was attractive by any standard
during the past year.
COULD YOU COMMENT ON THE FUND'S PERFORMANCE OVER THE YEAR? HOW DID YOU POSITION
THE PORTFOLIO IN SUCH AN ENVIRONMENT?
We had outstanding performance relative to our peer group of AAA-rated
funds. Our success was due to the barbell strategy we adopted in the summer of
1999, when the Federal Reserve began to raise interest rates. This approach
served us well as the Fed continued to tighten and the U.S. Treasury began its
buyback. We have maintained the barbell construction throughout the year,
keeping a significant concentration of maturities on the short end of the curve
while opportunistically purchasing the one-year area on price declines.
Sometimes we were able to capture as much as a 7% yield using this approach.
Moreover, because of this concentration in short-term issues, we have been able
to take advantage of extremely attractive rates, which have been competitive
with the Fed funds rate of 6.5%. The Portfolio also benefited from a significant
concentration in floating rate notes.
WHAT IS THE OUTLOOK FOR THE NEXT FEW MONTHS?
Because of the slowdown in U.S. economic growth, we expect the Federal
Reserve to soon remove their tightening bias. If they do, they will probably
ease interest rates during the first quarter of 2001, thereby making the
environment for equities and other higher risk investments more attractive.
Should that be the case, we believe investors will shift money from money
markets and into equities and spread products such as agencies and asset- backed
securities.
If this happens, we plan to take advantage of falling interest rates and
extend the weighted average maturity of the Portfolio to longer-dated
securities. We may also lower our concentration in floating rate notes, which
typically don't perform as well in a falling interest rate environment.
4
FUND FACTS
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INVESTMENT OBJECTIVE
J.P. Morgan Institutional Direct Prime Money Market Fund seeks to maximize
current income consistent with the preservation of capital and same-day
liquidity. It is designed for investors who seek to preserve capital and earn
current income from a portfolio of high-quality money market investments.
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Inception Date: 4/24/2000
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Fund Net Assets as of 11/30/2000:
$48,517,337
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Portfolio Net Assets as of 11/30/2000:
$20,591,362,558
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Dividend Payable Dates: MONTHLY
- --------------------------------------------------------------------------------
Short-term Capital Gain Payable Dates
(if applicable): MONTHLY
- --------------------------------------------------------------------------------
Long-term Capital Gain Payable Date
(if applicable): 12/13/2000
EXPENSE RATIOS
The Fund's current annualized expense ratio of 0.30% 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 November 30, 2000
PORTFOLIO ALLOCATION
(As a percentage of total investment securities)
[data from pie chart]
Floating Rate Notes 43.8%
Commercial Paper 37.1%
Certificates of Deposit 12.0%
Time Deposits 4.2%
Repurchase Agreements 1.9%
Corporate Bonds 1.0%
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Average 7-day Yield: 6.41%*
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Average Maturity: 42 DAYS
*Yield reflects the reimbursement of certain Fund expenses as described in the
prospectus. Had expenses not been subsidized, the current 7-day yield would have
been lower. Yields 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 ASSET VALUE OF $1.00 PER SHARE, IT IS POSSIBLE
TO LOSE MONEY BY INVESTING IN THIS FUND.
References to specific securities and their issuers are for illustrative
purposes only and are not intended to be, and should not be interpreted as,
recommendations to purchase or sell securities. Opinions expressed herein and
other Fund data presented are based on current market conditions and are
subject to change without notice. The Fund invests in foreign securities which
involve special risks including economic and political instability and currency
fluctuations; prospective investors should refer to Fund's prospectus for
discussion of these risks. 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.
5
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
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NOVEMBER 30, 2000
ASSETS
Investment in The Prime Money Market Portfolio
("Portfolio"), at value $48,575,575
Receivable for Expense Reimbursements 15,179
Prepaid Trustees' Fees and Expenses 12
Prepaid Expenses and Other Assets 3,003
--------------------
TOTAL ASSETS 48,593,769
--------------------
LIABILITIES
Service Organization Fee Payable 4,634
Shareholder Servicing Fee Payable 2,317
Administrative Services Fee Payable 1,110
Administration Fee Payable 48
Fund Services Fee Payable 39
Accrued Expenses and Other Liabilities 68,284
---------------------
TOTAL LIABILITIES 76,432
---------------------
NET ASSETS
Applicable to 48,515,580 Shares of Beneficial Interest Outstanding
(par value $0.001, unlimited shares authorized) $48,517,337
======================
Net Asset Value, Offering and Redemption Price Per Share $1.00
======================
ANALYSIS OF NET ASSETS
Paid-in Capital $48,515,580
Accumulated Net Realized Gain on Investment 1,757
---------------------
NET ASSETS $48,517,337
======================
6 The Accompanying Notes are an Integral Part of the Financial Statements.
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
STATEMENT OF OPERATION
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FOR THE PERIOD APRIL 24, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH
NOVEMBER 30, 2000
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
INCOME
Allocated Interest Income $710,516
Allocated Portfolio Expenses (15,164)
-------------
Net Investment Income Allocated from Portfolio 695,352
-------------
FUND EXPENSES
Registration Fees 35,344
Printing Expenses 13,334
Professional Fees 11,462
Service Organization Fee 10,545
Shareholder Servicing Fee 5,335
Administrative Services Fee 2,459
Fund Services Fee 127
Administration Fee 108
Trustees' Fees and Expenses 28
Miscellaneous 23,843
-------------
Total Fund Expenses 102,585
Less: Reimbursement of Expenses (85,988)
-------------
Net Fund Expenses 16,597
-------------
NET INVESTMENT INCOME 678,755
-------------
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 1,757
-------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $680,512
=============
The Accompanying Notes are an Integral Part of the Financial Statements. 7
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE PERIOD APRIL 24, 2000 (COMMENCEMENT OF OPERATIONS) THROUGH
NOVEMBER 30, 2000
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $678,755
Net Realized Gain on Investment Allocated from Portfolio 1,757
----------------
Net Increase in Net Assets Resulting from Operations 680,512
----------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (678,755)
----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
(AT A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial Interest Sold 66,524,127
Reinvestment of Dividends and Distributions 678,755
Cost of Shares of Beneficial Interest Redeemed (18,687,302)
----------------
Net Increase from Transactions in Shares of Beneficial Interest 48,515,580
----------------
Total Increase in Net Assets 48,517,337
----------------
NET ASSETS
Beginning of Period -
----------------
End of Period $48,517,337
================
8 The Accompanying Notes are an Integral Part of the Financial Statements.
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
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SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT
THE PERIOD IS AS FOLLOWS:
FOR THE PERIOD
APRIL 24, 2000
(COMMENCEMENT OF
OPERATIONS) THROUGH
NOVEMBER 30, 2000
---------------
NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $1.00
---------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04
Net Realized Gain on Investments 0.00(a)
----------------
Total From Investment Operations 0.04
----------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.04)
----------------
NET ASSET VALUE PER SHARE, END OF PERIOD $1.00
================
RATIOS AND SUPPLEMENTAL DATA
Total Return 3.91%(b)
Net Assets, End of Period (in thousands) $48,517
Ratios to Average Net Assets
Net Expenses 0.30%(c)
Net Investment Income 6.41%(c)
Expenses without Reimbursement 1.11%(c)(d)
(a) Less than $0.005
(b) Not annualized
(c) Annualized
(d) Not representative of ongoing reimbursements since period covers less than
two months.
The Accompanying Notes are an Integral Part of the Financial Statements. 9
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
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NOVEMBER 30, 2000
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1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--J.P. Morgan Institutional Direct Prime Money Market Fund (the
"Fund") is a separate series of 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 April 24, 2000.
The Fund invests all of its investable assets in The Prime Money Market
Portfolio (the "Portfolio"), a diversified open-end management investment
company having the same investment objective as the Fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
Fund's proportionate interest in the net assets of the Portfolio (approximately
0.2% at November 30, 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 of America 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 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 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 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 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 the total operating
expenses (excluding interest, taxes and extraordinary expenses) of the Fund,
including the expenses allocated to the Fund from the Portfolio, exceed 0.30% of
the Fund's average daily net assets through March 31, 2001.
10
J.P. MORGAN INSTITUTIONAL DIRECT PRIME MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
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 0.05% of the average daily net assets of the Fund.
SERVICE PLAN--The Trust on behalf of the Fund has a Service Plan with
respect to fund shares which authorizes it to compensate Service Organizations
for providing account administration and other services to their customers who
are beneficial owners of such shares. The Fund will enter into agreements with
Service Organizations that purchase shares on behalf of their customers
("Service Agreements"). The Service Agreements provide that the Fund pay Service
Organizations a fee which is computed daily and paid monthly at an annual rate
of up to 0.10% of the average daily net assets of the Fund with respect to the
shares of the Fund attributable to or held in the name of the Service
Organization for its customers.
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.
TRUSTEES--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 $24.
- --------------------------------------------------------------------------------
3. CONCENTRATIONS OF RISK
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund.
- --------------------------------------------------------------------------------
4. SUBSEQUENT EVENT
The merger of J.P. Morgan & Co. Incorporated, the former parent company of
the Fund's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with and
into The Chase Manhattan Corporation was consummated on December 31, 2000. J.P.
Morgan Chase & Co. will be the new parent company of JPMIM, which will
continue to serve as the Fund's adviser.
11
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Shareholders of
J.P. Morgan Institutional Direct Prime Money Market Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
J.P. Morgan Institutional Direct Prime Money Market Fund, (one of the series
constituting part of J.P. Morgan Institutional Funds, hereafter referred to as
the "Fund") at November 30, 2000, and the results of its operations, the
changes in its net assets and the financial highlights for the period April 24,
2000 (commencement of operations) through November 30, 2000, 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 audit. We conducted our audit 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 audit provides a
reasonable basis for our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 16, 2001
12
THE PRIME MONEY MARKET PORTFOLIO
Annual Report November 30, 2000
(The following pages should be read in conjunction with J.P. Morgan
Institutional Direct Prime Money Market Fund Annual Financial Statements)
13
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
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NOVEMBER 30, 2000
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------
CERTIFICATES OF DEPOSIT - 12.0%
$300,000,000 Abbey National Treasury Services
Plc, MTN, 6.45%, 1/8/01(i) $299,985,151
40,000,000 Bank One NA, 6.65%, 3/22/01 40,000,000
150,000,000 Credit Communal de Belgique,
6.76%, 2/22/01(i) 149,983,828
350,000,000 Deutsche Bank AG, 6.19%-6.76%,
12/1/00-2/22/01(i) 349,989,218
20,000,000 Dexia Bank, 7.06%, 5/3/01(i) 19,998,017
205,000,000 Landesbank Hessen-Thueringen,
7.14%, 5/8/01(i) 204,993,712
160,000,000 Lloyds Bank Plc, 7.20%, 6/15/01(i) 159,975,652
138,500,000 Natexis Banque, 6.71%, 2/13/01(i) 138,500,000
381,000,000 Rabobank Nederland NV, 6.66%-7.05%,
2/15/01-5/2/01(i) 380,960,888
95,000,000 Suntrust Bank Atlanta, 6.77%, 4/18/01 95,005,112
269,000,000 Union Bank of Switzerland, 6.24%-7.03%,
12/4/00-7/19/01(i) 268,983,134
386,000,000 Westdeutsche Landesbank Girozentra,
6.66%-6.75%, 1/29/01-2/28/01(i) 386,000,000
-------------------------
2,494,374,712
-------------------------
COMMERCIAL PAPER - 37.1%(Y)
80,000,000 Alliance & Leicester Plc, 6.40%-6.43%,
1/25/01 to 2/20/01(i) 79,059,553
674,073,000 Alpine Securitization Corp., 6.49%-6.76%,
12/5/00 to 2/28/01 670,951,763
159,500,000 Aspen Funding Corp., 6.50%-6.75%,
12/14/00 to 2/2/01 157,952,836
65,800,000 Asset Securitization Corp., 6.74%, 1/8/01 65,336,037
110,000,000 Associates Corp. NA, 6.74%,
2/6/01 to 3/2/01 108,573,200
239,100,000 Associates First Capital Corp. BV,
6.72%-6.75%, 12/21/00 to 2/16/01 236,681,222
172,400,000 Bank of America Corp., 6.74%,
2/23/01 to 3/7/01 169,729,899
50,000,000 BASF AG, 6.50%, 12/8/00(i) 49,936,806
378,756,000 Bavaria Trust Corp., 6.74%-6.76%,
12/20/00 to 4/17/01 374,121,914
25,000,000 BBL North American Funding Corp.,
6.75%, 1/16/01 24,789,806
49,507,000 BellSouth Telecommunications, Inc.,
6.49%, 12/5/00 49,471,190
120,000,000 British Gas Capital, Inc., 6.73%-6.74%,
2/22/01 to 2/23/01(i) 118,191,533
273,000,000 CDC Commercial Paper, Inc., 6.49%,
12/5/00 to 12/8/00(i) 272,721,632
22,000,000 Cingular Wireless, 6.45%, 2/22/01 21,668,784
290,000,000 Citibank Capital Markets Assets LLC,
6.43%-6.74%, 12/7/00 to 3/14/01 288,539,191
386,144,000 Compass Securitization LLC, 6.50%-6.76%,
12/12/00 to 2/22/01 382,110,867
50,000,000 Credit Agricole Indosuez NA, 6.43%, 2/9/01 49,364,167
37,000,000 Cregem North America, Inc., 6.76%, 1/31/01 36,591,232
329,000,000 CS First Boston, Inc., 6.72%-6.75%,
2/12/01 to 4/20/01(i) 322,822,429
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------
$595,480,000 CXC, Inc., 6.44%-6.76%,
12/11/00 to 5/15/01 $ 586,799,619
165,000,000 Depfa Bank Europe Plc, 6.40%-6.43%,
4/4/01 to 5/1/01(i) 160,885,175
165,517,000 Edison Asset Securitization LLC,
6.49%-6.73%, 12/5/00 to 2/8/01 165,213,994
88,235,000 Enterprise Funding Corp., 6.73%-6.74%,
2/15/01 to 3/9/01 86,871,821
160,000,000 General Electric Capital Corp.,
6.72%-6.76%, 1/30/01 to 2/27/01 157,926,025
60,000,000 General Motors Acceptance Corp.,
6.74%, 2/5/01 59,286,100
65,000,000 Government of Canada, 6.38%, 6/7/01 62,861,500
160,263,000 HD Real Estate Funding Corp.,
6.77%, 5/22/01 155,354,857
150,000,000 Landesbank Schleswig Holstein,
6.40%-6.41%, 6/1/01 to 6/4/01(i) 145,173,375
291,732,000 Monte Rosa Capital Corp.,
6.49%-6.76%, 12/6/00 to 1/26/01 289,905,270
15,000,000 Morgan Stanley Dean Witter & Co.,
6.76%, 1/31/01 14,832,758
761,500,000 Nationwide Building Society, 6.50%-6.75%,
12/12/00 to 3/22/01 752,111,980
202,244,000 Newport Funding Corp., 6.47%-6.74%,
12/8/00 to 2/6/01 200,739,872
50,000,000 Northern Rock Plc, 6.75%, 2/1/01 49,436,833
173,269,000 Parthenon Receivables Funding LLC,
6.49%-6.76%, 12/4/00 to 2/12/01 172,443,855
11,500,000 Province of Quebec, 6.50%, 12/14/00 11,472,280
527,345,000 Receivables Capital Corp., 6.44%-6.76%,
12/8/00 to 2/9/01 523,192,180
240,000,000 Salomon Smith Barney, Inc., 6.49%-6.73%,
12/5/00 to 2/12/01 239,462,525
50,000,000 Santander Central Hispano Finance,
6.73%, 2/20/01(i) 49,272,125
40,000,000 SBC Communications Inc., 6.49%, 12/4/00 39,978,467
5,555,000 Wal-Mart Stores, Inc., 6.49%, 12/5/00 5,550,970
292,025,000 Windmill Funding Corp., 6.46%-6.74%,
12/7/00 to 1/18/01 290,781,646
-------------------------
7,698,167,288
-------------------------
CORPORATE BONDS - 1.0%
85,000,000 General Electric Capital Corp.,
7.38%, 5/23/01 85,000,000
79,389,000 Inter-American Development Bank,
5.13%, 2/22/01(i) 79,130,812
44,000,000 National City Bank, 6.98%, 8/2/01 43,988,369
-------------------------
208,119,181
-------------------------
FLOATING RATE NOTES - 43.8%(V)
100,000,000 American Express Centurion, 6.67%,
12/1/00 100,000,000
200,000,000 American Express Centurion, 6.58%,
12/9/00 to 12/14/00 199,995,252
14 The Accompanying Notes are an Integral Part of the Financial Statements.
THE PRIME MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
PRINCIPAL AMOUNT VALUE
- --------------------------------------------------------------------------------
$21,500,000 American Express Centurion Bank, 6.59%,
12/16/00 $ 21,500,000
325,000,000 Associates Corp. of North America, 6.55%,
1/4/01 325,000,000
21,500,000 AT&T Capital Corp., 7.50%, 12/1/00 21,500,000
56,300,000 AT&T Capital Corp., 6.97%, 1/10/01 56,338,835
500,000,000 Bank of Austria, 6.53%, 12/16/00 499,949,000
300,000,000 Bank of Austria, 6.75%, 1/16/01 299,946,114
130,000,000 Bank of America NA, 6.65%, 12/1/00 129,993,321
470,000,000 Bank of America NA, 6.67%, 12/1/00 470,000,000
34,775,000 Bank of America NA, 6.80%, 2/26/01 34,783,044
384,500,000 Bank of Scotland Treasury, MTN 144A,
6.63%, 12/6/00 384,494,904
300,000,000 Bayerische Hypo Vereinsbank, 6.59%,
12/1/00(i) 299,882,175
200,000,000 Bayerische Landesbank New York, Series CD,
6.61%, 12/1/00(i) 199,937,800
270,000,000 Bayerische Landesbank New York, Series CD,
6.63%, 12/1/00(i) 269,966,991
139,500,000 Bayerische Landesbank New York, Series CD,
6.55%, 12/15/00(i) 139,495,744
325,000,000 Chasers 144A, Series 2000-1, 6.85%, 1/4/01 325,000,000
200,000,000 CIT Group Inc., MTN, 6.60%, 12/1/00 199,964,011
142,000,000 CIT Group Inc., MTN, 6.66%, 12/1/00 141,987,715
8,000,000 Citicorp, 7.02%, 2/8/01 8,004,618
140,000,000 Citigroup, Inc., 6.58%, 12/4/00 140,000,000
150,000,000 Citigroup, Inc., 6.59%, 12/10/00 150,000,000
53,000,000 Commerica Bank, 6.54%, 12/14/00 52,993,949
500,000,000 Commerzbank AG New York, Series CD,
6.57%, 12/26/00 499,960,524
10,000,000 Commerzbank AG New York, Series CD,
6.54%, 12/28/00 9,998,797
75,100,000 Compass Securitization, Inc., 6.59%, 12/1/00 75,100,000
238,000,000 Compass Securitization, Inc., 6.60%,
12/7/00 to 12/15/00 237,997,005
75,000,000 Compass Securitization, Inc., 6.60%, 12/9/00 75,000,000
650,000,000 CS First Boston, Inc. SPARCS, Series 2000-5,
6.91%, 1/24/01 650,000,000
20,000,000 Deutsche Bank, Series CD, 6.55%, 12/13/00 19,999,770
364,000,000 Deutsche Bank, Series CD, 6.52%, 12/16/00 363,961,799
20,000,000 First Union National Bank, 6.66%, 12/1/00 20,000,000
500,000,000 First Union National Bank, 6.67%, 12/1/00 500,000,000
10,000,000 First Union National Bank, 6.82%, 2/13/01 10,001,803
25,000,000 First Union National Bank, 6.67%, 2/15/01 25,000,000
350,000,000 General Electric Capital Corp., 6.75%, 1/2/01 350,000,000
5,000,000 Household Bank FSB, 6.96%, 1/3/01 5,002,328
15,000,000 Household Bank FSB, 6.99%, 1/9/01 15,009,209
175,000,000 Lehman RACERS 144A,
Series 2000-15-MM-MBS,
6.64%, 12/13/00 175,000,000
165,000,000 Lehman, RACERS 144A, Series 1999-35-MM,
6.72%, 12/15/00 165,000,000
100,000,000 Northwest Financial, Inc., MTN, Series C,
6.62%, 12/1/00 99,969,094
52,000,000 Toyota Motor Credit Corp., MTN, 6.71%, 1/9/01 51,995,075
135,000,000 Unilever, 6.68%, 12/7/00 135,000,000
100,000,000 US Bancorp North Dakota, 6.64%, 12/1/00 99,988,459
75,000,000 US Bank NA Minnesota, 6.63%, 12/1/00 74,988,886
PRINCIPAL AMOUNT VALUE
- ------------------------------------------------------------------------------------
$ 8,000,000 Wells Fargo & Co., 6.86%, 12/15/00 $ 8,014,399
52,000,000 Wells Fargo & Co., MTN, 6.60%, 12/19/00 51,990,042
500,000,000 Wells Fargo & Co., MTN, 6.59%, 12/24/00 500,000,000
30,000,000 Wells Fargo & Co., MTN, 6.69%, 12/27/00 29,992,703
342,000,000 Westdeutsche Landesbank New York,
Series CD, 6.54%, 12/25/00(i) 341,948,198
-------------------------
9,061,651,564
-------------------------
REPURCHASE AGREEMENTS - 1.9%
300,000,000 Bank America Repurchase Agreement, 6.56%,
12/1/00, proceeds $300,054,667
(collateralized by $403,547,059
Federal National Mortgage Association,
6.00%-6.29% due 3/1/14 - 7/1/28,
valued at $306,000,000) 300,000,000
100,000,000 Lehman Brothers Repurchase Agreement,
6.55%, 12/1/00, proceeds $100,018,194
(collateralized by $613,875,705 Federal
National Mortgage Association,
6.00% - 8.00% due 7/1/22 - 11/1/30,
valued at $102,000,353) 100,000,000
-------------------------
400,000,000
-------------------------
TAXABLE MUNICIPALS - 0.0%(Z)
6,200,000 Wake Forest University, Series 1997,
6.62%, 12/6/00 (LOC: Wachovia Bank) 6,200,000
-------------------------
TIME DEPOSITS - 4.2%
156,171,000 Canadian Imperial Bank of Commerce,
6.63%, 12/1/00(i) 156,171,000
125,000,000 Dresdner Bank Grand Cayman, 6.66%, 12/1/00(i) 125,000,000
100,000,000 Fifth Third Bank Cayman, 6.58%, 12/1/00(i) 100,000,000
158,768,000 Key Bank NA Cayman, 6.59%, 12/1/00(i) 158,768,000
195,493,000 State Street Bank Grand Cayman,
6.60%, 12/1/00(i) 195,493,000
125,000,000 Toronto Dominion Bank Cayman,
6.69%, 12/1/00(i) 125,000,000
-------------------------
860,432,000
-------------------------
TOTAL INVESTMENT SECURITIES AT
AMORTIZED COST AND VALUE - 100.0% $20,728,944,745
=========================
LOC - Letter of Credit
MTN - Medium Term Note
RACERS - Restructured Asset Certificates
SPARCS - Structured Product Asset Return
144A - Securities restricted for resale to Qualified Institutional Buyers
(i) Foreign security
(v) Variable or floating rate instrument or instrument with step coupon rate.
(y) Yield to maturity
(z) Category is less than 0.05% of total investment securities.
The Accompanying Notes are an Integral Part of the Financial Statements. 15
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
- --------------------------------------------------------------------------------
NOVEMBER 30, 2000
ASSETS
Investments at Amortized Cost and Value
$20,728,944,745
Cash 594
Interest Receivable 170,903,660
Prepaid Trustees' Fees and Expenses 17,380
Prepaid Expenses and Other Assets 17,521
--------------------
TOTAL ASSETS
20,899,883,900
--------------------
LIABILITIES
Payable for Investments Purchased 306,058,550
Advisory Fee Payable 1,764,210
Administrative Services Fee Payable 386,338
Fund Services Fee Payable 13,069
Administration Fee Payable 10,601
Accrued Expenses and Other Liabilities 288,574
--------------------
TOTAL LIABILITIES 308,521,342
--------------------
NET ASSETS
Applicable to Investors' Beneficial Interests $20,591,362,558
====================
16 The Accompanying Notes are an Integral Part of the Financial Statements.
THE PRIME MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
- --------------------------------------------------------------------------------
FOR THE YEAR ENDED NOVEMBER 30, 2000
INVESTMENT INCOME
INCOME
Interest Income
$1,153,685,845
---------------------
EXPENSES
Advisory Fee 19,059,292
Administrative Services Fee 4,197,163
Custodian Fees and Expenses 1,697,740
Fund Services Fee 268,198
Trustees' Fees and Expenses 183,952
Professional Fee 129,396
Printing Expense 12,381
Administration Fee 122,295
Miscellaneous 18,651
---------------------
Total Expenses 25,689,068
---------------------
NET INVESTMENT INCOME 1,127,996,777
---------------------
NET REALIZED GAIN ON INVESTMENT TRANSACTIONS 552,318
---------------------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $1,128,549,095
=====================
The Accompanying Notes are an Integral Part of the Financial Statements. 17
THE PRIME MONEY MARKET PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
FOR THE YEARS ENDED NOVEMBER 30
INCREASE IN NET ASSETS 2000 1999
FROM OPERATIONS
Net Investment Income $ 1,127,996,777 $ 620,496,096
Net Realized Gain (Loss) on Investments 552,318 (502,599)
----------------- -------------------
Net Increase in Net Assets Resulting from Operations 1,128,549,095 619,993,497
----------------- -------------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 140,319,396,434 108,543,399,809
Withdrawals (136,282,292,944) (101,517,907,239)
----------------- -------------------
Net Increase from Transactions in
Investors' Beneficial Interests 4,037,103,490 7,025,492,570
----------------- -------------------
Total Increase in Net Assets 5,165,652,585 7,645,486,067
----------------- -------------------
NET ASSETS
Beginning of Year 15,425,709,973 7,780,223,906
------------------ -------------------
End of Year $ 20,591,362,558 $ 15,425,709,973
================== ===================
SUPPLEMENTARY DATA
FOR THE YEARS ENDED NOVEMBER 30
--------------------------------------------------------
2000 1999 1998 1997 1996
--------------------------------------------------------
RATIOS TO AVERAGE NET ASSETS
Expenses 0.14% 0.15% 0.17% 0.18% 0.19%
Net Investment Income 6.25% 5.07% 5.48% 5.43% 5.29%
18 The Accompanying Notes are an Integral Part of the Financial Statements.
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION--The Prime Money Market Portfolio (the "Portfolio") is
registered under the Investment Company Act of 1940, as amended, as a no-load
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 maximize current income consistent with
the preservation of capital and same-day liquidity. The Portfolio commenced
operations on July 12, 1993. The Declaration of Trust permits the Trustees to
issue an unlimited number of beneficial interests in the Portfolio.
The preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America 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.
REPURCHASE AGREEMENTS--The Portfolio may enter into repurchase agreements
with brokers, dealers or banks that meet the credit guidelines approved by the
Trustees. 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 mark-to-market the collateral on a daily 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. In the
event of default or bankruptcy by the seller of the agreement, realization
and/or retention of the collateral or proceeds may be subject to legal
proceedings.
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 requirements of Subchapter
M 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 Portfolio. 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
19
THE PRIME MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
(Continued)
NOVEMBER 30, 2000
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES (CONTINUED)
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.
TRUSTEES--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 Portfolio'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 $51,000.
- --------------------------------------------------------------------------------
3. CONCENTRATIONS OF RISK
The Portfolio may have elements of risk not typically associated with
investments in the United States due to investments in countries or regions
outside of the United States. Such investments may subject the Portfolio to
additional risks resulting from political or economic conditions in such
countries or regions.
- --------------------------------------------------------------------------------
4. SUBSEQUENT EVENT
The merger of J.P. Morgan & Co. Incorporated, the former parent company of
the Portfolio's adviser, J.P. Morgan Investment Management, Inc. ("JPMIM"), with
and into The Chase Manhattan Corporation was consummated on December 31, 2000.
J.P. Morgan Chase & Co. will be the new parent company of JPMIM, which will
continue to serve as the Portfolio's adviser.
20
REPORT OF INDEPENDENT ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Trustees and Investors of
The Prime Money Market Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Prime Money Market Portfolio (the
"Portfolio") at November 30, 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 November 30, 2000 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.
PricewaterhouseCoopers LLP
New York, New York
January 16, 2001
21
NOTES
- --------------------------------------------------------------------------------
22
NOTES
- --------------------------------------------------------------------------------
23
NOTES
- --------------------------------------------------------------------------------
24
[back cover]
J.P. MORGAN INSTITUTIONAL FUNDS
Federal Money Market Fund
---------------------------------------------------------------------
Prime Money Market Fund
---------------------------------------------------------------------
Treasury Money Market Fund
---------------------------------------------------------------------
Tax Aware Enhanced Income Fund:
Institutional Shares
---------------------------------------------------------------------
Tax Exempt Money Market Fund
---------------------------------------------------------------------
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
---------------------------------------------------------------------
Tax Aware U.S. Equity Fund:
Institutional Shares
---------------------------------------------------------------------
Tax Aware Disciplined Equity Fund:
Institutional Shares
---------------------------------------------------------------------
U.S. Equity Fund
---------------------------------------------------------------------
U.S. Small Company Fund
---------------------------------------------------------------------
Emerging Markets Equity Fund
---------------------------------------------------------------------
European Equity Fund
---------------------------------------------------------------------
International Equity Fund
---------------------------------------------------------------------
International Opportunities Fund
---------------------------------------------------------------------
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.
---------------------------------------------------------------------
Morgan Guaranty Trust Company MAILING
500 Stanton Christiana Road INFORMATION
Newark, Delaware 19713-2107
IN-ANN-24234 0101