EX-99.17(H) 8 a2044405zex-99_17h.txt EXHIBIT 99.17(H) [front cover] J.P. Morgan Institutional Direct Prime Money Market Fund Annual Report November 30, 2000 LETTER TO THE SHAREHOLDERS -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- Letter to the Shareholders 1 Fund Performance 2 Portfolio Manager Q&A 3 Fund Facts & Highlights 5 Financial Statements 6 1 FUND PERFORMANCE -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- [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 -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- Inception Date: 4/24/2000 -------------------------------------------------------------------------------- Fund Net Assets as of 11/30/2000: $48,517,337 -------------------------------------------------------------------------------- Portfolio Net Assets as of 11/30/2000: $20,591,362,558 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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%
-------------------------------------------------------------------------------- Average 7-day Yield: 6.41%* -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- NOVEMBER 30, 2000 -------------------------------------------------------------------------------- 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. -------------------------------------------------------------------------------- 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 -------------------------------------------------------------------------------- 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