EX-99.17(H) 9 a2044765zex-99_17h.txt EXHIBIT 99.17(H) (front cover) J.P. Morgan Institutional New York Tax Exempt Bond Fund Semiannual Report January 31, 2001 LETTER TO THE SHAREHOLDERS -------------------------------------------------------------------------------- February 20, 2001 Dear Shareholder, We are pleased to report to you that the J.P. Morgan Institutional New York Tax Exempt Bond Fund outperformed its benchmark, the Lehman Brothers 1-16 year Municipal Bond Index, for the six months ended January 31, 2001. The Fund provided a total return of 6.02% for the semiannual period, while the index had a total return of 5.77% for the same time period. The Fund was also competitive with its peer group, as measured by the Lipper New York Intermediate Municipal Debt Funds Average. For the six months ended January 31, 2001, the Fund's peer group had a total return of 6.06% The J.P. Morgan Institutional New York Tax Exempt Bond Fund's 30-day SEC yield as of January 31, 2001 was 3.97%. This is equivalent to a taxable yield of 6.57% for an investor in the top federal income tax bracket of 39.6%. The Fund's net asset value on January 31, 2001 was $10.78, an increase from $10.40 at the start of the fiscal year. During the past six months, the Fund distributed approximately $0.24 per share from ordinary income, all of which was exempt from federal income tax. On the following pages, portfolio manager Robert Meiselas discusses the fixed income market in detail. Robert also explains the factors that influenced Fund performance during the 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 yours, /signature/ /signature/ Ramon de Oliveira Keith M. Schappert Chairman of Asset Management Services President of Asset Management Services J.P. Morgan Chase & Co. J.P. Morgan Chase & Co. TABLE OF CONTENTS -------------------------------------------------------------------------------- Letter to the Shareholders 1 Fund Performance 2 Portfolio Manager Q&A 3 Fund Facts & Portfolio 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). Total returns for periods of less than one year are not annualized and provide a picture of how a fund has performed over the short-term. PERFORMANCE
TOTAL AVERAGE ANNUAL RETURNS TOTAL RETURNS --------------------- --------------------------------- SIX ONE THREE FIVE SINCE MONTHS YEAR YEARS YEARS INCEPTION* AS OF JANUARY 31, 2001 J.P. Morgan Institutional New York Tax Exempt Bond Fund 6.02% 10.95% 4.80% 5.15% 6.00% Lehman Brothers 1-16 year Municipal Bond Index** 5.77% 10.94% 5.21% 5.60% 6.42% Lipper New York Intermediate Municipal Debt Funds Average*** 6.06% 11.42% 4.54% 4.91% 5.50% AS OF DECEMBER 31, 2000 J.P. Morgan Institutional New York Tax Exempt Bond Fund 5.97% 9.26% 4.63% 5.15% 5.88% Lehman Brothers 1-16 year Municipal Bond Index** 5.57% 9.32% 5.10% 5.53% 6.30% Lipper New York Intermediate Municipal Debt Funds Average*** 6.05% 9.63% 4.42% 4.84% 5.39%
* The Fund commenced operations on April 11, 1994, and has provided an average annual total return of 5.96% from that date through January 31, 2001. For the purpose of comparison, the "since inception" returns in the table above are calculated from April 30, 1994, the first date when data for the Fund, its benchmark, and its Lipper category average were all available. ** Prior to May 1, 1997 the benchmark was the Lehman Brothers 1-15 year Municipal Bond Index. Commencing May 1, 1997 the benchmark is the Lehman Brothers 1-16 year Municipal Bond Index. Both are unmanaged indices that measure municipal bond market performance. They do not include fees or expenses and are not available for actual investment. ***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, assume the reinvestment of distributions, and reflect reimbursement of certain fund and portfolio expenses as described in the prospectus. Had expenses not been subsidized, returns would have been lower. 2 PORTFOLIO MANAGER Q&A -------------------------------------------------------------------------------- Following is an interview with Robert Meiselas, who along with Benjamin S. Thompson and Kingsley Wood Jr., manages the J.P. Morgan Institutional New York Tax Exempt Bond Fund. This interview was conducted on February 16, 2001, and reflects Robert's views on that date. [photo of Robert Meiselas] ROBERT MEISELAS, vice president, is a portfolio manager with the Tax Aware Fixed Income Group responsible for managing municipal bonds, including tax exempt private placements. Bob is a CPA and joined Morgan's financial group in 1982, after having spent 10 years at Coopers & Lybrand. He also spent five years in J.P. Morgan's Private Banking Investment Management Group, and moved to J.P. Morgan Investment Management in 1997. Bob is a graduate of St. John's University and has completed graduate work in taxation at Long Island University. [photo of Benjamin S. Thompson] BENJAMIN S. THOMPSON, vice president, is a senior fixed income portfolio manager and head of J.P. Morgan's municipal bond strategies. His responsibilities include coordination of strategy and research, portfolio structuring, and trade execution for the Tax Aware Fixed Income Group. Prior to joining Morgan in 1999, Ben was a senior fixed income portfolio manager at Goldman Sachs Asset Management. Earlier, he was with the Structured Finance Group of Chase Manhattan Bank. He holds a B.A. in Economics from Colorado College. [photo of Kingsley Wood, Jr.] KINGSLEY (KIT) WOOD, JR., vice president, is a portfolio manager in the Tax Aware Fixed Income Group. Prior to becoming a J.P. Morgan Investment Management employee in 2000, he worked at Mercantile Bank & Trust (MSD&T Funds) in Baltimore, MD as a portfolio manager where he managed all institutional tax-exempt assets (mutual funds and separate accounts). Prior to that, he was a sell-side institutional trader at ABN-AMRO Bank and Kemper Securities in Chicago. Kit holds a B.A. from the University of Colorado, and has completed graduate work towards an M.B.A. at the University of Maryland. WHAT EVENTS IMPACTED THE FIXED INCOME MARKETS, GENERALLY, AND THE MUNICIPAL BOND MARKET, SPECIFICALLY, OVER THE LAST SIX MONTHS? The fixed income markets began the period on a volatile note after a period of rising interest rates, and ended in a rally as interest rates declined. By and large, the most significant factor was the Federal Reserve shifting its interest rate stance from tightening to easing, and the subsequent recognition by the bond market that U.S. economic growth slowed more than anticipated. At the outset of this reporting period, there was some question as to whether the Federal Reserve would continue to increase interest rates and whether the previous rate increases were actually slowing the economy to the much-discussed "soft landing" that everyone desired. As we moved through autumn, investors became confident that the economy was, indeed, slowing. Near year-end, however, it became evident the economy might be slowing more than originally desired. In response, the Fed acted quickly and cut interest rates by 50 basis points during the first week of January. The Fed then followed with another 50 basis point cut on January 31, 2001, the last day of this reporting period. Bonds generally performed well in this environment. Prices in most fixed income markets trended upward. In the end, performance was driven by whether you were appropriately positioned as market expectations vacillated and whether you were invested in the right bonds at the right time as the economic scenario unfolded. Another significant occurrence was the volatility experienced by the stock market throughout the period. Stock market volatility led to increased retail awareness of bonds, as investors sought safe havens for their equity-related gains. This propelled the municipal bond market, in particular, as municipal bonds pay attractive returns for investors attempting to lower their tax bill. 3 PORTFOLIO MANAGER Q&A -------------------------------------------------------------------------------- (Continued) HOW DID THESE THEMES PLAY OUT IN NEW YORK? The supply of New York bonds has been much lower than in previous years, and this lack of supply, along with consistent demand, drove prices upward. Also, Standard & Poor's upgraded its rating for New York State general obligation bonds from A to AA, which added to the appeal of New York munis. WHY HAS SUPPLY BEEN A PROBLEM IN NEW YORK? New York has traditionally been one of the most prolific issuers of debt in the United States. Essentially, this debt was needed to finance the massive infrastructure needs of a relatively large population. Also, a large portion of the new debt was issued to retire older, more costly bond issues that were already outstanding. Now, thanks to the creation of wealth from our strong economy, tax revenues have increased markedly. Therefore, the need to borrow money to finance projects is not the same as it used to be. In the past, for example, the state might go to market for several billions of dollars at different times during the year. Lately, however, we've seen only a fraction of this activity. Aside from supply-related problems, we note that retail demand is steadily increasing, which results in more pressure in a tight market that is getting tighter. HOW WAS THE FUND POSITIONED DURING THE LAST SIX MONTHS? Although we forecasted an eventual decline in interest rates, we tempered our bullish outlook to allow for market uncertainty. Throughout this period, the Fund performed well during periods when interest rates declined and also out-performed the competition when market uncertainty drove interest rates upward. A key element of our strategy was a long duration position, amplified through the addition of zero coupon and market discount bonds, which respond best to a decline in rates. We continued to add higher-yielding private placements to the portfolios and maintained a bias toward bonds of higher credit quality due to the narrow credit spreads prevailing in the marketplace. HAS YOUR POSITIONING PAID OFF THE WAY YOU EXPECTED? Not always, but much of the time. While our bias toward higher quality bonds did not add significantly to performance during the period, we believe it will buffer the Fund when the bond market begins to weaken. We think that, as a general rule, our positioning in the market has made us less susceptible to NAV declines during a downturn. Because we are tax aware and don't take gains purely to provide marginally higher returns, and because we are not structurally as long as some other similar type funds, longer funds may have a higher return every now and then. HOW ARE YOU POSITIONING THE PORTFOLIO TO PROSPER IN THE MONTHS AHEAD? After a good rally, we believe that the strong bull market for bonds may be starting to wane. In our view, the Federal Reserve has signaled that it will act vigorously to prevent the U.S. economy from sinking into recession. Consequently, investors may not continue their aggressive buying of U.S. government bonds as a safe haven investment. Due to current technical factors in the municipal bond market, we don't believe that municipal bond prices will significantly weaken. Nevertheless, in order to avoid taking undue risk, we have repositioned the portfolio to de-emphasize holdings that could rapidly decline in value should interest rates spike. In view of the tight spreads that currently prevail in the market, we will continue to emphasize high-quality securities. 4 FUND FACTS -------------------------------------------------------------------------------- INVESTMENT OBJECTIVE J.P. Morgan Institutional New York Tax Exempt Bond Fund seeks to provide a high level of tax-exempt income for New York residents consistent with moderate risk of capital. It is designed for investors subject to federal and New York State income taxes who seek a high level of income which is free from federal, state, and New York City personal income taxes. -------------------------------------------------------------------------------- Inception Date: 4/11/1994 -------------------------------------------------------------------------------- Fund Net Assets as of 1/31/2001: $196,077,880 -------------------------------------------------------------------------------- Portfolio Net Assets as of 1/31/2001: $326,782,460 -------------------------------------------------------------------------------- Income Payable Dates (if applicable): MONTHLY -------------------------------------------------------------------------------- Capital Gain Payable Dates (if applicable): 12/14/2001 EXPENSE RATIOS The Fund's current annualized expense ratio of 0.50% 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. PORTFOLIO HIGHLIGHTS -------------------------------------------------------------------------------- ASSET ALLOCATION All data as of January 31, 2001 [data from pie chart] Revenue Bonds 54.9% Insured 12.9% General Obligations and House Authority 11.1% Private Placement 7.8% Prerefunded 7.5% Short-Term Investments 4.9% Tax Anticipation Notes 0.9%
-------------------------------------------------------------------------------- 30-day SEC Yield: 3.97% -------------------------------------------------------------------------------- Duration: 5.22 YEARS 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. RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. 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 through a master portfolio (another Fund with the same objective). CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 FOR A PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING. 5 J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001 ASSETS Investment in The New York Tax Exempt Bond Portfolio ("Portfolio"), at value $194,090,116 Receivable for Shares of Beneficial Interest Sold 2,515,000 Receivable for Expense Reimbursements 6,117 Prepaid Trustees' Fees and Expenses 163 Prepaid Expenses and Other Assets 276 --------------- TOTAL ASSETS 196,611,672 --------------- LIABILITIES Dividends Payable to Shareholders 461,416 Shareholder Servicing Fee Payable 16,043 Administrative Services Fee Payable 3,789 Payable for Shares of Beneficial Interest Redeemed 969 Accrued Expenses and Other Liabilities 51,575 --------------- TOTAL LIABILITIES 533,792 --------------- NET ASSETS Applicable to 18,194,425 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $196,077,880 =============== Net Asset Value, Offering and Redemption Price Per Share $10.78 =============== ANALYSIS OF NET ASSETS Paid-in Capital $191,003,690 Distributions in Excess of Net Investment Income (27,943) Accumulated Net Realized Loss on Investment (872,812) Net Unrealized Appreciation on Investment 5,974,945 --------------- NET ASSETS $196,077,880 ===============
6 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND STATEMENT OF OPERATIONS (UNAUDITED) -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 INVESTMENT INCOME INCOME Allocated Investment Income from Portfolio $4,600,445 Allocated Portfolio Expenses (332,650) ----------- Investment Income 4,267,795 ----------- FUND EXPENSES Shareholder Servicing Fee 92,194 Administrative Services Fee 21,965 Financial and Fund Accounting Services Fee 17,644 Registration Fees 10,184 Transfer Agent Fees 9,281 Professional Fees and Expenses 6,122 Printing Expenses 5,868 Fund Services Fee 1,236 Administration Fee 963 Trustees' Fees and Expenses 922 Miscellaneous Expenses 3,450 ----------- Total Fund Expenses 169,829 Less: Reimbursement of Expenses (37,919) ----------- Net Fund Expenses 131,910 ----------- NET INVESTMENT INCOME 4,135,885 ----------- REALIZED AND UNREALIZED GAIN NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 2,088,179 ----------- CHANGE IN NET UNREALIZED APPRECIATION ON INVESTMENT ALLOCATED FROM PORTFOLIO 4,141,137 ----------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $10,365,201 ===========
The Accompanying Notes are an Integral Part of the Financial Statements. 7 J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND STATEMENT OF CHANGES IN NET ASSETS -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 (UNAUDITED) AND THE YEAR ENDED JULY 31, 2000 INCREASE IN NET ASSETS 2001 2000 FROM OPERATIONS Net Investment Income $ 4,135,885 $ 6,941,803 Net Realized Gain (Loss) on Investment Allocated from Portfolio 2,088,179 (2,345,487) Change in Net Unrealized Appreciation (Depreciation) on Investment Allocated from Portfolio 4,141,137 2,250,089 ----------------- ----------------- Net Increase in Net Assets Resulting from Operations 10,365,201 6,846,405 ----------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (4,135,885) (6,941,803) In Excess of Net Investment Income (13,490) (44,877) ----------------- ----------------- Total Distributions to Shareholders (4,149,375) (6,986,680) ----------------- ----------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 58,953,176 44,578,604 Reinvestment of Distributions 1,195,878 1,485,907 Cost of Shares of Beneficial Interest Redeemed (43,601,677) (33,982,910) ----------------- ----------------- Net Increase from Transactions in Shares of Beneficial Interest 16,547,377 12,081,601 ----------------- ----------------- Total Increase in Net Assets 22,763,203 11,941,326 ----------------- ----------------- NET ASSETS Beginning of Period 173,314,677 161,373,351 ----------------- ----------------- End of Period $196,077,880 $173,314,677 ================= ================= TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Shares of Beneficial Interest Sold 5,552,537 4,338,608 Shares of Beneficial Interest Reinvested 113,100 144,529 Shares of Beneficial Interest Redeemed (4,136,891) (3,305,213) ----------------- ----------------- Net Increase in Shares of Beneficial Interest 1,528,746 1,177,924 ================= =================
8 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- SELECTED DATA FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD IS AS FOLLOWS:
FOR THE SIX MONTHS ENDED FOR THE FOR THE FOUR FOR THE YEARS ENDED MARCH 31 JANUARY 31, 2001 YEAR ENDED MONTHS ENDED ------------------------------------- (UNAUDITED) JULY 31, 2000 JULY 31, 1999 1999 1998 1997 1996 ------------------------------------------------------------------------------------ NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $10.40 $10.42 $10.72 $10.67 $10.31 $10.34 $10.11 ------------------------------------------------------------------------------------ INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.24 0.45 0.14 0.45 0.48 0.48 0.49 Net Realized and Unrealized Gain (Loss) on Investment 0.38 (0.02) (0.28) 0.13 0.40 (0.02) 0.25 ------------------------------------------------------------------------------------ Total From Investment Operations 0.62 0.43 (0.14) 0.58 0.88 0.46 0.74 ------------------------------------------------------------------------------------ LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.24) (0.45) (0.14) (0.45) (0.48) (0.48) (0.49) Net Realized Gain - - (0.02) (0.08) (0.04) (0.01) (0.02) In Excess of Net Investment Income (0.00)(a) (0.00)(a) - - - - - ------------------------------------------------------------------------------------ Total Distributions to Shareholders (0.24) (0.45) (0.16) (0.53) (0.52) (0.49) (0.51) ------------------------------------------------------------------------------------ NET ASSET VALUE PER SHARE, END OF PERIOD $10.78 $10.40 $10.42 $10.72 $10.67 $10.31 $10.34 ==================================================================================== RATIOS AND SUPPLEMENTAL DATA Total Return 6.02%(b) 4.32% (1.25)%(b) 5.51% 8.64% 4.54% 7.40% Net Assets, End of Period (in thousands) $196,078 $173,315 $161,373 $204,986 $111,418 $90,792 $47,926 Ratios to Average Net Assets Net Expenses 0.50%(c) 0.50% 0.50%(c) 0.50% 0.50% 0.50% 0.50% Net Investment Income 4.48%(c) 4.39% 4.01%(c) 4.15% 4.54% 4.70% 4.67% Expenses without Reimbursement 0.54%(c) 0.56% 0.59%(c) 0.57% 0.59% 0.64% 0.67%
(a) Amount is less than $0.005. (b) Not annualized (c) Annualized The Accompanying Notes are an Integral Part of the Financial Statements. 9 J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001 -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--The J.P. Morgan Institutional New York Tax Exempt Bond Fund (the "Fund") is a separate series of the J.P. Morgan Institutional Funds, a Massachusetts business Trust (the "Trust") which was organized on November 4, 1992. The Trust is registered under the Investment Company Act of 1940, as amended, as an open-end management investment company. The Fund commenced operations on April 11, 1994. At a meeting on November 12, 1998, the Trustees elected to change the Fund's fiscal year end from March 31 to July 31. The Fund invests all of its investable assets in The New York Tax Exempt Bond 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 59% at January 31, 2001). 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 are allocated pro-rata among the Fund and other investors in the Portfolio at the time of such determination. EXPENSES--Expenses incurred by the Trust with respect to any two or more Funds in the Trust are allocated in proportion to the net assets of each Fund in the Trust, except where allocations of direct expenses to each Fund can otherwise be made fairly. INCOME TAX STATUS--It is the Fund's policy to distribute all net investment income and net realized gains to shareholders and to otherwise qualify as a regulated investment company under the provisions of the Internal Revenue Code. Accordingly, no provision has been made for federal or state income taxes. DISTRIBUTIONS TO SHAREHOLDERS--Distributions to a shareholder are recorded on the ex-dividend date. Distributions from net investment income are declared daily and paid monthly. Distributions from net realized gains, if any, are paid annually. -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES ADMINISTRATIVE SERVICES--The Trust has an Administrative Services Agreement (the "Services Agreement") with Morgan Guaranty Trust Company of New York ("Morgan"), under which Morgan is responsible for certain aspects of the administration and operation of the Fund. Under the Services Agreement, the Trust has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the Trust and certain other registered investment companies for which J.P. Morgan Investment Management, Inc. ("JPMIM") acts as investment advisor in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. ("FDI"). The portion of this charge payable by the Fund is determined by the proportionate share that its net assets bear to the net assets of the Trust 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 of the Fund, including the expenses allocated to the Fund from the Portfolio, exceed 0.50% of the Fund's average daily net assets. The reimbursement agreement can be changed or terminated at any time after November 30, 2001, at the option of Morgan. ADMINISTRATION--The Trust has retained 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. 10 J.P. MORGAN INSTITUTIONAL NEW YORK TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- (Continued) JANUARY 31, 2001 -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) The Fund has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Fund is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. SHAREHOLDER SERVICING--The Trust has a Shareholder Servicing Agreement with Morgan under which Morgan provides account administration and personal account maintenance service to Fund shareholders. The agreement provides for the Fund to pay Morgan a fee for these services that is computed daily and paid monthly at an annual rate of 0.10% of the average daily net assets of the Fund. FUND SERVICES--The Trust has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Trust's affairs. The Trustees of the Trust represent all the existing shareholders of PGI. TRUSTEES--Each Trustee receives an aggregate annual fee of $75,000 for serving on the boards of the Trust, the J.P. Morgan 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 $200. -------------------------------------------------------------------------------- 3. BANK LOANS The Fund may borrow money for temporary or emergency purposes, such as funding shareholder redemptions. Effective May 23, 2000, the Fund, along with certain other Funds managed by JPMIM, entered into a $150,000,000 bank line of credit agreement with DeutscheBank. Borrowings under the agreement will bear interest at approximate market rates. A commitment fee is charged at an annual rate of 0.085% on the unused portion of the committed amount. -------------------------------------------------------------------------------- 4. 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. -------------------------------------------------------------------------------- 5. CORPORATE EVENT The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Fund's Advisor, 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 Advisor. 11 THE NEW YORK TAX EXEMPT BOND PORTFOLIO Semiannual Report January 31, 2001 (The following pages should be read in conjunction with J.P. Morgan Institutional New York Tax Exempt Bond Fund Semiannual Financial Statements) 12 THE NEW YORK TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------- MUNICIPALS - 95.1% GENERAL OBLIGATIONS & HOUSE AUTHORITY - 11.1% NEW YORK - 11.1% $ 3,000,000 Babylon, (Waste Facilities), 9.00%, 8/1/11(FGIC) $ 4,148,790 7,000,000 New York, Series 1993 A-1, 5.75%, 8/1/14 7,250,880 4,375,000 New York, 6.00%, 3/1/07 4,841,944 5,250,000 New York, Series 1996 A, 6.50%, 7/15/06 5,912,550 6,455,000 New York, Series 1998 A, 5.00%, 8/1/05 6,742,118 4,325,000 New York, Series 1999 I, 4.00%, 4/15/02 4,351,902 3,230,000 Yonkers, Series 1996 C, 5.50%, 8/1/04(AMBAC) 3,408,910 -------------------------- 36,657,094 -------------------------- INSURED - 12.9% NEW YORK - 12.9% 6,895,000 Babylon Industrial Development Agency, Series 2000 A, (Civic Facilities Rev.), 6.63%, 8/1/19(AMBAC) 7,832,375 4,200,000 City University of New York, (John Jay College), 5.75%, 8/15/05(MBIA IBC) 4,537,890 5,500,000 Metropolitan Transportation Auth., Series 1996 A, 6.25%, 4/1/11(MBIA) 6,362,840 1,130,000 Monroe County, 5.88%, 6/1/08(AMBAC) 1,264,030 2,280,000 New York State Dormitory Auth. Rev., (Columbia University), 5.25%, 7/1/07 2,455,400 2,530,000 New York State Dormitory Auth. Rev., (North Shore University Hospital), 5.50%, 11/1/10(MBIA) 2,761,950 2,100,000 New York State Medical Care Facilities Finance Agency, Series 1994 A, (N.Y. Hospital FHA Insured Mortgage), 6.80%, 8/15/24, Prerefunded at 102% of Par(AMBAC) 2,376,885 5,000,000 New York, Series 1991 A, 3.00%, 8/15/02(MBIA IBC) 4,967,500 750,000 New York, Series 1996 G, 5.75%, 2/1/06(AMBAC) 812,475 4,000,000 New York, Series 1997 I, 6.25%, 4/15/07(MBIA) 4,491,200 4,365,000 Suffolk County, (Southwest Sewer District), 6.00%, 2/1/08(MBIA) 4,875,923 -------------------------- 42,738,468 -------------------------- PREREFUNDED - 7.5% NEW YORK - 7.5% 5,500,000 New York City Municipal Water Finance Auth., Series 1996 B, 6.25%, 6/15/20, Prerefunded at 101% of Par 6,192,670 6,000,000 New York Power Auth. Rev., Series 1992 AA, 6.25%, 1/1/23, Prerefunded at 102% of Par 6,276,780 4,425,000 New York State Medical Care Facilities Finance Agency, Series 1992 A, (Methodist Nursing FHA), 6.70%, 8/15/23, Prerefunded at 102% of Par 4,725,989 PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------- $ 485,000 New York State Medical Care Facilities Finance Agency, Series 1995 F, (FHA Insured Mortgage Project), 6.20%, 8/15/15, Prerefunded at 102% of Par $ 525,934 4,950,000 New York State Thruway Auth., (Local Highway & Bridge), 6.45%, 4/1/15, Prerefunded at 102% of Par 5,552,564 1,500,000 Triborough Bridge & Tunnel Auth. Rev., Series 1992 Y, 5.90%, 1/1/07(GO of Auth.) 1,650,795 -------------------------- 24,924,732 -------------------------- PRIVATE PLACEMENT - 7.8% ILLINOIS - 0.9% 3,000,000 Illinois Development Finance Auth. Rev., 4.65%, 8/1/28 3,010,860 -------------------------- MICHIGAN - 0.4% 1,198,073 City of Detroit, 5.49%, 10/15/01 1,207,322 -------------------------- NEW JERSEY - 0.6% 2,000,000 Trust Cultural, 4.60%, 1/1/08 2,021,700 -------------------------- NEW YORK - 5.4% 10,000,000 New York Convention Center Operating Corp. Certificates of Partnership, (Yale Building Acquisition), 6.50%, 12/1/04 10,201,500 5,967,061 New York Office of Temporary & Disability Assistance, 5.21%, 7/1/04 6,105,855 1,705,764 New York State Office, 4.48%, 3/31/05 1,707,931 -------------------------- 18,015,286 -------------------------- PUERTO RICO - 0.5% 1,428,065 Puerto Rico Commonwealth, 7.47%, 12/4/03 1,508,180 -------------------------- 25,763,348 -------------------------- REVENUE BONDS - 54.9% ARIZONA - 1.8% 6,000,000 Arizona Health Facilities Auth. Rev., Series 1999 A, (Catholic Healthcare West), 6.13%, 7/1/09 5,963,160 -------------------------- MICHIGAN - 1.5% 5,000,000 Michigan State Hospital Finance Auth. Rev., Series 1999 B, (Ascension Health Credit), 5.30%, 11/15/33 5,109,450 -------------------------- NEW YORK - 43.4% 2,000,000 Islip Community Development Agency, (New York Institute of Technology), 7.50%, 3/1/26, Prerefunded at 102% of Par 2,361,260 10,000,000 Long Island Power Auth., 5.00%, 4/1/04(MBIA) 10,374,299 5,000,000 Municipal Assistance Corp. for the City of New York, Series 1997 H, 6.00%, 7/1/05 5,442,250 3,000,000 Municipal Assistance Corp. for the City of New York, Series 1999 L, 6.00%, 7/1/08 3,369,240 4,000,000 New York City Transitional Finance Auth., Series B, 6.13%, 11/15/14 4,474,160
The Accompanying Notes are an Integral Part of the Financial Statements. 13 THE NEW YORK TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- (Continued) JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------- $ 9,000,000 New York Local Government Assistance Corp., Series 1995 A, 5.90%, 4/1/11, Prerefunded at 102% of Par $ 9,906,570 2,885,000 New York Mortgage Agency Rev., Series 2000-94, (Homeowner Mortgage), 5.35%, 4/1/23 2,945,498 2,000,000 New York Power Auth. Rev., Series 1990 W, 6.63%, 1/1/03 2,112,260 3,745,000 New York State Dormitory Auth. Rev., (Concord Nursing Home Inc.), 6.25%, 7/1/16(LOC: Fleet Bank N.A.) 3,993,294 3,450,000 New York State Dormitory Auth. Rev., (Pratt Institute), 6.25%, 7/1/14 3,847,233 2,055,000 New York State Dormitory Auth. Rev., (Manhattan College), 5.50%, 7/1/09(Asset Guaranty GO of University) 2,193,363 1,770,000 New York State Dormitory Auth. Rev., (Manhattan College), 5.50%, 7/1/10(Asset Guaranty GO of University) 1,885,439 5,000,000 New York State Dormitory Auth. Rev., Series 1993 A, (State University Educational Facilities), 5.25%, 5/15/15(MBIA-IBC) (Asset Guaranty GO of University) 5,320,000 1,210,000 New York State Dormitory Auth. Rev., Series 1994 A, (University of Rochester), 6.50%, 7/1/06(Asset Guaranty GO of University) 1,360,427 8,360,000 New York State Dormitory Auth. Rev., Series 2001 A, (New York University), 5.75%, 7/1/13(AMBAC) 9,241,980 10,000,000 New York State Environmental Facilities Corp., (New York City Municipal Water), 5.75%, 6/15/10 11,159,999 5,000,000 New York State Environmental Facilities Corp., (New York City Municipal Water), 5.75%, 6/15/11 5,594,500 5,110,000 New York State Environmental Facilities Corp., (Pooled Loan Program), Series 2000 B, 5.70%, 7/15/14 5,565,403 2,635,000 New York State Urban Development Corp., 6.00%, 1/1/06 2,870,358 3,600,000 Port Auth. of New York & New Jersey, 6.95%, 6/1/08 3,748,752 9,425,000 Port Auth. of New York & New Jersey, 120th Series, 5.75%, 10/15/07(MBIA) 10,332,345 8,000,000 Triborough Bridge & Tunnel Auth. Rev., Series 1992 Y, 5.50%, 1/1/17 8,589,120 7,500,000 Triborough Bridge & Tunnel Auth. Rev., Series 1998 A, 5.50%, 1/1/05(FGIC) 7,975,275 3,690,000 Tsasc Inc., Series 1999-1, 4.80%, 7/15/06 3,756,051 4,175,000 Tsasc Inc., Series 1999-1, 4.88%, 7/15/07 4,198,881 2,690,000 Tsasc Inc., Series 1999-1, 5.00%, 7/15/08 2,718,864 8,140,000 Westchester County Healthcare Corp. Rev., Series 2000 B, (County Guaranteed), 5.25%, 11/1/12 8,626,121 -------------------------- 143,962,942 -------------------------- PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------- NORTH CAROLINA - 1.6% $ 5,000,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 1999 B, 6.38%, 1/1/08 $ 5,381,700 -------------------------- PENNSYLVANIA - 1.2% 4,000,000 Clinton County Industrial Development Auth. Rev., Series 1992 A, (International Paper Co.), 4.73%, 1/15/02(v) 4,000,000 -------------------------- TEXAS - 5.4% 5,000,000 Dallas-Fort Worth International Airport Facility Improvement Corp. Rev., Series 2000 B, (American Airlines), 6.05%, 5/1/29 5,118,200 5,000,000 Lubbock Health Facilities Development Corp., (St. Joseph Health Systems), 5.25%, 7/1/14 4,990,900 12,000,000 Texas Municipal Power Agency Rev., (Capital Appreciation), 4.62%, 9/1/10 (AMBAC)(y) 7,749,600 -------------------------- 17,858,700 -------------------------- 182,275,952 -------------------------- TAX ANTICIPATION NOTES - 0.9% CALIFORNIA - 0.9% 3,000,000 Tustin Unified School District Rev., (Community Facilities 97-1), 6.10%, 9/1/02 3,038,760 -------------------------- TOTAL MUNICIPALS 315,398,354 -------------------------- (Cost $305,225,047) SHORT-TERM INVESTMENTS - 4.9% INVESTMENT COMPANIES - 4.9% 16,065,143 J.P. Morgan Institutional Tax Exempt Money Market Fund* 16,065,143 -------------------------- (Cost $16,065,143) TOTAL INVESTMENT SECURITIES - 100.0% $331,463,497 ========================== (Cost $321,290,190)
AMBAC - AMBAC Assurance Corporation FGIC - Financial Guaranty Insurance Co. FHA - Federal Housing Authority GO - General Obligation IBC - Insured Bond Certificate LOC - Letter of Credit MBIA - MBIA Insurance Corp. (v) Rate shown reflects current rate on variable or floating rate instrument or instrument with step coupon rate. (y) Yield to maturity * Affiliated money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc. 14 The Accompanying Notes are an Integral Part of the Financial Statements. THE NEW YORK TAX EXEMPT BOND PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001 ASSETS Investments at Value (Cost $321,290,190) $331,463,497 Cash 473,790 Dividend and Interest Receivable 3,858,214 Prepaid Trustees' Fees and Expenses 467 Prepaid Expenses and Other Assets 447 ------------- TOTAL ASSETS 335,796,415 ------------- LIABILITIES Payable for Investments Purchased 8,904,570 Advisory Fee Payable 80,383 Administrative Services Fee Payable 6,329 Accrued Expenses and Other Liabilities 22,673 ------------- TOTAL LIABILITIES 9,013,955 ------------- NET ASSETS Applicable to Investors' Beneficial Interest $326,782,460 =============
The Accompanying Notes are an Integral Part of the Financial Statements. 15 THE NEW YORK TAX EXEMPT BOND PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 INVESTMENT INCOME INCOME Interest Income $ 7,669,422 Dividend Income from Affiliated Investment 12,346 ------------ Investment Income 7,681,768 ------------ EXPENSES Advisory Fee 463,129 Administrative Services Fee 36,783 Custodian Fees and Expenses 24,440 Professional Fees and Expenses 21,458 Printing Expenses 4,691 Fund Services Fee 2,071 Trustees' Fees and Expenses 1,603 Administration Fee 903 Miscellaneous Expenses 400 ------------ Total Expenses 555,478 ------------ NET INVESTMENT INCOME 7,126,290 ------------ REALIZED AND UNREALIZED GAIN NET REALIZED GAIN ON INVESTMENT TRANSACTIONS 3,487,935 ------------ CHANGE IN NET UNREALIZED APPRECIATION ON INVESTMENTS 7,037,956 ------------ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $17,652,181 ============
16 The Accompanying Notes are an Integral Part of the Financial Statements. THE NEW YORK TAX EXEMPT BOND PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED JANUARY 31, 2001 (UNAUDITED) AND THE YEAR ENDED JULY 31, 2000 INCREASE IN NET ASSETS 2001 2000 FROM OPERATIONS Net Investment Income $ 7,126,290 $ 12,523,847 Net Realized Gain (Loss) on Investment Transactions 3,487,935 (3,934,965) Change in Net Unrealized Appreciation (Depreciation) on Investments 7,037,956 3,738,355 --------------- ----------------- Net Increase in Net Assets Resulting from Operations 17,652,181 12,327,237 --------------- ----------------- TRANSACTIONS IN INVESTORS' BENEFICIAL INTEREST Contributions 85,909,669 90,169,287 Withdrawals (74,744,160) (81,529,772) --------------- ----------------- Net Increase from Transactions in Investors' Beneficial Interest 11,165,509 8,639,515 --------------- ----------------- Total Increase in Net Assets 28,817,690 20,966,752 --------------- ----------------- NET ASSETS Beginning of Period 297,964,770 276,998,018 --------------- ----------------- End of Period $326,782,460 $297,964,770 =============== =================
SUPPLEMENTARY DATA FOR THE SIX MONTHS ENDED FOR THE FOR THE FOUR FOR THE YEARS ENDED MARCH 31 JANUARY 31, 2001 YEAR ENDED MONTHS ENDED ------------------------------------- (UNAUDITED) JULY 31, 2000 JULY 31, 1999 1999 1998 1997 1996 -------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS Net Expenses 0.36%(a) 0.36% 0.40%(a) 0.38% 0.40% 0.43% 0.44% Net Investment Income 4.62%(a) 4.52% 4.10%(a) 4.26% 4.62% 4.75% 4.72% Portfolio Turnover 52%(b) 86% 8%(b) 44% 51% 35% 41%
(a) Annualized (b) Not annualized The Accompanying Notes are an Integral Part of the Financial Statements. 17 THE NEW YORK TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED -------------------------------------------------------------------------------- JANUARY 31, 2001 -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--The New York Tax Exempt Bond Portfolio (the "Portfolio") is registered under the Investment Company Act of 1940, as amended, as a no-load, non-diversified, open-end management investment company which was organized as a Trust under the laws of the State of New York on June 16, 1993. The Portfolio commenced operations on April 11, 1994. The Portfolio's investment objective is to provide a high level of tax exempt income for New York residents consistent with moderate risk of capital. The Portfolio invests a significant amount of its assets in debt obligations issued by political subdivisions and authorities in the State of New York. The issuers' ability to meet their obligations may be affected by economic and political developments within the State of New York. The Declaration of Trust permits the Trustees to issue an unlimited number of beneficial interests in the Portfolio. At a meeting on November 12, 1998, the Trustees elected to change the Portfolio's fiscal year end from March 31 to July 31. 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--Fixed income securities, (other than convertible bonds), with a maturity of 60 days or more held by Funds other than money market funds will be valued each day based on readily available market quotations received from independent or affiliated commercial pricing services. Such pricing services will generally provide bidside quotations. Convertible bonds are valued at the last sale price on the primary exchange on which the bond is principally traded. When valuations are not readily available, securities are valued at fair value as determined in accordance with procedures adopted by the Trustees. All short-term securities with a remaining maturity of sixty days or less are valued using the amortized cost method. 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--Dividend income less foreign taxes withheld (if any) is recorded as of the ex-dividend date or as of the time that the relevant ex-dividend and amount becomes known. 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 Chase & Co. Under the terms of the agreement, the Portfolio pays JPMIM at an annual rate of 0.30% of the Portfolio's average daily net assets. The Portfolio may invest in one or more affiliated money market funds: J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional Federal Money Market Fund and J.P. Morgan Institutional Treasury Money Market Fund. The Advisor has agreed to reimburse its advisory fee from the Portfolio in an amount to offset any investment advisory, administrative fee and shareholder servicing fees related to a Portfolio investment in an affiliated money market fund. 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 18 THE NEW YORK TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED -------------------------------------------------------------------------------- (Continued) JANUARY 31, 2001 -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. ("FDI"). The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which Morgan provides similar services. ADMINISTRATION--The Portfolio has retained FDI, a registered broker-dealer, to serve as the co-administrator and distributor for the Fund. Under a Co-Administration Agreement between FDI and the Portfolio, FDI provides administrative services necessary for the operations of the Portfolio, furnishes office space and facilities required for conducting the business of the Portfolio and pays the compensation of the Portfolio's officers affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Portfolio's affairs. The Trustees of the Portfolio represent all the existing shareholders of PGI. 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 $400. -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS During the six months ended January 31, 2001, the Portfolio purchased $176,847,148 of investment securities and sold $156,321,132 of investment securities other than short-term investments. -------------------------------------------------------------------------------- 4. CREDIT AGREEMENT The Portfolio is party to a revolving line of credit agreement (the "Agreement") as discussed more fully in Note 3 of the Fund's Notes to the Financial Statements, which are included elsewhere in this report. -------------------------------------------------------------------------------- 5. CONCENTRATIONS OF RISK The ability of the issuers of debt, asset-backed and mortgage-backed securities to meet their obligations may be affected by the economic and political developments in a specific industry or region. The value of asset-backed and mortgage-backed securities can be significantly affected by changes in interest rates or rapid principal payments including prepayments. -------------------------------------------------------------------------------- 6. CORPORATE EVENT The merger of J.P. Morgan & Co. Incorporated, the former parent company of the Portfolio's Advisor, 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 Advisor. 19 NOTES -------------------------------------------------------------------------------- 20 [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-SAN-24966 0102