EX-17.(H) 9 a2043511zex-17_h.txt EXHIBIT 17(H) LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN TAX EXEMPT BOND FUND March 1, 2000 Dear Shareholder: The J.P. Morgan Tax Exempt Bond Fund declined 0.29% over the six months ended January 31, 2000, as interest rates rose, eroding net asset values somewhat. The fund outperformed its competition, which fell 1.30% over the same period, as measured by the Lipper Intermediate Municipal Debt Funds Average, but underperformed its benchmark, the Lehman Brothers 1-16 year Municipal Bond Index, which returned -0.17%. Higher interest rates also mean that the fund's 30-day SEC yield increased to 4.70% as of January 31, which is a tax equivalent yield of 7.78% at a 39.6% federal income tax rate. The fund's net asset value as of January 31, 2000 was $11.37, down from $11.77 on July 31, 1999, after payments over the six-month period of dividends of approximately $0.26 per share, a long-term capital gain of almost $0.11 a share, and a short-term capital gain of less than $0.01 per share. During the period, the fund's net assets declined from approximately $431.7 million to $385.4 million. In addition, the portfolio's net assets declined from approximately $821.9 million to $782.4 million. The report that follows includes an interview with Benjamin S. Thompson and Robert Meiselas, who manage the fund. This interview is designed to reflect what happened during the months past, as well as provide an outlook for the future. As chairman and president of Asset Management Services, we thank you for investing with J.P. Morgan. Should you have any comments or questions, please telephone your Morgan representative or J.P. Morgan Funds Services at 800-521-5411. Sincerely yours, /s/ Ramon de Oliveira /s/ Keith M. Schappert 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 GLOSSARY OF TERMS....................5 FUND PERFORMANCE.....................2 FUND FACTS AND HIGHLIGHTS............6 PORTFOLIO MANAGER Q&A................3 FINANCIAL STATEMENTS.................8 -------------------------------------------------------------------------------- 1 FUND PERFORMANCE EXAMINING PERFORMANCE One way to look at performance is to review a fund's average annual total return. This figure takes the fund's actual (or cumulative) 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, or 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 RETURNS AVERAGE ANNUAL TOTAL RETURNS ----------------- ---------------------------------------- THREE SIX ONE THREE FIVE TEN AS OF JANUARY 31, 2000 MONTHS MONTHS YEAR YEARS YEARS YEARS ---------------------------------------------------------------------- ---------------------------------------- J.P. Morgan Tax Exempt Bond Fund 0.17% -0.29% -2.41% 3.76% 5.25% 6.00% Lehman Brothers 1-16 year Municipal Bond Index 0.29% -0.17% -1.48% 4.47% 6.06% N/A Lehman Quality Intermediate Muni Bond Index 0.23% 0.11% -1.07% 4.32% 5.82% 6.60% Lipper Intermed. Muni Debt Funds Avg. -0.11% -1.30% -3.19% 3.41% 5.02% 5.91% AS OF DECEMBER 31, 1999 ---------------------------------------------------------------------- ---------------------------------------- J.P. Morgan Tax Exempt Bond Fund -0.09% 0.38% -0.88% 3.94% 5.69% 6.00% Lehman Brothers 1-16 year Municipal Bond Index -0.04% 0.54% -0.06% 4.66% 6.54% N/A Lehman Quality Intermediate Muni Bond Index 0.02 0.86% 0.30% 4.50% 6.25% 6.60% Lipper Intermed. Muni Debt Funds Avg. -0.38% -0.38% -1.65% 3.66% 5.55% 5.91%
THE FUND'S CURRENT BENCHMARK IS THE LEHMAN BROTHERS 1-16 YEAR MUNICIPAL BOND INDEX. SINCE THIS INDEX DID NOT EXIST PRIOR TO JULY 31, 1993, THE TABLE ALSO INCLUDES THE PERFORMANCE DATA FOR THE LEHMAN QUALITY INTERMEDIATE MUNICIPAL BOND INDEX, THE FUND'S BENCHMARK UNTIL MAY 1, 1997. BOTH ARE UNMANAGED INDICES THAT MEASURE MUNICIPAL BOND MARKET PERFORMANCE. THEY DO NOT INCLUDE FEES OR EXPENSES AND ARE NOT AVAILABLE FOR ACTUAL INVESTMENT. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF FEES AND ASSUME THE REINVESTMENT OF FUND DISTRIBUTIONS. 2 PORTFOLIO MANAGER Q&A [PHOTO] Benjamin S. Thompson and Robert Meiselas are both members of the portfolio management team responsible for managing the portfolio in which the fund invests. They sat down on February 22, 2000 to discuss the fund's performance over the six months ended January 31, 2000. Below are highlights of that discussion, which represent the views of both Ben and Bob as of that date. [PHOTO] BENJAMIN S. THOMPSON, vice president, is 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 U.S. tax-aware fixed income accounts. Prior to joining Morgan in 1999, Ben was a senior fixed income portfolio manager at Goldman Sachs Asset Management. Earlier, he was in the structured finance group of the Chase Manhattan Bank. He holds a B.A. in economics from Colorado College. [PHOTO] ROBERT MEISELAS, vice president, is a portfolio manager with the U.S. 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 spending 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 holds a B.S. in accounting from St. John's University and a M.S. in taxation from Long Island University. THE LAST SIX MONTHS HAVE BEEN DIFFICULT FOR BOND INVESTORS. WHAT HAPPENED? Municipal bond yields rose dramatically along with interest rates in general in the United States during the six months ended January 31. For example, 30-year municipal yields (AAA general obligation debt) rose by 62 basis points during the reporting period. Yields in the 10-year sector, where this fund is focused, rose by a somewhat smaller margin, 48 basis points. So fortunately, the 10-year sector was less volatile and outperformed longer-term holdings, although returns were still negative. DESPITE THIS TURBULENCE, THE FUND DID PERFORM BETTER THAN ITS PEERS. HOW DID YOU DO IT? J.P. Morgan Investment Management's overall defensive posture benefited shareholders. We held the portfolio's duration shorter than that of most funds within the Lipper Intermediate Municipal Debt peer group, and that helped performance. Morgan's core fixed income strategy (primarily focusing on investments in the short and intermediate parts of the yield curve) also contributed to greater price insulation in a bearish environment. 3 IN WHAT WAY? Our conservative yield curve strategy focused primarily on short and intermediate maturities (between 3 and 15 years as opposed to 20+ years). For example, over the six months ended January 31, 5- and 10-year municipal yields rose approximately 60 and 48 basis points, respectively, as compared to 78 and 62 bps for 20- and 30-year maturities. Therefore, fund investors clearly benefited from underexposure to the longer maturities where significant price volatility and depreciation occurred. DID COUPON STRATEGY HELP? The fund's return was also enhanced by a conservative coupon strategy focusing largely on higher coupon premium bonds rather than bonds priced at or near the coupon or at a significant discount. These premium coupons insulated the fund's price as interest rates rose rapidly. ANYTHING ELSE? Other factors that helped performance include opportunistic relative value trading, credit-specific analysis, and taking advantage of various state-specific supply/demand imbalances. WHAT IS YOUR MARKET OUTLOOK? After having been bearish for the past year or so, we are now beginning to adopt a less negative outlook on interest rates. We also feel that the bond market currently has priced in at least one more tightening by the Federal Reserve in March and perhaps one more soon after that. In the municipal bond market, a decrease in new issue supply could provide price stability and boost relative asset class performance. At substantially higher rates we feel that many issuers would be reluctant to take on additional debt and most potential refunding candidates would be out-of-the-money. The dramatic treasury yield curve inversion also should have a flattening "pull" on the municipal market over the next several months. Credit quality spreads are relatively tight within the investment grade sector but remain quite wide in higher-yielding sectors that still carry a significant degree of event risk such as health care. HOW IS THE FUND POSITIONED? We intend to incorporate more of a barbell position on the yield curve to take advantage of the flattening that we anticipate. We intend to upgrade credit quality within the investment grade sector while continuing to perform rigorous credit research on isolated situations in the more esoteric and seemingly better yielding sectors such as health care and private placements. 4 GLOSSARY OF TERMS BASIS POINT: A measure used in quoting bond yields. One basis point equals 0.01% of yield. For example, if a bond's yield changed from 10.25% to 11.00%, it would have moved 75 basis points. CREDIT RATING: The rating assigned to a bond by independent rating agencies such as Standard & Poor's and Moody's. In evaluating creditworthiness, these agencies assess the issuer's present financial condition and future ability and willingness to make principal and interest payments when due. DURATION: Duration is a measure of the relative sensitivity of the price of the security to a change in interest rates. The longer the duration, the more sensitive the bond is to interest rate moves. For example, a bond with a 5-year duration will experience an approximate 5% increase in price if interest rates drop 100 basis points (1%), while a bond with a 10-year duration would see its price rise by approximately 10%. MATURITY: The date on which the life of a financial instrument ends through cash or physical settlement or expiration with no value, or the date a security comes due and fully payable. Average maturity refers to the average time to maturity of the entire portfolio. YIELD CURVE: A line graph showing interest rates at a point in time, from the shortest maturity to the longest available. The resulting curve shows if short-term interest rates are higher or lower than long-term rates. Typically interest rates rise with increasing time to maturity. YIELD SPREAD: The difference in yield between different types of securities. For example, if a Treasury bond is yielding 6.5% and a municipal is yielding 5.5%, the spread is 1.0% or 100 basis points. ZERO COUPON BOND: A debt instrument sold at a discount to its face value. The bond makes no payments until maturity, at which time it is redeemed at face value. Effectively, the interest received is the difference between face value and the price paid for the security. 5 FUND FACTS INVESTMENT OBJECTIVE J.P. Morgan Tax Exempt Bond Fund seeks to provide a high level of current income that is exempt from federal income tax consistent with moderate risk of capital. It is designed for investors who seek tax exempt yields greater than those generally available from a portfolio of short-term tax exempt obligations and who are willing to incur the greater price fluctuation of longer-term instruments. -------------------------------------------------------------------------------- COMMENCEMENT OF OPERATIONS 10/3/84 -------------------------------------------------------------------------------- Fund net assets as of 1/31/00 $385,385,832 -------------------------------------------------------------------------------- PORTFOLIO NET ASSETS AS OF 1/31/00 $782,424,946 -------------------------------------------------------------------------------- DIVIDEND PAYABLE DATES MONTHLY -------------------------------------------------------------------------------- CAPITAL GAIN PAYABLE DATES (IF APPLICABLE) 12/13/00 EXPENSE RATIO The fund's current annualized expense ratio of 0.66% covers shareholders' expenses for custody, tax reporting, investment advisory and shareholder services. 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 dividend or redemption proceeds from the fund. FUND HIGHLIGHTS ALL DATA AS OF JANUARY 31, 2000 PORTFOLIO ALLOCATION (PERCENTAGE OF TOTAL INVESTMENTS) [CHART] REVENUE BONDS 56.7% GENERAL OBLIGATIONS 36.8% PRIVATE PLACEMENTS 3.9% SHORT-TERM 2.6% 30-DAY SEC YIELD 4.70% DURATION 5.3 years 6 DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC. SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST. Opinions expressed herein are based on current market conditions and are subject to change without notice. The fund invests in a master portfolio (another fund with the same objective). Income may be subject to some state and local taxes. Some income may be subject to the Federal alternative minimum tax for certain investors. Capital gains are not exempt from taxes. 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. 7 J.P. MORGAN TAX EXEMPT BOND FUND STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 2000 -------------------------------------------------------------------------------- ASSETS Investment in The Tax Exempt Bond Portfolio ("Portfolio"), at value $388,063,264 Receivable for Shares of Beneficial Interest Sold 1,137,588 Prepaid Trustees' Fees 1,840 ------------ Total Assets 389,202,692 ------------ LIABILITIES Payable for Shares of Beneficial Interest Redeemed 3,272,657 Dividends Payable to Shareholders 432,678 Shareholder Servicing Fee Payable 82,143 Administrative Services Fee Payable 8,121 Administration Fee Payable 387 Fund Services Fee Payable 131 Accrued Expenses 20,743 ------------ Total Liabilities 3,816,860 ------------ NET ASSETS Applicable to 33,903,337 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $385,385,832 ============ Net Asset Value, Offering and Redemption Price Per Share $11.37 ----- ----- ANALYSIS OF NET ASSETS Paid-in Capital $384,566,203 Distributions in Excess of Net Investment Income (93,326) Accumulated Net Realized Loss on Investment (5,195,632) Net Unrealized Appreciation of Investment 6,108,587 ------------ Net Assets $385,385,832 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 8 J.P. MORGAN TAX EXEMPT BOND FUND STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JANUARY 31, 2000 -------------------------------------------------------------------------------- INVESTMENT INCOME ALLOCATED FROM PORTFOLIO Allocated Interest Income $10,342,190 Allocated Portfolio Expenses (764,132) ----------- Net Investment Income Allocated from Portfolio 9,578,058 FUND EXPENSES Shareholder Servicing Fee $521,943 Administrative Services Fee 52,473 Transfer Agent Fees 18,726 Professional Fees 8,191 Registration Fees 8,029 Fund Services Fee 3,537 Administration Fee 2,808 Trustees' Fees and Expenses 1,870 Miscellaneous 9,321 -------- Total Fund Expenses 626,898 ----------- NET INVESTMENT INCOME 8,951,160 NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM PORTFOLIO (5,143,122) NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENT ALLOCATED FROM PORTFOLIO (5,147,710) ----------- NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $(1,339,672) ===========
The Accompanying Notes are an Integral Part of the Financial Statements. 9 J.P. MORGAN TAX EXEMPT BOND FUND STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE ELEVEN JANUARY 31, 2000 MONTHS ENDED (UNAUDITED) JULY 31, 1999 ---------------- -------------- DECREASE IN NET ASSETS FROM OPERATIONS Net Investment Income $ 8,951,160 $ 17,347,608 Net Realized Gain (Loss) on Investment Allocated from Portfolio (5,143,122) 4,012,628 Net Change in Unrealized Depreciation of Investment Allocated from Portfolio (5,147,710) (17,484,081) --------------- ------------ Net Increase (Decrease) in Net Assets Resulting from Operations (1,339,672) 3,876,155 --------------- ------------ DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (8,951,160) (17,346,461) Net Realized Gain (4,016,116) (780,645) Distributions in Excess of Net Investment Income (210,987) -- --------------- ------------ Total Distributions to Shareholders (13,178,263) (18,127,106) --------------- ------------ TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 54,375,356 152,936,932 Reinvestment of Dividends and Distributions 9,463,220 13,753,851 Cost of Shares of Beneficial Interest Redeemed (95,619,410) (159,980,035) --------------- ------------ Net Increase (Decrease) from Transactions in Shares of Beneficial Interest (31,780,834) 6,710,748 --------------- ------------ Total Decrease in Net Assets (46,298,769) (7,540,203) NET ASSETS Beginning of Period 431,684,601 439,224,804 --------------- ------------ End of Period (including undistributed net investment income of $0 and $117,661, respectively) $ 385,385,832 $431,684,601 =============== ============
The Accompanying Notes are an Integral Part of the Financial Statements. 10 J.P. MORGAN TAX EXEMPT BOND FUND FINANCIAL HIGHLIGHTS -------------------------------------------------------------------------------- Selected data for a share outstanding throughout each period are as follows:
FOR THE SIX MONTHS ENDED FOR THE ELEVEN FOR THE FISCAL YEAR ENDED AUGUST 31, JANUARY 31, 2000 MONTHS ENDED -------------------------------------------- (UNAUDITED) JULY 31, 1999 1998 1997 1996 1995 ---------------- -------------- -------- -------- -------- -------- NET ASSET VALUE, BEGINNING OF PERIOD $ 11.77 $ 12.15 $ 11.85 $ 11.63 $ 11.73 $ 11.45 -------- -------- -------- -------- -------- -------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.25 0.46 0.54 0.55 0.55 0.55 Net Realized and Unrealized Gain (Loss) on Investment (0.28) (0.36) 0.30 0.24 (0.08) 0.29 -------- -------- -------- -------- -------- -------- Total from Investment Operations (0.03) 0.10 0.84 0.79 0.47 0.84 -------- -------- -------- -------- -------- -------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.25) (0.46) (0.54) (0.55) (0.55) (0.55) Net Realized Gain (0.11) (0.02) (0.00)(a) (0.02) (0.02) (0.01) Distributions in Excess of Net Investment Income (0.01) -- -- -- -- -- -------- -------- -------- -------- -------- -------- Total Distributions to Shareholders (0.37) (0.48) (0.54) (0.57) (0.57) (0.56) -------- -------- -------- -------- -------- -------- NET ASSET VALUE, END OF PERIOD $ 11.37 $ 11.77 $ 12.15 $ 11.85 $ 11.63 $ 11.73 ======== ======== ======== ======== ======== ======== RATIOS AND SUPPLEMENTAL DATA Total Return (0.29)%(b) 0.83%(b) 7.21% 6.95% 4.01% 7.63% Net Assets, End of Period (in thousands) $385,385 $431,685 $439,225 $401,007 $369,987 $352,005 Ratios to Average Net Assets Net Expenses 0.66%(c) 0.68%(c) 0.64% 0.64% 0.64% 0.71% Net Investment Income 4.28%(c) 4.21%(c) 4.44% 4.67% 4.67% 4.87%
------------------------ (a) Less than $0.01 per share. (b) Not Annualized. (c) Annualized. The Accompanying Notes are an Integral Part of the Financial Statements. 11 J.P. MORGAN TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JANUARY 31, 2000 -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES J.P. Morgan Tax Exempt Bond Fund (the "fund") is a separate series of the J.P. Morgan 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, prior to its tax-free reorganization on July 11, 1993 to a series of the trust, operated as a stand-alone mutual fund. The fund invests all of its investable assets in The Tax Exempt Bond Portfolio (the "portfolio"), a no-load 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 (50% at January 31, 2000). The performance of the fund is directly affected by the performance of the portfolio. The financial statements of the portfolio, including the Schedule of Investments, are included elsewhere in this report and should be read in conjunction with the fund's financial statements. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the fund: a) Valuation of securities by the portfolio is discussed in Note 1a of the portfolio's Notes to Financial Statements which are included elsewhere in this report. b) The fund records its share of net investment income, realized and unrealized gain and loss and adjusts its investment in the portfolio each day. All the net investment income and realized and unrealized gain and loss of the portfolio is allocated pro rata among the fund and other investors in the portfolio at the time of such determination. c) Substantially all the fund's net investment income is declared as dividends daily and paid monthly. Distributions to shareholders of net realized capital gains, if any, are declared and paid annually. d) 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. Expenses directly attributable to a fund are charged to that fund. e) The fund is treated as a separate entity for federal income tax purposes and the fund intends to comply with the provisions of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies and to distribute substantially all of its income, including net realized capital gains, if any, within the prescribed time periods. Accordingly, no provision for federal income or excise tax is necessary. 2. TRANSACTIONS WITH AFFILIATES a) The trust, on behalf of the fund, has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as co-administrator and distributor for the fund. Under a Co-Administration Agreement between FDI and the trust on behalf of the fund, FDI provides administrative services 12 J.P. MORGAN TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 -------------------------------------------------------------------------------- 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 amount allocable to the fund is based on the ratio of the fund's net assets to the aggregate net assets of the trust and certain other investment companies subject to similar agreements with FDI. For the six months ended January 31, 2000, the fee for these services amounted to $2,808. b) The trust, on behalf of the fund, 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 portfolio and other portfolios in which the trust and the J.P. Morgan Institutional Funds invest (the "master portfolios") and J.P. Morgan Series Trust in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to FDI. The portion of this charge payable by the fund is determined by the proportionate share that its net assets bear to the net assets of the trust, the master portfolios, other investors in the master portfolios for which Morgan provides similar services, and J.P. Morgan Series Trust. For the six months ended January 31, 2000, the fee for these services amounted to $52,473. c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement with Morgan to provide account administration and personal account maintenance service to fund shareholders. The Agreement provides for the fund to pay Morgan a fee for these services which is computed daily and paid monthly at an annual rate of 0.25 % of the average daily net assets of the fund. For the six months ended January 31, 2000, the fee for these services amounted to $521,943. Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to separate services and operating agreements (the "Schwab Agreements") whereby Schwab makes fund shares available to customers of investment advisors and other financial intermediaries who are Schwab's clients. The fund is not responsible for payments to Schwab under the Schwab Agreements; however, in the event the services agreement with Schwab is terminated for reasons other than a breach by Schwab and the relationship between the trust and Morgan is terminated, the fund would be responsible for the ongoing payments to Schwab with respect to pre-termination shares. d) The trust, on behalf of the fund, has a Fund Services Agreement with Pierpont Group, Inc. ("Group") 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 Group. The fund's allocated portion of Group's costs in performing its services amounted to $3,537 for the six months ended January 31, 2000. e) An aggregate annual fee of $75,000 is paid to each trustee for serving as a trustee of the trust, the J.P. Morgan Institutional Funds, the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the financial statements represents the fund's allocated portion of the total fees and 13 J.P. MORGAN TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 -------------------------------------------------------------------------------- expenses. The trust's Chairman and Chief Executive Officer also serves as Chairman of Group and receives compensation and employee benefits from Group in his role as Group's Chairman. The allocated portion of such compensation and benefits included in the Fund Services Fee shown in the financial statements was $700. 3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST The Declaration of Trust permits the trustees to issue an unlimited number of full and fractional shares of beneficial interest of one or more series. Transactions in shares of beneficial interest of the fund were as follows:
FOR THE ELEVEN FOR THE FISCAL MONTHS ENDED YEAR ENDED JULY 31, 1999 JANUARY 31, 2000 (UNAUDITED) ---------------- -------------- Shares sold...................................... 4,698,197 12,616,673 Reinvestment of dividends and distributions...... 819,026 1,136,791 Shares redeemed.................................. (8,284,170) (13,228,589) --------------- ------------ Net Increase (Decrease).......................... (2,766,947) 524,875 =============== ============
4. CREDIT AGREEMENT The trust, on behalf of the fund, together with other affiliated investment companies (the "funds"), entered into a revolving line of credit agreement (the "Agreement") on May 27, 1998, with unaffiliated lenders. Additionally, since all of the investable assets of the fund are in the portfolio, the portfolio is party to certain covenants of the Agreement. The Agreement expired on May 26, 1999, however, the fund as party to the Agreement has renewed the Agreement and will continue its participation therein for an additional 364 days until May 23, 2000. The maximum borrowing under the Agreement is $150,000,000. The purpose of the Agreement is to provide another alternative for settling large fund shareholder redemptions. Interest on any such borrowings outstanding will approximate market rates. The funds pay a commitment fee at an annual rate of 0.085% (0.065% prior to May 26, 1999) on the unused portion of the committed amount. This is allocated to the funds in accordance with procedures established by their respective trustees. There were no outstanding borrowings pursuant to the Agreement as of January 31, 2000. 14 The Tax Exempt Bond Portfolio Semiannual Report January 31, 2000 (unaudited) (The following pages should be read in conjunction with The J.P. Morgan Tax Exempt Bond Fund Semiannual Financial Statements) 15 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ LONG-TERM INVESTMENTS (96.8%) ALABAMA (0.1%) $ 1,000 Daphne Special Care Facilities Financing Authority, (Presbyterian Retirement, Prerefunded, Series A, due 08/15/18)...................... RB NR/NR 08/15/01(a) 7.300% $ 1,041,770 ------------ ALASKA (0.3%) 2,000 Anchorage, (Prerefunded, due 07/01/02), MBIA Insured............ GO Aaa/AAA 07/01/01(a) 6.600 2,058,080 ------------ ARIZONA (0.8%) 1,000 Maricopa County School District #11, (Peoria Unified School Improvement, Prerefunded, Series H, due 07/01/05), MBIA Insured............ GO Aaa/AAA 07/01/01(a) 7.000 1,034,870 1,750 Phoenix, (Refunding, Series C)....... GO Aa1/AA+ 07/01/02 6.375 1,817,200 3,315 Salt River Project, (Agricultural Improvement & Power District, Electric System Revenue, Refunding, Series A).......................... RB Aa2/AA 01/01/06 6.000 3,463,015 ------------ TOTAL ARIZONA.................... 6,315,085 ------------ CALIFORNIA (4.5%) 6,000 California........................... GO Aa3/AA- 02/01/08 6.500 6,558,960 2,520 California Department of Water Resources, (Central Valley Project, Water Systems Service, Refunding, Series J-1)........................ RB Aa2/AA 12/01/12 7.000 2,904,048 2,750 California Pollution Control Financing Authority, (PCR, Laidlaw Environmental, Refunding, Series A).......................... RB NR/NR 07/01/07 6.700 2,720,795 13,675 California Statewide Community Development Authority, (Catholic Healthcare West)................... RB Baa1/BBB+ 07/01/09 6.000 13,237,126 1,049 Kaweah Delta Hospital District, Tulare County, (Series E).......... PP NR/A+ 06/01/14 5.250 1,052,583 1,479 Kaweah Delta Hospital District, Tulare County, (Series G).......... PP NR/A+ 06/01/04 6.400 1,540,260
The Accompanying Notes are an Integral Part of the Financial Statements. 16 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ CALIFORNIA (CONTINUED) $ 2,500 Los Angeles County Public Works Financing Authority, (Lease Revenue, Refunding, Series A), MBIA Insured............................ RB Aaa/AAA 09/01/06 6.000% $ 2,668,625 4,200 Los Angeles County Public Works Financing Authority, (Regional Park and Open Space District, Refunding, Series A).......................... RB Aa3/AA 10/01/07 5.375 4,334,148 ------------ TOTAL CALIFORNIA................. 35,016,545 ------------ CONNECTICUT (0.6%) 2,000 Connecticut Health & Educational Facilities Authority, (St. Mary's Hospital, Series D)................ RB Baa1/NR 07/01/01 5.750 2,016,300 2,815 Connecticut, (Special Tax Obligation, Transportation Infrastructure, Prerefunded, Series A, due 06/01/04).......................... RB NR/AAA 06/01/03(a) 6.600 2,960,057 ------------ TOTAL CONNECTICUT................ 4,976,357 ------------ DISTRICT OF COLUMBIA (7.4%) 220 District of Columbia, (Escrowed to Maturity, Series A), MBIA-IBC Insured............................ GO Aaa/AAA 06/01/07 6.000 230,184 2,600 District of Columbia, (Escrowed to Maturity, Series B), MBIA Insured............................ GO NR/AAA 06/01/02 6.000 2,671,786 6,795 District of Columbia, (Escrowed to Maturity, Series C), FGIC Insured............................ GO Aaa/AAA 12/01/03 5.250 6,888,431 10,645 District of Columbia, (Escrowed to Maturity, Series A)................ GO Aaa/BBB 06/01/04 5.800 10,946,892 18,520 District of Columbia, (Refunding, Series B), FSA Insured............. GO Aaa/AAA 06/01/09 5.500 18,535,557 705 District of Columbia, (Unrefunded Balance, Refunding, Series C), FGIC Insured............................ GO Aaa/AAA 12/01/03 5.250 711,507 2,780 District of Columbia, (Unrefunded Balance, Series A), MBIA-IBC Insured............................ GO Aaa/AAA 06/01/07 6.000 2,881,220 3,665 Metropolitan Airport, (General Airport Revenue, Series A), FGIC Insured............................ RB Aaa/AAA 10/01/10 7.250 3,787,594 1,000 Metropolitan Airport, (General Airport Revenue, Series B), FGIC Insured............................ RB Aaa/AAA 10/01/03 5.750 1,030,460
The Accompanying Notes are an Integral Part of the Financial Statements. 17 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ DISTRICT OF COLUMBIA (CONTINUED) $ 4,015 Metropolitan Airport, (General Airport Revenue, Series B), FGIC Insured............................ RB Aaa/AAA 10/01/05 6.000% $ 4,189,412 5,745 Metropolitan Airport, (General Airport Revenue, Series B), FGIC Insured............................ RB Aaa/AAA 10/01/06 6.000 5,990,024 ------------ TOTAL DISTRICT OF COLUMBIA....... 57,863,067 ------------ FLORIDA (1.6%) 5,765 Dade County School District, (Refunding), MBIA Insured.......... GO Aaa/AAA 07/15/05 6.000 6,038,088 465 Florida State Board of Education, (Capital Outlay, Unrefunded Balance, Series C)................. GO Aa2/AA+ 06/01/01 7.000 470,115 2,000 Jacksonville Health Facilities Authority, (Hospital Revenue, Charity Obligated Group, Refunding, Series A), MBIA Insured............ RB Aaa/AAA 08/15/06 5.500 2,042,560 2,000 Tampa, (Health System Revenue, Catholic Health, Refunding, Series A-1), MBIA Insured.......... RB Aaa/AAA 11/15/04 5.250 2,027,720 2,000 Volusia County School District, (Refunding), FGIC Insured.......... GO Aaa/AAA 08/01/02 6.100 2,068,040 ------------ TOTAL FLORIDA.................... 12,646,523 ------------ GEORGIA (7.1%) 3,200 De Kalb County (Water & Sewer Revenue, Refunding)................ RB Aa/AA 10/01/02 6.000 3,302,688 2,630 Fulton County School District, (Refunding)........................ GO Aa2/AA 05/01/14 6.375 2,821,990 4,500 Georgia Municipal Electric Authority, (Power Revenue, Crossover Refunding, Series DD), AMBAC-TCRS Insured............................ RB Aaa/AAA 01/01/08 7.000 4,986,270 1,250 Georgia Municipal Electric Authority, (Power Revenue, Refunding, Series A).......................... RB A3/A 01/01/12 6.500 1,342,937 4,000 Georgia Municipal Electric Authority, (Power Revenue, Series A), MBIA-IBC Insured............................ RB Aaa/AAA 01/01/12 6.500 4,286,600 4,895 Georgia, (Refunding, Series E)....... GO Aaa/AAA 07/01/03 5.500 5,010,669 5,820 Georgia, (Refunding, Series E)....... GO Aaa/AAA 02/01/05 5.000 5,830,534 6,000 Georgia, (Series B).................. GO Aaa/AAA 03/01/07 7.200 6,729,120 3,000 Georgia, (Series B).................. GO Aaa/AAA 03/01/10 6.300 3,228,000 4,470 Georgia, (Series C).................. GO Aaa/AAA 07/01/11 5.700 4,596,501 5,265 Georgia, (Series C).................. GO Aaa/AAA 09/01/10 5.750 5,448,117
The Accompanying Notes are an Integral Part of the Financial Statements. 18 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ GEORGIA (CONTINUED) $ 2,500 Gwinnett County School District, (Refunding, Series B).............. GO Aa1/AA+ 02/01/08 6.400% $ 2,692,750 5,000 Metropolitan Atlanta Rapid Transit Authority, (Sales Tax Revenue, Refunding, Series P), AMBAC Insured............................ RB Aaa/AAA 07/01/11 6.250 5,334,400 ------------ TOTAL GEORGIA.................... 55,610,576 ------------ HAWAII (0.5%) 2,000 Hawaii, (Series BZ).................. GO A1/A+ 10/01/12 6.000 2,078,400 510 Honolulu, City & County, (Escrowed to Maturity, Series B)................ GO Aaa/AA- 10/01/11 5.500 514,131 1,490 Honolulu, City & County, (Unrefunded Balance, Series B)................. GO Aa3/AA- 10/01/11 5.500 1,480,419 ------------ TOTAL HAWAII..................... 4,072,950 ------------ ILLINOIS (6.8%) 4,130 Chicago Board of Education, (Lease Certificates, Refunding, Series A), MBIA Insured............ RB Aaa/AAA 01/01/07 6.125 4,326,918 7,000 Chicago, (City Colleges Capital Improvement), FGIC Insured......... GO Aaa/AAA 01/01/10 6.000 7,260,960 5,500 Chicago, (City Colleges Capital Improvement), FGIC Insured......... GO Aaa/AAA 01/01/11 6.000 5,679,685 4,000 Chicago, (Equipment Notes), AMBAC Insured............................ GO Aaa/AAA 01/01/04 5.600 4,085,520 3,000 Chicago, (Refunding, Series A-2), AMBAC Insured...................... GO Aaa/AAA 01/01/11 6.000 3,098,010 3,280 Cook County, (Refunding, Series C), FGIC Insured....................... GO Aaa/AAA 11/15/04 5.800 3,394,505 4,440 Hoffman Estates, Tax Increment Revenue, (Economic Development Project Area, Refunding), AMBAC Insured............................ RB Aaa/AAA 11/15/04 5.500 4,544,562 3,000 Illinois Development Finance Authority, (Industrial Development Revenue Bonds, Riverside Health & Fitness Center Project, Series 1998-C)..................... PP NR/NR 08/01/28 4.900 2,802,690 3,000 Illinois Sales Tax Revenue, (Refunding, Series Q).............. RB Aa2/AAA 06/15/09 6.000 3,102,450 4,175 Illinois Sales Tax Revenue, (Refunding, Series Q).............. RB Aa2/AAA 06/15/12 6.000 4,260,212
The Accompanying Notes are an Integral Part of the Financial Statements. 19 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ ILLINOIS (CONTINUED) $ 180 Metropolitan Pier & Exposition Authority, (Dedicated State Tax Revenue, McCormick Place Expansion Project, Escrowed to Maturity, Series A).......................... RB NR/AAA 06/15/06 8.500% $ 212,256 940 Metropolitan Pier & Exposition Authority, (Dedicated State Tax Revenue, Escrowed to Maturity, Series A).......................... RB Aaa/NR 06/15/06 8.500 1,108,448 3,300 Metropolitan Pier & Exposition Authority, (Dedicated State Tax Revenue, Refunding)................ RB Aa3/AA- 06/01/04 6.500 3,491,334 1,380 Metropolitan Pier & Exposition Authority, (Dedicated State Tax Revenue, Unrefunded Balance, Series A).......................... RB Aa3/AA- 06/15/06 8.500 1,618,202 2,810 Regional Transportation Authority, (Series D), FGIC Insured........... RB Aaa/AAA 06/01/07 7.750 3,216,073 1,000 University of Illinois, (Escrowed to Maturity).......................... RB Aaa/AAA 10/01/01 6.000 1,021,910 ------------ TOTAL ILLINOIS................... 53,223,735 ------------ INDIANA (2.0%) 2,065 Indiana Bond Bank, (Special Program, Refunding, Series A)............... GO NR/A+ 02/01/03 5.500 2,089,945 1,610 Indiana Bond Bank, (Special Program, Refunding, Series A)............... GO NR/A+ 02/01/04 5.500 1,629,529 1,035 Indiana Bond Bank, (Special Program, Refunding, Series A)............... GO NR/A+ 02/01/06 5.500 1,042,628 45 Indiana Health Facilities Financing Authority, (Hospital Revenue, Sisters of St. Frances Health Services, Escrowed to Maturity, Refunding, Series A), MBIA Insured............................ RB Aaa/AAA 11/01/05 5.500 45,972 3,910 Indiana Health Facilities Financing Authority, (Hospital Revenue, Sisters of St. Frances Health Services, Unrefunded Balance, Series A), MBIA Insured............ RB Aaa/AAA 11/01/05 5.500 3,972,091
The Accompanying Notes are an Integral Part of the Financial Statements. 20 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ INDIANA (CONTINUED) $ 5,000 Indiana Municipal Power Agency, (Power Supply System Revenue, Refunding, Series B), MBIA Insured............................ RB Aaa/AAA 01/01/07 5.750% $ 5,148,500 2,000 Indiana Municipal Power Agency, (Power Supply System Revenue, Refunding, Series B), MBIA Insured............................ RB Aaa/AAA 01/01/13 6.000 2,042,500 ------------ TOTAL INDIANA.................... 15,971,165 ------------ KENTUCKY (0.3%) 2,150 Kentucky Turnpike Authority, (Road Recovery Revenue, Escrowed to Maturity).......................... RB Aaa/NR 07/01/02 7.100 2,202,245 ------------ MAINE (0.6%) 4,050 Maine Municipal Bond Bank, (Prerefunded, Series E, due 11/01/12).......................... RB Aa3/NR 11/01/02(a) 6.250 4,274,370 ------------ MARYLAND (1.1%) 5,435 Maryland Health & Higher Educational Facilities Authority, (John Hopkins University, Refunding)............. RB Aa2/AA- 07/01/03 5.750 5,628,269 3,000 Maryland, (3rd Series)............... GO Aaa/AAA 07/15/03 6.400 3,084,180 ------------ TOTAL MARYLAND................... 8,712,449 ------------ MASSACHUSETTS (3.4%) 5,650 Massachusetts Bay Transportation Authority, (General Transportation System, Refunding, Series A)....... RB Aa3/AA- 03/01/08 7.000 6,282,856 1,495 Massachusetts State College Building Authority, (Refunding, Series A).......................... RB Aa3/AA- 05/01/11 7.500 1,749,464 8,250 Massachusetts State Water Resource Authority, (Series A).............. RB A1/A 07/15/08 6.500 8,860,170 9,500 Massachusetts State Water Resource Authority, (Pollution Abatement Trust, Abatement MWRA Progaram, Sub-Series A)...................... RB Aa1/AA 08/01/15 6.000 9,583,790 ------------ TOTAL MASSACHUSETTS.............. 26,476,280 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 21 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ MICHIGAN (6.0%) $10,000 Detroit Water Supply System, (Prerefunded, due 07/01/22), FGIC Insured............................ RB Aaa/AAA 07/01/02(a) 6.375% $ 10,553,600 4,575 Michigan Building Authority, (Prerefunded, Series I, due 10/01/03).......................... RB Aa2/AA 10/01/02(a) 5.400 4,727,805 3,045 Michigan Building Authority, Facilites Program, (Refunding, Series I), AMBAC Insured........... RB Aaa/AAA 10/01/04 6.000 3,177,732 13,050 Michigan Hospital Finance Authority, (Ascension Health Credit Corp., Series A).......................... RB Aaa/AAA 11/15/15 6.250 13,340,493 10,500 Michigan Hospital Finance Authority, (Genesys Health System, Prerefunded, Refunding, Series A, due 10/01/21)...................... RB Baa2/AAA 10/01/05(a) 8.125 12,252,555 2,905 Michigan Hospital Finance Authority, (Mercy Health Services, Refunding, Series T).......................... RB Aa3/AA- 08/15/04 5.750 2,955,721 ------------ TOTAL MICHIGAN................... 47,007,906 ------------ MINNESOTA (1.3%) 5,000 University of Minnesota, (Refunding, Series A).......................... RB Aa2/AA 07/01/10 5.750 5,163,650 5,000 University of Minnesota, (Refunding, Series A).......................... RB Aa2/AA 07/01/15 5.750 5,013,750 ------------ TOTAL MINNESOTA.................. 10,177,400 ------------ MISSISSIPPI (1.5%) 10,895 Mississippi, (Escrowed to Maturity, Refunding)......................... GO Aaa/AAA 02/01/08 6.200 11,501,960 ------------ MISSOURI (1.2%) 5,000 Missouri Convention & Sports Complex Authority, (Prerefunded, Series A, due 08/15/21)...................... RB Aaa/AAA 08/15/03(a) 6.900 5,320,700 4,000 St. Louis County Regional Convention & Sports Complex Authority, (Prerefunded, Series B, due 08/15/21).......................... RB Aaa/AAA 08/15/03(a) 7.000 4,282,800 ------------ TOTAL MISSOURI................... 9,603,500 ------------ NEBRASKA (0.7%) 5,245 Nebhelp Inc. (Sub-Series A-5B), MBIA Insured............................ RB Aaa/NR 06/01/13 6.200 5,362,278 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 22 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ NEVADA (3.0%) $ 500 Carson City School District, (Prerefunded, due 04/01/03), FGIC Insured............................ GO Aaa/AAA 04/01/00(a) 6.750% $ 512,150 8,200 Clark County School District, (Series A), MBIA Insured........... GO Aaa/AAA 06/01/11 7.000 9,178,916 3,000 Clark County, (Passenger Facilities Charge Revenue, Las Vegas McCarran International Airport, Series A).......................... RB A/A 07/01/08 6.250 3,154,200 1,200 Las Vegas, (Clark County Library District, Prerefunded, Series A, due 06/01/04), FGIC Insured........ GO Aaa/AAA 06/01/01(a) 6.700 1,247,244 1,280 Las Vegas, (Clark County Library District, Refunding, Series B), FGIC Insured....................... GO Aaa/AAA 08/01/04 6.700 1,324,339 1,330 Nevada, (Prison Facilities, Prerefunded, due 08/01/04)......... GO Aa2/AA 08/01/00(a) 7.000 1,375,087 1,985 Nevada, (Refunding, Series A-2)...... GO Aa2/AA 05/15/10 6.000 2,069,005 4,730 Washoe County School District, FSA Insured............................ GO Aaa/AAA 06/01/09 5.625 4,804,356 ------------ TOTAL NEVADA..................... 23,665,297 ------------ NEW HAMPSHIRE (1.7%) 4,900 New Hampshire Higher Educational & Health Facilities Authority, (Dartmouth College, Refunding)..... RB Aaa/AAA 06/01/07 6.750 5,395,194 5,775 New Hampshire Municipal Bond Bank, (Series B), FSA Insured............ GO Aaa/AAA 08/15/04 5.000 5,793,249 1,720 New Hampshire, (Prerefunded, Series A, due 06/15/03)............ GO Aa2/AA+ 06/15/01(a) 6.600 1,799,602 ------------ TOTAL NEW HAMPSHIRE.............. 12,988,045 ------------ NEW JERSEY (4.1%) 4,180 Jersey City, (Refunding, Series A).......................... GO Aa3/AA 10/01/11 6.250 4,434,228 7,000 New Jersey Economic Development Authority, (Market Transition Facilities Revenue, Sr. Lien, Series A), MBIA Insured............ RB Aaa/AAA 07/01/02 5.400 7,108,570 4,100 New Jersey Economic Development Authority, (Transition Project Sublease, Series A), FSA Insured... RB Aaa/AAA 05/01/11 5.750 4,200,327
The Accompanying Notes are an Integral Part of the Financial Statements. 23 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ NEW JERSEY (CONTINUED) $10,000 New Jersey Transportation Authority, (Refunding, Series A).............. RB Aa2/AA- 06/15/08 5.500% $ 10,161,100 6,000 New Jersey Transportation Authority, (Refunding, Series B), MBIA Insured............................ RB Aaa/AAA 06/15/05 6.000 6,277,200 ------------ TOTAL NEW JERSEY................. 32,181,425 ------------ NEW YORK (7.4%) 75 Monroe County, (Public Improvement, Unrefunded Balance, Series 1995), AMBAC Insured...................... GO Aaa/AAA 06/01/10 6.000 79,496 7,000 Municipal Assistance Corp for City of New York, (Series H)............... RB Aa2/AA 07/01/06 6.250 7,414,610 3,090 Nassau County Tobacco Settlement Corp., Asset Backed A Plan......... RB A1/A+ 07/15/03 4.200 3,045,195 1,465 New York City, (Escrowed to Maturity, Series B).......................... GO Aaa/AAA 06/01/01 8.000 1,534,089 805 New York City, (Escrowed to Maturity, Series F).......................... GO Aaa/A- 02/15/02 6.100 827,693 50 New York City, (Escrowed to Maturity, Series A).......................... GO A3/A- 08/01/02 5.750 51,210 7,000 New York City, (Refunding, Series A).......................... GO A3/A1 08/01/04 6.750 7,452,830 4,480 New York City, (Refunding, Series G).......................... GO A3/A- 08/01/03 5.000 4,477,133 3,425 New York City, (Series F)............ GO A3/A- 02/15/03 6.200 3,537,340 2,595 New York City, (Unrefunded Balance, Series A).......................... GO A3/A- 08/01/02 5.750 2,646,199 10,000 New York Convention Center Operating Corp., (Yale Building Acquisition Project)........................... PP NR/NR 12/01/04 6.500 9,885,200 5,000 New York State Dormitory Authority, (FHA Hospital New York & Presbyterian, Refunding), AMBAC-FHA Insured............................ RB Aaa/AAA 08/01/13 4.400 4,924,000 2,850 New York State Dormitory Authority, (Secured Hospital, Interfaith Medical Center, Series D).......... RB Baa1/BBB+ 02/15/04 5.500 2,846,380 8,700 Triborough Bridge & Tunnel Authority, (General Purpose, Refunding, Series X).......................... RB Aa3/A+ 01/01/12 6.625 9,433,932 ------------ TOTAL NEW YORK................... 58,155,307 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 24 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ NORTH CAROLINA (2.0%) $ 6,275 North Carolina Municipal Power Agency, (No. 1 Catawba Electric Revenue, Series B)................. RB Baa1/BBB+ 01/01/07 6.250% $ 6,386,381 8,900 North Carolina Municipal Power Agency, (No.1 Catawba Electric Revenue, Series B)................. RB Baa1/BBB+ 01/01/06 6.125 9,026,914 ------------ TOTAL NORTH CAROLINA............. 15,413,295 ------------ OHIO (0.7%) 2,000 Ohio State Building Authority, (State Facilities, Administration Building Fund Project, Series A)............ RB Aa2/AA- 10/01/06 5.500 2,037,520 2,795 Ohio Water Development Authority, (Escrowed to Maturity, Refunding)......................... RB Aaa/AAA 12/01/10 9.375 3,315,429 ------------ TOTAL OHIO....................... 5,352,949 ------------ OREGON (0.7%) 5,535 Washington County, (Criminal Justice Facilities, Prerefunded, due 12/01/10).......................... GO Aa1/AAA 12/01/04(a) 6.000 5,778,983 ------------ PENNSYLVANIA (3.2%) 1,175 Bethel Park School District, (Prerefunded, Series B, due 02/01/02), AMBAC Insured........... GO Aaa/AAA 02/01/00(a) 6.550 1,175,000 1,310 Pennsylvania Higher Education Facilities Authority, (College & University Revenue, University of Pennsylvania, Refunding, Series A).......................... RB A1/AA 09/01/02 6.500 1,365,911 2,800 Pennsylvania Higher Education Facilities Authority, (Health Services Revenue, University of Pennsylvania Health Services, Refunding, Series A)............... RB A3/A 01/01/06 6.000 2,781,212 1,500 Pennsylvania, (2nd Series A, Prerefunded, due 11/01/04), MBIA Insured............................ GO Aaa/AAA 11/01/01(a) 6.500 1,568,925 4,250 Philadelphia Authority for Industrial Development, (Academy of Natural Sciences).......................... PP NR/NR 01/01/18 4.750 4,226,667
The Accompanying Notes are an Integral Part of the Financial Statements. 25 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ PENNSYLVANIA (CONTINUED) $ 8,785 Philadelphia Authority for Industrial Development, (Airport Revenue, Philadelphia Airport System Project, Series A), FGIC Insured... RB Aaa/AAA 07/01/04 5.000% $ 8,770,153 5,000 Philadelphia Water & Waste, (Water Revenue), AMBAC-TCRS Insured....... RB Aaa/AAA 06/15/09 5.625 5,101,050 ------------ TOTAL PENNSYLVANIA............... 24,988,918 ------------ PUERTO RICO (0.6%) 5,000 Puerto Rico Municipal Finance Agency, (Refunding, Series B).............. GO Baa1/A- 08/01/02 5.500 5,016,250 ------------ SOUTH CAROLINA (3.9%) 1,620 Charleston County, (Prerefunded, due 06/01/07).......................... GO Aa3/AA 06/01/06(a) 5.625 1,664,501 1,000 Piedmont Municipal Power Agency, (Electric Power Revenue, Escrowed to Maturity, Refunding), MBIA Insured............................ RB Aaa/AAA 01/01/08 6.200 1,060,800 15,000 Piedmont Municipal Power Agency, (Electric Revenue, Refunding), FGIC Insured............................ RB Aaa/AAA 01/01/20 6.750 16,222,500 5,385 South Carolina, (Capital Improvement, Series A).......................... GO Aaa/AAA 10/01/09 5.500 5,482,953 5,655 South Carolina, (Capital Improvement, Series A).......................... GO Aaa/AAA 10/01/10 5.500 5,738,694 ------------ TOTAL SOUTH CAROLINA............. 30,169,448 ------------ TEXAS (8.6%) 1,500 Austin Utilities System, (Escrowed to Maturity).......................... RB Aaa/AAA 10/01/01 6.500 1,545,930 7,500 Austin Utilities System, (Refunding, Series A), FSA Insured............. RB Aaa/AAA 11/15/03 5.750 7,730,175 4,040 Austin, Public Improvement........... GO Aa2/AA 09/01/12 5.750 4,085,167 2,260 Austin, Public Improvement........... GO Aa2/AA 09/01/13 5.750 2,275,255 4,500 Austin, Public Improvement........... GO Aa2/AA 09/01/14 5.750 4,500,720 2,260 Corpus Christi Independent School District, (Refunding), PSFG Insured............................ GO Aaa/AAA 08/15/05 6.000 2,367,418 1,305 Dallas County Flood Control District #1, (Prerefunded, due 04/01/10).... GO Aaa/NR 04/01/08(a) 9.250 1,642,134 1,650 El Paso Independent School District, (Prerefunded, due 07/01/03), PSFG Insured............................ GO Aaa/AAA 07/01/01(a) 6.550 1,696,794
The Accompanying Notes are an Integral Part of the Financial Statements. 26 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ TEXAS (CONTINUED) $ 3,805 Lewisville Independent School District, (Refunding), PSFG Insured............................ GO Aaa/NR 08/15/03 6.000% $ 3,954,194 10,000 Lower Colorado River Authority, (Refunding, Series B).............. RB Aaa/AAA 05/15/10 6.000 10,423,200 2,000 Plano Independent School District, (Prerefunded, Series B, due 02/15/04), FGIC Insured............ GO Aaa/AAA 02/15/01(a) 6.550 2,047,000 1,500 San Antonio, (General Improvement, Refunding)......................... GO Aa2/AA+ 08/01/07 6.000 1,573,710 7,000 Texas Water Development Board, (Revolving Fund, Sr. Lien, Series B).......................... RB Aa1/AAA 07/15/12 5.750 7,091,630 2,000 Texas, (Public Finance Authority, Prerefunded, due 10/01/02)......... GO NR/AA 10/01/00(a) 6.300 2,028,920 1,000 Texas, (Public Finance Authority, Prerefunded, due 10/01/05)......... GO NR/AA 10/01/00(a) 6.500 1,015,750 4,000 Texas, (Public Finance Authority, Refunding, Series B)............... GO Aa2/AA 10/01/03 6.000 4,159,120 6,180 University of Texas, (Financing System Revenue, Series A).......... RB Aa1/AAA 08/15/07 6.000 6,500,680 2,500 University of Texas, (Permanent University Fund, Refunding)........ RB Aaa/AAA 07/01/01 6.300 2,561,775 ------------ TOTAL TEXAS...................... 67,199,572 ------------ UTAH (2.2%) 1,625 Intermountain Power Agency, (Utah Power Supply Revenue, Refunding, Series B), MBIA Insured............ RB Aaa/AAA 07/01/09 6.500 1,742,244 4,155 Intermountain Power Agency, (Utah Power Supply Revenue, Refunding, Series C), MBIA Insured............ RB Aaa/AAA 07/01/01 6.000 4,239,679 6,645 Intermountain Power Agency, (Utah Power Supply Revenue, Refunding, Series C), MBIA Insured............ RB Aaa/AAA 07/01/02 6.000 6,819,631 4,180 Jordan School District, (Refunding)........................ GO Aa3/AA 06/15/06 6.050 4,311,545 ------------ TOTAL UTAH....................... 17,113,099 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 27 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ VIRGINIA (2.3%) $10,000 Fairfax County, (Industrial Development Authority Revenue, Prerefunded, due 08/29/23)......... RB Aaa/AA 08/28/01(a) 6.801% $ 10,517,500 2,000 Virginia Public School Authority, (Prerefunded, Series A)............ RB Aa2/AA 08/01/04 6.500 2,094,620 5,000 Virginia Public School Authority, (Refunding)........................ RB Aa/AA 01/01/02 6.000 5,121,850 ------------ TOTAL VIRGINIA................... 17,733,970 ------------ WASHINGTON (5.5%) 1,555 King & Snohomish Counties School District #417, FGIC Insured........ GO Aaa/AAA 12/01/02 6.600 1,578,201 1,000 Pierce County School District #320, (Prerefunded, due 12/01/02), MBIA-IBC Insured................... GO Aaa/AAA 12/01/01(a) 6.600 1,035,310 1,250 Snohomish County School District #2, (Refunding, Series A), MBIA-IBC Insured............................ GO Aaa/AAA 12/01/02 6.700 1,281,225 4,815 Washington Public Power Supply System, (Nuclear Project #1, Refunding, Series A), MBIA Insured............................ RB Aaa/AAA 07/01/06 6.000 4,989,881 4,000 Washington Public Power Supply System, (Nuclear Project #1, Refunding, Series B)............... RB Aa1/AA- 07/01/03 5.750 4,085,280 2,000 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series A)............... RB Aa1/AA- 07/01/06 7.250 2,210,460 5,265 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series A)............... RB Aa1/AA- 07/01/01 6.300 5,383,515 4,000 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series A)............... RB Aa1/AA- 07/01/09 5.750 4,052,800 1,500 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series C)............... RB Aa1/AA- 07/01/02 7.500 1,563,765 2,000 Washington Public Power Supply System, (Nuclear Project #2, Refunding, Series C), FGIC Insured............................ RB Aaa/AAA 07/01/01 7.000 2,062,260 5,000 Washington Public Power Supply System, (Nuclear Project #3, Refunding, Series A)............... RB Aa1/AA- 07/01/03 5.000 4,990,500 1,000 Washington, (Prerefunded, Series B, due 08/01/02)...................... GO Aa1/AA+ 08/01/00(a) 6.750 1,013,080 1,750 Washington, (Refunding, Series R-92-A)..................... GO Aa1/AA+ 09/01/02 6.300 1,808,013 3,075 Washington, (Series A)............... GO Aa1/AA+ 01/01/07 5.250 3,076,292 4,000 Washington, (Series B & AT-7)........ GO Aa1/AA+ 06/01/17 6.400 4,224,760 ------------ TOTAL WASHINGTON................. 43,355,342 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 28 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ WEST VIRGINIA (0.5%) $ 1,000 Berkeley County Board of Education, (Escrowed to Maturity), BIG Insured............................ GO Aaa/AAA 04/01/01 7.300% $ 1,032,970 2,790 West Virginia Public Energy Authority, (Morgantown Association Project, Series A), LOC Swiss Bank Corp............................... RB Aa1/AA+ 07/01/08 5.050 2,788,968 ------------ TOTAL WEST VIRGINIA.............. 3,821,938 ------------ WISCONSIN (2.6%) 6,250 Wisconsin Health & Educational Facilities......................... PP NR/NR 05/01/19 5.950 5,456,438 6,250 Wisconsin Health & Educational Facilities......................... PP NR/NR 05/01/14 5.700 5,602,125 4,000 Wisconsin, (Series A)................ GO Aa2/AA 05/01/05 6.000 4,162,200 5,270 Wisconsin, (Series C)................ GO Aa2/AA 05/01/10 5.750 5,398,272 ------------ TOTAL WISCONSIN.................. 20,619,035 ------------ TOTAL LONG TERM INVESTMENTS (COST $759,148,398).............................. 757,667,114 ------------ SHORT-TERM INVESTMENTS (2.6%) ALASKA (0.5%) 1,000 Anchorage, (Series A), AMBAC Insured............................ GO Aaa/AAA 02/01/00 6.850 1,000,000 3,000 North Slope Borough, (Series A), MBIA Insured............................ GO Aaa/AAA 06/30/00 5.550 3,019,170 ------------ TOTAL ALASKA..................... 4,019,170 ------------ PENNSYLVANIA (0.3%) 970 Pennsylvania Higher Education Assistance Agency, (Student Loan Revenue, Refunding, Series A), FGIC Insured............................ RB Aaa/AAA 12/01/00 6.800 989,914 1,000 Pennsylvania, (Refunding and Projects, 1st Series A), AMBAC-TCRS Insured............................ GO Aaa/AAA 01/01/01 6.600 1,021,910 ------------ 2,011,824 ------------ RHODE ISLAND (0.5%) 3,785 Rhode Island, (Construction Capital Development Loan, Series B)........ GO Aa3/AA- 05/15/00 6.000 3,805,325 ------------ TEXAS (0.3%) 1,500 Addison, (Refunding), FGIC Insured... GO Aaa/AAA 09/01/00 6.250 1,501,680 1,000 Arlington, AMBAC Insured............. GO Aaa/AAA 08/01/00 6.850 1,014,110 ------------ 2,515,790 ------------
The Accompanying Notes are an Integral Part of the Financial Statements. 29 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 --------------------------------------------------------------------------------
PRINCIPAL AMOUNT SECURITY MOODY'S/ MATURITY (IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATINGS DATE RATE VALUE -------------- ------------------------------------- -------- ----------- ----------- ------ ------------ WASHINGTON (0.8%) $ 605 King County, (Escrowed to Maturity, Series B).......................... GO Aa1/AA+ 01/01/01 6.700% $ 618,625 5,750 King County, (Unrefunded Balance, Series B).......................... GO Aa1/AA+ 01/01/01 6.700 5,879,490 ------------ 6,498,115 ------------ OTHER INVESTMENT COMPANIES (0.2%)
SHARES ------------ 1,154,128 J.P. Morgan Institutional Tax Exempt Money Market Fund..................... Aaa/AAA 3.200(y) 1,154,128 ------------ TOTAL SHORT TERM INVESTMENTS (COST $19,824,460)........................... 20,004,352 ------------ TOTAL INVESTMENTS (COST $778,972,858) (99.4%)................................. 777,671,466 OTHER ASSETS IN EXCESS OF LIABILITIES (0.6%).................................. 4,753,480 ------------ NET ASSETS (100.0%)........................................................... $782,424,946 ============
------------------------------ Note: Based on the cost of the investments of $779,266,429 for federal income tax purposes at January 31, 2000, the aggregate gross unrealized appreciation and depreciation was $7,160,096 and $8,755,059, respectively, resulting in net unrealized depreciation of investments of $1,301,392. (a) The date listed under the heading maturity date represents an optional tender date. The actual maturity date is indicated in the security description. (y) Yield to maturity. AMBAC - Ambac Indemnity Corp., BIG - Bond Investors Guaranty Insurance Co., FGIC - Financial Guaranty Insurance Co., FHA - Federal Housing Authority, FSA - Financial Securities Assurance, GO - General Obligation, IBC - IBC Financial Data, Inc., LOC - Letter of Credit, MBIA - Municipal Bond Assurance Corp., NR - Not Rated, PCR - Pollution Control Revenue, PP - Private Placement, PSFG - Permanent School Fund Guarantee, RB - Revenue Bond, TCRS -Transferable Custodial Receipts, WI - When and if issued securities. Escrowed to Maturity: Bonds for which cash and/or securities have been deposited with a third party to cover the payments of principal and interest at the maturity which coincides with the first call date of the first bond. The Accompanying Notes are an Integral Part of the Financial Statements. 30 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) JANUARY 31, 2000 -------------------------------------------------------------------------------- ASSETS Investments at Value (Cost $778,972,858 ) $777,671,466 Interest Receivable 10,497,635 Receivable for Investments Sold 2,438,273 Prepaid Expenses and Other Assets 3,243 Prepaid Trustees' Fees 3,090 ------------ Total Assets 790,613,707 ------------ LIABILITIES Payable for Investments Purchased 7,872,819 Advisory Fee Payable 194,811 Administrative Services Fee Payable 16,314 Administration Fee Payable 478 Fund Services Fee Payable 264 Accrued Expenses 104,075 ------------ Total Liabilities 8,188,761 ------------ NET ASSETS Applicable to Investors' Beneficial Interests $782,424,946 ============
The Accompanying Notes are an Integral Part of the Financial Statements. 31 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) FOR THE SIX MONTHS ENDED JANUARY 31, 2000 -------------------------------------------------------------------------------- INVESTMENT INCOME Interest Income $ 20,047,387 EXPENSES Advisory Fee $1,212,075 Custodian Fees and Expenses 121,858 Administrative Services Fee 101,868 Professional Fees and Expenses 25,333 Fund Services Fee 6,815 Trustees' Fees and Expenses 3,657 Administration Fee 3,199 Miscellaneous 5,684 ---------- Total Expenses 1,480,489 ------------ NET INVESTMENT INCOME 18,566,898 NET REALIZED GAIN (LOSS) ON INVESTMENTS (9,967,427) NET CHANGE IN UNREALIZED DEPRECIATION OF INVESTMENTS (10,037,520) ------------ NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS $ (1,438,049) ============
The Accompanying Notes are an Integral Part of the Financial Statements. 32 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF CHANGES IN NET ASSETS --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE ELEVEN JANUARY 31, 2000 MONTHS ENDED (UNAUDITED) JULY 31, 1999 ---------------- -------------- INCREASE (DECREASE) IN NET ASSETS FROM OPERATIONS Net Investment Income $ 18,566,898 $ 34,387,277 Net Realized Gain (Loss) on Investments (9,967,427) 4,500,130 Net Change in Unrealized Depreciation of Investments (10,037,520) (30,158,895) --------------- ------------ Net Increase (Decrease) in Net Assets Resulting from Operations (1,438,049) 8,728,512 --------------- ------------ TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS Contributions 167,219,900 417,545,311 Withdrawals (205,226,661) (361,383,038) --------------- ------------ Net Increase (Decrease) from Investors' Transactions (38,006,761) 56,162,273 --------------- ------------ Total Increase (Decrease) in Net Assets (39,444,810) 64,890,785 NET ASSETS Beginning of Period 821,869,756 756,978,971 --------------- ------------ End of Period $ 782,424,946 $821,869,756 =============== ============
-------------------------------------------------------------------------------- SUPPLEMENTARY DATA --------------------------------------------------------------------------------
FOR THE SIX MONTHS ENDED FOR THE ELEVEN FOR THE FISCAL YEAR ENDED AUGUST 31, JANUARY 31, 2000 MONTHS ENDED -------------------------------------- (UNAUDITED) JULY 31, 1999 1998 1997 1996 1995 ---------------- -------------- -------- -------- -------- -------- RATIOS TO AVERAGE NET ASSETS Net Expenses 0.37%(a) 0.37% 0.37% 0.38% 0.38% 0.42% Net Investment Income 4.58%(a) 4.49% 4.70% 4.93% 4.92% 5.15% Portfolio Turnover 43%(b) 29% 16% 25% 25% 47%
------------------------ (a) Annualized. (b) Not Annualized. The Accompanying Notes are an Integral Part of the Financial Statements. 33 THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) JANUARY 31, 2000 -------------------------------------------------------------------------------- 1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES The Tax Exempt Bond Portfolio (the "portfolio") is registered under the Investment Company Act of 1940, as amended, as a diversified, open-end management investment company which was organized as a trust under the laws of the State of New York on January 29, 1993. The portfolio commenced operations on July 12, 1993 and received a contribution of certain assets and liabilities, including securities, with a value of $865,660,724 on that date from the J.P. Morgan Tax Exempt Bond Fund (formerly The Pierpont Tax Exempt Bond Fund) in exchange for a beneficial interest in the portfolio. The portfolio's investment objective is to provide a high level of current income that is exempt from federal income tax consistent with moderate risk of capital. The Declaration of Trust permits the trustees to issue an unlimited number of beneficial interests in the portfolio. The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts and disclosures. Actual amounts could differ from those estimates. The following is a summary of the significant accounting policies of the portfolio: a) The portfolio values securities that are listed on an exchange using prices supplied by an independent pricing service that are based on the last traded price on a national securities exchange or, in the absence of recorded trades, at the readily available mean of the bid and asked prices on such exchange, if such exchange or market constitutes the broadest and most representative market for such security. Independent pricing services procedures may also included the use of prices based upon yields or prices of securities of comparable quality, coupon, maturity and type: indications as to value from dealers, operating data, and general market conditions. Unlisted securities are valued at the average of the quoted bid and asked prices in the over-the-counter market provided by a principal market maker or dealer. If prices are not supplied by the portfolios independent pricing service or principal market maker or dealer such securities are priced using fair values in accordance with procedures adopted by the portfolios trustees. All short-term portfolio securities with a remaining maturity of less than 60 days are valued by the amortized cost method. b) Securities transactions are recorded on a trade date basis. Interest income, which includes the amortization of premiums and discounts, if any, is recorded on an accrual basis. For financial and tax reporting purposes, realized gains and losses are determined on the basis of specific lot identification. c) The portfolio intends to be treated as a partnership for federal income tax purposes. As such, each investor in the portfolio will be taxed on its share of the portfolio's ordinary income and capital gains. It is intended that the portfolio's assets will be managed in such a way that an investor in the portfolio will be able to satisfy the requirements of Subchapter M of the Internal Revenue Code. The cost of securities is substantially the same for book and tax purposes. 2. TRANSACTIONS WITH AFFILIATES a) The portfolio has an Investment Advisory Agreement with J.P. Morgan Investment Management Inc. ("JPMIM"), 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 0.30% of the portfolio's average daily net assets. For the six months ended January 31, 2000, such fees amounted to $1,216,143. 34 THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 -------------------------------------------------------------------------------- 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 doubling of investment advisory and shareholder servicing fees. For the six months ended January 31, 2000, J.P. Morgan has agreed to reimburse the portfolio $4,068 under this agreement. b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and exclusive placement agent. Under a Co-Administration Agreement between FDI and the portfolio, FDI provides administrative services necessary for the operations of the portfolio, furnishes office space and facilities required for conducting the business of the portfolio and pays the compensation of the 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 amount allocable to the portfolio is based on the ratio of the portfolio's net assets to the aggregate net assets of the portfolio and certain other investment companies subject to similar agreements with FDI. For the six months ended January 31, 2000, the fee for these services amounted to $3,199. c) The portfolio has an Administrative Services Agreement (the "Services Agreement") with Morgan under which Morgan is responsible for certain aspects of the administration and operation of the portfolio. Under the Services Agreement, the portfolio has agreed to pay Morgan a fee equal to its allocable share of an annual complex-wide charge. This charge is calculated based on the aggregate average daily net assets of the portfolio and the other portfolios for which JPMIM acts as investment advisor (the "master portfolios") and J.P. Morgan Series Trust in accordance with the following annual schedule: 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to FDI. The portion of this charge payable by the portfolio is determined by the proportionate share that its net assets bear to the net assets of the master portfolios, other investors in the master portfolios for which Morgan provides similar services, and J.P. Morgan Series Trust. For the six months ended January 31, 2000, the fee for these services amounted to $101,868. d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc. ("Group") to assist the trustees in exercising their overall supervisory responsibilities for the portfolio's affairs. The trustees of the portfolio represent all the existing shareholders of Group. The portfolio's allocated portion of Group's costs in performing its services amounted to $6,815 for the six months ended January 31, 2000. e) An aggregate annual fee of $75,000 is paid to each trustee for serving as a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan Institutional Funds, the master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the financial statements represents the portfolio's allocated portion of the total fees and expenses. The portfolio's Chairman and Chief Executive Officer also serves as Chairman of Group and receives compensation and employee benefits from Group in his role as Group's Chairman. The allocated portion of such compensation and benefits included in the Fund Services Fee shown in the financial statements was $1,300. 35 THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) JANUARY 31, 2000 -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS Investments transactions (excluding short-term investments) for the six months ended January 31, 2000 were as follows:
COST OF PROCEEDS PURCHASES FROM SALES --------- ------------ $351,349,345 $338,054,049
4. CREDIT AGREEMENT The portfolio is party to a revolving line of credit agreement (the "Agreement") as discussed more fully in Note 4 of the fund's Notes to the Financial Statements which are included elsewhere in this report. 36 J.P. MORGAN FUNDS FEDERAL MONEY MARKET FUND PRIME MONEY MARKET FUND TAX EXEMPT MONEY MARKET FUND TAX AWARE ENHANCED INCOME FUND: SELECT SHARES SHORT TERM BOND FUND BOND FUND EMERGING MARKETS DEBT FUND GLOBAL STRATEGIC INCOME FUND TAX EXEMPT BOND FUND CALIFORNIA BOND FUND: SELECT SHARES NEW YORK TAX EXEMPT BOND FUND DIVERSIFIED FUND DISCIPLINED EQUITY FUND TAX AWARE U.S. EQUITY FUND: SELECT SHARES U.S. EQUITY FUND U.S. SMALL COMPANY FUND U.S. SMALL COMPANY OPPORTUNITIES FUND EMERGING MARKETS EQUITY FUND EUROPEAN EQUITY FUND GLOBAL 50 FUND: SELECT SHARES INTERNATIONAL EQUITY FUND INTERNATIONAL OPPORTUNITIES FUND FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411. IMSAR206 J.P. Morgan Tax Exempt Bond Fund SEMIANNUAL REPORT JANUARY 31, 2000