EX-99.17(H) 9 a2044362zex-99_17h.txt EXHIBIT 99,17(H) (front cover) J.P. Morgan Institutional Tax Exempt Bond Fund Semiannual Report January 31, 2001 LETTER TO THE SHAREHOLDERS -------------------------------------------------------------------------------- February 20, 2001 Dear Shareholder, We are pleased to inform you that the J.P. Morgan Institutional Tax Exempt Bond Fund outperformed its peer group, as measured by the Lipper Intermediate Municipal Debt Funds Average, for the six months ended January 31, 2001. The Fund provided a total return of 5.74% for the semiannual period, while the peer group had a total return of 5.42% for the same time period. The Fund was also competitive with its two benchmark indexes, the Lehman Brothers 1-16 year Municipal Bond Index and the Lehman Quality Intermediate Municipal Bond Index, which returned 5.77% and 5.72%, respectively, for the six months ended January 31, 2001. The J.P. Morgan Tax Exempt Bond Fund's 30-day SEC yield as of January 31, 2001 was 3.95%. This is equivalent to a taxable yield of 6.54% for an investor in the top federal income tax bracket of 39.6%. The Fund's net asset value (NAV) on January 31, 2001 was $10.31, an increase from $9.98 at the start of the fiscal year. During the past six months, the Fund distributed approximately $0.24 per share. This includes $0.24 from ordinary income, most of which was exempt from federal income tax. This report includes an interview with portfolio manager Robert Meiselas, who 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 Funds. 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 TEN MONTHS YEAR YEARS YEARS YEARS* AS OF JANUARY 31, 2001 J.P. Morgan Institutional Tax Exempt Bond Fund 5.74% 10.18% 4.52% 4.96% 6.23% Lehman Brothers 1-16 year Municipal Bond Index** 5.77% 10.94% 5.21% 5.60% N/A Lehman Quality Intermediate Municipal Bond Index** 5.72% 10.44% 5.12% 5.38% 6.71% Lipper Intermediate Municipal Debt Funds Average*** 5.42% 10.26% 4.12% 4.72% 6.09% AS OF DECEMBER 31, 2000 J.P. Morgan Institutional Tax Exempt Bond Fund 5.57% 8.56% 4.41% 4.89% 6.26% Lehman Brothers 1-16 year Municipal Bond Index** 5.57% 9.32% 5.10% 5.53% N/A Lehman Quality Intermediate Municipal Bond Index** 5.32% 8.64% 4.92% 5.27% 6.71% Lipper Intermediate Municipal Debt Funds Average*** 5.46% 8.55% 4.05% 4.66% 6.16%
* The J.P. Morgan Institutional Tax Exempt Bond Fund's returns prior to July 12, 1993 (commencement of operations), include historical returns of the J.P. Morgan Tax Exempt Bond Fund, a separate feeder fund investing in the same master portfolio, which has a higher expense ratio. ** 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. ***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 fund distributions, and reflect the reimbursement of fund 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 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 in the Structured Finance Group of the 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 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. During 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 as structurally long as some other similar type funds, longer funds may have a higher return every now and then. A particular disappointment during the period was the performance of the portfolio's tax-exempt healthcare bonds, which failed to rally in concert with the general municipal market. The healthcare sector was beset with weak earnings and cash flow difficulties due in part to insufficient reimbursement from third party payers. We expected a leveling of conditions in this sector followed by steady improvement. Unfortunately, higher reimbursement rates from federal and local healthcare plans were not enacted until late in the year, and by that time, hospital bonds had lost much ground. HOW ARE YOU POSITIONING THE PORTFOLIO TO PROSPER IN THE MONTHS AHEAD? After a long 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 will 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 during periods of bond market volatility. 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 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 and maintenance of liquidity. 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. -------------------------------------------------------------------------------- Inception Date: 7/12/1993 -------------------------------------------------------------------------------- Fund Net Assets as of 1/31/2001: $546,385,077 -------------------------------------------------------------------------------- Portfolio Net Assets as of 1/31/2001: $903,891,025 -------------------------------------------------------------------------------- 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 30.6% Insured 29.1% General Obligations and House Authority 27.6% Prerefunded 6.3% Private Placement 4.7% Tax Anticipation Notes 0.9% Short-Term Instruments 0.8%
-------------------------------------------------------------------------------- 30 day SEC Yield: 3.95% -------------------------------------------------------------------------------- Duration: 5.42 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 TAX EXEMPT BOND FUND STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001 ASSETS Investment in The Tax Exempt Bond Portfolio ("Portfolio"), at value $543,980,729 Receivable for Shares of Beneficial Interest Sold 3,975,000 Prepaid Trustees' Fees and Expenses 717 Prepaid Expenses and Other Assets 611 ---------------- TOTAL ASSETS 547,957,057 ---------------- LIABILITIES Dividends Payable to Shareholders 1,445,061 Shareholder Servicing Fee Payable 45,613 Payable for Shares of Beneficial Interest Redeemed 43,421 Administrative Services Fee Payable 10,774 Administration Fee Payable 238 Fund Services Fee Payable 132 Accrued Expenses and Other Liabilities 26,741 ---------------- TOTAL LIABILITIES 1,571,980 ---------------- NET ASSETS Applicable to 53,004,853 Shares of Beneficial Interest Outstanding (par value $0.001, unlimited shares authorized) $546,385,077 ================ Net Asset Value, Offering and Redemption Price Per Share $10.31 ================ ANALYSIS OF NET ASSETS Paid-in Capital $535,564,980 Distributions in Excess of Net Investment Income (88,374) Accumulated Net Realized Loss on Investment (7,333,331) Net Unrealized Appreciation on Investment 18,241,802 ---------------- NET ASSETS $546,385,077 ================
6 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND STATEMENT OF OPERATIONS (UNAUDITED) -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 INVESTMENT INCOME INCOME Allocated Investment Income from Portfolio $12,667,510 Allocated Portfolio Expenses (865,634) ------------- Investment Income 11,801,876 ------------- FUND EXPENSES Shareholder Servicing Fee 245,695 Administrative Services Fee 58,527 Financial and Fund Accounting Services Fee 16,083 Registration Fees 12,107 Transfer Agent Fees 11,389 Professional Fees and Expenses 5,458 Printing Expenses 5,236 Fund Services Fee 3,234 Administration Fee 2,564 Trustees' Fees and Expenses 2,201 Miscellaneous Expenses 2,663 ------------- Total Fund Expenses 365,157 Less: Reimbursement of Expenses (875) ------------- Net Fund Expenses 364,282 ------------- NET INVESTMENT INCOME 11,437,594 ------------- REALIZED AND UNREALIZED GAIN NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 5,073,950 ------------- CHANGE IN NET UNREALIZED APPRECIATION ON INVESTMENT ALLOCATED FROM PORTFOLIO 11,506,123 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $28,017,667 ==============
The Accompanying Notes are an Integral Part of the Financial Statements. 7 J.P. MORGAN INSTITUTIONAL 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 $ 11,437,594 $ 19,058,981 Net Realized Gain (Loss) on Investment Allocated from Portfolio 5,073,950 (12,006,983) Change in Net Unrealized Appreciation (Depreciation) on Investment Allocated from Portfolio 11,506,123 9,255,848 ------------------- ----------------- Net Increase in Net Assets Resulting from Operations 28,017,667 16,307,846 ------------------- ----------------- DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (11,398,819) (19,058,981) Net Realized Gain - (161,308) In Excess of Net Investment Income - (130,473) ------------------- ----------------- Total Distributions to Shareholders (11,398,819) (19,350,762) ------------------- ----------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Proceeds from Shares of Beneficial Interest Sold 147,370,046 219,541,792 Reinvestment of Distributions 3,464,579 5,891,358 Cost of Shares of Beneficial Interest Redeemed (68,926,421) (163,465,427) ------------------- ----------------- Net Increase from Transactions in Shares of Beneficial Interest 81,908,204 61,967,723 ------------------- ----------------- Total Increase in Net Assets 98,527,052 58,924,807 ------------------- ----------------- NET ASSETS Beginning of Period 447,858,025 388,933,218 ------------------- ----------------- End of Period $546,385,077 $447,858,025 =================== ================= TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Shares of Beneficial Interest Sold 14,569,542 22,166,606 Shares of Beneficial Interest Reinvested 342,463 595,212 Shares of Beneficial Interest Redeemed (6,796,380) (16,501,269) ------------------- ----------------- Net Increase in Shares of Beneficial Interest 8,115,625 6,260,549 =================== =================
8 The Accompanying Notes are an Integral Part of the Financial Statements. J.P. MORGAN INSTITUTIONAL 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 ELEVEN FOR THE YEARS ENDED AUGUST 31 JANUARY 31, 2001 YEAR ENDED MONTHS ENDED --------------------------------------- (UNAUDITED) JULY 31, 2000 JULY 31, 1999 1998 1997 1996 1995 ------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE, BEGINNING OF PERIOD $9.98 $10.07 $10.38 $10.12 $9.92 $10.01 $9.75 ------------------------------------------------------------------------------------- INCOME FROM INVESTMENT OPERATIONS Net Investment Income 0.24 0.46 0.41 0.47 0.48 0.48 0.49 Net Realized and Unrealized Gain (Loss) on Investment 0.33 (0.08) (0.30) 0.26 0.20 (0.07) 0.26 ------------------------------------------------------------------------------------- Total From Investment Operations 0.57 0.38 0.11 0.73 0.68 0.41 0.75 ------------------------------------------------------------------------------------- LESS DISTRIBUTIONS TO SHAREHOLDERS FROM Net Investment Income (0.24) (0.46) (0.41) (0.47) (0.48) (0.48) (0.49) Net Realized Gain - (0.01) (0.01) - (0.00)(a) (0.02) - In Excess of Net Investment Income - (0.00)(a) - - - - - ------------------------------------------------------------------------------------- Total Distributions to Shareholders (0.24) (0.47) (0.42) (0.47) (0.48) (0.50) (0.49) ------------------------------------------------------------------------------------- NET ASSET VALUE PER SHARE, END OF PERIOD $10.31 $9.98 $10.07 $10.38 $10.12 $9.92 $10.01 ===================================================================================== RATIOS AND SUPPLEMENTAL DATA Total Return 5.74%(b) 3.90% 1.01%(b) 7.37% 7.06% 4.13% 8.00% Net Assets, End of Period (in thousands) $546,385 $447,858 $388,933 $316,594 $201,614 $121,131 $59,867 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 4.66%(c) 4.67% 4.37%(c) 4.58% 4.83% 4.82% 5.09% Expenses without Reimbursement 0.50%(c) 0.51% 0.53%(c) 0.53% 0.56% 0.60% 0.71%
(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 TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001 -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--J.P. Morgan Institutional 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 July 12, 1993. At a meeting on November 12, 1998, the Trustees elected to change the Fund's fiscal year end from August 31 to July 31. The Fund invests all of its investable assets in The 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 60% 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 expired November 28, 2000. 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. The Fund has agreed to pay FDI fees equal to its allocable 10 J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- (Continued) JANUARY 31, 2001 -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) 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 $600. -------------------------------------------------------------------------------- 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 TAX EXEMPT BOND PORTFOLIO Semiannual Report January 31, 2001 (The following pages should be read in conjunction with J.P. Morgan Institutional Tax Exempt Bond Fund Semiannual Financial Statements) 12 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------- MUNICIPALS - 99.2% GENERAL OBLIGATIONS & HOUSE AUTHORITY - 27.6% CONNECTICUT - 1.7% $ 7,240,000 Connecticut, Series 1997 B, 5.88%, 6/15/17 $ 7,880,233 6,655,000 Connecticut, Series 2000 C, 5.25%, 12/15/11 7,139,018 --------------------------- 15,019,251 --------------------------- DISTRICT OF COLUMBIA - 1.3% 10,645,000 District of Columbia, Series 1993 A, 5.80%, 6/1/04 11,313,187 --------------------------- FLORIDA - 0.1% 465,000 Florida State Board of Education Capital Outlay, 7.00%, 6/1/01 466,488 --------------------------- GEORGIA - 3.0% 2,630,000 Fulton County School District, 6.38%, 5/1/14 3,076,942 11,000,000 Georgia, Series 1991 D, 3.00%, 11/1/11 9,696,390 3,000,000 Georgia, Series 1992 B, 6.30%, 3/1/10 3,464,880 6,000,000 Georgia, Series 1995 B, 7.20%, 3/1/07 7,028,880 2,500,000 Gwinnett County School District, Series 1992 B, 6.40%, 2/1/08 2,848,100 --------------------------- 26,115,192 --------------------------- MARYLAND - 0.9% 5,000,000 Maryland, Series 2000-1, (State & Local Facilities Loan), 5.13%, 8/1/05 5,281,700 3,000,000 Maryland, Series 1991-3, 6.40%, 7/15/03 3,051,600 --------------------------- 8,333,300 --------------------------- MASSACHUSETTS - 1.7% 14,035,000 Massachusetts, Series 2000 B, 5.75%, 6/1/12 15,306,711 --------------------------- MINNESOTA - 1.2% 9,330,000 Minnesota, 5.50%, 6/1/10 10,245,366 --------------------------- MISSISSIPPI - 1.4% 11,210,000 Mississippi, 6.20%, 2/1/08 12,556,097 --------------------------- NEW JERSEY - 1.8% 4,180,000 Jersey City, Series 1996 A, 6.25%, 10/1/11 4,815,109 10,000,000 New Jersey, 5.50%, 5/1/07 10,859,600 --------------------------- 15,674,709 --------------------------- NEW YORK - 0.0%(z) 50,000 New York, Series 1994 A, 5.75%, 8/1/02 51,670 --------------------------- NORTH CAROLINA - 1.2% 10,410,000 North Carolina, Series 2000 A, (Public Improvements), 5.00%, 9/1/04 10,872,828 --------------------------- PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------- OHIO - 6.8% $ 17,385,000 Columbus, Series 2000-1, 5.25%, 11/15/03 to 11/15/05 $ 18,309,830 12,245,000 Columbus, Series 2000-1, 5.50%, 11/15/06 to 11/15/11 13,345,350 10,000,000 Ohio, Series 2000 E, (Highway Capital Improvements), 5.63%, 5/1/10 11,060,599 10,000,000 Ohio, Series 2000 E, (Highway Capital Improvements), 5.25%, 5/1/04 10,480,900 7,000,000 Ohio, Series 1998 C, (Highway Capital Improvements), 4.50%, 5/1/02 7,096,600 --------------------------- 60,293,279 --------------------------- SOUTH CAROLINA - 1.6% 13,305,000 South Carolina, Series 2001 A, (State School Facilities), 5.00%, 1/1/05 13,893,746 --------------------------- TENNESSEE - 0.8% 6,820,000 Knox County, 6.00%, 5/1/12 to 5/1/13 7,474,925 --------------------------- TEXAS - 2.3% 12,485,000 Fort Worth Independent School District, (Premium Capital Appreciation), 4.99%, 2/15/06(y) 9,729,061 10,000,000 Texas, Series 1992 C, 5.50%, 4/1/20, Prerefunded at 102% of Par 10,418,499 --------------------------- 20,147,560 --------------------------- VIRGINIA - 0.4% 3,650,000 Loudoun County, Series 2000 B, (State Aid Withholding), 5.13%, 1/1/04 3,791,912 --------------------------- WASHINGTON - 0.7% 1,750,000 Washington State, Series 1991 R-92-A, 6.30%, 9/1/02 1,795,938 4,000,000 Washington State, Series 1992 B & AT-7, 6.40%, 6/1/17 4,708,040 --------------------------- 6,503,978 --------------------------- WISCONSIN - 0.7% 5,615,000 Milwaukee Metropolitan Sewerage District, Series 1990 A, 6.70%, 10/1/02 5,898,445 --------------------------- 243,958,644 --------------------------- INSURED - 29.1% ALASKA - 1.0% 2,000,000 Anchorage GO, 6.60%, 7/1/02, Prerefunded at 100% of Par(MBIA) 2,026,240 10,000,000 North Slope Boro Alaska, Series 2000 B, 5.18%, 6/30/09(MBIA)(y) 6,828,300 --------------------------- 8,854,540 --------------------------- CALIFORNIA - 2.6% 5,000,000 California, 5.00%, 12/1/09(FGIC-TCRS) 5,420,150 3,000,000 California, 6.50%, 9/1/10(FGIC-TCRS) 3,569,310 10,000,000 California, Series 1999, 5.50%, 2/1/10(FGIC-TCRS) 11,026,900
The Accompanying Notes are an Integral Part of the Financial Statements. 13 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- (Continued JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------- $ 2,500,000 Los Angeles County Public Works Financing Auth. Lease Rev., Series 1996 A, 6.00%, 9/1/06(MBIA) $ 2,804,000 --------------------------- 22,820,360 --------------------------- DISTRICT OF COLUMBIA - 1.5% 2,600,000 District of Columbia, Series 1992 B, 6.00%, 6/1/02, Escrowed to Maturity(MBIA) 2,682,108 3,220,000 District of Columbia, Series 1993 A, 6.00%, 6/1/07 to 6/1/07, Escrowed to Maturity(MBIA-IBC) 3,566,843 6,795,000 District of Columbia, Series 1993 C, 5.25%, 12/1/03, Escrowed to Maturity(FGIC) 7,074,410 --------------------------- 13,323,361 --------------------------- FLORIDA - 0.2% 2,000,000 Volusia County School District, 6.10%, 8/1/02(FGIC) 2,065,400 --------------------------- GEORGIA - 0.7% 5,000,000 Metropolitan Atlanta Rapid Transportation Auth., Series 1992 P, 6.25%, 7/1/11(AMBAC) 5,809,100 --------------------------- ILLINOIS - 0.4% 2,810,000 Regional Transportation Auth., Series 1994 D, 7.75%, 6/1/07(FGIC) 3,365,453 --------------------------- LOUISIANA - 2.0% 14,425,000 Louisiana, Series 1996 A, 6.00%, 8/1/02(FGIC) 14,967,092 4,165,000 New Orleans, (Capital Appreciation), 5.28%, 9/1/11(AMBAC)(y) 2,546,106 --------------------------- 17,513,198 --------------------------- MASSACHUSETTS - 2.3% 18,620,000 Massachusetts, Series 2000 A, (Grant Anticipation Notes), 5.75%, 12/15/12(FSA) 20,604,891 --------------------------- MICHIGAN - 2.1% 3,910,000 Grand Rapids Water Supply System Rev., 5.75%, 1/1/13(FGIC) 4,275,741 13,050,000 Michigan State Hospital Finance Auth., Series 1999 A, (Ascension Health Credit), 6.25%, 11/15/15(MBIA) 14,342,865 --------------------------- 18,618,606 --------------------------- NEBRASKA - 1.8% 5,245,000 Nebhelp Inc, Series 1993 A-5B, 6.20%, 6/1/13(MBIA) 5,499,225 10,000,000 Nebraska Public Power District, Series 1998 A, 5.25%, 1/1/05(MBIA) 10,462,200 --------------------------- 15,961,425 --------------------------- NEVADA - 1.2% 8,200,000 Clark County School District, Series 1991 A, 7.00%, 6/1/11(MBIA) 9,927,412 280,000 Las Vegas-Clark County Library District, Series 1991 B, 6.70%, 8/1/04(FGIC) 286,849 --------------------------- 10,214,261 --------------------------- PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------- NEW JERSEY - 2.1% $ 4,100,000 New Jersey Economic Development Auth. Rev., Transition Project Sublease, Series A, 5.75%, 5/1/11(FSA) $ 4,554,034 7,000,000 New Jersey Economic Development Auth., Market Transition Facilities Rev., Sr. Lien, Series A, 5.40%, 7/1/02(MBIA) 7,187,390 6,000,000 New Jersey State Transportation Trust Fund, Series 1995 B, (Transportation System), 6.00%, 6/15/05(MBIA) 6,520,620 --------------------------- 18,262,044 --------------------------- NEW YORK - 1.2% 75,000 Monroe County, 6.00%, 6/1/10(AMBAC) 85,047 10,000,000 New York State Thruway Auth., Series 2000 B-1, 5.50%, 4/1/09(FGIC) 10,941,900 --------------------------- 11,026,947 --------------------------- OHIO - 1.2% 10,000,000 Ohio State Turnpike Commission, Series 1996 A, 5.50%, 2/15/26, Prerefunded at 102% of Par(MBIA) 10,912,699 --------------------------- PENNSYLVANIA - 0.4% 2,360,000 Pennridge School District, 4.45%, 8/15/09(FSA State Aid Withholding) 2,374,538 1,500,000 Pennsylvania State, Series 1991 A-2, 6.50%, 11/1/04, Prerefunded at 101.5% of Par(MBIA) 1,556,625 --------------------------- 3,931,163 --------------------------- SOUTH CAROLINA - 3.3% 1,000,000 Piedmont Municipal Power Agency Electric Rev., 6.20%, 1/1/08(MBIA) 1,127,060 15,000,000 Piedmont Municipal Power Agency Electric Rev., 6.75%, 1/1/20(FGIC) 18,124,950 10,310,000 South Carolina GO, Series 2000 A, (State School Facilities), 4.25%, 1/1/15 (FSA State Aid Withholding) 9,736,249 --------------------------- 28,988,259 --------------------------- TENNESSEE - 0.4% 3,720,000 Tennessee School Bond Authority, Series 1987 A, (GO of Authority), 4.00%, 5/1/12 3,553,939 --------------------------- TEXAS - 3.4% 11,135,000 Houston Independent School District, (Capital Appreciation), 4.76%, 8/15/13(PSF-GTD)(y) 6,013,345 10,880,000 Humble Independent School District, Series 2000 C, (Humble Island), 3.95%, 2/15/16 to 2/15/17(PSF-GTD)(y) 4,834,402 8,200,000 San Antonio, Series 1991 B, (Capital Appreciation), 4.64%, 2/1/12(FGIC)(y) 4,811,760 12,500,000 Texas Municipal Power Agency Rev., (Capital Appreciation), 4.76%, 9/1/13(MBIA)(y) 6,735,750 10,100,000 Texas Public Building Auth., (Capital Appreciation), 4.21%, 8/1/06(MBIA)(y) 8,039,701 --------------------------- 30,434,958 ---------------------------
14 The Accompanying Notes are an Integral Part of the Financial Statements. THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- (Continued JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------- UTAH - 0.8% $ 6,645,000 Intermountain Power Agency Power Supply Rev., Series 1996 C, 6.00%, 7/1/02(MBIA) $ 6,876,246 --------------------------- WASHINGTON - 0.5% 1,000,000 Pierce County School District No. 320 Sumner, 6.60%, 12/1/02, Prerefunded at 100% of Par(MBIA) 1,026,490 1,250,000 Snohomish County School District No. 2 Everett, Series 1991 A, 6.70%, 12/1/02(MBIA) 1,262,825 2,000,000 Washington Public Power Supply System Rev., Series 1990 C, (Nuclear Project No. 2), 7.00%, 7/1/01(FGIC) 2,027,220 --------------------------- 4,316,535 --------------------------- 257,453,385 --------------------------- PREREFUNDED - 6.3% ALABAMA - 0.1% 1,000,000 Daphne Special Care Facilities Financing Auth. Rev., Series 1988 A, (Presbyterian Retirement), 7.30%, 8/15/18, Prerefunded at 100% of Par 1,020,740 --------------------------- CONNECTICUT - 0.3% 2,815,000 Connecticut Special Tax Obligation Rev., Series 1999 A, (Transportation Infrastructure), 6.60%, 6/1/04, Prerefunded at 100% of Par 2,998,116 --------------------------- MICHIGAN - 2.7% 10,000,000 Detroit Water Supply System Rev., 6.37%, 2/15/01, Prerefunded at 102% of Par(FGIC) 10,583,900 10,500,000 Michigan State Hospital Finance Auth., Series 1995 A, (Genesys Health Systems), 8.13%, 10/1/21, Prerefunded at 102% of Par 12,541,620 --------------------------- 23,125,520 --------------------------- MISSOURI - 1.1% 5,000,000 Missouri State Regional Convention & Sports Complex Auth., Series A, 6.90%, 8/15/21, Prerefunded at 100% of Par 5,388,900 4,000,000 St. Louis County Regional Convention & Sports Complex Auth., Series 1991 B, 7.00%, 8/15/21, Prerefunded at 100% of Par 4,320,720 --------------------------- 9,709,620 --------------------------- NEVADA - 1.9% 15,500,000 Nevada, (Colorado River Community), 6.50%, 7/1/24, Prerefunded at 101% of Par 17,002,415 --------------------------- TEXAS - 0.2% 1,305,000 Dallas County Flood Control District, 9.25%, 4/1/10, Prerefunded at 100% of Par 1,586,280 --------------------------- 55,442,691 --------------------------- PRIVATE PLACEMENT - 4.7% CALIFORNIA - 0.2% 353,329 Kawaeh Delta Hospital District, 6.40%, 6/1/14 377,568 1,048,640 Kaweah Delta Hospital District, 5.25%, 6/1/14 1,046,574 --------------------------- 1,424,142 --------------------------- PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------- FLORIDA - 1.2% $ 10,250,000 Orlando Utility Commission, 4.48%, 9/1/03 $ 10,303,300 --------------------------- ILLINOIS - 0.3% 3,000,000 Illinois Development Bank, 4.90%, 8/1/28 3,059,640 --------------------------- NEW YORK - 1.2% 10,000,000 New York Convention Center Operating Corp. COP, (Yale Building Acquisition), 6.50%, 12/1/04 10,201,500 --------------------------- PENNSYLVANIA - 0.5% 4,250,000 Philadelphia Auth. for Industrial Development, 4.75%, 1/1/18 4,265,385 --------------------------- WISCONSIN - 1.3% 6,250,000 Wisconsin Health & Educational Facilities, 5.70%, 5/1/14 6,285,500 6,250,000 Wisconsin Health & Educational Facilities, 5.95%, 5/1/19 6,223,563 --------------------------- 12,509,063 --------------------------- 41,763,030 --------------------------- REVENUE BONDS - 30.6% ARIZONA - 0.4% 3,430,000 Arizona Health Facilities Auth., Series 1999 A, (Catholic Healthcare West), 6.13%, 7/1/09 3,408,940 --------------------------- CALIFORNIA - 1.9% 2,520,000 California State Department of Water Resources Center Valley Project, Series 1992 J-1, (Water systems), 7.00%, 12/1/12 3,179,660 13,070,000 California Statewide Community Development Auth., 6.00%, 7/1/09 13,243,178 --------------------------- 16,422,838 --------------------------- GEORGIA - 0.2% 1,250,000 Georgia Municipal Electric Auth., Series 1997 A, 6.50%, 1/1/12 1,439,800 --------------------------- ILLINOIS - 0.9% 3,770,000 Illinois Health Facilities Auth. Rev., 6.75%, 11/15/10 4,077,293 1,665,000 Illinois Health Facilities Auth. Rev., 6.63%, 2/15/12 1,802,895 1,380,000 Metropolitan Pier & Exposition Auth. Dedicated State Tax Rev., Series 1992 A, 8.50%, 6/15/06 1,675,154 --------------------------- 7,555,342 --------------------------- IOWA - 0.8% 6,920,000 Iowa Finance Auth., 6.75%, 2/15/15 to 2/15/17 7,415,378 --------------------------- KENTUCKY - 1.0% 3,905,000 Kentucky Property & Buildings Commission Rev., 5.75%, 5/1/10 4,320,687 4,450,000 Kentucky Property & Buildings Commission Rev., (Project No. 67), 5.50%, 9/1/09 4,857,131 --------------------------- 9,177,818 ---------------------------
The Accompanying Notes are an Integral Part of the Financial Statements. 15 THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- (Continued JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------- MARYLAND - 0.6% $ 5,435,000 Maryland State Health & Higher Educational Facilities Auth. Rev., (John Hopkins University), 5.75%, 7/1/03 $ 5,705,609 --------------------------- MASSACHUSETTS - 4.1% 5,650,000 Massachusetts Bay Transportation Auth., Series 1994 A, (General Transportation System), 7.00%, 3/1/08 6,624,682 6,750,000 Massachusetts Health & Educational Facilities Auth., Series 2000 A, (Harvard University), 5.00%, 1/15/07 7,135,628 1,495,000 Massachusetts State College Building Auth., Series 1994 A, 7.50%, 5/1/11 1,873,130 9,500,000 Massachusetts State Water Pollution Abatement, Series 1999 A, (MWRA Program), 6.00%, 8/1/15 10,521,060 10,000,000 Massachusetts State Water Resources Auth., Series 2000 D, 5.50%, 8/1/09 10,922,600 --------------------------- 37,077,100 --------------------------- MICHIGAN - 3.0% 2,905,000 Michigan State Hospital Finance Auth., Series 1997 T, (Mercy Health Services), 5.75%, 8/15/04 3,026,022 10,000,000 Michigan State Hospital Finance Auth., Series 1999 B, (Ascension Health Credit), 5.30%, 11/15/33 10,218,900 3,755,000 Michigan State Hospital Finance Auth., Series 2000 A, (Trinity Health), 5.50%, 12/1/05 3,871,968 8,565,000 Michigan State Hospital Finance Auth., Series 2000 A, (Trinity Health), 6.00%, 12/1/11 to 12/1/12 9,147,482 --------------------------- 26,264,372 --------------------------- MINNESOTA - 1.3% 10,000,000 University of Minnesota, Series 1996 A, 5.75%, 7/1/10 to 7/1/15 11,115,500 --------------------------- MISSISSIPPI - 0.3% 2,505,000 Mississippi Higher Education Assistance Corp., Series 1993 B, 5.60%, 9/1/04 2,595,330 --------------------------- NEW HAMPSHIRE - 0.6% 4,900,000 New Hampshire Higher Educational & Health Facilities Auth., (Dartmouth College), 6.75%, 6/1/07 5,651,513 --------------------------- NEW YORK - 1.2% 8,700,000 Triborough Bridge & Tunnel Auth., 6.63%, 1/1/12 10,317,939 --------------------------- NORTH CAROLINA - 1.8% 8,900,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 1999 B, 6.13%, 1/1/06 9,378,553 6,275,000 North Carolina Municipal Power Agency No. 1 Catawba Electric Rev., Series 1999 B, 6.25%, 1/1/07 6,686,766 --------------------------- 16,065,319 --------------------------- PRINCIPAL AMOUNT VALUE ----------------------------------------------------------------------------------------------------- NORTH DAKOTA - 1.3% $ 11,280,000 North Dakota State Housing Finance Agency Mortgage Rev., Series 2000 C, (Housing Finance Program), 5.55%, 1/1/31 $ 11,500,186 --------------------------- OHIO - 0.4% 2,585,000 Ohio State Water Development Auth., 9.38%, 12/1/10 3,124,826 --------------------------- PENNSYLVANIA - 1.6% 10,000,000 Clinton County Industrial Development Auth., Series 1992 A, (International Paper Co.), VRN, 4.73%, 9/1/22 9,999,999 1,310,000 Pennsylvania State Higher Educational Facilities Auth., Series 1995 A, (University of Pennsylvania), 6.50%, 9/1/02 1,369,160 2,800,000 Pennsylvania State Higher Educational Facilities Auth., Series 1996 A, (University of Pennsylvania Health Services), 6.00%, 1/1/06 2,912,084 --------------------------- 14,281,243 --------------------------- SOUTH CAROLINA - 1.0% 5,500,000 South Carolina Jobs-Economic Development Auth. Hospital Facilities Rev., Series 2000 A, (Palmetto Health Alliance), 7.00%, 12/15/10 5,651,305 3,000,000 South Carolina Jobs-Economic Development Auth. Hospital Facilities Rev., Series 2000 A, (Palmetto Health Alliance), 7.13%, 12/15/15 2,977,200 --------------------------- 8,628,505 --------------------------- TEXAS - 3.3% 10,000,000 Brazos River Auth. Rev., Series 1999 A, (Utility Electric Co.), 5.00%, 4/1/33 10,015,500 13,000,000 Dallas-Fort Worth International Airport Facility Improvement Corp. Rev., Series 2000 B, (American Airlines), 6.05%, 5/1/29 13,307,319 5,875,000 Lubbock Health Facilities Development Corp., (St. Joseph Health Systems), 5.25%, 7/1/11 6,000,138 --------------------------- 29,322,957 --------------------------- VIRGINIA - 3.9% 5,000,000 Virginia College Building Auth., 5.75%, 2/1/03 5,198,700 27,415,000 Virginia Commonwealth Transportation Board, (Federal Highway), 5.50%, 10/1/05 to 10/1/08 29,771,104 --------------------------- 34,969,804 --------------------------- WASHINGTON - 1.0% 2,000,000 Washington Public Power Supply System, Series 1990 A, (Project II), 7.25%, 7/1/06 2,302,180 1,500,000 Washington Public Power Supply System, Series 1990 C, 7.50%, 7/1/02 1,538,700 5,265,000 Washington Public Power Supply System, Series 1991 A, 6.30%, 7/1/01 5,323,020 --------------------------- 9,163,900 --------------------------- 271,204,219 ---------------------------
16 The Accompanying Notes are an Integral Part of the Financial Statements. THE TAX EXEMPT BOND PORTFOLIO SCHEDULE OF INVESTMENTS (UNAUDITED) -------------------------------------------------------------------------------- (Continued JANUARY 31, 2001
PRINCIPAL AMOUNT VALUE ---------------------------------------------------------------------------------------------------- TAX ANTICIPATION NOTES - 0.9% CALIFORNIA - 0.9% $ 8,000,000 Tustin Unified School District Rev., (Community Facilities 97-1), 6.10%, 9/1/02 $ 8,103,360 --------------------------- TOTAL MUNICIPALS 877,925,329 --------------------------- (Cost $843,701,858) SHORT-TERM INVESTMENTS - 0.8% INVESTMENT COMPANIES - 0.8% 7,234,748 J.P. Morgan Institutional Tax Exempt Money Market Fund* 7,234,748 --------------------------- (Cost $7,234,748) TOTAL INVESTMENT SECURITIES - 100.0% $885,160,077 =========================== (Cost $850,936,606)
AMBAC - AMBAC Assurance Corporation COP - Certificate of Participation FGIC - Financial Guaranty Insurance Co. FSA - Financial Securities Assurance GO - General Obligation IBC - Insured Bond Certificates MBIA - MBIA Insurance Corp. PSF - Permanent School Fund VRN - Variable Rate Note (y) Yield to maturity (z) Category is less than 0.05% of total investment securities. * Affiliated money market mutual fund registered under the Investment Company Act of 1940, as amended, and advised by J.P. Morgan Investment Management, Inc The Accompanying Notes are an Integral Part of the Financial Statements. 17 THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001 ASSETS Investments at Value (Cost $850,936,606) $885,160,077 Cash 7,788,886 Dividend and Interest Receivable 11,248,596 Prepaid Trustees' Fees and Expenses 1,327 Prepaid Expenses and Other Assets 1,319 --------------- TOTAL ASSETS 904,200,205 --------------- LIABILITIES Advisory Fee Payable 228,701 Administrative Services Fee Payable 18,009 Administration Fee Payable 226 Fund Services Fee Payable 223 Accrued Expenses and Other Liabilities 62,021 --------------- TOTAL LIABILITIES 309,180 --------------- NET ASSETS Applicable to Investors' Beneficial Interest $903,891,025 ===============
18 The Accompanying Notes are an Integral Part of the Financial Statements. THE TAX EXEMPT BOND PORTFOLIO STATEMENT OF OPERATIONS (UNAUDITED) -------------------------------------------------------------------------------- FOR THE SIX MONTHS ENDED JANUARY 31, 2001 INVESTMENT INCOME INCOME Interest Income $21,634,029 Dividend Income from Affiliated Investment 21,056 ------------- Investment Income 21,655,085 ------------- EXPENSES Advisory Fee 1,262,929 Administrative Services Fee 100,301 Custodian Fees and Expenses 73,507 Professional Fees and Expenses 23,042 Trustees' Fees and Expenses 6,011 Fund Services Fee 5,578 Printing Expenses 4,496 Administration Fee 2,459 Insurance Expenses 1,077 Miscellaneous Expenses 85 ------------- Total Expenses 1,479,485 ------------- NET INVESTMENT INCOME 20,175,600 ------------- REALIZED AND UNREALIZED GAIN NET REALIZED GAIN ON INVESTMENT TRANSACTIONS 8,564,956 ------------- CHANGE IN NET UNREALIZED APPRECIATION ON INVESTMENTS 19,387,241 ------------- NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $48,127,797 =============
The Accompanying Notes are an Integral Part of the Financial Statements. 19 THE 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 (DECREASE) IN NET ASSETS 2001 2000 FROM OPERATIONS Net Investment Income $ 20,175,600 $ 37,684,983 Net Realized Gain (Loss) on Investment Transactions 8,564,956 (13,494,852) Change in Net Unrealized Appreciation on Investments 19,387,241 6,100,102 ----------------- ----------------- Net Increase in Net Assets Resulting from Operations 48,127,797 30,290,233 ----------------- ----------------- TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST Contributions 217,800,376 318,241,114 Withdrawals (145,960,330) (386,477,921) ----------------- ----------------- Net Increase (Decrease) from Transactions in Shares of Beneficial Interest 71,840,046 (68,236,807) ----------------- ----------------- Total Increase (Decrease) in Net Assets 119,967,843 (37,946,574) ----------------- ----------------- NET ASSETS Beginning of Period 783,923,182 821,869,756 ------------------ ---------------- End of Period $903,891,025 $783,923,182 ================== ================
SUPPLEMENTARY DATA FOR THE SIX MONTHS ENDED FOR THE FOR THE ELEVEN FOR THE YEARS ENDED AUGUST 31 JANUARY 31, 2001 YEAR ENDED MONTHS ENDED ------------------------------------- (UNAUDITED) JULY 31, 2000 JULY 31, 1999 1998 1997 1996 1995 ---------------------------------------------------------------------------------------- RATIOS TO AVERAGE NET ASSETS Net Expenses 0.35%(a) 0.36% 0.37%(a) 0.37% 0.38% 0.38% 0.42% Net Investment Income 4.79%(a) 4.78% 4.49%(a) 4.70% 4.93% 4.92% 5.15% Portfolio Turnover 39%(b) 84% 29%(b) 16% 25% 25% 47%
(a) Annualized (b) Not annualized 20 The Accompanying Notes are an Integral Part of the Financial Statements. THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- JANUARY 31, 2001 -------------------------------------------------------------------------------- 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION--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. 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. At a meeting on November 12, 1998, the Trustees elected to change the Portfolio's fiscal year from August 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 RESTRICTED AND ILLIQUID SECURITIES--The Portfolio is permitted to invest in securities that are subject to legal or contractual restrictions on resale or are illiquid. Restricted securities generally may be resold in transactions exempt from registration. A security may be considered illiquid if it lacks a readily available market or if its valuation has not changed for a certain period of time. Disposal of these securities may involve time-consuming negotiations and expense, and prompt sale at the current valuation may be difficult. At the end of the period, the Portfolio had no investments in restricted and illiquid securities (excluding 144A issues). 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: 21 THE TAX EXEMPT BOND PORTFOLIO NOTES TO FINANCIAL STATEMENTS (UNAUDITED) -------------------------------------------------------------------------------- (Continued) JANUARY 31, 2001 -------------------------------------------------------------------------------- 2. TRANSACTIONS WITH AFFILIATES (CONTINUED) 0.09% on the first $7 billion of their aggregate average daily net assets and 0.04% of their aggregate average daily net assets in excess of $7 billion less the complex-wide fees payable to Funds Distributor, Inc. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which Morgan provides similar services. ADMINISTRATION--The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered broker-dealer, to serve as the co-administrator and distributor for the Fund. Under a Co-Administration Agreement between FDI and the Portfolio, FDI provides administrative services necessary for the operations of the Portfolio, furnishes office space and facilities required for conducting the business of the Portfolio and pays the compensation of the Portfolio's officers affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its allocable share of an annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The portion of this charge payable by the Portfolio is determined by the proportionate share that its net assets bear to the net assets of the Trust and certain other investment companies for which FDI provides similar services. FUND SERVICES--The Portfolio has a Fund Services Agreement with Pierpont Group, Inc. ("PGI") to assist the Trustees in exercising their overall supervisory responsibilities for the Portfolio's affairs. The Trustees of the Portfolio represent all the existing shareholders of PGI. 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 $1,000. -------------------------------------------------------------------------------- 3. INVESTMENT TRANSACTIONS During the six months ended January 31, 2001, the Portfolio purchased $387,674,016 of investment securities and sold $305,924,392 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. 22 NOTES -------------------------------------------------------------------------------- 23 NOTES -------------------------------------------------------------------------------- 24 [back cover] J.P. MORGAN INSTITUTIONAL FUNDS Federal Money Market Fund --------------------------------------------------------------------- Prime Money Market Fund --------------------------------------------------------------------- Treasury Money Market Fund --------------------------------------------------------------------- Tax Aware Enhanced Income Fund: Institutional Shares --------------------------------------------------------------------- Tax Exempt Money Market Fund --------------------------------------------------------------------- Short Term Bond Fund --------------------------------------------------------------------- Bond Fund --------------------------------------------------------------------- Global Strategic Income Fund --------------------------------------------------------------------- Tax Exempt Bond Fund --------------------------------------------------------------------- California Bond Fund: Institutional Shares --------------------------------------------------------------------- New York Tax Exempt Bond Fund --------------------------------------------------------------------- Diversified Fund --------------------------------------------------------------------- Disciplined Equity Fund --------------------------------------------------------------------- Large Cap Growth Fund: Institutional Shares --------------------------------------------------------------------- Market Neutral Fund: Institutional Shares --------------------------------------------------------------------- Tax Aware U.S. Equity Fund: Institutional Shares --------------------------------------------------------------------- Tax Aware Disciplined Equity Fund: Institutional Shares --------------------------------------------------------------------- U.S. Equity Fund --------------------------------------------------------------------- U.S. Small Company Fund --------------------------------------------------------------------- Emerging Markets Equity Fund --------------------------------------------------------------------- European Equity Fund --------------------------------------------------------------------- International Equity Fund --------------------------------------------------------------------- International Opportunities Fund --------------------------------------------------------------------- SmartIndex(tm) Fund: Institutional Shares --------------------------------------------------------------------- For more information on the J.P. Morgan Institutional Funds, call J.P. Morgan Funds Services at (800) 766-7722. --------------------------------------------------------------------- Morgan Guaranty Trust Company MAILING 500 Stanton Christiana Road INFORMATION Newark, Delaware 19713-2107 IN-SAN-24964 0102