(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