<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN
INSTITUTIONAL TAX EXEMPT BOND FUND
April 1, 1999
Dear Shareholder:
We are pleased to report the J.P. Morgan Institutional Tax Exempt Bond Fund
delivered a solid return of 2.34% for the six months ended February 28, 1999.
The fund outperformed its competition, which gained 2.15%, as measured by the
Lipper Intermediate Muni Debt Bond Funds Average. At the same time, the fund
trailed its benchmark, the Lehman 1-16 year Muni Bond Index, which rose 2.77%.
Of course, the index return is exclusive of fees and expenses. The fund's 30-day
SEC yield as of February 28 was 3.72%, which is a tax equivalent yield of 6.16%
at a 39.6% federal income tax rate.
The fund's net asset value as of February 28 was $10.39, up one cent from $10.38
on August 31, 1998. Dividends of approximately $0.23 per share were paid over
the six month period, all of which were tax exempt. The fund's net assets rose
to nearly $400 million from $317 million, while the net assets of The Tax
Exempt Bond Portfolio, in which the fund invests, were approximately $866
million.
The report that follows includes an interview with Robert Meiselas, who with
Elaine Young, manages the portfolio. This interview is designed to reflect what
happened during the reporting period, as well as provide an outlook for the
months ahead.
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions,
please telephone your Morgan representative or J.P. Morgan Funds Services
at 800-766-7722.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS . . . .1 GLOSSARY OF TERMS . . . . . . . .6
FUND PERFORMANCE . . . . . . . . .2 FUND FACTS AND HIGHLIGHTS. . . . .7
PORTFOLIO MANAGER Q&A. . . . . . .3 FINANCIAL STATEMENTS . . . . . . 10
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- ------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF FEBRUARY 28, 1999 MONTHS MONTHS YEAR YEARS YEARS YEARS*
- ------------------------------------------------------------------ ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan Inst. Tax Exempt Bond Fund 0.94% 2.34% 5.40% 5.64% 5.82% 7.01%
Lehman 1-16 year Muni Bond Index ** 1.14% 2.77% 5.99% 6.14% 6.15% 7.63%
Lipper Intermed. Muni Debt Bond Funds Avg. 0.90% 2.15% 5.05% 5.48% 5.52% 6.89%
AS OF DECEMBER 31, 1998
- ------------------------------------------------------------------ ------------------------------------
J.P. Morgan Inst. Tax Exempt Bond Fund 0.46% 3.47% 5.65% 5.63% 5.45% 7.02%
Lehman 1-16 Year Muni Bond Index ** 0.76% 3.66% 6.25% 6.10% 5.74% 7.62%
Lipper Intermed. Muni Debt Bond Funds Avg. 0.49% 3.23% 5.35% 5.45% 5.17% 6.88%
</TABLE>
* 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, WHICH HAS A HIGHER EXPENSE RATIO.
** PRIOR TO MAY 1, 1997, THE BENCHMARK WAS THE LEHMAN QUALITY INTERMEDIATE MUNI
BOND INDEX. COMMENCING MAY 1, 1997, THE BENCHMARK IS THE LEHMAN 1-16 YEAR MUNI
BOND INDEX. THE LEHMAN QUALITY INTERMEDIATE MUNI BOND INDEX IS AN INDEX CREATED
BY LEHMAN BROTHERS OF HIGH QUALITY MUNICIPAL BONDS RATED A OR BETTER WITH
INTERMEDIATE MATURITIES (APPROXIMATELY 7 YEARS). LIPPER ANALYTICAL SERVICES,
INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF FEES,
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. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING
SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
This interview was conducted with Robert Meiselas, who with Elaine Young,
manages The Tax Exempt Bond Portfolio in which the fund invests.
[PHOTO]
ELAINE YOUNG, vice president, is a portfolio manager with the U.S. Fixed Income
Group responsible for managing municipal bonds. In Ms. Young's previous position
at Morgan, she traded tax exempt securities. Elaine joined Morgan in 1994 after
five years of municipal trading experience at Scudder, Stevens, and Clark. She
graduated from New York University with a B.S. degree in 1986 and an M.B.A. in
Finance in 1989. Elaine is also a Chartered Financial Analyst.
[PHOTO]
ROBERT MEISELAS, vice president, is a portfolio manager with the U.S. Fixed
Income Group responsible for managing municipal bonds, including tax exempt
private placements. Mr. Meiselas is a CPA and joined Morgan's financial group in
1982, after having spent 10 years at Coopers & Lybrand. Bob 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 at Long Island University in the
field of taxation.
This interview was conducted on March 15, 1999 and represents both Bob and
Elaine's views on that date.
THE FUND'S NET ASSET VALUE HAS HARDLY CHANGED OVER THE SIX MONTHS ENDED FEBRUARY
28. HAS THE MARKET BEEN THAT PLACID?
RM: Not really. The market has gone through several phases. At this time, bond
investors have markedly differing opinions about the future course of tax exempt
interest rates. The economy continues to show signs of strength, yet the
economic slowdown predicted by many economists since late last fall has never
materialized. Although there have been some reports of a modest slowing, other
data, such as consumer spending, employment, and housing have not yet weakened
noticeably. The economy has tremendous forward momentum as a result of consumer
spending.
WHAT SUPPORTED MUNICIPAL BOND PRICES OVER THE PERIOD?
RM: Favorable yields. On an after-tax basis, their yields typically exceeded
U.S. Treasuries for a taxpayer in the highest federal income tax bracket. For
example, to match a tax-free municipal yield of 4%, an investor paying the
highest federal tax rate would need a taxable yield of 6.6%, more than a full
percentage point higher than the longest treasury bond available. In addition,
municipal bond prices have been supported by continued inflows into mutual bond
funds and weak supply of the municipal bonds themselves.
3
<PAGE>
TAX EXEMPT BONDS HAVE FARED BETTER THAN MANY TAXABLE BONDS DURING THIS TIME.
WHAT MADE THEM SO ATTRACTIVE?
RM: Again, supply and demand. Thin supply, and a bond market that was carried
along by appreciating government bonds. Historically, supply trails off late in
the year, and that has helped the market. The market is usually slow during the
summer, so new issuance typically accelerates in September and October, then
drops off during the holiday season, from mid-December to January. The supply of
attractive bonds was very limited in December, January and February, and only
modestly improved in March.
SO HOW DID YOU MANAGE THE FUND IN THIS RELATIVELY FAVORABLE MARKET?
RM: We were bullish on interest rates late in 1998, and remained that way until
this past February. We had anticipated a lower supply, and expected the
continued absence of inflation as well as pent-up demand for tax exempt bonds.
THEN SOMETHING CHANGED?
RM: By February, the economy remained so strong that investors started to fear
that interest rates would rise. Also, many of the foreign economic problems that
had earlier stimulated a flight to quality had begun to recede.
WHAT DID YOU DO?
RM: We moved from mildly bullish to a more neutral position. We had held an
average maturity that was longer than our 7-year benchmark, so we moved closer
to 7 years. As noted before, the U.S. economy is still very strong. In addition,
the tax exempt municipal bond market is not technically as favorable as it was
months ago. Tax exempt bonds are still inexpensive when compared to U.S.
Treasuries, but they are not as inexpensive as they were earlier.
SO YOU REMAIN CAUTIOUS?
RM: Yes. Current global economic conditions could cause interest rates to rise.
While municipal bonds are very likely to fare better than other investments, we
are obliged to invest cautiously.
HOW DOES YOUR ATTITUDE TOWARD THE MARKET AFFECT YOUR DAY TO DAY OPERATIONS?
RM: We're conservative. We try to provide an efficient and attractive after-tax
performance in a stable fund. In today's market, that means that we are biased
toward premium, non-callable bonds, because they help provide a cushion in
volatile markets. We have been buying them when they are reasonably priced and
structured to meet our investment needs.
4
<PAGE>
We are also interested in bonds that carry somewhat lower credit ratings than
our AA average. Prices for some lower investment grade bonds have cheapened, so
we are looking at them opportunistically. We'll look at bonds rated A or lower,
as we find them. Fewer and fewer bonds are lower-rated because most new bonds
sold in today's market are insured.
HAS THIS STRATEGY WORKED?
RM: Yes, we think our performance was good over the six months ended February
28. By extending duration last fall, we benefited from falling interest rates,
and when rates rose suddenly in February, we shortened maturities. Our structure
also helped. We stayed away from lower quality bonds that suffered as spreads
widened. We have a favorable Sharpe ratio - the measure of the risk we are
willing to accept versus that of riskless assets. And we are pleased that
Morningstar now recognizes us as a five star fund.*
* MORNINGSTAR PROPRIETARY RATINGS REFLECT RISK-ADJUSTED PERFORMANCE THROUGH
2/28/99. THE RATINGS ARE SUBJECT TO CHANGE EVERY MONTH. PAST PERFORMANCE IS NO
GUARANTEE OF FUTURE RESULTS. MORNINGSTAR RATINGS ARE CALCULATED FROM THE FUNDS'
THREE- AND FIVE-YEAR RETURNS (WITH FEE ADJUSTMENTS) IN EXCESS OF 90-DAY TREASURY
BILL RETURNS, AND A RISK FACTOR THAT REFLECTS FUND PERFORMANCE BELOW 90-DAY
T-BILL RETURNS. THE FUND RECEIVED 4 STARS FOR THE THREE-YEAR AND 5 STARS FOR THE
FIVE-YEAR PERIOD. IT WAS RATED AMONG 1,576, AND 1,109 TAX-EXEMPT BOND FUNDS FOR
THE THREE- AND FIVE-YEAR PERIODS, RESPECTIVELY. TEN PERCENT OF THE FUNDS IN A
RATING CATEGORY RECEIVE 5 STARS, AND THE NEXT 22% RECEIVE 4 STARS.
5
<PAGE>
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One basis point equals 0.01%
of yield. For example, if a bond's yield changed from 10.25% to 11.00%, it would
have moved 75 basis points.
CREDIT RATING: The rating assigned to a bond by independent rating agencies such
as Standard & Poor's and Moody's. In evaluating creditworthiness, these agencies
assess the issuer's present financial condition and future ability and
willingness to make principal and interest payments when due.
DURATION: Duration is a measure of the relative sensitivity of the price of the
security to a change in interest rates. The longer the duration, the more
sensitive the bond is to interest rate moves. For example, a bond with a 5-year
duration will experience an approximate 5% increase in price if interest rates
drop 100 basis points (1%), while a bond with a 10-year duration would see its
price rise by approximately 10%.
MATURITY: The date on which the life of a financial instrument ends through cash
or physical settlement or expiration with no value, or the date a security comes
due and fully payable. Average maturity refers to the average time to maturity
of the entire portfolio.
YIELD CURVE: A line graph showing interest rates at a point in time, from the
shortest maturity to the longest available. The resulting curve shows if
short-term interest rates are higher or lower than long-term rates. Typically
interest rates rise with increasing time to maturity.
YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.5% and a municipal is yielding 5.5%,
the spread is 1.0% or 100 basis points.
ZERO COUPON BOND: A debt instrument sold at a discount to its face value. The
bond makes no payments until maturity, at which time it is redeemed at face
value. Effectively, the interest received is the difference between face value
and the price paid for the security.
6
<PAGE>
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. It is designed for investors who seek tax exempt yields greater
than those generally available from a portfolio of short-term tax exempt
obligations and who are willing to incur the greater price fluctuation of
longer-term instruments.
- --------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
7/12/93
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 2/28/99
$399,655,913
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 2/28/99
$865,652,898
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/13/99
EXPENSE RATIO
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 dividend or redemption
proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF FEBRUARY 28, 1999
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
<TABLE>
<S> <C>
REVENUE BONDS 56.7%
GENERAL OBLIGATION 41.7%
PRIVATE PLACEMENTS 1.2%
SHORT-TERM 0.4%
</TABLE>
30-DAY SEC YIELD
3.72%*
DURATION
5.6 years
*YIELDS ARE NET OF FEES, ASSUME REINVESTMENT OF FUND DISTRIBUTIONS AND REFLECT
THE REIMBURSEMENT OF CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD
THESE EXPENSES NOT BEEN SUBSIDIZED, THE 30-DAY SEC YIELD WOULD HAVE BEEN LOWER.
7
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE
NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE
PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL
COST.
Opinions expressed herein are based on current market conditions and are subject
to change without notice. The fund invests in a master portfolio (another fund
with the same objective). Income may be subject to some state and local taxes.
Some income may be subject to the Federal alternative minimum tax for certain
investors. Capital gains are not exempt from taxes.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 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.
8
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Tax Exempt Bond Portfolio
("Portfolio"), at value $400,461,552
Receivable for Expense Reimbursements 17,776
Prepaid Expenses and Other Assets 1,907
Prepaid Trustees' Fees 1,141
------------
Total Assets 400,482,376
------------
LIABILITIES
Dividends Payable to Shareholders 756,106
Shareholder Servicing Fee Payable 30,816
Administrative Services Fee Payable 7,982
Administration Fee Payable 282
Fund Services Fee Payable 269
Accrued Expenses 31,008
------------
Total Liabilities 826,463
------------
NET ASSETS
Applicable to 38,457,721 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $399,655,913
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $10.39
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $389,429,327
Undistributed Net Investment Income 3,304
Accumulated Net Realized Gain on Investment 311,700
Net Unrealized Appreciation of Investment 9,911,582
------------
Net Assets $399,655,913
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $9,133,997
Allocated Portfolio Expenses (680,939)
----------
Net Investment Income Allocated from
Portfolio 8,453,058
FUND EXPENSES
Shareholder Servicing Fee $186,117
Administrative Services Fee 50,759
Registration Fees 15,199
Transfer Agent Fees 10,037
Printing Expenses 7,309
Professional Fees 7,052
Fund Services Fee 4,540
Administration Fee 3,253
Trustees' Fees and Expenses 1,822
Miscellaneous 5,839
--------
Total Fund Expenses 291,927
Less: Reimbursement of Expenses (42,128)
--------
NET FUND EXPENSES 249,799
----------
NET INVESTMENT INCOME 8,203,259
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 415,558
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO (243,064)
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $8,375,753
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1999
----------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 8,203,259 $ 11,644,410
Net Realized Gain on Investment Allocated from
Portfolio 415,558 148,572
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio (243,064) 6,333,423
----------------- ---------------
Net Increase in Net Assets Resulting from
Operations 8,375,753 18,126,405
----------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (8,202,435) (11,645,234)
Net Realized Gain (177,932) --
----------------- ---------------
Total Distributions to Shareholders (8,380,367) (11,645,234)
----------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 171,527,882 181,046,169
Reinvestment of Dividends and Distributions 4,086,251 4,331,708
Cost of Shares of Beneficial Interest Redeemed (92,547,551) (76,879,522)
----------------- ---------------
Net Increase from Transactions in Shares of
Beneficial Interest 83,066,582 108,498,355
----------------- ---------------
Total Increase in Net Assets 83,061,968 114,979,526
NET ASSETS
Beginning of Period 316,593,945 201,614,419
----------------- ---------------
End of Period (including undistributed net
investment income of $3,304 and $2,480,
respectively) $ 399,655,913 $ 316,593,945
----------------- ---------------
----------------- ---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
FEBRUARY 28, FOR THE FISCAL YEAR ENDED AUGUST 31,
1999 --------------------------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
---------------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.38 $ 10.12 $ 9.92 $ 10.01 $ 9.75 $ 10.07
---------------- -------- -------- -------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.23 0.47 0.48 0.48 0.49 0.48
Net Realized and Unrealized Gain (Loss) on
Investment 0.01 0.26 0.20 (0.07) 0.26 (0.32)
---------------- -------- -------- -------- ------- -------
Total from Investment Operations 0.24 0.73 0.68 0.41 0.75 0.16
---------------- -------- -------- -------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.23) (0.47) (0.48) (0.48) (0.49) (0.48)
Net Realized Gain (0.00)(a) -- (0.00)(a) (0.02) -- --
---------------- -------- -------- -------- ------- -------
Total Distributions to Shareholders (0.23) (0.47) (0.48) (0.50) (0.49) (0.48)
---------------- -------- -------- -------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.39 $ 10.38 $ 10.12 $ 9.92 $ 10.01 $ 9.75
---------------- -------- -------- -------- ------- -------
---------------- -------- -------- -------- ------- -------
RATIOS AND SUPPLEMENTAL DATA
Total Return 2.34%(b) 7.37% 7.06% 4.13% 8.00% 1.61%
Net Assets, End of Period
(in thousands) $ 399,656 $316,594 $201,614 $121,131 $59,867 $16,415
Ratios to Average Net Assets
Net Expenses 0.50%(c) 0.50% 0.50% 0.50% 0.50% 0.50%
Net Investment Income 4.41%(c) 4.58% 4.83% 4.82% 5.09% 4.70%
Expenses without Reimbursement 0.52%(c) 0.53% 0.56% 0.60% 0.71% 1.98%
</TABLE>
- ------------------------
(a) Less than $0.01 per share.
(b) Not annualized.
(c) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
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.
The fund invests all of its investable assets in The Tax Exempt Bond Portfolio
(the "portfolio"), a no-load diversified, open-end management investment company
having the same investment objective as the fund. The value of such investment
included in the Statement of Assets and Liabilities reflects the fund's
proportionate interest in the net assets of the portfolio (46% at February 28,
1999). The performance of the fund is directly affected by the performance of
the portfolio. The financial statements of the portfolio, including the Schedule
of Investments, are included elsewhere in this report and should be read in
conjunction with the fund's financial statements.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the portfolio is allocated pro rata among the fund and other
investors in the portfolio at the time of such determination.
c) Substantially all the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
d) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
e) The fund is treated as a separate entity for federal income tax purposes
and intends to comply with the provisions of the Internal Revenue Code of
1986, as amended, applicable to regulated investment companies and to
distribute substantially all of its income, including net realized capital
gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as the co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
14
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the six
months ended February 28, 1999, the fee for these services amounted to
$3,253.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), under which Morgan is responsible for certain aspects of
the administration and operation of the fund. Under the Services
Agreement, the fund has agreed to pay Morgan a fee equal to its allocable
share of an annual complex-wide charge. This charge is calculated based on
the aggregate average daily net assets of the portfolio and the other
portfolios in which the trust and the J.P. Morgan Funds invest (the
"master portfolios") and J.P. Morgan Series Trust in accordance with the
following annual schedule: 0.09% on the first $7 billion of their
aggregate average daily net assets and 0.04% of their aggregate average
daily net assets in excess of $7 billion less the complex-wide fees
payable to FDI. The portion of this charge payable by the fund is
determined by the proportionate share that its net assets bear to the net
assets of the trust, the master portfolios, other investors in the master
portfolios for which Morgan provides similar services, and J.P. Morgan
Series Trust. For the six months ended February 28, 1999, the fee for
these services amounted to $50,759.
In addition, J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, including
the expenses allocated to the fund from the portfolio, at no more than
0.50% of the average daily net assets of the fund. This reimbursement
agreement can be changed or terminated at any time at the option of J.P.
Morgan. For the six months ended February 28, 1999, J.P. Morgan has agreed
to reimburse the fund $42,128 for expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 10% of the average daily net assets of
the fund. For the six months ended February 28, 1999, the fee for these
services amounted to $186,117.
d) The trust, on behalf of the fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of Group. The fund's
allocated portion of Group's costs in performing its services amounted to
$4,540 for the six months ended February 28, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the master portfolios and
J.P. Morgan Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the fund's allocated portion of the total
fees and expenses. The trust's Chairman and Chief Executive Officer also
serves as Chairman of Group and receives
15
<PAGE>
J.P. MORGAN INSTITUTIONAL TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $1,000.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1998
----------------- ---------------
<S> <C> <C>
Shares sold...................................... 16,444,778 17,650,667
Reinvestment of dividends and distributions...... 391,633 422,096
Shares redeemed.................................. (8,878,367) (7,487,251)
----------------- ---------------
Net Increase..................................... 7,958,044 10,585,512
----------------- ---------------
----------------- ---------------
</TABLE>
4. CREDIT AGREEMENT
The trust, on behalf of the fund, together with other affiliated investment
companies (the "funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. Additionally, since all
of the investable assets of the fund are in the portfolio, the portfolio is
party to certain covenants of the Agreement. The maximum borrowing under the
Agreement was $100,000,000. The Agreement expired on May 27, 1998, however, the
fund as party to the Agreement has extended Agreement and continue its
participation therein for an additional 364 days until May 26,1999. The maximum
borrowing under the new Agreement is $150,000,000. The purpose of the Agreement
is to provide another alternative for settling large fund shareholder
redemptions. Interest on any such borrowings outstanding will approximate market
rates. The funds pay a commitment fee at an annual rate of 0.065% on the unused
portion of the committed amount which is allocated to the funds in accordance
with procedures established by their respective trustees or directors. There
were no outstanding borrowings pursuant to the Agreement at February 28, 1999.
16
<PAGE>
The Tax Exempt Bond Portfolio
Semiannual report February 28, 1999
(unaudited)
(The following pages should be read in conjunction
with the J.P. Morgan Institutional Tax Exempt Bond Fund
Semiannual Financial Statements)
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (98.7%)
ALABAMA (1.1%)
$ 6,760 Alabama Public School & College
Authority, (Capital
Improvement)................... RB Aa3/AA 11/01/08 5.000% $ 7,160,462
1,185 Childersburg Industrial
Development Board, (PCR,
Kimberly Clark Corp. Project,
Callable, Escrowed to Maturity,
due 11/15/99).................. RB Aa2/AA 05/15/99(a) 7.400 1,208,499
1,000 Daphne Special Care Facilities
Financing Authority,
(Presbyterian Retirement,
Prerefunded, Series A, due
08/15/18)...................... RB NR/NR 08/15/01(a) 7.300(v) 1,089,680
-------------
TOTAL ALABAMA................ 9,458,641
-------------
ALASKA (1.1%)
2,000 Anchorage, (Prerefunded, due
07/01/02), MBIA Insured........ GO Aaa/AAA 07/01/01(a) 6.600 2,139,640
1,075 Anchorage, (Callable, Refunding,
due 06/01/03), AMBAC Insured... GO Aaa/AAA 06/01/99(a) 7.100 1,095,167
1,000 Anchorage, (Series A), AMBAC
Insured........................ GO Aaa/AAA 02/01/00 6.850 1,033,850
3,000 North Slope Borough, (Series A),
MBIA Insured................... GO Aaa/AAA 06/30/00 5.550 3,086,670
2,200 North Slope Borough, Zero Coupon,
(Capital Appreciation, Series
B), MBIA Insured............... GO Aaa/AAA 06/30/01 3.570(y) 2,024,858
-------------
TOTAL ALASKA................. 9,380,185
-------------
ARIZONA (1.8%)
8,880 Arizona Transportation Board,
(Excise Tax Revenue, Maricopa
County Regional Area, Series
A)............................. RB Aa2/AA- 07/01/02 5.000 9,232,270
1,000 Maricopa County School District
#11, (Peoria Unified School
Improvement, Callable,
Prerefunded, Series H, due
07/01/05), MBIA Insured........ GO Aaa/AAA 07/01/99(a) 7.000 1,078,690
1,750 Phoenix, (Refunding, Series C)... GO Aa1/AA+ 07/01/02 6.375 1,896,912
3,315 Salt River Project, (Agricultural
Improvement & Power District,
Electric System Revenue,
Refunding, Series A)........... RB Aa2/AA 01/01/06 6.000 3,690,788
-------------
TOTAL ARIZONA................ 15,898,660
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (3.4%)
$ 6,000 California....................... GO Aa3/A+ 02/01/08 6.500% $ 7,033,620
5,210 California....................... GO Aa3/A+ 10/01/09 6.000 5,964,043
2,520 California Department of Water
Resources, (Central Valley
Project, Water Systems Service,
Refunding, Series J-1)......... RB Aa2/AA 12/01/12 7.000 3,177,997
2,750 California Pollution Control
Financing Authority, (PCR,
Laidlaw Environmental,
Refunding, Series A)........... RB NR/NR 07/01/07 6.700 2,925,037
542 Kaweah Delta Hospital District,
Tulare County, (Series D)...... PP NR/A+ 06/01/14 4.250 543,355
1,049 Kaweah Delta Hospital District,
Tulare County, (Series E)...... PP NR/A+ 06/01/14 5.250 1,070,273
1,541 Kaweah Delta Hospital District,
Tulare County, (Series G)...... PP NR/A+ 06/01/04 6.400 1,675,145
2,500 Los Angeles County Public Works
Financing Authority, (Lease
Revenue, Refunding, Series A),
MBIA Insured................... RB Aaa/AAA 09/01/06 6.000 2,826,525
4,200 Los Angeles County Public Works
Financing Authority, (Regional
Park and Open Space District,
Refunding, Series A)........... RB Aa3/AA 10/01/07 5.375 4,594,506
-------------
TOTAL CALIFORNIA............. 29,810,501
-------------
COLORADO (0.2%)
1,295 Adams County School District #12,
FGIC Insured................... GO Aaa/AAA 12/15/06 6.000 1,457,678
-------------
CONNECTICUT (0.4%)
2,815 Connecticut, (Special Tax
Obligation, Transportation
Infrastructure, Prerefunded,
Series A, due 06/01/04)........ RB NR/AA- 06/01/03(a) 6.600 3,126,902
-------------
DELAWARE (0.3%)
2,650 Delaware Transportation
Authority, (Transportation
System Revenue, Refunding),
AMBAC Insured(t)............... RB Aaa/AAA 07/01/00 5.250 2,719,589
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
DISTRICT OF COLUMBIA (4.2%)
$ 220 District of Columbia, (Escrowed
to Maturity, Prerefunded,
Series A), MBIA-IBC Insured.... GO NR/AAA 06/01/07 6.000% $ 246,525
60 District of Columbia, (Escrowed
to Maturity, Prerefunded,
Series B), MBIA Insured........ GO NR/AAA 06/01/02 6.000 64,273
910 District of Columbia, (Escrowed
to Maturity, Prerefunded,
Series C), FGIC Insured........ GO Aaa/AAA 12/01/03 5.250 966,738
6,590 District of Columbia, (Unrefunded
Balance, Refunding, Series C),
FGIC Insured................... GO Aaa/AAA 12/01/03 5.250 6,986,784
2,780 District of Columbia, (Unrefunded
Balance, Series A), MBIA-IBC
Insured........................ GO Aaa/AAA 06/01/07 6.000 3,105,538
2,540 District of Columbia, (Unrefunded
Balance, Series B), MBIA
Insured........................ GO Aaa/AAA 06/01/02 6.000 2,711,298
5,000 Metropolitan Airport, (General
Airport Revenue, Callable,
Refunding, Series B, due
10/01/09), MBIA Insured........ RB Aaa/AAA 10/01/08(a) 5.250 5,289,150
3,665 Metropolitan Airport, (General
Airport Revenue, Callable,
Series A, due 10/01/10), FGIC
Insured........................ RB Aaa/AAA 10/01/00(a) 7.250 3,903,005
1,200 Metropolitan Airport, (General
Airport Revenue, Series B),
FGIC Insured................... RB Aaa/AAA 10/01/00 5.250 1,233,420
1,000 Metropolitan Airport, (General
Airport Revenue, Series B),
FGIC Insured................... RB Aaa/AAA 10/01/03 5.750 1,076,020
4,015 Metropolitan Airport, (General
Airport Revenue, Series B),
FGIC Insured................... RB Aaa/AAA 10/01/05 6.000 4,436,013
5,745 Metropolitan Airport, (General
Airport Revenue, Series B),
FGIC Insured................... RB Aaa/AAA 10/01/06 6.000 6,387,061
-------------
TOTAL DISTRICT OF COLUMBIA... 36,405,825
-------------
FLORIDA (4.9%)
5,765 Dade County School District,
(Refunding), MBIA Insured...... GO Aaa/AAA 07/15/05 6.000 6,427,341
1,535 Florida Board of Education,
(Capital Outlay, Callable,
Escrowed to Maturity,
Refunding, Series C, due
06/01/01)...................... GO Aaa/AAA 03/31/99(a) 7.000 1,629,326
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 465 Florida Board of Education,
(Capital Outlay, Callable,
Unrefunded Balance, Series C,
due 06/01/01).................. GO Aa2/AA+ 04/01/99(a) 7.000% $ 472,049
2,625 Florida Board of Education,
(Lottery Revenue, Series C),
FGIC Insured................... RB Aaa/AAA 07/01/00 4.000 2,655,397
2,000 Jacksonville Health Facilities
Authority, (Hospital Revenue,
Charity Obligated Group,
Refunding, Series A), MBIA
Insured........................ RB Aaa/AAA 08/15/06 5.500 2,186,380
10,000 Miami, Dade County School
District, (Refunding), FSA
Insured........................ GO Aaa/AAA 08/01/11 5.375 10,842,000
10,830 Miami, Dade County, (Aviation
Revenue, Callable, Series W,
due 10/01/05), AMBAC Insured... RB Aaa/AAA 10/01/02(a) 5.900 11,708,530
2,310 Miami, Dade County, (Aviation
Revenue, Refunding, Series A),
FGIC Insured................... RB Aaa/AAA 10/01/05 5.000 2,436,750
2,000 Tampa, (Health System Revenue,
Catholic Health, Refunding,
Series A-1), MBIA Insured...... RB Aaa/AAA 11/15/04 5.250 2,142,640
2,000 Volusia County School District,
(Callable, Refunding, due
08/01/02), FGIC Insured........ GO Aaa/AAA 08/01/01(a) 6.100 2,150,140
-------------
TOTAL FLORIDA................ 42,650,553
-------------
GEORGIA (4.0%)
2,630 Fulton County School District,
(Refunding).................... GO Aa2/AA 05/01/14 6.375 3,087,778
1,250 Georgia Municipal Electric
Authority, (Power General
Revenue, Refunding, Series
A)............................. RB A3/A 01/01/12 6.500 1,461,937
4,500 Georgia Municipal Electric
Authority, (Power Revenue,
Crossover Refunding, Series
DD), AMBAC-TCRS Insured........ RB Aaa/AAA 01/01/08 7.000 5,389,695
6,000 Georgia, (Series B).............. GO Aaa/AAA 03/01/07 7.200 7,263,120
3,000 Georgia, (Series B).............. GO Aaa/AAA 03/01/10 6.300 3,517,530
4,470 Georgia, (Series C).............. GO Aaa/AAA 07/01/11 5.700 5,026,113
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
GEORGIA (CONTINUED)
$ 2,500 Gwinnett County School District,
(Refunding, Series B).......... GO Aa1/AA+ 02/01/08 6.400% $ 2,918,300
5,000 Metropolitan Atlanta Rapid
Transit Authority, (Sales Tax
Revenue, Refunding, Series P),
AMBAC Insured.................. RB Aaa/AAA 07/01/11 6.250 5,840,250
-------------
TOTAL GEORGIA................ 34,504,723
-------------
HAWAII (1.1%)
5,000 Hawaii, (Refunding, Series CO),
FGIC Insured................... GO Aaa/AAA 03/01/02 6.000 5,318,750
2,000 Hawaii, (Series BZ).............. GO A1/A+ 10/01/12 6.000 2,262,660
510 Honolulu, (Escrowed to Maturity,
Prerefunded, Series B)......... GO NR/AA 10/01/11 5.500 560,500
1,490 Honolulu, (Unrefunded Balance,
Series B)...................... GO Aa2/AA 10/01/11 5.500 1,625,501
-------------
TOTAL HAWAII................. 9,767,411
-------------
ILLINOIS (8.0%)
3,000 Chicago Board of Education,
(Chicago School Reform), AMBAC
Insured........................ GO Aaa/AAA 12/01/09 6.750 3,580,230
1,000 Chicago Board of Education,
(Lease Certificates, Series A),
MBIA Insured................... RB Aaa/AAA 01/01/06 6.125 1,113,180
4,130 Chicago Board of Education,
(Lease Certificates, Series A),
MBIA Insured................... RB Aaa/AAA 01/01/07 6.125 4,626,839
3,000 Chicago, (Refunding, Series A-2),
AMBAC Insured.................. GO Aaa/AAA 01/01/11 6.000 3,399,360
3,280 Cook County, (Refunding, Series
C), FGIC Insured............... GO Aaa/AAA 11/15/04 5.800 3,577,430
10,000 Cook County, Community School
District #54, Schaumburg
Township, Zero Coupon, (Capital
Appreciation, Prerefunded,
Series B, due 01/01/11), FGIC
Insured........................ GO Aaa/AAA 01/01/03(a) 3.882(y) 5,162,100
1,375 Du Page County, (Alternative
Revenue, Jail Project,
Prerefunded, due 01/01/21)..... GO Aaa/AAA 01/01/02(a) 6.550 1,507,907
4,440 Hoffman Estates, Tax Increment
Revenue, (Economic Development
Project Area, Refunding), AMBAC
Insured........................ RB Aaa/AAA 11/15/04 5.500 4,775,309
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,000 Illinois Development Finance
Authority...................... PP NR/NR 08/01/28 4.900% $ 3,000,000
3,000 Illinois Sales Tax Revenue,
(Refunding, Series Q).......... RB Aa2/AAA 06/15/09 6.000 3,386,970
4,175 Illinois Sales Tax Revenue,
(Refunding, Series Q).......... RB Aa2/AAA 06/15/12 6.000 4,745,597
8,705 Illinois, (Refunding)............ GO Aa2/AA 06/01/04 5.000 9,160,707
180 Metropolitan Pier & Exposition
Authority, (Dedicated State Tax
Revenue, McCormick Place
Expansion Project, Escrowed to
Maturity, Prerefunded, Series
A)............................. RB NR/AA- 06/15/06 8.500 230,069
2,320 Metropolitan Pier & Exposition
Authority, (Dedicated State Tax
Revenue, McCormick Place
Expansion Project, Unrefunded
Balance, Series A)............. RB A1/AA- 06/15/06 8.500 2,942,270
5,420 Metropolitan Pier & Exposition
Authority, Zero Coupon,
(Dedicated State Tax Revenue,
Capital Appreciation, McCormick
Place Expansion Project,
Refunding), MBIA Insured....... RB Aaa/AAA 06/15/14 4.971(y) 2,556,506
11,000 Metropolitan Pier & Exposition
Authority, Zero Coupon,
(Dedicated State Tax Revenue,
Capital Appreciation, McCormick
Place Expansion Project,
Refunding, Series A), MBIA
Insured........................ RB Aaa/AAA 12/15/11 4.701(y) 6,067,930
9,705 Metropolitan Pier & Exposition
Authority, Zero Coupon,
(Dedicated State Tax Revenue,
Capital Appreciation, McCormick
Place Expansion Project,
Refunding, Series A), MBIA
Insured........................ RB Aaa/AAA 06/15/12 4.801(y) 5,163,060
2,810 Regional Transportation
Authority, (Series D), FGIC
Insured........................ RB Aaa/AAA 06/01/07 7.750 3,466,585
1,000 University of Illinois,
(Callable, Escrowed to
Maturity, due 10/01/01)........ RB Aaa/AAA 04/01/99(a) 6.000 1,063,620
-------------
TOTAL ILLINOIS............... 69,525,669
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
INDIANA (2.0%)
$ 3,955 Indiana Health Facilities
Financing Authority, (Hospital
Revenue, Sisters of St. Francis
Health Services, Refunding,
Series A), MBIA Insured........ RB Aaa/AAA 11/01/05 5.500% $ 4,269,739
2,000 Indiana Municipal Power Agency,
(Power Supply System Revenue,
Refunding, Series B), MBIA
Insured........................ RB Aaa/AAA 01/01/13 6.000 2,261,720
3,915 Indiana Transportation Finance
Authority, (Highway Revenue,
Series A), AMBAC Insured....... RB Aaa/AAA 06/01/09 5.250 4,148,725
6,000 Indiana Transportation Finance
Authority, (Highway Revenue,
Series A), MBIA Insured........ RB Aaa/AAA 12/01/07 5.250 6,426,480
-------------
TOTAL INDIANA................ 17,106,664
-------------
KENTUCKY (0.3%)
2,765 Kentucky Turnpike Authority,
(Road Recovery Revenue,
Callable, Escrowed to Maturity,
due 07/01/02).................. RB Aaa/NR 03/31/99(a) 7.100 2,921,637
-------------
LOUISIANA (0.4%)
3,385 Louisiana Public Facilities
Authority, (Hospital Revenue,
Pendleton Memorial,
Prerefunded, due 06/01/22)..... RB NR/AAA 06/01/02(a) 6.750 3,757,756
-------------
MARYLAND (1.1%)
5,435 Maryland Health & Higher
Educational Facilities
Authority, (John Hopkins
University, Refunding)......... RB Aa2/AA- 07/01/03 5.750 5,890,073
3,000 Maryland, (Callable, 3rd Series,
due 07/15/03).................. GO Aaa/AAA 07/15/01(a) 6.400 3,194,820
-------------
TOTAL MARYLAND............... 9,084,893
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
MASSACHUSETTS (4.2%)
$ 5,650 Massachusetts Bay Transportation
Authority, (General
Transportation System,
Refunding, Series A)........... RB Aa3/AA- 03/01/08 7.000% $ 6,841,415
3,700 Massachusetts Bay Transportation
Authority, (General
Transportation System,
Refunding, Series A), MBIA
Insured........................ RB Aaa/AAA 03/01/10 5.500 4,074,292
1,495 Massachusetts State College
Building Authority, (Refunding,
Series A)...................... RB Aa3/AA- 05/01/11 7.500 1,917,681
2,000 Massachusetts State Water
Resource Authority, (General
Series A), FSA Insured......... RB Aaa/AAA 08/01/10 5.500 2,193,120
10,000 Massachusetts State Water
Resource Authority, (Series
A)............................. RB A1/A 07/15/08 6.500 11,651,600
7,300 Massachusetts, (Refunding, Series
A), AMBAC Insured.............. GO Aaa/AAA 08/01/10 5.750 8,223,231
1,060 Wareham, (Prerefunded, due
01/15/03), AMBAC Insured....... GO Aaa/AAA 01/15/01(a) 6.800 1,155,474
-------------
TOTAL MASSACHUSETTS.......... 36,056,813
-------------
MICHIGAN (1.6%)
3,700 Kent County, (Refuse Disposal
System, Callable, Refunding,
Series A, due 11/01/08)........ GO Aa2/AAA 11/01/06(a) 5.000 3,916,487
6,045 Michigan State Building
Authority, (Facilites Program,
Refunding, Series I), AMBAC
Insured........................ RB Aaa/AAA 10/01/04 6.000 6,671,262
2,905 Michigan State Hospital Finance
Authority Revenue, (Mercy
Health Services, Refunding,
Series T)...................... RB Aa3/AA- 08/15/04 5.750 3,149,514
-------------
TOTAL MICHIGAN............... 13,737,263
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
MINNESOTA (1.9%)
$ 5,075 Minneapolis & St. Paul,
(Metropolitan Community Airport
Revenue, Callable, Series B,
due 01/01/09), AMBAC Insured... RB Aaa/AAA 01/01/08(a) 5.500% $ 5,507,644
5,000 University of Minnesota,
(Refunding, Series A).......... RB Aa2/AA 07/01/10 5.750 5,609,500
5,000 University of Minnesota,
(Refunding, Series A).......... RB Aa2/AA 07/01/15 5.750 5,514,800
-------------
TOTAL MINNESOTA.............. 16,631,944
-------------
MISSISSIPPI (2.1%)
10,940 Mississippi, (Escrowed to
Maturity, Callable,
Refunding)..................... GO Aaa/AAA 02/01/08 6.200 12,399,068
5,065 Mississippi, (Gaming County
Highway Improvement, Series
A)............................. GO Aa3/AA 07/01/05 5.250 5,432,668
-------------
TOTAL MISSISSIPPI............ 17,831,736
-------------
MISSOURI (0.5%)
4,000 St. Louis County Regional
Convention & Sports Complex
Authority, (Prerefunded, Series
B, due 08/15/21)............... RB Aaa/AAA 08/15/03(a) 7.000 4,536,920
-------------
NEBRASKA (2.2%)
4,000 Nebraska Public Power District,
(Nuclear Facilities,
Refunding)..................... RB A1/A+ 07/01/00 5.200 4,090,400
2,350 Nebraska Public Power District,
(Refunding, General Series A),
MBIA Insured................... RB Aaa/AAA 01/01/04 5.250 2,491,681
7,955 Nebraska Public Power District,
(Refunding, General Series A),
MBIA Insured................... RB Aaa/AAA 01/01/07 5.250 8,529,828
3,720 University of Nebraska
(Facilities Corporation,
Deferred Maintenance
Project)....................... RB Aa2/AA- 07/15/06 5.250 4,001,939
-------------
TOTAL NEBRASKA............... 19,113,848
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
NEVADA (4.4%)
$ 500 Carson City School District,
(Prerefunded, due 04/01/03),
FGIC Insured................... GO Aaa/AAA 04/01/00(a) 6.750% $ 528,305
8,000 Clark County School District,
(Refunding).................... GO Aaa/AAA 06/15/14 5.500 8,690,720
8,200 Clark County School District,
(Series A), MBIA Insured....... GO Aaa/AAA 06/01/11 7.000 10,146,598
3,000 Clark County, (Passenger
Facilities Charge Revenue, Las
Vegas McCarran International
Airport, Series A)............. RB A/A 07/01/08 6.250 3,424,320
1,685 Las Vegas, (Clark County Library
District, Prerefunded, Series
A, due 06/01/03), FGIC
Insured........................ GO Aaa/AAA 06/01/01(a) 6.600 1,816,076
1,200 Las Vegas, (Clark County Library
District, Prerefunded, Series
A, due 06/01/04), FGIC
Insured........................ GO Aaa/AAA 06/01/01(a) 6.700 1,295,916
1,280 Las Vegas, (Clark County Library
District, Callable, Refunding,
Series B, due 08/01/04), FGIC
Insured........................ GO Aaa/AAA 08/01/01(a) 6.700 1,375,770
1,330 Nevada, (Prison Facilities,
Prerefunded, due 08/01/04)..... GO Aa2/AA 08/01/00(a) 7.000 1,422,648
6,015 Nevada, (Refunding, Series
A-1)........................... GO Aa2/AA 05/15/10 6.000 6,868,107
1,985 Nevada, (Refunding, Series
A-2)........................... GO Aa2/AA 05/15/10 6.000 2,266,533
-------------
TOTAL NEVADA................. 37,834,993
-------------
NEW HAMPSHIRE (0.9%)
4,900 New Hampshire Higher Educational
& Health Facilities Authority,
(Dartmouth College,
Refunding)..................... RB Aaa/NR 06/01/07 6.750 5,805,422
1,720 New Hampshire, (Prerefunded,
Series A, due 06/15/03)........ GO Aa/AA+ 06/15/01(a) 6.600 1,869,692
-------------
TOTAL NEW HAMPSHIRE.......... 7,675,114
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
NEW JERSEY (5.5%)
$ 4,180 Jersey City, (Refunding, Series
A)............................. GO Aa3/AA 10/01/11 6.250% $ 4,862,594
5,000 New Jersey....................... GO Aa1/AA+ 02/01/03 4.500 5,135,100
7,000 New Jersey Economic Development
Authority, (Market Transition
Facilities Revenue, Sr. Lien,
Series A), MBIA Insured(t)..... RB Aaa/AAA 07/01/02 5.400 7,375,760
1,500 New Jersey Sports & Exposition
Authority, (Sports Complex,
Callable, Escrowed to Maturity,
Refunding)..................... RB Aa1/NR 01/01/00 8.100 1,561,350
6,000 New Jersey Transportation
Authority, (Refunding, Series
B), MBIA Insured(t)............ RB Aaa/AAA 06/15/05 6.000 6,681,180
7,500 New Jersey Transportation
Authority, (Refunding, Series
B), MBIA Insured............... RB Aaa/AAA 06/15/10 6.500 8,923,200
8,500 New Jersey Transportation
Authority, (Series A).......... RB Aa2/AA- 06/15/06 5.000 8,982,800
2,500 New Jersey Turnpike Authority,
(Refunding, Series A), MBIA-IBC
Insured........................ RB Aaa/AAA 01/01/00 6.200 2,563,750
1,000 New Jersey Turnpike Authority,
(Refunding, Series A), MBIA-IBC
Insured........................ RB Aaa/AAA 01/01/01 5.700 1,039,290
-------------
TOTAL NEW JERSEY............. 47,125,024
-------------
NEW MEXICO (0.5%)
4,390 New Mexico, (Highway Commission
Tax Revenue, Subordinated Lien,
Series B)...................... RB A1/AA 06/15/07 4.500 4,454,094
-------------
NEW YORK (8.8%)
4,000 Metropolitan Transportation
Authority, (Transportation
Facilities Revenue,
Prerefunded, Series J, due
07/01/10), FGIC Insured........ RB Aaa/AAA 07/01/02(a) 6.375 4,416,000
1,970 Monroe County, (Public
Improvement, Prerefunded,
Series 1995, due 06/01/09),
AMBAC Insured.................. GO Aaa/AAA 06/01/08(a) 6.000 2,252,616
1,340 Monroe County, (Public
Improvement, Prerefunded,
Series 1995, due 06/01/10),
AMBAC Insured.................. GO Aaa/AAA 06/01/08(a) 6.000 1,532,236
130 Monroe County, (Public
Improvement, Callable,
Unrefunded Balance, due
06/01/09), AMBAC Insured....... GO Aaa/AAA 06/01/08(a) 6.000 148,650
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 75 Monroe County, (Public
Improvement, Callable,
Unrefunded Balance, Series
1995, due 06/01/10), AMBAC
Insured........................ GO Aaa/AAA 06/01/08(a) 6.000% $ 85,760
2,000 Municipal Assistance Corp. for
City of New York, (Refunding,
Series E)...................... RB Aa2/AA 07/01/06 6.000 2,237,140
95 New York City, (Escrowed to
Maturity, Refunding, Series H,
Subseries H-1)................. GO Aaa/A- 08/01/01 5.500 99,578
1,465 New York City, (Escrowed to
Maturity, Series B)............ GO Aaa/AAA 06/01/01 8.000 1,609,317
805 New York City, (Escrowed to
Maturity, Series F)............ GO Aaa/A- 02/15/02 6.100 861,994
2,645 New York City, (Refunding, Series
A)............................. GO A3/A- 08/01/02 5.750 2,807,588
7,000 New York City, (Refunding, Series
A)............................. GO A3/A- 08/01/04 6.750 7,908,320
1,000 New York City, (Refunding, Series
E), FGIC-TCRS Insured.......... GO Aaa/AAA 02/15/06 6.500 1,140,000
3,000 New York City, (Refunding, Series
F)............................. GO A3/A- 08/01/06 5.500 3,226,470
4,480 New York City, (Refunding, Series
G)............................. GO A3/A- 08/01/03 5.000 4,670,355
3,425 New York City, (Series F)........ GO A3/A- 02/15/03 6.200 3,702,905
2,000 New York City, (Series G), AMBAC
Insured........................ GO Aaa/AAA 10/15/07 6.000 2,249,260
4,580 New York City, (Unrefunded
Balance, Refunding, Series H,
Subseries H-1)................. GO A3/A- 08/01/01 5.500 4,777,993
5,000 New York State Dormitory
Authority, (FHA Hospital New
York & Presbyterian, Callable,
Refunding, due 08/01/13),
AMBAC/FHA Insured.............. RB Aaa/AAA 02/01/08(a) 4.400 5,062,900
2,850 New York State Dormitory
Authority, (Secured Hospital,
Interfaith Medical Center,
Series D)...................... RB Baa1/BBB+ 02/15/04 5.500 3,026,102
5,290 New York State Local Government
Assistance Corp., (Callable,
Refunding, Series A, due
04/01/08)...................... RB A3/A+ 04/01/07(a) 6.000 5,936,650
2,000 New York State Local Government
Assistance Corp., (Refunding,
Series A), AMBAC-TCRS
Insured........................ RB Aaa/AAA 04/01/06 6.000 2,237,960
1,500 New York State Urban Development
Corp., (Correctional Capital
Facilities, Prerefunded, Series
1, due 01/01/14)............... RB Aaa/NR 01/01/00(a) 7.750 1,586,355
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 4,000 Triborough Bridge & Tunnel
Authority, (Callable,
Refunding, Series V, due
01/01/05), FGIC-TCRS Insured... RB Aaa/AAA 01/01/01(a) 6.875% $ 4,282,960
8,700 Triborough Bridge & Tunnel
Authority, (General Purpose,
Refunding, Series X)(t)........ RB Aa3/A+ 01/01/12 6.625 10,428,168
-------------
TOTAL NEW YORK............... 76,287,277
-------------
NORTH CAROLINA (0.4%)
3,280 University of North Carolina,
(System Pool Revenue, Callable,
Series B, due 10/01/09), MBIA
Insured........................ RB Aaa/AAA 10/01/08(a) 5.000 3,443,639
-------------
OHIO (0.9%)
2,000 Ohio State Building Authority,
(State Facilities, Admin
Building Fund Project,
Callable, Series A, due
10/01/09)...................... RB Aa3/AA- 10/01/08(a) 5.250 2,148,740
2,000 Ohio State Building Authority,
(State Facilities, Admin
Building Fund Project, Series
A)............................. RB Aa3/AA- 10/01/06 5.500 2,182,320
3,005 Ohio Water Development Authority,
(Callable, Escrowed to
Maturity, Refunding, due
12/01/10)...................... RB Aaa/AAA 06/01/99(a) 9.375 3,776,774
-------------
TOTAL OHIO................... 8,107,834
-------------
OREGON (0.6%)
5,000 Portland, (Portland International
Airport Revenue, Series 12C),
FGIC Insured................... RB Aaa/AAA 07/01/05 5.000 5,250,600
-------------
PENNSYLVANIA (4.4%)
1,175 Bethel Park School District,
(Prerefunded, Series B, due
02/01/02), AMBAC Insured....... GO Aaa/AAA 02/01/00(a) 6.550 1,211,637
970 Pennsylvania Higher Education
Assistance Agency, (Student
Loan Revenue, Refunding, Series
A), FGIC Insured............... RB Aaa/AAA 12/01/00 6.800(v) 1,018,597
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 1,310 Pennsylvania Higher Education
Facilities Authority, (College
& University Revenue,
University of Pennsylvania,
Refunding, Series A)........... RB Aa2/AA 09/01/02 6.500% $ 1,435,053
2,800 Pennsylvania Higher Education
Facilities Authority, (Health
Services Revenue, University of
Pennsylvania Health Services,
Refunding, Series A)........... RB A1/AA 01/01/06 6.000 3,066,700
1,500 Pennsylvania, (2nd Series A,
Prerefunded, due 11/01/04),
MBIA Insured................... GO Aaa/AAA 11/01/01(a) 6.500 1,635,825
14,525 Pennsylvania, (2nd Series)....... GO Aa3/AA 08/01/04 5.000 15,329,830
1,000 Pennsylvania, (Refunding and
Projects, 1st Series A),
AMBAC-TCRS Insured............. GO Aaa/AAA 01/01/01 6.600 1,054,910
4,250 Philadelphia Authority for
Industrial Development,
(Academy of Natural Sciences,
due 01/01/18).................. PP NR/NR 07/01/01(a) 4.750 4,308,693
8,785 Philadelphia Authority for
Industrial Development,
(Airport Revenue, Philadelphia
Airport System Project, Series
A), FGIC Insured............... RB Aaa/AAA 07/01/04 5.000 9,144,219
-------------
TOTAL PENNSYLVANIA........... 38,205,464
-------------
RHODE ISLAND (1.0%)
4,580 Rhode Island, (Construction
Capital Development Loan,
Refunding, Series A), FGIC
Insured........................ GO Aaa/AAA 07/15/07 5.000 4,853,518
3,785 Rhode Island, (Construction
Capital Development Loan,
Series B)...................... GO A1/AA- 05/15/00 6.000 3,912,668
-------------
TOTAL RHODE ISLAND........... 8,766,186
-------------
SOUTH CAROLINA (1.6%)
1,620 Charleston County, (Callable, due
06/01/07)...................... GO Aa3/AA 06/01/04(a) 5.625 1,751,560
5,000 Greenville County School
District, (Refunding) (WI)..... GO Aa1/AA 03/01/01 4.000 5,049,650
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
SOUTH CAROLINA (CONTINUED)
$ 5,700 Greenville County School
District, (Refunding) (WI)..... GO Aa1/AA 03/01/02 4.000% $ 5,751,243
1,000 Piedmont Municipal Power Agency,
(Electric Power Revenue,
Escrowed to Maturity,
Refunding), MBIA Insured....... RB Aaa/AAA 01/01/08 6.200 1,146,180
-------------
TOTAL SOUTH CAROLINA......... 13,698,633
-------------
TENNESSEE (0.5%)
3,500 Rutherford County, (Capital
Outlay Notes, Series A)........ GO Aa2/AA 05/01/07 6.500 4,073,020
-------------
TEXAS (7.9%)
1,500 Addison, (Callable, Refunding,
due 09/01/00), FGIC Insured.... GO Aaa/AAA 04/01/99(a) 6.250 1,503,000
1,000 Arlington, (Callable, due
08/01/00), AMBAC Insured....... GO Aaa/AAA 08/01/99(a) 6.850 1,014,110
1,500 Austin Utilities System,
(Callable, Escrowed to
Maturity, due 10/01/01)........ RB Aaa/AAA 04/01/99(a) 6.500 1,611,870
7,500 Austin Utilities System,
(Refunding, Series A), FSA
Insured........................ RB Aaa/AAA 11/15/03 5.750 8,134,425
2,260 Corpus Christi Independent School
District, (Refunding), PSFG
Insured........................ GO Aaa/AAA 08/15/05 6.000 2,509,142
1,305 Dallas County Flood Control
District #1, (Prerefunded, due
04/01/10)...................... GO Aaa/NR 04/01/08(a) 9.250 1,781,012
1,650 El Paso Independent School
District, (Prerefunded, due
07/01/03), PSFG Insured........ GO Aaa/AAA 07/01/01(a) 6.550 1,763,372
1,700 Harris County, (Prerefunded, due
11/01/03), MBIA Insured........ GO Aaa/AAA 11/01/99(a) 7.000 1,744,659
3,000 Houston Independent School
District, (Refunding, Series
A), PSFG Insured............... GO Aaa/AAA 08/15/01 5.400 3,139,860
13,775 Houston, (Airport System Revenue,
Subordinated Lien, Refunding,
Series B), FGIC Insured........ RB Aaa/AAA 07/01/08 5.000 14,372,973
3,805 Lewisville Independent School
District, (Refunding), PSFG
Insured........................ GO Aaa/NR 08/15/03 6.000 4,136,644
2,325 Northwest Independent School
District, Zero Coupon, (Capital
Appreciation, Refunding), PSFG
Insured........................ GO Aaa/NR 08/15/03 4.036(y) 1,944,700
2,320 Northwest Independent School
District, Zero Coupon, (Capital
Appreciation, Refunding), PSFG
Insured........................ GO Aaa/NR 08/15/04 4.134(y) 1,854,747
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 2,000 Plano Independent School
District, (Prerefunded, Series
B, due 02/15/04), FGIC
Insured........................ GO Aaa/AAA 02/15/01(a) 6.550% $ 2,117,840
1,500 San Antonio, (General
Improvement, Refunding)........ GO Aa2/AA+ 08/01/07 6.000 1,685,460
2,000 Tarrant County Health Facilities
Development Corp., (Texas
Health Resources System, Health
System Revenue, Refunding,
Series A), MBIA Insured........ RB Aaa/AAA 02/15/04 5.500 2,136,520
2,000 Texas, (Public Finance Authority,
Prerefunded, due 10/01/02)..... GO NR/AA 10/01/00(a) 6.300 2,091,440
1,000 Texas, (Public Finance Authority,
Prerefunded, due 10/01/05)..... GO NR/AA 10/01/00(a) 6.500 1,047,980
4,000 Texas, (Public Finance Authority,
Refunding, Series B)........... GO Aa2/AA 10/01/03 6.000 4,359,680
6,180 University of Texas, (Financing
System Revenue, Series A)...... RB Aa1/AAA 08/15/07 6.000 7,017,761
2,500 University of Texas, (Permanent
University Fund, Refunding).... RB Aaa/AAA 07/01/01 6.300 2,656,750
-------------
TOTAL TEXAS.................. 68,623,945
-------------
UTAH (2.6%)
1,625 Intermountain Power Agency, (Utah
Power Supply Revenue,
Refunding, Series B), MBIA
Insured........................ RB Aaa/AAA 07/01/09 6.500 1,905,118
4,155 Intermountain Power Agency, (Utah
Power Supply Revenue,
Refunding, Series C), MBIA
Insured(t)..................... RB Aaa/AAA 07/01/01 6.000 4,381,240
6,645 Intermountain Power Agency, (Utah
Power Supply Revenue,
Refunding, Series C), MBIA
Insured........................ RB Aaa/AAA 07/01/02 6.000 7,110,416
5,000 Utah Building Ownership
Authority, (State Facilities
Master Lease PG-C, Refunding),
FSA Insured.................... RB Aaa/AAA 05/15/11 5.500 5,439,250
3,300 Utah, (Callable, Series F, due
07/01/08)...................... GO Aaa/AAA 07/01/07(a) 5.000 3,505,821
-------------
TOTAL UTAH................... 22,341,845
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
VIRGINIA (2.7%)
$ 10,000 Fairfax County, (Industrial
Development Authority Revenue,
Prerefunded, due 08/29/23)..... RB Aaa/AA 08/28/01(a) 6.801% $ 10,943,500
5,000 Virginia Public Building
Authority, (Facilities Revenue,
Refunding, Series A)........... RB Aa2/AA 08/01/08 5.000 5,293,900
2,000 Virginia Public School Authority,
(Prerefunded, Series A, due
08/01/04)...................... RB Aa2/AA 08/01/01(a) 6.500 2,176,720
5,000 Virginia Public School Authority,
(Refunding).................... RB Aa/AA 01/01/02 6.000 5,315,450
-------------
TOTAL VIRGINIA............... 23,729,570
-------------
WASHINGTON (5.7%)
1,555 King & Snohomish Counties School
District #417, (Callable, due
12/01/02), FGIC Insured........ GO Aaa/AAA 12/01/00(a) 6.600 1,627,976
605 King County, (Escrowed to
Maturity, Prerefunded, Series
B)............................. GO Aa1/AA+ 01/01/01 6.700 639,503
5,750 King County, (Unrefunded Balance,
Series B)(t)................... GO Aa1/AA+ 01/01/01 6.700 6,075,795
1,000 Pierce County School District
#320, (Prerefunded, due
12/01/02), MBIA-IBC Insured.... GO Aaa/AAA 12/01/01(a) 6.600 1,081,740
3,270 Seattle, (Limited Tax, Refunding,
Series B)...................... GO Aa1/AA+ 03/01/11 5.500 3,591,964
2,955 Seattle, (Municipal Sewer
Revenue, Prerefunded, Series T,
due 01/01/31).................. RB Aaa/AA- 01/01/00(a) 6.875 3,104,168
1,250 Snohomish County School District
#2, (Callable, Refunding,
Series A, due 12/01/02),
MBIA-IBC Insured............... GO Aaa/AAA 06/01/01(a) 6.700 1,327,463
4,815 Washington Public Power Supply
System, (Nuclear Project #1,
Refunding, Series A), MBIA
Insured........................ RB Aaa/AAA 07/01/06 6.000 5,385,915
4,000 Washington Public Power Supply
System, (Nuclear Project #1,
Refunding, Series B)........... RB Aa1/AA- 07/01/03 5.750 4,291,760
2,000 Washington Public Power Supply
System, (Nuclear Project #2,
Callable, Refunding, Series C,
due 07/01/01), FGIC Insured.... RB Aaa/AAA 01/01/01(a) 7.000 2,155,520
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 1,500 Washington Public Power Supply
System, (Nuclear Project #2,
Callable, Refunding, Series C,
due 07/01/02).................. RB Aa1/AA- 01/01/01(a) 7.500% $ 1,624,440
2,000 Washington Public Power Supply
System, (Nuclear Project #2,
Refunding, Series A)........... RB Aa1/AA- 07/01/06 7.250 2,375,900
5,265 Washington Public Power Supply
System, (Nuclear Project #2,
Refunding, Series A)........... RB Aa1/AA- 07/01/01 6.300 5,576,951
4,000 Washington Public Power Supply
System, (Nuclear Project #2,
Refunding, Series A)........... RB Aa1/AA- 07/01/09 5.750 4,397,160
1,000 Washington, (Prerefunded, Series
B, due 08/01/02)............... GO Aa1/AA+ 08/01/00(a) 6.750 1,047,150
1,750 Washington, (Callable, Refunding,
Series R-92-A, due 09/01/02)... GO Aa1/AA+ 09/01/01(a) 6.300 1,870,838
3,075 Washington, (Series A)........... GO Aa1/AA+ 01/01/07 5.250 3,290,834
-------------
TOTAL WASHINGTON............. 49,465,077
-------------
WEST VIRGINIA (0.5%)
1,000 Berkeley County Board of
Education, (Escrowed to
Maturity), BIG Insured......... GO Aaa/AAA 04/01/01 7.300 1,077,560
3,000 West Virginia Public Energy
Authority, (Morgantown
Association Project, Callable,
Series A, due 07/01/08), LOC
Swiss Bank Corp................ RB Aa1/AA+ 01/01/06(a) 5.050(v) 3,067,530
-------------
TOTAL WEST VIRGINIA.......... 4,145,090
-------------
WISCONSIN (2.6%)
4,160 Milwaukee County Wisconsin, Zero
Coupon (Capital Appreciation,
Refunding, Series A), FGIC
Insured........................ GO Aaa/AAA 12/01/10 4.461(y) 2,475,699
1,500 Racine Unified School District,
(Prerefunded, due 04/01/01),
AMBAC Insured.................. GO Aaa/AAA 04/01/99(a) 6.500 1,504,035
7,000 Wisconsin, (Refunding, Series
2)............................. GO Aa2/AA 05/01/06 5.000 7,391,790
5,470 Wisconsin, (Series A) (WI)....... GO Aa2/AA 05/01/02 4.000 5,531,373
5,000 Wisconsin, (Transportation
Revenue, Refunding, Series
A)............................. RB A1/AA- 07/01/06 4.600 5,143,950
-------------
TOTAL WISCONSIN.............. 22,046,847
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P RATING DATE RATE VALUE
- -------------- --------------------------------- -------- -------------- ------------ ------- -------------
<C> <S> <C> <C> <C> <C> <C>
WYOMING (0.4%)
$ 3,600 Platte County, (PCR, Basin
Electric Power Cooperative,
Refunding)..................... RB A2/A 01/01/06 4.950% $ 3,717,395
-------------
TOTAL LONG TERM INVESTMENTS (COST $816,301,812).................................. 854,477,458
-------------
SHORT-TERM INVESTMENTS (0.4%)
OTHER (0.4%)
2,290 Puttable Floating Options (Tax
Exempt Receipts, Callable,
Series SG P-5, due 07/02/27),
LIQ FAC-Societe Generale....... VRDN NR/A-1+C 03/04/99(b) 3.450 2,290,000
1,130 Puttable Floating Options (Tax
Exempt Receipts, Callable,
Series SG P-6, due 01/01/28),
LIQ FAC-Societe Generale....... VRDN NR/A-1+C 03/04/99(b) 3.450 1,130,000
-------------
TOTAL SHORT-TERM INVESTMENTS (COST $3,420,000)................................... 3,420,000
-------------
TOTAL INVESTMENTS (COST $819,721,812) (99.1%)........................................ 857,897,458
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%)......................................... 7,755,440
-------------
NET ASSETS (100.0%).................................................................. $ 865,652,898
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $819,721,812, for federal income
tax purposes at February 28, 1999, the aggregate gross unrealized appreciation
and depreciation was $38,851,016 and $675,370, respectively, resulting in net
unrealized appreciation of investments of $38,175,646.
(a) The date listed under the heading maturity date represents an optional
tender date. The actual maturity date is indicated in the security description.
(b) Variable Rate Demand Note tender dates and/or interest rates are reset at
specified intervals which coincide with their tender feature. The actual
maturity date is indicated in the security description.
(t) All or a portion of the security has been segregated as collateral for when
issued securities.
(v) Rate shown reflects current rate on variable or floating rate instrument.
(y) Yield to maturity.
AMBAC - Ambac Indemnity Corp., BIG-Bond Investors Guaranty Insurance Co., FGIC -
Financial Guaranty Insurance Co., FHA - Federal Housing Authority, FSA -
Financial Securities Assurance, GO - General Obligation, LIQ FAC - Liquidity
Facility, LOC - Letter of Credit, MBIA - Municipal Bond Assurance Corp, NR - Not
Rated, PCR - Pollution Control Revenue, PP - Private Placement, PSFG - Permanent
School Fund Guarantee, RB - Revenue Bond, TCRS - Transferable Custodial
Receipts, VRDN - Variable Rate Demand Note, WI - When and if issued securities.
Escrowed to Maturity: Bonds for which cash and/or securities have been deposited
with a third party to cover the payments of principal and interest at the
maturity which coincides with the first call date of the first bond.
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $819,721,812 ) $857,897,458
Cash 57,203
Receivable for Investments Sold 14,521,833
Interest Receivable 9,844,685
Prepaid Expenses and Other Assets 4,236
Prepaid Trustees' Fees 3,541
------------
Total Assets 882,328,956
------------
LIABILITIES
Payable for Investments Purchased 16,374,759
Advisory Fee Payable 200,877
Administrative Services Fee Payable 17,341
Administration Fee Payable 1,177
Fund Services Fee Payable 585
Accrued Expenses 81,319
------------
Total Liabilities 16,676,058
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $865,652,898
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $20,270,520
EXPENSES
Advisory Fee $1,242,479
Administrative Services Fee 113,026
Custodian Fees and Expenses 107,705
Professional Fees and Expenses 23,097
Fund Services Fee 10,177
Administration Fee 4,553
Trustees' Fees and Expenses 4,498
Miscellaneous 5,723
----------
Total Expenses 1,511,258
-----------
NET INVESTMENT INCOME 18,759,262
NET REALIZED GAIN ON INVESTMENTS 1,500,713
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS (719,377)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $19,540,598
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
38
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
FEBRUARY 28, 1999 YEAR ENDED
(UNAUDITED) AUGUST 31, 1998
----------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 18,759,262 $ 31,583,373
Net Realized Gain on Investments 1,500,713 680,094
Net Change in Unrealized Appreciation of
Investments (719,377) 15,917,500
----------------- ---------------
Net Increase in Net Assets Resulting from
Operations 19,540,598 48,180,967
----------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 275,258,701 337,310,680
Withdrawals (186,125,372) (232,110,590)
----------------- ---------------
Net Increase from Investors' Transactions 89,133,329 105,200,090
----------------- ---------------
Total Increase in Net Assets 108,673,927 153,381,057
NET ASSETS
Beginning of Period 756,978,971 603,597,914
----------------- ---------------
End of Period $ 865,652,898 $ 756,978,971
----------------- ---------------
----------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED FOR THE FISCAL YEAR ENDED
FEBRUARY 28, AUGUST 31,
1999 --------------------------------
(UNAUDITED) 1998 1997 1996 1995 1994
---------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.36%(a) 0.37% 0.38% 0.38% 0.42% 0.41%
Net Investment Income 4.53%(a) 4.70% 4.93% 4.92% 5.15% 4.68%
Portfolio Turnover 10%(b) 16% 25% 25% 47% 33%
</TABLE>
- ------------------------
(a) Annualized.
(b) Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
39
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEBURARY 28,1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Tax Exempt Bond Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on January 29, 1993. The portfolio commenced operations on
July 12, 1993 and received a contribution of certain assets and liabilities,
including securities, with a value of $865,660,724 on that date from the J.P.
Morgan Tax Exempt Bond Fund in exchange for a beneficial interest in the
portfolio. The portfolio's investment objective is to provide a high level of
current income that is exempt from federal income tax consistent with moderate
risk of capital. The Declaration of Trust permits the trustees to issue an
unlimited number of beneficial interests in the portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the portfolio:
a) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchanges. Securities listed on a foreign
exchange are valued at the last quoted price available before the time
when net assets are valued. Unlisted securities are valued at the average
of the quoted bid and asked prices in the over-the-counter market.
Securities or other assets for which market quotations are not readily
available are valued at fair value in accordance with procedures
established by the portfolio's trustees. Such procedures include the use
of independent pricing services, which use prices based upon yields or
prices of securities of comparable quality, coupon, maturity and type;
indications as to values from dealers; and general market conditions. All
short-term portfolio securities with a remaining maturity of less than 60
days are valued by the amortized cost method.
Because of the large number of municipal bond issues outstanding, varying
maturity dates, and the coupons and risk factors applicable to each
issuer's books, no readily available market quotations exist for most
municipal securities.
b) Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
c) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. The cost of securities is substantially the
same for book and tax purposes.
40
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBURARY 28,1999
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 28, 1998, the portfolio had an Investment Advisory
Agreement with Morgan Guaranty Trust Company of New York ("Morgan"), a
wholly owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan").
Under the terms of the agreement, the portfolio paid Morgan at an annual
rate of 0.30% of the portfolio's average daily net assets. Effective
October 28, 1998, the portfolio's Investment Advisor is J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan and a wholly
owned subsidiary of J.P. Morgan, and the terms of the agreement remain the
same. For the six months ended February 28, 1999, such fees amounted to
$1,242,479.
b) The portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the portfolio,
FDI provides administrative services necessary for the operations of the
portfolio, furnishes office space and facilities required for conducting
the business of the portfolio and pays the compensation of the portfolio's
officers affiliated with FDI. The portfolio has agreed to pay FDI fees
equal to its allocable share of an annual complex-wide charge of $425,000
plus FDI's out-of-pocket expenses. The amount allocable to the portfolio
is based on the ratio of the portfolio's net assets to the aggregate net
assets of the portfolio and certain other investment companies subject to
similar agreements with FDI. For the six months ended February 28, 1999,
the fee for these services amounted to $4,553.
c) The portfolio has an Administrative Services Agreement (the "Services
Agreement") with Morgan under which Morgan is responsible for certain
aspects of the administration and operation of the portfolio. Under the
Services Agreement, the portfolio has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
portfolio and the other portfolios for which JPMIM acts as investment
advisor (the "master portfolios") and J.P. Morgan Series Trust in
accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the portfolio is determined by the proportionate share that its net assets
bear to the net assets of the master portfolios, other investors in the
master portfolios for which Morgan provides similar services, and J.P.
Morgan Series Trust. For the six months ended February 28, 1999, the fee
for these services amounted to $113,026.
d) The portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the trustees in exercising their overall supervisory
responsibilities for the portfolio's affairs. The trustees of the
portfolio represent all the existing shareholders of Group. The
portfolio's allocated portion of Group's costs in performing its services
amounted to $10,177 for the six months ended February 28, 1999.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, the master portfolios and J.P. Morgan Series Trust.
The Trustees' Fees and Expenses shown in the financial statements
represents the portfolio's allocated portion of the total fees and
expenses. The portfolio's Chairman and Chief Executive Officer also serves
41
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBURARY 28,1999
- --------------------------------------------------------------------------------
as Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $2,100.
3. INVESTMENT TRANSACTIONS
Investments transactions (excluding short-term investments) for the six months
ended February 28, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- -----------
<S> <C>
$179,728,919...... $78,020,157
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
42
<PAGE>
J.P. MORGAN INSTITUTIONAL FUNDS
PRIME MONEY MARKET FUND
TREASURY MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: INSTITUTIONAL SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
TAX AWARE DISCIPLINED EQUITY FUND:
INSTITUTIONAL SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY 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.
ITEBFR-992
J.P. MORGAN
INSTITUTIONAL
TAX EXEMPT
BOND FUND
SEMIANNUAL REPORT
FEBRUARY 28, 1999
