<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN TAX EXEMPT BOND FUND
April 6, 1998
Dear Shareholder:
We are pleased to report the J.P. Morgan Tax Exempt Bond Fund posted a
healthy gain of 4.19% for the six months ending February 28, 1998. While the
fund underperformed the 4.38% return of its benchmark for the period (the
Lehman 1-16 year Muni Bond Index), it ranked in line with the 4.07% return of
its competitors as measured by the Lipper Intermediate Muni Debt Bond Funds
Average. The fund's 30-day SEC yield, at 3.83%, translates to a pre-tax
equivalent yield of 6.34%, assuming a 39.6% tax rate.
The fund's net asset value, at $12.07 on February 28, 1998, was up from $11.85
per share on August 31, 1997. Dividends of approximately $0.27 per share were
paid, substantially all of which were tax exempt. The fund's net assets
increased to $432,326,802 from $401,006,516 while the net assets of the Tax
Exempt Bond Portfolio, in which the fund invests, were $675,079,795.
The report that follows includes an interview with Elaine Young and Robert
Meiselas, both members of the portfolio management team responsible for the
fund. This interview is designed to answer commonly asked questions about
the fund, elaborate on what happened during the reporting period, and provide
an outlook for the months ahead.
As chairman and president of Asset Management Services, we appreciate your
investment in the fund. If you have any comments or questions, please call
your Morgan representative or J.P. Morgan Funds Services at (800) 521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset
J.P. Morgan & Co. Incorporated Management Services
J.P. Morgan & Co.
Incorporated
- --------------------------------------------------------------------------------
TABLE OF CONTENTS GLOSSARY OF TERMS. . . . . . . . . 6
LETTER TO THE SHAREHOLDERS . . . . 1 FUND FACTS AND HIGHLIGHTS. . . . . 7
FUND PERFORMANCE . . . . . . . . . 2 SPECIAL FUND-BASED SERVICES. . . . 8
PORTFOLIO MANAGER Q & A. . . . . . 3 FINANCIAL STATEMENTS . . . . . . . 10
- --------------------------------------------------------------------------------
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. 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, 1998 MONTHS MONTHS YEAR YEARS YEARS YEARS
- ------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan Tax Exempt Bond Fund 2.16% 4.19% 7.09% 6.86% 5.38% 6.84%
Lehman 1-16 year Muni Bond Index* 2.31% 4.38% 7.71% 7.50% 5.87% 7.35%
Lipper Intermed. Muni Debt Bond Funds Avg. 2.14% 4.07% 7.10% 6.78% 5.45% 6.83%
AS OF DECEMBER 31, 1997
- ------------------------------------------------------------- -----------------------------------
J.P. Morgan Tax Exempt Bond Fund 2.17% 4.65% 7.42% 8.04% 6.10% 7.13%
Lehman 1-16 year Muni Bond Index* 2.20% 4.89% 7.80% 8.55% 6.61% 7.57%
Lipper Intermed. Muni Debt Bond Funds Avg. 2.11% 4.56% 7.16% 7.98% 6.12% 7.09%
</TABLE>
*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 NOT A GUARANTEE OF FUTURE RESULTS. RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF FUND DISTRIBUTIONS.
2
<PAGE>
PORTFOLIO MANAGER Q&A
This interview was conducted with Elaine Young and Robert Meiselas, both members
of the portfolio management team responsible for managing 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 J.P. 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.
Johns University and has completed graduate work at Long Island University in
the field of taxation.
This interview was conducted on April 2, 1998 and represents both Bob and
Elaine's views on that date.
LET'S START OFF BY GETTING A GENERAL BACKDROP. WHAT HAS GONE ON IN THE
TAX-EXEMPT BOND MARKET OVER THE PAST SIX MONTHS?
EY: The single biggest event that occurred in all the bond markets was the
continued decline of rates, in part due to the Asian crisis and the expectation
that interest rates would decline as the U.S. economy cooled. That's not
necessarily what people are thinking at this moment, but that's been the common
denominator over the past few months. Another factor has been the good news on
inflation, which has continued to be extremely low. All together, rates
declined 15 to 25 basis points over the past six months in the muni bond market,
while Treasury rates declined even more.
SUPPLY IS ALWAYS AN IMPORTANT ISSUE IN THE MUNICIPAL BOND MARKET. HAS THERE
BEEN AN AMPLE SUPPLY DURING THE PERIOD?
EY: Over the last few months, we've seen supply increase from a very limited
number of bonds available in December, which is typically slow, to record
amounts of issuance in January and February.
3
<PAGE>
RM: We've been expecting a pick up in the supply of munis because, with
interest rates generally low, the economics of refinancing has become more
attractive to borrowers.
THAT'S A VERY DIFFERENT STORY FROM A COUPLE OF YEARS AGO WHEN GOVERNMENTS WERE
CUTTING BACK ON SPENDING, AND THERE WEREN'T MANY NEW ISSUES TO BE HAD, ISN T IT?
RM: Yes. It's also a different economy. There was a balance-the-budget mind set
a couple of years ago. People didn't want to issue bonds because they thought
there was a direct cause and effect relationship between budget deficits and
financing projects that needed to get done. In my opinion, everyone's feeling a
little more comfortable about having more money to spend. Governments are
reporting balanced budgets and people are perhaps a little more liberal in
allowing bond deals to come along.
EY: State coffers are in better shape and voters have been more inclined to
approve new issues. There's also been some pent-up need. There was a lack of
infrastructure spending for a few years, and that has a way of catching up. Even
if governments have become somewhat more fiscally responsible, they still have
projects that need to get done.
FOR THE PERIOD UNDER REVIEW, THE FUND OUTPERFORMED THE LIPPER INTERMEDIATE
MUNICIPAL DEBT BOND FUNDS AVERAGE BUT UNDERPERFORMED ITS BENCHMARK, THE LEHMAN
1-16 YEAR MUNICIPAL BOND INDEX. WHY?
RM: That's difficult to pin down. It's important to remember that you can't buy
the Lehman Muni Index. It's not like an equity index such as the S&P 500 which
can be replicated. The index also automatically replaces bonds, whereas in a
fund, that requires buying and selling which involves tax considerations. If a
transaction is going to generate a large taxable gain, we may not execute that
transaction because we are evaluating it on an after-tax basis. In short, the
Lehman Muni Index is a guide to tell investors and tell us what is the general
direction of interest rates and the market.
EY: As far as edging out the competition, I would largely attribute it to
our disciplined process. We don't take big risks. We try to buy bonds that
are undervalued and sell the ones that are overvalued based on our internal
credit research. It also helps to have a dedicated trading desk. Execution is
extremely important in the municipal market. Another plus has come from
buying AMT bonds and private placements -- both provide additional yield
without additional credit risk.
TELL US MORE ABOUT THE PRIVATE PLACEMENTS.
EY: We are able to successfully take advantage of private placements because of
our extensive credit research capabilities. The private placements in the fund
are typically BBB or above. When we are confident in knowing the credit risk of
the issuer, the fund can benefit from the additional yield available by cutting
out the administrative middle men normally involved in issuance. In our view, we
get an additional 40 basis points or more in yield without taking on additional
credit risk. It's another way of taking incremental steps to add value.
4
<PAGE>
ARE THERE OTHER DIFFERENCES BETWEEN THE PORTFOLIO OF THIS FUND AND THE TYPICAL
MUNICIPAL BOND PORTFOLIO?
EY: We emphasize premium bonds as opposed to discount bonds, which is an
advantage in a rising rate environment. Discount bonds have an additional tax
burden. That's something we try to minimize.
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS? AND HOW ARE YOU POSITIONING THE
PORTFOLIO?
RM: Currently, the duration of the portfolio is slightly long. We are mildly
bullish on interest rates for the next few months. We think the Fed will remain
on hold until the financial situation in Asia stabilizes and that interest rates
will remain in a fairly narrow range. If wage inflation becomes more apparent,
we may see pressure on profit margins. If this causes the stock market to crack
a little, we could see increased demand for bonds.
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 used as 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 Tax Exempt Bond Fund seeks to provide a high level of
current income that is exempt from federal income tax consistent
with moderate risk of capital and maintenance of liquidity. It is
designed for investors who seek tax exempt yields greater than
those generally available from a portfolio of short-term
tax-exempt obligations and who are willing to incur the greater
price fluctuation of longer-term instruments.
- --------------------------------------------------------------------------------
INCEPTION DATE
10/3/84
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 2/28/98
$432,326,802
- --------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 2/28/98
$675,079,795
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/11/98
EXPENSE RATIO
The fund's current expense ratio of 0.64% covers shareholders' expenses for
custody, tax reporting, investment advisory and shareholder services. The fund
is no-load and does not charge any sales, redemption, or exchange fees. There
are no additional charges for buying, selling, or safekeeping fund shares, or
for wiring dividend or redemption proceeds from the fund.
FUND HIGHLIGHTS
ALL DATA AS OF FEBRUARY 28, 1998
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
REVENUE BONDS 54.0%
GENERAL OBLIGATIONS 41.1%
SHORT-TERM 4.4%
PRIVATE PLACEMENTS 0.5%
30-DAY SEC YIELD
3.83%
DURATION
5.63 years
7
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- - create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- - make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- - make investments through the diversified family of J.P. Morgan funds.
PAAS is available to clients who invest a minimum of $500,000 in
the funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build well-
balanced long-term investment portfolios, diversified across a wide array of
mutual funds. From money markets to emerging markets, J.P. Morgan funds provide
an excellent way to help you accumulate long-term wealth for retirement.
KEOGH
Keoghs provide another excellent vehicle to help individuals who are
self-employed or are employees of unincorporated businesses to accumulate
retirement savings. A Keogh is a tax-deferred pension plan that can allow you to
contribute the lesser of $30,000 or 25% of your annual earned gross
compensation. The J.P. Morgan Funds can help you build a comprehensive
investment program designed to maximize the retirement dollars in your Keogh
account.
8
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW YORK
SERVES AS INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY
AS SHAREHOLDER SERVICING AGENT. 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.
The fund invests through a master portfolio (another fund with the same
objective). Opinions expressed herein are based on current market conditions and
are subject to change without notice. Income may be subject to state and local
taxes. Some income may be subject to the Federal alternative minimum tax for
certain investors.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ IT CAREFULLY BEFORE INVESTING.
9
<PAGE>
J.P. MORGAN TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Tax Exempt Bond Portfolio
("Portfolio"), at value $431,188,611
Receivable for Shares of Beneficial Interest Sold 1,770,003
Prepaid Trustees' Fees 951
Prepaid Expenses and Other Assets 1,642
------------
Total Assets 432,961,207
------------
LIABILITIES
Dividends Payable to Shareholders 297,209
Payable for Shares of Beneficial Interest
Redeemed 229,358
Shareholder Servicing Fee Payable 65,589
Administrative Services Fee Payable 9,841
Administration Fee Payable 1,681
Fund Services Fee Payable 79
Accrued Expenses 30,648
------------
Total Liabilities 634,405
------------
NET ASSETS
Applicable to 35,817,977 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $432,326,802
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $12.07
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $405,789,383
Undistributed Net Investment Income 2,388
Accumulated Net Realized Gain on Investment 429,799
Net Unrealized Appreciation of Investment 26,105,232
------------
Net Assets $432,326,802
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $10,412,933
Allocated Portfolio Expenses (750,218)
-----------
Net Investment Income Allocated from
Portfolio 9,662,715
FUND EXPENSES
Shareholder Servicing Fee $403,414
Administrative Services Fee 60,874
Transfer Agent Fees 22,058
Registration Fees 9,779
Fund Services Fee 7,223
Administration Fee 5,329
Trustees' Fees and Expenses 3,414
Miscellaneous 20,547
--------
Total Fund Expenses 532,638
-----------
NET INVESTMENT INCOME 9,130,077
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 261,874
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 6,948,931
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $16,340,882
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN TAX EXEMPT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
FEBRUARY 28, 1998 YEAR ENDED
(UNAUDITED) AUGUST 31, 1997
----------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 9,130,077 $ 17,545,924
Net Realized Gain on Investment Allocated from
Portfolio 261,874 807,123
Net Change in Unrealized Appreciation of
Investment Allocated from Portfolio 6,948,931 6,508,431
----------------- ---------------
Net Increase in Net Assets Resulting from
Operations 16,340,882 24,861,478
----------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (9,130,077) (17,545,924)
Net Realized Gain (119,011) (701,935)
----------------- ---------------
Total Distributions to Shareholders (9,249,088) (18,247,859)
----------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 98,607,812 174,721,385
Reinvestment of Dividends and Distributions 7,382,057 14,617,992
Cost of Shares of Beneficial Interest Redeemed (81,761,377) (164,933,952)
----------------- ---------------
Net Increase from Transactions in Shares of
Beneficial Interest 24,228,492 24,405,425
----------------- ---------------
Total Increase in Net Assets 31,320,286 31,019,044
NET ASSETS
Beginning of Period 401,006,516 369,987,472
----------------- ---------------
End of Period (including undistributed net
investment income of $2,388 and $2,388,
respectively) $ 432,326,802 $ 401,006,516
----------------- ---------------
----------------- ---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN 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,
1998 ----------------------------------------------------
(UNAUDITED) 1997 1996 1995 1994 1993
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.85 $ 11.63 $ 11.73 $ 11.45 $ 12.04 $ 11.60
---------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.27 0.55 0.55 0.55 0.51 0.55
Net Realized and Unrealized Gain (Loss) on
Investments 0.22 0.24 (0.08) 0.29 (0.35) 0.56
---------------- -------- -------- -------- -------- --------
Total from Investment Operations 0.49 0.79 0.47 0.84 0.16 1.11
---------------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.27) (0.55) (0.55) (0.55) (0.51) (0.55)
Net Realized Gain (0.00)(a) (0.02) (0.02) (0.01) (0.24) (0.12)
---------------- -------- -------- -------- -------- --------
Total Distributions to Shareholders (0.27) (0.57) (0.57) (0.56) (0.75) (0.67)
---------------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 12.07 $ 11.85 $ 11.63 $ 11.73 $ 11.45 $ 12.04
---------------- -------- -------- -------- -------- --------
---------------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Total Return 4.19%(b) 6.95% 4.01% 7.63% 1.35% 9.88%
Net Assets, End of Period (in thousands) $ 432,327 $401,007 $369,987 $352,005 $392,460 $485,013
Ratios to Average Net Assets
Expenses 0.64%(c) 0.64% 0.64% 0.71% 0.71% 0.74%
Net Investment Income 4.53%(c) 4.67% 4.67% 4.87% 4.39% 4.64%
</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 TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan Tax Exempt Bond Fund (the "fund") is a separate series of the
J.P. Morgan Funds, a Massachusetts business trust (the "trust") which was
organized on November 4, 1992. The trust is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The fund, prior to its tax-free reorganization on July 11, 1993 to a series of
the trust, operated as a stand-alone mutual fund. Costs related to the
reorganization were borne by Morgan Guaranty Trust Company of New York
("Morgan"). Prior to January 1, 1998, the trust's and the fund's names were The
JPM Pierpont Funds and The JPM Pierpont Tax Exempt Bond Fund, respectively.
The fund invests all of its investable assets in The Tax Exempt Bond Portfolio
(the "portfolio"), a diversified open-end management 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 (64% at February 28, 1998). 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 1 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) The fund is treated as a separate entity for federal income tax purposes.
The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
e) 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.
14
<PAGE>
J.P. MORGAN TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
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, 1998, the fee for these services amounted to
$5,329.
b) The trust, on behalf of the fund, has an Administrative Services agreement
(the "Services agreement") with Morgan under which Morgan is responsible
for overseeing 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 Institutional Funds invest (the "master portfolios") and J.P.
Morgan Series Trust in accordance with the following annual schedule:
0.09% on the first $7 billion of their aggregate average daily net assets
and 0.04% of their aggregate average daily net assets in excess of $7
billion less the complex-wide fees payable to FDI. The portion of this
charge payable by the fund is determined by the proportionate share that
its net assets bear to the net assets of the trust, the master portfolios,
other investors in the master portfolios for which Morgan provides similar
services, and J.P. Morgan Series Trust. For the six months ended February
28, 1998, the fee for these services amounted to $60,874.
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 0.20% of the average daily net assets of
the fund. For the six months ended February 28, 1998, the fee for these
services amounted to $403,414.
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
agreements; however, in the event the Services agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the trust and Morgan is terminated, the fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
d) The trust, on behalf of the fund, has a Fund Services agreement with
Pierpont Group, Inc. ("group") to assist the trustees in exercising their
overall supervisory responsibilities for the trust's affairs. The trustees
of the trust represent all the existing shareholders of group. The fund's
allocated portion of group's costs in performing its services amounted to
$7,223 for the six months ended February 28, 1998.
15
<PAGE>
J.P. MORGAN TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Institutional Funds, the master
portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the fund's allocated portion
of these total fees and expenses. The trust's Chairman and Chief Executive
Officer also serves as Chairman of group and receives compensation and
employee benefits from group in his role as group's Chairman. The
allocated portion of such compensation and benefits included in the Fund
Services Fee shown in the financial statements was $1,500.
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, 1998 YEAR ENDED
(UNAUDITED) AUGUST 31, 1997
----------------- ---------------
<S> <C> <C>
Shares sold...................................... 8,177,348 14,821,524
Reinvestment of dividends and distributions...... 614,389 1,242,353
Shares redeemed.................................. (6,801,310) (14,047,227)
----------------- ---------------
Net Increase..................................... 1,990,427 2,016,650
----------------- ---------------
----------------- ---------------
</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
commitment agreement is $100,000,000. Prior to January 26, 1998 the maximum
borrowing under the agreement was $150,000,000. The agreement expires on May 27,
1998, however, the fund and the affiliated lenders as party to the agreement
will have the ability to extend the agreement and continue their participation
therein for additional 364 days. 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 allocable to the funds in accordance with procedures
established by their respective trustees or directors. The fund has not borrowed
pursuant to the agreement as of February 28, 1998.
16
<PAGE>
The Tax Exempt Bond Portfolio
Semi-annual Report February 28, 1998
(unaudited)
(The following pages should be read in conjunction
with J.P. Morgan Tax Exempt Bond Fund
Semi-annual Financial Statements)
17
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (97.2%)
ALABAMA (0.5%)
$ 1,000 Alabama Mental Health Finance Authority,
(Special Tax Obligation, Prerefunded,
Series 1989, due 05/01/01), MBIA
Insured............................... RB Aaa/AAA 05/01/99(a) 7.375% $ 1,060,620
1,410 Childersburg Industrial Development
Board, (PCR, Kimberly Clark Corp.
Project, Escrowed to Maturity, due
11/15/99)............................. RB Aa2/AA 05/15/98(a) 7.400 1,470,165
1,000 Daphne Special Care Facilities Financing
Authority, (Presbyterian Retirement,
Prerefunded, Series A, due
08/15/18)............................. RB NR/NR 08/15/01(a) 7.300 1,102,540
-----------
TOTAL ALABAMA....................... 3,633,325
-----------
ALASKA (1.7%)
2,000 Anchorage, (Prerefunded, Series 1991,
due 07/01/02), MBIA Insured........... GO Aaa/AAA 07/01/01(a) 6.600 2,158,300
1,075 Anchorage, (Refunding, Series 1989, due
06/01/03), AMBAC Insured.............. GO Aaa/AAA 06/01/99(a) 7.100 1,127,127
1,000 Anchorage, (Series A), AMBAC Insured.... GO Aaa/AAA 02/01/00 6.850 1,053,130
3,000 North Slope Borough, (Series A), MBIA
Insured............................... GO Aaa/AAA 06/30/00 5.550 3,107,340
2,500 North Slope Borough, Zero Coupon,
(Capital Appreciation, Series B), MBIA
Insured............................... GO Aaa/AAA 01/01/99 0.000 2,424,925
2,200 North Slope Borough, Zero Coupon,
(Capital Appreciation, Series B), MBIA
Insured............................... GO Aaa/AAA 06/30/01 0.000 1,918,114
-----------
TOTAL ALASKA........................ 11,788,936
-----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
ARIZONA (1.0%)
$ 1,000 Maricopa County School District #11,
(Peoria Unified School Improvement,
Prerefunded, Series H, due 07/01/05),
MBIA Insured.......................... GO Aaa/AAA 07/01/99(a) 7.000% $ 1,091,480
1,750 Phoenix, (Refunding, Series C).......... GO Aa1/AA+ 07/01/02 6.375 1,909,792
3,315 Salt River Project, (Agricultural
Improvement & Power District, Salt
River Project, Refunding, Series A)... RB Aa2/AA 01/01/06 6.000 3,693,374
-----------
TOTAL ARIZONA....................... 6,694,646
-----------
CALIFORNIA (4.9%)
5,210 California.............................. GO A1/A+ 10/01/09 6.000 5,907,411
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 3,124,976
2,750 California Pollution Control Financing
Authority (PCR, Laidlaw Environmental,
Refunding, Series A).................. RB NR/NR 07/01/07 6.700 2,888,792
6,000 California State........................ GO A1/A+ 02/01/08 6.500 6,984,780
1,000 California State, AMBAC/MBIA Insured.... GO Aaa/AAA 09/01/06 6.500 1,163,150
569 Kaweah Delta Hospital District, Tulare
County, (Series D).................... PP NR/A+ 06/01/14 4.350 570,656
1,049 Kaweah Delta Hospital District, Tulare
County, (Series E).................... PP NR/A+ 06/01/14 5.250 1,068,879
1,618 Kaweah Delta Hospital District, Tulare
County, (Series G).................... PP NR/A+ 06/01/04 6.400 1,676,816
4,200 Los Angeles County Public Works
Financing Authority, (Regional Park
and Open Space District, Series A).... RB Aa3/AA 10/01/07 5.375 4,539,066
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (CONTINUED)
$ 2,500 Los Angeles County Public Works,
(Refunding, Series A), MBIA Insured... RB Aaa/AAA 09/01/06 6.000% $ 2,811,675
2,000 Los Angeles Department of Water & Power,
(California Electric Plant, Crossover
Refunded, due 05/15/30)............... RB Aa3/A+ 05/15/00(a) 7.125 2,164,500
-----------
TOTAL CALIFORNIA.................... 32,900,701
-----------
COLORADO (0.2%)
1,295 Adams County School District #12, FGIC
Insured............................... GO Aaa/AAA 12/15/06 6.000 1,457,911
-----------
CONNECTICUT (0.5%)
2,815 Connecticut Transportation
Infrastructure, (Special Tax
Obligation, Prerefunded, Series 1991A,
due 06/01/04)......................... RB NR/AA- 06/01/03(a) 6.600 3,136,670
-----------
DELAWARE (0.4%)
2,650 Delaware Transportation Authority,
(Transportation System Revenue), AMBAC
Insured............................... RB Aaa/AAA 07/01/00 5.250 2,728,016
-----------
DISTRICT OF COLUMBIA (4.6%)
3,000 District of Columbia, (Refunding, Series
A), MBIA Insured...................... GO Aaa/AAA 06/01/07 6.000 3,323,610
7,500 District of Columbia, (Refunding, Series
C), FGIC Insured...................... GO Aaa/AAA 12/01/03 5.250 7,841,400
2,600 District of Columbia, (Series B), MBIA
Insured............................... GO Aaa/AAA 06/01/02 6.000 2,769,364
1,200 Metropolitan Airport, (Series B), FGIC
Insured............................... RB Aaa/AAA 10/01/00 5.250 1,236,012
1,000 Metropolitan Airport, (Series B), FGIC
Insured............................... RB Aaa/AAA 10/01/03 5.750 1,071,960
4,015 Metropolitan Airport, (Series B), FGIC
Insured............................... RB Aaa/AAA 10/01/05 6.000 4,417,102
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
DISTRICT OF COLUMBIA (CONTINUED)
$ 5,745 Metropolitan Airport, (Series B), FGIC
Insured............................... RB Aaa/AAA 10/01/06 6.000% $ 6,362,300
3,665 Metropolitan Airport, (Series B, due
10/01/10), FGIC Insured............... RB Aaa/AAA 10/01/00(a) 7.250 3,988,583
-----------
TOTAL DISTRICT OF COLUMBIA.......... 31,010,331
-----------
FLORIDA (3.7%)
5,765 Dade County School District,
(Refunding), MBIA Insured............. GO Aaa/AAA 07/15/05 6.000 6,408,893
1,535 Florida Board of Education, (Capital
Outlay, Escrowed to Maturity,
Refunded, Series C, due 06/01/01)..... GO Aaa/AAA 04/06/98(a) 7.000 1,561,832
465 Florida Board of Education, (Capital
Outlay, Unrefunded Balance, Series C,
due 06/01/01)......................... GO Aa2/AA+ 04/06/98(a) 7.000 473,031
6,765 Florida Division Board Financial
Department, (General Services Revenue,
Department of Environmental
Preservation, Series 2000A), AMBAC
Insured............................... RB Aaa/AAA 07/01/99 5.500 6,925,939
3,200 Jacksonville Electric Authority, (St.
Johns River, Issue 2, Crossover
Refunded, Series 5, due 10/01/09)..... RB Aa1/AA 10/01/99(a) 7.000 3,395,136
2,000 Jacksonville Health Facilities
Authority, (Charity Obligated Group,
Refunding, Series A), MBIA Insured.... RB Aaa/AAA 08/15/06 5.500 2,160,040
2,000 Tampa (Health System Revenue, Catholic
Health East, Refunding, Series A-1),
MBIA Insured.......................... RB Aaa/AAA 11/15/04 5.250 2,106,900
2,000 Volusia County School District,
(Refunding, due 08/01/02), FGIC
Insured............................... GO Aaa/AAA 08/01/01(a) 6.100 2,149,700
-----------
TOTAL FLORIDA....................... 25,181,471
-----------
GEORGIA (5.0%)
2,630 Fulton County School District,
(Refunding)........................... GO Aa3/AA 05/01/14 6.375 3,095,010
1,000 Georgia Municipal Electric Authority,
(Power General Revenue, Refunding,
Series A)............................. RB A3/A 01/01/12 6.500 1,159,070
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
GEORGIA (CONTINUED)
$ 6,000 Georgia, (Series B)..................... GO Aaa/AAA 03/01/07 7.200% $ 7,283,700
3,000 Georgia, (Series B)..................... GO Aaa/AAA 03/01/10 6.300 3,483,360
4,470 Georgia, (Series C)..................... GO Aaa/AAA 07/01/11 5.700 4,964,024
2,500 Gwinnett County School District,
(Refunding, Series B)................. GO Aa1/AA+ 02/01/08 6.400 2,888,275
5,000 Metropolitan Atlanta Rapid Transit
Authority, (Sales Tax Revenue,
Refunding, Series P), AMBAC Insured... RB Aaa/AAA 07/01/11 6.250 5,786,700
4,500 Municipal Electric Authority, (Project
1, Sixth Crossover), AMBAC Insured.... RB Aaa/AAA 01/01/08 7.000 5,399,235
-----------
TOTAL GEORGIA....................... 34,059,374
-----------
HAWAII (1.5%)
5,000 Hawaii State, (Refunding, Series CO),
FGIC Insured.......................... GO Aaa/AAA 03/01/02 6.000 5,348,400
2,000 Hawaii, (Series BZ)..................... GO Aa3/A+ 10/01/12 6.000 2,274,080
2,000 Honolulu City & County Improvement,
(Refunding, Series B)................. GO Aa2/AA 10/01/11 5.500 2,167,120
-----------
TOTAL HAWAII........................ 9,789,600
-----------
ILLINOIS (9.0%)
2,000 Chicago Board of Education, (Chicago
School Reform), AMBAC Insured......... GO Aaa/AAA 12/01/09 6.750 2,394,140
1,000 Chicago Board of Education, (Lease
Certificates, Series A), MBIA
Insured............................... RB Aaa/AAA 01/01/06 6.125 1,118,150
4,130 Chicago Board of Education, (Lease
Certificates, Series A), MBIA
Insured............................... RB Aaa/AAA 01/01/07 6.125 4,644,102
3,000 Chicago, (Refunding, Series A-2), AMBAC
Insured............................... GO Aaa/AAA 01/01/11 6.000 3,390,150
1,500 Chicago, O'Hare International Airport,
(Refunding, Second Lien, Series C),
MBIA Insured.......................... RB Aaa/AAA 01/01/09 5.750 1,643,805
3,280 Cook County, (Refunding, Series C), FGIC
Insured............................... GO Aaa/AAA 11/15/04 5.800 3,573,265
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$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) 0.000% $ 4,873,900
1,375 Du Page County, (Illinois Alternative
Revenue Jail Project, Prerefunded, due
01/01/21)............................. GO Aaa/AAA 01/01/02(a) 6.550 1,516,584
4,440 Hoffman Estates, Tax Increment Revenue,
(Economic Development Project Area,
Refunding), AMBAC Insured............. RB Aaa/AAA 11/15/04 5.500 4,738,679
3,000 Illinois Municipal Electric Agency,
Power Supply, (Refunding), FSA
Insured............................... RB Aaa/AAA 02/01/06 5.000 3,113,220
3,000 Illinois, Sales Tax Revenue, (Refunding,
Series Q)............................. RB Aa3/AAA 06/15/09 6.000 3,365,220
4,175 Illinois, Sales Tax Revenue, (Refunding,
Series Q)............................. RB Aa3/AAA 06/15/12 6.000 4,682,972
950 Kendall Kane & Will Counties Community
Unit School District #308, FGIC
Insured............................... GO Aaa/AAA 03/01/99 6.200 973,845
2,500 Metropolitan Pier & Exposition
Authority, (McCormick Place Expansion
Project, Series A).................... RB A2/A+ 06/15/06 8.500 3,173,575
5,420 Metropolitan Pier & Exposition
Authority, Zero Coupon, (Capital
Appreciation, McCormick Place
Expansion Project, Refunding), MBIA
Insured............................... RB Aaa/AAA 06/15/14 0.000 2,376,778
11,000 Metropolitan Pier & Exposition
Authority, Zero Coupon, (Capital
Appreciation, McCormick Place
Expansion Project, Refunding, Series
A), MBIA Insured...................... RB Aaa/AAA 12/15/11 0.000 5,563,360
9,705 Metropolitan Pier & Exposition
Authority, Zero Coupon, (Capital
Appreciation, McCormick Place
Expansion Project, Refunding, Series
A), MBIA Insured...................... RB Aaa/AAA 06/15/12 0.000 4,775,248
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 2,810 Regional Transportation Authority,
(Series D), FGIC Insured.............. RB Aaa/AAA 06/01/07 7.750% $ 3,507,414
1,000 University of Illinois, Auxiliary
Facilities, (Escrowed to Maturity, due
10/01/01)............................. RB Aaa/AAA 10/01/98(a) 6.000 1,068,030
-----------
TOTAL ILLINOIS...................... 60,492,437
-----------
INDIANA (1.6%)
3,955 Indiana Health Facility Financing
Authority, (Sisters of Francis Health
Services, Refunding, Series A), MBIA
Insured............................... RB Aaa/AAA 11/01/05 5.500 4,214,171
2,000 Indiana Municipal Power Agency, Power
Supply System Revenue, (Refunding,
Series B), MBIA Insured............... RB Aaa/AAA 01/01/13 6.000 2,247,560
3,915 Indiana Transportation Finance
Authority, Highway Revenue,
(Refunding, Series A), AMBAC
Insured............................... RB Aaa/AAA 06/01/09 5.250 4,131,225
-----------
TOTAL INDIANA....................... 10,592,956
-----------
KENTUCKY (0.5%)
3,350 Kentucky Turnpike Authority, (Escrowed
to Maturity, Series A, due
07/01/02)............................. RB Aaa/NR 04/06/98(a) 7.100 3,566,477
-----------
LOUISIANA (0.9%)
6,000 Louisiana, (Refunding, Series A), FGIC
Insured............................... GO Aaa/AAA 08/01/00 6.000 6,283,860
-----------
MARYLAND (1.8%)
1,560 Anne Arundel County..................... GO Aa/AA+ 09/01/06 6.000 1,747,387
1,000 Maryland Department of Transportation,
(Prerefunded, due 08/15/05)........... RB Aaa/AAA 08/15/99(a) 6.700 1,061,120
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
MARYLAND (CONTINUED)
$ 5,435 Maryland Health & Higher Educational
Facilities Authority, (John Hopkins
University, Refunding)................ RB Aa2/AA- 07/01/03 5.750% $ 5,804,689
3,000 Maryland, (3rd Series, due 07/15/03).... GO Aaa/AAA 07/15/01(a) 6.400 3,239,400
-----------
TOTAL MARYLAND...................... 11,852,596
-----------
MASSACHUSETTS (5.3%)
5,650 Massachusetts Bay Transportation
Authority, (General Transportation
System, Refunding, Series A).......... RB A1/AA- 03/01/08 7.000 6,754,462
3,700 Massachusetts Bay Transportation
Authority, (General Transportation
System, Series A), MBIA Insured....... RB Aaa/AAA 03/01/10 5.500 3,999,663
7,300 Massachusetts State (Refunding, Series
A), AMBAC Insured..................... GO Aaa/AAA 08/01/10 5.750 8,092,123
2,000 Massachusetts State Water Authority,
(General Series A), FSA Insured....... RB Aaa/AAA 08/01/10 5.500 2,176,040
10,000 Massachusetts State Water Resource
Authority, (Series A)................. RB A2/A 07/15/08 6.500 11,692,200
1,495 Massachusetts, State College Building
Authority, (Refunding, Series A)...... RB A1/AA- 05/01/11 7.500 1,902,014
1,060 Wareham, (due 01/15/03), AMBAC
Insured............................... GO Aaa/AAA 01/15/01(a) 6.800 1,168,491
-----------
TOTAL MASSACHUSETTS................. 35,784,993
-----------
MICHIGAN (1.5%)
6,045 Michigan State Building Authority,
(Facilites Program, Refunding, Series
I), AMBAC Insured..................... RB Aaa/AAA 10/01/04 6.000 6,653,067
2,905 Michigan State Hospital Finance
Authority Revenue, (Mercy Health
Services, Refunding, Series T)........ RB Aa3/AA- 08/15/04 5.750 3,139,666
-----------
TOTAL MICHIGAN...................... 9,792,733
-----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
MINNESOTA (2.3%)
$ 5,000 University of Minnesota, (Series A)..... RB Aa2/AA 07/01/10 5.750% $ 5,524,750
5,000 University of Minnesota, (Series A)..... RB Aa2/AA 07/01/15 5.750 5,522,900
4,290 Western Minnesota Municipal Power
Agency, (Prerefunded, due 01/01/04),
MBIA Insured.......................... RB Aaa/AAA 04/06/98(a) 10.125 4,484,165
-----------
TOTAL MINNESOTA..................... 15,531,815
-----------
MISSISSIPPI (2.2%)
6,000 Mississippi Home Corp Residual Revenue,
Zero Coupon, (Capital Appreciation,
Refunded, Series C)................... RB AAA/NR 09/01/13 0.000 2,749,920
10,995 Mississippi, (Escrowed to Maturity)..... GO Aaa/AAA 02/01/08 6.200 12,354,972
-----------
TOTAL MISSISSIPPI................... 15,104,892
-----------
MISSOURI (0.7%)
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 4,571,520
-----------
NEBRASKA (0.6%)
4,000 Nebraska Public Power District, (Nuclear
Facilities, Refunding)................ RB A1/A+ 07/01/00 5.200 4,105,320
-----------
NEVADA (4.7%)
500 Carson City School District,
(Prerefunded, due 04/01/03), FGIC
Insured............................... GO Aaa/AAA 04/01/00(a) 6.750 537,555
8,200 Clark County School District, (Series
A), MBIA Insured...................... GO Aaa/AAA 06/01/11 7.000 10,069,108
3,000 Clark County School District, FGIC
Insured............................... GO Aaa/AAA 06/15/03 6.000 3,262,710
3,000 Clark County, (Passenger Facilities, Las
Vegas McCarran International Airport,
Series A), AMBAC Insured.............. RB Aaa/AAA 07/01/08 6.250 3,214,170
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 1,830,028
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
NEVADA (CONTINUED)
$ 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% $ 1,306,896
1,280 Las Vegas, Clark County Library
District, (Refunding, Series B, due
08/01/04), FGIC Insured............... GO Aaa/AAA 08/01/01(a) 6.700 1,400,218
6,015 Nevada State, (Refunding, Series A-1)... GO Aa2/AA 05/15/10 6.000 6,756,409
1,985 Nevada State, (Refunding, Series A-2)... GO Aa2/AA 05/15/10 6.000 2,229,671
1,330 Nevada, (Prison Facilities, Prerefunded,
due 08/01/04)......................... GO Aa2/AA 08/01/00(a) 7.000 1,445,497
-----------
TOTAL NEVADA........................ 32,052,262
-----------
NEW HAMPSHIRE (1.1%)
4,900 New Hampshire Higher Educational &
Health Facilities Authority,
(Dartmouth College, Refunding)........ RB Aaa/NR 06/01/07 6.750 5,796,896
1,720 New Hampshire, (Prerefunded, Series A,
due 06/15/03)......................... GO Aa/AA+ 06/15/01(a) 6.600 1,881,818
-----------
TOTAL NEW HAMPSHIRE................. 7,678,714
-----------
NEW JERSEY (5.9%)
4,180 Jersey City, (Refunding, Series A)...... GO Aa3/AA 10/01/11 6.250 4,805,704
7,000 New Jersey Economic Development
Authority, (Market Transition
Facilities, Series A), MBIA Insured... RB Aaa/AAA 07/01/02 5.400 7,348,110
1,325 New Jersey Economic Development
Authority, (New Jersey Performing Arts
Center, Series PJ-A), AMBAC Insured... RB Aaa/AAA 06/15/07 6.000 1,491,950
1,500 New Jersey Sports & Exposition
Authority, (Sports Complex, Refunding,
Escrowed to Maturity)................. RB Aa1/NR 01/01/00 8.100 1,610,355
6,000 New Jersey Transportation Authority,
(Refunding, Series B), MBIA Insured... RB Aaa/AAA 06/15/05 6.000 6,671,400
7,500 New Jersey Transportation Authority,
(Refunding, Series B), MBIA Insured... RB Aaa/AAA 06/15/10 6.500 8,948,325
2,500 New Jersey Turnpike Authority,
(Refunding, Series A), MBIA Insured... RB Aaa/AAA 01/01/00 6.200 2,602,850
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 1,000 New Jersey Turnpike Authority,
(Refunding, Series A), MBIA Insured... RB Aaa/AAA 01/01/01 5.700% $ 1,044,100
5,275 Ocean County Utilities Authority,
(Wastewater Revenue, Refunding)....... RB Aa2/NR 01/01/99 5.000 5,328,225
-----------
TOTAL NEW JERSEY.................... 39,851,019
-----------
NEW YORK (9.7%)
1,990 Monroe County, Public Improvement,
(Partially Prerefunded, due 06/01/09),
AMBAC Insured......................... GO Aaa/AAA 06/01/08(a) 6.000 2,271,684
1,295 Monroe County, Public Improvement,
(Partially Prerefunded, due 06/01/10),
AMBAC Insured......................... GO Aaa/AAA 06/01/08(a) 6.000 1,478,307
110 Monroe County, Public Improvement,
(Prerefunded, due 06/01/09), AMBAC
Insured............................... GO Aaa/AAA 06/01/08(a) 6.000 125,570
120 Monroe County, Public Improvement,
(Prerefunded, due 06/01/10), AMBAC
Insured............................... GO Aaa/AAA 06/01/08(a) 6.000 136,986
2,000 Municipal Assistance Corp. for the City
of New York, (Series E)............... RB Aa2/AA 07/01/06 6.000 2,225,760
95 New York City, (Escrowed to Maturity,
Refunding, Series H, Subseries H-1)... GO A3/BBB+ 08/01/01 5.500 99,247
1,465 New York City, (Escrowed to Maturity,
Series B)............................. GO Aaa/AAA 06/01/01 8.000 1,642,309
2,645 New York City, (Refunding, Series A).... GO A3/BBB+ 08/01/02 5.750 2,794,099
7,000 New York City, (Refunding, Series A).... GO A3/BBB+ 08/01/04 6.750 7,859,250
3,000 New York City, (Refunding, Series F).... GO A3/BBB+ 08/01/06 5.500 3,171,900
4,480 New York City, (Refunding, Series G).... GO A3/BBB+ 08/01/03 5.000 4,604,499
1,000 New York City, (Series E), FGIC
Insured............................... GO Aaa/AAA 02/15/06 6.500 1,140,430
3,425 New York City, (Series F)............... GO A3/BBB+ 02/15/03 6.200 3,692,013
2,000 New York City, (Series G), AMBAC
Insured............................... GO Aaa/AAA 10/15/07 6.000 2,242,700
4,580 New York City, (Unrefunded Balance,
Series H, Subseries H-1).............. GO A3/BBB+ 08/01/01 5.500 4,759,673
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 5,000 New York State Dormitory Authority,
(Refunding, due 08/01/13), AMBAC
Insured............................... RB Aaa/AAA 02/01/08(a) 4.400% $ 4,964,050
2,850 New York State Dormitory Authority,
(Secured Hospital, Interfaith Medical
Center, Series D)..................... RB Baa1/BBB+ 02/15/04 5.500 2,981,499
2,000 New York State Local Government
Assistance Corp, (Refunding, Series
A), AMBAC Insured..................... RB Aaa/AAA 04/01/06 6.000 2,224,420
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 1,630,560
805 New York, (Unrefunded Balance, Series
F).................................... GO A3/BBB+ 02/15/02 6.100 855,562
8,700 Triborough Bridge & Tunnel Authority,
(Refunding, General Purpose, Series
X).................................... RB Aa/A+ 01/01/12 6.625 10,279,224
4,000 Triborough Bridge & Tunnel Authority,
(Refunding, Series V, due 01/01/05),
FGIC Insured.......................... RB Aaa/AAA 01/01/01(a) 6.875 4,330,680
-----------
TOTAL NEW YORK...................... 65,510,422
-----------
OHIO (1.2%)
2,000 Ohio State Building Authority, (Admin
Building Fund, Series A).............. RB Aa3/AA- 10/01/06 5.500 2,160,580
2,000 Ohio State Building Authority, (Admin
Building Fund, Series A, due
10/01/09)............................. RB Aa3/AA- 10/01/08(a) 5.250 2,107,560
3,195 Ohio Water Development Authority,
(Refunding, Escrowed to Maturity, due
12/01/10)............................. RB Aaa/AAA 06/01/98(a) 9.375 4,062,570
-----------
TOTAL OHIO.......................... 8,330,710
-----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
PENNSYLVANIA (1.4%)
$ 1,175 Bethel Park School District,
(Prerefunded, Series B, due 02/01/02),
AMBAC Insured......................... GO Aaa/AAA 02/01/00(a) 6.550% $ 1,232,117
970 Pennsylvania Higher Education Assistance
Agency, Student Loan Revenue,
(Refunding, Series A), FGIC Insured... RB Aaa/AAA 12/01/00 6.800 1,034,844
1,310 Pennsylvania Higher Education Facilities
Authority, College & University
Revenue, (University of Pennsylvania,
Refunding, Series A).................. RB Aa2/AA 09/01/02 6.500 1,443,476
2,800 Pennsylvania Higher Educational
Facilities Authority, Health Services
Revenue, (University of Pennsylvania,
Series A)............................. RB Aa3/AA 01/01/06 6.000 3,096,016
1,500 Pennsylvania, (2nd Series A, due
11/01/04), MBIA Insured............... GO Aaa/AAA 11/01/01(a) 6.500 1,641,510
1,000 Pennsylvania, (Refunding and Projects,
1st Series A), AMBAC Insured.......... GO Aaa/AAA 01/01/01 6.600 1,069,000
-----------
TOTAL PENNSYLVANIA.................. 9,516,963
-----------
RHODE ISLAND (0.9%)
2,000 Rhode Island, (Prerefunded, Series B,
due 10/15/01)......................... GO A1/AA- 10/15/99(a) 6.700 2,126,520
3,785 Rhode Island, Construction Capital
Development, (Series B)............... GO A1/AA- 05/15/00 6.000 3,944,878
-----------
TOTAL RHODE ISLAND.................. 6,071,398
-----------
SOUTH CAROLINA (0.2%)
1,000 Piedmont Municipal Power Agency,
(Escrowed to Maturity, Refunding),
MBIA Insured.......................... RB Aaa/AAA 01/01/08 6.200 1,141,010
-----------
TENNESSEE (0.6%)
3,500 Rutherford County, (Capital Outlay
Notes, Series A)...................... GO Aa3/AA- 05/01/07 6.500 4,041,625
-----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (6.9%)
$ 1,500 Addison, (Refunding, due 09/01/00), FGIC
Insured............................... GO Aaa/AAA 09/01/98(a) 6.250% $ 1,518,150
1,000 Arlington, (due 08/01/00), AMBAC
Insured............................... GO Aaa/AAA 08/01/99(a) 6.850 1,042,930
1,050 Austin Independent School District,
(Refunding, Series 1991), PSFG
Insured............................... GO Aaa/AAA 08/01/99 6.200 1,085,500
1,500 Austin, Utilities System, (Escrowed to
Maturity, due 10/01/01)............... RB Aaa/AAA 10/01/98(a) 6.500 1,619,550
7,500 Austin, Utilities System, (Refunding,
Series A), FSA Insured................ RB Aaa/AAA 11/15/03 5.750 7,999,275
975 Conroe Independent School District,
(Prerefunded, due 02/01/01), MBIA
Insured............................... GO Aaa/AAA 02/01/99(a) 7.100 1,004,474
25 Conroe Independent School District,
(Unrefunded Balance, due 02/01/01),
MBIA Insured.......................... GO Aaa/AAA 02/01/99(a) 7.100 25,697
2,260 Corpus Christi Independent School
District, (Refunding), PSFG Insured... GO Aaa/AAA 08/15/05 6.000 2,505,798
1,305 Dallas County, Flood Control District
#1, (Prerefunded, due 04/01/10)....... GO Aaa/NR 04/01/08(a) 9.250 1,806,146
1,650 El Paso Independent School District,
(Prerefunded, due 07/01/03), PSFG
Insured............................... GO Aaa/AAA 07/01/01(a) 6.550 1,775,400
1,700 Harris County, (Road Improvement
Authority, Prerefunded, due 11/01/03),
MBIA Insured.......................... GO Aaa/AAA 11/01/99(a) 7.000 1,787,057
3,805 Lewisville Independent School District,
(Refunding), PSFG Insured............. GO Aaa/NR 08/15/03 6.000 4,142,123
2,325 Northwest Independent School District,
Zero Coupon, (Capital Appreciation,
Refunding), PSFG Insured.............. GO Aaa/NR 08/15/03 0.000 1,842,121
2,320 Northwest Independent School District,
Zero Coupon, (Capital Appreciation,
Refunding), PSFG Insured.............. GO Aaa/NR 08/15/04 0.000 1,753,874
2,000 Plano Independent School District,
(Prerefunded, Series B, due 02/15/04),
FGIC Insured.......................... GO Aaa/AAA 02/15/01(a) 6.550 2,138,680
1,500 San Antonio, (Refunding)................ GO Aa/AA 08/01/07 6.000 1,671,525
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 2,000 Tarrant County, Health Facilities
Development Corp., (Texas Health
Resources System, Refunding, Series
A), MBIA Insured...................... RB Aaa/AAA 02/15/04 5.500% $ 2,121,120
700 Texas A & M University, (Permanent
University Fund, Refunding, due
07/01/98)............................. RB Aaa/AAA 04/06/98(a) 6.500 706,790
2,000 Texas, Public Finance Authority,
(Prerefunded, due 10/01/02)........... GO NR/AA 10/01/00(a) 6.300 2,112,420
1,000 Texas, Public Finance Authority,
(Prerefunded, due 10/01/05)........... GO NR/AA 10/01/00(a) 6.500 1,061,050
4,000 Texas, Public Finance Authority,
(Refunding, Series B)................. GO Aa2/AA 10/01/03 6.000 4,374,360
2,500 University of Texas, (Permanent
University Fund, Refunding)........... RB Aaa/AAA 07/01/01 6.300 2,681,200
-----------
TOTAL TEXAS......................... 46,775,240
-----------
UTAH (2.8%)
1,625 Intermountain Power Agency, (Refunding,
Series B), MBIA Insured............... RB Aaa/AAA 07/01/09 6.500 1,900,844
5,130 Intermountain Power Agency, (Refunding,
Series C), MBIA Insured............... RB Aaa/AAA 07/01/00 6.000 5,365,723
4,155 Intermountain Power Agency, (Refunding,
Series C), MBIA Insured............... RB Aaa/AAA 07/01/01 6.000 4,403,054
6,645 Intermountain Power Agency, (Refunding,
Series C), MBIA Insured............... RB Aaa/AAA 07/01/02 6.000 7,142,843
-----------
TOTAL UTAH.......................... 18,812,464
-----------
VIRGINIA (1.1%)
5,000 Virginia Public School Authority,
(Refunding)........................... RB Aa/AA 01/01/02 6.000 5,332,800
2,000 Virginia Public School Authority,
(Series A, due 08/01/04).............. RB Aa2/AA 08/01/01(a) 6.500 2,187,300
-----------
TOTAL VIRGINIA...................... 7,520,100
-----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (7.0%)
$ 1,555 King & Snohomish Counties, School
District #417, (due 12/01/02), FGIC
Insured............................... GO Aaa/AAA 12/01/00(a) 6.600% $ 1,660,538
6,355 King County, (Refunding, Series B)...... GO Aa1/AA+ 01/01/01 6.700 6,812,052
1,000 Pierce County School District #320,
Sumner Washington, (due 12/01/02),
MBIA Insured.......................... GO Aaa/AAA 12/01/01(a) 6.600 1,086,540
2,955 Seattle, Municipal Sewer Revenue,
(Prerefunded, Series T, due
01/01/31)............................. RB Aaa/AA- 01/01/00(a) 6.875 3,164,362
1,000 Snohomish County School District #15
(Prerefunded, due 12/01/06)........... GO NR/AAA 12/01/99(a) 7.150 1,056,200
1,250 Snohomish County School District #2,
(Refunding, Series A, due 12/01/02),
MBIA Insured.......................... GO Aaa/AAA 06/01/01(a) 6.700 1,340,938
4,815 Washington Public Power Supply System,
(Nuclear Project #1, Refunding, Series
A), MBIA Insured...................... RB Aaa/AAA 07/01/06 6.000 5,319,564
4,000 Washington Public Power Supply System,
(Nuclear Project #1, Refunding, Series
B).................................... RB Aa1/AA- 07/01/03 5.750 4,238,840
2,000 Washington Public Power Supply System,
(Nuclear Project #2, Refunding, Series
A).................................... RB Aa1/AA- 07/01/06 7.250 2,360,460
5,265 Washington Public Power Supply System,
(Nuclear Project #2, Refunding, Series
A).................................... RB Aa1/AA- 07/01/01 6.300 5,587,587
4,000 Washington Public Power Supply System,
(Nuclear Project #2, Refunding, Series
A).................................... RB Aa1/AA- 07/01/09 5.750 4,320,040
2,000 Washington Public Power Supply System,
(Nuclear Project #2, Refunding, Series
C, due 07/01/01), FGIC Insured........ RB Aaa/AAA 01/01/01(a) 7.000 2,181,000
1,500 Washington Public Power Supply System,
(Nuclear Project #2, Refunding, Series
C, due 07/01/02)...................... RB Aa1/AA- 01/01/01(a) 7.500 1,654,995
1,000 Washington, (Prerefunded, Series B, due
08/01/02)............................. GO Aa1/AA+ 08/01/00(a) 6.750 1,062,960
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 1,750 Washington, (Refunding, Series R-92-A,
due 09/01/02)......................... GO Aa1/AA+ 09/01/01(a) 6.300% $ 1,889,843
3,075 Washington, (Series A).................. GO Aa1/AA+ 01/01/07 5.250 3,260,392
-----------
TOTAL WASHINGTON.................... 46,996,311
-----------
WEST VIRGINIA (0.6%)
1,000 Berkeley County Board of Education,
(Escrowed to Maturity), MBIA
Insured............................... GO Aaa/AAA 04/01/01 7.300 1,093,640
3,000 West Virginia Public Energy Authority,
(Morgantown Association Project,
Series A, due 07/01/08), LOC Swiss
Bank Corp............................. RB Aa1/AA+ 01/01/06(a) 5.050 3,016,350
-----------
TOTAL WEST VIRGINIA................. 4,109,990
-----------
WISCONSIN (2.1%)
4,160 Milwaukee County Wisconsin, Zero Coupon
(Capital Appreciation, Refunding,
Series A) FGIC Insured................ GO Aaa/AAA 12/01/10 0.000 2,302,061
1,500 Racine Unified School District, (due
04/01/01), AMBAC Insured.............. GO Aaa/AAA 04/01/99(a) 6.500 1,538,850
5,000 Wisconsin, (Series A)................... GO Aa2/AA 05/01/99 5.750 5,115,450
5,000 Wisconsin, Transportation Revenue,
(Refunding, Series A)................. RB A1/AA- 07/01/06 4.600 5,048,600
-----------
TOTAL WISCONSIN..................... 14,004,961
-----------
WYOMING (0.6%)
3,600 Platte County, (PCR, Basin Electric
Power Cooperative, Refunding)......... RB A2/A 01/01/06 4.950 3,705,912
-----------
TOTAL LONG TERM INVESTMENTS (COST $622,297,563).................................... 656,179,681
-----------
SHORT-TERM INVESTMENTS (4.5%)
ALASKA (1.1%)
7,100 Valdez Alaska Marine Terminal, (Exxon
Pipeline Co. Project, Refunding,
Series C, due 12/01/33)............... VRDN VMIG1/A-1+ 03/02/98(b) 3.650 7,100,000
-----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
ARIZONA (0.3%)
$ 1,800 Maricopa County, (PCR, Refunding, Series
D, due 05/01/29), LOC Bank of
America............................... VRDN P-1/A-1+ 03/02/98(b) 3.550% $ 1,800,000
-----------
CALIFORNIA (0.2%)
1,300 Los Angeles Regional Airports
Improvement Corp., (Los Angeles
International Airport, due 12/01/25),
LOC Societe Generale.................. VRDN NR/A-1+ 03/02/98(b) 3.700 1,300,000
-----------
GEORGIA (0.5%)
800 Appling County Development Authority,
(PCR Georgia Power Co. Plant, Hatch
Project, due 09/01/29)................ VRDN VMIG1/A-1 03/02/98(b) 3.550 800,000
1,200 Burke County Development Authority,
(PCR, Georgia Power Co., Vogtle
Project #1, due 04/01/32)............. VRDN VMIG1/A-1 03/02/98(b) 3.550 1,200,000
Burke County Development Authority,
(PCR, Georgia Power Co., Vogtle
Project-4th. Series, due 07/01/24).... VRDN VMIG1/A-1 03/02/98(b) 3.900 500,000
1,100 Burke County Development Authority,
(PCR, Georgia Power Co., Vogtle
Project-5th Series, due 07/01/24)..... VRDN VMIG1/A-1 03/02/98(b) 3.650 1,100,000
-----------
3,600,000
-----------
ILLINOIS (0.1%)
500 Illinois Development Finance Authority,
(Olin Corp. Project, Refunding, Series
A, due 06/01/04), LOC Wachovia Bank... VRDN NR/A-1+ 03/02/98(b) 3.600 500,000
200 Illinois Educational Facilities
Authority, (University Pooled
Financing Program, due 12/01/05), FGIC
Insured............................... VRDN VMIG1/A-1+ 03/04/98(b) 3.350 200,000
-----------
700,000
-----------
</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, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
INDIANA (0.0%)*
$ 200 Indiana Development Finance Authority,
(Bayer Corp. Project, Refunding, due
03/01/09)............................. VRDN P-1/A-1+ 03/02/98(b) 3.600% $ 200,000
-----------
KANSAS (0.0%)*
100 Kansas City, (Industry Revenue
Development Corp., Refunding, IDR, due
08/01/15), LOC Credit Suisse First
Boston................................ VRDN VMIG1/NR 03/02/98(b) 3.900 100,000
-----------
LOUISIANA (0.0%)*
100 Calcasieu Parish, (Industrial
Development Board, Refunding, Olin
Corp. Project, Series B, due
02/01/16), LOC Wachovia Bank.......... VRDN NR/A-1+ 03/02/98(b) 3.600 100,000
-----------
MISSOURI (0.2%)
1,100 Missouri Environmental Impact Authority
& Energy Resource Authority, (Bayer
Corp. Project, Refunding, due
03/01/09)............................. VRDN P-1/NR 03/02/98(b) 3.000 1,100,000
-----------
NEW YORK (0.7%)
4,950 New York State Energy Research and
Development Authority, (PCR, New York
Electric and Gas, Series D, due
10/01/29), LOC Union Bank of
Switzerland........................... VRDN VMIGI/A-1+ 03/02/98(b) 3.600 4,950,000
-----------
NORTH CAROLINA (0.2%)
1,300 Winston Salem Water & Sewer System, (due
12/01/08), SPA-Wachovia Bank & Trust
Insured............................... VRDN VMIG1/A-1 03/04/98(b) 3.500 1,300,000
-----------
SOUTH DAKOTA (0.2%)
1,100 Lawrence County, (PCR, Homestake Mining,
Refunding, Series B, due 07/01/32),
LOC Chase Manhattan Bank.............. VRDN P-1/NR 03/02/98(b) 3.600 1,100,000
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S/ MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ---------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (0.7%)
$ 5,000 Texas, (Series A)....................... TAN MIG1/Sp1+ 08/31/98 4.750% $ 5,029,600
-----------
WEST VIRGINIA (0.0%)*
200 Marshall County, (Bayer Corp. Project,
Refunding, due 03/01/09).............. VRDN P-1/A-1+ 03/02/98(b) 3.600 200,000
-----------
WYOMING (0.3%)
300 Lincoln County, (PCR, Exxon Project,
Series B, due 11/01/14)............... VRDN P-1/A-1+ 03/02/98(b) 3.600 300,000
1,550 Platte County, (PCR, Tri-State G&T,
Series A, due 07/01/14), LOC Societe
Generale.............................. VRDN P-1/NR 03/02/98(b) 3.900 1,550,000
-----------
1,850,000
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $30,421,641).................................... 30,429,600
-----------
TOTAL INVESTMENTS (COST $652,719,204) (101.7%)..................................... 686,609,281
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.7%)...................................... (11,529,486)
-----------
NET ASSETS (100.0%)................................................................ $675,079,795
-----------
-----------
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $652,719,204 for federal income
tax purposes at February 28, 1998, the aggregate gross unrealized appreciation
and depreciation was $34,114,856 and $224,779, respectively, resulting in net
unrealized appreciation of investments of $33,890,077.
(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 feature. The actual maturity date
is indicated in the security description
* Less than 0.1%.
AMBAC - Ambac Indemnity Corp., FGIC - Financial Guaranty Insurance Company, FSA
- -Financial Securities Assurance, GO - General Obligation, IDR Industrial
Development Revenue, LOC-Letter of Credit, MBIA-Municipal Bond Investors
Assurance Corp., NR - Not Rated, PCR - Pollution Control Revenue, PP - Private
Placement, PSFG - Permanent School Fund Guarantee, RB - Revenue Bond, SPA -
Standby Purchase Agreement, TAN - Tax Anticipation Note, VRDN - Variable Rate
Demand Note.
Crossover Refunded: Bonds for which the issuer of the bond invest the proceeds
from a subsequent bond issue in cash and/or securities which have been
deposited.
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 coincides with the first call date of the first bond.
Prerefunded: Bonds for which the issuer of the bond invests the proceeds from a
subsequent bond issuance in treasury securities, whose maturity coincides with
the first call date of the first bond.
Refunding: Bonds for which the issuer has issued new bonds and canceled the old
issue.
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $652,719,204) $686,609,281
Cash 74,023
Interest Receivable 7,744,225
Prepaid Trustees' Fees 2,141
Prepaid Expenses and Other Assets 2,850
------------
Total Assets 694,432,520
------------
LIABILITIES
Payable for Investments Purchased 19,125,014
Advisory Fee Payable 154,605
Custody Fee Payable 19,638
Administrative Services Fee Payable 15,464
Administration Fee Payable 1,358
Fund Services Fee Payable 125
Accrued Expenses 36,521
------------
Total Liabilities 19,352,725
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $675,079,795
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
38
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $16,141,271
EXPENSES
Advisory Fee $940,061
Administrative Services Fee 94,569
Custodian Fees and Expenses 81,145
Professional Fees and Expenses 22,141
Fund Services Fee 11,153
Administration Fee 5,075
Trustees' Fees and Expenses 4,121
Miscellaneous 4,753
--------
Total Expenses 1,163,018
-----------
NET INVESTMENT INCOME 14,978,253
NET REALIZED GAIN ON INVESTMENTS 325,883
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 10,912,554
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $26,216,690
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
39
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
FEBRUARY 28, 1998 YEAR ENDED
(UNAUDITED) AUGUST 31, 1997
----------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 14,978,253 $ 26,643,745
Net Realized Gain on Investments 325,883 829,545
Net Change in Unrealized Appreciation of
Investments 10,912,554 9,668,350
----------------- ---------------
Net Increase in Net Assets Resulting from
Operations 26,216,690 37,141,640
----------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 163,066,517 284,352,430
Withdrawals (117,801,326) (209,280,115)
----------------- ---------------
Net Increase from Investors' Transactions 45,265,191 75,072,315
----------------- ---------------
Total Increase in Net Assets 71,481,881 112,213,955
NET ASSETS
Beginning of Period 603,597,914 491,383,959
----------------- ---------------
End of Period $ 675,079,795 $ 603,597,914
----------------- ---------------
----------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
PERIOD
JULY 12, 1993
(COMMENCEMENT
FOR THE OF
SIX MONTHS FOR THE FISCAL YEAR OPERATIONS)
ENDED ENDED AUGUST 31, TO
FEBRUARY 28, 1998 ------------------------- AUGUST 31,
(UNAUDITED) 1997 1996 1995 1994 1993
----------------- ---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.37%(a) 0.38% 0.38% 0.42% 0.41% 0.40%(a)
Net Investment Income 4.78%(a) 4.93% 4.92% 5.15% 4.68% 4.58%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- -- -- -- 0.01%(a)
Portfolio Turnover 6%(b) 25% 25% 47% 33% 43%(b)+
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
+ Portfolio's turnover is for the twelve month period ended August 31, 1993,
and includes the portfolio activity of the Portfolio's predecessor entity, The
JPM Pierpont Tax Exempt Bond Fund, for the period September 1, 1992 through July
11, 1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
40
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
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 $466,873,082 on that date from the J.P.
Morgan Tax Exempt Bond Fund (formerly The JPM Pierpont Tax Exempt Bond Fund) in
exchange for a beneficial interest in the portfolio. The portfolio's investment
objective is to provide a high level of current income that is exempt from
federal income tax, consistent with moderate risk of capital and maintenance of
liquidity. 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) Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in other
cases, take into account various factors affecting market value, including
yields and prices of comparable securities, indication as to value from
dealers and general market conditions. If such prices are not supplied by
the portfolio's independent pricing services, such securities are priced
in accordance with procedures adopted by the trustees. All 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.
41
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the agreement,
the portfolio pays Morgan at an annual rate of 0.30% of the portfolio's
average daily net assets. For the six months ended February 28, 1998, this
fee amounted to $940,061.
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 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 28,1998, the fee
for these services amounted to $5,075.
c) The portfolio has an Administrative Services agreement (the "Services
agreement") with Morgan under which Morgan is responsible for overseeing
certain aspects of the administration and operation of the portfolio.
Under the Services agreement, the portfolio has agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated based on the aggregate average daily net assets of the
portfolio and certain other portfolios for which Morgan 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, 1998, the fee
for these services amounted to $94,569.
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 $11,153 for the six months ended February 28, 1998.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the J.P. Morgan Funds, J.P. Morgan Institutional Funds, the
master portfolios and J.P. Morgan Series Trust. The Trustees' Fees and
Expenses shown in the financial statements represents the portfolio's
allocated portion of the total fees and expenses. The portfolio's Chairman
and Chief Executive Officer also serves as Chairman of group and receives
compensation and employee benefits from group in his role as group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $2,300.
42
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1998
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investments transactions (excluding short-term investments) for the six months
ended February 28,1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- -----------
<S> <C>
$107,083,546...... $36,249,435
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement as discussed more
fully in Note 4 of the fund's Notes to the Financial Statements which are
included elsewhere in this report.
43
<PAGE>
J.P. MORGAN FUNDS
FEDERAL MONEY MARKET FUND
PRIME MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
EMERGING MARKETS DEBT FUND
GLOBAL STRATEGIC INCOME FUND
NEW YORK TOTAL RETURN BOND FUND
SHORT TERM BOND FUND
TAX EXEMPT BOND FUND
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
JAPAN EQUITY FUND
FOR MORE INFORMATION ON HOW THE J.P. MORGAN FUNDS CAN HELP YOU PLAN FOR YOUR
FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
J.P. MORGAN
TAX EXEMPT
BOND FUND
SEMI-ANNUAL REPORT
FEBRUARY 28, 1998
