<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
September 1, 2000
Dear Shareholder:
For the 12 months ended July 31, 2000, the J.P. Morgan New York Tax Exempt Bond
Fund delivered a 4.11% return. The fund underperformed its benchmark, the Lehman
Brothers 1-16 year Municipal Bond Index, which returned 4.72%, but outperformed
its peer group, as measured by the Lipper New York Intermediate Municipal Debt
Funds Average, which returned 3.84%. The fund's 30-day SEC yield has increased
to 4.28% as of July 31, which is a tax equivalent yield of 7.09% at a 39.6%
federal income tax rate.
The fund's net asset value as of July 31, 2000 was $10.33, down slightly from
$10.35 on July 31, 1999. Dividends of approximately $0.43 per share were paid
over the year, all of which was tax-exempt income. The net assets of the fund
stood at approximately $125.2 million on July 31, 2000, while the net assets of
the portfolio, in which the fund invests, were approximately $298.0 million.
The report that follows includes an interview with Kingsley Wood, Jr., who with
Benjamin S. Thompson and Robert Meiselas, manages the portfolio. This interview
is designed to reflect what happened during the months past, as well as provide
an outlook for the future.
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions, please
telephone your Morgan representative or J.P. Morgan Funds Services at
800-521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
--------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS..........1 GLOSSARY OF TERMS ...................6
FUND PERFORMANCE....................2 FUND FACTS AND HIGHLIGHTS............7
PORTFOLIO MANAGER Q&A...............3 FINANCIAL STATEMENTS................10
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1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's performance. One is to look
at the growth of a hypothetical investment. The chart at right shows that
$10,000 invested on April 11, 1994* would have grown to $13,769 on July 31,
2000.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
GROWTH OF $10,000 SINCE FUND INCEPTION*
[GRAPH]
<TABLE>
<CAPTION>
JPM NEW YORK BOND Initial LEHMAN 1-16YR Initial LIPPER NY INTERMED Initial
Investment 10,000 MUNI BOND Investment 10,000 MUNI DEBT Investment 10,000
NET MONTHLY PLOT NET MONTHLY PLOT MONTHLY PLOT
INDEX RETURNS POINTS INDEX RETURNS POINTS AVGS. POINTS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
4/30/94 100,163.37 10,000 4/30/94 100.00 10,000 4/30/94 10,000
5/31/94 100,899.36 0.73% 10,073 5/31/94 100.86 0.86% 10,086 5/31/94 0.81% 10,081
6/30/94 100,910.92 0.01% 10,075 6/30/94 100.72 -0.14% 10,072 6/30/94 -0.22% 10,059
7/31/94 102,027.74 1.11% 10,186 7/31/94 102.11 1.38% 10,211 7/31/94 1.23% 10,183
8/31/94 102,280.73 0.25% 10,211 8/31/94 102.55 0.43% 10,255 8/31/94 0.30% 10,213
9/30/94 101,335.50 -0.92% 10,117 9/30/94 101.38 -1.14% 10,138 9/30/94 -1.08% 10,103
10/31/94 100,379.83 -0.94% 10,022 10/31/94 100.10 -1.27% 10,010 10/31/94 -1.18% 9,984
11/30/94 98,824.08 -1.55% 9,866 11/30/94 98.71 -1.39% 9,871 11/30/94 -1.61% 9,823
12/31/94 100,438.88 1.63% 10,028 12/31/94 100.39 1.70% 10,039 12/31/94 1.63% 9,983
1/31/95 102,167.87 1.72% 10,200 1/31/95 101.89 1.50% 10,189 1/31/95 1.67% 10,150
2/28/95 104,547.31 2.33% 10,438 2/28/95 104.36 2.42% 10,436 2/28/95 2.34% 10,387
3/31/95 105,259.10 0.68% 10,509 3/31/95 105.46 1.05% 10,546 3/31/95 0.72% 10,462
4/30/95 105,667.87 0.39% 10,550 4/30/95 105.77 0.29% 10,577 4/30/95 0.27% 10,490
5/31/95 108,376.50 2.56% 10,820 5/31/95 108.67 2.75% 10,867 5/31/95 2.37% 10,739
6/30/95 108,054.48 -0.30% 10,788 6/30/95 108.22 -0.42% 10,822 6/30/95 -0.27% 10,710
7/31/95 109,196.91 1.06% 10,902 7/31/95 109.44 1.12% 10,944 7/31/95 0.93% 10,809
8/31/95 110,026.77 0.76% 10,985 8/31/95 110.90 1.34% 11,090 8/31/95 1.04% 10,922
9/30/95 110,436.44 0.37% 11,026 9/30/95 111.41 0.46% 11,141 9/30/95 0.32% 10,957
10/31/95 111,480.44 0.95% 11,130 10/31/95 112.77 1.22% 11,277 10/31/95 0.93% 11,059
11/30/95 112,849.89 1.23% 11,267 11/30/95 114.36 1.41% 11,436 11/30/95 1.05% 11,175
12/31/95 113,527.03 0.60% 11,334 12/31/95 115.14 0.68% 11,514 12/31/95 0.60% 11,242
1/31/96 114,901.90 1.21% 11,471 1/31/96 116.15 0.88% 11,615 1/31/96 0.82% 11,334
2/29/96 114,231.41 -0.58% 11,405 2/29/96 115.63 -0.45% 11,563 2/29/96 -0.48% 11,280
3/31/96 112,793.37 -1.26% 11,261 3/31/96 114.66 -0.84% 11,466 3/31/96 -0.97% 11,170
4/30/96 112,444.85 -0.31% 11,226 4/30/96 114.53 -0.11% 11,453 4/30/96 -0.25% 11,142
5/31/96 112,194.82 -0.22% 11,201 5/31/96 114.37 -0.14% 11,437 5/31/96 -0.13% 11,128
6/30/96 112,938.71 0.66% 11,275 6/30/96 115.40 0.90% 11,540 6/30/96 0.71% 11,207
7/31/96 114,351.17 1.25% 11,416 7/31/96 116.52 0.97% 11,652 7/31/96 0.93% 11,311
8/31/96 114,214.11 -0.12% 11,403 8/31/96 116.49 -0.02% 11,649 8/31/96 -0.07% 11,303
9/30/96 115,310.91 0.96% 11,512 9/30/96 117.93 1.23% 11,793 9/30/96 0.98% 11,414
10/31/96 116,519.79 1.05% 11,633 10/31/96 119.14 1.03% 11,914 10/31/96 0.90% 11,517
11/30/96 118,517.72 1.71% 11,832 11/30/96 121.12 1.66% 12,112 11/30/96 1.54% 11,694
12/31/96 118,025.92 -0.41% 11,783 12/31/96 120.82 -0.25% 12,082 12/31/96 -0.36% 11,652
1/31/97 118,123.32 0.08% 11,793 1/31/97 121.24 0.35% 12,124 1/31/97 0.16% 11,671
2/28/97 119,136.16 0.86% 11,894 2/28/97 122.26 0.84% 12,226 2/28/97 0.79% 11,763
3/31/97 117,520.04 -1.36% 11,733 3/31/97 120.98 -1.05% 12,098 3/31/97 -1.04% 11,640
4/30/97 118,194.24 0.57% 11,800 4/30/97 121.88 0.75% 12,188 4/30/97 0.57% 11,707
5/31/97 119,780.31 1.34% 11,958 5/31/97 123.43 1.27% 12,343 5/31/97 1.26% 11,854
6/30/97 121,030.23 1.04% 12,083 6/30/97 124.59 0.94% 12,459 6/30/97 0.95% 11,967
7/31/97 124,130.18 2.56% 12,393 7/31/97 127.44 2.29% 12,744 7/31/97 2.30% 12,242
8/31/97 122,726.83 -1.13% 12,253 8/31/97 126.53 -0.72% 12,653 8/31/97 -0.83% 12,140
9/30/97 124,109.48 1.13% 12,391 9/30/97 127.85 1.05% 12,785 9/30/97 1.00% 12,262
10/31/97 124,435.82 0.26% 12,423 10/31/97 128.54 0.54% 12,854 10/31/97 0.43% 12,315
11/30/97 125,119.76 0.55% 12,492 11/30/97 129.08 0.42% 12,908 11/30/97 0.40% 12,364
12/31/97 126,773.67 1.32% 12,657 12/31/97 130.67 1.23% 13,067 12/31/97 1.28% 12,522
1/31/98 127,810.42 0.82% 12,760 1/31/98 131.97 0.99% 13,197 1/31/98 0.85% 12,629
2/28/98 127,544.51 -0.21% 12,734 2/28/98 132.07 0.08% 13,207 2/28/98 0.06% 12,636
3/31/98 127,502.92 -0.03% 12,729 3/31/98 132.15 0.06% 13,215 3/31/98 0.02% 12,639
4/30/98 126,629.73 -0.68% 12,642 4/30/98 131.61 -0.41% 13,161 4/30/98 -0.61% 12,562
5/31/98 128,755.62 1.68% 12,855 5/31/98 133.46 1.40% 13,346 5/31/98 1.51% 12,751
6/30/98 129,197.29 0.34% 12,899 6/30/98 133.94 0.36% 13,394 6/30/98 0.33% 12,793
7/31/98 129,267.18 0.05% 12,906 7/31/98 134.30 0.27% 13,430 7/31/98 0.15% 12,813
8/31/98 131,288.52 1.56% 13,107 8/31/98 136.20 1.42% 13,620 8/31/98 1.50% 13,005
9/30/98 132,952.98 1.27% 13,274 9/30/98 137.78 1.16% 13,778 9/30/98 1.18% 13,158
10/31/98 133,016.48 0.05% 13,280 10/31/98 138.03 0.18% 13,803 10/31/98 -0.01% 13,157
11/30/98 133,194.52 0.13% 13,298 11/30/98 138.40 0.27% 13,840 11/30/98 0.13% 13,174
12/31/98 133,609.43 0.31% 13,339 12/31/98 138.83 0.31% 13,883 12/31/98 0.39% 13,225
1/31/99 135,404.48 1.34% 13,518 1/31/99 140.60 1.27% 14,060 1/31/99 1.19% 13,383
2/28/99 134,458.46 -0.70% 13,424 2/28/99 139.98 -0.44% 13,998 2/28/99 -0.58% 13,305
3/31/99 134,374.12 -0.06% 13,415 3/31/99 140.03 0.04% 14,003 3/31/99 -0.11% 13,290
4/30/99 134,666.16 0.22% 13,445 4/30/99 140.44 0.29% 14,044 4/30/99 0.25% 13,324
5/31/99 133,822.41 -0.63% 13,360 5/31/99 139.78 -0.47% 13,978 5/31/99 -0.60% 13,244
6/30/99 131,918.19 -1.42% 13,170 6/30/99 138.01 -1.27% 13,801 6/30/99 -1.46% 13,050
7/31/99 132,473.55 0.42% 13,226 7/31/99 138.75 0.54% 13,875 7/31/99 0.47% 13,112
8/31/99 132,390.56 -0.06% 13,217 8/31/99 138.40 -0.25% 13,840 8/31/99 -0.41% 13,058
9/30/99 132,699.88 0.23% 13,248 9/30/99 138.81 0.29% 13,881 9/30/99 0.10% 13,071
10/31/99 131,977.04 -0.54% 13,176 10/31/99 138.12 -0.49% 13,812 10/31/99 -0.84% 12,961
11/30/99 132,945.65 0.73% 13,273 11/30/99 139.33 0.87% 13,933 11/30/99 0.92% 13,080
12/31/99 132,483.01 -0.35% 13,227 12/31/99 138.76 -0.41% 13,876 12/31/99 -0.49% 13,016
1/31/00 132,037.31 -0.34% 13,182 1/31/00 138.52 -0.17% 13,852 1/31/00 -0.42% 12,962
2/29/00 132,903.72 0.66% 13,269 2/29/00 139.45 0.67% 13,945 2/29/00 0.80% 13,065
3/31/00 134,715.58 1.36% 13,450 3/31/00 141.47 1.45% 14,147 3/31/00 1.63% 13,278
4/30/00 134,020.08 -0.52% 13,380 4/30/00 141.12 -0.25% 14,112 4/30/00 -0.52% 13,209
5/31/00 133,726.49 -0.22% 13,351 5/31/00 140.68 -0.31% 14,068 5/31/00 -0.40% 13,156
6/30/00 136,338.23 1.95% 13,612 6/30/00 143.69 2.14% 14,369 6/30/00 2.28% 13,456
7/31/00 137,916.56 1.16% 13,769 7/31/00 145.30 1.12% 14,530 7/31/00 1.20% 13,618
75.00 5.25% 6.16%
</TABLE>
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- ---------------------------------------
THREE SIX ONE THREE FIVE SINCE
AS OF JULY 31, 2000 MONTHS MONTHS YEAR YEARS YEARS INCEPTION*
----------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan New York
Tax Exempt Bond Fund 2.91% 4.45% 4.11% 3.57% 4.78% 5.25%
Lehman Brothers 1-16 year
Municipal Bond Index** 2.96% 4.89% 4.72% 4.47% 5.83% 6.16%
Lipper New York Intermediate
Municipal Debt Funds Average*** 3.09% 5.06% 3.84% 3.58% 4.69% 4.98%
<CAPTION>
AS OF JUNE 30, 2000
----------------------------------------------------------------------- ---------------------------------------
<S> <C> <C> <C> <C> <C> <C>
J.P. Morgan New York
Tax Exempt Bond Fund 1.20% 2.91% 3.35% 4.05% 4.76% 5.13%
Lehman Brothers 1-16 year
Municipal Bond Index** 1.57% 3.56% 4.12% 4.87% 5.83% 6.05%
Lipper New York Intermediate
Municipal Debt Funds Average*** 1.34% 3.38% 3.09% 3.95% 4.64% 4.85%*
</TABLE>
* THE FUND COMMENCED OPERATIONS ON APRIL 11, 1994, AND HAS PROVIDED AN AVERAGE
ANNUAL TOTAL RETURN OF 5.24% FROM THAT DATE THROUGH JULY 31, 2000. FOR THE
PURPOSE OF COMPARISON, THE "SINCE INCEPTION" RETURNS IN THE TABLE ABOVE ARE
CALCULATED FROM APRIL 30, 1994, THE FIRST DATE WHEN DATA FOR THE FUND, ITS
BENCHMARK, AND ITS LIPPER CATEGORY AVERAGE WERE AVAILABLE.
** PRIOR TO MAY 1, 1997 THE BENCHMARK WAS THE LEHMAN BROTHERS 1-15 YEAR
MUNICIPAL BOND INDEX. COMMENCING MAY 1, 1997 THE BENCHMARK IS THE LEHMAN
BROTHERS 1-16 YEAR MUNICIPAL BOND INDEX. BOTH ARE UNMANAGED INDICES THAT MEASURE
MUNICIPAL BOND MARKET PERFORMANCE. THEY DO NOT INCLUDE FEES OR EXPENSES AND ARE
NOT AVAILABLE FOR ACTUAL INVESTMENT.
*** DESCRIBES THE AVERAGE ANNUAL TOTAL RETURN FOR ALL FUNDS IN THE INDICATED
LIPPER CATEGORY, AS DEFINED BY LIPPER INC., AND DOES NOT TAKE INTO ACCOUNT
APPLICABLE SALES CHARGES. LIPPER ANALYTICAL SERVICES, INC. IS A LEADING SOURCE
FOR MUTUAL FUND DATA. PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND
RETURNS ARE NET OF FEES, ASSUME THE REINVESTMENT OF DISTRIBUTIONS, AND REFLECT
REIMBURSEMENT OF CERTAIN FUND AND PORTFOLIO EXPENSES AS DESCRIBED IN THE
PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER.
2
<PAGE>
Portfolio manager Q&A
Following is an interview with Kingsley Wood, Jr., who with Benjamin S. Thompson
and Robert Meiselas, manages the master portfolio in which the fund invests.
[PHOTO]
BENJAMIN S. THOMPSON, vice president, is a senior fixed income portfolio manager
and head of J.P. Morgan's municipal bond strategies. His responsibilities
include coordination of strategy and research, portfolio structuring and trade
execution for the Tax Aware Fixed Income Group. Prior to joining Morgan in 1999,
Ben was a senior fixed income portfolio manager at Goldman Sachs Asset
Management. Earlier, he was in the Structured Finance Group of the Chase
Manhattan Bank. He holds a B.A. in Economics from Colorado College.
[PHOTO]
ROBERT MEISELAS, vice president, is a portfolio manager with the Tax Aware Fixed
Income Group responsible for managing municipal bonds, including tax exempt
private placements. Bob is a CPA and joined Morgan's financial group in 1982,
after having spent 10 years at Coopers & Lybrand. He also spent five years in
J.P. Morgan's Private Banking Investment Management Group, and moved to J.P.
Morgan Investment Management in 1997. Bob is a graduate of St. John's University
and has completed graduate work in taxation at Long Island University.
[PHOTO]
KINGSLEY (KIT) WOOD, JR., vice president, is a portfolio manager in the Tax
Aware Fixed Income Group. Prior to becoming a J.P. Morgan Investment Management
employee in 2000, he worked at Mercantile Bank & Trust (MSD&T Funds) in
Baltimore, MD as a portfolio manager where he managed all institutional
tax-exempt assets (mutual funds and separate accounts). Prior to that he was a
sell-side institutional trader at ABN-AMRO Bank and Kemper Securities in
Chicago. Kit holds a B.A. from the University of Colorado and has completed
graduate work towards an M.B.A. at the University of Maryland.
This interview was conducted on August 12, 2000, and represents the views of
Kit, Ben, and Bob on that date.
WHAT WERE THE PRIMARY FACTORS THAT DROVE THE TAX-EXEMPT MARKET OVER THE 12-MONTH
PERIOD ENDED JULY 31, 2000?
KW: The Federal Reserve Board's efforts to fight inflation and slow our
overheated economy by raising interest rates was perhaps the defining factor
that drove market performance during the period in question. From June 1999 to
May 2000, the Fed raised interest rates no less than six times, totaling 175
basis points (bps). This was a marked departure from its earlier efforts to
stimulate global growth by keeping rates relatively low in the wake of the 1997
Thai currency crisis and the 1998 Russian debt crisis.
Municipal interest rates rose dramatically over the first six months of this
reporting period, as investors grew concerned about the prospect of future rate
hikes. These concerns eased during the latter six-month period,
3
<PAGE>
as investors felt the Fed was succeeding in its quest and thus would be less
inclined to raise rates much further. In response, municipal interest rates
declined sharply.
DID Y2K HAVE AN EFFECT ON THE MARKETPLACE?
KW: Fortunately, this much dreaded event had little-to-no effect on the
financial markets, largely due to the substantial preparatory efforts that were
made by market participants to ensure this desired result.
THE TREASURY YIELD CURVE INVERTED DRAMATICALLY OVER THIS PERIOD. HOW DID THIS
AFFECT THE MUNICIPAL BOND MARKET?
KW: In sympathy with the Fed's tightening bias, short-term Treasury rates rose
during much of this period, while long-term rates declined, this in response to
the Treasury's buyback of higher coupon, longer-term debt. The result of both
movements was an inverted yield curve that persists to this day. As a
consequence, the municipal yield curve flattened dramatically, with longer-dated
issues outperforming shorter-dated issues and the yield spread between 2-year
and 30-year bonds narrowing by almost 50 bps.
WHAT OTHER FACTORS IMPACTED MARKET PERFORMANCE?
KW: One was the dominance of the muni market by retail investors. Their appetite
for tax-exempt issues was almost insatiable, as they sought to avoid stock
market turbulence and lock in some of the gains they had achieved over the long
running equity bull market. Their influence was perhaps more pronounced than
usual, owing to net redemptions suffered by mutual funds and the movement of
insurance companies away from this market and toward other attractive asset
classes.
On the national scene, new issue supply declined dramatically, on the order of
22% year-on-year through July 31, 2000, as tax-rich municipalities shied away
from the marketplace. By contrast, New York new issue supply fell by only 5%
over the same period. As with the national marketplace, however, demand from
retail investors was incredibly strong. This supply/demand imbalance caused
credit-quality spreads to tighten substantially, a situation that continues to
weigh on today's marketplace.
HOW WAS THE PORTFOLIO POSITIONED OVER THIS PERIOD?
KW: Portfolio holdings throughout the period were largely composed of premium
bonds. This positioning helped a great deal during the rising interest rate
environment that prevailed over the latter half of 1999. But, the upward price
movement of these securities was impeded during the first half of 2000, when
interest rates declined.
In terms of duration, we were shorter than the Lehman Brothers Municipal 1-16
year Index during the early part of this period, in anticipation of higher
interest rates. We were neutral to the index during the November 1999 through
January 2000 period, as we waited out the Y2K event and the release of key
economic data. For the remainder of the year, we were longer than the index in
response to our expectation, since realized, of lower interest rates.
4
<PAGE>
Overall, the portfolio remains focused on very high credit-quality issues, while
we continue to search opportunistically for higher yielding securities.
HOW DID THE FUND PERFORM OVER THIS PERIOD?
KW: By the close of this reporting period, the fund had returned 4.11%, as
compared to the 4.72% return posted by the Lehman Brothers Municipal 1-16 year
Index. However, we were ahead of the Lipper New York Intermediate Muni Debt
Funds Average, which returned 3.84%.
WHAT HELPED OR HURT PERFORMANCE?
KW: Through the end of 1999, the fund performed very well, when compared to the
index and to the Lipper peer group of New York Intermediate municipal funds.
This was due primarily to our shorter duration positioning and to our
concentration in premium issues, along with an underweight position in market
discounts. This strategy helped to temper downward price movements during the
rising interest rate scenario that marked this period.
This investment posture detracted from relative performance to some degree
during the first seven months of 2000. As noted, interest rates declined over
this period, along the way boosting the performance of lower dollar-priced
issues. With our focus on high dollar-priced issues, we were unable to
participate in much of this price appreciation. Relative performance was also
impacted negatively by our major underweight in securities subject to market
discount tax treatment, which have also performed well thus far in 2000.
On the other hand, the portfolio benefited on a yield and total return
perspective from our credit research in high-yielding sectors, such as
healthcare.
WHAT IS YOUR MARKET OUTLOOK OVER THE NEAR TERM, AND HOW ARE YOU POSITIONING THE
PORTFOLIO TO TAKE ADVANTAGE OF IT?
KW: We expect that the U.S. economy will continue to slow over the course of
this year, and that the soft landing desired by the Fed will, in fact, take
hold. There may be an additional rate hike, on the order of 25 bps, but there
should be little pressure for the Fed to do much more, if anything.
The municipal marketplace will likely continue to be driven by the factors that
have defined it in 2000. Supply will remain quite low, off approximately 25%
nationally from 1999 levels. Demand will come principally from retail investors,
as they strive for diversification and high, after-tax yields.
In this environment, duration will remain longer than the benchmark to try to
capitalize on lower rates. Our position on the yield curve will remain neutral,
and our concentration will remain on high credit-quality issues, as we identify
and selectively purchase higher yielding opportunities. The one change we are
making is to increase our exposure to discounts, as we move towards a more
neutral coupon position relative to the market.
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 or 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
five-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 graph showing the term structure of interest rates at a point in
time, ranging from the shortest to the longest available. The resulting curve
shows if short-term interest rates are higher or lower than long-term rates.
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% or 100 basis points.
ZERO COUPON BOND: A debt instrument sold at a discount to its face value. The
bond makes no payment 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 New York Tax Exempt Bond Fund seeks to provide a high level of
tax-exempt income for New York residents consistent with moderate risk of
capital. It is designed for investors subject to federal and New York State
income taxes who seek a high level of income which is free from federal, state,
and New York City personal income taxes.
-------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
4/11/94
-------------------------------------------------------------------------------
FUND NET ASSETS AS OF 7/31/00
$125,172,924
-------------------------------------------------------------------------------
PORTFOLIO NET ASSETS AS OF 7/31/00
$297,964,770
-------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
-------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/00
EXPENSE RATIO
The fund's annual current expense ratio of 0.70% covers shareholders' expenses
for custody, tax reporting, investment advisory and shareholder services, after
reimbursement. The fund is no-load and does not charge any sales, redemption, or
exchange fees. There are no additional charges for buying, selling, or
safekeeping fund shares, or for wiring redemption proceeds from the fund.
Fund highlights
ALL DATA AS OF JULY 31, 2000
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[PIE CHART]
REVENUE BONDS 71.1%
GENERGAL OBLIGATIONS 13.8%
PRIVATE PLACEMENTS 10.0%
SHORT-TERM & OTHER 5.1%
30-DAY SEC YIELD
4.28%*
DURATION
5.18 years
QUALITY PROFILE
AAA-A 80.7%
Other 19.3%
* YIELD IS NET OF FEES AND REFLECTS THE REIMBURSEMENT OF CERTAIN EXPENSES AS
DISCUSSED IN THE PROSPECTUS. HAD EXPENSES NOT BEEN SUBSIDIZED, THE 30-DAY SEC
YIELD WOULD HAVE BEEN 4.23%.
7
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC., A
WHOLLY OWNED SUBSIDIARY OF J.P. MORGAN & CO. INC., IS THE PORTFOLIO'S INVESTMENT
ADVISOR. SHARES OF THE FUND ARE NOT BANK DEPOSITS AND ARE NOT GUARANTEED BY ANY
BANK, GOVERNMENT ENTITY, OR THE FDIC. RETURN AND SHARE PRICE WILL FLUCTUATE AND
REDEMPTION VALUE MAY BE MORE OR LESS THAN ORIGINAL COST.
Opinions expressed herein and other fund data presented are based on current
market conditions and are subject to change without notice. The fund invests
through a master portfolio (another fund with the same objective). Income may be
subject to state and local taxes. Some income may be subject to the federal
alternative minimum tax for certain investors. Capital gains are not exempt from
taxes. The fund is non-diversified and may invest more than 5% of its assets in
a single issuer. Because most of the fund's investments will typically be from
issuers of one state, its performance will be affected by the fiscal and
economic health of that state. Therefore, it is possible that the fund could
have returns that are more volatile than diversified funds.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE INVESTING.
8
<PAGE>
THIS PAGE HAS BEEN LEFT BLANK INTENTIONALLY
<PAGE>
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The New York Tax Exempt Bond
Portfolio ("Portfolio"), at value $125,241,341
Receivable for Shares of Beneficial Interest Sold 82,400
Receivable for Expense Reimbursements 4,813
Prepaid Trustees' Fees 217
Prepaid Expenses and Other Assets 303
------------
Total Assets 125,329,074
------------
LIABILITIES
Dividends Payable to Shareholders 72,318
Shareholder Servicing Fee Payable 25,907
Administrative Services Fee Payable 2,508
Fund Services Fee Payable 105
Administration Fee Payable 83
Accrued Expenses 55,229
------------
Total Liabilities 156,150
------------
NET ASSETS
Applicable to 12,114,479 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $125,172,924
============
Net Asset Value, Offering and Redemption Price
Per Share $10.33
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $125,650,285
Distributions in Excess of Net Investment Income (11,246)
Accumulated Net Realized Loss on Investment (1,767,659)
Net Unrealized Appreciation of Investment 1,301,544
------------
Net Assets $125,172,924
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $5,790,877
Allocated Portfolio Expenses (435,632)
----------
Net Investment Income Allocated from
Portfolio 5,355,245
FUND EXPENSES
Shareholder Servicing Fee $295,104
Administrative Services Fee 29,157
Transfer Agent Fees 26,258
Professional Fees 15,134
Registration Fees 13,802
Fund Services Fee 1,907
Trustees' Fees and Expenses 1,458
Administration Fee 1,437
Miscellaneous 38,889
--------
Total Fund Expenses 423,146
Less: Reimbursement of Expenses (32,376)
--------
NET FUND EXPENSES 390,770
----------
NET INVESTMENT INCOME 4,964,475
NET REALIZED LOSS ON INVESTMENT ALLOCATED FROM
PORTFOLIO (1,589,478)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 1,488,266
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $4,863,263
==========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FOUR FOR THE FISCAL
YEAR ENDED MONTHS ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999 MARCH 31, 1999
-------------- ------------- --------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 4,964,475 $ 1,464,503 $ 4,010,414
Net Realized Loss on Investment Allocated from
Portfolio (1,589,478) (170,050) 1,133,357
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio 1,488,266 (2,846,951) (109,003)
------------- ------------ -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 4,863,263 (1,552,498) 5,034,768
------------- ------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (4,964,475) (1,464,503) (4,010,414)
Net Realized Gain -- (277,867) (1,007,351)
Distributions in Excess of Net Investment Income (32,252) -- --
------------- ------------ -------------
Total Distributions to Shareholders (4,996,727) (1,742,370) (5,017,765)
------------- ------------ -------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 45,697,281 13,194,347 55,749,920
Reinvestment of Dividends and Distributions 4,108,753 1,435,861 3,927,401
Cost of Shares of Beneficial Interest Redeemed (40,190,046) (14,796,491) (25,703,457)
------------- ------------ -------------
Net Increase (Decrease) from Transactions in
Shares of Beneficial Interest 9,615,988 (166,283) 33,973,864
------------- ------------ -------------
Total Increase (Decrease) in Net Assets 9,482,524 (3,461,151) 33,990,867
NET ASSETS
Beginning of Period 115,690,400 119,151,551 85,160,684
------------- ------------ -------------
End of Period (including undistributed net
investment income of $0, $21,047, and $21,047,
respectively) $ 125,172,924 $115,690,400 $ 119,151,551
============= ============ =============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
--------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FOUR FOR THE FISCAL YEAR ENDED MARCH 31,
YEAR ENDED MONTHS ENDED -----------------------------------------
JULY 31, 2000 JULY 31, 1999 1999 1998 1997 1996
-------------- ------------- -------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.35 $ 10.66 $ 10.62 $ 10.28 $ 10.34 $ 10.11
-------- -------- -------- ------- ------- -------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.43 0.13 0.42 0.46 0.46 0.46
Net Realized and Unrealized Gain (Loss) on
Investment (0.02) (0.28) 0.14 0.40 (0.03) 0.26
-------- -------- -------- ------- ------- -------
Total from Investment Operations 0.41 (0.15) 0.56 0.86 0.43 0.72
-------- -------- -------- ------- ------- -------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.43) (0.13) (0.42) (0.46) (0.46) (0.46)
Net Realized Gain -- (0.03) (0.10) (0.06) (0.03) (0.03)
Distributions in Excess of Net Investment Income (0.00)(c) -- -- -- -- --
-------- -------- -------- ------- ------- -------
Total Distributions to Shareholders (0.43) (0.16) (0.52) (0.52) (0.49) (0.49)
-------- -------- -------- ------- ------- -------
NET ASSET VALUE, END OF PERIOD $ 10.33 $ 10.35 $ 10.66 $ 10.62 $ 10.28 $ 10.34
======== ======== ======== ======= ======= =======
RATIOS AND SUPPLEMENTAL DATA
Total Return 4.11% (1.41)%(a) 5.39% 8.49% 4.19% 7.16%
Net Assets, End of Period (in thousands) $125,173 $115,690 $119,152 $85,161 $56,198 $50,523
Ratios to Average Net Assets
Net Expenses 0.70% 0.70%(b) 0.70% 0.71% 0.75% 0.75%
Net Investment Income 4.19% 3.82%(b) 3.95% 4.33% 4.44% 4.43%
Expenses without Reimbursement 0.73% 0.78%(b) 0.74% 0.77% 0.81% 0.79%
</TABLE>
------------------------
(a) Not Annualized.
(b) Annualized.
(c) Less than $0.01.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The J.P. Morgan New York 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 commenced operations on April 11, 1994. At a meeting on November 12,
1998, the trustees elected to change the funds fiscal year end from March 31 to
July 31.
The fund invests all of its investable assets in The New York Tax Exempt Bond
Portfolio (the "portfolio"), a non-diversified open-end management investment
company having the same investment objective as the fund. The value of such
investment included in the Statement of Assets and Liabilities reflects the
fund's proportionate interest in the net assets of the portfolio (42% at
July 31, 2000). The performance of the fund is directly affected by the
performance of the portfolio. The financial statements of the portfolio,
including the Schedule of Investments, are included elsewhere in this report and
should be read in conjunction with the fund's financial statements.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the fund:
a) Valuation of securities by the portfolio is discussed in Note 1a of the
portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b) The fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the portfolio is allocated pro rata among the fund and other
investors in the portfolio at the time of such determination.
c) Substantially all the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
d) Expenses incurred by the trust with respect to any two or more funds in
the trust are allocated in proportion to the net assets of each fund in
the trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
e) The fund is treated as a separate entity for federal income tax purposes.
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.
f) The fund accounts for and reports distributions to shareholders in
accordance with "Statement of Position 93-2: Determination, Disclosure,
and Financial Statement Presentation of Income, Capital Gain, and Return
of Capital Distributions by Investment Companies." The effect of applying
this statement as of July 31, 2000 was to increase distributions in excess
of net investment income by $41,
14
<PAGE>
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
increase accumulated net realized loss on investment by $437 and increase
paid in capital by $478. Net investment income, net realized gains and net
assets were not affected by this change. This adjustment is primarily
attributable to the application of tax allocation rules.
g) For federal income tax purposes, the fund had a capital loss carryforward
at July 31, 2000 of $610,415, all of which expires in the year 2008. To
the extent that this capital loss is used to offset future capital gains,
it is probable that gains so offset will not be distributed to
shareholders.
h) The fund incurred approximately $1,153,135 of capital losses in the period
from November 1, 1999 to July 31, 2000. These losses were deferred for tax
purposes until August 1, 2000.
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
fiscal year ended July 31, 2000, the fee for these services amounted to
$1,437.
b) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan Guaranty Trust Company of New York
("Morgan"), a wholly owned subsidiary of J.P. Morgan & Co. Incorporated
("J.P. Morgan"), under which Morgan is responsible for certain aspects of
the administration and operation of the fund. Under the Services
Agreement, the fund has agreed to pay Morgan a fee equal to its allocable
share of an annual complex-wide charge. This charge is calculated based on
the aggregate average daily net assets of the portfolio and the other
portfolios in which the trust and the J.P. Morgan 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 fiscal year ended July 31, 2000, the fee
for these services amounted to $29,157.
In addition, J.P. Morgan has agreed to reimburse the fund to the extent
necessary to maintain the total operating expenses of the fund, including
the expenses allocated to the fund from the portfolio, at no more than
0.70% of the average daily net assets of the fund. This reimbursement
arrangement can be
15
<PAGE>
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
changed or terminated at any time after November 28, 2000, at the option
of J.P. Morgan. For the fiscal year ended July 31, 2000, Morgan has
agreed to reimburse the fund $32,376 for expenses under this agreement.
c) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.25% of the average daily net assets of
the fund. For the fiscal year ended July 31, 2000, the fee for these
services amounted to $295,104.
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 Schwab 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
$1,907 for the fiscal year ended July 31, 2000.
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Institutional Funds, the master
portfolios and J.P. Morgan Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represent 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 $400 for the fiscal
year ended July 31, 2000.
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 FISCAL FOR THE FOUR FOR THE FISCAL
YEAR ENDED MONTHS ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999 MARCH 31, 1999
-------------- ------------- --------------
<S> <C> <C> <C>
Shares of Beneficial Interest Sold............... 4,481,014 1,260,215 5,203,659
Reinvestment of Dividends and Distributions...... 402,321 137,469 366,522
Shares of Beneficial Interest Redeemed........... (3,943,919) (1,403,433) (2,405,543)
------------- ----------- -------------
Net Increase (Decrease).......................... 939,416 (5,749) 3,164,638
============= =========== =============
</TABLE>
16
<PAGE>
J.P. MORGAN NEW YORK TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
From time to time, the fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the fund.
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 26, 1999, with unaffiliated lenders. Additionally, since all
of the investable assets of the fund are in the portfolio, the portfolio is
party to certain covenants of the Agreement. The Agreement expired on May 23,
2000, however, the fund as party to the Agreement has extended the Agreement and
continues its participation therein for an additional 364 days until May 21,
2001. The maximum borrowing under the Agreement is $150,000,000. The purpose of
the Agreement is to provide another alternative for settling large fund
shareholder redemptions. Interest on any such borrowings outstanding will
approximate market rates. The funds pay a commitment fee at an annual rate of
0.085% on the unused portion of the committed amount. This is allocated to the
funds in accordance with procedures established by their respective trustees or
directors. There were no outstanding borrowings pursuant to the Agreement at
July 31, 2000.
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan New York Tax Exempt Bond Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
J.P. Morgan New York Tax Exempt Bond Fund (one of the series constituting part
of the J.P. Morgan Funds, hereafter referred to as the "fund") at July 31, 2000,
the results of its operations for the year then ended, and the changes in its
net assets for the year then ended, for the four months ended July 31, 1999 and
for the year ended March 31, 1999 and the financial highlights for the year then
ended, for the four months ended July 31, 1999 and for the four years ended
March 31, 1999, in conformity with accounting principles generally accepted in
the United States. These financial statements and financial highlights
(hereafter referred to as "financial statements") are the responsibility of the
fund's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
financial statements in accordance with auditing standards generally accepted in
the United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
September 15, 2000
18
<PAGE>
The New York Tax Exempt Bond Portfolio
Annual Report July 31, 2000
(The following pages should be read in conjunction
with J.P. Morgan New York Tax Exempt Bond Fund
Annual Financial Statements)
19
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL SECURITY S&P
AMOUNT TYPE RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (95.6%)
ARIZONA (2.0%)
$ 6,000 Arizona Healthcare Facilities Authority
(Catholic Healthcare Revenue,
Series A)............................. RB Baa1/BBB+ 07/01/09 6.125% $ 5,970,000
------------
ILLINOIS (1.0%)
3,000 Illinois Development Finance
Authority............................. PP NR/NR 08/01/28 4.350 2,979,600
------------
MASSACHUSETTS (1.7%)
5,000 Massachusetts, (Consolidation Loan,
Series B)............................. GO Aa2/AA- 06/01/13 5.750 5,210,700
------------
MICHIGAN (2.6%)
2,334 City of Detroit Public School........... PP NR/NR 10/15/01 5.485 2,340,636
365 City of Detroit Public School, (Public
Power Revenue)........................ PP NR/NR 10/15/00 6.360 366,147
5,000 Michigan State Hospital, (Finance
Authority Revenue, Ascension Health
Credit, Series B)..................... RB Aa2/AA 11/15/33 5.300 5,016,250
------------
TOTAL MICHIGAN...................... 7,723,033
------------
NEW YORK (85.9%)
6,895 Babylon Industrial Development Agency,
(Civic Facilities Revenue, Series A),
AMBAC Insured......................... RB Aaa/AAA 08/01/19 6.625 7,493,762
4,200 City University of New York, (John Jay
College, Refunding), MBIA-IBC
Insured............................... RB Aaa/AAA 08/15/05 5.750 4,403,742
5,710 Long Island Power Authority, (Electric
Systems Revenue), FSA Insured......... RB Aaa/AAA 04/01/04 4.000 5,524,025
4,000 Metropolitan Transporation Authority,
(Commuter Facilities Revenue,
Refunding, Series D), MBIA Insured.... RB Aaa/AAA 07/01/06 6.000 4,264,720
5,500 Metropolitan Transportation Authority,
(Dedicated Tax Fund, Series A), MBIA
Insured............................... RB Aaa/AAA 04/01/11 6.250 6,069,855
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL SECURITY S&P
AMOUNT TYPE RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,065 Monroe County, (Public Improvement,
Escrowed to Maturity, Series 1995),
AMBAC Insured......................... GO Aaa/AAA 06/01/08 5.875% $ 1,145,365
65 Monroe County, (Public Improvement,
Unrefunded Balance, Series 1995),
AMBAC Insured......................... GO Aaa/AAA 06/01/08 5.875 69,905
5,000 Municipal Assistance Corp. for the City
of New York (Series H)................ RB Aa2/AA 07/01/05 6.000 5,293,600
2,150 Municipal Assistance Corp. for the City
of New York, (Refunding, Series G).... RB Aa2/AA 07/01/05 6.000 2,276,248
1,460 New York City Industrial Development
Agency, (Civil Facilities Revenue,
YMCA Greater New York Project)........ RB Baa3/NR 08/01/05 6.000 1,487,214
1,000 New York City Industrial Development
Agency, (IDR, Brooklyn Navy Yard,
Cogen Partners, Refunding)............ RB Baa3/BBB- 10/01/22 6.200 969,270
5,000 New York City Municipal Water Finance
Authority, (Water & Sewer Systems
Revenue, Prerefunded, Series B, due
06/15/20)............................. RB Aaa/AAA 06/15/06(a) 6.250 5,455,250
4,000 New York City Transitional Finance
Authority, (Future Tax Secured,
Series B)............................. RB Aa3/AA 11/15/14 6.125 4,277,480
695 New York City, (Prerefunded, Series D,
due 02/15/07)......................... GO A3/A- 02/15/05(a) 5.750 732,718
750 New York City, (Series G), AMBAC
Insured............................... GO Aaa/AAA 02/01/06 5.750 786,067
1,000 New York City, (Series G), MBIA-IBC
Insured............................... GO Aaa/AAA 02/01/09 6.750 1,123,080
4,000 New York City, (Series I), MBIA
Insured............................... GO Aaa/AAA 04/15/07 6.250 4,328,360
2,610 New York City, (Unrefunded Balance,
Series A)............................. GO A3/A- 08/01/00 6.000 2,610,000
4,305 New York City, (Unrefunded Balance,
Series D)............................. GO A3/A- 02/15/07 5.750 4,483,012
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL SECURITY S&P
AMOUNT TYPE RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$10,000 New York Convention Center Operating
Corp., (Yale Building Acquisition
Project).............................. PP NR/NR 12/01/04 6.500% $ 10,147,700
6,330 New York Office of Temporary and
Disability Assistance................. PP NR/NR 07/01/04 5.210 6,330,700
4,083 New York Office of Temporary and
Disability Assistance, (General
Obligation)........................... PP NR/NR 03/31/05 4.480 4,079,658
4,375 New York State.......................... GO A2/A+ 03/01/07 6.000 4,670,094
4,485 New York State Dormitory Authority,
(City University, Prerefunded, due
07/01/19), MBIA Insured............... RB Aaa/AAA 07/01/04(a) 6.250 4,761,724
2,280 New York State Dormitory Authority,
(Columbia University)................. RB Aaa/AAA 07/01/07 5.250 2,353,028
3,745 New York State Dormitory Authority,
(Concord Nursing Home)................ RB A1/NR 07/01/16 6.250 3,878,884
2,000 New York State Dormitory Authority,
(Cornell University, Refunding)....... RB Aa1/AA+ 07/01/08 5.300 2,066,580
5,650 New York State Dormitory Authority,
(Mental Health Services Facilities,
Refunding, Series B).................. RB A3/A 02/15/06 6.000 5,952,049
2,500 New York State Dormitory Authority, (New
York Presbyterian Hospital), AMBAC-FHA
Insured............................... RB Aaa/AAA 08/01/13 4.400 2,448,850
2,000 New York State Dormitory Authority, (New
York University, Series A), MBIA
Insured............................... RB Aaa/AAA 07/01/06 5.000 2,030,140
2,000 New York State Dormitory Authority,
(North General Hospital, Refunding,
Series G)............................. RB Baa1/A 02/15/05 5.500 2,039,140
2,530 New York State Dormitory Authority,
(North Shore University Hospital,
Refunding), MBIA Insured.............. RB Aaa/AAA 11/01/10 5.500 2,631,200
3,450 New York State Dormitory Authority,
(Pratt Institute)..................... RB NR/AA 07/01/14 6.250 3,684,910
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL SECURITY S&P
AMOUNT TYPE RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,500 New York State Dormitory Authority,
(State University Educational
Facilities, Refunding, Series A)...... RB A3/A 05/15/04 6.500% $ 1,590,315
3,000 New York State Dormitory Authority,
(State University Educational
Facilities, Refunding, Series A), FGIC
Insured............................... RB Aaa/AAA 05/15/11 5.875 3,220,530
1,210 New York State Dormitory Authority,
(University of Rochester,
Series A)............................. RB A1/A+ 07/01/06 6.500 1,318,392
3,000 New York State Environmental Facilities
Corp., (PCR, State Water, Revolving
Fund, New York City Municipal
Water)................................ RB Aa1/AA+ 06/15/08 5.750 3,187,020
3,000 New York State Environmental Facilities
Corp., (PCR, State Water, Revolving
Fund, New York City Municipal
Water)................................ RB Aa1/AA+ 06/15/12 5.750 3,190,080
10,000 New York State Environmental Facilities
Corp., (PCR, State Water, Revolving
Fund, New York City Municipal
Water)................................ RB Aa1/AA+ 06/15/10 5.750 10,686,000
5,000 New York State Environmental Facilities
Corp., (PCR, State Water, Revolving
Fund, New York City Municipal Water,
Refunding)............................ RB Aa1/AA+ 06/15/11 5.750 5,322,150
5,110 New York State Environmental Facilities
Corp., (State Clean Water and
Drinking, Revolving Funds,
Series B)............................. RB Aaa/AAA 07/15/14 5.700 5,279,908
5,500 New York State Environmental Facilities
Corp., (State Clean Water and
Drinking, Revolving Funds,
Series C)............................. RB Aa1/AA- 06/15/12 5.250 5,531,515
10,000 New York State Local Government
Assistance Corp., (Prerefunded,
Series C, due 04/01/18)............... RB Aaa/AA- 04/01/02(a) 6.250 10,483,500
8,350 New York State Local Government
Assistance Corp., (Refunding,
Series E)............................. RB A3/AA- 04/01/14 6.000 8,977,920
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL SECURITY S&P
AMOUNT TYPE RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 500 New York State Medical Care Facilities,
(Finance Agency Revenue, Prerefunded,
Series F, due 08/15/15), FHA
Insured............................... RB Aa2/AA 08/15/05(a) 6.200% $ 528,575
2,000 New York State Power Authority, (Revenue
& General Purpose, Escrowed to
Maturity, Series W)................... RB Aaa/AAA 01/01/03 6.625 2,097,380
6,000 New York State Power Authority, (Revenue
& General Purpose, Prerefunded,
Series AA, due 01/01/23).............. RB Aaa/AAA 01/01/02(a) 6.250 6,265,380
3,770 New York State Thruway Authority,
(Highway & Bridge, Series A), FSA
Insured............................... RB Aaa/AAA 04/01/14 6.000 4,019,197
500 New York State Thruway Authority,
(Highway & Bridge, Series B), MBIA
Insured............................... RB Aaa/AAA 04/01/05 6.000 527,760
5,105 New York State Thruway Authority,
(Highway & Bridge, Series C), FGIC
Insured............................... RB Aaa/AAA 04/01/08 5.500 5,321,758
2,000 New York State Thruway Authority,
(Service Contract Revenue, Local
Highway & Bridge)..................... RB Baa1/A 04/01/05 6.000 2,095,680
2,000 New York State Thruway Authority,
(Service Contract Revenue, Local
Highway & Bridge)..................... RB Baa1/A 04/01/04 5.500 2,049,720
4,950 New York State Thruway Authority,
(Service Contract Revenue, Local
Highway & Bridge, Prerefunded, due
04/01/15)............................. RB Baa1/NR 04/01/05(a) 6.450 5,407,776
2,470 New York State Urban Development Corp.,
(Center for Industrial Innovation,
Refunding)............................ RB Baa1/A 01/01/06 6.250 2,624,795
2,000 New York State Urban Development Corp.,
(Correctional Capital Facilities,
Series 6)............................. RB Baa1/A 01/01/03 6.000 2,056,680
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL SECURITY S&P
AMOUNT TYPE RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 2,000 New York State Urban Development Corp.,
(Senior Lien)......................... RB Aaa/AAA 07/01/09 5.750% $ 2,113,160
2,635 New York State Urban Development Corp.,
(Subordinated Lien, Refunding)........ RB A2/A 01/01/06 6.000 2,772,995
5,250 New York State, (Refunding,
Series A)............................. GO A2/A+ 07/15/06 6.500 5,725,965
1,350 New York State, (Refunding,
Series C)............................. GO A2/A+ 10/01/04 6.000 1,419,579
1,395 Niagra Falls, (City School District,
High School Facility)................. RB Baa2/BBB- 06/15/06 5.625 1,420,696
1,000 Orange County, (Refunding).............. GO Aa2/NR 11/15/04 5.500 1,035,270
3,600 Port Authority of New York and New
Jersey, (Delta Air Lines Inc. Project,
Series 1R)............................ RB Baa3/BBB- 06/01/08 6.950 3,759,552
4,365 Suffolk County, (Southwest Sewer
District, Refunding), MBIA Insured.... GO Aaa/AAA 02/01/08 6.000 4,688,839
3,690 Tobacco Settlement Asset Securitization
Corp. Inc., (Tobacco Flexible
Amortization Bonds, Series 1)......... RB Aa1/A+ 07/15/06 4.800 3,668,340
4,175 Tobacco Settlement Asset Securitization
Corp. Inc., (Tobacco Flexible
Amortization Bonds, Series 1)......... RB Aa1/A+ 07/15/07 4.875 4,166,024
2,690 Tobacco Settlement Asset Securitization
Corp. Inc., (Tobacco Flexible
Amortization Bonds, Series 1)......... RB Aa1/A+ 07/15/08 5.000 2,690,646
1,500 Triborough Bridge & Tunnel Authority,
(General Purpose, Refunding,
Series Y)............................. RB Aa3/A+ 01/01/07 5.900 1,594,140
3,960 Triborough Bridge & Tunnel Authority,
(Special Obligation, Refunding,
Series A), FGIC Insured............... RB Aaa/AAA 01/01/07 5.500 4,115,153
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
MOODY'S/
PRINCIPAL SECURITY S&P
AMOUNT TYPE RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 2,000 Trust for Cultural Resources of the City
of New York, (Public Power Revenue,
Series 1999).......................... PP NR/NR 01/01/08 4.600% $ 1,962,740
3,230 Yonkers, (Series C), AMBAC Insured...... GO Aaa/AAA 08/01/04 5.500 3,325,479
------------
TOTAL NEW YORK...................... 256,108,939
------------
NORTH CAROLINA (1.8%)
5,000 North Carolina Municipal Power Agency,
(Catawba Electric Revenue,
Series B)............................. RB Baa1/BBB+ 01/01/08 6.375 5,244,400
------------
PUERTO RICO (0.6%)
1,637 Commonwealth of Puerto Rico, (General
Obligation)........................... PP NR/NR 12/04/03 7.469 1,709,799
------------
TOTAL LONG TERM INVESTMENTS (COST $281,811,119).......................................... 284,946,471
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARES SECURITY DESCRIPTION VALUE
------------- ---------------------------------------- ------------
<C> <S> <C>
SHORT-TERM INVESTMENTS (5.2%)
OTHER INVESTMENT COMPANIES (5.2%)
15,374,680 J.P. Morgan Institutional Tax Exempt
Money Market Fund*
(cost $15,374,680).................... $ 15,374,680
------------
TOTAL INVESTMENTS (COST $297,185,799)
(100.8%).............................. 300,321,151
LIABILITIES IN EXCESS OF OTHER ASSETS
(-0.8%)............................... (2,356,381)
------------
NET ASSETS (100.0%)..................... $297,964,770
============
</TABLE>
------------------------------
Note: Based on the cost of investments of $297,195,259 for federal income tax
purposes at July 31, 2000, the aggregate gross unrealized appreciation and
depreciation was $3,841,189 and $715,297, respectively, resulting in net
unrealized appreciation of investments of $3,125,892.
(a)The date listed under the heading maturity date represents an optional tender
date or the next interest rate reset date. The final maturity date is
indicated in the security description.
AMBAC - Ambac Indemnity Corp., FGIC - Financial Guaranty Insurance Company,
FHA - Federal Housing Authority, FSA - Financial Security Assurance, GO -
General Obligation, IBC - IBC Financial Data, Inc., IDR - Industrial Development
Revenue,
MBIA - Municipal Bond Investors Assurance Corp., NR - Not Rated, PCR - Pollution
Control Revenue, PP - Private Placement,
RB - Revenue Bond.
*Money Market mutual fund registered under the Investment Act of 1940, as
amended and advised by J.P. Morgan Investment Management, Inc.
Escrowed to Maturity: Bonds for which cash and/or securities have been deposited
with a third party to cover payments of principal and interest at the maturity
which coincides with the first call date of the first bond.
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $297,185,799 ) $300,321,151
Interest Receivable 3,805,002
Prepaid Trustees' Fees 556
Prepaid Expenses and Other Assets 5,285
------------
Total Assets 304,131,994
------------
LIABILITIES
Payable to Custodian 15,114
Payable for Investments Purchased 6,002,667
Advisory Fee Payable 74,542
Administrative Services Fee Payable 6,016
Fund Services Fee Payable 254
Administration Fee Payable 127
Accrued Expenses 68,504
------------
Total Liabilities 6,167,224
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $297,964,770
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $13,521,221
EXPENSES
Advisory Fee $809,418
Administrative Services Fee 68,240
Custodian Fees and Expenses 57,594
Professional Fees and Expenses 39,613
Fund Services Fee 4,457
Trustees' Fees and Expenses 2,921
Administration Fee 1,981
Miscellaneous 13,150
--------
Total Expenses 997,374
-----------
NET INVESTMENT INCOME 12,523,847
NET REALIZED LOSS ON INVESTMENTS (3,934,965)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 3,738,355
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $12,327,237
===========
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FOUR FOR THE FISCAL
YEAR ENDED MONTHS ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999 MARCH 31, 1999
-------------- ------------- --------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 12,523,847 $ 4,079,089 $ 11,297,890
Net Realized Loss on Investments (3,934,965) (774,564) 2,712,515
Net Change in Unrealized Appreciation
(Depreciation) of Investments 3,738,355 (7,106,907) 142,962
------------- ------------ -------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 12,327,237 (3,802,382) 14,153,367
------------- ------------ -------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 90,169,287 30,864,819 162,950,459
Withdrawals (81,529,772) (70,994,351) (53,185,304)
------------- ------------ -------------
Net Increase (Decrease) from Investors'
Transactions 8,639,515 (40,129,532) 109,765,155
------------- ------------ -------------
Total Increase (Decrease) in Net Assets 20,966,752 (43,931,914) 123,918,522
NET ASSETS
Beginning of Period 276,998,018 320,929,932 197,011,410
------------- ------------ -------------
End of Period $ 297,964,770 $276,998,018 $ 320,929,932
============= ============ =============
</TABLE>
--------------------------------------------------------------------------------
SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
FOR THE FISCAL FOR THE FOUR ENDED MARCH 31,
YEAR ENDED MONTHS ENDED ----------------------
JULY 31, 2000 JULY 31, 1999 1999 1998 1997 1996
-------------- ------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.36% 0.40%(a) 0.38% 0.40% 0.43% 0.44%
Net Investment Income 4.52% 4.10%(a) 4.26% 4.62% 4.75% 4.72%
Portfolio Turnover 86% 8%(b) 44% 51% 35% 41%
</TABLE>
------------------------
(a) Annualized.
(b) Not annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
--------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The New York Tax Exempt Bond Portfolio (the "portfolio") is registered under the
Investment Company Act of 1940, as amended, as a no-load, non-diversified,
open-end management investment company which was organized as a trust under the
laws of the State of New York on June 16, 1993. The portfolio commenced
operations on April 11, 1994. The portfolio's investment objective is to provide
a high level of tax exempt income for New York residents consistent with
moderate risk of capital. The portfolio invests a significant amount of its
assets in debt obligations issued by political subdivisions and authorities in
the State of New York. The issuers' ability to meet their obligations may be
affected by economic and political developments within the State of New York.
The Declaration of Trust permits the trustees to issue an unlimited number of
beneficial interests in the portfolio. At a meeting on November 12, 1998, the
trustees elected to change the portfolio's fiscal year end from March 31 to
July 31.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the portfolio:
a) The portfolio values securities that are listed on an exchange using
prices supplied daily by an independent pricing service that are based on
the last traded price on a national securities exchange or in the absence
of recorded trades, at the readily available bid price on such exchange,
if such exchange or market constitutes the broadest and most
representative market for the security. Independent pricing service
procedures may also include the use of prices based on yields or prices of
securities of comparable quality, coupon, maturity and type, indications
as to values from dealers, operating data, and general market conditions.
Unlisted securities are valued at the quoted bid price in the over-the-
counter market provided by a principal market maker or dealer. If prices
are not supplied by the portfolio's independent pricing service or
principal market maker or dealer, such securities are priced using fair
values in accordance with procedures adopted by the portfolio's trustees.
All short-term portfolio securities with a remaining maturity of sixty
days or less are valued using the amortized cost method.
b) Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
c) The portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the portfolio will be taxed on its
share of the portfolio's ordinary income and capital gains. It is intended
that the portfolio's assets will be managed in such a way that an investor
in the portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code.
2. TRANSACTIONS WITH AFFILIATES
a) The portfolio has an Investment Advisory Agreement with J.P. Morgan
Investment Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty
Trust Company of New York ("Morgan"), a wholly
31
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
owned subsidiary of J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under
the terms of the agreement, the portfolio paid Morgan at an annual rate of
0.30% of the portfolio's average daily net assets. For the fiscal year
ended July 31, 2000, such fees amounted to $828,790.
The portfolio may invest in one or more affiliated money market funds:
J.P. Morgan Institutional Prime Money Market Fund, J.P. Morgan
Institutional Tax Exempt Money Market Fund, J.P. Morgan Institutional
Federal Money Market Fund and J.P. Morgan Institutional Treasury Money
Market Fund. The Advisor has agreed to reimburse its advisory fee from the
portfolio in an amount to offset any doubling of investment advisory,
shareholder servicing, and administrative services fees. For the fiscal
year ended July 31, 2000, J.P. Morgan has agreed to reimburse the fund
$19,372 under this agreement. Interest income included in the Statement of
Operations for the year ended July 31, 2000 includes $253,500 of interest
income from investment in affiliated money market funds.
b) The trust on behalf of 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 fiscal year
ended July 31, 2000, the fee for these services amounted to $1,981.
c) The trust on behalf of the portfolio has an Administrative Services
Agreement (the "Services Agreement") with Morgan under which Morgan is
responsible for certain aspects of the administration and operation of the
portfolio. Under the Services Agreement, the portfolio has agreed to pay
Morgan a fee equal to its allocable share of an annual complex-wide
charge. This charge is calculated based on the aggregate average daily net
assets of the portfolio and certain other portfolios for which JPMIM acts
as investment advisor (the "master portfolios") and J.P. Morgan Series
Trust in accordance with the following annual schedule: 0.09% on the first
$7 billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the portfolio is determined by the proportionate share that its net assets
bear to the net assets of the master portfolios, other investors in the
master portfolios for which Morgan provides similar services, and J.P.
Morgan Series Trust. For the fiscal year ended July 31, 2000, the fee for
these services amounted to $68,240.
d) The trust on behalf of 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. For the fiscal year ended July 31, 2000, the portfolio's allocated
portion of Group's costs in performing its services amounted to $4,457.
32
<PAGE>
THE NEW YORK TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
e) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, the master portfolios and J.P. Morgan Series Trust.
The Trustees' Fees and Expenses shown in the financial statements
represents the portfolio's allocated portion of the total fees and
expenses. The portfolio's Chairman and Chief Executive Officer also serves
as Chairman of Group and receives compensation and employee benefits from
Group in his role as Group's Chairman. The allocated portion of such
compensation and benefits included in the Fund Services Fee shown in the
financial statements was $800.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended July 31, 2000 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
--------- ------------
<S> <C>
$252,339,102..... $229,215,772
</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.
33
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The New York Tax Exempt Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The New York Tax Exempt Bond Portfolio (the
"portfolio") at July 31, 2000, the results of its operations for the year then
ended, and the changes in its net assets for the year then ended, for the four
months ended July 31, 1999 and for the year ended March 31, 1999 and the
supplementary data for the year then ended, for the four months ended July 31,
1999 and for the four years ended March 31, 1999, in conformity with accounting
principles generally accepted in the United States. These financial statements
and supplementary data (hereafter referred to as "financial statements") are the
responsibility of the portfolio's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these financial statements in accordance with auditing standards
generally accepted in the United States, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits, which included confirmation of securities at July 31,
2000 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
September 15, 2000
34
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS CALL
J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
IMAR299
J.P. Morgan
New York
Tax Exempt
Bond Fund
ANNUAL REPORT
JULY 31, 2000
