<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (98.1%)
ALABAMA (0.1%)
$ 1,000 Daphne Special Care Facilities Financing
Authority, (Presbyterian Retirement,
Prerefunded, Series A)................ RB NR/NR 08/15/18 7.300% $ 1,029,680
------------
ALASKA (0.3%)
2,000 Anchorage, (Prerefunded), MBIA
Insured............................... GO Aaa/AAA 07/01/02 6.600 2,040,040
------------
ARIZONA (0.4%)
3,430 Arizona Healthcare Facilities Authority
(Catholic Healthcare Revenue,
Series A)............................. RB Baa1/BBB+ 07/01/09 6.125 3,412,850
------------
CALIFORNIA (2.6%)
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 3,014,953
13,070 California Statewide Community
Development Authority, (Catholic
Healthcare West)...................... RB Baa1/BBB+ 07/01/09 6.000 13,117,052
1,049 Kaweah Delta Hospital District, Tulare
County, (Series E).................... PP NR/A+ 06/01/14 5.250 1,048,567
353 Kaweah Delta Hospital District, Tulare
County, (Series G).................... PP NR/A+ 06/01/14 6.400 369,840
2,500 Los Angeles County Public Works
Financing Authority, (Lease Revenue,
Refunding, Series A), MBIA Insured.... RB Aaa/AAA 09/01/06 6.000 2,719,175
------------
TOTAL CALIFORNIA.................... 20,269,587
------------
COLORADO (1.1%)
5,000 Colorado Department of Transportation,
(Revenue Anticipation Notes, due
06/15/14), AMBAC Insured.............. RB Aaa/AAA 06/15/10(a) 6.000 5,290,350
2,850 Weld County School District #6.......... GO Aa3/AA- 12/01/04 5.750 2,971,267
------------
TOTAL COLORADO...................... 8,261,617
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
CONNECTICUT (1.6%)
$ 2,000 Connecticut Heatlh & Educational
Facilities Authority, (St Mary's
Hospital, Series D)................... RB Baa1/NR 07/01/01 5.750% $ 2,012,220
7,240 Connecticut, (Series B, due 06/15/17)... GO Aa3/AA 06/15/10(a) 5.875 7,518,885
2,815 Connecticut, (Special Tax Obligation,
Transportation Infrastructure,
Prerefunded, Series A, due
06/01/04),............................ RB NR/AA- 06/01/03(a) 6.600 2,962,450
------------
TOTAL CONNECTICUT................... 12,493,555
------------
DISTRICT OF COLUMBIA (3.0%)
220 District of Columbia, (Escrowed to
Maturity, Prerefunded, Series A),
MBIA-IBC Insured...................... GO Aaa/AAA 06/01/07 6.000 235,330
2,600 District of Columbia, (Escrowed to
Maturity, Prerefunded, Series B),
MBIA Insured.......................... GO Aaa/AAA 06/01/02 6.000 2,667,496
6,795 District of Columbia, (Escrowed to
Maturity, Prerefunded, Series C),
FGIC Insured.......................... GO Aaa/AAA 12/01/03 5.250 6,929,405
10,645 District of Columbia, (Escrowed to
Maturity, Series A)................... GO Aaa/BBB 06/01/04 5.800 11,072,716
2,780 District of Columbia, (Unrefunded
Balance, Series A), MBIA-IBC
Insured............................... GO Aaa/AAA 06/01/07 6.000 2,955,251
------------
TOTAL DISTRICT OF COLUMBIA.......... 23,860,198
------------
FLORIDA (0.3%)
465 Florida Board of Education, (Capital
Outlay, Unrefunded Balance, Series C,
due 06/01/01),........................ GO Aa2/AA+ 08/24/00(a) 7.000 467,055
2,000 Volusia County School District,
(Refunding, due 08/01/02), FGIC
Insured............................... GO Aaa/AAA 08/01/01(a) 6.100 2,063,080
------------
TOTAL FLORIDA....................... 2,530,135
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
GEORGIA (5.5%)
$ 3,200 De Kalb County, (Water & Sewer Revenue,
Refunding)............................ RB Aa/AA 10/01/02 6.000% $ 3,300,896
2,630 Fulton County School District,
(Refunding)........................... GO Aa2/AA 05/01/14 6.375 2,927,243
1,250 Georgia Municipal Electric Authority,
(Power Revenue, Refunding,
Series A)............................. RB A3/A 01/01/12 6.500 1,389,187
4,000 Georgia Municipal Electric Authority,
(Power Revenue, Refunding, Series A),
MBIA-IBC Insured...................... RB Aaa/AAA 01/01/12 6.500 4,467,360
4,895 Georgia, (Refunding, Series E).......... GO Aaa/AAA 07/01/03 5.500 5,024,277
6,000 Georgia, (Series B)..................... GO Aaa/AAA 03/01/07 7.200 6,825,240
3,000 Georgia, (Series B)..................... GO Aaa/AAA 03/01/10 6.300 3,326,220
4,470 Georgia, (Series C)..................... GO Aaa/AAA 07/01/11 5.700 4,744,234
2,500 Gwinnett County School District,
(Refunding, Series B)................. GO Aa1/AA+ 02/01/08 6.400 2,749,475
5,000 Metropolitan Atlanta Rapid Transit
Authority, (Sales Tax Revenue,
Refunding, Series P, due 07/01/11),
AMBAC Insured......................... RB Aaa/AAA 07/01/09(a) 6.250 5,558,750
3,000 Roswell, (due 02/01/13)................. GO Aaa/AAA 02/01/09(a) 5.500 3,085,440
------------
TOTAL GEORGIA....................... 43,398,322
------------
ILLINOIS (4.1%)
8,110 Chicago, (Prerefunded, due 01/01/13),
AMBAC Insured......................... GO Aaa/AAA 07/01/05(a) 6.250 8,806,649
5,000 Chicago, (Skyway Toll Bridge Revenue,
Prerefunded) due 01/01/17............. RB NR/AAA 01/01/04(a) 6.750 5,422,800
3,000 Illinois Development Bank............... PP NR/NR 08/01/28 4.900 2,927,940
1,665 Illinois Health Facilities Authority,
(due 02/15/12)........................ RB A1/NR 02/15/10(a) 6.625 1,742,506
4,175 Illinois, (Sales Tax Revenue, Refunding,
Series Q)............................. RB Aa2/AAA 06/15/12 6.000 4,481,654
3,770 Illinois Health Facilities Authority,
(Riverside Health System)............. RB A3/A 11/15/10 6.750 3,933,543
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 1,380 Metropolitan Pier & Exposition
Authority, (Dedicated State Tax
Revenue, Unrefunded Balance,
Series A)............................. RB Aa3/AA- 06/15/06 8.500% $ 1,636,542
2,810 Regional Transportation Authority,
(Series D), FGIC Insured.............. RB Aaa/AAA 06/01/07 7.750 3,264,433
------------
TOTAL ILLINIOS...................... 32,216,067
------------
INDIANA (1.0%)
5,400 Indiana Bond Bank, (State Revolving Fund
Program, Series A, due 08/01/13)...... RB NR/AAA 08/01/10(a) 5.875 5,672,430
2,000 Indiana Municipal Power Agency, (Power
Supply System Revenue, Refunding,
Series B), MBIA Insured............... RB Aaa/AAA 01/01/13 6.000 2,157,600
------------
TOTAL INDIANA....................... 7,830,030
------------
IOWA (0.9%)
2,095 Iowa Finance Authority, (Hospital
Facilities Revenue, due 02/15/15)..... RB A1/NR 02/15/10(a) 6.750 2,192,732
2,385 Iowa Finance Authority, (Hospital
Facilities Revenue, due 02/15/16)..... RB A1/NR 02/15/10(a) 6.750 2,483,071
2,440 Iowa Finance Authority, (Hospital
Facilities Revenue, due 02/15/17)..... RB A1/NR 02/15/10(a) 6.750 2,530,768
------------
TOTAL IOWA.......................... 7,206,571
------------
KENTUCKY (0.7%)
3,905 Kentucky Property & Buildings Commission
(Refunding, Project #64, due
05/01/10), MBIA Insured............... RB Aaa/AAA 11/01/09(a) 5.750 4,123,368
1,470 Kentucky Turnpike Authority, (Road
Recovery Revenue, Escrowed to
Maturity, due 07/01/02)............... RB Aaa/AAA 08/24/00(a) 7.100 1,496,475
------------
TOTAL KENTUCKY...................... 5,619,843
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
MAINE (0.6%)
$ 4,050 Maine Municipal Bond Bank, (Prerefunded,
Series E due 11/01/12)................ RB Aa2/NR 11/01/02(a) 6.250% $ 4,277,124
------------
MARYLAND (2.4%)
1,000 Maryland Community Development
Administration, (Department of Housing
& Community Development, First Series,
due 04/01/12)......................... RB Aa2/NR 10/01/09(a) 5.500 1,003,850
1,250 Maryland Community Development
Administration, (Department of Housing
& Community Development, Refunding,
Series A, due 09/01/10)............... RB Aa2/NR 09/01/09(a) 5.300 1,253,075
1,425 Maryland Community Development
Administration, (Department of Housing
& Community Development, Refunding,
Series A, due 09/01/11)............... RB Aa2/NR 09/01/09(a) 5.400 1,431,541
1,105 Maryland Community Development
Administration, (Department of Housing
& Communty Development, First Series,
due 04/01/10)......................... RB Aa2/NR 10/01/09(a) 5.300 1,107,729
5,435 Maryland Health & Higher Educational
Facilities Authority, (John Hopkins
University, Refunding)................ RB Aa2/AA 07/01/03 5.750 5,610,714
5,000 Maryland State, (State & Local
Facilities Loan, First Series)........ GO Aaa/AAA 08/01/05 5.125 5,116,400
3,000 Maryland, (Third Series, due
07/15/03)............................. GO Aaa/AAA 07/15/01(a) 6.400 3,066,720
------------
TOTAL MARYLAND...................... 18,590,029
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
MASSACHUSETTS (5.9%)
$ 5,650 Massachusetts Bay Transportation
Authority, (General Transportation
System, Refunding, Series A).......... RB Aa2/AA- 03/01/08 7.000% $ 6,409,134
1,495 Massachusetts State College Building
Authority, (Refunding, Series A)...... RB Aa2/AA- 05/01/11 7.500 1,799,367
9,500 Massachusetts State Water Pollution
Abatement Trust, (Abatement MWRA
Program, Sub-Series A, due
08/01/15)............................. RB Aa1/AA 08/01/09(a) 6.000 9,961,320
5,000 Massachusetts State, (Consolidation
Loan, Series A, due 02/01/14)......... GO Aa2/AA- 02/01/10(a) 6.000 5,301,650
14,035 Massachusetts State, (Consolidation
Loan, Series B, due 06/01/12)......... GO Aa2/AA- 06/01/10(a) 5.750 14,692,540
8,000 Massachusetts State, (Prerefunded,
Series B) AMBAC Insured............... GO Aaa/AAA 07/01/11 5.500 8,373,360
------------
TOTAL MASSACHUSETTS................. 46,537,371
------------
MICHIGAN (6.3%)
10,000 Detroit Water Supply System,
(Prerefunded due 07/01/22), FGIC
Insured............................... RB Aaa/AAA 07/01/02(a) 6.375 10,538,000
10,000 Michigan Hospital Finance Authority,
(Ascension Health Credit Corp.,
Refunding, Series B).................. RB Aa2/AA 11/15/33 5.300 10,032,500
13,050 Michigan Hospital Finance Authority,
(Ascension Health Credit Corp.,
Series A, due 11/15/15), MBIA
Insured............................... RB Aaa/AAA 11/15/09(a) 6.250 13,636,728
10,500 Michigan Hospital Finance Authority,
(Genesys Health System, Prerefunded,
Series A due 10/01/21)................ RB Baa2/AAA 10/01/05(a) 8.125 12,263,685
2,905 Michigan Hospital Finance Authority,
(Mercy Health Services, Refunding,
Series T)............................. RB Aa3/AA- 08/15/04 5.750 2,961,473
------------
TOTAL MICHIGAN...................... 49,432,386
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
MINNESOTA (2.6%)
$ 9,330 Minnesota............................... GO Aaa/AAA 06/01/10 5.500% $ 9,794,727
5,000 University of Minnesota, (Refunding,
Series A)............................. RB Aa2/AA 07/01/10 5.750 5,332,150
5,000 University of Minnesota, (Refunding,
Series A)............................. RB Aa2/AA 07/01/15 5.750 5,260,400
------------
TOTAL MINNESOTA..................... 20,387,277
------------
MISSISSIPPI (2.4%)
4,080 Jackson Redevelopment Authority, (Urban
Renewal Revenue, Jackson Medical Mall
Foundation Project, Series A), LOC
Bank One Louisiana.................... RB NR/A+ 11/01/12 4.600 4,057,438
2,505 Mississippi Higher Education,
(Refunding, Series B, due 09/01/04)... RB Aaa/NR 09/01/02(a) 5.600 2,537,765
10,875 Mississippi, (Escrowed to Maturity,
Refunding)............................ GO Aaa/AAA 02/01/08 6.200 11,788,935
------------
TOTAL MISSISSIPPI................... 18,384,138
------------
MISSOURI (1.2%)
5,000 Missouri Regional Convention & Sports
Complex Authority, (Prerefunded,
Series A, due 08/15/21)............... RB Aaa/AAA 08/15/03(a) 6.900 5,329,300
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 4,274,680
------------
TOTAL MISSOURI...................... 9,603,980
------------
NEBRASKA (0.7%)
5,245 Nebhelp Inc. (Sub-Series A-5B), MBIA
Insured............................... RB Aaa/NR 06/01/13 6.200 5,497,022
------------
NEVADA (3.7%)
8,200 Clark County School District,
(Series A), MBIA Insured.............. GO Aaa/AAA 06/01/11 7.000 9,487,810
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 1,234,368
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEVADA (CONTINUED)
$ 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% $ 288,053
15,500 Nevada, (Colorado River Commission,
Prerefunded due 07/01/24)............. GO Aaa/AA 07/01/04(a) 6.500 16,677,845
1,330 Nevada, (Prison Facilities, Prerefunded,
due 08/01/04)......................... GO Aa2/AAA 08/01/00(a) 7.000 1,356,600
------------
TOTAL NEVADA........................ 29,044,676
------------
NEW HAMPSHIRE (0.9%)
4,900 New Hampshire Higher Educational &
Health Facilities Authority,
(Dartmouth College, Refunding)........ RB Aaa/NR 06/01/07 6.750 5,450,172
1,720 New Hampshire, (Prerefunded,
Series A)............................. GO Aa2/AA+ 06/15/03 6.600 1,785,136
------------
TOTAL NEW HAMPSHIRE................. 7,235,308
------------
NEW JERSEY (5.3%)
4,180 Jersey City, (School Board Reserve Fund,
Refunding, Series A).................. GO Aa2/AA 10/01/11 6.250 4,590,894
10,000 New Jersey.............................. GO Aa1/AA+ 05/01/07 5.500 10,450,400
7,000 New Jersey Economic Development
Authority, (Market Transition
Facilities Revenue, Sr. Lien,
Series A), MBIA Insured............... RB Aaa/AAA 07/01/02 5.400 7,120,260
4,100 New Jersey Economic Development
Authority, (Transition Project
Sublease, Series A), FSA Insured...... RB Aaa/AAA 05/01/11 5.750 4,351,248
6,000 New Jersey Transportation Trust Fund
Authority, (Transportation System,
Series B), MBIA Insured............... RB Aaa/AAA 06/15/05 6.000 6,349,320
8,000 New Jersey Turnpike Authority,
(Series A), MBIA Insured.............. RB Aaa/AAA 01/01/11 6.000 8,666,560
------------
TOTAL NEW JERSEY.................... 41,528,682
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (5.2%)
$ 75 Monroe County, (Public Improvement,
Unrefunded Balance, Series 1995, due
06/01/10), AMBAC Insured.............. GO Aaa/AAA 06/01/08(a) 6.000% $ 81,788
50 New York City, (Escrowed to Maturity,
Prerefunded, Series A)................ GO A3/A- 08/01/02 5.750 51,256
1,465 New York City, (Escrowed to Maturity,
Series B)............................. GO Aaa/AAA 06/01/01 8.000 1,508,481
2,595 New York City, (Unrefunded Balance,
Series A)............................. GO A3/A- 08/01/02 5.750 2,653,725
10,000 New York Convention Center Operating
Corp., (Yale Building Acquisition
Project).............................. PP NR/NR 12/01/04 6.500 10,147,700
2,850 New York State Dormitory Authority,
(Secured Hospital, Interfaith Medical
Center, Series D)..................... RB Baa1/A 02/15/04 5.500 2,901,100
13,010 New York State Thruway Authority,
(Highway & Bridge Trust Fund,
Series B-1), FGIC Insured............. RB NR/AAA 04/01/09 5.500 13,575,675
8,700 Triborough Bridge & Tunnel Authority,
(General Purpose, Refunding,
Series X)............................. RB Aa3/A+ 01/01/12 6.625 9,874,239
------------
TOTAL NEW YORK...................... 40,793,964
------------
NORTH CAROLINA (2.0%)
8,900 North Carolina Municipal Power Agency,
(No. 1 Catawba Electric Revenue,
Refunding, Series B).................. RB Baa1/BBB+ 01/01/06 6.125 9,179,193
6,275 North Carolina Municipal Power Agency,
(No. 1 Catawba Electric Revenue,
Refunding, Series B).................. RB Baa1/BBB+ 01/01/07 6.250 6,531,898
------------
TOTAL NORTH CAROLINA................ 15,711,091
------------
NORTH DAKOTA (1.4%)
11,280 North Dakota Housing Finance Agency,
(Mortgage Revenue, Refunding,
Series C, due 01/01/31)............... RB Aa3/NR 07/01/10(a) 5.550 11,280,113
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
OHIO (2.8%)
$ 10,000 Ohio State, (Highway Capital
Improvements, Series E)............... GO Aa1/AAA 05/01/04 5.250% $ 10,234,300
8,000 Ohio Turnpike Commission, (Prerefunded,
Series A), MBIA Insured............... RB Aaa/AAA 02/15/26 5.500 8,436,240
2,795 Ohio Water Development Authority,
(Escrowed to Maturity, Refunding, due
12/01/10)............................. RB Aaa/AAA 12/01/00(a) 9.375 3,347,012
------------
TOTAL OHIO.......................... 22,017,552
------------
PENNSYLVANIA (1.4%)
970 Pennsylvania Higher Education Assistance
Agency, (Student Loan Revenue,
Refunding, Series A), FGIC Insured.... RB Aaa/AAA 12/01/00 6.800 977,517
1,310 Pennsylvania Higher Education Facilities
Authority, (College & University
Revenue, University of Pennsylvania,
Refunding, Series A).................. RB A1/AA 09/01/02 6.500 1,362,151
2,800 Pennsylvania Higher Education Facilities
Authority, (Health Services Revenue,
University of Pennsylvania Health
Services, Refunding, Series A)........ RB A3/A 01/01/06 6.000 2,763,600
1,500 Pennsylvania, (2nd Series A,
Prerefunded), MBIA Insured............ GO Aaa/AAA 11/01/04 6.500 1,558,365
4,250 Philadelphia Authority for Industrial
Development, (Academy of Natural
Sciences)............................. PP NR/NR 01/01/18 4.750 4,246,047
------------
TOTAL PENNSYLVANIA.................. 10,907,680
------------
PUERTO RICO (0.7%)
5,000 Puerto Rico Municipal Finance Agency,
(Refunding, Series B)................. GO Baa1/A- 08/01/02 5.500 5,097,200
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
SOUTH CAROLINA (5.9%)
$ 1,000 Piedmont Municipal Power Agency,
(Electric Revenue, Escrowed to
Maturity, Refunding), MBIA Insured.... RB Aaa/AAA 01/01/08 6.200% $ 1,088,990
15,000 Piedmont Municipal Power Agency,
(Electric Revenue, Refunding), FGIC
Insured............................... RB Aaa/AAA 01/01/20 6.750 17,141,700
5,500 South Carolina Economic Development
Authority, (Hospital Facilities
Revenue, Palmetto Health Alliance,
Series A)............................. RB Baa1/BBB 12/15/10 7.000 5,628,205
3,000 South Carolina Economic Development
Authority, (Hospital Facilities
Revenue, Palmetto Health Alliance,
Series A, due 12/15/15)............... RB Baa1/BBB 12/15/10(a) 7.125 3,057,720
7,000 South Carolina Public Service Authority,
(Santee Cooper, Prerefunded Series D
due 07/01/31)......................... RB Aaa/AAA 07/01/02(a) 6.625 7,408,310
5,385 South Carolina, (Capital Improvement,
Series A)............................. GO Aaa/AAA 10/01/09 5.500 5,654,681
5,655 South Carolina, (Capital Improvement,
Series A, due 10/01/10)............... GO Aaa/AAA 10/01/09(a) 5.500 5,944,310
------------
TOTAL SOUTH CAROLINA................ 45,923,916
------------
TENNESSEE (1.2%)
3,320 Knox County, (Public Improvement, due
05/01/12)............................. GO Aa2/AA 05/01/08(a) 6.000 3,520,661
3,500 Knox County, (Public Improvement, due
05/01/13)............................. GO Aa2/AA 05/01/08(a) 6.000 3,695,440
2,310 Shelby County, (School Board,
Prerefunded).......................... GO Aa3/AA+ 03/01/14 5.900 2,381,956
------------
TOTAL TENNESSEE..................... 9,598,057
------------
TEXAS (9.8%)
1,500 Austin Utilities System, (Escrowed to
Maturity, due 10/01/01)............... RB Aaa/AAA 10/01/00(a) 6.500 1,534,650
6,920 Austin Utilities System, (Refunding,
Series A), FSA Insured................ RB Aaa/AAA 11/15/03 5.750 7,152,996
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 4,040 Austin, (Public Improvement, due
09/01/12)............................. GO Aa2/AA 09/01/09(a) 5.750% $ 4,205,802
4,500 Austin, (Public Improvement, due
09/01/14)............................. GO Aa2/AA 09/01/09(a) 5.750 4,625,505
10,000 Brazos River Authority, (Pollution
Control Revenue, Refunding, Texas
Utilities Electric Co., Series A, due
04/01/33)............................. RB A3/BBB+ 04/01/01(a) 5.000 10,028,700
2,260 Corpus Christi Independent School
District, (Refunding), PSFG Insured... GO Aaa/AAA 08/15/05 6.000 2,388,504
1,305 Dallas County Flood Control District #1,
(Prerefunded)......................... GO Aaa/NR 04/01/10 9.250 1,562,085
1,650 El Paso Independent School District,
(Prerefunded), PSFG Insured........... GO Aaa/AAA 07/01/03 6.550 1,682,290
5,000 Humble Independent School District, Zero
Coupon, (Compensation Interest,
Refunding), PSFG Insured.............. GO Aaa/AAA 02/15/16 0.000 2,082,200
5,880 Humble Independent School District, Zero
Coupon, (Compensation Interest,
Refunding), PSFG Insured.............. GO Aaa/AAA 02/15/17 0.000 2,292,142
3,805 Lewisville Independent School District,
(Refunding), PSFG Insured............. GO Aaa/NR 08/15/03 6.000 3,949,780
10,000 Lower Colorado River Authority,
(Refunding, Series B, due 05/15/10),
FSA Insured........................... RB Aaa/AAA 05/15/09(a) 6.000 10,784,900
7,000 Texas Water Development Board,
(Revolving Fund, Sr. Lien, Series B,
due 07/15/12)......................... RB Aa1/AAA 01/15/10(a) 5.750 7,312,830
10,000 Texas, (Prerefunded, Series C).......... GO NR/AA 04/01/20 5.500 10,351,600
4,000 Texas, (Public Finance Authority,
Refunding, Series B).................. GO Aa1/AA 10/01/03 6.000 4,168,680
2,500 University of Texas, (Permanent
University Fund, Refunding)........... RB Aaa/AAA 07/01/01 6.300 2,544,100
------------
TOTAL TEXAS......................... 76,666,764
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
UTAH (2.0%)
$ 4,155 Intermountain Power Agency, (Power
Supply Revenue, Refunding, Series C),
MBIA Insured.......................... RB Aaa/AAA 07/01/01 6.000% $ 4,213,544
6,645 Intermountain Power Agency, (Power
Supply Revenue, Refunding, Series C),
MBIA Insured.......................... RB Aaa/AAA 07/01/02 6.000 6,816,707
4,180 Jordan School District, (Refunding, due
06/15/06)............................. GO Aa3/NR 06/15/03(a) 6.050 4,336,207
------------
TOTAL UTAH.......................... 15,366,458
------------
VIRGINIA (5.6%)
13,390 Fairfax County, (Economic Development
Authority Resource Recovery Revenue,
Refunding, Series A), AMBAC Insured... RB NR/AAA 02/01/04 5.700 13,816,873
2,730 Fairfax County, (Water Authority
Revenue, Prerefunded due 04/01/22).... RB Aaa/AAA 04/01/07(a) 6.000 2,972,479
3,650 Loudoun County, (Public Improvement,
Series B)............................. GO Aa1/AA 01/01/04 5.125 3,712,013
3,650 Loudoun County, (Public Improvement,
Series B)............................. GO Aa1/AA 01/01/05 5.125 3,719,533
3,650 Loudoun County, (Public Improvement,
Series B)............................. GO Aa1/AA 01/01/06 5.250 3,747,236
3,665 Metropolitan Airport Washington D.C.
Authority, (General Airport Revenue,
Series A, due 10/01/10), FGIC
Insured............................... RB Aaa/AAA 10/01/00(a) 7.250 3,751,347
5,000 Virginia College Building Authority,
(Educational Facilities Revenue, 21st
Century College Program).............. RB Aa1/AA+ 02/01/03 5.750 5,138,800
2,000 Virginia Public School Authority,
(Prerefunded, Series A)............... RB Aa1/AA 08/01/04 6.500 2,081,120
5,000 Virginia Public School Authority,
(Refunding)........................... RB Aa1/AA 01/01/02 6.000 5,106,000
------------
TOTAL VIRGINIA...................... 44,045,401
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) DATE RATE VALUE
-------------- ---------------------------------------- ----------- ----------- ----------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (5.0%)
$ 7,215 Clark County, (Industrial Revenue Bond,
Camas Power Boiler Ltd. Solid Waste
Disposal Project, Series A, due
08/01/07), LOC Landesbank Hessen...... RB Aaa/NR 08/01/02(a) 4.650% $ 7,159,661
2,995 Grant County Public Utility
District #2, (Priest Rapids
Hydroelectric Revenue, Refunding, 2nd
Series C, due 01/01/13), AMBAC
Insured............................... RB Aaa/AAA 01/01/07(a) 6.000 3,136,843
1,315 Grant County Public Utility
District #2, (Wanapum Hydroelectric
Revenue, Refunding, 2nd Series C, due
01/01/13), AMBAC Insured.............. RB Aaa/AAA 01/01/07(a) 6.000 1,373,623
1,555 King & Snohomish Counties School
District # 417, (due 12/01/02), FGIC
Insured............................... GO Aaa/AAA 12/01/00 6.600 1,564,890
605 King County, (Escrowed to Maturity,
Prerefunded, Series B)................ GO Aa1/AA+ 01/01/01 6.700 610,602
5,750 King County, (Unrefunded Balance,
Series B)............................. GO Aa1/AA+ 01/01/01 6.700 5,805,143
1,000 Pierce County School District #320,
(Prerefunded due 12/01/02), MBIA-IBC
Insured............................... GO Aaa/AAA 12/01/01(a) 6.600 1,027,600
1,250 Snohomish County School District #2,
(Refunding, Series A, due 12/01/02),
MBIA-IBC Insured...................... GO Aaa/AAA 06/01/01(a) 6.700 1,271,175
2,000 Washington Public Power Supply System,
(Nuclear Project #2, Refunding,
Series A)............................. RB Aa1/AA- 07/01/06 7.250 2,227,380
5,265 Washington Public Power Supply System,
(Nuclear Project #2, Refunding,
Series A)............................. RB Aa1/AA- 07/01/01 6.300 5,348,398
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 2,043,140
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 1,546,500
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL SECURITY MOODY'S/
AMOUNT TYPE S&P RATING MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION (UNAUDITED) (UNAUDITED) 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% $ 1,799,193
4,000 Washington, (Series B & AT-7)........... GO Aa1/AA+ 06/01/17 6.400 4,413,960
------------
TOTAL WASHINGTON.................... 39,328,108
------------
WISCONSIN (1.5%)
6,250 Wisconsin Health & Educational
Facilities............................ PP NR/NR 05/01/19 5.950 5,889,063
6,250 Wisconsin Health & Educational
Facilities............................ PP NR/NR 05/01/14 5.700 6,006,125
------------
TOTAL WISCONSIN..................... 11,895,188
------------
TOTAL LONG TERM INVESTMENTS (COST $754,481,750).................................... 769,317,980
------------
SHORT-TERM INVESTMENTS (3.2%)
OTHER INVESTMENT COMPANIES (3.2%)
<CAPTION>
SHARES
--------------
<C> <S> <C> <C> <C> <C> <C>
25,177,479 J.P. Morgan Institutional Tax Exempt Money Market Fund* (cost $25,177,479)............. 25,177,479
------------
TOTAL INVESTMENTS (COST $779,659,229) (101.3%)......................................... 794,495,459
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.3%).......................................... (10,572,277)
------------
NET ASSETS (100.0%).................................................................... $783,923,182
============
</TABLE>
------------------------------
Note: Based on the cost of investments of $779,659,229 for federal income tax
purposes at July 31, 2000 the aggregate gross unrealized appreciation and
depreciation was $15,705,322 and $869,092 respectively, resulting in net
unrealized appreciation of investments of $14,836,230.
(a) The date under the heading maturity date represents an optional tender date.
The actual maturity date is indicated in the security description.
AMBAC - Ambac Indemnity Corp., FGIC - Financial Guaranty Insurance Co., FSA -
Financial Securities Assurance, GO - General Obligation, IBC - IBC Financial
Data, Inc., LOC - Letter of Credit, MBIA - Municipal Bond Assurance Corp., NR -
Not Rated, PP - Private Placement, PSFG - Permanent School Fund Guarantee, RB -
Revenue Bond
Escrowed to Maturity: Bonds for which cash and/or securities have been deposited
with a third party to cover the payments of principal and interest at the
maturity which coincides with the first call date of the first bond.
* Money market mutual fund registered under the Investment Company Act of 1940,
as amended, and advised by J.P. Morgan Investment Management, Inc.
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $779,659,229 ) $794,495,459
Interest Receivable 9,548,091
Prepaid Trustees' Fees 3,273
Prepaid Expenses and Other Assets 93,876
------------
Total Assets 804,140,699
------------
LIABILITIES
Payable to Custodian 10,726
Payable for Investments Purchased 19,883,269
Advisory Fee Payable 196,848
Administrative Services Fee Payable 15,888
Administration Fee Payable 343
Fund Services Fee Payable 676
Accrued Expenses 109,767
------------
Total Liabilities 20,217,517
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $783,923,182
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED JULY 31, 2000
--------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 40,506,238
EXPENSES
Advisory Fee $2,344,217
Custodian Fees and Expenses 195,879
Administrative Services Fee 194,913
Professional Fees and Expenses 47,183
Fund Services Fee 12,760
Trustees' Fees and Expenses 9,104
Administration Fee 5,677
Miscellaneous 11,522
----------
Total Expenses 2,821,255
------------
NET INVESTMENT INCOME 37,684,983
NET REALIZED LOSS ON INVESTMENTS (13,494,852)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 6,100,102
------------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 30,290,233
============
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE ELEVEN FOR THE FISCAL
YEAR ENDED MONTHS ENDED YEAR ENDED
JULY 31, 2000 JULY 31, 1999 AUGUST 31, 1998
-------------- -------------- ---------------
<S> <C> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 37,684,983 $ 34,387,277 $ 31,583,373
Net Realized (Loss) Gain on Investments (13,494,852) 4,500,130 680,094
Net Change in Unrealized Appreciation
(Depreciation) of Investments 6,100,102 (30,158,895) 15,917,500
------------- ------------- --------------
Net Increase in Net Assets Resulting from
Operations 30,290,233 8,728,512 48,180,967
------------- ------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 318,241,114 417,545,311 337,310,680
Withdrawals (386,477,921) (361,383,038) (232,110,590)
------------- ------------- --------------
Net (Decrease) Increase from Investors'
Transactions (68,236,807) 56,162,273 105,200,090
------------- ------------- --------------
Total (Decrease) Increase in Net Assets (37,946,574) 64,890,785 153,381,057
NET ASSETS
Beginning of Period 821,869,756 756,978,971 603,597,914
------------- ------------- --------------
End of Period $ 783,923,182 $ 821,869,756 $ 756,978,971
============= ============= ==============
</TABLE>
--------------------------------------------------------------------------------
SUPPLEMENTARY DATA
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
FOR THE FISCAL FOR THE ELEVEN AUGUST 31,
YEAR ENDED MONTHS ENDED ----------------------------
JULY 31, 2000 JULY 31, 1999 1998 1997 1996 1995
-------------- -------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Net Expenses 0.36% 0.37%(a) 0.37% 0.38% 0.38% 0.42%
Net Investment Income 4.78% 4.49%(a) 4.70% 4.93% 4.92% 5.15%
Portfolio Turnover 84% 29%(b) 16% 25% 25% 47%
</TABLE>
------------------------
(a) Annualized.
(b) Not Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
JULY 31, 2000
--------------------------------------------------------------------------------
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. The portfolio's investment objective is to provide a high level
of current income that is exempt from federal income tax consistent with
moderate risk of capital. The Declaration of Trust permits the trustees to issue
an unlimited number of beneficial interests in the portfolio. At a meeting on
November 12, 1998, the trustees elected to change the portfolio's fiscal year
from August 31 to July 31.
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States 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 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. The cost of securities is substantially the
same for book and tax purposes.
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 owned subsidiary of
J.P. Morgan & Co. Incorporated ("J.P. Morgan"). Under the terms of the
agreement, the portfolio paid JPMIM 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 $2,365,565.
37
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
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
portfolio $21,348 under this agreement. Interest income included in the
Statement of Operations for the year ended July 31, 2000 includes $269,024
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 portfolio's officers affiliated with FDI. The
portfolio has agreed to pay FDI fees equal to its allocable share of an
annual complex-wide charge of $425,000 plus FDI's out-of-pocket expenses.
The amount allocable to the portfolio is based on the ratio of the
portfolio's net assets to the aggregate net assets of the portfolio and
certain other investment companies subject to similar agreements with FDI.
For the fiscal year ended July 31, 2000, the fee for these services
amounted to $5,677.
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 $194,913.
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 $12,760.
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
38
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JULY 31, 2000
--------------------------------------------------------------------------------
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 $2,400 for the fiscal year ended July 31,
2000.
3. INVESTMENT TRANSACTIONS
Investments 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>
$644,817,931 $656,683,081
</TABLE>
4. CREDIT AGREEMENT
The portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the fund's Notes to the Financial
Statements which are included elsewhere in this report.
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The 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 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 eleven
months ended July 31, 1999 and for the year ended August 31, 1998 and the
supplementary data for the year then ended, for the eleven months ended July 31,
1999 and for the four years ended August 31, 1998, 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
40
