<PAGE>
A MUTUAL FUND SEEKING GROWTH OF CAPITAL
This report and accompanying financial statements are submitted for information
of the Fund shareholders and are not to be considered as an offer or
solicitation of offers to buy or sell any shares of the Fund. Such offering is
made only if preceded or accompanied by an effective prospectus.
FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT
E. J. YELTON, Ph.D., DIRECTOR, JP Investment Management Company
PRESIDENT, AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
CUSTODIAN
J. LEE LLOYD, DIRECTOR Investors Fiduciary Trust Company
127 West Tenth Street
RICHARD W. McENALLY, CFA, DIRECTOR Kansas City, Missouri 64105
WILLIAM E. MORAN, DIRECTOR CERTIFIED PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP
W. HARDEE MILLS, CFA, VICE PRESIDENT 555 Fifth Avenue
New York, New York 10017
J. GREGORY POOLE, SECRETARY
GREGORY D. WALKER, CFA,
PORTFOLIO MANAGER
JP CAPITAL APPRECIATION FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
<PAGE>
INVESTMENT ACTIVITY
On December 31, 1995, the net asset value of your Fund was $18.96. Dividends
totaling $.361 from net investment income and $2.257 from net capital gains have
been paid year to date. On a total return basis, for 1995, the JP Capital
Appreciation Fund increased 33.39% while the S&P 500 increased 37.53%. The
Fund's annual returns for one, three, five and ten-year periods ending December
31, 1995 are as follows:
1 Year - 33.39%
3 Years - 11.70
5 Years - 14.26
10 Years - 12.07
In 1995, your fund outperformed 75% of the Growth and Income mutual funds
tracked by Lipper Analytical Services.
Signs of economic weakness were evident as 1996 ushered in a new year. As
recently as August of last year, upward earnings estimate revisions by stock
analysts outpaced downward revisions by an astounding six to one margin. By
mid-January 1996, earnings estimate revisions have reversed and downward
revisions now outnumber upward revisions by a two to one margin.
With the slowing of profit growth, we have witnessed a concurrent fall in the
breadth of the market. That is, while the stock market is posting new highs,
this performance is driven by fewer and fewer stocks. In fact, calculations by
the Wall Street firm, Smith Barney, reveal that the entire advance of the S&P
500 from September 30, 1995 to December 18 (the date of the study) was
attributable to only 18 of the 500 stocks. In other words, fewer than 5% of the
stocks in the S&P 500 provided 100% of the appreciation.
As referred to in our previous update, we believe that profits will continue to
surprise on the downside as economic growth slows. This is not to say that we
believe that the stock market will provide negative returns for the year. As
inflation continues to remain restrained, the Federal Reserve will have more
leeway to lower interest rates. Lower rates can support higher stock valuations.
We believe that the low volatility of the markets we have experienced in the
recent past will reverse. The Dow Jones Industrial Average's (DJIA) biggest
correction in 1995 was 3.3%, occurring in mid-July. In an average year the DJIA
corrects -9.3%. With the declining market breadth, we expect a more volatile
year as investors attempt to separate the winners from the losers.
2
<PAGE>
1996 stock market performance is unlikely to match that of 1995. In fact, 1995,
as measured by the S&P 500, was the fifth best year in market history. We do see
a positive return for the stock market this year; however, we believe it will be
driven by a relatively few number of stocks. These stocks will likely be of high
quality, stable growth companies. These are the stocks which typically
outperform when the profit cycle has peaked and economic growth begins to slow.
If the Fed lowers interest rates, we can expect the economically sensitive
companies to benefit but with a lag. The positive benefit that cyclical
companies will receive from lower interest rates is not likely to be experienced
this year even if the Fed aggressively lowers rates early.
PORTFOLIO DIVERSIFICATION
SECTOR % OF TOTAL NET ASSETS
Credit Cyclicals .00
Financial 14.62
Consumer Services 6.36
Consumer Staples 17.11
Consumer Cyclicals 6.89
Capital Goods - Technology 10.68
Capital Goods 4.04
Energy 10.76
Basic Industries 4.12
Transportation 1.35
Utilities 13.68
Conglomerates .93
Cash 9.46
Your continued support and interest in the JP Capital Appreciation Fund are
appreciated, and we welcome any questions.
JP Capital Appreciation Fund, Inc.
/s/ E. J. Yelton
President
January 29, 1996
3
<PAGE>
TEN LARGEST HOLDINGS
December 31, 1995
COMPANY MARKET VALUE PERCENT OF FUND
Monsanto Company $ 1,996,750 2.8
General Electric Company 1,800,000 2.5
Atlantic Richfield Company 1,506,200 2.1
Royal Dutch Petroleum Company 1,481,812 2.1
Countrywide Credit Industries, Inc. 1,479,000 2.1
Equifax, Inc. 1,466,325 2.0
Sara Lee Corporation 1,434,375 2.0
Capital Cities/ABC, Inc. 1,431,150 2.0
RJR Nabisco Holdings, Inc. Pfd C 1,402,500 2.0
Schering-Plough Corporation 1,390,650 1.9
----------- ----
$15,388,762 21.5
4
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1995
NUMBER OF SHARES
COMMON STOCKS - 87.34% OR PRINCIPAL AMOUNT VALUE
Aerospace/Defense - 1.79%
Lockheed-Martin Corporation 9,300 $ 734,700
Loral Corporation 16,000 566,000
Auto & Truck - .17%
Honda Motor Company, Ltd. 3,000 126,000
Banks - 4.04%
Bank of New York Company, Inc. 19,400 945,750
Chase Manhattan Corporation 10,000 606,250
Citicorp 20,600 1,385,350
Biotechnology - 1.61%
Amgen, Inc. 19,800 1,173,150*
Broadcasting - 2.32%
Capital Cities/ABC, Inc. 11,600 1,431,150
US West Media Group, Inc. 13,400 254,600*
Chemicals - Major -3.76%
Dow Chemical Company 10,400 731,900
Monsanto Company 16,300 1,996,750
Computer Software - 1.39%
Informix Corporation 10,000 300,000*
Silicon Graphics Computer System 13,800 379,500*
Sybase, Inc. 9,200 328,900*
Conglomerates - .92%
AlliedSignal, Inc. 14,000 665,000
5
<PAGE>
Drugs - 5.90%
Lilly (Eli) & Company 10,090 567,562
Merck & Company, Inc. 9,000 591,750
Mylan Laboratories, Inc. 29,400 690,900
Pharmacia-Upjohn, Inc. 27,000 1,046,250
Schering-Plough Corporation 25,400 1,390,650
Electric Equipment - Major - 3.51%
General Electric Company 25,000 1,800,000
Kuhlman Corporation 60,000 750,000
Electronics - Instrument - 2.42%
General Instrument Corporation 14,000 327,250*
3Com Corporation 15,000 699,375*
Varian Associates, Inc. 15,300 730,575
Electronics - Semi - 1.64%
LSI Logic Corporation 11,800 386,450*
Texas Instruments, Inc. 15,600 807,300
Entertainment - .91%
Disney, (Walt) & Company 11,200 660,800
Financial Services - .48%
Money Store, Inc. 22,500 348,750
Foods - 1.98%
Sara Lee Corporation 45,000 1,434,375
Footwear - 1.34%
Nike, Inc. 14,000 974,750
Hospital - Management - 3.04%
Columbia/HCA Healthcare Corporation 16,600 842,450
Medaphis Corporation 21,000 777,000*
Vencor, Inc. 18,000 585,000*
Hospital - Supplies - 2.69%
Baxter International, Inc. 10,000 418,750
Guidant Corporation 8,916 376,701
Johnson & Johnson 13,500 1,155,938
6
<PAGE>
Information Processing - 2.02%
Equifax, Inc. 68,600 1,466,325
Insurance - Multi-Line - 4.31%
Aflac, Inc. 17,600 763,400
Allstate Corporation 20,500 843,063
American General Corporation 12,200 425,475
CIGNA Corporation 10,600 1,094,450
Insurance - Property & Casualty - .82%
Prudential Reinsurance Holdings, Inc. 25,500 596,063
Machinery - Agricultural - .48%
Varity Corporation 9,300 345,262*
Merchandising - Department - 1.57%
Dayton Hudson Corporation 6,400 480,000
Federated Department Stores, Inc. 24,000 660,000*
Merchandising - Drugs - 1.01%
Eckerd Corporation 16,500 736,312*
Merchandising - Special - 2.17%
Borders Group, Inc. 43,500 804,750*
Circuit City Stores, Inc. 28,000 773,500
Miscellaneous Consumer Cyclical - .46%
Kelly Services, Inc.12,000 333,000
Miscellaneous Financial - 4.77%
Countrywide Credit Industries, Inc. 68,000 1,479,000
Dean Witter, Discover & Company 11,000 517,000
Federal Home Loan Mortgage Corporation 8,000 668,000
First USA, Inc. 18,000 798,750
Natural Gas - Diversified - .65%
Questar Corporation 14,000 469,000
7
<PAGE>
Oils - Integrated Domestic - 5.40%
Amoco Corporation 15,600 1,121,250
Atlantic Richfield Company 13,600 1,506,200
Enron Oil & Gas Company 29,500 708,000
Phillips Petroleum Company 17,200 586,950
Oils - Integrated International - 3.91%
Mobil Corporation 12,100 1,355,200
Royal Dutch Petroleum Company 10,500 1,481,812
Oil Services - .66%
Oceaneering International, Inc. 37,000 476,375*
Paper & Forest Products - .30%
Sonoco Products Company 8,400 220,500
Railroads - .88%
CSX Corporation 14,000 638,750
Telecommunications - 1.27%
DSC Communications Corporation 25,000 921,875*
Textile - Apparel - 1.08%
Intimate Brands, Inc. 20,200 303,000
Ross Stores, Inc. 25,000 478,125
Tobacco - 1.74%
Philip Morris Companies, Inc. 14,000 1,267,000
Transportation - Miscellaneous - .45%
Federal Express Corporation 4,400 325,050*
Utilities - Communications - 6.34%
Bell Atlantic Corporation 6,300 421,312
BellSouth Corporation 12,600 548,100
Century Telephone Enterprises, Inc. 14,000 444,500
Frontier Corporation 43,000 1,290,000
SBC Communications, Inc. 6,400 368,000
Sprint Corporation 26,500 1,056,688
US West Communications Group, Inc. 13,400 479,050
8
<PAGE>
Utilities - Electric - 7.14%
American Electric Power Company, Inc. 11,550 467,775
CMS Energy Corporation 16,200 483,975
Carolina Power & Light Company 6,700 231,150
CINergy Corporation 22,800 698,250
Consolidated Edison Company of New York, Inc. 9,900 316,800
Dominion Resources, Inc. 7,650 315,563
Entergy Corporation 19,800 579,150
FPL Group, Inc. 13,600 630,700
Illinova Corporation 15,900 477,000
Northeast Utilities 14,500 353,438
PECO Energy Company 8,300 250,037
Public Service Enterprise Group, Inc. 12,550 384,344
-----------
Total Common Stocks (Cost - $48,612,918+) 63,426,845
-----------
Preferred Stocks - 1.93%
Tobacco - 1.93%
RJR Nabisco Holdings, Inc. Pfd. C. 220,000 1,402,500
-----------
Total Preferred Stocks (Cost - $1,373,200+) 1,402,500
-----------
Short-Term Securities - 10.73%
Chevron Oil Finance Company, 1/08/96 $ 250,000 249,686
du Pont (E.I.) de Nemours & Company, 1/10/96 2,500,000 2,495,972
Ford Motor Credit Company, 1/10/96 1,700,000 1,697,280
General Electric Capital Corporation, 1/02/96 1,750,000 1,749,436
IBM Credit Corporation, 1/04/96 1,600,000 1,598,964
-----------
Total Short-Term Securities (Cost - $7,791,338+) 7,791,338
-----------
Total Investments (Cost - $57,777,456+) $72,620,683
-----------
-----------
* Non-income producing.
+ Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
9
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS
Investment in securities at value (cost $57,777,456) $ 72,620,683
Cash 234,191
Receivables:
Capital shares sold 73,582
Dividends 101,730
------------
Total Assets 73,030,186
------------
LIABILITIES
Payables:
Securities purchased 1,354,110
Accrued expenses 74,577
------------
Total Liabilities 1,428,687
------------
NET ASSETS
Net Assets, equivalent to $18.96 per share on
3,776,774 shares of capital stock outstanding (Note 2) $ 71,601,499
------------
------------
See Notes to Financial Statements.
10
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Investment Income:
Interest $ 263,977
Dividends 1,469,132
-----------
Total income 1,733,109
-----------
Expenses:
Investment Adviser's fee (Note 3) 325,646
Custodian and Transfer Agent fees 26,499
Directors' fees 3,660
Professional fees 25,800
Shareholder accounting services (Note 3) 18,200
Other 2,197
-----------
Total expenses 402,002
Less expenses offset (Note 5) ( 18,225)
-----------
Net expenses 383,777
-----------
Investment income - net 1,349,332
-----------
Realized and Unrealized Gain on Investments:
Net realized gain on investments 4,429,313
Unrealized appreciation of investments for the year 12,830,999
----------
Net gain on investments 17,260,312
----------
Net increase in net assets from operations $18,609,644
-----------
-----------
See Notes to Financial Statements.
11
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1995 and 1994
1995 1994
Increase in Net Assets from:
Operations:
Investment income - net $ 1,349,332 $ 1,187,225
Net realized gain on investments 4,429,313 7,856,540
Unrealized appreciation (depreciation)
for the year 12,830,999 (11,642,733)
------------ -----------
Net increase (decrease) in net assets
from operations 18,609,644 ( 2,598,968)
Dividends paid to shareholders from:
Investment income -- net ( 1,318,791) ( 574,936)
Net realized gain on investments ( 7,845,335) ( 1,564,793)
Capital share transactions (Note 2) 3,796,147 6,473,023
------------ -----------
Total increase 13,241,665 1,734,326
Net Assets
Beginning of year 58,359,834 56,625,508
------------ -----------
End of year (including undistributed net
investment income of $693,205 and
$662,664, respectively) $71,601,499 $58,359,834
------------ -----------
------------ -----------
See Notes to Financial Statements.
12
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
JP Capital Appreciation Fund, Inc. is an open-end management investment company
registered under the Investment Company Act of 1940. The Fund's primary
investment objective is long-term capital appreciation. The Fund seeks to
achieve this objective by investing substantially all of its assets in common
stocks of companies recognized as leaders in their respective industries,
however, other types of securities may be purchased depending upon the judgement
of management. The following is a summary of significant accounting policies
followed in the preparation of its financial statements:
VALUATION OF SECURITIES - Investments are stated at value based on the closing
prices reported on national securities exchanges on the last business day of the
year, or for over-the-counter securities, at the last bid price, except that
short-term securities are stated at amortized cost which approximates value.
FEDERAL INCOME TAXES - It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
USE OF ESTIMATES - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
GENERAL - Securities transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $51,638,775. Transactions in capital
stock were as follows:
13
<PAGE>
Year Ended Year Ended
December 31, 1995 December 31, 1994
----------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
Sold 425,888 $ 7,340,776 547,769 $9,476,781
Issued on reinvestment
of dividends 620,704 9,124,856 120,270 2,129,830
Redeemed (749,300) (12,669,485) (301,292) (5,133,588)
-------- ----------- -------- ----------
Net increase 297,292 $ 3,796,147 366,747 $6,473,023
-------- ----------- -------- ----------
-------- ----------- -------- ----------
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of $325,646
during the year ended December 31, 1995. This fee is computed at the annual rate
of 0.5% of the Fund's average daily net asset value. If the Fund's expenses,
excluding interest and taxes, exceed 1% of the average daily net asset value,
the Investment Adviser will pay the excess. No such reimbursement was required
during the year.
Expenses include $18,200 of fees paid to JP Investment Management Company under
an Agency Agreement to provide shareholder accounting services.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term securities,
were $38,620,653 and $44,365,481, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
undistributed net realized gain at December 31, 1995 was $4,426,292.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $15,175,922
Unrealized depreciation ( 332,695)
----------
Net unrealized appreciation $14,843,227
-----------
-----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $18,225 for the
year ended December 31, 1995.
14
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
Years Ended December 31,
----------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE
(for a share outstanding throughout the year)
Net asset value,
beginning of year $16.77 $18.19 $18.17 $17.69 $13.76
------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .36 .34 .28 .29 .37
Net realized and unrealized
gain (loss) on investments 4.45 ( 1.10) 1.26 .75 3.91
------ ------ ------ ------ ------
Total from investment
operations 4.81 ( .76) 1.54 1.04 4.28
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ( .36) ( .17) ( .27) ( .33) ( .35)
Distributions from net
realized gains ( 2.26) ( .49) ( 1.25) ( .23) --
------ ------ ------ ------ ------
Total distributions ( 2.62) ( .66) ( 1.52) ( .56) ( .35)
------ ------ ------ ------ ------
Net asset value, end of year $18.96 $16.77 $18.19 $18.17 $17.69
------ ------ ------ ------ ------
------ ------ ------ ------ ------
TOTAL RETURN 33.39% ( 4.34)% 9.25% 6.16% 31.61%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of year
(000 omitted) $71,601 $58,360 $56,625 $45,480 $37,319
Ratios to average net assets:
Expenses .62% .58% .60% .63% .62%
Net investment income 2.07 2.03 1.55 1.68 2.37
Portfolio turnover rate 64.13 126.70 23.93 48.72 36.71
15
<PAGE>
INDEPENDENT AUDITORS REPORT
To the Board of Directors and Shareholders
JP Capital Appreciation Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of JP Capital Appreciation Fund, Inc. as of December
31, 1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the selected financial information for each of the five years in the
period then ended. These financial statements and selected financial information
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and selected financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian and brokers.
An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of JP Capital Appreciation Fund, Inc. as of December 31, 1995, the
results of its operations, the changes in its net assets, and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
McGladrey & Pullen, LLP
/s/ McGladrey & Pullen, LLP
New York, New York
January 11, 1996
16
<PAGE>
A MUTUAL FUND SEEKING MAXIMUM INCOME
This report and accompanying financial statements are submitted for information
of the Fund shareholders and are not to be considered as an offer or
solicitation of offers to buy or sell any shares of the Fund. Such offering is
made only if preceded or accompanied by an effective prospectus.
FUND DIRECTORS AND OFFICERS INVESTMENT ADVISER AND TRANSFER AGENT
E. J. YELTON, Ph.D., DIRECTOR, JP Investment Management Company
PRESIDENT, AND TREASURER 100 North Greene Street
Greensboro, North Carolina 27401
JOHN C. INGRAM, CFA, DIRECTOR
CUSTODIAN
J. LEE LLOYD, DIRECTOR Investors Fiduciary Trust Company
127 West Tenth Street
RICHARD W. McENALLY, CFA, DIRECTOR Kansas City, Missouri 64105
WILLIAM E. MORAN, DIRECTOR CERTIFIED PUBLIC ACCOUNTANTS
McGladrey & Pullen, LLP
W. HARDEE MILLS, CFA, VICE PRESIDENT 555 Fifth Avenue
New York, New York 10017
J. GREGORY POOLE, SECRETARY
H. LUSBY BROWN, CFA
PORTFOLIO MANAGER
JP INVESTMENT GRADE BOND
FUND, INC.
100 North Greene Street
P.O. Box 21008
Greensboro, North Carolina 27420
17
<PAGE>
INVESTMENT ACTIVITY
On December 31, 1995, the net asset value of your Fund was $11.26. The Fund paid
dividends of $.735 per share from interest income during 1995. The Fund's
year-to-date returns and annual returns for one, three, five, and ten-year
periods ending December 31, 1995 are as follows:
Year-to-Date
1 Year - 19.44%
3 Years - 7.34
5 Years - 8.63
10 Years - 8.78
In 1995, the bond market recovered from one of its worst years in history to
record one of its best years in history. The rally actually began in late 1994
and picked up steam in 1995, as the Federal Reserve dropped the target for
Federal Funds to 5.75%. A developing picture of mediocre economic growth and low
inflation kept the rally going throughout the summer as the market began to
forecast slower growth in 1996. The bond market rally was led by expectations
that the Fed would continue to ease and, as a result, the yield curve steepened
with the two-year Note rallying over 250 BP while the 30-year Bond only rallied
about 190 BP.
Long-term corporate bonds had the best overall returns in 1995, due to
tightening credit spreads caused by heavy demand for higher yielding assets and
light supply. Mortgage-backed securities generally underperformed the market
during the year as falling interest rates sparked prepayment fears, limiting any
increase in prices for these bonds.
The outlook for the bond market in 1996 is currently clouded by the actions of
the Congress and the White House regarding the Federal budget. The market is
discounting a favorable outcome in budget deliberations which could translate
into lower federal borrowing and fiscal drag from reduced government spending.
The market is also discounting a continuation of Federal Reserve easing in 1996
warranted by slow growth and low inflation. While the prospects for these
scenarios seem very good, the market is at risk to be disappointed. The
risk/reward profile for the bond market clearly favors shorter maturities and a
slightly more defensive stance at this time.
On December 31, 1995, the Fund's assets were invested approximately 89.14% in
medium and long-term bonds.
18
<PAGE>
PORTFOLIO DIVERSIFICATION
SECTOR % OF TOTAL NET ASSETS
U.S Government 27.82
Industrials 20.13
Financials 11.98
Electric Utilities 4.01
Telephone Utilities 5.43
Gas Utilities 9.37
Cash Equivalents 10.86
Mortgage-Backed Securities 10.40
Your continued support and interest in the JP Investment Grade Bond Fund are
appreciated, and we welcome any questions.
JP Investment Grade Bond Fund, Inc.
/s/ E. J. Yelton
President
January 29, 1996
19
<PAGE>
STATEMENT OF INVESTMENTS
December 31, 1995
FACE
RATINGS* AMOUNT ISSUE VALUE
BONDS - 91.45%
U.S. GOVERNMENT - 28.54%
$ 500,000 U.S. Treasury Notes
5 1/8% due 11/30/98 $ 498,360
500,000 U.S. Treasury Notes
6 3/8% due 8/15/02 524,295
500,000 U.S. Treasury Notes
6 1/2% due 4/30/99 518,280
500,000 U.S. Treasury Notes
6 7/8% due 3/31/00 528,205
1,100,000 U.S. Treasury Notes
7 1/2% due 1/31/96 1,101,892
500,000 U.S. Treasury Bonds
8 1/2% due 5/15/97 521,405
500,000 U.S. Treasury Notes
8 1/2% due 7/15/97 524,140
500,000 U.S. Treasury Bonds
8 7/8% due 8/15/17 669,685
750,000 U.S. Treasury Notes
9 3/8% due 4/15/96 758,558
500,000 U.S. Treasury Bonds
10 3/8% due 11/15/09 659,685
1,000,000 U.S. Treasury Bonds
12 3/4% due 11/15/10 1,523,120
20
<PAGE>
MORTGAGE-BACKED SECURITIES - 10.67%
1,000,000 Federal Home Loan Mortgage Corporation
6% due 3/15/09 945,000
2,000,000 Federal Home Loan Mortgage Corporation
7% due 9/15/23 1,981,240
INDUSTRIALS - 32.94%
FINANCE - 15.14%
A1 1,000,000 Ford Motor Credit Company
6 3/4% Notes due 8/15/08 1,026,890
A1 750,000 Merrill Lynch & Company, Inc.
6 7/8% Notes due 3/01/03 780,908
A1 1,000,000 Morgan Stanley Group, Inc.
7% Senior Notes due 10/01/13 1,010,220
A3 750,000 Smith Barney Holdings, Inc.
7 1/2% Notes due 5/01/02 801,270
A1 500,000 SunTrust Banks, Inc.
8 7/8% Notes due 2/01/98 532,075
FOODS - 2.87%
Aa2 750,000 Archer-Daniels-Midland Company
7 1/8% Debs. due 3/01/13 788,580
MACHINERY - INDUSTRIAL/SPECIALTY - 2.04%
A2 500,000 Johnson Controls, Inc.
7.70% Debs. due 3/01/15 558,625
NATURAL GAS - 1.48%
Baa2 400,000 Tennessee Gas Pipeline Company
9 1/4% S.F. Debs. due 5/15/96 404,716
POLLUTION CONTROL - 1.93%
Baa2 500,000 Laidlaw, Inc.
7.70% Debs. due 8/15/02 528,225
21
<PAGE>
RAILROADS - 5.54%
Baa2 750,000 Kansas City Southern Industries, Inc.
6 5/8% Senior Notes due 3/01/05 757,627
A1 750,000 United States Leasing International, Inc.
6 5/8% Senior Notes due 5/15/03 763,035
TELECOMMUNICATIONS - 1.91%
A2 500,000 Northern Telecom, Limited
6 7/8% Senior Notes due 10/01/02 524,475
TOBACCO - 2.03%
A2 500,000 Philip Morris Companies, Inc.
8 1/4% Senior Notes due 10/15/03 557,400
UTILITIES - 19.30%
UTILITIES - ELECTRIC - 4.11%
A2 500,000 Midwest Power Systems, Inc.
7% 1st Mtge. due 2/15/05 526,620
A1 500,000 South Carolina Electric & Gas Company
9% 1st & Ref. Mtge. due 7/15/06 601,705
UTILITIES - GAS - 9.61%
A1 1,000,000 Consolidated Natural Gas Company
6 5/8% Debs. due 12/01/13 988,070
A2 500,000 National Fuel Gas Company
7 3/4% Debs. due 2/01/04 542,855
Baa1 500,000 Texas Gas Transmission
8 5/8% Notes due 4/01/04 565,270
Aa2 500,000 Washington Gas Light Company
8 3/4% 1st Mtge. due 7/01/19 539,600
UTILITIES - TELEPHONE - 5.58%
A2 1,000,000 Alltel Corporation
6 1/2% Debs. due 11/01/13 995,950
22
<PAGE>
A3 500,000 United Telephone Company of Pennsylvania
7 3/8% 1st Mtge. Ser. Y due 12/01/02 533,305
----------
Total Bonds (Cost - $23,184,069+) 25,081,286
----------
SHORT-TERM SECURITIES - 8.55%
A1 1,000,000 American Express Credit Corporation, 1/10/96 998,442
A1 1,000,000 Bell Atlantic Financial Services, Inc., 1/16/96 997,453
A1 350,000 Chevron Oil Finance Company, 1/03/96 349,833
----------
Total Short-Term Securities
(Cost - $2,345,728+) 2,345,728
-----------
Total Investments
(Cost - $25,529,797+) $27,427,014
-----------
-----------
* Bonds are rated by Moody's Investors Service, Inc. and
Commercial Paper is rated by Standard & Poor's Corporation.
+ Aggregate cost for Federal income tax purposes is the same.
See Notes to Financial Statements.
23
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
December 31, 1995
ASSETS
Investment in securities at value (cost $25,529,797) $ 27,427,014
Cash 297,338
Receivables:
Interest 438,565
Capital shares sold 17,903
------------
Total Assets 28,180,820
------------
LIABILITIES
Accrued expenses 44,378
------------
Total Liabilities 44,378
------------
NET ASSETS
Net Assets, equivalent to $11.26 per share on
2,499,086 shares of capital stock outstanding (Note 2) $ 28,136,442
------------
------------
See Notes to Financial Statements.
24
<PAGE>
STATEMENT OF OPERATIONS
Year Ended December 31, 1995
Investment Income:
Interest $1,937,728
----------
Expenses:
Investment Adviser's fee (Note 3) 132,446
Custodian and Transfer Agent fees 10,700
Directors' fees 3,660
Professional fees 20,400
Shareholder accounting services (Note 3) 12,000
Other 5,483
----------
Total expenses 184,689
Less expenses offset (Note 5) ( 10,700)
----------
Net expenses 173,989
----------
Investment income - net 1,763,739
----------
Realized and Unrealized Gain (Loss) on Investments:
Net realized loss on investments ( 133,355)
Unrealized appreciation of investments for the year 3,044,389
----------
Net gain on investments 2,911,034
----------
Net increase in net assets from operations $4,674,773
----------
----------
See Notes to Financial Statements.
25
<PAGE>
STATEMENTS OF CHANGES IN NET ASSETS
Years Ended December 31, 1995 and 1994
1995 1994
Increase (Decrease) in Net Assets from:
Operations:
Investment income - net $ 1,763,739 $ 1,869,403
Net realized loss on investments ( 133,355) ( 602,753)
Unrealized appreciation (depreciation)
for the year 3,044,389 ( 3,000,854)
------------ ------------
Net increase (decrease) in net
assets from operations 4,674,773 ( 1,734,204)
Dividends paid to shareholders from:
Investment income - net ( 1,787,395) ( 1,809,110)
Net realized gain on investments --- ( 86,113)
Capital share transactions (Note 2) ( 28,492) ( 1,090,522)
------------ ------------
Total increase (decrease) 2,858,886 ( 4,719,949)
Net Assets
Beginning of year 25,277,556 29,997,505
------------ ------------
End of year (including undistributed net
investment income of $36,637 and
$60,293, respectively $28,136,442 $25,277,556
------------ ------------
------------ ------------
See Notes to Financial Statements.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1. SIGNIFICANT ACCOUNTING POLICIES:
JP Investment Grade Bond Fund, Inc. is an open-end management investment company
registered under the Investment Company Act of 1940. The Fund's primary
investment objective is to seek the maximum level of current income as is
consistent with prudent risk. The Fund attempts to achieve this objective by
investing primarily in high-rated fixed income securities and dividend paying
common stocks, however, other types of securities may be purchased depending
upon the judgement of management. The following is a summary of significant
accounting policies followed in the preparation of its financial statements:
VALUATION OF SECURITIES -- Fixed income securities are valued by using market
quotations or independent pricing services which utilize prices provided by
market makers or estimates based on yield data related to similar securities;
short-term securities are stated at amortized cost which approximates value.
FEDERAL INCOME TAXES -- It is the Fund's policy to comply with the requirements
of the Internal Revenue Code applicable to "regulated investment companies" and
to distribute all of its taxable income to its shareholders. Therefore, no
provision for Federal income tax is required.
USE OF ESTIMATES -- The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of increases and decreases in net assets
from operations during the reporting period. Actual results could differ from
those estimates.
GENERAL -- Securities transactions are accounted for on the trade date. Dividend
income and distributions to shareholders are recorded on the ex-dividend date.
Interest income is accrued as earned.
NOTE 2. CAPITAL STOCK:
At December 31, 1995, 10,000,000 shares of capital stock ($1.00 par value) were
authorized and capital paid-in amounted to $26,980,405. Transactions in capital
stock were as follows:
27
<PAGE>
Year Ended Year Ended
December 31, 1995 December 31, 1994
---------------------- -----------------------
Shares Amount Shares Amount
-------- ---------- -------- ----------
Sold 468,268 $5,156,966 234,140 $2,530,665
Issued on reinvestment
of dividends 148,693 1,613,218 163,631 1,718,913
Redeemed (624,497) ( 6,798,676) (501,208) ( 5,340,100)
-------- ----------- -------- -----------
Net decrease ( 7,536) ($ 28,492) (103,437) ($1,090,522)
-------- ----------- -------- -----------
-------- ----------- -------- -----------
NOTE 3. INVESTMENT ADVISORY FEE AND OTHER TRANSACTIONS WITH AFFILIATES:
JP Investment Management Company received investment advisory fees of $132,446
during the year ended December 31, 1995. This fee is computed at the annual rate
of 0.5% of the Fund's average daily net asset value. If the Fund's expenses,
excluding interest and taxes, exceed 1% of the average daily net asset value,
the Investment Adviser will pay the excess. No such reimbursement was required
during the year.
Expenses include $12,000 of fees paid to JP Investment Management Company under
an Agency Agreement to provide shareholder accounting services.
NOTE 4. INVESTMENT TRANSACTIONS:
Purchases and sales of investment securities, excluding short-term securities,
were $6,320,164 and $8,185,971, respectively.
Realized gains and losses are reported on an identified cost basis. Accumulated
net realized loss at December 31, 1995 was $777,816. This loss is available to
offset future realized capital gains and expires in 2003.
At December 31, 1995, the aggregate gross unrealized appreciation and
depreciation of portfolio securities was as follows:
Unrealized appreciation $1,898,074
Unrealized depreciation ( 858)
----------
Net unrealized appreciation $1,897,216
----------
----------
NOTE 5. EXPENSE OFFSET ARRANGEMENT:
The Fund has an arrangement with its custodian and transfer agent whereby
credits earned on cash balances maintained at the custodian are used to offset
custody and transfer agent charges. These credits amounted to $10,700 for the
year ended December 31, 1995.
28
<PAGE>
NOTE 6. SELECTED FINANCIAL INFORMATION:
Years Ended December 31,
-----------------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ ------
Per share operating performance
(for a share outstanding throughout the year)
Net asset value,
beginning of year $10.08 $11.49 $11.19 $11.24 $10.61
------ ------ ------ ------ ------
Income from investment
operations:
Net investment income .73 .73 .74 .74 .85
Net realized and unrealized
gain (loss) on investments 1.19 ( 1.40) .36 ( .03) .62
------ ------ ------ ------ ------
Total from investment
operations 1.92 ( .67) 1.10 .71 1.47
------ ------ ------ ------ ------
Less distributions:
Dividends from net
investment income ( .74) ( .71) ( .73) ( .76) ( .84)
Distributions from net
realized gains -- ( .03) ( .07) -- --
------ ------ ------ ------ ------
Total distributions ( .74) ( .74) ( .80) ( .76) ( .84)
------ ------ ------ ------ ------
Net asset value, end of year $11.26 $10.08 $11.49 $11.19 $11.24
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Total return 19.44% ( 5.92)% 10.10% 6.67% 14.61%
Ratios/supplemental data:
Net assets, end of year
(000 omitted) $28,136 $25,278 $29,997 $23,622 $19,134
Ratios to average net assets:
Expenses .70% .65% .59% .67% .72%
Net investment income 6.66 6.80 6.33 6.65 7.88
Portfolio turnover rate 26.16 28.93 19.88 18.05 7.23
29
<PAGE>
CHANGES IN INVESTMENT POSITIONS
For the Period July 1, 1995 to December 31, 1995
ADDITIONS ELIMINATIONS
Smith Barney Holdings, Inc. Baltimore Gas & Electric Company
7 1/2% Notes due 5/01/02 9 1/8% 1st Mtge. due 10/15/95
30
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
JP Investment Grade Bond Fund, Inc.
We have audited the accompanying statement of assets and liabilities and the
statement of investments of JP Investment Grade Bond Fund, Inc. as of December
31, 1995, and the related statement of operations for the year then ended, the
statements of changes in net assets for each of the two years in the period then
ended, and the selected financial information for each of the five years in the
period then ended. These financial statements and selected financial information
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and selected financial
information based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and selected
financial information are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. Our procedures included confirmation of securities
owned as of December 31, 1995, by correspondence with the custodian. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and selected financial information
referred to above present fairly, in all material respects, the financial
position of JP Investment Grade Bond Fund, Inc. as of December 31, 1995, the
results of its operations, the changes in its net assets, and the selected
financial information for the periods indicated, in conformity with generally
accepted accounting principles.
McGladrey & Pullen, LLP
/s/ McGladrey & Pullen, LLP
New York, New York
January 11, 1996
31
<PAGE>
-----------------------------------
ANNUAL REPORT
DECEMBER 31, 1995
JP CAPITAL
APPRECIATION FUND
JP INVESTMENT
GRADE BOND FUND
-----------------------------------
