<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT TAX EXEMPT BOND FUND
October 16, 1995
Dear Shareholder:
We are pleased to report that The Pierpont Tax Exempt Bond Fund returned 7.63%
for the fiscal year ended August 31, 1995, well ahead of its competitors as
represented by the Composite Intermediate Municipal Bond Fund Average of 6.92%
(PLEASE SEE TABLE ON PAGE 5). However, owing to the slightly aggressive relative
duration position adopted during the late spring and early summer of 1995, the
Fund underperformed the 8.59% return of the Lehman Quality Intermediate
Municipal Bond Index for the 12 months under review.
The Fund's net asset value increased from $11.45 per share to $11.73 at the end
of the period, after making distributions of $0.55 per share from ordinary
income, of which $0.54 is tax exempt, and $0.01 from short-term capital gains.
The Fund's net assets stood at $352.0 million at the end of the reporting
period, down from $392.5 million on August 31, 1994. The net assets of The Tax
Exempt Bond Portfolio, in which the Fund invests, totaled approximately $412.6
million at August 31, 1995.
MARKET REVIEW
Faced with a U.S. economy at full employment levels that continued to exhibit
considerable growth, the Federal Reserve pursued a tight monetary policy during
the first half of the period under review to help check inflation and keep the
economy from overheating. In this environment, U.S. short-term Treasury rates
rose significantly while longer-maturity increases were more subdued. The yield
spread between short- and long-term Treasuries narrowed. Rates for municipal
bonds moved in step with Treasuries, which resulted in a similar flattening of
the municipal yield curve.
In the months that followed, a much-discussed "soft landing" seemed to take hold
of the economy, driving up prices on Treasury bonds and, to a lesser extent, on
municipal bonds as well. The price rally in the municipal market was enhanced by
a decrease in new issue volume. The relative underperformance of municipal bonds
during these months reflected concerns among investors that tax reform --
specifically a flat tax -- would reduce the value of municipals as overall tax
rates decline. As the period drew to a close, a flurry of weaker-than-expected
economic data drove yields down further across all maturities for both municipal
bonds and Treasuries.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS..............1 SPECIAL FUND-BASED SERVICES....6
FUND FACTS AND HIGHLIGHTS...............4 FINANCIAL STATEMENTS...........8
FUND PERFORMANCE........................5
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1
<PAGE>
PORTFOLIO REVIEW
The investment process involves three key decisions, which are all expected to
contribute to Fund returns: duration management, sector allocation, and security
selection.
DURATION MANAGEMENT. The duration of the Portfolio is a measure of its price
sensitivity to changes in interest rates. If increases in interest rates are
expected in the months ahead, a duration that is short of its neutral position
relative to the benchmark may be implemented as a defensive measure. As rates
rise, short relative maturities will allow for reinvestment at more attractive
rates. If interest rates are expected to decline, however, the Portfolio may
pursue a more aggressive duration strategy to help "lock in" the more attractive
yields usually associated with longer-term securities.
The Portfolio began the reporting period with a duration slightly shorter than
that of the Lehman Quality Intermediate Municipal Bond Index. While the Federal
Reserve continued its tightening program, we extended the Portfolio's duration
to a neutral position after our analysis indicated rates for longer-term
municipals were likely to remain stable, having already absorbed most of the
interest rate increases. In early May, the Portfolio's duration was further
lengthened beyond the benchmark, reflecting our view that municipal rates were
likely to decline because the economy was significantly weaker than generally
perceived. In addition, our analysis showed the municipal market had overreacted
in assessing the negative potential of tax reform on municipal security values.
The Portfolio's longer duration was maintained through the end of June, then
repositioned back to neutral following a decline in rates that was larger than
we had anticipated as well as a change in the technical position of the
municipal market.
The Portfolio pursued a "barbell" structure throughout the period under review.
This overweighting of short- and long-term securities enabled the Fund to
perform well during the months when a bond market rally caused the yield curve
to flatten. When the yield curve re-steepened slightly, however, this structure
was not as beneficial.
SECTOR ALLOCATION. We continued to diversify the Portfolio across all municipal
sectors during the period. We have also added slightly to our pre-refunded bond
exposure, due to an expected diminishment in pre-refunded supply. Given our
projection that municipal bonds would continue to outperform Treasury securities
for the balance of 1995 because of low supply, we maintained a 100% exposure to
municipals. Our analysis indicated that municipals should offer investors higher
after-tax yields and returns than their Treasury counterparts.
SECURITY SELECTION. We maintained the Portfolio's high credit quality throughout
the period. Finally, we were able to increase overall yield by analyzing and
purchasing complex securities that offered higher yields when compared with
bonds having similar risk characteristics. In addition, we continued to sell
bonds that are valued close to par (or face value) and bought premium coupon
bonds, which offer higher yields than par bonds with similar risk
characteristics. The objective of these transactions, along with our focus on
higher-quality issues, was to help improve the Portfolio's ability to retain
value if interest rates rose.
2
<PAGE>
INVESTMENT OUTLOOK
Most evidence shows that the economic slowdown is extending. The further decline
in market interest rates leaves long-term yields somewhat below our estimates.
With the onset of Federal Reserve easing, the yield curve has re-steepened
slightly from the relatively flat position that resulted from the earlier bond
market rally. Aggressive Fed easing will still require evidence of outright
recession; otherwise, the intent is to move policy from moderately restrictive
back toward neutral. Longer-term rates could still trend down further as
Congress follows through on the resolution to reduce the budget deficit.
Looking at the municipal market, we believe the flat tax anxieties of bond
investors to be unwarranted. A more important issue is the absolute decline in
the outstanding supply of municipal bonds. Redemptions of existing bond
positions have outpaced new issuance for the last two years. We do not see this
trend abating during the next few years and expect it to be a continuing source
of technical strength for the municipal market. Tax exempt yield levels
currently include a risk premium to compensate for the uncertainty of future
municipal valuation levels. For these reasons, we currently plan to maintain a
neutral duration position and a 100% allotment to tax exempt securities.
As always, we welcome your comments or questions. Please call J.P. Morgan Funds
Services toll free at (800) 521-5411.
Sincerely,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
3
<PAGE>
Fund facts
INVESTMENT OBJECTIVE
The Pierpont Tax Exempt Bond Fund seeks to provide a high level of current
income that is exempt from federal income tax consistent with moderate risk of
capital and maintenance of liquidity. It is designed for investors who seek tax
exempt yields greater than those generally available from a portfolio of short-
term tax exempt obligations and who are willing to incur the greater price
fluctuation of longer-term instruments.
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INCEPTION DATE
10/03/84
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NET ASSETS AS OF 8/31/95
$352,005,484
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DIVIDEND PAYABLE DATES
MONTHLY
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CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/18/95
EXPENSE RATIO
The Fund's annual expense ratio of 0.71% covers shareholders' expenses for
custody, tax reporting, investment advisory and shareholder services. The Fund
is no-load and does not charge any sales, redemption, or exchange fees. There
are no additional charges for buying, selling, or safekeeping Fund shares, or
for wiring dividend or redemption proceeds from the Fund.
Fund highlights
ALL DATA AS OF AUGUST 31, 1995
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
Pie chart depicting the allocation of the Fund's investment securities held at
August 31, 1995 by investment categories. The pie is broken in pieces
representing investment categories in the following percentages:
- - INSURED 29.8%
- - REVENUE 27.7%
- - GENERAL OBLIGATIONS 22.2%
- - PRE-REFUNDED 19.6%
- - PRIVATE PLACEMENTS/SPECIAL OBLIGATIONS 0.7%
30-DAY SEC YIELD
4.63%
DURATION
5.4 years
4
<PAGE>
Fund performance
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$25,000. The chart at right shows that $25,000 invested in the Fund on September
1, 1985 would have grown to $53,145 by August 31, 1995.
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 you
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 1, 5, or 10
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 $25,000 OVER TEN YEARS
SEPTEMBER 1, 1985 - AUGUST 31, 1995
Line graph with two axes: the X-axis represents years of operations; the Y-axis
represents dollar value. The graph plots three lines: the first line represents
the growth of a ten thousand dollar investment in the Fund from September 1,
1985 to August 31, 1995; the second line represents the growth of a ten
thousand dollar investment in a portfolio of securities reflecting the
composition of the Lehman Brothers Quality Intermediate Municipal Bond index
for the same time period. The graph points are as follows:
Pierpont Tax Exempt Lehman Brothers
Bond Fund Quality Intermediate Municipal Bond Index
25000 25000
29209.7 29725.4
30333.5 31473.7
32044.1 32794.2
34642.9 35474.5
36598.2 37816.5
40504.4 42000.6
44338 46435.7
48717.6 51475.5
49376.9 52219.8
53144.8 56705.1
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- ------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF AUGUST 31, 1995 MONTHS MONTHS YEAR YEARS YEARS YEARS
- --------------------------------------------------------- ------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Pierpont Tax Exempt Bond Fund 1.45% 5.29% 7.63% 6.22% 7.75% 7.83%
Lehman Quality Inter. Muni Bond Index 2.24% 6.27% 8.59% 6.89% 8.44% 8.53%
Composite Inter. Muni. Bond Fund Avg. 1.55% 5.07% 6.92% 5.91% 7.53% 7.65%
AS OF JUNE 30, 1995
- --------------------------------------------------------- -----------------------------------
The Pierpont Tax Exempt Bond Fund 2.54% 7.75% 7.43% 6.18% 7.36% 7.56%
Lehman Quality Inter. Muni. Bond Index 2.63% 8.03% 7.99% 6.72% 8.03% 8.20%
Composite Inter. Muni. Bond Fund Avg. 2.20% 7.32% 6.71% 5.78% 7.08% 7.54%
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ASSUME THE
REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF CERTAIN FUND AND
PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. THE LEHMAN QUALITY
INTERMEDIATE MUNICIPAL BOND INDEX IS AN INDEX CREATED BY LEHMAN BROTHERS OF HIGH
QUALITY MUNICIPAL BONDS RATED A OR BETTER WITH INTERMEDIATE MATURITIES
(APPROXIMATELY 7 YEARS).THE COMPOSITE INTERMEDIATE MUNICIPAL BOND FUND AVERAGE
PERFORMANCE IS COMPUTED ON ALL FUNDS IN THE MORNINGSTAR UNIVERSE HAVING A
NATIONAL MUNICIPAL BOND OBJECTIVE AND AN INTERMEDIATE MATURITY. MORNINGSTAR,
INC. IS A LEADING RESOURCE FOR MUTUAL FUND DATA. ALTHOUGH GATHERED FROM RELIABLE
SOURCES, DATA ACCURACY AND COMPLETENESS CANNOT BE GUARANTEED.
5
<PAGE>
Special fund-based services
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- Create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- Make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- Make investments through The Pierpont Funds, a family of diversified mutual
funds.
PAAS is available to clients who invest a minimum of $500,000 in The Pierpont
Funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow tax-
deferred until retirement, the IRA enables more of your dollars to work for you
longer. Morgan offers an IRA Rollover plan that helps you to build well-balanced
long-term investment portfolios, diversified across a wide array of mutual
funds. From money markets to emerging markets, The Pierpont Funds provide an
excellent way to help you accumulate long-term wealth for retirement.
KEOGH
In early 1995, Morgan introduced a Keogh program for its clients. Keoghs provide
another excellent vehicle to help individuals who are self-employed or are
employees of unincorporated businesses to accumulate retirement savings. A Keogh
is a tax-deferred pension plan that can allow you to contribute the lesser of
$30,000 or 25% of your annual earned gross compensation. The Pierpont Funds can
help you build a comprehensive investment program designed to maximize the
retirement dollars in your Keogh account.
6
<PAGE>
Signature Broker-Dealer Services, Inc. is the Distributor for The Pierpont Tax
Exempt Bond Fund (the "Fund").
Morgan Guaranty Trust Company of New York ("Morgan") serves as Portfolio
Investment Advisor and makes the Fund available solely in its capacity as
shareholder servicing agent for customers. Investments in the Fund are not
deposits or obligations of, or guaranteed or endorsed by, Morgan or any other
bank. Shares of the Fund are not federally insured by the Federal Deposit
Insurance Corporation, the Federal Reserve Board, or any other governmental
agency. Investment return and principal value of an investment in the Fund can
fluctuate, so an investor's shares when redeemed may be worth more or less than
their original cost.
The performance data quoted herein represent past performance. Please remember
that past performance is not a guarantee of future performance. Fund returns are
net of fees and assume the reinvestment of Fund distributions. The Fund invests
all of its investable assets in The Tax Exempt Bond Portfolio, a separately
registered investment company which is not available to the public but only to
other collective investment vehicles such as the Fund.
More complete information about the Fund, including management fees and other
expenses, is provided in the Prospectus, which should be read carefully before
investing. You may obtain an additional copy of the Prospectus by calling J.P.
Morgan Funds Services at (800) 521-5411.
7
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
$352,670,927
Investment in the Tax Exempt Bond Portfolio ("Portfolio"), at value
18,269
Receivable for Shares of Beneficial Interest Sold
813
Prepaid Expenses
-----------
352,690,009
Total Assets
-----------
LIABILITIES
314,191
Financial and Fund Accounting Services Fee Payable
224,504
Dividends Payable
52,987
Shareholder Servicing Fee Payable
35,000
Payable for Shares of Beneficial Interest Redeemed
7,638
Administration Fee Payable
2,301
Fund Services Fee Payable
47,904
Accrued Expenses
-----------
684,525
Total Liabilities
-----------
NET ASSETS
$352,005,484
Applicable to 29,997,369 Shares of Beneficial Interest Outstanding
(unlimited authorized shares, par value $0.001)
-----------
-----------
$11.73
Net Asset Value, Offering and Redemption Price Per Share
ANALYSIS OF NET ASSETS
$335,544,859
Paid-in Capital
(124,000)
Distributions in Excess of Net Investment Income
99,184
Accumulated Net Realized Gain on Investment
16,485,441
Net Unrealized Appreciation of Investment
-----------
$352,005,484
Net Assets
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
8
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $19,727,570
Allocated Portfolio Expenses (1,479,281)
----------
Net Investment Income Allocated from Portfolio 18,248,289
FUND EXPENSES
Shareholder Servicing Fee $ 635,645
Financial and Fund Accounting Services Fee 168,215
Administration Fee 97,520
Transfer Agent Fees 45,471
Fund Services Fees 35,144
Registration Fees 16,615
Printing Expenses 15,000
Professional Fees 12,840
Trustees' Fees and Expenses 7,738
Insurance Premium Expenses 4,739
Miscellaneous 5,000
---------
TOTAL FUND EXPENSES (1,043,927)
----------
NET INVESTMENT INCOME 17,204,362
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO 292,405
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED FROM
PORTFOLIO 7,518,403
----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $25,015,170
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
9
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE
FISCAL FISCAL
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
INCREASE (DECREASE) IN NET ASSETS 1995 1994
------------ ------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 17,204,362 $ 19,907,198
Net Realized Gain on Investment Allocated from Portfolio 292,405 1,282,614
Net Change in Unrealized Appreciation of Investment Allocated
from Portfolio 7,518,403 (16,724,852)
------------ ------------
Net Increase in Net Assets Resulting from Operations 25,015,170 4,464,960
------------ ------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (17,204,362) (19,907,198)
Net Realized Gain on Investment (273,413) (9,310,621)
------------ ------------
Total Distributions to Shareholders (17,477,775) (29,217,819)
------------ ------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 163,344,760 227,484,769
Reinvestment of Dividends and Distributions 14,555,056 25,994,109
Cost of Shares of Beneficial Interest Redeemed (225,892,051) (321,279,030)
------------ ------------
Net Decrease from Transactions in Shares of Beneficial Interest (47,992,235) (67,800,152)
------------ ------------
Total Decrease in Net Assets (40,454,840) (92,553,011)
NET ASSETS
Beginning of Fiscal Year 392,460,324 485,013,335
------------ ------------
End of Fiscal Year $352,005,484 $392,460,324
------------ ------------
------------ ------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
10
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected Data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $11.45 $12.04 $11.60 $11.19 $10.75
---------- ---------- ---------- ---------- ----------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55 0.51 0.55 0.62 0.68
Net Realized and Unrealized Gain (Loss) on
Investments 0.29 (0.35) 0.56 0.41 0.44
---------- ---------- ---------- ---------- ----------
Total from Investment Operations 0.84 0.16 1.11 1.03 1.12
---------- ---------- ---------- ---------- ----------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.55) (0.51) (0.55) (0.62) (0.68)
Net Realized Gains (0.01) (0.24) (0.12) -- --
---------- ---------- ---------- ---------- ----------
Total Distributions to Shareholders (0.56) (0.75) (0.67) (0.62) (0.68)
---------- ---------- ---------- ---------- ----------
NET ASSET VALUE, END OF YEAR $ 11.73 $ 11.45 $ 12.04 $ 11.60 $ 11.19
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Total Return 7.63% 1.35% 9.88% 9.47% 10.67%
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $ 352,005 $ 392,460 $ 485,013 $ 360,343 $ 239,709
Ratios to Average Net Assets:
Expenses 0.71% 0.71% 0.74% 0.77% 0.78%
Net lnvestment Income 4.87% 4.39% 4.64% 5.45% 6.12%
Decrease Reflected in Expense Ratio due to Expense
Reimbursement -- -- 0.01% 0.01% 0.02%
Portfolio Turnover -- -- 41%* 20% 16%
</TABLE>
- ------------------------
* 1993 Portfolio Turnover reflects the period September 1, 1992 to July 11,
1993. After July 11, 1993, all the Fund's investable assets were invested in
The Tax Exempt Bond Portfolio.
The Accompanying Notes are an Integral Part of the Financial Statements
11
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Pierpont Tax Exempt Bond Fund (the "Fund") is a separate series of The
Pierpont Funds, a Massachusetts business trust (the "Trust"). The Trust is
registered under the the Investment Company Act of 1940, as amended, as a
diversified open-end management investment company. The Fund, prior to its tax
free reorganization on July 11, 1993, to a series of the Trust, operated as a
stand alone mutual fund. Costs related to the reorganization were borne by
Morgan Guaranty Trust Company of New York ("Morgan"). This report includes
periods which preceded the Fund's reorganization and reflects the operations of
the predecessor entity.
The Fund invests all of its investable assets in The Tax Exempt Bond Portfolio
(the "Portfolio"), a diversified open-end management investment company having
the same investment objectives as the Fund. The value of such investment
reflects the Fund's proportionate interest in the net assets of the Portfolio
(85% at August 31, 1995). 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 following is a summary of the significant accounting policies of the
Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
d)Each series of the Trust is treated as a separate entity for federal
income tax purposes. The Fund intends to comply with the provisions of the
Internal Revenue Code of 1986, as amended, applicable to regulated
investment companies and to distribute substantially all of its income,
including net realized capital gains, if any, within the prescribed time
periods. Accordingly, no provision for federal income or excise tax is
necessary.
e)Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
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 was to increase Paid-in Capital by $145,359, increase
Distributions in Excess of Net Investment Income by $124,000, and decrease
Accumulated Net Realized Gain on Investment by $21,359. Net investment
income, net realized gains and net assets were not affected by this
change.
12
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Trust retains Signature Broker-Dealer Services, Inc. ("Signature") to
serve as Administrator and Distributor. Signature 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 Signature. The
agreement providcs for a fee to be paid to Signature at an annual rate
determined by the following schedule: 0.04% of the first $1 billion of the
aggregate average daily net assets of the Trust, as well as two other
affiliated fund families for which Signature acts as administrator, 0.032%
of the next $2 billion of such net assets, 0.024% of the next $2 billion
of such net assets, and 0.016% of such net assets in excess of $5 billion.
The daily equivalent of the fee rate is applied daily to the net assets of
the Fund. For the fiscal year ended August 31, 1995 Signature's fee for
these services amounted to $97,520.
b)During the fiscal year ended August 31, 1995, the Trust, on behalf of the
Fund, had a Financial and Fund Accounting Services Agreement ("Services
Agreement") with Morgan Guaranty Trust Company of New York ("Morgan")
under which Morgan would receive a fee, based on the percentages described
below, for overseeing certain aspects of the administration and operation
of the Fund and was also designed to provide an expense limit for certain
expenses of the Fund. This fee was calculated exclusive of the shareholder
servicing fee and the fund services fee at 0.12% of the Fund's average
daily net assets up to and including $100 million and 0.10% on any excess
over $100 million. For the fiscal year ended August 31, 1995, the fee for
these services amounted to $168,215. Effective September 1, 1995, the
Services Agreement was terminated and an interim agreement was entered
into between the Trust, on behalf of the Fund, and Morgan, which provides
for the continuation of the oversight services that were outlined under
the prior agreement without any compensation to Morgan.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The Agreement provides for the Fund to pay Morgan a fee for
these services which is computed daily and may be paid monthly at an
annual rate of 0.18% of the average daily net assets of the Fund. For the
fiscal year ended August 31, 1995, the fee for these services amounted to
$635,645.
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
$35,144 for the fiscal year ended August 31, 1995.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of the Pierpont Funds, The JPM Institutional Funds, their
corresponding Portfolios and The Series Portfolio. The Trustees' Fees and
Expenses shown in the financial statements represents the Fund's allocated
portion of these total fees and expenses. Prior to April 1, 1995, the
aggregate annual Trustee Fee was $55,000. The Trustee who serves as
Chairman and Chief Executive Officer of these Funds and
13
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
Portfolios also serves as Chairman of Group and received compensation and
employee benefits from Group in his role as Group's Chairman. The
allocated portion of such compensation and employee benefits included in
the Fund Services Fee shown in the financial statements was $4,100.
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 FISCAL
YEAR ENDED YEAR ENDED
AUGUST 31, 1995 AUGUST 31, 1994
--------------- ---------------
<S> <C> <C>
Shares sold 14,491,547 19,307,047
Reinvestment of dividends and distributions 1,280,695 2,211,538
Shares redeemed (20,061,693) (27,525,462)
--------------- ---------------
Net Decrease (4,289,451) (6,006,877)
--------------- ---------------
--------------- ---------------
</TABLE>
14
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The Pierpont 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
The Pierpont Tax Exempt Bond Fund (one of the series constituting part of The
Pierpont Funds, hereafter referred to as the "Fund") at August 31, 1995, the
results of its operations for the year then ended, the changes in its net assets
for each of the two years in the period then ended, and the financial highlights
for each of the three years in the period then ended, in conformity with
generally accepted accounting principles. 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 generally accepted
auditing standards 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. The financial
highlights for each of the two years in the period ended August 31, 1992 were
audited by other independent accountants whose report dated October 8, 1992
expressed an unqualified opinion on those statements.
PRICE WATERHOUSE LLP
New York, New York
October 24, 1995
15
<PAGE>
The Tax Exempt Bond Portfolio
Annual Report August 31, 1995
(The following pages should be read in conjunction
with the Pierpont Tax Exempt Bond Fund
Annual Financial Statements)
16
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
ALABAMA (1.2%)
$1,000,000 Alabama Mental Health Finance Authority
(Series 1989) MBIA Insured............ Prerefunded Aaa/AAA 05/01/99(A) 7.375% $ 1,120,670
2,010,000 Childersburg Industrial Development
Board, PCR, (Kimberly Clark Corp.
Project, Escrowed to Maturity)........ Revenue Bond Aa2/AA 11/15/99 7.400 2,170,941
1,000,000 Daphne Special Care Facilities Financing
Authority (Presbyterian Retirement,
Series A)............................. Prerefunded NR/NR 08/15/01(A) 7.300 1,134,210
500,000 Stevenson Alabama Industrial Development
Board (Refunding) LOC-Credit Suisse... Revenue Bond NR/A-1+ 09/01/95(B) 3.500 500,000
-----------
Total Alabama 4,925,821
-----------
ALASKA (1.8%)
2,000,000 Anchorage (Refunding, Series 1991)
MBIA Insured.......................... Insured Aaa/AAA 07/01/01(A) 6.600 2,180,040
1,075,000 Anchorage (Refunding, Series 1989)
AMBAC Insured......................... Insured Aaa/AAA 06/01/99(A) 7.100 1,162,817
1,000,000 Anchorage (Series 1990A)
AMBAC Insured......................... Insured Aaa/AAA 02/01/00 6.850 1,088,540
3,000,000 North Slope Borough (Series 1992A)
MBIA Insured.......................... Insured Aaa/AAA 06/30/00 5.550 3,126,000
-----------
Total Alaska 7,557,397
-----------
ARIZONA (1.9%)
1,000,000 Maricopa County, School District #11
(Peoria Unified School Improvement,
Series 1990H) MBIA Insured............ Prerefunded Aaa/AAA 07/01/01(A) 7.000 1,125,290
1,325,000 Maricopa County, School District #3
(Projects of 1991 Series C)........... Prerefunded A1/AA 07/01/06(A) 6.000 1,432,378
1,750,000 Phoenix (Refunding, Series C)........... General Obligation Aa/AA+ 07/01/02 6.375 1,934,555
1,575,000 Pima County, School District #1
(Tuscon Project of 1989 Series G)
MBIA Insured.......................... Insured Aaa/AAA 07/01/00 8.000 1,817,078
1,235,000 Salt River Electric Agricultural Impt
and Power District Electric System
(Series A)............................ Prerefunded Aaa/AAA 01/01/98(A) 7.875 1,360,661
-----------
Total Arizona 7,669,962
-----------
CALIFORNIA (7.2%)
2,520,000 California Department of Water Resources
Revenue, Water Systems Service,
(Refunding Series J-1)................ Revenue Bond Aa/AA 12/01/12 7.000 2,885,476
1,757,000 Kaweah Delta Hospital District, Tubre
County, Series G...................... Private Placement NR/NR 06/01/14 6.400 1,901,004
4,000,000 Los Angeles Department of Water & Power
(California Electric Plant, Crossover
Refunded)............................. Revenue Bond Aa/AA- 05/15/00(A) 7.125 4,474,520
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
17
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (7.2%) (CONTINUED)
$1,175,000 Los Angeles County Metropolitan
Transportation Authority and Sales Tax
Revenue AMBAC Insured................. Insured Aaa/AAA 07/01/06 5.900% $ 1,241,376
16,640,000 Paramount Redevelopment Agency
Redevelopment Project Area #1......... Prerefunded NR/AAA 08/01/01(A) 7.350 19,372,121
-----------
Total California 29,874,497
-----------
COLORADO (1.3%)
4,000,000 Colorado State General Fund Revenue Tax
Anticipation Notes (Series A)......... Revenue Bond NR/Sp1+ 06/27/96 4.500 4,017,840
1,515,000 Denver City & County Airport (Stapleton
International Airport Management,
Escrowed to Maturity)................. Prerefunded Aaa/AAA 12/01/95 10.000 1,539,619
-----------
Total Colorado 5,557,459
-----------
CONNECTICUT (1.3%)
2,000,000 Connecticut Housing Finance Authority
(Housing Mortgage Finance Program,
Series 1987B)......................... Revenue Bond Aa/AA 11/15/97 8.100 2,108,900
2,815,000 Connecticut (Special Tax Obligation,
Transportation Infrastructure,
Series 1991A)......................... Revenue Bond A1/AA- 06/01/04 6.600 3,106,831
-----------
Total Connecticut 5,215,731
-----------
DISTRICT OF COLUMBIA (3.5%)
3,000,000 District of Columbia (Refunding, Series
A) MBIA Insured....................... Insured Aaa/AAA 06/01/07 6.000 3,094,140
7,500,000 District of Columbia (Refunding, Series
C) FGIC Insured....................... Insured Aaa/AAA 12/01/03 5.250 7,534,200
2,600,000 District of Columbia (Series B) MBIA
Insured............................... Insured Aaa/AAA 06/01/02 6.000 2,724,410
1,000,000 Washington, D.C. Transportation
Authority (Refunding, Series 1993)
FGIC Insured.......................... Insured Aaa/AAA 07/01/07 6.000 1,075,450
-----------
Total District of Columbia 14,428,200
-----------
FLORIDA (2.4%)
1,535,000 Florida Board of Education (Capital
Outlay, Series 1986C, Escrowed to
Maturity)............................. Prerefunded Aaa/AA 06/01/96(A) 7.000 1,641,529
465,000 Florida Board of Education (Capital
Outlay, Series 1986C)................. General Obligation Aa/AA 06/01/96(A) 7.000 484,753
5,475,000 Florida State Turnpike Authority Revenue
Department of Transportation (Series
A) AMBAC Insured...................... Insured Aaa/AAA 07/01/01 5.500 5,761,397
2,000,000 Volusia County, School District
(Refunding, Series 1991) FGIC
Insured............................... Insured Aaa/AAA 08/01/01(A) 6.100 2,175,920
-----------
Total Florida 10,063,599
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
18
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
GEORGIA (5.2%)
$ 600,000 Burke County Development Authority (PCR,
Georgia Power Authority, Vogtle
Project).............................. Revenue Bond VMIG1/A-1 09/01/95(B) 3.400% $ 600,000
2,630,000 Fulton County Georgia School District
(Refunding)........................... General Obligation Aa/AA 05/01/14 6.375 2,835,245
1,000,000 Georgia Municipal Electric Power
Authority Revenue (Series D).......... Revenue Bond A/A 01/01/06 6.000 1,036,530
1,250,000 Georgia Municipal Electric Authority
Power (Series O, Crossover
Refunded)............................. Revenue Bond A/A 01/01/98(A) 8.125 1,367,325
1,155,000 Georgia Residential Finance Authority
(Single Family Insured Mortgages,
1986A) FHA Insured.................... Insured Aa/AA+ 12/01/96(A) 6.600 1,219,449
3,000,000 Georgia (Series B)...................... General Obligation Aaa/AA+ 03/01/10 6.300 3,291,330
6,000,000 Georgia (Series B)...................... General Obligation Aaa/AA+ 03/01/07 7.200 7,138,080
2,500,000 Gwinnett County Georgia School District
(Refunding, Series B)................. Revenue Bond Aa1/AA 02/01/08 6.400 2,779,050
1,000,000 Georgia Municipal Electric Authority
(Crossover Refunded).................. Special Obligation A/A 01/01/97(A) 6.500 1,054,700
-----------
Total Georgia 21,321,709
-----------
HAWAII (1.0%)
2,000,000 Hawaii.................................. General Obligation Aa/AA 10/01/12 6.000 2,080,400
2,000,000 Honolulu (City & County Refunding and
Improvement, Series B)................ General Obligation Aa/AA 10/01/11 5.500 1,974,700
-----------
Total Hawaii 4,055,100
-----------
IDAHO (0.9%)
3,500,000 Idaho State Tax Anticipation Notes...... Revenue Bond MIG1/SP1+ 06/27/96 4.500 3,515,610
-----------
ILLINOIS (7.3%)
1,500,000 Chicago O'Hare International Airport
(Refunding, Series C-1) MBIA
Insured............................... Insured Aaa/AAA 01/01/09 5.750 1,534,965
3,280,000 Cook County (Refunding, Series C)
FGIC Insured.......................... Insured Aaa/AAA 11/15/04 5.800 3,501,334
2,500,000 Cook County (Series 1991) AMBAC
Insured............................... Insured Aaa/AAA 11/01/98 6.100 2,639,300
1,375,000 Du Page County Illinois (Refunding,
Illinois Alternative Revenue Jail
Project Series C-1)................... Prerefunded Aaa/AAA 01/01/02(A) 6.550 1,538,941
1,640,000 Illinois (Building Sales Tax Revenue,
Series 1991O)......................... Prerefunded A1/AAA 06/01/97(A) 7.500 1,768,560
2,000,000 Illinois (Refunding, Series 1987)....... General Obligation A1/AA- 04/01/97(A) 6.500 2,087,920
3,350,000 Illinois Sales Tax Revenue (Series R)... Revenue Bond A1/AAA 06/15/01 4.600 3,332,949
3,250,000 Illinois Sales Tax Revenue (Refunding,
Series Q)............................. Revenue Bond A1/AAA 06/15/12 6.000 3,315,293
2,000,000 Illinois (Series 1986).................. General Obligation A1/AA- 12/01/96(A) 6.250 2,074,760
950,000 Kendall Kane & Will Counties Community
Unit School District #308 FGIC
Insured............................... Insured Aaa/AAA 03/01/99 6.200 1,003,333
2,500,000 Metropolitan Pier & Exposition
Authority, McCormick Place Expansion
Project Series A FGIC Insured......... General Obligation A/A+ 06/15/06 8.500 3,143,550
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
19
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
ILLINOIS (7.3%) (CONTINUED)
$2,810,000 Illinois Regional Transportation
Authority, Series D FGIC Insured...... Insured Aaa/AAA 06/01/07 7.750% $ 3,417,127
1,000,000 University of Illinois (Auxiliary
Facilities, Series 1992N, Escrowed to
Maturity)............................. Revenue Bond Aaa/AAA 10/01/01 6.000 1,036,990
-----------
Total Illinois 30,395,022
-----------
INDIANA (1.9%)
4,175,000 Indiana Bond Bank Common School Fund
AMBAC Insured......................... Insured Aaa/AAA 02/01/97 4.100 4,173,706
3,915,000 Indiana Transportation Finance Authority
(Highway Revenue Refunding, Series A)
AMBAC Insured......................... Insured Aaa/AAA 06/01/09 5.250 3,806,359
-----------
Total Indiana 7,980,065
-----------
KENTUCKY (1.2%)
4,400,000 Kentucky Turnpike Authority, (Series A
Escrowed to Maturity)................. Revenue Bond Aaa/AAA 07/01/02 7.100 4,864,508
-----------
LOUISIANA (0.5%)
2,200,000 Louisiana State Recovery District Sales
Tax Revenue, FGIC Insured............. Insured VMIG1/A-1+ 09/01/95(B) 3.500 2,200,000
-----------
MARYLAND (1.1%)
1,000,000 Maryland Department of Transportation,
(Series 1990)......................... Prerefunded Aaa/AAA 08/15/99(A) 6.700 1,104,470
3,000,000 Maryland (3rd Series)................... General Obligation Aaa/AAA 07/15/01(A) 6.400 3,286,410
-----------
Total Maryland 4,390,880
-----------
MASSACHUSETTS (2.1%)
4,950,000 Massachusetts Bay Transportation
Authority (General Transportation
System, Refunding, Series A).......... Revenue Bond A1/A+ 03/01/08 7.000 5,692,401
1,495,000 Massachusetts State College Building
Authority............................. Revenue Bond A1/A+ 05/01/11 7.500 1,767,748
1,060,000 Wareham School Project Loan Bonds AMBAC
Insured............................... Insured Aaa/AAA 01/15/01(A) 6.800 1,182,833
-----------
Total Massachusetts 8,642,982
-----------
MINNESOTA (1.6%)
5,685,000 Western Minnesota Municipal Power Agency
(Series 1983A)........................ Prerefunded Aaa/AAA 01/01/99(A) 10.125 6,523,424
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
20
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
MISSISSIPPI (2.6%)
$10,000,000 Mississippi (Refunding Bonds, Escrowed
to Maturity).......................... General Obligation AAA/AAA 02/01/08 6.200% $10,915,400
-----------
MISSOURI (1.1%)
4,000,000 St. Louis County Regional Convention
Sports Complex Authority, Refunding,
Series B.............................. Prerefunded Aaa/AAA 08/15/03(A) 7.000 4,593,200
-----------
NEBRASKA (1.0%)
4,000,000 Nebraska Public Power District (Nuclear
Facilities, Refunding)................ Revenue Bond A1/A+ 07/01/00 5.200 4,120,160
-----------
NEVADA (4.7%)
500,000 Carson City School District, (Series
1990) FGIC Insured.................... Prerefunded Aaa/AAA 04/01/00(A) 6.750 555,350
3,000,000 Clark County Nevada Passenger Facilities
(Las Vegas Mc.Carran International
Airport, Series A) AMBAC Insured...... Insured Aaa/AAA 07/01/08 6.250 3,233,610
8,200,000 Clark County Nevada School District
(Series A) MBIA Insured............... Insured Aaa/AAA 06/01/11 7.000 9,418,028
1,280,000 Las Vegas (Clark County Library
District, Refunding, Series B) FGIC
Insured............................... Insured Aaa/AAA 08/01/01(A) 6.700 1,400,422
1,685,000 Las Vegas (Clark County Library
District, Series 1991A) FGIC
Insured............................... Prerefunded Aaa/AAA 06/01/01(A) 6.600 1,871,782
1,200,000 Las Vegas (Clark County Library
District, Series 1991A) FGIC
Insured............................... Prerefunded Aaa/AAA 06/01/01(A) 6.700 1,339,044
1,330,000 Nevada Prison Facilities, (Series
1990A)................................ Prerefunded NR/AA 08/01/00(A) 7.000 1,495,851
-----------
Total Nevada 19,314,087
-----------
NEW HAMPSHIRE (0.5%)
1,720,000 New Hampshire (Series 1991A)............ General Obligation Aa/AA 06/15/01(A) 6.600 1,910,077
-----------
NEW JERSEY (4.6%)
2,200,000 New Jersey Economic Development
Authority (Market Transition
Facilities, Series A) MBIA Insured.... Insured Aaa/AAA 07/01/00 5.125 2,261,864
7,000,000 New Jersey Economic Development
Authority (Market Transition
Facilities, Series A) MBIA Insured.... Insured Aaa/AAA 07/01/02 5.400 7,287,210
1,500,000 New Jersey Sports & Exposition Authority
(Sports Complex Refunding, Escrowed to
Maturity)............................. Revenue Bond Aa1/NR 01/01/00 8.100 1,709,655
6,000,000 New Jersey State Transportation
Authority (Series B, Refunding) MBIA
Insured............................... Insured Aaa/AAA 06/15/05 6.000 6,507,780
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
21
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
NEW JERSEY (4.6%) (CONTINUED)
$1,000,000 Ocean County, General Improvement....... General Obligation Aa/NR 04/15/00 6.375% $ 1,080,860
-----------
Total New Jersey 18,847,369
-----------
NEW YORK (7.0%)
2,100,000 Monroe County Public Improvement AMBAC
Insured............................... Insured Aaa/AAA 06/01/09 6.000 2,214,702
1,415,000 Monroe County Public Improvement AMBAC
Insured............................... Insured Aaa/AAA 06/01/10 6.000 1,485,693
1,000,000 Municipal Assistance Corp. for the City
of New York, Custodial Receipt
Certificates, Series 1987-61 MBIA
Insured............................... Insured Aaa/AAA 07/01/97(A) 6.875 1,065,540
2,645,000 New York City (Refunding, Series A)..... General Obligation Baa1/BBB+ 08/01/02 5.750 2,664,335
3,425,000 New York City (Series F)................ General Obligation Baa1/BBB+ 02/15/03 6.200 3,521,414
1,465,000 New York City (Refunded, Series B)...... General Obligation AAA/BBB+ 06/01/01 8.000 1,642,499
4,675,000 New York City (Series H1)............... General Obligation Baa1/BBB+ 08/01/01 5.500 4,681,732
1,000,000 New York Dormitory Authority, (Iona
College Series 1988) MBIA Insured..... Insured Aaa/AAA 07/01/98(A) 7.625 1,108,280
1,500,000 New York State Urban Development
Correctional Capital Facilities
(Series 1)............................ Prerefunded AAA/NR 01/01/00(A) 7.750 1,722,585
2,000,000 New York (Series F)..................... General Obligation Baa1/BBB+ 02/15/02 6.100 2,051,300
400,000 New York State Energy Research &
Development Authority PCR, Niagra
Mohawk Power Series A
LOC-Toronto Dominion Bank............. Revenue Bond NR/A-1+ 09/01/95(B) 3.500 400,000
400,000 New York City Municipal Water Authority
(Series A, Refunding) FGIC Insured.... Insured VMIG1/A-1+ 08/31/95(B) 3.600 400,000
5,500,000 Triborough Bridge & Tunnel Authority
(Refunding, Series X)................. Revenue Bond Aa/A+ 01/01/12 6.625 6,082,010
-----------
Total New York 29,040,090
-----------
NORTH CAROLINA (0.9%)
3,500,000 North Carolina Eastern Municipal Power
Agency Systems Revenue (Series A)..... Prerefunded AAA/BBB+ 01/01/99(A) 7.250 3,889,480
-----------
OHIO (2.5%)
3,000,000 Cleveland (Ohio Waterworks Revenue,
Series E) MBIA Insured................ Prerefunded Aaa/NR 01/01/97(A) 7.750 3,204,120
3,675,000 Ohio Water Development Authority (Series
Safe Water II, Escrowed to
Maturity)............................. Revenue Bond Aaa/AAA 12/01/10 9.375 4,695,327
2,200,000 Ohio Water Development Authority
Pollution Control Facilities, MBIA
Insured............................... Insured Aaa/AAA 06/01/05 6.500 2,451,988
-----------
Total Ohio 10,351,435
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
22
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
PENNSYLVANIA (1.6%)
$1,175,000 Bethel Park School District, (Series
1991B) AMBAC Insured.................. Prerefunded Aaa/AAA 02/01/00(A) 6.550% $ 1,272,878
970,000 Pennsylvania Higher Education Assistance
Agency, (Student Loan Refunding,
Series 1985A) FGIC Insured............ Insured Aaa/AAA 12/01/00 6.800 1,043,846
1,310,000 Pennsylvania Higher Education Facs
Authority College (Series A,
Refunding)............................ Revenue Bond Aa/AA 09/01/02 6.500 1,449,266
1,000,000 Pennsylvania (Refunding and Projects,
Custodial Receipt Certificates, 1st
Series A) AMBAC Insured............... Insured Aaa/AAA 01/01/01 6.600 1,093,550
1,500,000 Pennsylvania (2nd Series 1991A)
MBIA Insured.......................... Insured Aaa/AAA 11/01/01(A) 6.500 1,642,965
-----------
Total Pennsylvania 6,502,505
-----------
RHODE ISLAND (2.7%)
3,785,000 Rhode Island (Series 1991B)............. General Obligation A1/AA- 05/15/00 6.000 4,000,026
2,000,000 Rhode Island (Series 1990B)............. Prerefunded A1/AA- 10/15/99(A) 6.700 2,212,160
5,000,000 Rhode Island State Public Buildings
Authority (Public Projects Refunding,
Series A) AMBAC Insured............... Insured Aaa/AAA 02/01/00 4.700 5,053,400
-----------
Total Rhode Island 11,265,586
-----------
SOUTH CAROLINA (0.3%)
1,000,000 Piedmont Municipal Power Agency Electric
(Refunding) MBIA Insured.............. Insured Aaa/AAA 01/01/08 6.200 1,084,410
-----------
TENNESSEE (0.5%)
2,000,000 Chattanooga Industrial Development
Board, (IDR, Gerber/Buster Brown
Manufacturing, Inc.).................. Revenue Bond A2/NR 11/01/96(A) 4.000 1,992,920
-----------
TEXAS (8.0%)
1,500,000 Addison (Refunding Series 1991)
FGIC Insured.......................... Insured Aaa/AAA 09/01/00 6.250 1,568,610
1,000,000 Arlington Permanent Improvement School
Fund Guarantee (Series 1989)
AMBAC Insured......................... Insured Aaa/AAA 08/01/00 6.850 1,085,700
1,050,000 Austin Independent School District,
(Permanent School Fund Guarantee,
Refunding, Series 1991) PSFG
Insured............................... Insured Aaa/AAA 08/01/99 6.200 1,119,216
335,000 Austin Water Sewer & Electric
(Refunding, Escrowed to Maturity)..... Revenue Bond A/A- 11/15/97 13.500 401,179
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
23
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (8.0%) (CONTINUED)
$1,500,000 Austin Utilities System (Series 6,
Escrowed to Maturity)................. Revenue Bond Aaa/AAA 10/01/01 6.500% $ 1,654,665
1,000,000 Austin Utility System (Prerefunded)..... Revenue Bond AAA/AAA 11/15/99(A) 11.300 1,265,670
1,100,000 Conroe Independent School District
(Schoolhouse and Refunding)
PSFG Insured.......................... Insured Aaa/AAA 02/01/02 6.500 1,214,928
1,265,000 Conroe Independent School District
(Schoolhouse and Refunding, Series
1993) PSFG Insured.................... Insured Aaa/AAA 02/01/03 6.500 1,406,136
975,000 Conroe Independent School District
(Schoolhouse and Refunding, Series
1989) MBIA Insured.................... Prerefunded Aaa/AAA 02/01/99(A) 7.100 1,061,161
25,000 Conroe Independent School District
(Schoolhouse and Partially Prerefunded
Series 1989) MBIA Insured............. Insured Aaa/AAA 02/01/99(A) 7.100 26,848
1,305,000 Dallas County Tax Flood Control
District #1........................... Prerefunded Aaa/NR 04/01/08(A) 9.250 1,778,271
1,650,000 El Paso Independent School District,
(Permanent School Fund Guarantee,
Series 1991) PSFG Insured............. Prerefunded Aaa/NR 07/01/01(A) 6.550 1,818,135
3,805,000 Fort Worth Independent School District
(Refunding, Series 1987).............. General Obligation Aa/AA 02/15/98 6.000 3,959,521
1,700,000 Harris County Road Improvement Authority
(Series 1989) MBIA Insured............ Prerefunded Aaa/AAA 11/01/99(A) 7.000 1,873,927
2,000,000 Plano Independent School District
(Series 1991B) FGIC Insured........... Prerefunded Aaa/AAA 02/15/01(A) 6.550 2,192,260
700,000 Texas A&M University (Refunding, Series
1989)................................. Revenue Bond Aaa/AA+ 07/01/97(A) 6.500 740,915
750,000 Texas A&M University (Series 1989)...... Prerefunded Aaa/AAA 07/01/97(A) 6.600 799,140
1,000,000 Texas Public Finance Authority
(Refunding, Series 1991A)............. Prerefunded NR/AA 10/01/00(A) 6.500 1,090,390
2,000,000 Texas Public Finance Authority (Series
1988A)................................ Prerefunded NR/AA 10/01/00(A) 6.300 2,163,720
3,000,000 Texas Public Finance Authority Revenue
(Refunding, Series A)................. Revenue Bond A/A+ 02/01/96 3.800 3,001,080
2,500,000 University of Texas (Permanent
University Fund, Refunding, Series
1991)................................. Revenue Bond Aaa/AA+ 07/01/01 6.300 2,715,075
-----------
Total Texas 32,936,547
-----------
VIRGINIA (1.8%)
5,000,000 Virginia Public School Authority
(Refunding, Series 1991C)............. Revenue Bond Aa/AA 01/01/02 6.000 5,374,750
2,000,000 Virginia Public School Authority,
(Series A)............................ Revenue Bond Aa/AA 08/01/01(A) 6.500 2,201,240
-----------
Total Virginia 7,575,990
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
24
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (9.2%)
$6,355,000 King County Washington (Refunding,
Series B)............................. General Obligation Aa1/AA+ 01/01/01 6.700% $ 6,982,429
1,555,000 North Shore School District #417, (King
& Snohomish Counties, Series 1991)
FGIC Insured.......................... Insured Aaa/AAA 12/01/02 6.600 1,682,634
1,000,000 Pierce County School District #320,
(Sumner Washington, Custodial Receipt
Certificates, Series 1991) MBIA
Insured............................... Insured Aaa/AAA 12/01/02 6.600 1,101,200
5,480,000 Seattle Municipal Light & Power (Light
and Power Revenue, Refunding)......... Revenue Bond Aa/AA 05/01/00 4.600 5,513,976
2,955,000 Seattle Municipal Sewer Revenue (Series
T).................................... Prerefunded AAA/AA- 01/01/00(A) 6.875 3,281,912
1,250,000 Snohomish County Washington School
District #2, (Everett, Custodial
Receipt Certificates, Series A) MBIA
Insured............................... Prerefunded Aaa/AAA 06/01/01(A) 6.700 1,366,675
5,265,000 Washington Public Power Supply System
(Nuclear Project #2, Refunding, Series
A).................................... Revenue Bond Aa/AA 07/01/01 6.300 5,566,263
2,000,000 Washington Public Power Supply System
(Nuclear Project #2, Refunding, Series
1990A)................................ Revenue Bond Aa/AA 07/01/06 7.250 2,260,740
1,500,000 Washington Public Power Supply System
(Nuclear Project #2, Refunding, Series
1990C)................................ Revenue Bond Aa/AA 01/01/01(A) 7.500 1,674,105
1,750,000 Washington (Series R-92A)............... General Obligation Aa/AA 09/01/01(A) 6.300 1,908,148
3,000,000 Washington Series 1995C AT-8 and
R -95 B (Refunding)................... General Obligation Aa/AA 07/01/02 5.750 3,185,670
2,000,000 Washington Public Power Supply System
(Nuclear Project #2, Refunding, Series
C) FGIC Insured....................... Insured Aaa/AAA 07/01/01 7.000 2,198,980
1,000,000 Washington (Series 1990B)............... General Obligation Aa/AA 08/01/02 6.750 1,088,550
-----------
Total Washington 37,811,282
-----------
WEST VIRGINIA (0.3%)
1,000,000 Berkeley County, Board of Education
Escrowed to Maturity (Series 1988)
MBIA Insured.......................... Insured Aaa/AAA 04/01/01 7.300 1,133,670
-----------
WISCONSIN (3.8%)
1,500,000 Racine Unified School District
AMBAC Insured......................... Insured Aaa/AAA 04/01/01 6.500 1,592,580
5,000,000 Wisconsin Transportation (Refunding,
Series A)............................. Revenue Bond A1/AA- 07/01/06 4.600 4,670,900
4,000,000 Wisconsin (Refunding)................... General Obligation Aa/AA 05/01/03 6.000 4,315,160
5,000,000 Wisconsin (Series A).................... General Obligation Aa/AA 05/01/99 5.750 5,244,900
-----------
Total Wisconsin 15,823,540
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
25
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
RATINGS
PRINCIPAL TYPE OF MOODY'S/S&P MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY (UNAUDITED) DATE RATE VALUE
- ---------- ---------------------------------------- ------------------ ----------- ----------- ------- -----------
<C> <S> <C> <C> <C> <C> <C>
WYOMING (1.4%)
$3,600,000 Platte County Pollution Control (Basin
Electric Power Cooperative,
Refunding)............................ Revenue Bond A2/A 01/01/06 4.950% $ 3,542,544
2,115,000 Platte County Pollution Control (Basin
Electric Power Cooperative,
Refunding)............................ Revenue Bond A2/A 01/01/07 5.050 2,116,650
-----------
Total Wyoming 5,659,194
-----------
</TABLE>
<TABLE>
<C> <S> <C> <C>
TOTAL INVESTMENTS (97.9%) (COST $385,751,276) 403,948,908
OTHER ASSETS NET OF LIABILITIES (2.1%) 8,688,955
-----------
NET ASSETS (100.0%) $412,637,863
-----------
-----------
<FN>
(A) The date shown represents the next mandatory/optional put date or call date, or interest reset date.
(B) Variable rate demand note tender dates and/or interest rates are reset at specified intervals which coincide with
their tender feature. The rates shown are the current rates at August 31, 1995.
1. Based on the cost of investments of $385,751,276 for federal income tax purposes at August 31, 1995, the aggregate
gross unrealized appreciation and depreciation was $18,653,343 and $455,711, respectively, resulting in net
unrealized appreciation of investments of $18,197,632.
2. Abbreviations used in the schedule of investments are as follows: AMBAC - Ambac Indemnity Corp., FHA - Federal
Housing Authority, FGIC - Financial Guaranty Insurance Company, IDR - Industrial Development Revenue, LOC - Letter
of Credit, MBIA - Municipal Bond Investors Assurance Corp., PCR - Pollution Control Revenue, TRAN - Tax Revenue
Anticipation Note.
3. Crossover Refunded - Bonds for which the issuer of the bond invests the proceeds from a subsequent bond issue in
cash and/or securities which have been deposited with a third party to cover the payments of principal and interest
at the maturity of the 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 of the bond.
Prerefunded - Bonds for which the issuer of the bond invests the proceeds from a subsequent bond issuance in
treasury securities, whose maturity coincides with the first call date of the first bond.
Refunding - Bonds for which the issuer has issued new bonds and canceled the old issue.
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
26
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $385,751,276) $ 403,948,908
Cash 58,763
Receivable for Investments Sold 7,542,271
Interest Receivable 5,220,846
Prepaid Expenses 922
--------------
Total Assets 416,771,710
--------------
LIABILITIES
Payables for Investments Purchased 3,486,115
Financial and Fund Accounting Services Fee Payable 407,764
Advisory Fee Payable 103,320
Custody Fee Payable 78,015
Fund Services Fee Payable 2,664
Administration Fee Payable 2,014
Accrued Expenses 53,955
--------------
Total Liabilities 4,133,847
--------------
NET ASSETS
Applicable to Investors' Beneficial Interests $ 412,637,863
--------------
--------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
27
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 31, 1995
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest $21,883,711
EXPENSES
Advisory Fee $ 1,178,720
Financial and Fund Accounting Services Fee 189,892
Custodian Fees and Expenses 127,415
Professional Fees 49,420
Fund Services Fee 38,804
Administration Fee 28,290
Printing Expenses 12,000
Trustees' Fees and Expenses 8,979
Insurance Premium Expenses 4,950
Registration Fees 610
Miscellaneous 2,000
-----------
Total Expenses (1,641,080)
-----------
NET INVESTMENT INCOME 20,242,631
NET REALIZED GAIN ON INVESTMENTS 377,206
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS 9,384,271
-----------
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $30,004,108
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
28
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
INCREASE (DECREASE) IN NET ASSETS 1995 1994
-------------- --------------
<S> <C> <C>
FROM OPERATIONS
Net Investment Income $ 20,242,631 $ 21,579,695
Net Realized Gain on Investments 377,206 1,199,109
Net Change in Unrealized Appreciation (Depreciation) of
Investments 9,384,271 (16,878,531)
-------------- --------------
Net Increase in Net Assets Resulting from Operations 30,004,108 5,900,273
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 221,887,625 246,505,829
Withdrawals (248,866,727) (328,342,574)
-------------- --------------
Net Decrease from Investors' Transactions (26,979,102) (81,836,745)
-------------- --------------
Total Increase (Decrease) in Net Assets 3,025,006 (75,936,472)
NET ASSETS
Beginning of Fiscal Year 409,612,857 485,549,329
-------------- --------------
End of Fiscal Year $ 412,637,863 $ 409,612,857
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 12, 1993
FOR THE FISCAL FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED YEAR ENDED OPERATIONS) TO
AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993
--------------- --------------- -----------------
<S> <C> <C> <C>
Ratios to Average Net Assets:
Expenses 0.42% 0.41% 0.40%(a)
Net Investment Income 5.15% 4.68% 4.58%(a)
Decrease Reflected in Expense Ratio due to Expense
Reimbursement -- -- 0.01%(a)
Portfolio Turnover 47% 33% 43%+
<FN>
- ------------------------
(a) Annualized
(+) Portfolio turnover is for the twelve month period ended August 31, 1993,
and includes the portfolio activity of the Portfolio's predecessor entity,
The Pierpont Tax Exempt Bond Fund, for the period September 1, 1992 through
July 11, 1993.
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements
29
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1995
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Tax Exempt Portfolio (the "Portfolio") is registered under the Investment
Company Act of 1940, as amended, ("The Act") as a no-load, diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio commenced operations on July 12, 1993 and
received a contribution of certain assets and liabilities, including securities,
with a value of $466,873,082 on that date from The Pierpont Tax Exempt Bond Fund
in exchange for a beneficial interest in the Portfolio. The Declaration of Trust
permits the Trustees to issue an unlimited number of beneficial interests in the
Portfolio.
The following is a summary of the significant accounting policies of the
Portfolio:
a)Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in other
cases, take into account various factors affecting market value, including
yields and prices of comparable securities, indication as to value from
dealers and general market conditions. If such prices are not supplied by
the Portfolio's independent pricing services, such securities are priced
in accordance with procedures adopted by the Trustees. All portfolio
securities with a remaining maturity of less than 60 days are valued by
the amortized cost method. Because of the large number of municipal bond
issues outstanding and the varying maturity dates, coupons and risk
factors applicable to each issuer's books, no readily available market
quotations exist for most municipal securities.
b)Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
c)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on its
share of the Portfolios 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 Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the investment
advisory agreement, the Portfolio pays Morgan at an annual rate of 0.30%
of the Portfolio's average daily net assets. For the fiscal year ended
August 31, 1995, such fees amounted to $1,178,720.
b)The Portfolio retains Signature Broker-Dealer Services, Inc. ("Signature")
to serve as Administrator and exclusive placement agent. Signature
provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the
30
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1995
- --------------------------------------------------------------------------------
Portfolio and pays the compensation of the Portfolio's officers affiliated
with Signature. The agreement provides for a fee to be paid to Signature
at an annual rate determined by the following schedule: 0.01% of the first
$1 billion of the aggregate average daily net assets of the Portfolio and
the other portfolios subject to the Administrative Services Agreement,
0.008% of the next $2 billion of such net assets, 0.006% of the next $2
billion of such net assets, and 0.004% of such net assets in excess of $5
billion. The daily equivalent of the fee rate is applied to the daily net
assets of the Portfolio. For the fiscal year ended August 31, 1995, such
expenses amounted to $28,290.
c)During the fiscal year ended August 31, 1995, the Portfolio had a
Financial and Fund Accounting Services Agreement ("Services Agreement")
with Morgan Guaranty Trust Company of New York ("Morgan") under which
Morgan would receive a fee, based on the percentages described below, for
overseeing certain aspects of the administration and operation of the
Portfolio and was also designed to provide an expense limit for certain
expenses of the Portfolio. This fee was calculated exclusive of the
advisory fee, custody expenses, fund services fee and brokerage costs at
0.10% of the Portfolio's average daily net assets up to and including $200
million, 0.05% of the next $200 million of average daily net assets, and
0.03% on any excess over $400 million. For the fiscal year ended August
31, 1995, the fee for these services amounted to $189,892. Effective
September 1, 1995, the Services Agreement was terminated and an interim
agreement was entered into between the Portfolio, and Morgan, which
provides for the continuation of the oversight services that were outlined
under the prior agreement without any compensation to Morgan.
d)The Portfolio has a Fund Services Agreement with Pierpont Group, Inc.
("Group") to assist the Trustees in exercising their overall supervisory
responsibilities for the Portfolio's affairs. The Trustees of the
Portfolio represent all the existing shareholders of Group. The
Portfolio's allocated portion of Group's costs in performing its services
amounted to $38,804 for the fiscal year ended August 31, 1995.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The Pierpont Funds, The JPM Institutional Funds, their
corresponding Portfolios and The Series Portfolio. The Trustees' Fees and
Expenses shown in the financial statements represents the Portfolio's
allocated portion of these total fees and expenses. Prior to April 1,
1995, the aggregate annual Trustee Fee was $55,000. The Trustee who serves
as Chairman and Chief Executive Officer of these Funds and Portfolios also
serves as Chairman of Group and received 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 $4,500.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period were
as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C> <C>
$ 180,361,813 $ 190,816,587
</TABLE>
31
<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 August 31, 1995, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its supplementary data for each of the two years in the period
then ended and for the period July 12, 1993 (commencement of operations) through
August 31, 1993, in conformity with generally accepted accounting principles.
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 generally accepted auditing standards 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 August
31, 1995 by correspondence with the custodian and brokers and the application of
alternative auditing procedures where confirmations from brokers were not
received, provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 24, 1995
32
<PAGE>
THE PIERPONT MONEY MARKET FUND
THE PIERPONT TAX EXEMPT MONEY MARKET FUND
THE PIERPONT TREASURY MONEY MARKET FUND
THE PIERPONT SHORT TERM BOND FUND
THE PIERPONT BOND FUND
THE PIERPONT TAX EXEMPT BOND FUND
THE PIERPONT NEW YORK TOTAL RETURN BOND FUND
THE PIERPONT DIVERSIFIED FUND
THE PIERPONT EQUITY FUND
THE PIERPONT CAPITAL APPRECIATION FUND
THE PIERPONT INTERNATIONAL EQUITY FUND
THE PIERPONT EMERGING MARKETS EQUITY FUND
FOR MORE INFORMATION ON HOW THE PIERPONT FAMILY OF FUNDS CAN HELP YOU PLAN FOR
YOUR FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
The
Pierpont
Tax Exempt
Bond Fund
ANNUAL REPORT
AUGUST 31, 1995
