<PAGE>
LETTER TO THE SHAREHOLDERS OF THE PIERPONT TAX EXEMPT BOND FUND
April 15, 1996
Dear Shareholder:
We are pleased to report that The Pierpont Tax Exempt Bond Fund recorded an
attractive gain for its semi-annual reporting period relative to the market. In
a challenging environment for municipal managers, we believe that actively
managed security selection and sector allocation in the Fund's Portfolio helped
it outperform its benchmark as well as its competitive average. The Fund
returned 3.88% for the six months ended February 29, compared with 3.60% for the
Lehman Quality Intermediate Municipal Bond Index and 3.59% for the Composite
Intermediate Municipal Bond Funds Average.(*) In addition, the Fund had a 30-day
SEC yield of 4.26%, which is equivalent to a taxable yield of 7.05%, assuming a
39.60% tax rate.
We are also pleased to announce that we have made some enhancements to the
Fund's semi-annual report as part of our ongoing dedication to provide better
service to shareholders. In addition to making Fund performance easier to
locate, we have added a portfolio manager Q&A with Elizabeth Augustin, a member
of the Fund's Portfolio management team. This interview is designed to help
answer some commonly asked questions about the Fund and to cover what happened
during the reporting period as well as to provide our outlook for the months
ahead. To help you better understand the Q&A, we have also added a glossary of
terms on page 6.
As always, we welcome your comments, questions, or any suggestions on how we can
further improve our financial reports. Please call J.P. Morgan Funds Services
toll free at (800) 521-5411.
Sincerely yours,
/s/Evelyn Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
(*) THE COMPOSITE INTERMEDIATE MUNICIPAL BOND FUNDS AVERAGE PERFORMANCE IS
COMPUTED ON ALL FUNDS IN THE MORNINGSTAR UNIVERSE HAVING A NATIONAL
MUNICIPAL BOND OBJECTIVE, A HIGH QUALITY FOCUS, AND AN INTERMEDIATE
MATURITY. MORNINGSTAR, INC. IS A LEADING RESOURCE FOR MUTUAL FUND DATA.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS GLOSSARY OF TERMS . . . . . . . . .6
LETTER TO THE SHAREHOLDERS . .1 FUND FACTS AND HIGHLIGHTS . . . . .7
FUND PERFORMANCE . . . . . . .2 SPECIAL FUND-BASED SERVICES . . . .8
PORTFOLIO MANAGER Q & A. . . .3 FINANCIAL STATEMENTS. . . . . . . .9
- --------------------------------------------------------------------------------
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows 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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- -------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF FEBRUARY 29, 1996 MONTHS MONTHS YEAR YEARS YEARS YEARS
- -------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The Pierpont Tax Exempt Bond Fund 1.45% 3.88% 9.38% 5.21% 7.22% 7.03%
Lehman Quality Inter. Muni Bond Index 1.23% 3.60% 10.09% 5.64% 7.80% 7.39%
Composite Inter. Muni. Bond Funds Avg. 1.21% 3.59% 8.88% 4.91% 6.98% 6.90%
AS OF DECEMBER 31, 1995
- -------------------------------------------------------------- --------------------------------------
The Pierpont Tax Exempt Bond Fund 2.94% 5.24% 13.40% 6.53% 7.58% 7.60%
Lehman Quality Inter. Muni. Bond Index 2.45% 5.34% 13.80% 7.01% 8.17% 8.26%
Composite Inter. Muni. Bond Funds Avg. 2.63% 5.02% 12.56% 6.08% 7.34% 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 UNMANAGED INDEX (GROSS OF EXPENSES)
CREATED BY LEHMAN BROTHERS OF HIGH QUALITY MUNICIPAL BONDS RATED A OR BETTER
WITH INTERMEDIATE MATURITIES (APPROXIMATELY 7 YEARS).THE COMPOSITE INTERMEDIATE
MUNICIPAL BOND FUNDS AVERAGE PERFORMANCE IS COMPUTED ON ALL FUNDS IN THE
MORNINGSTAR UNIVERSE HAVING A NATIONAL MUNICIPAL BOND OBJECTIVE, A HIGH QUALITY
FOCUS, 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.
2
<PAGE>
PORTFOLIO MANAGER Q&A
Following is an interview with ELIZABETH AUGUSTIN, part of the
[Photograph] portfolio management team for The Tax Exempt Bond Portfolio in
which the Fund invests. Elizabeth joined Morgan in 1983 and has
extensive experience across a broad range of markets including
mortgages, convertibles, money markets, and tax exempt
securities.
ELIZABETH, WHAT WAS THE MAIN FACTOR AFFECTING THE MUNICIPAL
MARKET DURING THE FUND'S REPORTING PERIOD?
EA: Tax reform was the largest issue. Six months ago, different
tax reform proposals were receiving a lot of press and were perceived as more
viable options than they are currently. Because they would have a negative
impact on the municipal market, yields rose accordingly. In other words, the
market priced in a fear of tax reform. I use the word "fear" because the market
reacted to proposals that weren't really practical or, at very best, wouldn't be
instituted for a very long period of time.
At the time, a lot of investors moved from the long end to the short and
intermediate part of the municipal curve, which caused the long end of the
market to cheapen. However, as the market adjusted to the reality that any
radical tax reform is unlikely in the near term, yields for long-term municipals
fell dramatically. In the end, municipal prices across the curve were unchanged
from where they were six months ago.
WHAT IMPACT DO YOU EXPECT FURTHER TAX REFORM DISCUSSIONS TO HAVE ON THE
MUNICIPAL MARKET GOING FORWARD?
EA: Again, at this point a lot of that fear has diminished. Yields are at more
realistic levels and with supply being low, there could be some additional
improvement in the long end of the municipal market. We think the market's
reaction to further tax discussions will be mitigated at this point. Clearly, if
anything does happen, it will have a major impact, but again, we seem to be very
far away from that.
HOW DID YOU ATTEMPT TO TAKE ADVANTAGE OF THE MARKET ENVIRONMENT DURING THE
PERIOD?
EA: We remained invested across the yield curve over the entire period and, at
times, took advantage of what we viewed as cheap securities at the long end of
the market. We purchased bonds with maturities of greater than ten years at
relatively high yields and, in doing so, gradually lengthened the duration of
the Portfolio.
WHAT WAS THE AVERAGE MATURITY AND DURATION OF THE PORTFOLIO FOR THE PERIOD?
EA: The average maturity was approximately 7 years, and the duration ranged from
5 to 6 years. During the period, continued benign inflation and moderate
economic growth combined with other weak economic fundamentals and market
technicals motivated us to extend the duration of the Portfolio.
3
<PAGE>
HOW HAS THE CHANGE IN THE SHAPE OF THE YIELD CURVE AFFECTED YOUR STRATEGY?
EA: Generally speaking, municipal rates are about the same as they were six
months ago, although at one point bonds at the longer end of the curve cheapened
but corrected to more realistic levels at the end of the period. This is
different from the taxable market where the yield curve steepened over the
period.
Evaluating the shape of the yield curve to find attractive opportunities is
a major part of our strategy. To take advantage of changes in the curve during
the period, we generally purchased 3 to 5 year bonds and bonds in the 13 to 16
year area where there was a pickup in yield versus intermediate-term bonds. This
is often called a barbell strategy because purchases are concentrated at the
shorter and longer ends of the market.
WHAT STATES OR REGIONS HAVE YOU BEEN FOCUSING ON?
EA: The Fund has a national focus, so we don't look to concentrate too much in
any one area. In general, we try to take advantage of opportunities in states
that have volatility in their yield spreads based on varying levels of supply
and demand. For example, during the period we purchased New York tax free bonds
when they were inexpensive and sold, or plan to sell, them at appreciated levels
when supply in the New York market is low.
WHAT ABOUT SPECIFIC SECTORS OF THE MARKET?
EA: One area we avoided is health care. This sector is undergoing a fair amount
of change because of proposed health care reform. Going forward, there may be
some attractive opportunities, but at this point, we think there is too much
stress and strain on the system.
The public power sector is also undergoing change, as the specter of
deregulation becomes an issue for these credits. In this case, however, we hold
various issues that we feel are in a good competitive position -- those that
shouldn't experience credit deterioration in the case of deregulation.
WHAT LEVEL OF CREDIT QUALITY DO YOU GENERALLY PURCHASE?
EA: We generally have close to half of the Portfolio in AAA-rated bonds with the
rest in credits rated at least single-A, which are high investment-grade
quality. Quality spreads continued to narrow for the period. As a result, the
yield spread between AAA and AA, and AAA and A-rated issues was very narrow.
This means investors weren't getting paid much in terms of yield to assume
additional credit risk. However, this narrowing makes sense in the case of
prerefunded bonds, which historically have yielded more than other AAA general
obligations despite the fact that they are backed by U.S. government securities.
If some widening of spreads does occur, the Portfolio's holdings should
maintain their value because of the Portfolio's high concentration in AAA and AA
credits.
4
<PAGE>
HOW DOES THIS COMPARE WITH THE FUND'S COMPETITORS?
EA: The Portfolio's holdings are extremely high quality compared with the
general universe of intermediate-term municipal bond funds. While the Fund may
sometimes lag the overall municipal bond fund
universe in bullish years, it has generally beat most of its peers with similar
high quality intermediate-maturity styles. Of course, past performance doesn't
guarantee future performance.
HOW HAVE YOU BEEN ABLE TO OUTPERFORM OTHER HIGH-QUALITY INTERMEDIATE-TERM FUNDS?
EA: We diversify the sources of added return through security selection, sector
allocation, and yield curve positioning. I'll give some examples of security
selection since we've already covered some sectors. During the period, we bought
bonds with structures that are somewhat complex but with fairly straightforward
credits. Some examples were crossover prerefunded bonds, bonds with sinking
funds, and intermediate zero coupon bonds. These securities offer some yield
advantage and also meet our high credit quality standards.
The benefits of diversification come into play when we talk about duration
for the period. The Portfolio's longer duration helped its return when rates
were declining, but held it back slightly when rates rose. Fortunately, this was
offset by our security selection and sector allocation decisions.
WHAT IS YOUR OUTLOOK FOR THE MUNICIPAL MARKET?
EA: We believe that economic fundamentals remain supportive of the bond markets
in general. Recently released economic data has increased market perception that
there could be a pick up in growth, but we believe this is offset by low
inflation and moderate gross domestic product growth. We also think that growth
indicators may not be as strong as they appear. For example, while there was a
pickup in retail sales in February, it was in the wake of poor January sales due
to inclement weather in most of the country.
We don't expect any large backup in rates in the municipal market in this
context. Additionally, we could see further improvement in yields in the long
end of the market.
HOW WILL SUPPLY AND DEMAND FACTORS COME INTO PLAY?
EA: As rates rose in the early part of 1996, we saw a pick up in supply, but
demand remained strong. At the current level of rates, the outlook for the
municipal market is positive as we anticipate supply to be lower than demand.
However, if rates decline from this level to the levels we saw earlier this year
or even lower, supply will unquestionably pick up.
HOW DO YOU PLAN TO POSITION THE PORTFOLIO GOING FORWARD?
EA: As always, we'll continue to focus on high quality issues and position the
Portfolio to take advantage of changes in the yield curve. We will also look for
further opportunities in high quality complex securities to give the Fund
additional yield.
5
<PAGE>
GLOSSARY OF TERMS
ADVANCE REFUNDING: A method of providing for payment of debt service on a
municipal bond until the first call date or maturity from funds other than an
issuer's revenues, and therefore eliminating the refunded municipal bond as an
obligation of the issuer. Advance refundings are usually accomplished by issuing
new municipal bonds and investing the proceeds in a portfolio of government
securities structured to provide cash flow sufficient to pay debt service on the
refunded bonds.
BASIS POINT: A measure used in quoting bond yields. One basis point equals 0.01%
of yield. For example if a bond's yield changed from 10.25% to 11.00%, it would
have moved 75 basis points.
CREDIT RATING: The rating assigned to a bond by independent rating agencies such
as Standard & Poor's and Moody's. In evaluating creditworthiness, these agencies
assess the issuer's present financial condition and future ability and
willingness to make principal and interest payments when due.
CROSSOVER PREREFUNDING: A financing structure under which new bonds are issued
to repay an outstanding municipal bond issue, usually prior to its first call
date. Unlike a regular advance refunding, the securities in the escrow are
pledged to pay the interest on the new (refunding) bond. The old (refunded) bond
is secured by the original source of payment (for example, a revenue pledge)
until the crossover date, usually the first call date of the old bond. Then, the
escrow is used to call out the old bond, and the new bond is now secured by the
original source of payment.
DURATION: Duration is used as a measure of the relative sensitivity of the price
of the security to a change in interest rates. The longer the duration the more
sensitive the bond is to interest rate moves. For example, a bond with a 5-year
duration will experience an approximate 5% increase in price if interest rates
drop 100 basis points (1%) while a bond with a 10-year duration would see its
price rise by approximately 10%.
MATURITY: The date on which the life of a financial instrument ends through cash
or physical settlement or expiration with no value. Or the date a security comes
due and fully payable. Average maturity refers to the average time to maturity
of the entire portfolio.
SINKING FUND: A provision of a bond indenture that commits an issuer to call
bonds prior to maturity or to purchase them in the open market. A cash sinking
fund may purchase bonds in the open market to satisfy requirements, call bonds
in the open market to satisfy requirements, or call bonds at the sinking fund
call price.
YIELD CURVE: A graph showing the term structure of interest rates by ranging
from the shortest to the longest available. The resulting curve shows if short-
term interest rates are higher or lower than long-term rates.
YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.5% and a municipal is yielding 5.5%,
the spread is 1.0% or 100 basis points.
ZERO COUPON BOND: A debt instrument sold at a discount to its face value. The
bond makes no payments until maturity, at which time it is redeemed at face
value. Effectively, the interest received is the difference between face value
and the price paid for the security.
6
<PAGE>
FUND FACTS FUND HIGHLIGHTS
ALL DATA AS OF FEBRUARY 29, 1996
INVESTMENT OBJECTIVE PORTFOLIO ALLOCATION
The Pierpont Tax Exempt Bond Fund (percentage of total investments)
seeks to provide a high level of
current income that is exempt from
federal income tax consistent with [graph]
moderate risk of capital and
maintenance of liquidity. It is - INSURED 36.5%
designed for investors who seek tax - REVENUE 25.6%
exempt yields greater than those - GENERAL OBLIGATIONS 21.3%
generally available from a portfolio - PREREFUNDED 15.8%
of short-term tax exempt obligations - PRIVATE PLACEMENTS 0.8%
and who are willing to incur the
greater price fluctuation of longer-
term instruments.
- ----------------------------------------
INCEPTION DATE
10/03/84
30-DAY SEC YIELD
- ---------------------------------------- 4.26%
NET ASSETS AS OF 2/29/96
$377,413,349
- ---------------------------------------- DURATION
DIVIDEND PAYABLE DATES 5.4 years
MONTHLY
- ----------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/20/96
EXPENSE RATIO
The Fund's annual expense ratio of 0.61% 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.
7
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- Create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- Make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- Make investments through The 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.
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.
8
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in the Tax Exempt Bond Portfolio ("Portfolio"), at $377,265,678
value
Receivable for Shares of Beneficial Interest Sold 579,865
Prepaid Insurance 882
Prepaid Trustees' Fees 458
------------
Total Assets 377,846,883
------------
LIABILITIES
Payable for Shares of Beneficial Interest Redeemed 62,931
Dividends Payable to Shareholders 267,550
Shareholder Servicing Fee Payable 59,755
Administrative Services Fee Payable 15,975
Administration Fee Payable 4,022
Fund Services Fee Payable 939
Accrued Expenses 22,362
------------
Total Liabilities 433,534
------------
NET ASSETS
Applicable to 31,736,201 Shares of Beneficial Interest $377,413,349
Outstanding
(par value $0.001, unlimited shares authorized)
------------
------------
Net Asset Value, Offering and Redemption Price per Share $11.89
------------
------------
ANALYSIS OF NET ASSETS
Paid-in Capital $356,257,677
Distributions in Excess of Net Investment Income (124,000)
Accumulated Net Realized Gain on Investment 101,849
Net Unrealized Appreciation of Investment 21,177,823
------------
Net Assets $377,413,349
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
$ 9,546,971
Allocated Interest Income
(651,515)
Allocated Portfolio Expenses
-----------
8,895,456
Net Investment Income Allocated from Portfolio
FUND EXPENSES
Shareholder Servicing Fee $ 337,431
Administration Fee 38,451
Transfer Agent Fee 22,674
Administrative Services Fee 15,975
Fund Services Fee 10,753
Registration Fees 8,285
Printing Expense 7,480
Professional Fees 6,403
Trustees' Fees and Expenses 3,858
Insurance Expense 2,362
Miscellaneous 2,495
---------
(456,167)
NET FUND EXPENSES
-----------
8,439,289
NET INVESTMENT INCOME
457,962
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM PORTFOLIO
4,692,382
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENT ALLOCATED FROM PORTFOLIO
-----------
$13,589,633
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE
FEBRUARY 29, FISCAL YEAR
1996 ENDED AUGUST
(UNAUDITED) 31, 1995
------------- -------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 8,439,289 $ 17,204,362
Net Realized Gain on Investment Allocated from Portfolio 457,962 292,405
Net Change in Unrealized Appreciation of Investment Allocated
from Portfolio 4,692,382 7,518,403
------------- -------------
Net Increase in Net Assets Resulting from Operation 13,589,633 25,015,170
------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (8,439,289) (17,204,362)
Net Realized Gain (455,297) (273,413)
------------- -------------
Total Distributions to Shareholders (8,894,586) (17,477,775)
------------- -------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 76,304,311 163,344,760
Reinvestment of Dividends and Distributions 7,316,804 14,555,056
Cost of Shares of Beneficial Interest Redeemed (62,908,297) (225,892,051)
------------- -------------
Net Increase (Decrease) from Transactions in Shares of
Beneficial Interest 20,712,818 (47,992,235)
------------- -------------
Total Increase (Decrease) in Net Assets 25,407,865 (40,454,840)
NET ASSETS
Beginning of Period 352,005,484 392,460,324
------------- -------------
End of Period $377,413,349 $352,005,484
------------- -------------
------------- -------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<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 SIX
MONTHS ENDED
FEBRUARY 29, FOR THE FISCAL YEAR ENDED AUGUST 31,
1996 ---------------------------------------------------------
(UNAUDITED) 1995 1994 1993 1992 1991
------------ --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.73 $ 11.45 $ 12.04 $ 11.60 $ 11.19 $ 10.75
------------ --------- --------- --------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.55 0.51 0.55 0.62 0.68
Net Realized and Unrealized Gain (Loss) on
Investments 0.17 0.29 (0.35) 0.56 0.41 0.44
------------ --------- --------- --------- --------- ---------
Total from Investment Operations 0.45 0.84 0.16 1.11 1.03 1.12
------------ --------- --------- --------- --------- ---------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.28) (0.55) (0.51) (0.55) (0.62) (0.68)
Net Realized Gain (0.01) (0.01) (0.24) (0.12) - -
------------ --------- --------- --------- --------- ---------
Total Distributions to Shareholders (0.29) (0.56) (0.75) (0.67) (0.62) (0.68)
------------ --------- --------- --------- --------- ---------
NET ASSET VALUE, END OF PERIOD $ 11.89 $ 11.73 $ 11.45 $ 12.04 $ 11.60 $ 11.19
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
Total Return 3.88%(a) 7.63% 1.35% 9.88% 9.47% 10.67%
------------ --------- --------- --------- --------- ---------
------------ --------- --------- --------- --------- ---------
RATIOS AND SUPPLEMENTAL DATA
Net Assets at end of Period (in thousands) $377,413 $ 352,005 $ 392,460 $ 485,013 $ 360,343 $ 239,709
Ratios to Average Net Assets
Expenses 0.61%(b) 0.71% 0.71% 0.74% 0.77% 0.78%
Net Investment Income 4.65%(b) 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.
(a) Not Annualized
(b) Annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 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
(81% at February 29, 1996). The performance of the Fund is directly affected by
the performance of the Portfolio. The financial statements of the Portfolio,
including the schedule of investments, are included elsewhere in this report and
should be read in conjunction with the Fund's financial statements.
The preparation of financial statements prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Fund:
a)Valuation of securities by the Portfolio is discussed in Note 1 of the
Portfolio's Notes to Financial Statements which are included elsewhere in
this report.
b)The Fund records its share of net investment income, realized and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
d)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.
13
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 provided 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 each day to the net assets
of the Fund. For the period from September 1, 1995 through December 28,
1995, Signature's fee for these services amounted to $30,467.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Fund's proportionate share of a
complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which
series of the Trust, The JPM Institutional Funds or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge payable by
the Fund is determined by the proportionate share its net assets bear to
the total net assets of the Trust, The JPM Institutional Funds, The JPM
Advisor Funds and the Master Portfolios. For the period from December 29,
1995 through February 29, 1996, Signature's fee for these services
amounted to $7,984.
b)Effective December 29, 1995, the Trust, on behalf of the Fund, entered
into an Administrative Services Agreement with Morgan under which Morgan
is responsible for certain aspects of the administration and operation of
the Fund. Under the agreement, the Fund has agreed to pay Morgan a fee
equal to its proportionate share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate net assets of the Master
Portfolios in accordance with the following annual schedule: 0.06% on the
first $7 billion of the Master Portfolios' aggregate average daily net
assets and 0.03% of the aggregate average daily net assets in excess of $7
billion. The portion of this charge payable by the Fund is determined by
the proportionate share that the Fund's net assets bear to the net assets
of the Trust, the Master Portfolios and other investors in the Master
Portfolios for which Morgan provides similar services. For the period from
December 29, 1995 through February 29, 1996, Morgan's fee for these
services amounted to $15,975.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The agreement provided 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
period September 1, 1995 through December 28, 1995, the fee for these
services amounted to $209,697.
14
<PAGE>
THE PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
Effective December 29, 1995, the Shareholder Servicing Agreement was
amended such that the annual rate for providing these services was changed
to 0.20% of the average daily net assets of the Fund. For the period from
December 29, 1995 through February 29, 1996, the fee for these services
amounted to $127,733.
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
$10,753 for the six months ended February 29, 1996.
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, and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represents the Fund's allocated portion of the total
fees and expenses. 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 employee
benefits included in the Fund Services Fee shown in the financial
statements was $1,400.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE FISCAL
ENDED FEBRUARY 29, YEAR ENDED
1996 (UNAUDITED) AUGUST 31, 1995
------------------ ---------------
<S> <C> <C>
Shares sold 6,425,479 14,491,547
Reinvestment of dividends and distributions 616,761 1,280,695
Shares redeemed (5,303,408) (20,061,693)
---------- ---------------
Net Increase/(Decrease) 1,738,832 (4,289,451)
---------- ---------------
---------- ---------------
</TABLE>
15
<PAGE>
The Tax Exempt Bond Portfolio
Semi-Annual Report February 29, 1996
(The following pages should be read in conjunction
with The Pierpont Tax Exempt Bond Fund
Semi-Annual Financial Statements)
16
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
ALABAMA (0.9%)
$ 1,000,000 Alabama Mental Health Finance Authority
(Special Tax Obligation, Series 1989)
MBIA Insured......................... Aaa/AAA 05/01/99(A) 7.375% $ 1,115,580
Prerefunded
1,890,000 Childersburg Industrial Development
Board, PCR, (Kimberly Clark Corp.
Project, Escrowed to Maturity)....... Aa2/AA 05/15/96(A) 7.400 2,026,779
Revenue Bond
1,000,000 Daphne Special Care Facilities
Financing Authority (Presbyterian
Retirement, Series A)................ NR/NR 08/15/01(A) 7.300 1,138,360
Prerefunded
------------
Total Alabama 4,280,719
------------
ALASKA (2.7%)
1,075,000 Anchorage (Refunding, Series 1989)
AMBAC Insured........................ Aaa/AAA 06/01/99(A) 7.100 1,164,397
Insured
1,000,000 Anchorage (Series 1990A) AMBAC
Insured.............................. Aaa/AAA 02/01/00 6.850 1,091,470
Insured
2,000,000 Anchorage (Series 1991) MBIA Insured... Aaa/AAA 07/01/01(A) 6.600 2,220,240
Prerefunded
3,000,000 North Slope Borough (Series 1992A) MBIA
Insured.............................. Aaa/AAA 06/30/00 5.550 3,146,730
Insured
5,500,000 North Slope Borough (Series 1996A) MBIA
Insured.............................. Aaa/AAA 06/30/99 0.000 4,773,780
Insured
------------
Total Alaska 12,396,617
------------
ARIZONA (1.6%)
1,325,000 Maricopa County, School District #3
(Projects of 1991, Series C)......... A1/AA 07/01/06(A) 6.000 1,457,831
Prerefunded
1,000,000 Maricopa County, School District #11
(Peoria Unified School Improvement,
Series 1990H) MBIA Insured........... Aaa/AAA 07/01/99(A) 7.000 1,129,030
Prerefunded
1,750,000 Phoenix Arizona (Refunding, Series
C)................................... Aa1/AA+ 07/01/02 6.375 1,953,595
General Obligation
1,575,000 Pima County, School District # 1
(Project of 1989, Series G) MBIA
Insured.............................. Aaa/AAA 07/01/00 8.000 1,811,360
Insured
1,235,000 Salt River Electric Agricultural
Improvement and Power District
Electric System (Series A)........... NRR/AAA 01/01/98(A) 7.875 1,347,916
Prerefunded
------------
Total Arizona 7,699,732
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (6.8%)
$ 2,520,000 California Department of Water
Resources Revenue, Water Systems
Service, (Refunding, Series J-1)..... Aa/AA 12/01/12 7.000% $ 2,985,343
Revenue Bond
1,757,000 Kaweah Delta Hospital District, Tulare
County (Series G).................... NR/NR 06/01/04(A) 6.400 1,898,105
Private Placement
1,160,000 Kaweah Delta Hospital District, Tulare
County (Series E).................... NR/NR 06/01/97(A) 5.250 1,174,384
Private Placement
600,000 Kaweah Delta Hospital District, Tulare
County (Series D).................... NR/NR 06/01/96(A) 4.700 600,000
Private Placement
4,000,000 Los Angeles Department of Water & Power
(California Electric Plant, Crossover
Refunded)............................ Aa/AA- 05/15/00(A) 7.125 4,464,680
Revenue Bond
1,200,000 Los Angeles Regional Airport Corporate
Lease LOC-Societe Generale, NY....... NR/A-1+ 03/01/96(A) 3.500(B) 1,200,000
Revenue Bond
1,175,000 Los Angeles County Metropolitan
Transportation Authority and Sales
Tax Revenue (Series A) AMBAC
Insured.............................. Aaa/AAA 07/01/06 5.900 1,293,381
Insured
10,805,000 Paramount Redevelopment Agency
Redevelopment Project Area #1........ NR/AAA 08/01/01(A) 7.350 12,577,776
Prerefunded
2,000,000 Riverside County Transportation
(Refunding, Series A) FGIC Insured... Aaa/AAA 06/01/07 6.000 2,212,160
Insured
3,000,000 Sacramento Sanitation District......... Aa/AA 12/01/03 5.500 3,198,390
Revenue Bond
------------
Total California 31,604,219
------------
CONNECTICUT (2.1%)
4,250,000 Connecticut State Economic Recovery
Notes (Refunding).................... Aa/AA- 06/15/98 5.000 4,357,058
General Obligation
2,000,000 Connecticut Housing Finance Authority
(Housing Mortgage Finance Program,
Refunding, Series 1987B)............. Aa/AA 11/15/97 8.100 2,095,220
Revenue Bond
2,815,000 Connecticut (Special Tax Obligation,
Transportation Infrastructure, Series
1991A)............................... A1/AA- 06/01/03(A) 6.600 3,179,092
Prerefunded
------------
Total Connecticut 9,631,370
------------
DISTRICT OF COLUMBIA (3.2%)
7,500,000 District of Columbia (Refunding, Series
C) FGIC Insured...................... Aaa/AAA 12/01/03 5.250 7,760,025
Insured
3,000,000 District of Columbia (Refunding, Series
A) MBIA Insured...................... Aaa/AAA 06/01/07 6.000 3,215,490
Insured
2,600,000 District of Columbia (Series B) MBIA
Insured.............................. Aaa/AAA 06/01/02 6.000 2,801,578
Insured
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
DISTRICT OF COLUMBIA (CONTINUED)
$ 1,000,000 Washington, D.C. Transportation
Authority (Refunding, Series 1993)
FGIC Insured......................... Aaa/AAA 07/01/07 6.000% $ 1,095,660
Insured
------------
Total District of Columbia 14,872,753
------------
FLORIDA (2.2%)
1,535,000 Florida Board of Education (Capital
Outlay, Series 1986C, Escrowed to
Maturity)............................ NRR/AAA 06/01/96(A) 7.000 1,662,666
Prerefunded
465,000 Florida Board of Education (Capital
Outlay, Series 1986C)................ Aa/AA 06/01/96(A) 7.000 478,108
General Obligation
5,475,000 Florida State Turnpike Authority
Revenue Department of Transportation
(Series A) AMBAC Insured............. Aaa/AAA 07/01/01 5.500 5,814,614
Insured
2,000,000 Volusia County, School District
(Refunding, Series 1991) FGIC
Insured.............................. Aaa/AAA 08/01/01(A) 6.100 2,201,261
Insured
------------
Total Florida 10,156,649
------------
GEORGIA (7.4%)
300,000 Burke County Development Authority
(PCR, Georgia Power Authority, Vogtle
Project)............................. VMIG1/A-1 03/01/96(A) 3.450(B) 300,000
Revenue Bond
2,630,000 Fulton County Georgia School
District(Refunding).................. Aa/AA 05/01/14 6.375 2,960,302
General Obligation
6,000,000 Georgia (Series B)..................... Aaa/AA+ 03/01/07 7.200 7,254,420
General Obligation
3,000,000 Georgia (Series B)..................... Aaa/AA+ 03/01/10 6.300 3,379,710
General Obligation
4,470,000 Georgia (Series C)..................... Aaa/AA+ 07/01/11 5.700 4,728,187
General Obligation
3,000,000 Georgia (Series O)..................... Aaa/AA+ 09/01/13 3.250 2,312,670
General Obligation
1,000,000 Georgia Municipal Electric Authority
(Crossover Refunded) A/A 01/01/97(A) 6.500 1,108,100
Revenue Bond
2,500,000 Georgia Municipal Electric Authority
(Crossover Refunded) AMBAC Insured... Aaa/AAA 01/01/98(A) 7.000 2,944,925
Insured
4,265,000 Georgia Municipal Electric Authority
Power Revenue (Series O, Crossover
Refunded)............................ A/A 01/01/98(A) 8.125 4,609,186
Revenue Bond
1,000,000 Georgia Municipal Electric Authority
Power Revenue (Refunding, Series
D)................................... A/A 01/01/06 6.000 1,075,280
Revenue Bond
1,155,000 Georgia Residential Finance Authority
(Single Family Insured Mortgages,
Refunding, Series 1986A) FHA
Insured.............................. Aa/AA+ 12/01/96(A) 6.600 1,210,313
Insured
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
GEORGIA (CONTINUED)
$ 2,500,000 Gwinnett County Georgia School District
(Refunding, Series B)................ Aa1/AA 02/01/08 6.400% $ 2,842,750
Revenue Bond
------------
Total Georgia 34,725,843
------------
HAWAII (0.9%)
2,000,000 Hawaii (Series BZ)..................... Aa/AA 10/01/12 6.000 2,157,720
General Obligation
2,000,000 Honolulu (City & County Refunding and
Improvement, Series B)............... Aa/AA 10/01/11 5.500 2,054,820
General Obligation
------------
Total Hawaii 4,212,540
------------
ILLINOIS (9.3%)
1,500,000 Chicago (Series 1995) AMBAC Insured.... Aaa/AAA 01/01/05 6.500 1,686,405
Insured
2,000,000 Chicago (Refunding, Series B) FGIC
Insured.............................. Aaa/AAA 01/01/00 5.000 2,056,080
Insured
1,000,000 Chicago Board of Education Lease
Certificates (Series A) MBIA
Insured.............................. Aaa/AAA 01/01/06 6.125 1,097,110
Insured
4,130,000 Chicago Board of Education Lease
Certificates (Series A) MBIA
Insured.............................. Aaa/AAA 01/01/07 6.125 4,573,190
Insured
1,500,000 Chicago O'Hare International Airport
(Refunding, Series C-1) MBIA
Insured.............................. Aaa/AAA 01/01/09 5.750 1,611,435
Insured
2,500,000 Cook County (Series 1991) AMBAC
Insured.............................. Aaa/AAA 11/01/98 6.100 2,642,025
Insured
3,280,000 Cook County (Refunding, Series C) FGIC
Insured.............................. Aaa/AAA 11/15/04 5.800 3,559,620
Insured
1,375,000 Du Page County (Illinois Alternative
Revenue Jail Project, Series C-1).... NRR/AAA 01/01/02(A) 6.550 1,549,268
Prerefunded
2,000,000 Illinois (Series 1986)................. A1/AA- 12/01/96(A) 6.250 2,063,620
General Obligation
2,000,000 Illinois (Refunding, Series 1987)...... A1/AA- 04/01/97(A) 6.500 2,080,040
General Obligation
1,640,000 Illinois (Building Sales Tax Revenue,
Series 1991O)........................ A1/AAA 06/01/97(A) 7.500 1,752,586
Prerefunded
3,000,000 Illinois Sales Tax Revenue (Refunding,
Series Q)............................ A1/AAA 06/15/09 6.000 3,228,000
Revenue Bond
3,250,000 Illinois Sales Tax Revenue (Refunding,
Series Q)............................ A1/AAA 06/15/12 6.000 3,477,500
Revenue Bond
3,350,000 Illinois Sales Tax Revenue (Series
R)................................... A1/AAA 06/15/01 4.600 3,396,934
Revenue Bond
950,000 Kendall Kane & Will Counties (Community
Unit School District #308) FGIC
Insured.............................. Aaa/AAA 03/01/99 6.200 1,007,257
Insured
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 2,500,000 Metropolitan Pier & Exposition
Authority (McCormick Place Expansion
Project, Series A)................... A/A+ 06/15/06 8.500% $ 3,185,500
Revenue Bond
2,810,000 Regional Transportation Authority
(Series D) FGIC Insured.............. Aaa/AAA 06/01/07 7.750 3,457,761
Insured
1,000,000 University of Illinois (Auxiliary
Facilities, Series 1992N, Escrowed to
Maturity)............................ NR/AAA 04/01/96(A) 6.000 1,053,160
Revenue Bond
------------
Total Illinois 43,477,491
------------
INDIANA (0.9%)
3,915,000 Indiana Transportation Finance
Authority (Highway Revenue Refunding,
Series A) AMBAC Insured.............. Aaa/AAA 06/01/09 5.250 3,989,698
Insured
------------
KENTUCKY (1.0%)
4,400,000 Kentucky Turnpike Authority (Series A
Escrowed to Maturity)................ NR/NR 07/01/96(A) 7.100 4,906,396
Revenue Bond
------------
LOUISIANA (0.3%)
500,000 Louisiana Recovery District Sales Tax
Revenue FGIC Insured................. VMIG1/A-1+ 03/01/96(A) 3.500(B) 500,000
Insured
800,000 Louisiana Recovery District Sales Tax
Revenue MBIA Insured................. VMIG1/A-1+ 03/01/96(A) 3.500(B) 800,000
Insured
------------
Total Louisiana 1,300,000
------------
MARYLAND (0.9%)
3,000,000 Maryland (3rd Series).................. Aaa/AAA 07/15/01(A) 6.400 3,306,810
General Obligation
1,000,000 Maryland Department of Transportation
(Series 1990)........................ NRR/AAA 08/15/99(A) 6.700 1,102,170
Prerefunded
------------
Total Maryland 4,408,980
------------
MASSACHUSETTS (2.7%)
4,950,000 Massachusetts Bay Transportation
Authority (General Transportation
System, Refunding, Series A)......... A1/A+ 03/01/08 7.000 5,865,206
Revenue Bond
1,495,000 Massachusetts College Building
Authority (Refunding, Series A)...... A1/A+ 05/01/11 7.500 1,845,458
Revenue Bond
3,500,000 Massachusetts Turnpike Authority (Bond
Anticipation Notes, Refunding, Series
A)................................... A1/A+ 06/01/99 5.000 3,599,155
General Obligation
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
MASSACHUSETTS (CONTINUED)
$ 1,060,000 Wareham School Project Loan Bonds AMBAC
Insured.............................. Aaa/AAA 01/15/01(A) 6.800% $ 1,191,239
Insured
------------
Total Massachusetts 12,501,058
------------
MINNESOTA (1.3%)
5,265,000 Western Minnesota Municipal Power
Agency (Series 1983A) MBIA Insured... NRR/AAA 01/01/97(A) 10.125 5,911,226
Prerefunded
------------
MISSISSIPPI (2.4%)
10,000,000 Mississippi (Refunding Bonds, Escrowed
to Maturity)......................... NR/AAA 02/01/08 6.200 11,039,100
General Obligation
------------
MISSOURI (1.0%)
4,000,000 St. Louis County Regional Convention
Sports Complex Authority (Series
B)................................... NRR/AAA 08/15/03(A) 7.000 4,635,960
Prerefunded
------------
NEBRASKA (0.9%)
4,000,000 Nebraska Public Power District (Nuclear
Facilities, Refunding)............... A1/A+ 07/01/00 5.200 4,152,120
Revenue Bond
------------
NEVADA (4.5%)
500,000 Carson City School District, (Series
1990) FGIC Insured................... Aaa/AAA 04/01/00(A) 6.750 556,460
Prerefunded
3,000,000 Clark County Nevada Passenger
Facilities (Las Vegas McCarran
International Airport, Series A)
AMBAC Insured........................ Aaa/AAA 07/01/08 6.250 3,359,610
Insured
1,000,000 Clark County Nevada School District
Group #2 FGIC Insured................ NRR/AAA 05/01/00(A) 7.550 1,144,960
Prerefunded
8,200,000 Clark County Nevada School District
(Series A) MBIA Insured.............. Aaa/AAA 06/01/11 7.000 9,702,158
Insured
1,685,000 Las Vegas (Clark County Library
District, Series Series 1991A) FGIC
Insured.............................. Aaa/AAA 06/01/01(A) 6.600 1,881,437
Prerefunded
1,200,000 Las Vegas (Clark County Library
District, Series 1991A) FGIC
Insured.............................. Aaa/AAA 06/01/01(A) 6.700 1,345,488
Prerefunded
1,280,000 Las Vegas (Clark County Library
District, Refunding, Series B) FGIC
Insured.............................. Aaa/AAA 08/01/01(A) 6.700 1,414,400
Insured
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
NEVADA (CONTINUED)
$ 1,330,000 Nevada Prison Facilities, (Series
1990A)............................... Aa/AA 08/01/00(A) 7.000% $ 1,501,530
Prerefunded
------------
Total Nevada 20,906,043
------------
NEW HAMPSHIRE (0.4%)
1,720,000 New Hampshire (Series 1991A)........... Aa/AA+ 06/15/01(A) 6.600 1,921,567
General Obligation
------------
NEW JERSEY (8.0%)
2,200,000 New Jersey Economic Development
Authority (Market Transition
Facilities, Series A) MBIA Insured... Aaa/AAA 07/01/00 5.125 2,279,838
Insured
7,000,000 New Jersey Economic Development
Authority (Market Transition
Facilities, Series A) MBIA Insured... Aaa/AAA 07/01/02 5.400 7,383,110
Insured
1,500,000 New Jersey Sports & Exposition
Authority (Sports Complex, Refunding,
Escrowed to Maturity)................ Aa1/NR 01/01/00 8.100 1,707,000
Revenue Bond
6,000,000 New Jersey Transportation Authority
(Refunding, Series B) MBIA Insured... Aaa/AAA 06/15/01 6.000 6,513,420
Insured
6,000,000 New Jersey Transportation Authority
(Refunding, Series B) MBIA Insured... Aaa/AAA 06/15/05 6.000 6,638,580
Insured
7,000,000 New Jersey Transportation Authority
(Refunding, Series B) MBIA Insured... Aaa/AAA 06/15/10 6.500 8,016,190
Insured
2,500,000 New Jersey Turnpike Authority
(Refunding, Series A) MBIA Insured... Aaa/AAA 01/01/00 6.200 2,698,375
Insured
1,000,000 New Jersey Turnpike Authority
(Refunding, Series A) MBIA Insured... Aaa/AAA 01/01/01 5.700 1,061,410
Insured
1,000,000 Ocean County General Improvement....... Aa/NR 04/15/00 6.375 1,084,340
General Obligation
------------
Total New Jersey 37,382,263
------------
NEW YORK (7.7%)
110,000 Monroe County Public Improvement AMBAC
Insured.............................. NR/AAA 06/01/04(A) 6.000 122,187
Prerefunded
120,000 Monroe County Public Improvement AMBAC
Insured.............................. NR/AAA 06/01/04(A) 6.000 133,295
Prerefunded
1,990,000 Monroe County Public Improvement
(Unrefunded Balance) AMBAC Insured... Aaa/AAA 06/01/04(A) 6.000 2,174,931
Insured
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,295,000 Monroe County Public Improvement
(Unrefunded Balance) AMBAC Insured... Aaa/AAA 06/01/04(A) 6.000% $ 1,402,174
Insured
1,500,000 Municipal Assistance Corp. for the City
of New York (Refunding, Series D)
AMBAC Insured........................ Aaa/AAA 07/01/02 5.250 1,573,155
Insured
1,000,000 Municipal Assistance Corp. for the City
of New York (Custodial Receipt
Certificates, Refunding, Series
1987-61) MBIA Insured................ Aaa/AAA 07/01/97(A) 6.875 1,057,370
Insured
1,465,000 New York City (Escrowed to Maturity,
Series B)............................ NR/AAA 06/01/01 8.000 1,724,202
General Obligation
4,675,000 New York City (Refunding, Series H
Subseries H-1)....................... Baa1/BBB+ 08/01/01 5.500 4,729,324
General Obligation
2,645,000 New York City (Refunding, Series A).... Baa1/BBB+ 08/01/02 5.750 2,694,541
General Obligation
2,000,000 New York (Series F).................... Baa1/BBB+ 02/15/02 6.100 2,070,500
General Obligation
3,425,000 New York City (Series F)............... Baa1/BBB+ 02/15/03 6.200 3,557,993
General Obligation
1,000,000 New York City (Series B) FGIC
Insured.............................. VMIG1/A-1+ 03/01/96(A) 3.350(B) 1,000,000
Insured
100,000 New York City (SubSer B-4) LOC-Union
Bank of Switzerland.................. VMIG1/A-1+ 03/01/96(A) 3.350(B) 100,000
General Obligation
1,000,000 New York Dormitory Authority, (Iona
College, Series 1988) MBIA Insured... Aaa/AAA 07/01/98(A) 7.625 1,091,490
Prerefunded
300,000 New York Energy Research & Development
Authority PCR, Niagara Mohawk Power,
Series A LOC-Toronto Dominion Bank... NR/A-1+ 03/01/96(A) 3.500(B) 300,000
Revenue Bond
1,500,000 New York Urban Development Correctional
Capital Facilities (Series 1)........ NRR/NR 01/01/00(A) 7.750 1,718,775
Prerefunded
4,000,000 Triborough Bridge & Tunnel Authority
(Refunding, Series V) FGIC Insured... Aaa/AAA 01/01/01(A) 6.875 4,467,600
Insured
5,500,000 Triborough Bridge & Tunnel Authority
(Refunding, Series X )............... Aa/A+ 01/01/12 6.625 6,274,015
Revenue Bond
------------
Total New York 36,191,552
------------
NORTH CAROLINA (2.0%)
8,500,000 North Carolina Eastern Municipal Power
Agency Systems Revenue (Refunding,
Series A)............................ NRR/BBB+ 01/01/99(A) 7.250 9,398,280
Prerefunded
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
OHIO (1.0%)
$ 3,525,000 Ohio Water Development Authority
(Refunding, Series Safe Water II,
Escrowed to Maturity)................ NRR/AAA 06/01/96(A) 9.375% $ 4,536,005
Revenue Bond
------------
PENNSYLVANIA (1.4%)
1,175,000 Bethel Park School District, (Series
1991B) AMBAC Insured................. Aaa/AAA 02/01/00(A) 6.550 1,275,169
Prerefunded
1,000,000 Pennsylvania (Refunding and Projects,
Custodial Receipt Certificates, 1st
Series A) AMBAC Insured.............. Aaa/AAA 01/01/01 6.600 1,100,360
Insured
1,500,000 Pennsylvania (2nd Series 1991A) MBIA
Insured.............................. Aaa/AAA 11/01/01(A) 6.500 1,663,695
Insured
970,000 Pennsylvania Higher Education
Assistance Agency, (Student Loan
Refunding, Series 1985A) FGIC
Insured.............................. Aaa/AAA 12/01/00 6.800 1,058,406
Insured
1,310,000 Pennsylvania Higher Education
Facilities Authority College
(Refunding, Series A)................ Aa/AA 09/01/02 6.500 1,465,733
Revenue Bond
------------
Total Pennsylvania 6,563,363
------------
PUERTO RICO (1.1%)
5,000,000 Puerto Rico Commonwealth Aqueduct...... Baa1/A 07/01/98 4.400 5,037,350
Revenue Bond
------------
RHODE ISLAND (2.4%)
2,000,000 Rhode Island (Refunding, Series
1990B)............................... A1/AA- 10/15/99(A) 6.700 2,210,180
Prerefunded
3,785,000 Rhode Island (Series 1991B)............ A1/AA- 05/15/00 6.000 4,027,164
General Obligation
5,000,000 Rhode Island State Public Buildings
Authority (Public Projects Refunding,
Series A) AMBAC Insured.............. Aaa/AAA 02/01/00 4.700 5,071,300
Insured
------------
Total Rhode Island 11,308,644
------------
SOUTH CAROLINA (0.2%)
1,000,000 Piedmont Municipal Power Agency
Electric (Refunding) MBIA Insured.... Aaa/AAA 01/01/08 6.200 1,111,850
Insured
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
TENNESSEE (0.7%)
$ 1,400,000 Metropolitan Nashville Airport
Authority (Refunding, Series B)
LOC-Bayerische Landesbank............ NR/A-1+ 03/01/96(A) 3.500%(B) $ 1,400,000
Revenue Bond
2,000,000 Chattanooga Industrial Development
Board (IDR, Gerber/Buster Brown
Manufacturing, Inc.)................. A1/NR 11/01/96(A) 4.000(B) 2,001,980
Revenue Bond
------------
Total Tennessee 3,401,980
------------
TEXAS (7.2%)
1,500,000 Addison (Refunding, Series 1991) FGIC
Insured.............................. Aaa/AAA 09/01/98(A) 6.250 1,568,776
Insured
1,000,000 Arlington Permanent Improvement School
Fund Guarantee (Series 1989) AMBAC
Insured.............................. Aaa/AAA 08/01/99(A) 6.850 1,075,690
Insured
1,050,000 Austin Independent School District
(Refunding, Series 1991) PSFG
Insured.............................. Aaa/AAA 08/01/99 6.200 1,122,807
Insured
1,500,000 Austin Utilities System (Series 6,
Escrowed to Maturity)................ NRR/AAA 04/01/96(A) 6.500 1,664,685
Revenue Bond
1,000,000 Austin Utility System (Prerefunded).... NRR/AAA 11/15/99(A) 11.300 1,245,400
Revenue Bond
335,000 Austin Water Sewer & Electric
(Refunding, Escrowed to Maturity).... A/A- 11/15/97 13.500 388,597
Revenue Bond
975,000 Conroe Independent School District
(Schoolhouse and Refunding, Series
1989) MBIA Insured................... Aaa/AAA 02/01/99(A) 7.100 1,057,534
Prerefunded
25,000 Conroe Independent School District
(Schoolhouse and Partially
Prerefunded, Refunding, Series 1989)
MBIA Insured......................... Aaa/AAA 02/01/99(A) 7.100 26,891
Insured
1,100,000 Conroe Independent School District
(Schoolhouse and Refunding) PSFG
Insured.............................. Aaa/AAA 02/01/02 6.500 1,224,080
Insured
1,265,000 Conroe Independent School District
(Schoolhouse and Refunding, Series
1993) PSFG Insured................... Aaa/AAA 02/01/03 6.500 1,420,393
Insured
1,500,000 Corpus Christie Independent School
(Refunding) PSFG Insured............. Aaa/NR 08/15/02 5.350 1,582,815
Insured
1,305,000 Dallas County Tax Flood Control
District #1 (Refunding).............. NRR/NR 04/01/08(A) 9.250 1,810,387
Prerefunded
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,650,000 El Paso Independent School District,
(Series 1991) PSFG Insured........... Aaa/AAA 07/01/01(A) 6.550% $ 1,827,788
Prerefunded
3,805,000 Fort Worth Independent School District
(Refunding, Series 1987)............. Aa/AA 02/15/98 6.000 3,965,343
General Obligation
1,700,000 Harris County Road Improvement
Authority (Series 1989) MBIA
Insured.............................. Aaa/AAA 11/01/99(A) 7.000 1,869,405
Prerefunded
700,000 Lone Star Airport Improvement Authority
LOC-Royal Bank of Canada............. VMIGI/NR 03/01/96(A) 3.500(B) 700,000
Revenue Bond
2,000,000 Plano Independent School District
(Series 1991B) FGIC Insured.......... Aaa/AAA 02/15/01(A) 6.550 2,201,900
Prerefunded
1,500,000 Sabine River Authority Pollution
Control (Refunding).................. VMIG1/A-1+ 03/01/96(A) 3.500(B) 1,500,000
Revenue Bond
700,000 Texas A&M University (Refunding, Series
1989)................................ Aaa/AA+ 07/01/97(A) 6.500 738,472
Revenue Bond
750,000 Texas A&M University (Refunding, Series
1989)................................ Aaa/AAA 07/01/97(A) 6.600 794,123
Prerefunded
2,000,000 Texas Public Finance Authority (Series
1988A)............................... NR/AA 10/01/00(A) 6.300 2,174,420
Prerefunded
1,000,000 Texas Public Finance Authority (Series
1991A)............................... NR/AA 10/01/00(A) 6.500 1,095,480
Prerefunded
2,500,000 University of Texas (Permanent
University Fund, Refunding, Series
1991)................................ Aaa/AA+ 07/01/01 6.300 2,746,075
Revenue Bond
------------
Total Texas 33,801,061
------------
UTAH (3.7%)
5,130,000 Intermountain Power Agency (Refunding,
Series C) MBIA Insured............... Aaa/AAA 07/01/00 6.000 5,470,735
Insured
4,155,000 Intermountain Power Agency (Refunding,
Series C) MBIA Insured............... Aaa/AAA 07/01/01 6.000 4,469,201
Insured
6,645,000 Intermountain Power Agency (Refunding,
Series C) MBIA Insured............... Aaa/AAA 07/01/02 6.000 7,193,744
Insured
------------
Total Utah 17,133,680
------------
VIRGINIA (2.3%)
2,000,000 Fairfax County Water Authority
(Prerefunded)........................ NRR/AAA 01/01/00(A) 6.125 2,138,720
Revenue Bond
2,000,000 Virginia Public School Authority
(Series A)........................... Aa/AA 08/01/01(A) 6.500 2,220,880
Revenue Bond
5,000,000 Virginia Public School Authority
(Refunding, Series 1991C)............ Aa/AA 01/01/02 6.000 5,431,750
Revenue Bond
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
VIRGINIA (CONTINUED)
$ 1,000,000 Virginia State Transportation Board
(Route 28 Project, Refunding)........ Aa/AA 04/01/01 5.800% $ 1,071,640
Revenue Bond
------------
Total Virginia 10,862,990
------------
WASHINGTON (7.0%)
6,355,000 King County Washington (Refunding,
Series B)............................ Aa1/AA+ 01/01/01 6.700 7,023,228
General Obligation
1,555,000 North Shore School District #417, (King
& Snohomish Counties, Series 1991)
FGIC Insured......................... Aaa/AAA 12/01/00(A) 6.600 1,696,039
Insured
1,000,000 Pierce County School District #320,
(Sumner Washington, Custodial Receipt
Certificates, Series 1991) MBIA
Insured.............................. Aaa/AAA 12/01/01(A) 6.600 1,110,700
Insured
2,955,000 Seattle Municipal Sewer Revenue
(Prerefunded, Series T).............. NRR/AA- 01/01/00(A) 6.875 3,288,294
Revenue Bond
1,250,000 Snohomish County Washington School
District #2, (Everett, Custodial
Receipt Certificates, Refunding,
Series A) MBIA Insured............... Aaa/AAA 06/01/01(A) 6.700 1,377,325
Insured
1,750,000 Washington (Refunding, Series
R-92-A).............................. Aa/AA 09/01/01(A) 6.300 1,926,575
General Obligation
1,000,000 Washington (Prerefunded, Series
1990B)............................... Aa/AA 08/01/00(A) 6.750 1,102,320
General Obligation
3,000,000 Washington (Refunding, Series 1995C,
AT-8 and R-95 B)..................... Aa/AA 07/01/02 5.750 3,225,150
General Obligation
2,000,000 Washington Public Power Supply System
(Nuclear Project #2, Refunding,
Series 1990A)........................ Aa/AA 07/01/06 7.250 2,335,000
Revenue Bond
2,000,000 Washington Public Power Supply System
(Nuclear Project #2, Refunding,
Series C) FGIC Insured............... Aaa/AAA 01/01/01(A) 7.000 2,234,800
Insured
1,500,000 Washington Public Power Supply System
(Nuclear Project #2, Refunding,
Series 1990C)........................ Aa/AA 01/01/01(A) 7.500 1,700,925
Revenue Bond
5,265,000 Washington Public Power Supply System
(Nuclear Project #2, Refunding,
Series A)............................ Aa/AA 07/01/01 6.300 5,686,621
Revenue Bond
------------
Total Washington 32,706,977
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL RATINGS MATURITY
AMOUNT SECURITY DESCRIPTION SECURITY SECTOR MOODY'S/S&P DATE RATE VALUE
- --------------------------------------------------- ------------------ ----------- ----------- ------- ------------
<C> <S> <C> <C> <C> <C> <C>
WEST VIRGINIA (0.2%)
$ 1,000,000 Berkeley County, Board of Education
(Escrowed to Maturity, Series 1988)
MBIA Insured......................... Aaa/AAA 04/01/01 7.300% $ 1,137,230
Insured
------------
WISCONSIN (3.4%)
1,500,000 Racine Unified School District AMBAC
Insured.............................. Aaa/AAA 04/01/99(A) 6.500 1,594,425
Insured
5,000,000 Wisconsin (Series A)................... Aa/AA 05/01/99 5.750 5,260,999
General Obligation
5,000,000 Wisconsin Transportation (Refunding,
Series A)............................ A1/AA- 07/01/06 4.600 4,891,049
Revenue Bond
4,000,000 Wisconsin (Refunding).................. Aa/AA 05/01/03 6.000 4,381,999
General Obligation
------------
Total Wisconsin 16,128,472
------------
WYOMING (1.2%)
3,600,000 Platte County Pollution Control (Basin
Electric Power Cooperative,
Refunding)........................... A2/A 01/01/06 4.950 3,644,531
Revenue Bond
2,115,000 Platte County Pollution Control (Basin
Electric Power Cooperative,
Refunding)........................... A2/A 01/01/07 5.050 2,160,937
Revenue Bond
------------
Total Wyoming 5,805,468
------------
TOTAL INVESTMENTS (102.9%) (COST $457,419,692) $481,237,246
LIABILITIES IN EXCESS OF OTHER ASSETS (-2.9%) (13,500,323)
------------
NET ASSETS (100.0%) $467,736,923
------------
------------
</TABLE>
(A) The date shown represents a 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 February 29, 1996.
1. Abbreviations used in the schedule of investments are as follows: AMBAC -
American Municipal Bond Assurance 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, PSFG - Permanent School Fund
Guarantee, NRR -- Not Rerated, NR -- Not Rated.
2. Definition of Terms Used: 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.
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $457,419,692) $481,237,246
Cash 1,779,635
Interest Receivable 5,630,770
Prepaid Insurance 1,320
Prepaid Trustees' Fees 649
-----------
Total Assets 488,649,620
-----------
LIABILITIES
Payable for Investments Purchased 20,720,280
Advisory Fee Payable 110,969
Administrative Services Fee Payable 19,702
Custody Fee Payable 14,304
Administration Fee Payable 4,813
Fund Services Fee Payable 1,158
Accrued Expenses 41,471
-----------
Total Liabilities 20,912,697
-----------
NET ASSETS
Applicable to Investors' Beneficial Interests $467,736,923
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
$ 11,529,278
Interest Income
EXPENSES
Advisory Fee $654,786
Custodian Fees and Expenses 42,343
Professional Fees 24,643
Fund Services Fee 12,858
Administrative Services Fee 19,702
Administration Fee 18,571
Printing Expense 5,984
Trustees' Fees and Expenses 4,477
Insurance Expense 2,468
Registration Expense 304
Miscellaneous 996
--------
(787,132)
Net Expenses
------------
10,742,146
NET INVESTMENT INCOME
556,635
NET REALIZED GAIN ON INVESTMENTS
5,619,922
NET CHANGE IN UNREALIZED APPRECIATION OF INVESTMENTS
------------
$ 16,918,703
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENTS OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED FEBRUARY 29, FOR THE FISCAL
1996 YEAR ENDED
(UNAUDITED) AUGUST 31, 1995
------------------ ---------------
<S> <C> <C>
INCREASE (DECREASE) IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 10,742,146 $ 20,242,631
Net Realized Gain on Investments 556,635 377,206
Net Change in Unrealized Appreciation of Investments 5,619,922 9,384,271
------------------ ---------------
Net Increase in Net Assets Resulting from Operations 16,918,703 30,004,108
------------------ ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 111,974,617 221,887,625
Withdrawals (73,794,260) (248,866,727)
------------------ ---------------
Net Decrease from Investors' Transactions 38,180,357 (26,979,102)
------------------ ---------------
Total Increase (Decrease) in Net Assets 55,099,060 3,025,006
NET ASSETS
Beginning of Period 412,637,863 409,612,857
------------------ ---------------
End of Period $ 467,736,923 $ 412,637,863
------------------ ---------------
------------------ ---------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE SIX JULY 12, 1993
MONTHS ENDED FOR THE FISCAL FOR THE FISCAL (COMMENCEMENT OF
FEBRUARY 29, 1996 YEAR ENDED YEAR ENDED OPERATIONS) TO
(UNAUDITED) AUGUST 31, 1995 AUGUST 31, 1994 AUGUST 31, 1993
-------------------- ---------------- ---------------- -------------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.36%(a) 0.42% 0.41% 0.04%(a)
Net Investment Income 4.89%(a) 5.15% 4.68% 4.58%(a)
Decrease Reflected in Expense Ratio
due to Expense Reimbursement -- -- -- 0.01%(a)
Portfolio Turnover 12% 47% 33% 43%+
</TABLE>
- ------------------------
(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.
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Tax Exempt Bond 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 Portfolio's investment objective is to provide a high level
of current income exempt from federal income tax consistent with moderate risk
of capital and maintenance of liquidity. The Declaration of Trust permits the
Trustees to issue an unlimited number of beneficial interests in the Portfolio.
The preparation of financial statements prepared in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts and disclosures. Actual amounts
could differ from those estimates. The following is a summary of the significant
accounting policies of the Portfolio:
a)Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in other
cases, take into account various factors affecting market value, including
yields and prices of comparable securities, indication as to value from
dealers and general market conditions. If such prices are not supplied by
the Portfolio's independent pricing services, such securities are priced
in accordance with procedures adopted by the Trustees. All portfolio
securities with a remaining maturity of less than 60 days are valued by
the amortized cost method. Because of the large number of municipal bond
issues outstanding 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 Portfolio's ordinary income and capital gains. It is intended
that the Portfolio's assets will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code.
33
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 six months ended
February 29, 1996, such fees amounted to $654,786.
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 Portfolio and pays the compensation of the Portfolio's
officers affiliated with Signature. The agreement provided 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 Administration
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 each
day to the net assets of the Portfolio. For the period from September 1,
1995 through December 28, 1995, such fees amounted to $8,718.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged would be equal to the Portfolio's proportionate share
of a complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios subject to this agreement (the "Master
Portfolios") and 0.01% on the aggregate average daily net assets of the
Master Portfolios in excess of $7 billion. The portion of this charge
payable by the Portfolio is determined by the proportionate share its net
assets bear to the total net assets of the The Pierpont Funds, The JPM
Institutional Funds, The JPM Advisor Funds and the Master Portfolios. For
the period December 29, 1995 through February 29, 1996, such fees amounted
to $9,853.
c)Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement with Morgan under which Morgan is responsible for
overseeing certain aspects of the administration and operation of the
Portfolio. Under the agreement, the Portfolio has agreed to pay Morgan a
fee equal to its proportionate share of an annual complex-wide charge.
This charge is calculated daily based on the aggregate net assets of the
Master Portfolios in accordance with the following annual schedule: 0.06%
on the first $7 billion of the Master Portfolios aggregate average daily
net assets and 0.03% of the aggregate average daily net assets in excess
of $7 billion. The portion of this charge payable by the Portfolio is
determined by the proportionate share that the Portfolio's net assets bear
to the net assets of the Master Portfolios and other investors in the
Master Portfolios for which Morgan provides similar services. For the
period from December 29, 1995 through February 29, 1996, such fees
amounted to $19,702.
34
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 29, 1996
- --------------------------------------------------------------------------------
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 $12,858 for the six months ended February 29, 1996.
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, and their
corresponding Portfolios. The Trustees' Fees and Expenses shown in the
financial statements represents the Portfolio's allocated portion of the
total fees and expenses. 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 $1,600.
3. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended February 29, 1996 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C>
$ 27,585,439 $ 51,662,583
</TABLE>
35
<PAGE>
The Pierpont Money Market Fund THE
The Pierpont Tax Exempt Money Market Fund PIERPONT
The Pierpont Treasury Money Market Fund TAX EXEMPT
The Pierpont Short Term Bond Fund 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 SEMI-ANNUAL REPORT
FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT FEBRUARY 29, 1996
(800) 521-5411.
