JPM PIERPONT FUNDS, N-30D, 1996-11-06

JPM PIERPONT FUNDS
N-30D, 1996-11-06

Previous: JPM PIERPONT FUNDS, N-30D, 1996-11-06

Next: BANKUNITED FINANCIAL CORP, 8-A12G, 1996-11-06

<PAGE>

LETTER TO THE SHAREHOLDERS OF THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND

October 15, 1996

Dear Shareholder:

The previous year was a lean one for fixed income investors, as rising interest
rates undercut the value of non-money fund portfolios. Despite this, The JPM
Pierpont Tax Exempt Money Market Fund posted a positive 3.23% return, while its
benchmark, the IBC/Donoghue Tax Exempt Money Fund Average posted a gain of 3.04%
over the same period. The Fund's 7-day yield, at 3.10% translates to a pre-tax
equivalent yield of 5.13%, assuming a 39.6% tax rate.

The Fund maintained a stable $1.00 net asset value over the year. On August 31,
1996, the assets of the Fund were $1,050,370,793 while the net assets of The Tax
Exempt Money Market Portfolio, in which the Fund invests, were $1,214,576,786. A
dividend of $0.03 per share was paid, all of which is exempt from Federal income
taxes.

This report includes a discussion with Dan Mulvey, the portfolio manager
primarily responsible for The JPM Pierpont Tax Exempt Money Market Fund. In this
interview, Dan talks about the events of the previous fiscal year that had the
greatest effect on the Portfolio and also discusses how our investment strategy
was used to protect assets in a difficult environment. We hope this helps you to
understand some of the factors that affect how your money is managed.

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 E. Guernsey

Evelyn E. Guernsey
J.P. Morgan Funds Services

TABLE OF CONTENTS

LETTER TO THE SHAREHOLDERS . . . . . . . . . . . . . . . . 1
FUND PERFORMANCE . . . . . . . . . . . . . . . . . . . . . 2
PORTFOLIO MANAGER Q&A. . . . . . . . . . . . . . . . . . . 3
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . 8
FUND FACTS AND HIGHLIGHTS. . . . . . . . . . . . . . . . . 9
SPECIAL FUND-BASED SERVICES. . . . . . . . . . . . . . . .10
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . .12

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 a 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 the fund has performed over the
short term.

PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
- -------------------------------------------------------------------------------------- -----------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF AUGUST 31, 1996 MONTHS MONTHS YEAR YEARS YEARS YEARS
- -------------------------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>

The JPM Pierpont Tax Exempt
Money Market Fund 0.75% 1.55% 3.23% 2.93% 2.83% 3.91%
IBC/Donoghue's Tax Free
Money Fund Average 0.70% 1.44% 3.04% 2.76% 2.69% 3.78%

AS OF JUNE 30, 1996
- -------------------------------------------------------------------------------------- -----------------------------------
The JPM Pierpont Tax Exempt
Money Market Fund 0.79% 1.54% 3.29% 2.87% 2.86% 3.93%
IBC/Donoghue's Tax Free
Money Fund Average 0.74% 1.46% 3.10% 2.70% 2.73% 3.80%

</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. IBC/DONOGHUE'S TAX FREE MONEY
FUND AVERAGE IS AN AVERAGE OF ALL MAJOR TAX FREE MONEY MARKET RETURNS. THIS
COMPARATIVE INFORMATION IS AVAILABLE TO THE PUBLIC FROM THE IBC/DONOGHUE
ORGANIZATION, INC. NO REPRESENTATION IS MADE THAT INFORMATION GATHERED FROM THIS
SOURCE IS ACCURATE OR COMPLETE.

2
<PAGE>

PORTFOLIO MANAGER Q&A

[Photo]

Following is an interview with DAN MULVEY, part of the portfolio management team
of The Tax Exempt Money Market Portfolio, in which the Fund invests. Dan joined
Morgan in September 1991 after six years at Equitable Life where he was a trader
for money market, government, and corporate securities. He earned a B.A. in
Economics from the University of Illinois and an M.B.A. from Fordham University.
This interview was conducted on October 4, 1996 and represents Dan's views on
that date.

MONEY MARKETS ARE MORE SUBJECT TO SUPPLY AND DEMAND FACTORS THAN SOME OF THE
OTHER FIXED INCOME MARKETS. WHAT ARE SOME OF THE EVENTS THAT TYPICALLY AFFECT
SUPPLY AND DEMAND IN THE MONEY MARKETS?

DM: The principal driver of demand in the money market is tax payments -- in
April, of course -- but also quarterly when corporations have to pay their tax
obligations. Volatility in other markets such as the stock market and even in
the tax exempt market can also sometimes cause people to move out of riskier
assets to shorter duration assets like money markets. Also, regular income
distribution dates, such as the 15th of the month, when individuals get coupon
payments from bonds, result in cash flowing into the market. The general level
of rates will also affect the amount of issuance or the degree of demand in the
market. To some extent issuance for municipalities is on a fiscal year, so you
tend to see a lot of issuance in June and some in July. The last cyclical event
affecting the market is regular quarter-end pressures that both corporations
and municipalities have which result in supply and demand imbalances. While the
cycle is roughly annual, it has spikes and troughs, even intramonth. For
example, at the beginning of the month there may be lower rates because of
reinvestment of a large amount of income distribution, something that happened
at around the 15th of the previous month, then at the close of the month-end you
might have funding needs for the municipalities, which adds to supply. December
is usually the most volatile month in terms of quarter- and year-end type
pressures. Florida, for instance, has an intangible tax which causes its
residents to sell out of just about all issues and go into Treasuries, and this
creates a large temporary supply in the market and lessens demand as well.

DOES THIS INFLUENCE BUYING DECISIONS? WOULD YOU HOLD OFF ON BUYING IF YOU KNOW
THERE IS GOING TO BE A LOT OF NEW SUPPLY COMING INTO THE MARKET IN, SAY, THREE
WEEKS?

DM: There has to be a balance between cash flows and our basic duration
strategy. If we have a bias toward being long, then we can use cyclical factors
to be proactive. For instance, if investors know there's going to be a surge in
demand due to reinvestment, they can use a period of good supply to move out on
the yield curve and avoid being in the market when supply dries up. Nonetheless,
the decision is not based solely on the seasonality or the supply/demand but
also weighed against a basic duration decision. If demand drops off but rates go
up, an investor would be better off maintaining a relatively short duration.

3
<PAGE>

WHAT KIND OF FACTORS DO YOU CONSIDER WHEN YOU'RE ESTABLISHING A DURATION OR
AVERAGE LIFE DECISION?

DM: First and foremost, we consider the expected path of the economy over the
near term and what the implications are for monetary policy. Monetary policy is,
as in taxable funds, a key driver in the duration decision. Another factor
that's considered is what the market is paying (where interest rates are versus
where the market expects them to be in the future) relative to those
expectations. If you are expecting the Federal Reserve to tighten and the market
is also expecting this, you might not be compensated for buying out longer
maturities. If the market is pricing in more tightening than you are, you want
to buy the market. If the market is not expecting any tightening and you are,
you probably want to be shorter.

GIVEN THAT MOST TAX EXEMPT MONEY MARKET FUNDS ARE BUY AND HOLD, INTEREST RATE
FLUCTUATIONS WOULD SEEM TO BE RELATIVELY UNIMPORTANT, SO WHY ARE WE SO DRIVEN BY
DURATION? WHY WOULDN'T WE JUST WANT TO GO FOR THE MAXIMUM YIELD POSSIBLE AND
FORGET ABOUT DURATION? WHY NOT JUST BE AT 90 DAYS (THE PORTFOLIO'S MAXIMUM
ALLOWABLE AVERAGE MATURITY) OR WHEREVER THE YIELD IS HIGHEST?

DM: Being at the maximum allowable maturity severely limits our ability to
respond to changes in the market. If, for instance, rates increase, we would be
unable to take advantage of the higher rates because we would already be at the
maximum maturity. The Portfolio would underperform competitors who, by
maintaining more flexibility, were able to capture that extra yield. Money
markets predominantly use a buy and hold strategy and, consequently, are
measured more on book yield, the yield at which the security is bought, than on
total return, which includes price appreciation. An investor must remember,
also, that the number one priority for a money market fund is to maintain a
dollar net asset value while being able to meet all liquidity needs.

WHEN RATES ARE RISING, PORTFOLIO MANAGERS TEND TO BE DEFENSIVE AND SHORTEN THE
MATURITY OF THEIR PORTFOLIOS, DRIVING RATES DOWN AT THE SHORT END OF THE CURVE
AND IMPROVING PERFORMANCE THERE. IT SEEMS AS THOUGH MONEY MARKETS SERVE AS A
NATURAL DIVERSIFIER OF RISK. DO YOU FIND THIS TO BE THE CASE?

DM: The shortening is a defensive bet by longer duration portfolios, and it does
happen from time to time. Managers are limited, however, by generally being
measured against a specific index, which would not include cash instruments,
that is, securities with a remaining maturity of less than one year. A manager
probably would not want to assume significant positions outside of his
benchmark. Such a move also increases the potential for tracking error, a
measure of the variability of a portfolio's return from the return of its
benchmark. In addition, there is often a yield sacrifice in moving into money
market instruments versus longer term instruments. Sometimes, of course, a
manager needs to put cash to work and might buy some money market issues as a
repository for the money until the funds can be fully invested. Furthermore, a
general "flight to quality" can take up supply, making short-term instruments
expensive. However, since a money market manager isn't typically looking to
sell, a short-term portfolio will only be hurt by this.

The bulk of the market is one-day and seven-day floating rate notes -- or
variable rate demand notes --and if funds are taking up that supply, all they're
taking up is the most expensive, most liquid supply. We have seen longer term
funds buying some of the note deals, deals issued for nine months out to a year,
because that's not as far out of their indices and from time to time these
short-term notes might offer good

4
<PAGE>

value compared to taxable instruments. The most recent issue of this kind was
the Texas TRANs (tax and revenue anticipation notes) deal in August, which was
well-received by longer funds, and the most recent California deal which was
bought not only by short-term mutual funds but also by longer-term funds.

TAX EXEMPT MARKETS ARE CERTAINLY STRONGLY AFFECTED BY CONDITIONS IN THE TAXABLE
MARKETS. WHAT ARE SOME OF THE SIGNIFICANT LINKAGES BETWEEN THE TWO MARKETS? WHAT
ARE SOME OF THE FACTORS THAT CAUSE THEM TO DIVERGE?

DM: The most important, of course, is the comparability of post-tax yields
across the two markets; investors cross over from taxable to tax exempt markets
if interest rates move lower in the taxable market without a corresponding drop
in the tax exempt market. This is driven strictly by a mathematical equation of
after-tax yields. Another factor is the general credit quality in each sector.
If credit quality in the tax exempt sector is getting weaker, cautious investors
may stay in the taxable sector and just pay taxes or focus on Treasuries which
are exempt from state and local taxes. Treasuries are particularly attractive in
states with high taxes, such as New York and California.

The other linkage, especially in the money market, is the nature of the
credits. A good portion, perhaps three-quarters of the issuers in the tax exempt
market, are supported by letters of credit or some sort of credit enhancement,
typically given by banks, and to a large extent, by foreign banks. As a result,
the general creditworthiness of banks, which is more a phenomenon of the taxable
market, does flow through to the tax exempt market because the creditworthiness
of the guarantor -- the bank, in this instance -- is considered as important as
that of the issuer. It also has an effect on coupon rates as the taxable market
is driven to a large extent off of the LIBOR (London Interbank Offered Rate)
curve, the rate at which banks lend to other banks worldwide. LIBOR serves as
the effective cap for the credit quality that money funds buy, and to the extent
that credit quality in general deteriorates among banks, the LIBOR rate will
move higher than the Treasury rate. Given that most tax exempt issues are
credit-enhanced by these banks, this obviously will have an effect on the tax
exempt market as well.

BEYOND EXAMINING THE CREDITWORTHINESS OF THE GUARANTORS, WHAT ARE OTHER CREDIT
CRITERIA THAT WE CONSIDER?

DM: Well, of course, we look at the ratings issued by the rating agencies,
Moody's and Standard & Poor's, but we also do our own credit work on every
security the Portfolio buys. We review all official statements to make sure that
credit enhancements are real and to understand what happens in the event of a
change of a guarantor bank. We know what the conditions are, what kind of
securitization is being created, if the credit is coming from something
structural in the security -- over-collateralization or some other factor -- but
it's still necessary to look at the official statements of every issue that is
purchased. It is necessary to ask if the rating assigned by the rating agency is
consistent with our own due diligence.

DO YOU HAVE A LIST OF ACCEPTABLE ISSUERS TO BUY FROM?

DM: We have a list of banks we are approved to do business with and limits on
each. However, even if the credit enhancement comes from a bank that's approved,
we review the official statement to insure that the credit enhancement is
properly defined, and we review each issue to make sure that it is in compliance
with its official statement. We have a staff of researchers who specialize in
analyzing these issues, including both a municipal credit group and a taxable
credit group.

5
<PAGE>

YOU MENTIONED THAT THERE ARE OTHER FACTORS YOU CONSIDER BESIDES
CREDITWORTHINESS, SUCH AS INTEREST RATE RISK. ARE THERE OTHER FACTORS THAT YOU
CONSIDER?

DM: Other risk factors include interest rate risk, event risk, structure risk
and optionality risk, connected with put and call features or enhancements on
the securities held by the Portfolio.

Interest rate risk is addressed by our Applied Research Group which
evaluates the effect on principal that results from dramatic changes in interest
rates across and within the yield curve. This helps to establish an appropriate
level of interest rate risk. Another risk that is considered is event risk, the
possibility that tax reform or major political events will have a negative
effect on the total market. We stay connected to information through our
economists, and through political action committee heads at Morgan; while we
can't control event risk, we are in a good position to monitor it. Also, our in-
house dedicated trading desk keeps us closely connected to the market.

Structure risk arises from potential problems with the design of the
security. A security may be structured in a way that contributes to its credit
rating -- it may be over-collateralized or in a conduit structure. A conduit
structure is a taxable entity issuing on behalf of a municipal effort. For
example, Tampa Electric might issue notes that are ultimately a credit of Tampa
Electric for the purpose of some municipal effort in the Tampa Bay area,
potentially qualifying it as a tax exempt security. Our tax exempt credit group
looks at the official statement to insure that the tax exempt nature is real and
that the credit enhancement is properly documented, while the taxable credit
group confirms that Tampa Electric meets our credit criteria.

Some optionality risk arises from our use of variable rate demand notes,
which make up the bulk of issuance in tax exempt money markets. These are
essentially long bonds with maturity shorteners that can be put to a financial
institution, such as a bank, so they are can be sold before they mature.

WHAT ARE SOME WAYS OF CONTROLLING THESE RISKS?

DM: You can't afford to lose principal through credit events so credit research
is the primary source of protection. We have resources and staff dedicated to
looking at municipal and taxable credits, in addition to determining the
appropriate level of risk for principal preservation. In essence, all of the
other risks that we monitor are ultimately a function of credit.

WHAT WERE THE MOST SIGNIFICANT FACTORS AFFECTING THE TAX EXEMPT MONEY MARKET
OVER THE PREVIOUS SIX MONTHS?

DM: The most significant factors over the last six months were the uncertainties
produced by conflicting economic signals and the rise in rates that signaled a
market expectation of Fed tightening. As the period of no Fed action extended,
interest rates leveled off. In addition, limited supply in the tax exempt market
has been a net positive.

HOW WAS THE PORTFOLIO MANAGED TO RESPOND TO THESE FACTORS?

DM: We have kept the Portfolio's average maturity relatively short over the last
six months until recently, when we concluded that the Fed isn't going to act for
the rest of the year. Over this period, we have extended maturity only when
there were worthwhile long-term note deals. At the same time, we've maintained a
high degree of credit quality and liquidity.

6
<PAGE>

THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND WAS SUCCESSFUL IN OUTPERFORMING
NOT ONLY ITS BENCHMARK, THE IBC/DONOGHUE TAX EXEMPT MONEY FUND AVERAGE, BUT ALSO
THE LIPPER COMPETITIVE UNIVERSE. WHAT DO YOU FEEL WERE THE CHIEF REASONS FOR
THIS OUTPERFORMANCE?

DM: We were able to keep the Fund's maturity lower than our competitors (as
measured by Donoghue's Tax Exempt Money Fund average) in a rising environment,
and that helped us. Also, we held securities in what proved to be the right part
of the yield curve, which contributed to overall performance as well. We were
also successful in remaining invested through periods of low supply, when rates
tend to fall off.

WHAT IS YOUR OUTLOOK FOR THE TAX EXEMPT MONEY MARKET OVER THE COMING YEAR? DO
YOU EXPECT FED TIGHTENING?

DM: We don't expect any Fed action for the balance of the year. We are concerned
with some of the implications of the presidential election, but I imagine we
will maintain a bias toward a longer average life for the balance of the year,
looking to get shorter as we move into 1997.

7
<PAGE>

GLOSSARY OF TERMS

AVERAGE MATURITY: The weighted average time to maturity of the entire portfolio
with the weights equal to the percentage of the portfolio invested in each
security (see Maturity).

CREDIT RATING: The rating assigned to a bond or note by independent rating
agencies such as Standard & Poor's Corporation and Moody's Investors Service. 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.

CREDIT RISK: Financial risk that an obligation will not be paid and a loss will
result.

LETTER OF CREDIT: Instrument or document issued by a bank guaranteeing the
payment of a customer's drafts up to a stated amount and eliminating the
seller's risk.

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.

VARIABLE RATE DEMAND NOTE: Note representing borrowings that is payable on
demand and that bears interest tied to a base money market rate, usually the
bank prime rate. The rate on the note is adjusted upward or downward each time
the base rate changes.

YIELD: Coupon rate of interest on a bond divided by the purchase price. As a
bond's price falls, its yield rises and vice versa.

YIELD CURVE: A graph showing the term structure or level of interest rates
ranging from the shortest to the longest maturities. The resulting curve shows
if short-term interest rates are higher or lower than long-term rates. Normally,
the longer the bond, the higher the yield it offers, resulting in a positive
yield curve. An inverted yield curve can occur when there are supply/demand
imbalances for various maturities, which results in short-term rates at higher
levels than longer-term instruments.

YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.00% and a municipal is yielding 5.00%,
the yield spread is 1.00% or 100 basis points.

8
<PAGE>

FUND FACTS

INVESTMENT OBJECTIVE
The JPM Pierpont Tax Exempt Money Market Fund seeks to provide a high level of
current income exempt from federal income tax and maintain a high level of
liquidity. It is designed for investors who seek to preserve capital and earn
current income exempt from federal income tax.

- ---------------------------------------------
INCEPTION DATE
09/12/83

- ---------------------------------------------
NET ASSETS AS OF 8/31/96
$1,050,370,793

- ---------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY

- ---------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/20/96

EXPENSE RATIO
The Fund's annual expense ratio of 0.48% 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 redemption proceeds from the Fund.

FUND HIGHLIGHTS
ALL DATA AS OF AUGUST 31, 1996

PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)

[Pie Chart]

VARIABLE RATE DEMAND NOTES 73.0%
REVENUE BONDS 10.9%
TAX ANTICIPATION NOTES 6.0%
TAX REVENUE ANTICIPATION NOTES 2.5%
GENERAL OBLIGATIONS 2.2%
THIRD PARTY PUT BONDS 1.9%
COMMERCIAL PAPER 1.8%
REVENUE ANTICIPATION NOTES 1.7%

AVERAGE 7-DAY YIELD
3.10%

AVERAGE MATURITY
39 days

9
<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 JPM Pierpont Funds, a family of diversified
mutual funds.

PAAS is available to clients who invest a minimum of $500,000 in The JPM
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 JPM Pierpont Funds
provide an excellent way to help you accumulate long-term wealth for retirement.

KEOGH
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 JPM
Pierpont Funds can help you build a comprehensive investment program designed to
maximize the retirement dollars in your Keogh account.

10
<PAGE>

FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR FOR THE JPM PIERPONT TAX EXEMPT MONEY
MARKET FUND (THE "FUND"). SIGNATURE BROKER-DEALER SERVICES, INC. SERVED AS THE
FUND'S DISTRIBUTOR PRIOR TO AUGUST 1, 1996.

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. ALTHOUGH THE FUND SEEKS TO MAINTAIN A STABLE NET ASSET VALUE OF $1.00
PER SHARE, THERE CAN BE NO ASSURANCE THAT IT WILL BE ABLE TO CONTINUE TO DO SO.

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 MONEY MARKET 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.

<PAGE>
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investment in The Tax Exempt Money
Market Portfolio ("Portfolio"), at
value $1,050,860,180
Prepaid Trustees' Fees 2,893
Prepaid Expenses and Other Assets 9,107
--------------
Total Assets 1,050,872,180
--------------

LIABILITIES
Dividends Payable to Shareholders 288,306
Shareholder Servicing Fee Payable 132,561
Administrative Services Fee Payable 28,593
Administration Fee Payable 15,207
Fund Services Fee Payable 2,022
Accrued Expenses 34,698
--------------
Total Liabilities 501,387
--------------

NET ASSETS
Applicable to 1,050,312,172 Shares of
Beneficial Interest Outstanding
(par value $0.001, unlimited shares
authorized) $1,050,370,793
--------------
--------------
Net Asset Value, Offering and
Redemption Price Per Share $1.00
-----
-----

ANALYSIS OF NET ASSETS
Paid-in Capital $1,050,657,052
Accumulated Net Realized Loss on
Investment (286,259)
--------------
Net Assets $1,050,370,793
--------------
--------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

12
<PAGE>
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM
PORTFOLIO
Allocated Interest Income $36,282,911
Allocated Portfolio Expenses (2,454,451)
-----------
Net Investment Income Allocated
from Portfolio 33,828,460

FUND EXPENSES
Shareholder Servicing Fee $1,680,618
Administrative Services Fee 173,920
Administration Fee 160,885
Transfer Agent Fees 98,183
Fund Services Fee 53,896
Trustees' Fees and Expenses 17,977
Professional Fees 14,636
Miscellaneous 90,272
----------

NET FUND EXPENSES 2,290,387
-----------
NET INVESTMENT INCOME 31,538,073

NET REALIZED LOSS ON INVESTMENT
ALLOCATED FROM PORTFOLIO (48)
-----------

NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $31,538,025
-----------
-----------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

13
<PAGE>
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1996 1995
-------------- --------------
<S> <C> <C>

INCREASE IN NET ASSETS

FROM OPERATIONS
Net Investment Income $ 31,538,073 $ 35,554,136
Net Realized Loss on Investment
Allocated from Portfolio (48) (245,620)
-------------- --------------
Net Increase in Net Assets
Resulting from Operations 31,538,025 35,308,516
-------------- --------------

DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (31,538,073) (35,568,732)
-------------- --------------

TRANSACTIONS IN SHARES OF BENEFICIAL
INTEREST
(AT A CONSTANT $1.00 PER SHARE)
Proceeds from Shares of Beneficial
Interest Sold 3,833,007,530 3,817,542,595
Reinvestment of Dividends 31,085,122 32,310,165
Cost of Shares of Beneficial Interest
Redeemed (3,798,790,511) (3,838,123,338)
-------------- --------------
Net Increase from Transactions in
Shares of Beneficial Interest 65,302,141 11,729,422
-------------- --------------
Total Increase in Net Assets 65,302,093 11,469,206

NET ASSETS
Beginning of Fiscal Year 985,068,700 973,599,494
-------------- --------------
End of Fiscal Year $1,050,370,793 $ 985,068,700
-------------- --------------
-------------- --------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

14
<PAGE>
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:

<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED AUGUST 31,
-----------------------------------------------
1996 1995 1994 1993 1992
--------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- ------- ------- --------- -------

INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.0318 0.0336 0.0212 0.0214 0.0317
Net Realized Gain (Loss) on Investment (0.0000 (a) (0.0002) (0.0000 (a) 0.0001 0.0002
--------- ------- ------- --------- -------
Total from Investment Operations 0.0318 0.0334 0.0212 0.0215 0.0319
--------- ------- ------- --------- -------

LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.0318) (0.0336) (0.0212) (0.0214) (0.0317)
Net Realized Gain -- -- (0.0000 (a) (0.0002) --
--------- ------- ------- --------- -------
Total Distributions to Shareholders (0.0318) (0.0336) (0.0212) (0.0216) (0.0317)
--------- ------- ------- --------- -------

NET ASSET VALUE, END OF YEAR $ 1.00 $ 1.00 $ 1.00 $ 1.00 $ 1.00
--------- ------- ------- --------- -------
--------- ------- ------- --------- -------
Total Return 3.23% 3.41% 2.14% 2.15% 3.19%
--------- ------- ------- --------- -------
--------- ------- ------- --------- -------

RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $1,050,371 $985,069 $973,599 $1,007,330 $922,358
Ratios to Average Net Assets
Expenses 0.48% 0.51% 0.52% 0.52% 0.53%
Net Investment Income 3.17% 3.35% 2.10% 2.14% 3.16%
Decrease Reflected in Expense Ratio
due to Expense Reimbursement -- 0.00%(b) 0.01% 0.01% 0.01%
</TABLE>

- ------------------------
(a)Less than $0.0001.

(b)Less than 0.01%.

The Accompanying Notes are an Integral Part of the Financial Statements.

15
<PAGE>
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The JPM Pierpont Tax Exempt Money Market Fund (the "Fund") is a separate series
of The JPM Pierpont Funds (the "Trust"), a Massachusetts business trust which
was organized on November 4, 1992. The Trust is registered under the Investment
Company Act of 1940, as amended, as an open-end management investment company.
The Fund, 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. Prior to
October 10, 1996, the Trust's and the Fund's names were The Pierpont Funds and
The Pierpont Tax Exempt Money Market Fund, respectively.

The Fund invests all of its investable assets in The Tax Exempt Money Market
Portfolio (the "Portfolio"), a diversified open-end management company having
the same investment objective as the Fund. The value of such investment included
in the Statement of Assets and Liabilities reflects the Fund's proportionate
interest in the net assets of the Portfolio (87% at August 31, 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 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 gain and
loss and adjusts its investment in the Portfolio each day. All the net
investment income and realized 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)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. As of August 31, 1996, the Fund incurred and elected to defer
post-October losses of $2,556 until the next taxable year. For federal
income tax purposes, the Fund had a capital loss carryforward at August
31, 1996 of $289,320, of which $52,908 expires in 2003 and $236,412 which
expires in 2004. To the extent that this capital loss is used to offset
future capital gains, it is probable that the gains so offset will not be
distributed to shareholders.

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.

16
<PAGE>
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------

2. TRANSACTIONS WITH AFFILIATES

a)The Trust had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and distributor. Under an
Administration Agreement, Signature provided administrative services
necessary for the operations of the Fund, furnished office space and
facilities required for conducting the business of the Fund and paid the
compensation of the Trust's officers affiliated with Signature. Until
December 28, 1995, 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
acted 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 was
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 $81,191.

Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged was 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 paid by the
Fund was determined by the proportionate share its net assets bore 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 July 31, 1996, Signature's fee for these services amounted to
$76,396. The Administration Agreement with Signature was terminated on
July 31, 1996.

Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the Fund's
distributor. Under a Co-Administration Agreement between FDI and the Trust
on behalf of the Fund, FDI's fees are paid by the Fund (see Note 2b). For
the period from August 1, 1996 through August 31, 1996, the fee for these
services amounted to $3,298.

b)Until August 31, 1995, the Trust, on behalf of the Fund, had a Financial
and Fund Accounting Services Agreement with Morgan which provided that
Morgan would receive a fee, based on the percentage described below, for
overseeing certain aspects of the administration and operation of the Fund
and that 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 0.043% of the Fund's average
daily net assets. From September 1, 1995 until December 28, 1995, an
interim agreement between the Trust, on behalf of the Fund, and Morgan
provided for the continuation of the oversight functions that were
outlined under the prior agreement and that Morgan should bear all of its
expenses incurred in connection with these services.

Effective December 29, 1995, the Trust, on behalf of the Fund, entered
into an Administrative Services Agreement (the "Services Agreement") with
Morgan under which Morgan is responsible for certain aspects of the
administration and operation of the Fund. Under the Services Agreement,
the Fund had agreed to pay Morgan a fee equal to its proportionate share
of an annual complex-wide charge. Until July 31, 1996, this charge was
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 Master Portfolios' aggregate average daily net
assets

17
<PAGE>
THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
in excess of $7 billion. The portion of this charge paid by the Fund was
determined by the proportionate share its net assets bore to the net
assets of the Trust, the Master Portfolios and other investors in the
Master Portfolios for which Morgan provided similar services. For the
period from December 29, 1995 through July 31, 1996, Morgan's fee for
these services amounted to $145,945.

Effective August 1, 1996, the Services Agreement was amended such that the
aggregate complex-wide fees to be paid by the Fund under both the amended
Services Agreement and the Co-Administration Agreement (see Note 2a) is
calculated daily based on the aggregate net assets of the Master
Portfolios in accordance with the following annual schedule: 0.09% on the
first $7 billion of the Master Portfolios' aggregate average daily net
assets and 0.04% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion. For the period from August 1, 1996 through
August 31, 1996, the fee for these services amounted to $27,975.

c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. Until December 28, 1995, the agreement provided for the Fund
to pay Morgan a fee for these services which was computed daily and paid
monthly at an annual rate of 0.21% of the average daily net assets of the
Fund up to and including $1.5 billion and 0.16% on any excess over $1.5
billion. For the period from September 1, 1995 through December 28, 1995,
the fee for these services amounted to $660,464.

Effective December 29, 1995, the Shareholder Servicing Agreement was
amended such that the annual rate for providing these services was changed
to 0.15% of the average daily net assets of the Fund up to and including
$2 billion and 0.10% on any excess over $2 billion. For the period from
December 29, 1995 through August 31, 1996, the fee for these services
amounted to $1,020,154.

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
$53,896 for the fiscal year ended August 31, 1996.

e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Institutional Funds and the Master
Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represents the Fund's allocated portion of the total fees and
expenses. The Trust's Chairman and Chief Executive Officer 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 $6,900.

18
<PAGE>
Report of Independent Accountants

To the Trustees and Shareholders of
The JPM Pierpont Tax Exempt Money Market 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 JPM Pierpont Tax Exempt Money Market Fund (one of the series constituting
part of The JPM Pierpont Funds, hereafter referred to as the "Fund") at August
31, 1996, 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 four 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 the year ended August 31, 1992 was 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 16, 1996

19
<PAGE>
The Tax Exempt Money Market Portfolio
Annual Report August 31, 1996

(The following pages should be read in conjunction
with The JPM Pierpont Tax Exempt Money Market Fund
Annual Financial Statements)

20
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
ALABAMA (2.4%)
$ 15,300 Columbia, (Industrial Development Board, PCR,
Refunding, Alabama Power Co. Project, Series
1995D, due 10/01/22) .......................... VRDN 09/03/96(a) 3.700% $ 15,300,000
2,250 Jefferson County, (Public Improvement Revenue
Warrant, Briarwood Presbyterian Church Project,
Series 1988, due 05/01/08), LOC Amsouth
Bank .......................................... VRDN 10/01/96(a) 5.362 2,250,000
5,700 North Alabama, Environmental Improvement
Authority (PCR, Reynolds Metals Inc. Project,
Series 1985, due 12/01/00), LOC Bank of Nova
Scotia ........................................ VRDN 09/03/96(a) 3.700 5,700,000
5,300 Red Bay County, (Industrial Development Board,
IDR, Refunding, Gates Rubber Co. Project,
Series 1987, due 11/01/10) .................... VRDN 09/05/96(a) 3.547 5,300,000
900 Stevenson, (Industrial Development Board, Mead
Corp. Project, Series 1986, due 11/01/16), LOC
Credit Suisse ................................. VRDN 09/03/96(a) 3.700 900,000
--------------
29,450,000
--------------

ALASKA (0.9%)
4,745 Alaska, (Industrial Development & Export
Authority, IDR, American President Lines Ltd.,
Series 1991, due 11/01/09), LOC Industrial Bank
of Japan Ltd. ................................. VRDN 09/04/96(a) 4.000 4,745,000
1,420 Alaska, (Industrial Development Authority, IDR,
Providence Medical Office Building Associates
Project, Series 1985, due 06/01/10), LOC
Kredietbank N.V. .............................. VRDN 10/01/96(a) 3.700 1,420,000
5,100 Alaska, (State Housing Financial Corp., Series
1991C, due 06/01/26), LOC Swiss Bank .......... VRDN 09/04/96(a) 3.550 5,100,000
--------------
11,265,000
--------------

ARIZONA (3.5%)
1,000 Casa Grande, (Industrial Development Authority,
IDR, Abbott Labs Project, Series 1983, due
12/01/03) ..................................... VRDN 10/01/96(a) 4.537 1,000,000
800 Casa Grande, (Industrial Development Authority,
IDR, Abbott Labs Project, Series 1984, due
12/01/99) ..................................... VRDN 10/01/96(a) 4.537 800,000
6,600 Maricopa County, (Pollution Control Corporation,
PCR, Public Service Co. of New Mexico, Palo
Verde Project, Series 1992A, Refunding, due
11/01/22), LOC Canadian Imperial Bank ......... VRDN 09/04/96(a) 3.400 6,600,000
7,000 Mesa, (Municipal Development Corp.) ............. CP 10/10/96 3.650 7,000,000
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

21
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
ARIZONA (CONTINUED)
$ 24,300 Pima County, (Industrial Development Authority,
IDR, Tucson Electric Co. Project, Series 1982A,
due 06/15/22), LOC Societe Generale ........... VRDN 09/04/96(a) 3.500% $ 24,300,000
3,200 Tucson, (Industrial Development Authority,
Reliance Group Inc., Parking Garage Revenue,
due 06/01/15), LOC Societe Generale ........... VRDN 09/05/96(a) 3.625 3,200,000
--------------
42,900,000
--------------

ARKANSAS (0.5%)
750 North Little Rock, (IDR, Refunding, Noland Co.
Project, Series 1989, due 02/01/99), LOC
Wachovia Bank and Trust ....................... VRDN 09/05/96(a) 3.548 750,000
5,175 Texarkana, (Industrial Development Board, Cooper
Tire and Rubber Co. Project, Series 1991, due
03/01/21) ..................................... VRDN 09/05/96(a) 4.150 5,175,000
--------------
5,925,000
--------------

CALIFORNIA (2.6%)
5,300 California, (Health Facilities Financing
Authority, Series 1996, due 07/01/22) ......... VRDN 09/03/96(a) 3.650 5,300,000
2,000 Fresno, (IDR, Fresno MSA Limited Partnership
Project, due 08/01/05), LOC Bank of Nova
Scotia ........................................ VRDN 10/01/96(a) 5.362 2,000,000
18,100 Los Angeles, (California Regional Airports
Improvement Corp., Los Angeles International
Airport, Series 1985, due 12/01/25), LOC
Societe Generale .............................. VRDN 09/03/96(a) 3.700 18,100,000
6,500 Los Angeles, (Unified School District, Series
A) ............................................ TRAN 06/30/97 4.500 6,536,240
--------------
31,936,240
--------------

COLORADO (1.1%)
13,800 Moffat County, (Pollution Control Revenue, Series
1984, due 07/01/10) ........................... VRDN 09/03/96(a) 3.550 13,800,000
--------------

CONNECTICUT (0.8%)
6,000 Connecticut State, (Refunding, Economic Recovery
Notes, Series 1995) ........................... GO 12/15/96 4.250 6,009,179
4,000 Connecticut State, (Special Assessment,
Unemployment Compensation Fund Revenue,
Connecticut Unemployment Services, Series
1993C, due 11/15/01), FGIC Insured ............ VRDN 07/01/97(a) 3.900 4,000,000
--------------
10,009,179
--------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

22
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
DISTRICT OF COLUMBIA (4.8%)
$ 2,800 District of Columbia, (Columbia Hospital for
Women Issue, Series 1988A, due 07/01/20), LOC
Mitsubishi Bank Ltd. . VRDN 09/04/96(a) 3.650% $ 2,800,000
2,000 District of Columbia, (Refunding, Series 1992
A-2, due 10/01/07), LOC Bank of Nova Scotia ... VRDN 09/03/96(a) 3.950 2,000,000
6,600 District of Columbia, (Refunding, Series 1992
A-3, due 10/01/07), LOC Toronto Dominion
Bank .......................................... VRDN 10/01/07(a) 3.950 6,600,000
7,100 District of Columbia, (Refunding, Series 1992
A-4, due 10/01/07), LOC Toronto Dominion
Bank .......................................... VRDN 09/03/96(a) 3.950 7,100,000
7,000 District of Columbia, (Refunding, Series 1992
A-5, due 10/01/07), LOC Bank of Nova Scotia ... VRDN 09/30/96(a) 3.950 7,000,000
12,300 District of Columbia, (Refunding, Series 1992
A-6, due 10/01/07), LOC National Westminster
PLC ........................................... VRDN 09/03/96(a) 3.950 12,300,000
13,700 District of Columbia, (Refunding,Series 1992 A-1,
due 10/01/07), LOC National Westminster Bank
PLC ........................................... VRDN 09/03/96(a) 3.950 13,700,000
6,400 District of Columbia, (The American University
Issue, Series 1985, due 10/01/15), LOC National
Westminster Bank PLC .......................... VRDN 09/04/96(a) 3.550 6,400,000
--------------
57,900,000
--------------

FLORIDA (5.4%)
34,650 Dade County, (Water & Sewer System, Series 1994,
due 10/05/22), FGIC Insured ................... VRDN 09/04/96(a) 3.350 34,650,000
2,000 Florida, (Housing Finance Agency, Carlton Arms II
Project, Multi Family Housing Revenue, Series
1985-EEE, due 12/01/08), LOC Sumitomo Bank
Ltd. .......................................... VRDN 09/04/96(a) 3.550 2,000,000
5,750 Hernando County, (IDR, Refunding, Moore McCormack
Resources Inc. Project Series 1988, due
12/01/04), LOC Societe Generale ............... RB 09/05/96(b) 3.506 5,750,000
4,800 Hillsborough County, (Industrial Development
Authority, PCR, Refunding, Tampa Electric Co.,
Gannon Coal Conversion Project, Series 1990,
due 09/01/25) ................................. VRDN 09/03/96(a) 3.850 4,800,000
4,485 Indian Trace, (Community Development, Basin 1
Water Management, Series 1989, due 05/01/10),
LOC Tokai Bank Ltd. ........................... VRDN 09/04/96(a) 3.350 4,485,000
6,865 Indian Trace, (Community Development, Basin 1
Water Management, Series 1991A, due 05/01/11),
LOC Tokai Bank Ltd. ........................... VRDN 09/04/96(a) 3.350 6,865,000
2,200 Jacksonville, (PCR, Florida Power & Light Co.
Project, Series 1995, due 05/01/29) ........... VRDN 09/03/96(a) 3.750 2,200,000
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

23
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 575 Orange County, (Industrial Development Authority,
IDR, Refunding, Noland Co. Project, Series
1989, due 02/01/04), LOC Wachovia Bank and
Trust ......................................... VRDN 09/05/96(a) 3.548% $ 575,000
4,500 Orange County, (Florida Health Facilities
Authority, P-Floats-PA-95, due 10/01/14), LOC
Merrill Lynch Capital Services ................ TPP 09/05/96(a) 3.600 4,500,000
--------------
65,825,000
--------------

GEORGIA (9.3%)
3,545 Bartow County, (Georgia Development Authority,
PCR, Georgia Power Co., 1st Series, due
06/01/23) ..................................... VRDN 09/03/96(a) 3.800 3,545,000
27,700 Burke County, (Development Authority, PCR,
Georgia Power Co., Series 1994, Vogtle
Project-4th Series, due 09/01/25) ............. VRDN 09/03/96(a) 3.800 27,700,000
7,500 Burke County, (Development Authority, PCR,
Georgia Power Co., Series 1994, Vogtle
Project-5th Series, due 07/01/24) ............. VRDN 09/03/96(a) 3.700 7,500,000
6,600 Burke County, (Development Authority, PCR,
Oglethorpe Power Corp., Series 1993A, due
01/01/16), FGIC Insured ....................... VRDN 09/04/96(a) 3.350 6,600,000
17,500 Burke County, (Development Authority, PCR,
Oglethorpe Power Corp., Series 1994A, due
01/01/19), FGIC Insured ....................... VRDN 09/04/96(a) 3.350 17,500,000
690 Cobb County, (Development Authority, IDR,
Refunding, Noland Co. Project, Series 1989, due
08/01/99), LOC Wachovia Bank and Trust ........ VRDN 09/05/96(a) 3.547 690,000
1,500 DeKalb County, (Development Authority Revenue,
IDR, Refunding Noland Co. Project, Series 1989,
due 08/01/01), LOC Wachovia Bank and Trust .... VRDN 09/05/96(a) 3.548 1,500,000
4,000 DeKalb County, (Development Authority Revenue,
Metro Atlanta YMCA Project, Series 1995, due
06/01/20), LOC Wachovia Bank and Trust ........ VRDN 09/04/96(a) 3.350 4,000,000
30,000 Fulton County, (Series 1996) .................... TAN 12/31/96 4.000 30,043,499
2,000 Georgia, (Series 1988) .......................... GO 04/01/97 8.400 2,057,020
10,000 Georgia, (Series 1993 C, BT # 149, due
07/01/08) ..................................... TPP 09/05/96(a) 3.500 10,000,000
2,400 Putnam County, (Development Authority Revenue,
PCR, Georgia Power Co., Series 1, due
06/01/23) ..................................... VRDN 09/03/96(a) 3.800 2,400,000
--------------
113,535,519
--------------

</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

24
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
HAWAII (0.6%)
$ 6,900 Hawaii, (Housing Finance and Development
Corporation, Rental Housing Program, Housing
Program Revenue, Series 1989-A, 07/01/24), LOC
Banque Nationale De Paris ..................... VRDN 09/04/96(a) 3.550% $ 6,900,000
--------------

IDAHO (1.4%)
17,000 Idaho State, (Series 1996) ...................... TAN 06/30/97 4.500 17,081,182
--------------

ILLINOIS (4.7%)
540 Charleston, (Servistar Corp. Project, Series
1988, due 10/01/97), LOC ABN Amro Bank NV ..... VRDN 09/05/96(a) 3.547 540,000
11,085 Chicago, (O'Hare International Airport, General
Airport Second Lien, Series 1984B, due
01/01/15), LOC Societe Generale ............... VRDN 09/04/96(a) 3.500 11,085,000
6,000 Chicago, (O'Hare International Airport, General
Airport Second Lien, Series 1994C, due
01/01/18), LOC Societe Generale ............... VRDN 09/04/96(a) 3.500 6,000,000
9,900 Counties of Jackson and Union, (Regional Port
Distributors, Enron Transportation Services,
Refunding, Series 1994, due 04/01/24), LOC
Mitsubishi Bank Ltd., Houston ................. VRDN 09/04/96(a) 3.500 9,900,000
1,300 Illinois, (Development Finance Authority ,
Limited Obligation Revenue Bond, Dart Container
Corp. of Illinois Project, Series 1984, due
12/01/09), LOC National Bank of Detroit ....... VRDN 09/05/96(a) 3.547 1,300,000
5,200 Illinois, (Development Finance Authority, PCR,
Illinois Power Co. Project, Series 1993B, due
11/01/28), LOC Canadian Imperial Bank of
Commerce ...................................... VRDN 09/04/96(a) 3.500 5,200,000
2,600 Illinois, (Health Facilities Authority, SSM
Health Care Project, Series 1990A, 06/01/06),
LOC Rabobank Nederland ........................ VRDN 09/03/96(a) 3.600 2,600,000
5,000 Illinois, (Health Facilities Authority, Swedish
Covenant Hospital Project, Series 1995, due
08/01/25), AMBAC Insured ...................... VRDN 09/04/96(a) 3.500 5,000,000
10,900 Joliet, (Regional Port District, Refunding, Exxon
Project, Series 1989, due 10/01/24) ........... VRDN 09/03/96(a) 3.750 10,900,000
1,000 North Chicago, (Lake County, IDR, Abbott Labs
Project, Series 1983, due 12/01/03) ........... VRDN 10/01/96(a) 4.537 1,000,000
3,000 Saint Charles, (Illinois Industrial Development
Revenue, Pier 1 Imports-Midwest Project, Series
1986, due 12/15/26), LOC National Westminster
PLC ........................................... VRDN 09/04/96(a) 3.550 3,000,000
--------------
56,525,000
--------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

25
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
INDIANA (0.6%)
$ 4,050 Rockport, (Indiana Pollution Control, PCR,
Indiana and Michigan Electric Co. Project,
Series 1985A, due 08/01/14), LOC Swiss Bank
Corp. ......................................... VRDN 09/04/96(a) 3.550% $ 4,050,000
3,000 Rockport, (Indiana Pollution Control, PCR,
Refunding, AEP Generating Co. Project, Series
1995B, due 07/01/25), AMBAC Insured ........... VRDN 09/03/96(a) 3.850 3,000,000
--------------
7,050,000
--------------

IOWA (0.5%)
6,255 Polk County, (Hospital Equipment & Improvement
Revenue, due 12/01/05), MBIA Insured .......... VRDN 09/03/96(a) 3.500 6,255,000
--------------

KANSAS (1.4%)
2,000 Garden City, (IDR Refunding, Inland Container
Corp. Project, Series 1983, due 01/01/08), LOC
Credit Suisse ................................. VRDN 10/01/96(a) 3.500 2,000,000
10,000 Kansas, (Department of Transportation & Highways,
Series 1994B, due 09/01/14) ................... VRDN 09/04/96(a) 3.350 10,000,000
1,650 Wichita, (Airport Authority Adjustable Mode
Facility Revenue, Refunding, Flight Safety
International Inc., Project, Series 1990, due
11/01/01), LOC Wachovia Bank and Trust ........ VRDN 09/05/96(a) 3.550 1,650,000
3,300 Wichita, (CSJ Health System of Wichita, Inc.
Revenue, Series 25 1985, due 10/01/11), LOC
Sumitomo Bank Ltd. ............................ VRDN 09/04/96(a) 3.700 3,300,000
--------------
16,950,000
--------------

LOUISIANA (3.9%)
4,500 Ascension Parish, (Borden Inc. Project,
Refunding, Series 1992, due 12/01/09), LOC
Credit Suisse ................................. VRDN 09/04/96(a) 3.500 4,500,000
6,000 Calcasieu Parish, (IDR, Refunding, Olin Corp.
Project, Series 1993B, due 02/01/16), LOC
Wachovia Bank ................................. VRDN 09/03/96(a) 3.800 6,000,000
3,770 Calcasieu Parish, (Recovery District Sales Tax,
Road Improvement, due 09/01/97), LOC National
Westminster Bank PLC .......................... VRDN 09/05/96(a) 3.550 3,770,000
7,000 Lake Charles, (Harbor and Terminal District,
Reynolds Metal Co. Project, Series 1990, due
05/01/06), LOC Canadian Imperial Bank of
Commerce ...................................... VRDN 09/04/96(a) 3.500 7,000,000
7,200 Louisiana, (Public Facilities Authority,
Refunding, Hospital Equipment Financing, Series
1985A, due 12/01/05), LOC Sumitomo Bank
Ltd. .......................................... VRDN 09/04/96(a) 4.000 7,200,000
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

26
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
LOUISIANA (CONTINUED)
$ 11,255 Louisiana, (Public Facilities Authority,
Refunding, Hospital Revenue, Series 1985, due
12/01/00), LOC Banque National de Paris ....... VRDN 09/04/96(a) 3.500% $ 11,255,000
7,100 New Orleans, (Louisana Aviation Board, Series
1993B, due 08/01/16), MBIA Insured ............ VRDN 09/04/96(a) 3.350 7,100,000
--------------
46,825,000
--------------

MARYLAND (1.2%)
10,000 Anne Arundel County, (PCR, Baltimore Gas and
Electric Co. Project, Series 1989, due
07/01/14) ..................................... RB 07/01/97(b) 3.950 10,000,000
4,900 Montgomery County, (Series 1995) ................ CP 10/08/96 3.500 4,900,000
--------------
14,900,000
--------------

MASSACHUSETTS (2.7%)
9,700 Massachusetts State, (Health & Education
Facilities Authority, Brigham and Women's
Hospital, Series 1985A, due 07/01/17), LOC
Sanwa Bank Ltd. ............................... VRDN 09/04/96(a) 3.450 9,700,000
19,800 Massachusetts, (Series 1990B, due 12/01/97), LOC
National Wesminster Bank PLC .................. VRDN 09/03/96(a) 3.650 19,800,000
3,000 Massachusetts, (Series 1990E, due 12/01/97), LOC
ABN-AMRO Bank NV .............................. VRDN 09/03/96(a) 3.650 3,000,000
--------------
32,500,000
--------------

MICHIGAN (4.6%)
17,000 Michigan State, (Series 1996) ................... GO 09/30/96 4.000 17,007,462
3,300 Michigan State, (Strategic Fund Limited,
Obligation Revenue Refunding, Dow Chemical Co.
Project, due 02/01/09) ........................ VRDN 09/03/96(a) 3.850 3,300,000
10,600 Michigan State, (Strategic Fund Limited, Reserve
1, Series 1995, due 09/01/30), LOC Barclays
Bank PLC ...................................... VRDN 09/03/96(a) 3.750 10,600,000
1,000 Michigan, (Housing Development Authority, Series
1994C, due 04/01/19), LOC Credit Suisse,
N.Y. .......................................... VRDN 09/04/96(a) 3.500 1,000,000
23,425 Midland County (Economic Development Corp.,
Limited Obligation Revenue, Refunding, Dow
Chemical Co. Project, Series 1993B, due
12/01/15) ..................................... VRDN 09/03/96(a) 3.800 23,425,000
--------------
55,332,462
--------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

27
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
MINNESOTA (0.4%)
$ 1,325 St. Louis Park, (Tax Increment Revenue, Series
1987B, due 03/01/02), LOC Sumitomo Bank
Ltd. .......................................... VRDN 09/05/96(a) 3.550% $ 1,325,000
3,100 University of Minnesota, (University Revenues,
Series 1985G, due 10/01/07) ................... VRDN 02/01/97(a) 3.750 3,100,000
--------------
4,425,000
--------------

MISSISSIPPI (0.0%)*
535 Columbus, (IDR, Refunding Noland Co. Project,
Series 1989, due 05/01/99), LOC Wachovia Bank
and Trust ..................................... VRDN 09/05/96(a) 3.547 535,000
--------------

MISSOURI (1.5%)
11,000 Missouri, (Environmental Improvement and Energy
Resources Authority, PCR, Union Electric Co.
Project, Series 1984B, Maturity 06/01/14), LOC
Union Bank of Switzerland ..................... RB 06/01/97(b) 5.000 11,000,000
7,500 Missouri, (Health and Educational Facilities
Revenue, SSM Health Care Projects, Series
1995C, due 06/01/22), MBIA Insured ............ VRDN 09/03/96(a) 3.500 7,500,000
--------------
18,500,000
--------------

NEBRASKA (0.9%)
10,650 Lancaster County, (Hospital Authority No. 1,
Hospital Revenue, Refunding, Bryan Memorial
Hospital Project, due 06/01/12), MBIA
Insured ....................................... VRDN 09/04/96(a) 3.350 10,650,000
--------------

NEVADA (0.5%)
6,000 Clark County, (Nevada Industrial Development
Revenue, IDR, Refunding, Nevada Power Co.
Project, Series 1995C, due 10/01/30), LOC
Barclays Bank PLC ............................. VRDN 09/04/96(a) 3.550 6,000,000
--------------

NEW HAMPSHIRE (0.1%)
1,790 New Hampshire, (Higher Educational and Health
Facilities Authority, Dartmouth College Issue,
Student Loan Revenue, Series 1994, due
06/01/19) ..................................... VRDN 06/01/97(a) 3.800 1,790,000
--------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

28
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
NEW YORK (8.9%)
$ 31,900 New York City Municipal Water Finance Authority,
(Water and Sewer Systems, Series 1995A, due
06/15/25), FGIC Insured ....................... VRDN 09/03/96(a) 4.000% $ 31,900,000
11,400 New York City, (Series 1993, Sub-Series A-10, due
08/01/16), LOC Morgan Guaranty Trust .......... VRDN 09/03/96(a) 4.000 11,400,000
9,100 New York City, (Series 1993, Sub-Series A-10, due
08/01/17), LOC Sumitomo Bank Ltd. ............. VRDN 09/03/96(a) 4.000 9,100,000
2,600 New York City, (Sub-Series 1993 B-4, due,
08/15/21), LOC Union Bank of Switzerland ...... VRDN 09/03/96(a) 4.000 2,600,000
3,500 New York City, (Sub-Series 1993 B-4, due
08/15/23), LOC Union Bank of Switzerland ...... VRDN 09/03/96(a) 4.000 3,500,000
3,400 New York State, (Energy Research and Development
Authority, PCR, New York Electric and Gas,
Series 1985D, due 12/01/15), LOC Union Bank of
Switzerland ................................... RB 12/01/96(b) 3.650 3,400,000
39,700 New York State, Energy Research & Development
Authority, (Niagara Mohawk Power Corp., Series
1985A, due 07/01/15), LOC Toronto Dominion
Bank .......................................... VRDN 09/03/96(a) 3.950 39,700,000
6,000 Port Authority of New York & New Jersey, (Special
Obligation Revenue, Versatile Structure
Obligation - 5, Series 1996, due 08/01/24) .... VRDN 09/03/96(a) 3.650 6,000,000
--------------
107,600,000
--------------

NORTH CAROLINA (1.7%)
2,100 Ashe County, (Industrial Facilities and Pollution
Control Finance Authority, IDR, Refunding,
Gates Rubber Co. Project, Series 1988, due
07/01/10), LOC National Bank of Detroit ....... VRDN 09/05/96(a) 3.547 2,100,000
2,140 Davidson County, (Industrial Facilities and
Pollution Control Financing Authority, IDR,
Lowes Co., Inc. Project, Series 1990, due
07/01/20), LOC National Westminster Bank
PLC ........................................... VRDN 09/05/96(a) 3.547 2,140,000
2,000 Mecklenburg County, (Industrial Facilities and
Pollution Control Financing Authority, IDR,
Allied Corp. Project, Series 1984, 09/01/14),
LOC ABN Amro Bank ............................. VRDN 09/03/96(a) 3.650 2,000,000
1,040 North Carolina, (Eastern Municipal Power Agency,
Floats PA-34 B, Series 1993, due 01/01/22) .... VRDN 09/05/96(a) 3.550 1,040,000
4,700 North Carolina, (Eastern Municipal Power Agency,
Floats PA-34A, Series 1993, due 01/01/24) ..... VRDN 09/05/96(a) 3.550 4,700,000
1,600 North Carolina, (Educational Facilities Finance
Agency, Guilford College Project, Series 1993,
due 09/01/23), LOC Wachovia Bank and Trust .... VRDN 09/03/96(a) 3.700 1,600,000
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

29
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
NORTH CAROLINA (CONTINUED)
$ 4,000 Wake County, (Industrial Facilities and Pollution
Control Financing Authority, PCR, Carolina
Power and Light Project, Series 1985A, due
05/01/15), LOC Credit Suisse .................. VRDN 09/04/96(a) 3.400% $ 4,000,000
2,600 Wake County, (Industrial Facilities and Pollution
Control Financing Authority, PCR, Carolina
Power Light Co. Project, Series 1985B,
09/01/15), LOC Sumitomo Bank Ltd. ............. VRDN 09/04/96(a) 3.600 2,600,000
--------------
20,180,000
--------------

OHIO (2.5%)
8,700 Hamilton County, (Health System Revenue,
Franciscan Sisters Poor Health, Series 1987A,
due 03/01/17), LOC Sumitomo Bank, Ltd. ........ VRDN 09/03/96(a) 3.750 8,700,000
6,220 Ohio, (Air Quality Development Authority,
Pollution Control Revenue, Cleveland Electric,
Series 1988B, due 03/01/18), FGIC Insured ..... RB 09/03/96(b) 3.600 6,220,000
7,500 Ohio, (Air Quality Development Authority,
Pollution Control Revenue, Cleveland Electric,
Series 1988B, due 03/01/18), FGIC Insured ..... VRDN 10/01/96(a) 3.600 7,500,000
4,000 Ohio, (Air Quality Development Authority, Series
1985A, due 12/01/15), LOC Union Bank of
Switzerland ................................... VRDN 09/03/96(a) 4.000 4,000,000
4,400 Wooster, (IDR, Allen Group Inc. Project, Series
1985, 12/01/10), LOC Dresdner Bank ............ VRDN 09/04/96(a) 3.950 4,400,000
--------------
30,820,000
--------------

OKLAHOMA (3.6%)
30,200 Oklahoma, (Water Resources Board, State Loan
Revenue Program, Series 1994A, due
09/01/23) ..................................... RB 09/01/96(b) 3.250 30,200,000
5,125 Tulsa, (Industrial Development Authority,
Hillcrest Medical Center Project, Series 1988,
due 03/01/18), LOC Sumitomo Bank .............. VRDN 09/04/96(a) 3.500 5,125,000
8,425 Washington County, (Medical Authority, Refunding,
Jane Phillips Hospital, Series 1989B, due
11/01/14), LOC Credit Local de France ......... VRDN 11/01/96(a) 5.550 8,425,000
--------------
43,750,000
--------------

OREGON (0.4%)
5,000 Port Portland, (PCR, Reynolds Metal Co. Project,
due 12/01/09), LOC Bank of Nova Scotia ........ VRDN 09/03/96(a) 3.700 5,000,000
--------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

30
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
PENNSYLVANIA (6.3%)
$ 13,880 Allegheny County, (Hospital Development
Authority, Presbyterian University Hospital,
Series 1988B-1, due 03/01/18), LOC PNC
Financial ..................................... VRDN 09/05/96(a) 3.500% $ 13,880,000
5,475 Allegheny County, (Hospital Development
Authority, Presbyterian University Hospital,
Series 1988B-2, due 03/01/18), LOC PNC
Financial ..................................... VRDN 09/05/96(a) 3.500 5,475,000
2,500 Allegheny County, (Hospital Development
Authority, Presbyterian University Hospital,
Series 1988B-3, due 03/01/18), LOC PNC Bank ... VRDN 09/05/96(a) 3.500 2,500,000
4,100 Allegheny County, (Hospital Development
Authority, Presbyterian University Hospital,
Series 1990B, due 03/01/20), MBIA Insured ..... VRDN 09/05/96(a) 3.500 4,100,000
6,000 Allegheny County, (Industrial Development
Authority, IDR Refunding, Dowty Corp. Project,
Series 1986, due 12/01/01), LOC Mellon Bank ... VRDN 09/04/96(a) 3.600 6,000,000
5,000 Allegheny County, (Industrial Development
Authority, U.S.-Steel Environmental Improvement
Project, due 10/01/12), LOC Commerzbank
Aktiengesel ................................... RB 12/06/96(b) 3.550 5,000,000
3,500 Clinton County, (Industrial Development
Authority, IDR, Mellon Bank Central National
Assistance Project, Series 1985, due 09/01/05),
LOC Mellon Bank ............................... VRDN 09/04/96(a) 3.600 3,500,000
1,100 Delaware County, (Pennsylvania Industrial
Development Authority, Airport Facilities
Revenue, United Parcel Service Project, due
12/01/15) ..................................... VRDN 09/03/96(a) 3.650 1,100,000
3,150 Lehigh County, (Industrial Development Authority,
PCR, P-Floats-PA-99, due 09/01/29), MBIA
Insured ....................................... VRDN 09/05/96(a) 3.500 3,150,000
2,000 Pennsylvania State, (Industrial Development
Authority, Series 1990, due 05/01/04) ......... VRDN 09/04/96(a) 3.600 2,000,000
14,800 Pennsylvania, (Higher Educational Facilities
Authority, Health Services Revenue, Allegheny
Delaware Valley, due 11/15/35), LOC PNC
Bank .......................................... VRDN 09/04/96(a) 3.400 14,800,000
15,000 Philadelphia, (School District, Series 1996) .... TRAN 06/30/97 4.500 15,059,749
--------------
76,564,749
--------------

SOUTH CAROLINA (2.8%)
9,250 Allendale County, (IDR, Refunding, King Seeley
Thermos Co. Project, Series 1988, due
08/01/01), LOC Bank of Nova Scotia ............ VRDN 09/05/96(a) 3.547 9,250,000
1,500 Laurens County, (IDR, Asten Press Fabrics, Inc.
Project, Series 1991, Refunding, due 09/01/00),
LOC Wachovia Bank and Trust ................... VRDN 09/05/96(a) 3.550 1,500,000
10,300 South Carolina, (Jobs, Economic Development
Authority, Saint Francis Hospital, due
07/01/22), LOC Chemical Bank .................. VRDN 09/03/96(a) 3.700 10,300,000
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

31
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
SOUTH CAROLINA (CONTINUED)
$ 10,090 South Carolina, (Public Service Authority,
Refunding, Series 1996B) ...................... RB 01/01/97(b) 4.000% $ 10,102,910
1,330 South Carolina, (State Highway, Series 1996A) ... GO 02/01/97 6.100 1,344,282
1,060 Spartanburg County, (IDR, Refunding, Holberg
Electronic Corp. Project, Series 1989A, due
11/01/05), LOC Wachovia Bank and Trust ........ VRDN 09/05/96(a) 3.550 1,060,000
--------------
33,557,192
--------------

TENNESSEE (3.6%)
3,100 Collierville, (Industrial Development Board, due
03/01/00), LOC National City Bank of
Cleveland ..................................... VRDN 10/01/96(a) 5.362 3,100,000
1,365 Franklin, (Industrial Development Board, IDR,
Refunding, Noland Co. Project, Series 1989, due
05/01/97), LOC Wachovia Bank and Trust ........ RB 09/05/96(b) 3.548 1,365,000
6,500 Knox County, (Industrial Development Board, IDR,
Moore McCormack Resources Inc. Project Series
1988, due 06/01/06), LOC Societe Generale ..... VRDN 10/01/96(a) 3.500 6,500,000
1,400 Metropolitan Nashville & Davidson County, (Health
& Education Facilities Board, Vanderbilt
University, Series 1985B, due 05/01/13) ....... RB 05/01/97(b) 3.700 1,400,000
3,400 Metropolitan Nashville Airport Authority (Special
Facilities Revenue, American Airlines Project,
Series 1995A, due 10/01/12), LOC Credit
Suisse ........................................ VRDN 09/03/96(a) 3.700 3,400,000
7,300 Nashville, (Metropolitan Airport Authority,
Special Facilities Revenue, American Airlines
Project, Series 1995B, due 10/01/12), LOC
Bayerische Landesbank ......................... VRDN 09/03/96(a) 3.700 7,300,000
800 Sullivan County, (Industrial Development Board,
PCR, Refunding, Mead Corp. Project, Series
1986, due 10/01/16), LOC Union Bank of
Switzerland ................................... VRDN 09/03/96(a) 3.700 800,000
20,000 Tennessee, (Local Development Authority Revenue,
Series 1996A) ................................. RAN 05/29/97 4.000 20,055,627
--------------
43,920,627
--------------

TEXAS (9.1%)
1,500 El Paso, (Industrial Development Authority,
Contel Cellular of El Paso Inc. Project, Series
1985, due 02/01/04), LOC Bank of Nova
Scotia ........................................ VRDN 10/01/96(a) 5.362 1,500,000
9,000 Grayson County, (Industrial Development Corp.,
Aluminum Co. of America, Refunding, Series
1992, due 12/01/02) ........................... VRDN 09/05/96(a) 3.550 9,000,000
1,400 Gulf Coast, (Waste Disposal Authority, PCR, Amoco
Oil Co. Project, Refunding, due 10/01/17) ..... VRDN 09/03/96(a) 3.750 1,400,000
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

32
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 10,400 Harris County, (Health Facilities Development
Corp., Texas Health Care System Sisters of
Charity Incarnate, Series 1985), LOC Toronto
Dominion Bank ................................. CP 10/16/96 3.500% $ 10,400,000
25,000 Harris County, (Series 1996) .................... TAN 02/28/97 4.500 25,089,182
900 Lone Star Airport Improvement Authority, (Series
1984 B-4, due 12/01/14), LOC Royal Bank of
Canada ........................................ VRDN 09/03/96(a) 3.700 900,000
1,400 Lone Star Texas Airport Improvement Authority,
(Series 1984 B-3, due 12/01/14), LOC Royal Bank
of Canada ..................................... VRDN 09/03/96(a) 3.700 1,400,000
37,640 Lower Colorado River Authority, (Refunding,
Junior Lien, 3rd Supplement Series, due
01/01/13), MBIA Insured ....................... RB 09/04/96(b) 3.350 37,640,000
4,500 Mansfield, (Industrial Development Corp., Pier 1
Import-Texas Inc. Project, Series 1986, due
11/01/26), LOC National Wesminster PLC ........ VRDN 09/04/96(a) 3.550 4,500,000
3,000 North Central, (Health Facilities Development
Corp., Hospital Revenue, Presbyterian Medical
Center, Series 1985D, due 12/01/15), MBIA
Insured ....................................... VRDN 09/03/96(a) 3.700 3,000,000
5,050 Sabine River Authority, (PCR, Utilities Electric
Co., Refunding, Series 1995B, due 06/01/30),
LOC Union Bank of Switzerland ................. VRDN 09/03/96(a) 4.000 5,050,000
9,000 Texas State, (Series 1997) ...................... TRAN 08/29/97 4.750 9,066,950
1,615 Texas, (Higher Education Authority, Series 1985B,
due 02/01/25), FGIC Insured ................... VRDN 09/04/96(a) 3.500 1,615,000
--------------
110,561,132
--------------

UTAH (1.0%)
2,565 Carbon County, (PCR, Refunding, Pacificorp
Project, Series 1994, due 11/01/24), LOC Bank
of New York ................................... VRDN 09/03/96(a) 3.850 2,565,000
9,000 Intermountain Power Agency, (Utah Power Supply
Revenue, Series 1985F, due 07/01/15), LOC Swiss
Bank .......................................... RB 09/15/96(b) 3.350 9,000,000
--------------
11,565,000
--------------

VERMONT (0.6%)
7,400 Vermont, (Student Assistance Corp., Student Loan
Revenue Bond, Series 1985, due 01/01/04), LOC
National Wesminster Bank PLC .................. VRDN 10/01/96(a) 3.750 7,400,000
--------------

VIRGINIA (0.9%)
4,900 Arlington County, (Ballston Public Parking
Project, Series 1984, due 08/01/17), LOC
Citibank ...................................... VRDN 09/03/96(a) 3.500 4,900,000
2,945 Chesterfield County, (Improvement and Refunding
Bond, Series 1991, due 07/15/03) .............. VRDN 09/04/96(a) 3.450 2,945,000
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

33
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
(IN SECURITY MATURITY
THOUSANDS) SECURITY DESCRIPTION TYPE DATE RATE VALUE
- ------------- ------------------------------------------------- ------- ---------- ------ --------------
<C> <S> <C> <C> <C> <C>
VIRGINIA (CONTINUED)
$ 1,000 Virginia Beach, (Industrial Development
Authority, IDR, Norfolk Virginia Beach,
Portsmouth MSA Limited Partnership Project, due
12/01/04), LOC Bank of Nova Scotia ............ VRDN 10/01/96(a) 5.362% $ 1,000,000
2,400 Virginia, (State Housing Development Authority,
AHC Service Corp., Series 1987A, due 09/01/17),
LOC Mitsubishi Ltd. ........................... VRDN 09/04/96(a) 3.550 2,400,000
--------------
11,245,000
--------------

WASHINGTON (0.5%)
6,400 Seattle, (Washingon Water Systems Revenue, Series
1995, due 09/01/25), LOC Bayerische
Landesbank .................................... VRDN 09/04/96(a) 3.500 6,400,000
--------------

WEST VIRGINIA (0.1%)
1,000 Mercer County, (IDR, Refunding, Noland Co.
Project, Series 1989, due 05/01/01), LOC
Wachovia Bank and Trust ....................... VRDN 09/05/96(a) 3.547 1,000,000
--------------

WISCONSIN (1.0%)
2,500 Marshfield, (IDR, Beatrice Cheese Inc., Project,
Series 1984, due 12/01/14), LOC Wachovia Bank
and Trust ..................................... VRDN 09/05/96(a) 3.547 2,500,000
1,300 Seymour, (IDR, Beatrice Cheese Inc., Project,
Series 1984, due 12/01/98), LOC Wachovia Bank
and Trust ..................................... VRDN 09/05/96(a) 3.548 1,300,000
8,500 Wisconsin, (Custodial Receipt Certificates, due
05/01/04) ..................................... TPP 09/05/96(a) 3.500 8,500,000
--------------
12,300,000
--------------
TOTAL INVESTMENTS (COST $1,206,628,282) (99.3%) .............................. 1,206,628,282
OTHER ASSETS IN EXCESS OF LIABILITIES (0.7%) ................................. 7,948,504
--------------
NET ASSETS (100.0%) .......................................................... $1,214,576,786
--------------
--------------
</TABLE>

- ------------------------------
(a)
Variable Rate Demand Note tender dates and/or interest rates are reset at
specified intervals which coincide with their tender feature. The actual
maturity date is indicated in the security description.

(b)
The date listed under the heading maturity date represents an optional tender
date. The actual maturity date is indicated in the security description.

* Less than 0.1%

Abbreviations used in the Schedule of Investments are as follows: AMBAC -
Ambac Indemnity Corp., CP - Commercial Paper, FGIC - Financial Guaranty
Insurance Company, GO - General Obligation, IDR - Industrial Development
Revenue, LOC - Letter of Credit, MBIA - Municipal Bond Investors Assurance
Corp., PCR - Pollution Control Revenue, RAN - Revenue Anticipation Note, RB -
Revenue Bond, TAN - Tax Anticipation Note, TPP - Third Party Put, TRAN - Tax
Revenue Anticipation Note, VRDN - Variable Rate Demand Note.

Refunding - Bonds for which the issuer has issued new bonds and cancelled the
old issue.

Prerefunded - Bonds for which the issuer of the bond invests the proceeds from
a susequent bond issuance in treasury securities, whose maturity coincides
with the first call date of the first bond.

The Accompanying Notes are an Integral Part of the Financial Statements.

34
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C>
ASSETS
Investments at Amortized Cost and Value $1,206,628,282
Cash 1,538,586
Interest Receivable 6,745,136
Prepaid Trustees' Fees 4,277
Prepaid Expenses and Other Assets 6,390
--------------
Total Assets 1,214,922,671
--------------

LIABILITIES
Advisory Fee Payable 187,631
Custody Fee Payable 55,770
Administrative Services Fee Payable 33,711
Administration Fee Payable 15,433
Fund Services Fee Payable 2,358
Accrued Expenses 50,982
--------------
Total Liabilities 345,885
--------------

NET ASSETS
Applicable to Investors' Beneficial
Interests $1,214,576,786
--------------
--------------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

35
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
- --------------------------------------------------------------------------------

<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $42,041,824

EXPENSES
Advisory Fee $2,154,248
Custodian Fees and Expenses 235,187
Administrative Services Fee 205,419
Administration Fee 113,132
Fund Services Fee 62,310
Professional Fees and Expenses 42,980
Trustees' Fees and Expenses 21,259
Miscellaneous 12,815
----------
Total Expenses 2,847,350
-----------
NET INVESTMENT INCOME 39,194,474

NET REALIZED LOSS ON INVESTMENTS (1,789)
-----------

NET INCREASE IN NET ASSETS RESULTING
FROM OPERATIONS $39,192,685
-----------
-----------
</TABLE>

The Accompanying Notes are an Integral Part of the Financial Statements.

36
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
AUGUST 31, AUGUST 31,
1996 1995
-------------- --------------
<S> <C> <C>

INCREASE IN NET ASSETS

FROM OPERATIONS
Net Investment Income $ 39,194,474 $ 41,496,228
Net Realized Loss on Investments (1,789) (266,979)
-------------- --------------
Net Increase in Net Assets
Resulting from Operations 39,192,685 41,229,249
-------------- --------------

TRANSACTIONS IN INVESTORS' BENEFICIAL
INTERESTS
Contributions 4,223,774,582 4,119,755,028
Withdrawals (4,136,830,334) (4,094,390,648)
-------------- --------------
Net Increase from Investors'
Transactions 86,944,248 25,364,380
-------------- --------------
Total Increase in Net Assets 126,136,933 66,593,629

NET ASSETS
Beginning of Fiscal Year 1,088,439,853 1,021,846,224
-------------- --------------
End of Fiscal Year $1,214,576,786 $1,088,439,853
-------------- --------------
-------------- --------------
</TABLE>

- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------

<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 12, 1993
FOR THE FISCAL YEAR (COMMENCEMENT
ENDED AUGUST 31, OF
--------------------- OPERATIONS) TO
1996 1995 1994 AUGUST 31, 1993
--- --- --- ---------------
<S> <C> <C> <C> <C>

RATIOS TO AVERAGE NET ASSETS
Expenses 0.25% 0.25% 0.25% 0.25%(a)
Net Investment Income 3.40% 3.61% 2.37% 2.28%(a)
</TABLE>

- ------------------------
(a)Annualized.

The Accompanying Notes are an Integral Part of the Financial Statements.

37
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

The Tax Exempt Money Market 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's investment
objective is to provide a high level of current income exempt from federal
income tax and maintain a high level of liquidity. The Portfolio commenced
operations on July 12, 1993 and received a contribution of certain assets and
liabilities, including securities, with a value of $955,814,753 on that date
from The JPM Pierpont Tax Exempt Money Market Fund, (formerly The Pierpont Tax
Exempt Money Market Fund), in exchange for a beneficial interest in the
Portfolio. The Declaration of Trust permits the Trustees to issue an unlimited
number of beneficial interest in the Portfolio.

a)Investments are valued at amortized cost which approximates market value.
The amortized cost method of valuation values a security at its cost at
the time of purchase and thereafter assumes a constant amortization to
maturity of any discount or premium, regardless of the impact of
fluctuating interest rates on the market value of the instruments.

b)Securities transactions are recorded on a trade date basis. Investment
income consists of interest income, which includes the amortization of
premiums and discounts. 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 subject to
taxation on its share of the Portfolio's ordinary income and capital
gains. It is intended that the Portfolio's assets will be managed in such
a way that an investor in the Portfolio will be able to satisfy the
requirements of Subchapter M of the Internal Revenue Code. The cost of
securities is substantially the same for book and tax purposes.

2. TRANSACTIONS WITH AFFILIATES

a)The Portfolio has an Investment Advisory Agreement with 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 0.20%
of the Portfolio's average daily net assets up to $1 billion and 0.10% on
any excess over $1 billion. For the fiscal year ended August 31, 1996,
this fee amounted to $2,154,248.

b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as Administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. Until December 28, 1995, the agreement provided for a fee to be
paid to Signature at an annual fee rate determined by the following
schedule: 0.01% of the first $1

38
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
billion of the aggregate average daily net assets of the Portfolio and the
other portfolios subject to the 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 was applied each day to the net assets of the Portfolio. For
the period from September 1, 1995 through December 28, 1995, Signature's
fee for these services amounted to $19,005.

Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged was 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 (the "Master Portfolios") in which The
JPM Pierpont Funds,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 paid by the
Portfolio was determined by the proportionate share its net assets bore to
the total net assets of The JPM Pierpont Funds, The JPM Institutional
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from December 29, 1995 through July 31, 1996, such fees amounted to
$91,843. The Administration Agreement with Signature was terminated July
31, 1996.

Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, FDI's fees are to be paid by the Portfolio
(see Note 2c). For the period from August 1, 1996 through August 31, 1996,
the fee for these services amounted to $2,284.

c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement with Morgan which provided that Morgan would receive a
fee, based on the percentage described below, for overseeing certain
aspects of the administration and operation of the Portfolio and that 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 0.03% of the
Portfolio's average daily net assets. From September 1, 1995 until
December 28, 1995, an interim agreement between the Portfolio and Morgan
provided for the continuation of the oversight functions that were
outlined under the prior agreement and that Morgan should bear all of its
expenses incurred in connection with these services.

Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan under which
Morgan is responsible for overseeing certain aspects of the administration
and operation of the Portfolio. Under the Services Agreement, the
Portfolio had agreed to pay Morgan a fee equal to its proportionate share
of an annual complex-wide charge. Until July 31, 1996, this charge was
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 Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the net assets of the Master Portfolios and other investors in the Master
Portfolios for which Morgan provided similar services. For the period from
December 29, 1995 through July 31, 1996, the fee for these services
amounted to $171,708.

39
<PAGE>
THE TAX EXEMPT MONEY MARKET PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------

Effective August 1, 1996, the Services Agreement was amended such that the
aggregate complex-wide fees to be paid by the Portfolio under both the
amended Services Agreement and the Co-Administration Agreement (see Note
2b) is calculated daily based on the aggregate net assets of the Master
Portfolios in accordance with the following annual schedule: 0.09% on the
first $7 billion of the Master Portfolios' aggregate average daily net
assets and 0.04% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion. For the period from August 1, 1996 through
August 31, 1996, the fee for these services amounted to $33,711.

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 $62,310 for the fiscal year ended August 31, 1996.

e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represents the Portfolio's allocated portion of the total fees
and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and 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 $8,000.

40
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Trustees and Investors of
The Tax Exempt Money Market 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 Money Market Portfolio (the
"Portfolio") at August 31, 1996, 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 three 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, 1996 by correspondence with the custodian, provide a reasonable basis for
the opinion expressed above.

PRICE WATERHOUSE LLP
New York, New York
October 16, 1996

41
<PAGE>

JPM PIERPONT MONEY MARKET FUND
JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
JPM PIERPONT TREASURY MONEY MARKET FUND
JPM PIERPONT SHORT TERM BOND FUND
JPM PIERPONT BOND FUND
JPMPIERPONT TAX EXEMPT BOND FUND
JPMPIERPONT NEW YORK TOTAL RETURN BOND FUND
JPM PIERPONT DIVERSIFIED FUND
JPMPIERPONT EQUITY FUND
JPMPIERPONT CAPITAL APPRECIATION FUND
JPMPIERPONT INTERNATIONAL EQUITY FUND
JPMPIERPONT EMERGING MARKETS EQUITY FUND
JPM PIERPONT EUROPEAN EQUITY FUND
JPM PIERPONT JAPAN EQUITY FUND
JPM PIERPONT ASIA GROWTH FUND

FOR MORE INFORMATION ON HOW THE JPM PIERPONT FAMILY OF FUNDS CAN HELP YOU PLAN
FOR YOUR FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.

THE JPM PIERPONT TAX EXEMPT MONEY MARKET FUND

ANNUAL REPORT
AUGUST 31, 1996