<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPMPIERPONT TAX EXEMPT BOND FUND
October 14, 1997
Dear Shareholder:
The previous twelve months provided a positive environment for fixed income
investors, as steady economic growth and contained inflation kept U.S. interest
rates low. The JPM Pierpont Tax Exempt Bond Fund posted a healthy gain of 6.95%
for the fiscal year ending August 31, 1997. While the Fund underperformed the
7.71% return of its benchmark for the period (the Lehman 1-16 year Muni Bond
Index), it ranked approximately in line with the 7.03% return of its competitors
as measured by the Lipper Quality Intermediate Muni Debt Bond Funds Average. The
Fund's 30-day SEC yield, at 4.20%, translates to a pre-tax equivalent yield of
6.95%, assuming a 39.6% tax rate.
The Fund's net asset value, at $11.85 on August 31, 1997, was up from $11.63 per
share on August 31, 1996. Dividends of $0.55 per share were paid which were all
tax exempt. Distributions were made of $0.02 per share, of which $0.01 was from
short-term capital gains and $0.01 from long-term capital gains. The Fund's net
assets increased to $401,006,516 from $369,987,472 while the net assets of The
Tax Exempt Bond Portfolio, in which the Fund invests, were $603,597,914.
The report that follows includes an interview with Elaine Young and Robert
Meiselas, both members of the portfolio management team responsible for the
Fund. This interview is designed to answer commonly asked questions about the
Fund, elaborate on what happened during the reporting period, and provide an
outlook for the months ahead.
As chairman and president of Asset Management Services, we look forward to
sharing Morgan's insights regarding global markets with you going forward. If
you have any comments or questions, please call your Morgan representative or
J.P. Morgan Funds Services at (800) 521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------
TABLE OF CONTENTS GLOSSARY OF TERMS . . . . . . . . . . 6
LETTER TO THE SHAREHOLDERS . . . .1 FUND FACTS AND HIGHLIGHTS. . . . . . . 7
FUND PERFORMANCE . . . . . . . . .2 SPECIAL FUND-BASED SERVICES. . . . . . 8
PORTFOLIO MANAGER Q & A. . . . . .3 FINANCIAL STATEMENTS . . . . . . . . .10
- --------------------------------------------------------------------------------
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to take a look at the growth of a hypothetical
investment of $2,500 (the minimum investment in the Fund). The chart at right
shows that $2,500 invested in the Fund on September 1, 1987 would have grown to
$4,872 at August 31, 1997. Another way to look at performance is to review a
fund's average annual total return. This figure takes the fund's actual (or
cumulative) return and shows what would have happened if the fund had achieved
that return by performing at a constant rate each year. Average annual total
returns represent the average yearly change of a fund's value over various time
periods, typically 1, 5, or 10 years (or since inception). Total returns for
periods of less than one year are not annualized and provide a picture of how a
fund has performed over the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------------- -----------------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF AUGUST 31, 1997 MONTHS MONTHS YEAR YEARS YEARS YEARS
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------- -----------------------------------------------
The JPM Pierpont Tax Exempt Bond Fund 2.27% 2.79% 6.95% 6.18% 5.92% 6.90%
Lehman 1-16 year Muni Bond Index * 2.51% 3.18% 7.71% 6.74% 6.46% 7.27%
Lehman Quality Intermed. Muni Bond Index 2.32% 2.94% 7.46% 6.65% 6.41% 7.25%
Lipper Intermed. Muni Debt Bond Funds Avg. 2.26% 2.89% 7.03% 6.06% 5.86% 6.90%
AS OF JUNE 30, 1997
- ----------------------------------------------------------------------------- ----------------------------------------------
The JPM Pierpont Tax Exempt Bond Fund 2.75% 2.64% 6.80% 6.31% 6.01% 6.90%
Lehman 1-16 year Muni Bond Index * 2.77% 2.78% 6.97% 6.83% 6.53% 7.23%
Lehman Quality Intermed. Muni Bond Index 2.66% 2.67% 6.86% 6.79% 6.51% 7.22%
Lipper Intermed. Muni Debt Bond Funds Avg. 2.60% 2.50% 6.55% 6.20% 5.95% 6.88%
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS.
*PRIOR TO MAY 1, 1997, THE BENCHMARK WAS THE LEHMAN QUALITY INTERMEDIATE MUNI
BOND INDEX. COMMENCING MAY 1, 1997, THE BENCHMARK IS THE LEHMAN 1-16 YEAR MUNI
BOND INDEX. THE LEHMAN QUALITY INTERMEDIATE MUNI BOND INDEX IS AN INDEX CREATED
BY LEHMAN BROTHERS OF HIGH QUALITY MUNICIPAL BONDS RATED A OR BETTER WITH
INTERMEDIATE MATURITIES (APPROXIMATELY 7 YEARS). LIPPER ANALYTICAL SERVICES,
INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
GROWTH OF $2,500 OVER TEN YEARS
SEPTEMBER 1, 1987 - AUGUST 31, 1997
[GRAPH]
LEHMAN 1-16 YEAR MUNI BOND INDEX* $5,044
LEHMAN QUALITY INTERMEDIATE MUNI BOND INDEX $5,032
THE JPM PIERPONT TAX EXEMPT BOND FUND $4,872
2
<PAGE>
PORTFOLIO MANAGER Q&A
This interview was conducted with Elaine Young and Robert Meiselas, both members
of the portfolio management team responsible for managing The Tax Exempt Bond
Portfolio in which the Fund invests.
[PHOTO]
ELAINE YOUNG, VICE PRESIDENT, is a portfolio manager with the U.S. Fixed Income
Group responsible for managing municipal bonds. In Ms. Young's previous position
at Morgan, she traded tax-exempt securities. Elaine joined Morgan in 1994 after
five years of municipal trading experience at Scudder, Stevens, and Clark. She
graduated from New York University with a B.S. degree in 1986 and an M.B.A. in
Finance in 1989. Elaine is also a Chartered Financial Analyst.
[PHOTO]
ROBERT MEISELAS, VICE PRESIDENT, is a portfolio manager with the U.S. Fixed
Income Group responsible for managing municipal bonds, including tax exempt
private placements. Mr. Meiselas is a CPA and joined J.P. Morgan's financial
group in 1982, after having spent 10 years at Coopers & Lybrand. Bob also spent
five years in J.P. Morgan's Private Banking Investment Management Group, and
moved to J.P. Morgan Investment Management in 1997. Bob is a graduate of St.
Johns University and has completed graduate work at Long Island University in
the field of taxation.
This interview was conducted on October 7, 1997 and represents both Bob and
Elaine's views on that date.
PLEASE COMMENT ON WHAT HAS HAPPENED IN THE TAX EXEMPT MARKET OVER THE PAST
TWELVE MONTHS; HAVE YOU SEEN ANY NEW TRENDS DEVELOP?
EY: We've actually seen the continuation of a bull market for tax exempt bonds
caused by lower interest rates and fewer tax efficient investments. Also,
municipal bonds have begun to trade in a relatively narrow range as most new
bond issues are coming to market with bond insurance. The predominance of bond
insurance has heightened demand for uninsured investment grade bonds and caused
the credit spread for these bonds to narrow as well. These factors have all led
to a very favorable period for muni bond investors.
Over the past 12 months, muni yields have declined by about 50 basis points.
Muni yields now range between 4-5% for most maturities.
WHEN WE LAST SPOKE TO YOUR INVESTMENT TEAM (SIX MONTHS AGO), IT WAS INDICATED
THERE WAS A CONTINUING SHORT SUPPLY OF TAX-EXEMPT ISSUES. IT HAS RECENTLY BEEN
REPORTED, HOWEVER, THAT NEW ISSUANCE HAS INCREASED. WHAT CAUSED THE RECENT NEW
SUPPLY, AND HAS THIS FIXED OUR SUPPLY PROBLEM?
RM: Simply said, low prevailing interest rates have enticed municipal issuers
to borrow or refund outstanding debt. There have been a few instances when a
large calendar of new issues has caused the market to tem-
3
<PAGE>
porarily weaken but, except for these moments, demand has exceeded supply. I
wouldn't say that the current level of supply is a "problem" for J.P. Morgan, as
a large institutional investor, but I do think that low supply makes it far more
difficult for retail investors to obtain satisfactory returns without extended
risk. Looking ahead, we expect the supply to remain at current levels for the
foreseeable future.
WE NOTICE THE PORTFOLIO HAS INVESTED IN AMT ISSUES. CAN YOU EXPLAIN WHAT THESE
ARE, AND OUR RATIONALE FOR INVESTING IN THEM?
EY: Interest income on certain muni bonds, termed "private purpose" bonds, are
subject to Federal income taxation if taxpayers are subject to the alternative
minimum tax. Most taxpayers are not subject to this tax method but AMT issues
typically offer 10-20 basis points of additional yield due to investor
uncertainty. In view of the narrow credit spreads that currently exist, this is
a sector that we can utilize to reap additional yield without taking greater
credit risk. Consequently, we believe that it is advantageous for most of our
investors if we invest a small portion of the Portfolio in these bonds.
WE NOTICE THE PORTFOLIO HAS HELD SEVERAL ZERO-COUPON SECURITIES. WHAT MAKES THEM
SO ATTRACTIVE?
EY: Zero coupon bonds offer higher yields since many trust accounts and retail
investors prefer current coupon income instead of accretion. Also, the potential
complexity caused by Federal income tax rules regarding market discount lessens
the appeal of these bonds to many investors. Lastly, zero coupon bond prices are
very sensitive to shifts in interest rates which can be very advantageous to
active bond investors. We have the appropriate investment tools to control the
risk, enjoy the added yield, and use zero coupon bond price sensitivity, when
appropriate, to increase Portfolio return.
WE SEE THE FUND CHANGED ITS BENCHMARK FROM THE LEHMAN QUALITY INTERMEDIATE MUNI
BOND INDEX TO THE LEHMAN 1-16 YEAR MUNI BOND INDEX. CAN YOU EXPLAIN THE
DIFFERENCE BETWEEN THESE TWO INDICES?
RM: Its very difficult to select a broad market index that accurately reflects
the objectives of a customized portfolio. Our objective is to manage the
Portfolio by taking advantage of opportunities in the municipal market and
outperform the competition without increasing risk or volatility. The Lehman
indices are intended to represent the overall market or selected portions of the
overall market. As such, there are structural differences between the Portfolio
and any Lehman Index. I feel that evaluating our performance compared to
competitive mutual funds with similar investment objectives and parameters is
the best way of measuring our progress.
We changed Indices because we believe that the second index offers a better
typification of the Portfolio. Please remember that our Portfolio is
opportunistic. That is, we change it to take advantage of what we deem to be the
best opportunities in the market. The new Index is more representative of our
guidelines and portfolio management style.
EY: Let me give you an example. The Lehman Quality Intermediate Muni Bond Index
did not include any bonds with credit ratings below "A." During the past year,
we changed our investment guidelines to permit investments that are rated below
"A." Since credit spreads narrowed during the year, investors in lesser
investment
4
<PAGE>
grade bonds and high yield bonds enjoyed significant price appreciation. If we
had not shifted indices, an analysis of our performance compared to the Index
may have required some adjustments in order to see the whole picture.
SPECIFICALLY REGARDING THE FUND'S PERFORMANCE, WE NOTICE IT RANKED FAVORABLY
AGAINST ITS COMPETITORS FOR THE REPORTING PERIOD, AS MEASURED BY THE LIPPER
INTERMEDIATE MUNI DEBT BOND FUNDS AVERAGE. WHAT WERE SOME OF THE SPECIFIC
FACTORS THAT CONTRIBUTED TO THE FUND'S PERFORMANCE?
RM: While I believe that comparing performance to the competition is the best
"Litmus" test of success, I think that it is difficult to find other mutual
funds that share our objectives and constraints. We're pleased that our
performance has been relatively good but investors should bear in mind that we
are equally interested in managing risk and volatility. Also, we strive to take
the impact of income taxes into consideration when making investment decisions.
At a future date, other mutual funds may report better results than our
Portfolio but investors must be careful to weigh the incremental risk that may
accompany those higher returns.
Having said that, our performance has ranked favorably. We think that our
success is due to our disciplined investment process. We make investments when
we believe that we have an information advantage that we can apply in the
market. Based on our internal analysis, we try to buy undervalued securities and
sell those bonds whose prices may have peaked. During this period, our success
was largely attributable to our security selection process. Success in this
arena comes back to having the right tools, a process that works, as well as the
experience and expertise to apply to managing bond portfolios.
EY: We've also done a good job forecasting shifts in interest rates and the
direction of the bond market. Our performance also reflects successful
positioning of the Portfolio with these forecasts in mind.
WHAT IS YOUR OUTLOOK FOR THE NEXT SIX MONTHS, AND HOW ARE YOU POSITIONING THE
PORTFOLIO?
RM: For the most part, we expect current conditions to persist. In order to
continue to succeed in this tight market, we know that we are going to have to
work harder to find opportunities. We will continue to favor more complex
instruments such as zero coupon bonds, AMT bonds, and tax exempt private
placements because we have the tools to take advantage of these investments and
avoid the pitfalls. We will also utilize our municipal credit research group to
help us stay ahead of any issuer specific bond price fluctuations.
Muni bond yields have been fluctuating within a relatively narrow range. The
bond market has been shifting abruptly within this range based on the latest
economic news and as the opinions of Fed-watchers change. In view of the run-up
in bond prices, we have found it difficult to take advantage of interest rate
shifts without incurring taxable capital gain taxes that may outweigh the
return. We recently moved the Portfolio duration to be "neutral" to its
benchmark. We expect to maintain its neutral position until we identify a trend
we can take advantage of, and move duration accordingly.
5
<PAGE>
GLOSSARY OF TERMS
BASIS POINT: A measure used in quoting bond yields. One basis point equals 0.01%
of yield. For example if a bond's yield changed from 10.25% to 11.00%, it would
have moved 75 basis points.
CREDIT RATING: The rating assigned to a bond by independent rating agencies such
as Standard & Poor's and Moody's. In evaluating creditworthiness, these agencies
assess the issuer's present financial condition and future ability and
willingness to make principal and interest payments when due.
DURATION: Duration is used as a measure of the relative sensitivity of the price
of the security to a change in interest rates. The longer the duration the more
sensitive the bond is to interest rate moves. For example, a bond with a 5-year
duration will experience an approximate 5% increase in price if interest rates
drop 100 basis points (1%) while a bond with a 10-year duration would see its
price rise by approximately 10%.
MATURITY: The date on which the life of a financial instrument ends through cash
or physical settlement or expiration with no value, or the date a security comes
due and fully payable. Average maturity refers to the average time to maturity
of the entire portfolio.
YIELD CURVE: A line graph showing interest rates at a point in time, from the
shortest maturity to the longest available. The resulting curve shows if short-
term interest rates are higher or lower than long-term rates. Typically interest
rates rise with increasing time to maturity.
YIELD SPREAD: The difference in yield between different types of securities. For
example, if a Treasury bond is yielding 6.5% and a municipal is yielding 5.5%,
the spread is 1.0% or 100 basis points.
ZERO COUPON BOND: A debt instrument sold at a discount to its face value. The
bond makes no payments until maturity, at which time it is redeemed at face
value. Effectively, the interest received is the difference between face value
and the price paid for the security.
6
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
The JPM Pierpont Tax Exempt Bond Fund seeks to provide a high level of current
income that is exempt from federal income tax consistent with moderate risk of
capital and maintenance of liquidity. It is designed for investors who seek tax
exempt yields greater than those generally available from a portfolio of short-
term tax-exempt obligations and who are willing to incur the greater price
fluctuation of longer-term instruments.
- --------------------------------------------------------------------------------
INCEPTION DATE
10/3/84
- --------------------------------------------------------------------------------
NET ASSETS AS OF 8/31/97
$401,006,516
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/19/97
EXPENSE RATIO
The Fund's annual expense ratio of 0.64% covers shareholders' expenses for
custody, tax reporting, investment advisory and shareholder services. The Fund
is no-load and does not charge any sales, redemption, or exchange fees. There
are no additional charges for buying, selling, or safekeeping Fund shares, or
for wiring dividend or redemption proceeds from the Fund.
FUND HIGHLIGHTS
ALL DATA AS OF AUGUST 31, 1997
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
REVENUE BONDS 52.6%
GENERAL OBLIGATIONS 42.8%
SHORT-TERM 4.0%
PRIVATE PLACEMENTS 0.6%
30-DAY SEC YIELD
4.20%
DURATION
5.85 years
7
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity
to achieve one's investment objectives. PAAS
provides investors with a comprehensive management program for their portfolios.
Through this service, investors can:
- create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- make investments through the diversified family of JPMPierpont mutual
funds.
PAAS is available to clients who invest a minimum of $500,000 in the 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, JPM
Pierpont Funds provide an excellent way to help you accumulate long-term wealth
for retirement.
KEOGH
Keogh plans 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.
8
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR FOR THE JPM PIERPONT TAX EXEMPT BOND
FUND (THE "FUND").
MORGAN GUARANTY TRUST COMPANY OF NEW YORK ("MORGAN") SERVES AS PORTFOLIO
INVESTMENT ADVISOR AND MAKES THE FUND AVAILABLE SOLELY IN ITS CAPACITY AS
SHAREHOLDER SERVICING AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT
DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER
BANK. SHARES OF THE FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL
AGENCY. INVESTMENT RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND CAN
FLUCTUATE, SO AN INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN
THEIR ORIGINAL COST.
The performance data quoted herein represent past performance. Please remember
that past performance is not a guarantee of future performance. Fund returns are
net of fees and assume the reinvestment of Fund distributions. The Fund invests
all of its investable assets in The Tax Exempt Bond Portfolio (the "Portfolio"),
a separately registered investment company, which is not available to the public
but only to other collective investment vehicles such as the Fund. Income may be
subject to some state and local taxes. Some income may be subject to the Federal
alternative minimum tax (AMT) for certain investors.
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.
9
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Tax Exempt Bond Portfolio
("Portfolio"), at value $401,362,937
Receivable for Shares of Beneficial Interest Sold 192,212
Prepaid Trustees' Fees 771
Prepaid Expenses and Other Assets 384
------------
Total Assets 401,556,304
------------
LIABILITIES
Dividends Payable to Shareholders 304,429
Payable for Shares of Beneficial Interest
Redeemed 130,957
Shareholder Servicing Fee Payable 68,887
Administrative Services Fee Payable 10,448
Administration Fee Payable 2,092
Fund Services Fee Payable 1,348
Accrued Expenses 31,627
------------
Total Liabilities 549,788
------------
NET ASSETS
Applicable to 33,827,550 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $401,006,516
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $11.85
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $381,560,891
Undistributed Net Investment Income 2,388
Accumulated Net Realized Gain on Investment 286,936
Net Unrealized Appreciation of Investment 19,156,301
------------
Net Assets $401,006,516
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $19,958,921
Allocated Portfolio Expenses (1,417,274)
-----------
Net Investment Income Allocated from
Portfolio 18,541,647
FUND EXPENSES
Shareholder Servicing Fee $750,088
Administrative Services Fee 117,520
Transfer Agent Fees 35,717
Registration Fees 21,240
Professional Fees 16,656
Fund Services Fee 13,245
Administration Fee 12,383
Trustees' Fees and Expenses 7,279
Miscellaneous 21,595
--------
Total Fund Expenses 995,723
-----------
NET INVESTMENT INCOME 17,545,924
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 807,123
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 6,508,431
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $24,861,478
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 17,545,924 $ 16,933,485
Net Realized Gain on Investment Allocated from
Portfolio 807,123 534,849
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio 6,508,431 (3,837,571)
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 24,861,478 13,630,763
--------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (17,545,924) (16,931,097)
Net Realized Gain (701,935) (455,297)
--------------- ---------------
Total Distributions to Shareholders (18,247,859) (17,386,394)
--------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 174,721,385 139,892,566
Reinvestment of Dividends and Distributions 14,617,992 14,124,800
Cost of Shares of Beneficial Interest Redeemed (164,933,952) (132,279,747)
--------------- ---------------
Net Increase from Transactions in Shares of
Beneficial Interest 24,405,425 21,737,619
--------------- ---------------
Total Increase in Net Assets 31,019,044 17,981,988
NET ASSETS
Beginning of Fiscal Year 369,987,472 352,005,484
--------------- ---------------
End of Fiscal Year (including undistributed net
investment income of $2,388 and $2,388,
respectively) $ 401,006,516 $ 369,987,472
--------------- ---------------
--------------- ---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each year are as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED AUGUST 31,
----------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF YEAR $ 11.63 $ 11.73 $ 11.45 $ 12.04 $ 11.60
-------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.55 0.55 0.55 0.51 0.55
Net Realized and Unrealized Gain (Loss) on
Investment 0.24 (0.08) 0.29 (0.35) 0.56
-------- -------- -------- -------- --------
Total from Investment Operations 0.79 0.47 0.84 0.16 1.11
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.55) (0.55) (0.55) (0.51) (0.55)
Net Realized Gain (0.02) (0.02) (0.01) (0.24) (0.12)
-------- -------- -------- -------- --------
Total Distributions to Shareholders (0.57) (0.57) (0.56) (0.75) (0.67)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF YEAR $ 11.85 $ 11.63 $ 11.73 $ 11.45 $ 12.04
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Total Return 6.95% 4.01% 7.63% 1.35% 9.88%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $401,007 $369,987 $352,005 $392,460 $485,013
Ratios to Average Net Assets
Expenses 0.64% 0.64% 0.71% 0.71% 0.74%
Net Investment Income 4.67% 4.67% 4.87% 4.39% 4.64%
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- -- -- 0.01%
Portfolio Turnover -- -- -- -- 41%+
</TABLE>
- ------------------------
+ 1993 Portfolio Turnover reflects the period September 1, 1992 to July 11,
1993. After July 11, 1993, all the Fund's investable assets were invested in The
Tax Exempt Bond Portfolio.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The JPM Pierpont Tax Exempt Bond Fund (the "Fund") is a separate series of The
JPM Pierpont Funds, a Massachusetts business trust (the "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 Bond Fund, respectively.
The Fund invests all of its investable assets in The Tax Exempt Bond Portfolio
(the "Portfolio"), a diversified open-end management investment company having
the same investment 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 (66% at August 31, 1997). 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 and
unrealized gain and loss and adjusts its investment in the Portfolio each
day. All the net investment income and realized and unrealized gain and
loss of the Portfolio is allocated pro rata among the Fund and other
investors in the Portfolio at the time of such determination.
c)Substantially all the Fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholders of net
realized capital gains, if any, are declared and paid annually.
d)The Fund is treated as a separate entity for federal income tax purposes.
The Fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
e)Expenses incurred by the Trust with respect to any two or more funds in
the Trust are allocated in proportion to the net assets of each fund in
the Trust, except where allocations of direct expenses to each fund can
otherwise be made fairly. Expenses directly attributable to a fund are
charged to that fund.
14
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Trust, on behalf of the Fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the Fund. Under a Co-Administration Agreement between FDI
and the Trust on behalf of the Fund, FDI provides administrative services
necessary for the operations of the Fund, furnishes office space and
facilities required for conducting the business of the Fund and pays the
compensation of the Fund's officers affiliated with FDI. The Fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund is based on the ratio of the Fund's net
assets to the aggregate net assets of the Trust and certain other
investment companies subject to similar agreements with FDI. For the
fiscal year ended August 31, 1997, the fee for these services amounted to
$12,383.
b)The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the Fund. Under
the Services Agreement, the Fund has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the
Portfolio and the other portfolios in which the Trust and The JPM
Institutional Funds invest (the "Master Portfolios") and JPM Series Trust
in accordance with the following annual schedule: 0.09% on the first $7
billion of their aggregate average daily net assets and 0.04% of their
aggregate average daily net assets in excess of $7 billion less the
complex-wide fees payable to FDI. The portion of this charge payable by
the Fund is determined by the proportionate share that its net assets bear
to the net assets of the Trust, the Master Portfolios, other investors in
the Master Portfolios for which Morgan provides similar services, and JPM
Series Trust. For the fiscal year ended August 31, 1997, the fee for these
services amounted to $117,520.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services to Fund shareholders. The agreement provides for the
Fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.20% of the average daily net assets of
the Fund. For the fiscal year ended August 31, 1997, the fee for these
services amounted to $750,088.
Morgan, Charles Schwab & Co. ("Schwab") and the Trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
Fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the Services Agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the Trust and Morgan is terminated, the Fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
15
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
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
$13,245 for the fiscal year ended August 31, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Institutional Funds, the Master Portfolios
and JPM Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the Fund's allocated portion of these
total fees and expenses. Prior to April 1, 1997, the aggregate annual
Trustee Fee was $65,000. The Trust's Chairman and Chief Executive Officer
also serves as Chairman of Group and receives compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $2,700.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number of
full and fractional shares of beneficial interest of one or more series.
Transactions in shares of beneficial interest of the Fund were as follows:
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ---------------
<S> <C> <C>
Shares sold...................................... 14,821,524 11,886,968
Reinvestment of dividends and distributions...... 1,242,353 1,202,045
Shares redeemed.................................. (14,047,227) (11,275,482)
--------------- ---------------
Net Increase..................................... 2,016,650 1,813,531
--------------- ---------------
--------------- ---------------
</TABLE>
4. CREDIT AGREEMENT
The Trust, on behalf of the Fund, together with other affiliated investment
companies (the "Funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. Additionally, since all
of the investable assets of the Fund are in the Portfolio, the Portfolio is
party to certain covenants of the Agreement. The maximum borrowing under the
commitment Agreement is $150,000,000. The Agreement expires on May 27, 1998,
however, the Fund as party to the Agreement will have the ability to extend the
Agreement and continue its participation therein for an additional 364 days. The
purpose of the Agreement is to provide another alternative for settling large
fund shareholder redemptions. Under the Portfolio as well, the purpose of the
Agreement is to provide another alternative for settling large fund withdrawals.
Interest on any such borrowings outstanding will approximate market rates. The
Funds pay a commitment fee at an annual rate of 0.065% on the unused portion of
the committed amount which is allocated to the Funds in accordance with
procedures established by their respective Trustees or Directors. The Fund has
not borrowed pursuant to the Agreement as of August 31, 1997.
16
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
The JPM Pierpont Tax Exempt Bond Fund
In our opinion, the accompanying statement of assets and liabilities and the
related statements of operations and of changes in net assets and the financial
highlights present fairly, in all material respects, the financial position of
The JPM Pierpont Tax Exempt Bond Fund (one of the series constituting part of
The JPM Pierpont Funds, hereafter referred to as the "Fund") at August 31, 1997,
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 five 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.
PRICE WATERHOUSE LLP
New York, New York
October 23, 1997
17
<PAGE>
The Tax Exempt Bond Portfolio
Annual Report August 31, 1997
(The following pages should be read in conjunction
with The JPM Pierpont Tax Exempt Bond Fund
Annual Financial Statements)
18
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (95.2%)
ALABAMA (0.6%)
$ 1,000 Alabama Mental Health Finance Authority, Special RB Aaa/AAA 05/01/99(a) 7.375%
Tax Obligation, (Prerefunded, Series 1989, due
05/01/01), MBIA Insured........................
1,630 Childersburg Industrial Development Board, PCR, RB Aa2/AA 11/15/99(a) 7.400
(Kimberly Clark Corp. Project, Escrowed to
Maturity, due 11/15/99)........................
1,000 Daphne Special Care Facilities Financing RB NR/NR 08/15/01(a) 7.300
Authority, (Presbyterian Retirement,
Prerefunded, Series A, due 08/15/18)...........
TOTAL ALABAMA................................
ALASKA (1.9%)
2,000 Anchorage, (Prerefunded, Series 1991, due GO Aaa/AAA 07/01/01(a) 6.600
07/01/02), MBIA Insured........................
1,075 Anchorage, (Refunding, Series 1989, due GO Aaa/AAA 06/01/99(a) 7.100
06/01/03), AMBAC Insured.......................
1,000 Anchorage, (Series 1990A), AMBAC Insured......... GO Aaa/AAA 02/01/00 6.850
3,000 North Slope Borough, (Series 1992A), MBIA GO Aaa/AAA 06/30/00 5.550
Insured........................................
2,200 North Slope Borough, Zero Coupon, (Capital GO Aaa/AAA 06/30/01 0.000
Appreciation, Series 1996B), MBIA Insured......
2,500 North Slope Borough, Zero Coupon, (Capital GO Aaa/AAA 01/01/99 0.000
Appreciation, Series B), MBIA Insured..........
TOTAL ALASKA.................................
ARIZONA (0.7%)
1,000 Maricopa County School District #11, (Peoria GO Aaa/AAA 07/01/99(a) 7.000
Unified School Improvement, Prerefunded, Series
1990H, due 07/01/05), MBIA Insured.............
1,325 Maricopa County School District #3, (Tempe GO A1/AA 07/01/06(a) 6.000
Elementary, Projects of 1991, Prerefunded,
Series C, due 07/01/08)........................
1,750 Phoenix, (Refunding, Series C)................... GO Aa1/AA+ 07/01/02 6.375
TOTAL ARIZONA................................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
LONG-TERM INVE
ALABAMA (0.6%)
$ 1,000 $ 1,071,520
1,630 1,689,006
1,000 1,101,290
-------------
3,861,816
-------------
ALASKA (1.9%)
2,000 2,158,100
1,075 1,134,501
1,000 1,059,200
3,000 3,102,990
2,200 1,844,964
2,500 2,358,800
-------------
11,658,555
-------------
ARIZONA (0.7%)
1,000 1,094,900
1,325 1,448,318
1,750 1,901,427
-------------
4,444,645
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
CALIFORNIA (4.2%)
$ 2,520 California Department of Water Resources, RB Aa2/AA 12/01/12 7.000%
(Central Valley Project, Water Systems Service,
Refunding, Series J-1).........................
2,750 California Pollution Control Financing Authority RB NR/NR 07/01/07 6.700
(PCR, Laidlaw Environmental, Refunding, Series
A).............................................
6,000 California State................................. GO A1/A+ 02/01/08 6.500
1,000 California State, AMBAC/MBIA Insured............. GO Aaa/AAA 09/01/06 6.500
569 Kaweah Delta Hospital District, Tulare County, PP NR/A+ 06/01/14 4.350
(Series D).....................................
1,049 Kaweah Delta Hospital District, Tulare County, PP NR/A+ 06/01/14 5.250
(Series E).....................................
1,618 Kaweah Delta Hospital District, Tulare County, PP NR/A+ 06/01/14 6.400
(Series G).....................................
2,500 Los Angeles County Public Works, (Refunding, RB Aaa/AAA 09/01/06 6.000
Series A), MBIA Insured........................
2,000 Los Angeles Department of Water & Power, RB Aa3/A+ 05/15/00(a) 7.125
(California Electric Plant, Crossover Refunded,
due 05/15/30)..................................
3,000 Riverside County California School, Financing GO MIG1/NR 10/01/98 4.500
Authority (Revenue Anticipation Notes, Series
A).............................................
TOTAL CALIFORNIA.............................
COLORADO (0.2%)
1,295 Adams County School District #12, FGIC Insured... GO Aaa/AAA 12/15/06 6.000
CONNECTICUT (0.8%)
1,545 Connecticut Housing Finance Authority, (Housing RB Aa/AA 11/15/97 8.100
Mortgage Finance Program, Refunding, Series
1987B).........................................
2,815 Connecticut Transportation Infrastructure, RB NR/AA- 06/01/03(a) 6.600
Special Tax Obligation, (Prerefunded, Series
1991A, due 06/01/04)...........................
TOTAL CONNECTICUT............................
DELAWARE (0.5%)
2,650 Delaware Transportation Authority, RB Aaa/AAA 07/01/00 5.250
(Transportation System Revenue) AMBAC
Insured........................................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
CALIFORNIA (4.
$ 2,520 $ 3,041,111
2,750 2,800,792
6,000 6,844,380
1,000 1,141,970
569 570,013
1,049 1,049,049
1,618 1,783,310
2,500 2,744,100
2,000 2,167,160
3,000 3,018,570
-------------
25,160,455
-------------
COLORADO (0.2%
1,295 1,418,452
-------------
CONNECTICUT (0
1,545 1,553,436
2,815 3,105,564
-------------
4,659,000
-------------
DELAWARE (0.5%
2,650 2,721,444
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
DISTRICT OF COLUMBIA (4.4%)
$ 3,000 District of Columbia, (Refunding, Series A), MBIA GO Aaa/AAA 06/01/07 6.000%
Insured........................................
7,500 District of Columbia, (Refunding, Series C), FGIC GO Aaa/AAA 12/01/03 5.250
Insured........................................
2,600 District of Columbia, (Series B), MBIA Insured... GO Aaa/AAA 06/01/02 6.000
4,015 Metropolitan Airport, (Series B), FGIC Insured... RB Aaa/AAA 10/01/05 6.000
5,745 Metropolitan Airport, (Series B), FGIC Insured... RB Aaa/AAA 10/01/06 6.000
1,200 Metropolitan Airports Authority, (Series B), FGIC RB Aaa/AAA 10/01/00 5.250
Insured........................................
1,000 Metropolitan Airports, (Series B), FGIC RB Aaa/AAA 10/01/03 5.750
Insured........................................
TOTAL DISTRICT OF COLUMBIA...................
FLORIDA (3.5%)
5,765 Dade County School District, (Refunding), MBIA GO Aaa/AAA 07/15/05 6.000
Insured........................................
1,535 Florida Board of Education, Capital Outlay, GO Aaa/AA+ 06/01/00(a) 7.000
(Escrowed to Maturity, Series 1986C, due
06/01/01)......................................
465 Florida Board of Education, Capital Outlay, GO Aa2/AA+ 06/01/00(a) 7.000
(Unrefunded Balance, Series 1986C, due
06/01/01)......................................
6,765 Florida Division Board Financial Department, RB Aaa/AAA 07/01/99 5.500
(General Services Revenue, Department of
Environmental Preservation, Series 2000A),
AMBAC Insured..................................
3,200 Jacksonville Electric Authority, (St. Johns RB Aa1/AA 10/01/99(a) 7.000
River, Issue 2, Crossover Refunded, Series 5,
due 10/01/09)..................................
2,000 Volusia County School District, (Refunding, GO Aaa/AAA 08/01/01(a) 6.100
Series 1991, due 08/01/02), FGIC Insured.......
TOTAL FLORIDA................................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
DISTRICT OF CO
$ 3,000 $ 3,241,140
7,500 7,724,850
2,600 2,754,804
4,015 4,329,053
5,745 6,221,318
1,200 1,230,852
1,000 1,057,700
-------------
26,559,717
-------------
FLORIDA (3.5%)
5,765 6,281,025
1,535 1,597,382
465 473,110
6,765 6,940,349
3,200 3,413,280
2,000 2,150,760
-------------
20,855,906
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
GEORGIA (6.4%)
$ 2,630 Fulton County School District, (Refunding)....... GO Aa3/AA 05/01/14 6.375%
1,000 Georgia Municipal Electric Authority, (Refunding, RB A/A 01/01/12 6.500
Series A)......................................
1,000 Georgia Municipal Electric Authority, (Refunding, RB A3/A 01/01/06 6.000
Series D)......................................
1,155 Georgia Residential Finance Authority, (Single RB Aa/AA+ 12/01/97 6.600
Family Insured Mortgages, Refunding, Series
1986A, due 12/01/98), FHA Insured..............
6,000 Georgia, (Series B).............................. GO Aaa/AAA 03/01/07 7.200
3,000 Georgia, (Series B).............................. GO Aaa/AAA 03/01/10 6.300
4,470 Georgia, (Series C).............................. GO Aaa/AAA 07/01/11 5.700
2,500 Gwinnett County School District, (Refunding, GO Aa1/AA+ 02/01/08 6.400
Series B)......................................
5,000 Metropolitan Atlanta Rapid Transit Authority, RB Aaa/AAA 07/01/11 6.250
Sales Tax Revenue, (Refunding, Series P).......
3,000 Municipal Electric Authority, (General RB Aaa/AAA 01/01/03 5.250
Resolution, Series A) AMBAC Insured............
4,500 Municipal Electric Authority, (Project 1, Sixth RB Aaa/AAA 01/01/08 7.000
Crossover), AMBAC Insured......................
TOTAL GEORGIA................................
HAWAII (1.6%)
5,000 Hawaii State, (Refunding, Series CO), FGIC GO Aaa/AAA 03/01/02 6.000
Insured........................................
2,000 Hawaii, (Series BZ).............................. GO Aa3/A+ 10/01/12 6.000
2,000 Honolulu City & County Improvement, (Refunding, GO Aa/AA 10/01/11 5.500
Series B)......................................
TOTAL HAWAII.................................
ILLINOIS (9.7%)
2,000 Chicago Board of Education, (Chicago School GO Aaa/AAA 12/01/09 6.750
Reform), AMBAC Insured.........................
1,000 Chicago Board of Education, (Lease Certificates, RB Aaa/AAA 01/01/06 6.125
Series A), MBIA Insured........................
4,130 Chicago Board of Education, (Lease Certificates, RB Aaa/AAA 01/01/07 6.125
Series A), MBIA Insured........................
3,000 Chicago, (Refunding, Series A-2), AMBAC GO Aaa/AAA 01/01/11 6.000
Insured........................................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
GEORGIA (6.4%)
$ 2,630 $ 2,981,000
1,000 1,114,040
1,000 1,067,430
1,155 1,192,018
6,000 7,133,220
3,000 3,383,250
4,470 4,793,404
2,500 2,824,900
5,000 5,597,200
3,000 3,101,220
4,500 5,259,015
-------------
38,446,697
-------------
HAWAII (1.6%)
5,000 5,311,150
2,000 2,187,760
2,000 2,063,340
-------------
9,562,250
-------------
ILLINOIS (9.7%
2,000 2,323,620
1,000 1,090,100
4,130 4,521,400
3,000 3,264,810
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
ILLINOIS (CONTINUED)
$ 1,500 Chicago, O'Hare International Airport, RB Aaa/AAA 01/01/09 5.750%
(Refunding, Series C-1), MBIA Insured..........
3,280 Cook County, (Refunding, Series C), FGIC GO Aaa/AAA 11/15/04 5.800
Insured........................................
10,000 Cook County, Community School District #54, GO Aaa/AAA 01/01/03(a) 0.000
Schaumburg Township, Zero Coupon, (Capital
Appreciation, Prerefunded, Series B, due
01/01/11), FGIC Insured........................
1,375 Du Page County, (Illinois Alternative Revenue GO Aaa/AAA 01/01/02(a) 6.550
Jail Project, Prerefunded, due 01/01/21).......
3,000 Illinois, Sales Tax Revenue, (Refunding, Series RB Aa3/AAA 06/15/09 6.000
Q).............................................
4,175 Illinois, Sales Tax Revenue, (Refunding, Series RB Aa3/AAA 06/15/12 6.000
Q).............................................
3,350 Illinois, Sales Tax Revenue, (Series R).......... RB Aa3/AAA 06/15/01 4.600
950 Kendall Kane & Will Counties Community Unit GO Aaa/AAA 03/01/99 6.200
School District #308, FGIC Insured.............
2,500 Metropolitan Pier & Exposition Authority, RB A2/AA- 06/15/06 8.500
(McCormick Place Expansion Project, Series
A).............................................
9,585 Metropolitan Pier & Exposition Authority, Zero RB Aaa/AAA 06/15/13 0.000
Coupon (Illinois Dedicated State Tax Revenue,
Capital Appreciation, McCormick Place
Expansion, Series A)...........................
5,420 Metropolitan Pier & Exposition Authority, Zero RB Aaa/AAA 06/15/14 0.000
Coupon, (Capital Appreciation, McCormick Place
Expansion Project, Refunding), MBIA Insured....
11,000 Metropolitan Pier & Exposition Authority, Zero RB Aaa/AAA 12/15/11 0.000
Coupon, (Capital Appreciation, McCormick Place
Expansion Project, Refunding, Series A), MBIA
Insured........................................
9,705 Metropolitan Pier & Exposition Authority, Zero RB Aaa/AAA 06/15/12 0.000
Coupon, (Capital Appreciation, McCormick Place
Expansion Project, Refunding, Series A), MBIA
Insured........................................
<CAPTION>
ILLINOIS (CONT
$ 1,500 $ 1,607,100
3,280 3,510,682
10,000 4,689,600
1,375 1,510,988
3,000 3,264,630
4,175 4,507,414
3,350 3,374,154
950 979,080
2,500 3,132,425
9,585 4,068,353
5,420 2,161,279
11,000 5,135,790
9,705 4,380,352
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
ILLINOIS (CONTINUED)
$ 2,810 Regional Transportation Authority, (Series D), RB Aaa/AAA 06/01/07 7.750%
FGIC Insured...................................
1,000 University of Illinois, Auxiliary Facilities, RB Aaa/AAA 04/01/98(a) 6.000
(Escrowed to Maturity, due 10/01/01)...........
TOTAL ILLINOIS...............................
INDIANA (1.0%)
2,000 Indiana Municipal Power Agency, Power Supply RB Aaa/AAA 01/01/13 6.000
System Revenue, (Refunding, Series B), MBIA
Insured........................................
3,915 Indiana, Transportation Finance Authority, RB Aaa/AAA 06/01/09 5.250
Highway Revenue, (Refunding, Series A), AMBAC
Insured........................................
TOTAL INDIANA................................
KENTUCKY (0.6%)
3,350 Kentucky Turnpike Authority, (Escrowed to RB Aaa/AAA 07/01/98 (a) 7.100
Maturity, Series A, due 07/01/02)..............
LOUISIANA (1.0%)
6,000 Louisiana, (Refunding, Series A), FGIC Insured... GO Aaa/AAA 08/01/00 6.000
MARYLAND (1.0%)
1,560 Anne Arundel County.............................. GO Aa2/AA+ 09/01/06 6.000
1,000 Maryland Department of Transportation, RB Aaa/AAA 08/15/99 (a) 6.700
(Prerefunded, Series 1990, due 08/15/05).......
3,000 Maryland, (3rd Series, due 07/15/03)............. GO Aaa/AAA 07/15/01 (a) 6.400
TOTAL MARYLAND...............................
<CAPTION>
ILLINOIS (CONT
$ 2,810 $ 3,434,663
1,000 1,026,260
-------------
57,982,700
-------------
INDIANA (1.0%)
2,000 2,178,600
3,915 4,032,528
-------------
6,211,128
-------------
KENTUCKY (0.6%
3,350 3,619,206
-------------
LOUISIANA (1.0
6,000 6,287,160
-------------
MARYLAND (1.0%
1,560 1,712,318
1,000 1,067,940
3,000 3,224,250
-------------
6,004,508
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
MASSACHUSETTS (4.8%)
$ 5,650 Massachusetts Bay Transportation Authority, RB A1/A+ 03/01/08 7.000%
(General Transportation System, Refunding,
Series A)......................................
7,300 Massachusetts State (Refunding, Series A, due GO Aaa/AAA 08/01/10 5.750
08/01/10) AMBAC Insured........................
10,000 Massachusetts State Water Resource Authority RB A/A 07/15/08 6.500
(Series A, due 07/15/08).......................
1,495 Massachusetts, College Building Authority, RB A1/A+ 05/01/11 7.500
(Refunding, Series A)..........................
1,060 Wareham, School Project Loan Bonds, (due GO Aaa/AAA 01/15/01(a) 6.800
01/15/03), AMBAC Insured.......................
TOTAL MASSACHUSETTS..........................
MICHIGAN (0.5%)
2,905 Michigan State Hospital Finance Authority RB Aa3/AA- 08/15/04 5.750
Revenue, (Mercy Health Services, Refunding,
Series T)......................................
MINNESOTA (2.6%)
5,000 University of Minnesota, (Series A).............. RB Aa3/AA 07/01/10 5.750
5,000 University of Minnesota, (Series A).............. RB Aa3/AA 07/01/15 5.750
4,800 Western Minnesota Municipal Power Agency, RB Aaa/AAA 01/01/98(a) 10.125
(Prerefunded, Series 1983A, due 01/01/04), MBIA
Insured(c).....................................
TOTAL MINNESOTA..............................
MISSISSIPPI (2.4%)
6,000 Mississippi Home Corp Residual Revenue, Zero RB AAA/NR 09/01/13 0.000
Coupon, (Capital Appreciation, Refunded, Series
C).............................................
11,000 Mississippi, (Escrowed to Maturity).............. GO Aaa/AAA 02/01/08 6.200
TOTAL MISSISSIPPI............................
MISSOURI (0.7%)
4,000 St. Louis County Regional Convention & Sports RB Aaa/AAA 08/15/03(a) 7.000
Complex Authority, (Prerefunded, Series B, due
08/15/21)......................................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
MASSACHUSETTS
$ 5,650 $ 6,620,331
7,300 7,823,410
10,000 11,309,000
1,495 1,841,631
1,060 1,161,145
-------------
28,755,517
-------------
MICHIGAN (0.5%
2,905 3,064,862
-------------
MINNESOTA (2.6
5,000 5,346,900
5,000 5,269,000
4,800 5,137,008
-------------
15,752,908
-------------
MISSISSIPPI (2
6,000 2,557,200
11,000 12,176,560
-------------
14,733,760
-------------
MISSOURI (0.7%
4,000 4,513,240
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
NEBRASKA (0.7%)
$ 4,000 Nebraska Public Power District, (Nuclear RB A1/A+ 07/01/00 5.200%
Facilities, Refunding).........................
NEVADA (5.2%)
500 Carson City School District, (Prerefunded, Series GO Aaa/AAA 04/01/00(a) 6.750
1990, due 04/01/03), FGIC Insured..............
8,200 Clark County School District, (Series A), MBIA GO Aaa/AAA 06/01/11 7.000
Insured........................................
3,000 Clark County School District, FGIC Insured....... GO Aaa/AAA 06/15/03 6.000
3,000 Clark County, (Passenger Facilities, Las Vegas RB Aaa/AAA 07/01/08 6.250
McCarran International Airport, Series A),
AMBAC Insured..................................
1,685 Las Vegas, Clark County Library District, GO Aaa/AAA 06/01/01(a) 6.600
(Prerefunded, Series 1991A, due 06/01/03), FGIC
Insured........................................
1,200 Las Vegas, Clark County Library District, GO Aaa/AAA 06/01/01(a) 6.700
(Prerefunded, Series 1991A, due 06/01/04), FGIC
Insured........................................
1,280 Las Vegas, Clark County Library District, GO Aaa/AAA 08/01/01(a) 6.700
(Refunding, Series 1991B, due 08/01/04), FGIC
Insured........................................
6,015 Nevada State, (Refunding)........................ GO Aa2/AA 05/15/10 6.000
1,985 Nevada State, (Refunding, Series A-2)............ GO Aa2/AA 05/15/10 6.000
1,330 Nevada, (Prison Facilities, Prerefunded, Series GO NR/AA 08/01/00(a) 7.000
1990A, due 08/01/04)...........................
TOTAL NEVADA.................................
NEW HAMPSHIRE (1.2%)
4,900 New Hampshire Higher Educational & Health RB Aaa/NR 06/01/07 6.750
Facilities Authority, (Dartmouth College,
Refunding).....................................
1,720 New Hampshire, (Prerefunded, Series 1991A, due GO A3/AA 06/15/01(a) 6.600
06/15/03)......................................
TOTAL NEW HAMPSHIRE..........................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
NEBRASKA (0.7%
$ 4,000 $ 4,098,240
-------------
NEVADA (5.2%)
500 539,565
8,200 9,770,956
3,000 3,212,850
3,000 3,347,910
1,685 1,828,646
1,200 1,306,404
1,280 1,391,872
6,015 6,575,297
1,985 2,169,903
1,330 1,451,828
-------------
31,595,231
-------------
NEW HAMPSHIRE
4,900 5,628,679
1,720 1,882,471
-------------
7,511,150
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
NEW JERSEY (6.7%)
$ 4,180 Jersey City, (Refunding, Series H)............... GO A/AA 10/01/11 6.250%
7,000 New Jersey Economic Development Authority, RB Aaa/AAA 07/01/02 5.400
(Market Transition Facilities, Series A), MBIA
Insured........................................
1,325 New Jersey Economic Development Authority, (New RB Aaa/AAA 06/15/07 6.000
Jersey Performing Arts Center, Series PJ-A),
AMBAC Insured..................................
1,500 New Jersey Sports & Exposition Authority, (Sports RB Aa1/NR 01/01/00 8.100
Complex, Refunding, Escrowed to Maturity)......
6,000 New Jersey Transportation Authority, (Refunding, RB Aaa/AAA 06/15/05 6.000
Series B), MBIA Insured........................
7,500 New Jersey Transportation Authority, (Refunding, RB Aaa/AAA 06/15/10 6.500
Series B), MBIA Insured........................
2,500 New Jersey Turnpike Authority, (Refunding, Series RB Aaa/AAA 01/01/00 6.200
A), MBIA Insured...............................
1,000 New Jersey Turnpike Authority, (Refunding, Series RB Aaa/AAA 01/01/01 5.700
A), MBIA Insured...............................
5,275 Ocean County Utilities Authority, (Wastewater RB Aa2/NR 01/01/99 5.000
Revenue, Refunding)............................
1,000 Ocean County, (General Improvement).............. GO Aa2/NR 04/15/00 6.375
TOTAL NEW JERSEY.............................
NEW YORK (7.1%)
1,990 Monroe County, Public Improvement, (Partially GO Aaa/AAA 06/01/08(a) 6.000
Prerefunded, due 06/01/09), AMBAC Insured......
1,295 Monroe County, Public Improvement, (Partially GO Aaa/AAA 06/01/08(a) 6.000
Prerefunded, due 06/01/10), AMBAC Insured......
110 Monroe County, Public Improvement, (Prerefunded, GO Aaa/AAA 06/01/08(a) 6.000
due 06/01/09), AMBAC Insured...................
120 Monroe County, Public Improvement, (Prerefunded, GO Aaa/AAA 06/01/08(a) 6.000
due 06/01/10), AMBAC Insured...................
2,000 Municipal Assistance Corp. for the City of New RB Aa2/AA- 07/01/06 6.000
York, (Series E)...............................
1,465 New York City, (Escrowed to Maturity, Series GO NR/NR 06/01/01 8.000
B).............................................
1,195 New York City, (Escrowed to Maturity, Series GO Aaa/BBB+ 02/15/02 6.100
F).............................................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
NEW JERSEY (6.
$ 4,180 $ 4,690,085
7,000 7,267,680
1,325 1,449,060
1,500 1,628,790
6,000 6,511,800
7,500 8,583,825
2,500 2,608,975
1,000 1,042,730
5,275 5,342,151
1,000 1,054,030
-------------
40,179,126
-------------
NEW YORK (7.1%
1,990 2,179,468
1,295 1,410,760
110 121,640
120 132,698
2,000 2,180,100
1,465 1,648,828
1,195 1,275,949
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
NEW YORK (CONTINUED)
$ 2,645 New York City, (Refunding, Series A)............. GO Baa1/BBB+ 08/01/02 5.750%
4,675 New York City, (Refunding, Series H, Subseries GO Baa1/BBB+ 08/01/01 5.500
H-1)...........................................
1,000 New York City, (Series E), FGIC Insured.......... GO Aaa/AAA 02/15/06 6.500
3,425 New York City, (Series F)........................ GO Baa1/BBB+ 02/15/03 6.200
2,000 New York City, (Series G), AMBAC Insured......... GO Aaa/AAA 10/15/07 6.000
2,000 New York State Local Government Assistance Corp, RB Aaa/AAA 04/01/06 6.000
(Refunding, Series A), AMBAC Insured...........
1,500 New York State Urban Development Corp., RB Aaa/NR 01/01/00(a) 7.750
(Correctional Capital Facilities, Prerefunded,
Series 1, due 01/01/14)........................
805 New York, (Partially Escrowed to Maturity, Series GO Baa1/BBB+ 02/15/02 6.100
F).............................................
4,000 Triborough Bridge & Tunnel Authority, (Refunding, RB Aaa/AAA 01/01/01(a) 6.875
Series V, due 01/01/05), FGIC Insured..........
8,700 Triborough Bridge & Tunnel Authority, (Refunding, RB Aa/A+ 01/01/12 6.625
Series X)......................................
TOTAL NEW YORK...............................
OHIO (1.0%)
2,000 Ohio State Building Authority, (Admin Building RB Aa3/AA- 10/01/06 5.500
Fund, Series A)................................
3,365 Ohio Water Development Authority, (Refunding, RB Aaa/AAA 06/01/98(a) 9.375
Escrowed to Maturity, due 12/01/10)............
TOTAL OHIO...................................
PENNSYLVANIA (1.6%)
1,175 Bethel Park School District, (Prerefunded, Series GO Aaa/AAA 02/01/00 (a) 6.550
1991B, due 02/01/02), AMBAC Insured............
970 Pennsylvania Higher Education Assistance Agency, RB Aaa/AAA 12/01/00 6.800
Student Loan Revenue, (Refunding, Series
1985A), FGIC Insured...........................
1,310 Pennsylvania Higher Education Facilities RB Aa2/AA 09/01/02 6.500
Authority, College & University Revenue,
University of Pennsylvania, (Refunding, Series
A).............................................
<CAPTION>
NEW YORK (CONT
$ 2,645 $ 2,764,501
4,675 4,822,543
1,000 1,114,840
3,425 3,651,187
2,000 2,177,200
2,000 2,180,440
1,500 1,646,310
805 849,533
4,000 4,361,400
8,700 10,056,330
-------------
42,573,727
-------------
OHIO (1.0%)
2,000 2,109,580
3,365 4,214,898
-------------
6,324,478
-------------
PENNSYLVANIA (
1,175 1,237,827
970 1,036,775
1,310 1,429,931
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
PENNSYLVANIA (CONTINUED)
$ 2,800 Pennsylvania Higher Educational Facilities RB Aa/AA 01/01/06 6.000%
Authority, Health Services Revenue, University
of Pennsylvania, (Series A)....................
1,500 Pennsylvania, (2nd Series 1991A, due 11/01/04), GO Aaa/AAA 11/01/01(a) 6.500
MBIA Insured...................................
1,000 Pennsylvania, (Refunding and Projects, 1st Series GO Aaa/AAA 01/01/01 6.600
A), AMBAC Insured..............................
TOTAL PENNSYLVANIA...........................
RHODE ISLAND (1.8%)
5,000 Rhode Island Public Buildings Authority, RB Aaa/AAA 02/01/00 4.700
(Refunding, Series A), AMBAC Insured...........
2,000 Rhode Island, (Prerefunded, Series 1990B, due GO A1/AA- 10/15/99(a) 6.700
10/15/01)......................................
3,785 Rhode Island, (Series 1991B)..................... GO A1/AA- 05/15/00 6.000
TOTAL RHODE ISLAND...........................
SOUTH CAROLINA (0.2%)
1,000 Piedmont Municipal Power Agency, (Escrowed to RB Aaa/AAA 01/01/08 6.200
Maturity, Refunding), MBIA Insured.............
TENNESSEE (0.3%)
2,000 Chattanooga, Industrial Development Board, IDR, RB A2/NR 11/01/97 (a) 4.000
(Gerber/Buster Brown Manufacturing, Inc., due
11/01/05)......................................
TEXAS (6.0%)
1,500 Addison, (Refunding, Series 1991, due 09/01/00), GO Aaa/AAA 09/01/98 (a) 6.250
FGIC Insured...................................
1,000 Arlington, (Series 1989, due 08/01/00), AMBAC GO Aaa/AAA 08/01/99 (a) 6.850
Insured........................................
1,050 Austin Independent School District, (Refunding, GO Aaa/AAA 08/01/99 6.200
Series 1991), PSFG Insured.....................
1,500 Austin, Utilities System, (Escrowed to Maturity, RB Aaa/AAA 04/01/98 (a) 6.500
due 10/01/01)..................................
205 Austin, Water Sewer & Electric Revenue, (Escrowed RB A/NR 11/15/97 13.500
to Maturity, Refunding)........................
25 Conroe Independent School District, (Partially GO Aaa/AAA 02/01/99 (a) 7.100
Prerefunded, Series 1989, due 02/01/01), MBIA
Insured........................................
<CAPTION>
PENNSYLVANIA (
$ 2,800 $ 3,028,452
1,500 1,641,135
1,000 1,071,080
-------------
9,445,200
-------------
RHODE ISLAND (
5,000 5,039,650
2,000 2,141,060
3,785 3,940,828
-------------
11,121,538
-------------
SOUTH CAROLINA
1,000 1,110,390
-------------
TENNESSEE (0.3
2,000 2,003,020
-------------
TEXAS (6.0%)
1,500 1,528,485
1,000 1,048,030
1,050 1,091,559
1,500 1,620,120
205 209,077
25 25,962
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
TEXAS (CONTINUED)
$ 975 Conroe Independent School District, (Prerefunded, GO Aaa/AAA 02/01/99(a) 7.100%
Series 1989, due 02/01/01), MBIA Insured.......
2,260 Corpus Christi Independent School District, GO Aaa/AAA 08/15/05 6.000
(Refunding), PSFG Insured......................
1,305 Dallas County, Flood Control District #1, GO Aaa/NR 04/01/08(a) 9.250
(Prerefunded, due 04/01/10)....................
1,650 El Paso Independent School District, GO Aaa/NR 07/01/01(a) 6.550
(Prerefunded, Series 1991, due 07/01/03), PSFG
Insured........................................
1,700 Harris County, Road Improvement Authority, GO Aaa/AAA 11/01/99(a) 7.000
(Prerefunded, Series 1989, due 11/01/03), MBIA
Insured........................................
3,805 Lewisville Independent School District, GO Aaa/AAA 08/15/03 6.000
(Refunding), PSFG Insured......................
2,325 Northwest Independent School District, Zero GO Aaa/NR 08/15/03 0.000
Coupon, (Capital Appreciation, Refunding), PSFG
Insured........................................
2,320 Northwest Independent School District, Zero GO Aaa/NR 08/15/04 0.000
Coupon, (Capital Appreciation, Refunding), PSFG
Insured........................................
2,000 Plano Independent School District, (Prerefunded, GO Aaa/AAA 02/15/01(a) 6.550
Series 1991B, due 02/15/04), FGIC Insured......
1,500 San Antonio, (Refunding), WI..................... GO Aa/AA 08/01/07 6.000
700 Texas A & M University, (Refunding, Series 1989, RB Aaa/AAA 11/24/97(a) 6.500
due 07/01/98)..................................
2,000 Texas, Public Finance Authority, (Prerefunded, GO NR/AA 10/01/00(a) 6.300
Series 1988A, due 10/01/02)....................
1,000 Texas, Public Finance Authority, (Prerefunded, GO NR/AA 10/01/00(a) 6.500
Series 1991A, due 10/01/05)....................
4,000 Texas, Public Finance Authority,(Series B, GO Aa2/AA 10/01/03 6.000
Refunding).....................................
2,500 University of Texas, Permanent University Fund, RB Aaa/AAA 07/01/01 6.300
(Refunding, Series 1991).......................
TOTAL TEXAS..................................
<CAPTION>
TEXAS (CONTINU
$ 975 $ 1,016,428
2,260 2,454,767
1,305 1,766,944
1,650 1,777,545
1,700 1,801,694
3,805 4,096,311
2,325 1,753,376
2,320 1,657,431
2,000 2,143,380
1,500 1,608,255
700 714,483
2,000 2,116,820
1,000 1,064,140
4,000 4,320,680
2,500 2,675,950
-------------
36,491,437
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
UTAH (3.1%)
$ 1,625 Intermountain Power Agency, (Refunding, Series RB Aaa/AAA 07/01/09 6.500%
B), MBIA Insured...............................
5,130 Intermountain Power Agency, (Refunding, Series RB Aaa/AAA 07/01/00 6.000
C), MBIA Insured...............................
4,155 Intermountain Power Agency, (Refunding, Series RB Aaa/AAA 07/01/01 6.000
C), MBIA Insured...............................
6,645 Intermountain Power Agency, (Refunding, Series RB Aaa/AAA 07/01/02 6.000
C), MBIA Insured...............................
TOTAL UTAH...................................
VIRGINIA (1.2%)
5,000 Virginia Public School Authority, (Refunding, RB Aa/AA 01/01/02 6.000
Series 1991)...................................
2,000 Virginia Public School Authority, (Series A, due RB Aa/AA 08/01/01(a) 6.500
08/01/04)......................................
TOTAL VIRGINIA...............................
WASHINGTON (6.5%)
1,555 King & Snohomish Counties, School District #417, GO Aaa/AAA 12/01/00(a) 6.600
(due 12/01/02), FGIC Insured...................
6,355 King County, (Refunding, Series B)............... GO Aa1/AA+ 01/01/01 6.700
1,000 Pierce County School District #320, Sumner GO Aaa/AAA 12/01/01(a) 6.600
Washington, (Series 1991, due 12/01/02), MBIA
Insured........................................
2,955 Seattle, Municipal Sewer Revenue, (Prerefunded, RB Aaa/AA- 01/01/00(a) 6.875
Series T, due 01/01/31)........................
1,250 Snohomish County School District #2, (Refunding, GO Aaa/AAA 06/01/01(a) 6.700
Series A, due 12/01/02), MBIA Insured..........
1,000 Snohomish County Washington School District #15 GO NR/AAA 12/01/99(a) 7.150
(Prerefunded, due 12/01/06)....................
4,815 Washington Public Power Supply System, (Nuclear RB Aaa/AAA 07/01/06 6.000
Project #1, Refunding, Series A), MBIA
Insured........................................
4,000 Washington Public Power Supply System, (Nuclear RB Aa1/AA- 07/01/03 5.750
Project #1, Refunding, Series B)...............
2,000 Washington Public Power Supply System, (Nuclear RB Aa1/AA- 07/01/06 7.250
Project #2, Refunding, Series 1990A)...........
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
UTAH (3.1%)
$ 1,625 $ 1,854,759
5,130 5,365,980
4,155 4,391,710
6,645 7,082,573
-------------
18,695,022
-------------
VIRGINIA (1.2%
5,000 5,312,500
2,000 2,176,620
-------------
7,489,120
-------------
WASHINGTON (6.
1,555 1,656,604
6,355 6,826,223
1,000 1,082,030
2,955 3,182,742
1,250 1,345,725
1,000 1,065,210
4,815 5,194,470
4,000 4,191,200
2,000 2,309,640
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
WASHINGTON (CONTINUED)
$ 5,265 Washington Public Power Supply System, (Nuclear RB Aa1/AA- 07/01/01 6.300%
Project #2, Refunding, Series 1990A)...........
2,000 Washington Public Power Supply System, (Nuclear RB Aaa/AAA 01/01/01(a) 7.000
Project #2, Refunding, Series 1990C, due
07/01/01), FGIC Insured........................
1,500 Washington Public Power Supply System, (Nuclear RB Aa1/AA- 01/01/01(a) 7.500
Project #2, Refunding, Series 1990C, due
07/01/02)......................................
1,000 Washington, (Prerefunded, Series 1990B, due GO Aa1/AA+ 08/01/00(a) 6.750
08/01/02)......................................
1,750 Washington, (Refunding, Series R-92-A, due GO Aa1/AA+ 09/01/01(a) 6.300
09/01/02)......................................
TOTAL WASHINGTON.............................
WEST VIRGINIA (0.2%)
1,000 Berkeley County Board of Education, (Escrowed to GO Aaa/AAA 04/01/01 7.300
Maturity, Series 1988), MBIA Insured...........
WISCONSIN (2.3%)
4,160 Milwaukee County Wisconsin, Zero Coupon (Capital GO Aaa/AAA 12/01/10 0.000
Appreciation, Refunding, Series A) FGIC
Insured........................................
1,500 Racine Unified School District, (due 04/01/01), GO Aaa/AAA 04/01/99 (a) 6.500
AMBAC Insured..................................
5,000 Wisconsin, (Series A)............................ GO Aa/AA 05/01/99 5.750
5,000 Wisconsin, Transportation Revenue, (Refunding, RB A1/AA- 07/01/06 4.600
Series A)......................................
TOTAL WISCONSIN..............................
<CAPTION>
WASHINGTON (CO
$ 5,265 $ 5,578,215
2,000 2,175,060
1,500 1,653,210
1,000 1,067,690
1,750 1,882,913
-------------
39,210,932
-------------
WEST VIRGINIA
1,000 1,098,490
-------------
WISCONSIN (2.3
4,160 2,068,768
1,500 1,548,450
5,000 5,135,800
5,000 4,916,350
-------------
13,669,368
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
WYOMING (1.0%)
$ 3,600 Platte County, PCR, (Basin Electric Power RB A2/A 01/01/06 4.950%
Cooperative, Refunding)........................
2,115 Platte County, PCR, (Basin Electric Power RB A2/A 01/01/07 5.050
Cooperative, Refunding)........................
TOTAL WYOMING................................
TOTAL LONG TERM INVESTMENTS (COST $551,654,799)................................................
SHORT-TERM INVESTMENTS (3.9%)
CALIFORNIA (1.2%)
7,000 Los Angeles County California (Tax & Revenue GO MIG1/Sp1+ 06/30/98 4.500
Anticipation Notes, Series A)..................
200 Los Angeles Regional Airports Improvement Corp., VRDN NR/A-1+ 09/02/97(b) 3.750
(Los Angeles International Airport, Series
1985, due 12/01/25), LOC Societe Generale......
FLORIDA (0.6%)
3,900 St. Lucie County (Power & Light Company Project, VRDN VMIG1/A-1+ 09/02/97(b) 3.650
PCR, Refunding, due 03/01/27)..................
GEORGIA (0.2%)
300 Burke County,(Development Authority, PCR, Georgia VRDN VMIG1/A-1 09/02/97(b) 3.750
Power Co., Series 1994, Vogtle Project-4th.
Series, due 07/01/24)..........................
700 Monroe County Development Authority, (PCR, VRDN VMIG1/A-1 09/02/97(b) 3.750
Georgia Power Co., Scherer Project-2nd. Series,
due 07/01/25)..................................
TENNESSEE (1.0%)
6,100 Tennessee State (Adjustable Bond, Anticipation VRDN VMIG1/A-1+ 09/03/97(b) 3.250
Notes, Series A, due 07/02/01).................
WASHINGTON (0.4%)
2,200 Washington State Health Care Facilities Authority VRDN VMIG1/A-1+ 09/02/97(b) 3.750
(VA Mason Medical Center, Refunding, Series B,
due 02/15/27)..................................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
WYOMING (1.0%)
$ 3,600 $ 3,609,504
2,115 2,128,938
-------------
5,738,442
-------------
574,628,837
-------------
SHORT-TERM INV
CALIFORNIA (1.
7,000 7,038,150
200 200,000
-------------
7,238,150
-------------
FLORIDA (0.6%)
3,900 3,900,000
-------------
GEORGIA (0.2%)
300 300,000
700 700,000
-------------
1,000,000
-------------
TENNESSEE (1.0
6,100 6,100,000
-------------
WASHINGTON (0.
2,200 2,200,000
-------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (CONTINUED)
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY SECURITY S&P MATURITY
(IN THOUSANDS) DESCRIPTION TYPE (UNAUDITED) DATE RATE
- -------------- ------------------------------------------------- -------- ------------ ------------ -------
<C> <S> <C> <C> <C> <C>
WEST VIRGINIA (0.5%)
$ 3,400 Marshall County West Virginia (Bayer Corporation VRDN P-1/A-1+ 09/02/97(b) 3.700%
Project, Refunding, due 03/01/09)..............
TOTAL SHORT-TERM INVESTMENTS (COST $23,834,665)....................................................
TOTAL INVESTMENTS (COST $575,489,464) (99.1%)......................................................
OTHER ASSETS IN EXCESS OF LIABILITIES (0.9%).......................................................
NET ASSETS (100.0%)................................................................................
<CAPTION>
PRINCIPAL
AMOUNT
(IN THOUSANDS) VALUE
- -------------- -------------
<C> <C>
WEST VIRGINIA
$ 3,400 $ 3,400,000
-------------
23,838,150
-------------
598,466,987
-------------
5,130,927
-------------
$ 603,597,914
-------------
-------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $575,489,464 for federal income tax
purposes at August 31, 1997, the aggregate gross unrealized appreciation and
depreciation was $23,588,777 and $611,254, respectively, resulting in net
unrealized appreciation of investments of $22,977,523.
(a) The date listed under the heading maturity date represents an optional
tender date. The actual maturity date is indicated in the security description.
(b) 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.
(c) $4,800,000 par is segregated as collateral for when-issued security.
AMBAC -- Ambac Indemnity Corp., FHA -- Federal Housing Authority, FGIC --
Financial Guaranty Insurance Company, GO -- General Obligation, IDR --
Industrial Development Revenue, MBIA -- Municipal Bond Investors Assurance
Corp., PCR -- Pollution Control Revenue, PP -- Private Placement, RB -- Revenue
Bond, VRDN -- Variable Rate Demand Note, WI -- When Issued.
Crossover Refunded -- Bonds for which the issuer of the bond invests the
proceeds from a subsequent bond issue in cash and/or securities which have been
deposited.
Escrowed to Maturity -- Bonds for which cash and/or securities have been
deposited with a third party to cover the payments of principal and interest at
the maturity concides with the first call date of the first bond.
Prerefunded -- Bonds for which the issuer of the bond invests the proceeds from
a subsequent bond issuance in treasury securities, whose maturity coincides with
the first call date of the first bond.
Refunding -- Bonds for which the issuer has issued new bonds and cancelled the
old issue.
When-issued -- A conditional transaction in a security authorized for issuance
but not yet actually issued.
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $575,489,464 ) $598,466,987
Cash 47,700
Interest Receivable 6,896,005
Prepaid Trustees' Fees 1,289
Prepaid Expenses and Other Assets 124
------------
Total Assets 605,412,105
------------
LIABILITIES
Payable for Investments Purchased 1,564,635
Advisory Fee Payable 152,974
Custody Fee Payable 28,405
Administrative Services Fee Payable 15,471
Fund Services Fee Payable 1,640
Administration Fee Payable 1,422
Accrued Expenses 49,644
------------
Total Liabilities 1,814,191
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $603,597,914
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
35
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $28,680,999
EXPENSES
Advisory Fee $1,620,498
Administrative Services Fee 169,209
Custodian Fees and Expenses 158,218
Professional Fees and Expenses 38,714
Fund Services Fee 18,912
Administration Fee 10,663
Trustees' Fees and Expenses 7,384
Insurance Expense 3,838
Miscellaneous 9,818
----------
Total Expenses 2,037,254
-----------
NET INVESTMENT INCOME 26,643,745
NET REALIZED GAIN ON INVESTMENTS 829,545
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 9,668,350
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $37,141,640
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
36
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FISCAL FOR THE FISCAL
YEAR ENDED YEAR ENDED
AUGUST 31, 1997 AUGUST 31, 1996
--------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 26,643,745 $ 22,197,847
Net Realized Gain on Investments 829,545 605,789
Net Change in Unrealized Appreciation
(Depreciation) of Investments 9,668,350 (4,888,459)
--------------- ---------------
Net Increase in Net Assets Resulting from
Operations 37,141,640 17,915,177
--------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 284,352,430 224,578,237
Withdrawals (209,280,115) (163,747,318)
--------------- ---------------
Net Increase from Investors' Transactions 75,072,315 60,830,919
--------------- ---------------
Total Increase in Net Assets 112,213,955 78,746,096
NET ASSETS
Beginning of Fiscal Year 491,383,959 412,637,863
--------------- ---------------
End of Fiscal Year $ 603,597,914 $ 491,383,959
--------------- ---------------
--------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 12, 1993
FOR THE FISCAL YEAR ENDED (COMMENCEMENT OF
------------------------- OPERATIONS) TO
1997 1996 1995 1994 AUGUST 31, 1993
---- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.38% 0.38% 0.42% 0.41% 0.40%(a)
Net Investment Income 4.93% 4.92% 5.15% 4.68% 4.58%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- -- -- 0.01%(a)
Portfolio Turnover 25% 25% 47% 33% 43%(b)+
</TABLE>
- ------------------------
(a) Annualized.
(b) Not Annualized.
+ Portfolio's turnover is for the twelve month period ended August 31, 1993,
and includes the portfolio activity of the Portfolio's predecessor entity, The
JPM Pierpont Tax Exempt Bond Fund, for the period September 1, 1992 through July
11, 1993.
The Accompanying Notes are an Integral Part of the Financial Statements.
37
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
AUGUST 31,1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Tax Exempt Bond Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended, as a diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York on January 29, 1993. The Portfolio commenced operations on
July 12, 1993 and received a contribution of certain assets and liabilities,
including securities, with a value of $466,873,082 on that date from The
Pierpont Tax Exempt Bond Fund in exchange for a beneficial interest in the
Portfolio. The Portfolio's investment objective is to provide a high level of
current income exempt from federal income tax consistent with moderate risk of
capital and maintenance of liquidity. The Declaration of Trust permits the
Trustees to issue an unlimited number of beneficial interests in the Portfolio.
The preparation of financial statements in accordance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts and disclosures. Actual amounts could differ from
those estimates. The following is a summary of the significant accounting
policies of the Portfolio:
a)Portfolio securities with a maturity of 60 days or more, including
securities that are listed on an exchange or traded over the counter, are
valued using prices supplied daily by an independent pricing service or
services that (i) are based on the last sale price on a national
securities exchange, or in the absence of recorded sales, at the readily
available bid price on such exchange or at the quoted bid price in the
over-the-counter market, if such exchange or market constitutes the
broadest and most representative market for the security and (ii) in other
cases, take into account various factors affecting market value, including
yields and prices of comparable securities, indication as to value from
dealers and general market conditions. If such prices are not supplied by
the Portfolio's independent pricing services, such securities are priced
in accordance with procedures adopted by the Trustees. All portfolio
securities with a remaining maturity of less than 60 days are valued by
the amortized cost method. Because of the large number of municipal bond
issues outstanding and the varying maturity dates, coupons and risk
factors applicable to each issuer's books, no readily available market
quotations exist for most municipal securities.
b)Securities transactions are recorded on a trade date basis. Interest
income, which includes the amortization of premiums and discounts, if any,
is recorded on an accrual basis. For financial and tax reporting purposes,
realized gains and losses are determined on the basis of specific lot
identification.
c)The Portfolio intends to be treated as a partnership for federal income
tax purposes. As such, each investor in the Portfolio will be taxed on its
share of the Portfolio's ordinary income and capital gains. It is intended
that the Portfolio's assets will be managed in such a way that an investor
in the Portfolio will be able to satisfy the requirements of Subchapter M
of the Internal Revenue Code. 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 agreement,
the Portfolio pays Morgan at an annual rate of 0.30% of the Portfolio's
average daily net assets. For the fiscal year ended August 31, 1997, such
fees amounted to $1,620,498.
b)The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as the co-administrator and exclusive placement
agent. Under a Co-Administration Agreement between FDI and the Portfolio,
FDI provides administrative services necessary for the operations of the
Portfolio, furnishes office space and facilities required for conducting
the business of the Portfolio and pays the compensation of the officers
affiliated with FDI. The Portfolio has agreed to pay FDI fees equal to its
38
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31,1997
- --------------------------------------------------------------------------------
allocable share of an annual complex-wide charge of $425,000 plus FDI's
out-of-pocket expenses. The amount allocable to the Portfolio is based on
the ratio of the Portfolio's net assets to the aggregate net assets of The
JPM Pierpont Funds, The JPM Institutional Funds, The JPM Advisor Funds,
the Portfolio and the other portfolios in which The JPM Pierpont Funds and
The JPM Institutional Funds invest (the "Master Portfolios"), JPM Series
Trust, JPM Series Trust II and certain other investment companies subject
to similar agreement with FDI. For the fiscal year ended August 31, 1997,
the fee for these services amounted to $10,663.
On November 15, 1996, The JPM Advisor Funds terminated operations and were
liquidated. Subsequent to that date, the net assets of The JPM Advisor
Funds are no longer included in the calculation of the allocation of FDI's
fees.
c)The Portfolio has 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 has agreed to pay Morgan a fee
equal to its allocable share of an annual complex-wide charge. This charge
is calculated based on the aggregate average daily net assets of the
Master Portfolios and JPM Series Trust in accordance with the following
annual schedule: 0.09% on the first $7 billion of their aggregate average
daily net assets and 0.04% of their aggregate average daily net assets in
excess of $7 billion less the complex-wide fees payable to FDI. The
portion of this charge payable by the Portfolio is determined by the
proportionate share that its net assets bear to the net assets of the
Master Portfolios, other investors in the Master Portfolios for which
Morgan provides similar services, and JPM Series Trust. For the fiscal
year ended August 31, 1997, the fee for these services amounted to
$169,209.
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 $18,912 for the fiscal year ended August 31, 1997.
e)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustees' Fees and Expenses
shown in the financial statements represents the Portfolio's allocated
portion of the total fees and expenses. Prior to April 1, 1997, the
aggregate annual Trustee Fee was $65,000. The Portfolio's Chairman and
Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $3,800.
3. INVESTMENT TRANSACTIONS
Investments transactions (excluding short-term investments) for the fiscal year
ended August 31, 1997 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
<S> <C> <C>
$227,671,356 $135,110,171
</TABLE>
4. CREDIT AGREEMENT
The Portfolio is party to a revolving line of credit agreement (the "Agreement")
as discussed more fully in Note 4 of the Fund's Notes to the Financial
Statements which are included elsewhere in this report.
39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Investors of
The Tax Exempt Bond Portfolio
In our opinion, the accompanying statement of assets and liabilities, including
the schedule of investments, and the related statements of operations and of
changes in net assets and the supplementary data present fairly, in all material
respects, the financial position of The Tax Exempt Bond Portfolio (the
"Portfolio") at August 31, 1997, 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 supplementary data for each of the four 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, 1997 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 23, 1997
40
<PAGE>
JPM PIERPONT PRIME MONEY MARKET FUND
JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
JPM PIERPONT FEDERAL MONEY MARKET FUND
JPM PIERPONT SHORT TERM BOND FUND
JPM PIERPONT BOND FUND
JPM PIERPONT TAX EXEMPT BOND FUND
JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
JPMPIERPONT SHARES:CALIFORNIA BOND FUND
JPMPIERPONT EMERGING MARKETS DEBT FUND
JPM PIERPONT DIVERSIFIED FUND
JPM PIERPONT U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE DISCIPLINED EQUITY FUND
JPM PIERPONT U.S. SMALL COMPANY FUND
JPMPIERPONT U.S. SMALL COMPANY OPPORTUNITIES FUND
JPM PIERPONT INTERNATIONAL EQUITY FUND
JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
JPM PIERPONT 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 YOUR FUTURE, CALL
J.P. MORGAN FUNDS SERVICES AT (800)521-5411.
THE
JPM PIERPONT
TAX EXEMPT
BOND FUND
ANNUAL REPORT
AUGUST 31, 1997
