<PAGE>
LETTER TO THE SHAREHOLDERS OF THE JPM PIERPONT TAX EXEMPT BOND FUND
April 15, 1997
Dear Shareholder:
The previous six months were reasonably good for fixed income investors, as a
fourth quarter rally boosted the value of bond portfolios. The JPM Pierpont Tax
Exempt Bond Fund posted a 4.05% return while its benchmark, the Lehman Quality
Intermediate Municipal Bond Index gained 4.39% over the same period. The Fund's
30-day SEC yield, at 4.32% translates to a pre-tax equivalent yield of 7.15%,
assuming a 39.6% tax rate.
The Fund's net asset value, at $11.80 on February 28, 1997, was up from $11.63
per share on August 31, 1996. Dividends of $0.28 per share were paid of which
$0.28 was 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 $383,833,715 from $369,987,472 while the net
assets of The Tax Exempt Bond Portfolio, in which the Fund invests, were
$553,258,340.
This report also includes a discussion with Elizabeth Augustin, who is the
portfolio manager primarily responsible for The Tax Exempt Bond Portfolio. In
this interview, Elizabeth talks about the events of the previous six months that
had the greatest effect on the Portfolio and also our outlook for the coming
half year. We hope this helps you to understand some of the factors that affect
how your money is managed.
As always, we welcome your comments, questions, or any suggestions on how we can
further improve our financial reports. Please call J.P. Morgan Funds Services
toll free at (800) 521-5411.
Sincerely yours,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . .1
FUND PERFORMANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
PORTFOLIO MANAGER Q & A. . . . . . . . . . . . . . . . . . . . . . . . . . . .3
GLOSSARY OF TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
FUND FACTS AND HIGHLIGHTS. . . . . . . . . . . . . . . . . . . . . . . . . . .6
SPECIAL FUND-BASED SERVICES. . . . . . . . . . . . . . . . . . . . . . . . . .7
FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes a fund's actual (or cumulative) return and shows you
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically 1, 5, or 10
years. Total returns for periods of less than one year are not annualized and
provide a picture of how a fund has performed over the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
----------------- --------------------------------------
THREE SIX ONE THREE FIVE TEN
AS OF FEBRUARY 28, 1997 MONTHS MONTHS YEAR YEARS YEARS YEARS
- -------------------------------------------------------------- --------------------------------------
<S> <C> <C> <C> <C> <C> <C>
The JPM Pierpont Tax Exempt Bond Fund 0.76% 4.05% 4.18% 5.33% 6.38% 6.36%
Lehman Quality Inter. Muni Bond Index 0.87% 4.39% 4.76% 5.69% 6.91% 6.76%
Lipper Intermediate Muni Debt
Bond Funds Avg. 0.64% 3.98% 4.14% 5.01% 6.22% 6.39%
AS OF DECEMBER 31, 1996
- -------------------------------------------------------------- --------------------------------------
The JPM Pierpont Tax Exempt Bond Fund 2.05% 4.05% 3.54% 4.54% 6.11% 6.58%
Lehman Quality Inter. Muni. Bond Index 2.33% 4.08% 4.27% 4.89% 6.70% 7.00%
Lipper Intermediate Muni Debt
Bond Funds Avg. 2.13% 3.92% 3.70% 4.29% 6.11% 6.63%
</TABLE>
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ASSUME THE
REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF CERTAIN FUND AND
PORTFOLIO EXPENSES AS DESCRIBED IN THE PROSPECTUS. THE LEHMAN QUALITY
INTERMEDIATE MUNICIPAL BOND INDEX IS AN INDEX CREATED BY LEHMAN BROTHERS OF HIGH
QUALITY MUNICIPAL BONDS RATED A OR BETTER WITH INTERMEDIATE MATURITIES
(APPROXIMATELY 7 YEARS). LIPPER ANALYTICAL SERVICES, INC. IS A LEADING RESOURCE
FOR MUTUAL FUND DATA. ALTHOUGH GATHERED FROM RELIABLE SOURCES, DATA ACCURACY AND
COMPLETENESS CANNOT BE GUARANTEED.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO OF ELIZABETH AUGUSTIN]
This interview was conducted with ELIZABETH AUGUSTIN, Portfolio Manager for the
Tax Exempt Bond Portfolio, in which the Fund invests. Elizabeth joined Morgan in
1983 and has extensive experience across a broad range of markets including
mortgages, convertibles, money markets, and tax exempt securities. This
interview was conducted on March 19, 1997 and represents her views on that date.
ELIZABETH, WHAT WERE THE MAIN FACTORS AFFECTING THE TAX EXEMPT BOND MARKET OVER
THE LAST SIX MONTHS?
EA: Actually, the main factors have been the stability and good performance of
the market over the last six months. STABILITY: Municipal bond volatility has
been low, with yields trading within a 40 basis point range. A measure of this
is the municipal market's response to the November debacle in the City of Miami,
whose bond holders saw their investment sink to junk bond level. Unlike the
furor that rocked the muni market after the Orange County bankruptcy, the muni
market following the City of Miami announcement hardly registered a tremor.
Another factor contributing to the calm has been the low level of inflation in
the U.S. economy, despite the economy's being in the later stages of the
business cycle, when it is usually more of a concern, and also despite very low
unemployment levels. In addition, economic growth has remained near a moderate
2.5% level. Federal Reserve tightening is widely expected on March 25, but the
market has already factored this into current pricing, and even this is expected
to have only a minor impact on the market.
GOOD PERFORMANCE: The municipal market has held value particularly well,
outperforming its Treasury counterpart on an after-tax basis over the previous
six month period. This is attributable in part to the continuing short supply of
tax exempt issues.
DO YOU SEE ANY TRENDS IN THE MUNICIPAL MARKET?
EA: One recent trend has been the increase in municipal bonds issued with
insurance, which, in the last six months, has reached a level of over 45% of all
new issuance. With insurance, the insurer basically guarantees the repayment of
principal in the event of a default on the part of the issuer. The securities
that result carry a AAA rating. This trend has definitely improved the overall
credit profile of the municipal market, producing homogeneity in the market, as
well.
This has created changes in at least two factors related to how we manage this
Portfolio. One is that when evaluating insured issues, our credit analysts now
evaluate not only the repayment capabilities of the issuer but also of the
insurer. A second has to do with the fact that the increased homogeneity in the
market has made finding good buying opportunities harder for the typical
municipal bond buyer. It is very important to have a dedicated municipal trading
desk which is able to spot these pockets of opportunities when they arise.
3
<PAGE>
WHAT WERE SOME OF THE BROADER INVESTMENT THEMES IN THE TAX EXEMPT BOND PORTFOLIO
OVER THE PRECEDING HALF YEAR?
EA: There have been no significant changes in the fundamental structure of the
Portfolio. We continue to position it in the intermediate portion of the yield
curve, which, given the Portfolio's investment parameters, we have found offers
the best return per unit of risk. The credit quality of the Portfolio also
remains very high. We continue to find good value in purchasing securities
priced at a premium, which not only have offered incremental yield but which
have held value better in a falling market, and we also continue to have
holdings of zero coupon bonds which, in tandem with the premium securities, give
the overall Portfolio a "current coupon" profile.
Municipal bonds are presently offering strong taxable equivalent yields, and
this has prompted strong flows into The JPM Pierpont Tax Exempt Bond Fund.
Ten-year yields have been at around 5%, and for taxpayers in a 39% tax bracket
this translates to over an 8% taxable equivalent yield. We expect that any
correction in the stock market will only serve to strengthen these cashflows.
WITH THE BENEFIT OF 20/20 HINDSIGHT, IS THERE ANYTHING YOU WOULD HAVE DONE
DIFFERENTLY OVER THE LAST HALF YEAR?
EA: In retrospect, our decision to invest primarily in non-callable securities
put the Portfolio at a slight disadvantage in terms of yield in the
low-volatility environment of the past six months. However, these securities do
provide protection against reinvestment risk in the event of falling rates,
should market volatility increase.
WHAT IS YOUR OUTLOOK FOR THE MARKET OVER THE COMING SIX MONTHS?
EA: Federal Reserve Chairman Greenspan has hinted strongly that some increase in
the Federal funds rate will probably be needed to hold down inflation, and the
market has been expecting this to happen in the near future. Should this happen,
we envision an increase in interest rate volatility and expect, as well, that
pricing anomalies will result that will create opportunities. We will actively
seek these opportunities. We also expect that the economic stability so
beneficial in the previous six months will continue, and that as a result,
municipal bonds will continue to perform well relative to Treasuries. Overall,
we feel that the Portfolio is very well positioned for current economic
conditions, and while Fed tightening may produce some temporary disruption, we
feel that the outlook for the tax exempt bond market, and for the Portfolio, is
very positive.
4
<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.
5
<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
10/03/84
- --------------------------------------------------------------------------------
NET ASSETS AS OF 2/28/97
$383,833,715
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
MONTHLY
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATES (IF APPLICABLE)
12/19/97
EXPENSE RATIO
The Fund's annual expense ratio of 0.66% 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 FEBRUARY 28, 1997
PORTFOLIO ALLOCATION
(PERCENTAGE OF TOTAL INVESTMENTS)
[PIE CHART]
REVENUE BONDS 49.8%
GENERAL OBLIGATIONS 48.5%
SHORT-TERM 1.1%
PRIVATE PLACEMENTS 0.6%
30-DAY SEC YIELD
4.32%
DURATION
6.05 years
6
<PAGE>
SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
- Create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
- Make ongoing tactical adjustments in the actual asset mix of their
portfolios to capitalize on shifting market trends;
- Make investments through The JPM Pierpont Funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in The JPM
Pierpont Funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build
well-balanced long-term investment portfolios, diversified across a wide array
of mutual funds. From money markets to emerging markets, The JPM Pierpont Funds
provide an excellent way to help you accumulate long-term wealth for retirement.
KEOGH
In early 1995, Morgan introduced a Keogh program for its clients. Keoghs provide
another excellent vehicle to help individuals who are self-employed or are
employees of unincorporated businesses to accumulate retirement savings. A Keogh
is a tax-deferred pension plan that can allow you to contribute the lesser of
$30,000 or 25% of your annual earned gross compensation. The JPM Pierpont Funds
can help you build a comprehensive investment program designed to maximize the
retirement dollars in your Keogh account.
7
<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, A SEPARATELY
REGISTERED INVESTMENT COMPANY WHICH IS NOT AVAILABLE TO THE PUBLIC BUT ONLY TO
OTHER COLLECTIVE INVESTMENT VEHICLES SUCH AS THE FUND.
More complete information about the Fund, including management fees and other
expenses, is provided in the Prospectus, which should be read carefully before
investing. You may obtain an additional copy of the Prospectus by calling J.P.
Morgan Funds Services at (800) 521-5411.
8
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investment in The Tax Exempt Bond Portfolio
("Portfolio"), at value $383,655,686
Receivable for Shares of Beneficial Interest Sold 625,851
Prepaid Trustees' Fees 3,195
Prepaid Expenses and Other Assets 4,961
------------
Total Assets 384,289,693
------------
LIABILITIES
Dividends Payable to Shareholders 277,372
Shareholder Servicing Fee Payable 58,435
Payable for Shares of Beneficial Interest
Redeemed 48,000
Administrative Services Fee Payable 9,193
Administration Fee Payable 2,809
Fund Services Fee Payable 739
Accrued Expenses 59,430
------------
Total Liabilities 455,978
------------
NET ASSETS
Applicable to 32,540,621 Shares of Beneficial
Interest Outstanding
(par value $0.001, unlimited shares authorized) $383,833,715
------------
------------
Net Asset Value, Offering and Redemption Price
Per Share $11.80
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $365,918,018
Undistributed Net Investment Income 2,388
Accumulated Net Realized Gain on Investment 65,573
Net Unrealized Appreciation of Investment 17,847,736
------------
Net Assets $383,833,715
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME ALLOCATED FROM PORTFOLIO
Allocated Interest Income $ 9,883,067
Allocated Portfolio Expenses (699,366)
-----------
Net Investment Income Allocated from
Portfolio 9,183,701
FUND EXPENSES
Shareholder Servicing Fee $366,296
Administrative Services Fee 58,165
Transfer Agent Fees 25,405
Professional Fees 19,831
Registration Fees 16,678
Fund Services Fee 7,230
Administration Fee 6,512
Trustees' Fees and Expenses 1,477
Miscellaneous 4,150
--------
Total Fund Expenses 505,744
-----------
NET INVESTMENT INCOME 8,677,957
NET REALIZED GAIN ON INVESTMENT ALLOCATED FROM
PORTFOLIO 585,760
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENT ALLOCATED FROM PORTFOLIO 5,199,866
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $14,463,583
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
FEBRUARY 28, FOR THE FISCAL
1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
---------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 8,677,957 $ 16,933,485
Net Realized Gain on Investment Allocated from
Portfolio 585,760 534,849
Net Change in Unrealized Appreciation
(Depreciation) of Investment Allocated from
Portfolio 5,199,866 (3,837,571)
---------------- ---------------
Net Increase in Net Assets Resulting from
Operations 14,463,583 13,630,763
---------------- ---------------
DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (8,677,957) (16,931,097)
Net Realized Gain (701,935) (455,297)
---------------- ---------------
Total Distributions to Shareholders (9,379,892) (17,386,394)
---------------- ---------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 82,473,275 139,892,566
Reinvestment of Dividends and Distributions 7,529,884 14,124,800
Cost of Shares of Beneficial Interest Redeemed (81,240,607) (132,279,747)
---------------- ---------------
Net Increase from Transactions in Shares of
Beneficial Interest 8,762,552 21,737,619
---------------- ---------------
Total Increase in Net Assets 13,846,243 17,981,988
NET ASSETS
Beginning of Period 369,987,472 352,005,484
---------------- ---------------
End of Period (including undistributed net
investment income of $2,388 and $2,388,
respectively) $ 383,833,715 $ 369,987,472
---------------- ---------------
---------------- ---------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE
SIX MONTHS ENDED
FEBRUARY 28, FOR THE FISCAL YEAR ENDED AUGUST 31,
1997 ----------------------------------------------------
(UNAUDITED) 1996 1995 1994 1993 1992
---------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 11.63 $ 11.73 $ 11.45 $ 12.04 $ 11.60 $ 11.19
---------------- -------- -------- -------- -------- --------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.28 0.55 0.55 0.51 0.55 0.62
Net Realized Gain and Unrealized (Loss) on
Investment 0.19 (0.08) 0.29 (0.35) 0.56 0.41
---------------- -------- -------- -------- -------- --------
Total from Investment Operations 0.47 0.47 0.84 0.16 1.11 1.03
---------------- -------- -------- -------- -------- --------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.28) (0.55) (0.55) (0.51) (0.55) (0.62)
Net Realized Gain (0.02) (0.02) (0.01) (0.24) (0.12) --
---------------- -------- -------- -------- -------- --------
Total Distributions to Shareholders (0.30) (0.57) (0.56) (0.75) (0.67) (0.62)
---------------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF PERIOD $ 11.80 $ 11.63 $ 11.73 $ 11.45 $ 12.04 $ 11.60
---------------- -------- -------- -------- -------- --------
---------------- -------- -------- -------- -------- --------
Total Return 4.05%(a) 4.01% 7.63% 1.35% 9.88% 9.47%
---------------- -------- -------- -------- -------- --------
---------------- -------- -------- -------- -------- --------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 383,834 $369,987 $352,005 $392,460 $485,013 $360,343
Ratios to Average Net Assets
Expenses 0.66%(b) 0.64% 0.71% 0.71% 0.74% 0.77%
Net Investment Income 4.73%(b) 4.67% 4.87% 4.39% 4.64% 5.45%
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- -- -- 0.01% 0.01%
Portfolio Turnover -- -- -- -- 41%+ 20%
</TABLE>
- ------------------------
+ 1993 Portfolio Turnover reflects the period September 1, 1992 to July 11,
1993. After July 11, 1993, all the Fund's investable assets were invested in
The Tax Exempt Bond Portfolio.
(a) Not Annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 28, 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"). 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 (69% at February 28, 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.
13
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Trust has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as co-administrator and distributor. Under a
Co-Administration Agreement, 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. Under the
Co-Administration Agreement, 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, The JPM Institutional Funds, The JPM Advisor Funds, the Portfolio
and other portfolios (the "Master Portfolios") in which the Trust, The JPM
Institutional Funds and The JPM Advisor Funds invest, JPM Series Trust and
JPM Series Trust II. For the six months ended February 28, 1997, the fee
for these services amounted to $6,512.
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 were no longer included in the calculation of the allocation of
FDI's fees.
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 proportionate share of an annual complex-wide charge. This charge is
calculated daily based on the aggregate 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 paid by the Fund is determined by the proportionate share that
its net assets bear to the net assets of the Trust, The JPM Institutional
Funds, the Master Portfolios, other investors in the Master Portfolios for
which Morgan provides similar services, and JPM Series Trust. For the six
months ended February 28, 1997, the fee for these services amounted to
$58,165.
c)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan. The agreement provides for the Fund to pay Morgan a fee for
these services which is computed daily and paid monthly at an annual rate
of 0.20% of the average daily net assets of the Fund. For the six months
ended February 28, 1997, the fee for these services amounted to $366,296.
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.
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
14
<PAGE>
THE JPM PIERPONT TAX EXEMPT BOND FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
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 $7,230 for the six months ended February 28, 1997.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Institutional Funds, the Master Portfolios
and JPM Series Trust. The Trustees' Fees and Expenses shown in the
financial statements represents the Fund's allocated portion of the total
fees and expenses. The Trust's Chairman and Chief Executive Officer also
serves as Chairman of Group and received compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $900.
3. TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
The Declaration of Trust permits the Trustees to issue an unlimited number
of full and fractional shares of beneficial interest of one or more
series. Transactions in shares of beneficial interest of the Fund were as
follows:
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
----------------- ---------------
<S> <C> <C>
Shares of beneficial interest sold............... 7,017,836 11,886,968
Reinvestment of dividends and distributions...... 640,018 1,202,045
Shares of beneficial interest redeemed........... (6,928,133) (11,275,482)
----------------- ---------------
Net Increase..................................... 729,721 1,813,531
----------------- ---------------
----------------- ---------------
</TABLE>
15
<PAGE>
The Tax Exempt Bond Portfolio
Semi-Annual Report February 28, 1997
(unaudited)
(The following pages should be read in conjunction
with The JPM Pierpont Tax Exempt Bond Fund
Semi-Annual Financial Statements)
16
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (99.0%)
ALABAMA (0.7%)
$ 1,000 Alabama Mental Health Finance Authority, Special
Tax Obligation, (Prerefunded, Series 1989, due
05/01/01), MBIA Insured........................ RB Aaa/AAA 05/01/99(b) 7.375% $ 1,086,370
1,630 Childersburg Industrial Development Board, PCR,
(Kimberly Clark Corp. Project, Escrowed to
Maturity, due 11/15/99)........................ RB Aa2/AA 05/15/97(b) 7.400 1,719,585
1,000 Daphne Special Care Facilities Financing
Authority, (Presbyterian Retirement,
Prerefunded, Series A, due 08/15/18)........... RB NR/NR 08/15/01(b) 7.300 1,109,940
------------
TOTAL ALABAMA................................ 3,915,895
------------
ALASKA (2.6%)
2,000 Anchorage, (Prerefunded, Series 1991, due
07/01/02), MBIA Insured........................ GO Aaa/AAA 07/01/01(b) 6.600 2,173,340
1,075 Anchorage, (Refunding, Series 1989, due
06/01/03), AMBAC Insured....................... GO Aaa/AAA 06/01/99(b) 7.100 1,146,391
1,000 Anchorage, (Series 1990A), AMBAC Insured......... GO Aaa/AAA 02/01/00 6.850 1,070,370
3,000 North Slope Borough, (Series 1992A), MBIA
Insured........................................ GO Aaa/AAA 06/30/00 5.550 3,120,030
5,500 North Slope Borough, Zero Coupon, (Capital
Appreciation, Series 1996A), MBIA Insured...... GO Aaa/AAA 06/30/99 0.000 4,966,555
2,200 North Slope Borough, Zero Coupon, (Capital
Appreciation, Series 1996B), MBIA Insured...... GO Aaa/AAA 06/30/01 0.000 1,797,026
------------
TOTAL ALASKA................................. 14,273,712
------------
ARIZONA (0.8%)
1,000 Maricopa County School District #11, (Peoria
Unified School Improvement, Prerefunded, Series
1990H, due 07/01/05), MBIA Insured............. GO Aaa/AAA 07/01/99(b) 7.000 1,104,150
1,325 Maricopa County School District #3, (Tempe
Elementary, Projects of 1991, Prerefunded,
Series C, due 07/01/08)........................ GO A1/AA 07/01/06(b) 6.000 1,444,515
1,750 Phoenix, (Refunding, Series C)................... GO Aa1/AA+ 07/01/02 6.375 1,911,507
------------
TOTAL ARIZONA................................ 4,460,172
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (5.9%)
$ 2,520 California Department of Water Resources,
(Central Valley Project, Water Systems Service,
Refunding, Series J-1)......................... RB Aa/AA 12/01/12 7.000% $ 2,982,521
6,000 California State................................. GO A1/A+ 02/01/08 6.500 6,766,440
9,000 California State................................. GO A1/A+ 06/01/06 6.750 10,226,520
1,000 California State, (AMBAC/MBIA Insured)........... GO Aaa/AAA 09/01/06 6.500 1,126,120
594 Kaweah Delta Hospital District, Tulare County,
(Series D, due 06/01/14)....................... PP NR/A+ 06/01/97(b) 4.350 595,455
1,160 Kaweah Delta Hospital District, Tulare County,
(Series E, due 06/01/14)....................... PP NR/A+ 06/01/97(b) 5.250 1,164,037
1,695 Kaweah Delta Hospital District, Tulare County,
(Series G, due 06/01/14)....................... PP NR/A+ 06/01/04(b) 6.400 1,831,380
3,000 Los Angeles County Public Works, (Refunding,
Series A), MBIA Insured........................ RB Aaa/AAA 09/01/05 6.000 3,233,820
2,500 Los Angeles County Public Works, (Refunding,
Series A), MBIA Insured........................ RB Aaa/AAA 09/01/06 6.000 2,695,200
2,000 Los Angeles Department of Water & Power,
(California Electric Plant, Crossover Refunded,
due 05/15/30).................................. RB Aa3/A+ 05/15/00(b) 7.125 2,205,800
------------
TOTAL CALIFORNIA............................. 32,827,293
------------
COLORADO (0.8%)
1,295 Adams County School District #12, FGIC Insured... GO Aaa/AAA 12/15/06 6.000 1,410,993
3,180 Lower Colorado River Authority, (Refunding)...... RB Aa/A+ 01/01/99 5.000 3,235,745
------------
TOTAL COLORADO............................... 4,646,738
------------
CONNECTICUT (0.9%)
1,755 Connecticut Housing Finance Authority, (Housing
Mortgage Finance Program, Refunding, Series
1987B)......................................... RB Aa/AA 11/15/97 8.100 1,786,783
2,815 Connecticut Transportation Infrastructure,
Special Tax Obligation, (Prerefunded, Series
1991A, due 06/01/04)........................... RB NR/AA- 06/01/03(b) 6.600 3,117,894
------------
TOTAL CONNECTICUT............................ 4,904,677
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
18
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
DISTRICT OF COLUMBIA (2.5%)
$ 3,000 District of Columbia, (Refunding, Series A), MBIA
Insured........................................ GO Aaa/AAA 06/01/07 6.000% $ 3,188,670
7,500 District of Columbia, (Refunding, Series C), FGIC
Insured........................................ GO Aaa/AAA 12/01/03 5.250 7,692,225
2,600 District of Columbia, (Series B), MBIA Insured... GO Aaa/AAA 06/01/02 6.000 2,758,132
------------
TOTAL DISTRICT OF COLUMBIA................... 13,639,027
------------
FLORIDA (2.8%)
5,765 Dade County School District, (Refunding), MBIA
Insured........................................ GO Aaa/AAA 07/15/05 6.000 6,262,231
1,535 Florida Board of Education, Capital Outlay,
(Escrowed to Maturity, Series 1986C, due
06/01/01)...................................... GO Aaa/AAA 06/01/97(b) 7.000 1,605,733
1,300 Florida Board of Education, Capital Outlay,
(Refunding, Series B).......................... GO Aa2/AA 01/01/99 4.250 1,308,645
465 Florida Board of Education, Capital Outlay,
(Unrefunded Balance, Series 1986C, due
06/01/01)...................................... GO Aa/AA 06/01/97(b) 7.000 475,788
3,200 Jacksonville Electric Authority, (St. Johns
River, Issue 2, Crossover Refunded, Series 5,
due 10/01/09).................................. RB Aa1/AA 10/01/99(b) 7.000 3,444,384
2,000 Volusia County School District, (Refunding,
Series 1991, due 08/01/02), FGIC Insured....... GO Aaa/AAA 08/01/01(b) 6.100 2,160,820
------------
TOTAL FLORIDA................................ 15,257,601
------------
GEORGIA (6.3%)
2,630 Fulton County School District, (Refunding)....... GO Aa/AA 05/01/14 6.375 2,936,474
1,000 Georgia Municipal Electric Authority, (Refunding,
Series D)...................................... RB A/A 01/01/06 6.000 1,059,680
1,000 Georgia Municipal Electric Authority, (Series
A)............................................. RB A/A 01/01/12 6.500 1,100,460
1,155 Georgia Residential Finance Authority, (Single
Family Insured Mortgages, Refunding, Series
1986A, due 12/01/98), FHA Insured.............. RB Aa/AA+ 12/01/97(b) 6.600 1,192,064
6,000 Georgia, (Series B).............................. GO Aaa/AA+ 03/01/07 7.200 7,097,100
3,000 Georgia, (Series B).............................. GO Aaa/AA+ 03/01/10 6.300 3,348,330
4,470 Georgia, (Series C).............................. GO Aaa/AA+ 07/01/11 5.700 4,726,131
2,500 Gwinnett County School District, (Refunding,
Series B)...................................... GO Aa1/AA 02/01/08 6.400 2,800,725
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
19
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
GEORGIA (CONTINUED)
$ 5,000 Metropolitan Atlanta Rapid Transit Authority,
Sales Tax Revenue, (Refunding, Series P)....... RB Aaa/AAA 07/01/11 6.250% $ 5,509,650
4,500 Municipal Electric Authority, (Project 1, Sixth
Crossover), AMBAC Insured...................... RB Aaa/AAA 01/01/08 7.000 5,229,405
------------
TOTAL GEORGIA................................ 35,000,019
------------
HAWAII (1.4%)
2,000 Hawaii, (Series BZ).............................. GO Aa/AA 10/01/12 6.000 2,156,020
3,055 Hawaii, (Series CK).............................. GO Aa/AA 09/01/04 6.000 3,305,815
2,000 Honolulu City & County Improvement, (Refunding,
Series B)...................................... GO Aa/AA 10/01/11 5.500 2,042,220
------------
TOTAL HAWAII................................. 7,504,055
------------
ILLINOIS (11.1%)
1,000 Chicago Board of Education, (Lease Certificates,
Series A), MBIA Insured........................ RB Aaa/AAA 01/01/06 6.125 1,080,270
4,130 Chicago Board of Education, (Lease Certificates,
Series A), MBIA Insured........................ RB Aaa/AAA 01/01/07 6.125 4,487,369
4,000 Chicago, (Equipment Notes, Series 1996), AMBAC
Insured........................................ GO Aaa/AAA 01/01/04 5.600 4,189,200
3,000 Chicago, (Refunding, Series A-2), AMBAC
Insured........................................ GO Aaa/AAA 01/01/11 6.000 3,197,820
2,000 Chicago, (Refunding, Series B), FGIC Insured..... GO Aaa/AAA 01/01/00 5.000 2,038,560
1,500 Chicago, (Series 1995), AMBAC Insured............ GO Aaa/AAA 01/01/05 6.500 1,654,590
1,500 Chicago, O'Hare International Airport,
(Refunding, Series C-1), MBIA Insured.......... RB Aaa/AAA 01/01/09 5.750 1,569,450
3,280 Cook County, (Refunding, Series C), FGIC
Insured........................................ GO Aaa/AAA 11/15/04 5.800 3,501,761
10,000 Cook County, Community School District #54,
Schaumburg Township, Zero Coupon, (Capital
Appreciation, Prerefunded, Series B, due
01/01/11), FGIC Insured........................ GO Aaa/AAA 01/01/03(b) 0.000 4,528,500
1,375 Du Page County, (Illinois Alternative Revenue
Jail Project, Prerefunded, due 01/01/21)....... GO Aaa/AAA 01/01/02(b) 6.550 1,519,609
2,000 Illinois, (Refunding, Series 1987, due
04/01/02)...................................... GO Aa3/AA- 04/01/97(b) 6.500 2,044,800
2,000 Illinois, (Series 1986, due 12/01/01)............ GO Aa3/AA- 05/01/97(b) 6.250 2,049,740
3,000 Illinois, Sales Tax Revenue, (Refunding, Series
Q)............................................. RB Aa3/AAA 06/15/09 6.000 3,207,300
3,250 Illinois, Sales Tax Revenue, (Refunding, Series
Q)............................................. RB Aa3/AAA 06/15/12 6.000 3,457,967
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
20
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 3,350 Illinois, Sales Tax Revenue, (Series R).......... RB Aa3/AAA 06/15/01 4.600% $ 3,367,956
950 Kendall Kane & Will Counties Community Unit
School District #308, FGIC Insured............. GO Aaa/AAA 03/01/99 6.200 990,128
2,500 Metropolitan Pier & Exposition Authority,
(McCormick Place Expansion Project, Series
A)............................................. RB A/A+ 06/15/06 8.500 3,148,250
5,420 Metropolitan Pier & Exposition Authority, Zero
Coupon, (Capital Appreciation, McCormick Place
Expansion Project, Refunding), MBIA Insured.... RB Aaa/AAA 06/15/14 0.000 2,019,438
11,000 Metropolitan Pier & Exposition Authority, Zero
Coupon, (Capital Appreciation, McCormick Place
Expansion Project, Refunding, Series A), MBIA
Insured........................................ RB Aaa/AAA 12/15/11 0.000 4,830,210
9,705 Metropolitan Pier & Exposition Authority, Zero
Coupon, (Capital Appreciation, McCormick Place
Expansion Project, Refunding, Series A), MBIA
Insured........................................ RB Aaa/AAA 06/15/12 0.000 4,113,949
2,810 Regional Transportation Authority, (Series D),
FGIC Insured................................... RB Aaa/AAA 06/01/07 7.750 3,394,508
1,000 University of Illinois, Auxiliary Facilities,
(Escrowed to Maturity, due 10/01/01)........... RB Aaa/AAA 04/01/97(b) 6.000 1,029,950
------------
TOTAL ILLINOIS............................... 61,421,325
------------
INDIANA (1.1%)
2,000 Indiana Municipal Power Agency, Power Supply
System Revenue, (Refunding, Series B), MBIA
Insured........................................ RB Aaa/AAA 01/01/13 6.000 2,137,540
3,915 Indiana, Transportation Finance Authority,
Highway Revenue, (Refunding, Series A), AMBAC
Insured........................................ RB Aaa/AAA 06/01/09 5.250 3,928,742
------------
TOTAL INDIANA................................ 6,066,282
------------
KENTUCKY (0.8%)
3,900 Kentucky Turnpike Authority, (Escrowed to
Maturity, Series A, due 07/01/02).............. RB Aaa/NR 07/01/97(b) 7.100 4,272,957
------------
LOUISIANA (1.5%)
8,000 Louisiana, (Refunding, Series A), FGIC Insured... GO Aaa/AAA 08/01/00 6.000 8,436,320
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
21
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
MARYLAND (1.1%)
$ 1,560 Anne Arundel County.............................. GO Aa/AA+ 09/01/06 6.000% $ 1,695,361
1,000 Maryland Department of Transportation,
(Prerefunded, Series 1990, due 08/15/05)....... RB Aaa/AAA 08/15/99(b) 6.700 1,081,120
3,000 Maryland, (3rd Series, due 07/15/03)............. GO Aaa/AAA 07/15/01(b) 6.400 3,237,750
------------
TOTAL MARYLAND............................... 6,014,231
------------
MASSACHUSETTS (1.7%)
5,650 Massachusetts Bay Transportation Authority,
(General Transportation System, Refunding,
Series A)...................................... RB A1/A+ 03/01/08 7.000 6,566,486
1,495 Massachusetts, College Building Authority,
(Refunding, Series A).......................... RB A1/A+ 05/01/11 7.500 1,831,584
1,060 Wareham, School Project Loan Bonds, (due
01/15/03), AMBAC Insured....................... GO Aaa/AAA 01/15/01(b) 6.800 1,168,205
------------
TOTAL MASSACHUSETTS.......................... 9,566,275
------------
MINNESOTA (2.8%)
5,000 University of Minnesota, (Series A).............. RB Aa3/AA 07/01/10 5.750 5,242,200
5,000 University of Minnesota, (Series A).............. RB Aa3/AA 07/01/15 5.750 5,160,400
4,800 Western Minnesota Municipal Power Agency,
(Prerefunded, Series 1983A, due 01/01/04), MBIA
Insured........................................ RB Aaa/AAA 01/01/98(b) 10.125 5,314,128
------------
TOTAL MINNESOTA.............................. 15,716,728
------------
MISSISSIPPI (2.6%)
6,000 Mississippi Home Corp Residual Revenue, Zero
Coupon, (Capital Appreciation, Refunded, Series
C)............................................. RB AAA/NR 09/01/13 0.000 2,364,900
11,000 Mississippi, (Escrowed to Maturity).............. GO Aaa/AAA 02/01/08 6.200 12,273,140
------------
TOTAL MISSISSIPPI............................ 14,638,040
------------
MISSOURI (0.8%)
4,000 St. Louis County Regional Convention & Sports
Complex Authority, (Prerefunded, Series B, due
08/15/21)...................................... RB Aaa/AAA 08/15/03(b) 7.000 4,536,240
------------
NEBRASKA (0.7%)
4,000 Nebraska Public Power District, (Nuclear
Facilities, Refunding)......................... RB A1/A+ 07/01/00 5.200 4,109,440
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
22
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEVADA (4.1%)
$ 500 Carson City School District, (Prerefunded, Series
1990, due 04/01/03), FGIC Insured.............. GO Aaa/AAA 04/01/00(b) 6.750% $ 542,180
8,200 Clark County School District, (Series A), MBIA
Insured........................................ GO Aaa/AAA 06/01/11 7.000 9,599,740
3,000 Clark County School District, FGIC Insured....... GO Aaa/AAA 06/15/03 6.000 3,216,960
3,000 Clark County, (Passenger Facilities, Las Vegas
McCarran International Airport, Series A),
AMBAC Insured.................................. RB Aaa/AAA 07/01/08 6.250 3,318,660
1,685 Las Vegas, Clark County Library District,
(Prerefunded, Series 1991A, due 06/01/03), FGIC
Insured........................................ GO Aaa/AAA 06/01/01(b) 6.600 1,830,837
1,200 Las Vegas, Clark County Library District,
(Prerefunded, Series 1991A, due 06/01/04), FGIC
Insured........................................ GO Aaa/AAA 06/01/01(b) 6.700 1,308,264
1,280 Las Vegas, Clark County Library District,
(Refunding, Series 1991B, due 08/01/04), FGIC
Insured........................................ GO Aaa/AAA 08/01/01(b) 6.700 1,400,154
1,330 Nevada, (Prison Facilities, Prerefunded, Series
1990A, due 08/01/04)........................... GO Aa/AA 08/01/00(b) 7.000 1,465,274
------------
TOTAL NEVADA................................. 22,682,069
------------
NEW HAMPSHIRE (1.4%)
4,900 New Hampshire Higher Educational & Health
Facilities Authority, (Dartmouth College,
Refunding)..................................... RB Aaa/NR 06/01/07 6.750 5,589,626
1,720 New Hampshire, (Prerefunded, Series 1991A, due
06/15/03)...................................... GO Aa/AA+ 06/15/01(b) 6.600 1,896,214
------------
TOTAL NEW HAMPSHIRE.......................... 7,485,840
------------
NEW JERSEY (6.7%)
4,180 Jersey City, (Refunding, Series H)............... GO A/AA 10/01/11 6.250 4,611,167
7,000 New Jersey Economic Development Authority,
(Market Transition Facilities, Series A), MBIA
Insured........................................ RB Aaa/AAA 07/01/02 5.400 7,268,800
1,325 New Jersey Economic Development Authority, (New
Jersey Performing Arts Center, Series PJ-A),
AMBAC Insured.................................. RB Aaa/AAA 06/15/07 6.000 1,433,849
1,990 New Jersey Economic Development Authority, (New
Jersey Performing Arts Center, Series PJ-C),
AMBAC Insured.................................. RB Aaa/AAA 06/15/06 6.000 2,150,195
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
23
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW JERSEY (CONTINUED)
$ 1,500 New Jersey Sports & Exposition Authority, (Sports
Complex, Refunding, Escrowed to Maturity)...... RB Aa1/NR 01/01/00 8.100% $ 1,649,880
6,000 New Jersey Transportation Authority, (Refunding,
Series B), MBIA Insured........................ RB Aaa/AAA 06/15/05 6.000 6,491,760
7,500 New Jersey Transportation Authority, (Refunding,
Series B), MBIA Insured........................ RB Aaa/AAA 06/15/10 6.500 8,473,125
2,500 New Jersey Turnpike Authority, (Refunding, Series
A), MBIA Insured............................... RB Aaa/AAA 01/01/00 6.200 2,630,400
1,000 New Jersey Turnpike Authority, (Refunding, Series
A), MBIA Insured............................... RB Aaa/AAA 01/01/01 5.700 1,046,500
1,000 Ocean County, (General Improvement).............. GO Aa/NR 04/15/00 6.375 1,064,630
------------
TOTAL NEW JERSEY............................. 36,820,306
------------
NEW YORK (7.8%)
1,990 Monroe County, Public Improvement, (Partially
Prerefunded, due 06/01/09), AMBAC Insured...... GO Aaa/AAA 06/01/08(b) 6.000 2,155,349
1,295 Monroe County, Public Improvement, (Partially
Prerefunded, due 06/01/10), AMBAC Insured...... GO Aaa/AAA 06/01/08(b) 6.000 1,397,836
110 Monroe County, Public Improvement, (Prerefunded,
due 06/01/09), AMBAC Insured................... GO Aaa/AAA 06/01/08(b) 6.000 120,602
120 Monroe County, Public Improvement, (Prerefunded,
due 06/01/10), AMBAC Insured................... GO Aaa/AAA 06/01/08(b) 6.000 131,566
1,000 Municipal Assistance Corp. for the City of New
York, (Refunding, Series 1987-61, due 7/01/07),
MBIA Insured................................... RB Aaa/AAA 07/01/97(b) 6.875 1,030,710
2,000 Municipal Assistance Corp. for the City of New
York, (Series E)............................... RB Aa2/AA- 07/01/06 6.000 2,161,620
1,465 New York City, (Escrowed to Maturity, Series
B)............................................. GO Aaa/AAA 06/01/01 8.000 1,659,713
2,645 New York City, (Refunding, Series A)............. GO Baa1/BBB+ 08/01/02 5.750 2,735,591
4,675 New York City, (Refunding, Series H, SubSeries
H-1)........................................... GO Baa1/BBB+ 08/01/01 5.500 4,787,060
1,000 New York City, (Series E), FGIC Insured.......... GO Aaa/AAA 02/15/06 6.500 1,103,480
2,000 New York City, (Series F)........................ GO Baa1/BBB+ 02/15/02 6.100 2,093,100
3,425 New York City, (Series F)........................ GO Baa1/BBB+ 02/15/03 6.200 3,601,113
2,000 New York City, (Series G), AMBAC Insured......... GO Aaa/AAA 10/15/07 6.000 2,144,460
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
24
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 2,000 New York State Local Government Assistance Corp,
(Refunding, Series A), AMBAC Insured........... RB Aaa/AAA 04/01/06 6.000% $ 2,159,740
1,500 New York State Urban Development Corp.,
(Correctional Capital Facilities, Prerefunded,
Series 1, due 01/01/14)........................ RB Aaa/NR 01/01/00(b) 7.750 1,668,195
4,000 Triborough Bridge & Tunnel Authority, (Refunding,
Series V, due 01/01/05), FGIC Insured.......... RB Aaa/AAA 01/01/01(b) 6.875 4,379,520
8,700 Triborough Bridge & Tunnel Authority, (Refunding,
Series X)...................................... RB Aa/A+ 01/01/12 6.625 9,946,101
------------
TOTAL NEW YORK............................... 43,275,756
------------
OHIO (1.1%)
2,000 Ohio State Building Authority, (Admin Building
Fund, Series A)................................ RB Aa3/AA- 10/01/06 5.500 2,086,200
3,365 Ohio Water Development Authority, (Refunding,
Escrowed to Maturity, due 12/01/10)............ RB Aaa/AAA 06/01/97(b) 9.375 4,249,995
------------
TOTAL OHIO................................... 6,336,195
------------
PENNSYLVANIA (1.7%)
1,175 Bethel Park School District, (Prerefunded, Series
1991B, due 02/01/02), AMBAC Insured............ GO Aaa/AAA 02/01/00(b) 6.550 1,249,142
970 Pennsylvania Higher Education Assistance Agency,
Student Loan Revenue, (Refunding, Series
1985A), FGIC Insured........................... RB Aaa/AAA 12/01/00 6.800 1,039,336
1,310 Pennsylvania Higher Education Facilities
Authority, College & University Revenue,
University of Pennsylvania, (Refunding, Series
A)............................................. RB Aa2/AA 09/01/02 6.500 1,436,769
2,800 Pennsylvania Higher Educational Facilities
Authority, Health Services Revenue, University
of Pennsylvania, (Series A).................... RB Aa3/AA 01/01/06 6.000 3,008,264
1,500 Pennsylvania, (2nd Series 1991A, due 11/01/04),
MBIA Insured................................... GO Aaa/AAA 11/01/01(b) 6.500 1,640,040
1,000 Pennsylvania, (Refunding and Projects, 1st Series
A), AMBAC Insured.............................. GO Aaa/AAA 01/01/01 6.600 1,078,590
------------
TOTAL PENNSYLVANIA........................... 9,452,141
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
25
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
PUERTO RICO (0.8%)
$ 2,000 Puerto Rico Commonwealth Aqueduct & Sewer
Authority, (Refunding)......................... RB Baa1/A 07/01/98 4.400% $ 2,010,520
2,000 Puerto Rico Commonwealth Highway & Transportation
Authority, Highway Revenue, (Refunding, Series
Z), MBIA Insured............................... RB Aaa/AAA 07/01/05 6.250 2,211,740
------------
TOTAL PUERTO RICO............................ 4,222,260
------------
RHODE ISLAND (2.0%)
5,000 Rhode Island Public Buildings Authority,
(Refunding, Series A), AMBAC Insured........... RB Aaa/AAA 02/01/00 4.700 5,047,400
2,000 Rhode Island, (Prerefunded, Series 1990B, due
10/15/01)...................................... GO A1/AA- 10/15/99(b) 6.700 2,160,960
3,785 Rhode Island, (Series 1991B)..................... GO A1/AA- 05/15/00 6.000 3,966,680
------------
TOTAL RHODE ISLAND........................... 11,175,040
------------
SOUTH CAROLINA (0.2%)
1,000 Piedmont Municipal Power Agency, (Escrowed to
Maturity, Refunding), MBIA Insured............. RB Aaa/AAA 01/01/08 6.200 1,102,060
------------
TENNESSEE (0.4%)
2,000 Chattanooga, Industrial Development Board, IDR,
(Gerber/Buster Brown Manufacturing, Inc., due
11/01/05)...................................... RB A1/NR 11/01/97(b) 4.000 2,004,780
------------
TEXAS (7.8%)
1,500 Addison, (Refunding, Series 1991, due 09/01/00),
FGIC Insured................................... GO Aaa/AAA 09/01/98(b) 6.250 1,541,175
1,000 Arlington, (Series 1989, due 08/01/00), AMBAC
Insured........................................ GO Aaa/AAA 08/01/99(b) 6.850 1,058,940
1,050 Austin Independent School District, (Refunding,
Series 1991), PSFG Insured..................... GO Aaa/AAA 08/01/99 6.200 1,102,101
1,500 Austin, Utilities System, (Escrowed to Maturity,
due 10/01/01).................................. RB Aaa/AAA 04/01/97(b) 6.500 1,632,195
335 Austin, Water Sewer & Electric, (Refunding,
Escrowed to Maturity).......................... RB A/NR 11/15/97 13.500 357,914
25 Conroe Independent School District, (Partially
Prerefunded, Series 1989, due 02/01/01), MBIA
Insured........................................ GO Aaa/AAA 02/01/99(b) 7.100 26,241
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
26
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 975 Conroe Independent School District, (Prerefunded,
Series 1989, due 02/01/01), MBIA Insured....... GO Aaa/AAA 02/01/99(b) 7.100% $ 1,031,394
1,265 Conroe Independent School District, Lot A, PSFG
Insured........................................ GO Aaa/AAA 02/01/03 6.500 1,391,804
2,260 Corpus Christi Independent School District,
(Refunding), PSFG Insured...................... GO Aaa/AAA 08/15/05 6.000 2,443,512
1,305 Dallas County, Flood Control District #1,
(Prerefunded, due 04/01/10).................... GO Aaa/NR 04/01/08(b) 9.250 1,768,301
1,650 El Paso Independent School District,
(Prerefunded, Series 1991, due 07/01/03), PSFG
Insured........................................ GO Aaa/AAA 07/01/01(b) 6.550 1,791,273
3,805 Fort Worth Independent School District,
(Refunding, Series 1987)....................... GO Aa/AA 02/15/98 6.000 3,887,454
1,320 Grapevine, (Certificates of Obligation), FGIC
Insured........................................ GO Aaa/AAA 02/15/05 6.800 1,491,125
1,700 Harris County, Road Improvement Authority,
(Prerefunded, Series 1989, due 11/01/03), MBIA
Insured........................................ GO Aaa/AAA 11/01/99(b) 7.000 1,825,494
3,350 Houston Independent School District, (Asbestos
Abatement Notes)............................... GO Aa3/AA+ 07/15/99 5.000 3,424,437
3,805 Lewisville Independent School District,
(Refunding), PSFG Insured...................... GO Aaa/NR 08/15/03 6.000 4,097,681
2,325 Northwest Independent School District, Zero
Coupon, (Capital Appreciation, Refunding), PSFG
Insured........................................ GO Aaa/NR 08/15/03 0.000 1,714,315
2,320 Northwest Independent School District, Zero
Coupon, (Capital Appreciation, Refunding), PSFG
Insured........................................ GO Aaa/NR 08/15/04 0.000 1,620,010
2,000 Plano Independent School District, (Prerefunded,
Series 1991B, due 02/15/04), FGIC Insured...... GO Aaa/AAA 02/15/01(b) 6.550 2,160,700
1,500 San Antonio, (Refunding)......................... GO Aa/AA 08/01/07 6.000 1,558,035
750 Texas A & M University, (Prerefunded, Series
1989, due 07/01/99)............................ RB Aaa/AAA 07/01/97(b) 6.600 772,605
700 Texas A & M University, (Refunding, Series 1989,
due 07/01/98).................................. RB Aaa/AAA 07/01/97(b) 6.500 720,468
2,000 Texas, Public Finance Authority, (Prerefunded,
Series 1988A, due 10/01/02).................... GO NR/AA 10/01/00(b) 6.300 2,133,780
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
27
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,000 Texas, Public Finance Authority, (Prerefunded,
Series 1991A, due 10/01/05).................... GO NR/AA 10/01/00(b) 6.500% $ 1,073,480
2,500 University of Texas, Permanent University Fund,
(Refunding, Series 1991)....................... RB Aaa/AAA 07/01/01 6.300 2,690,800
------------
TOTAL TEXAS.................................. 43,315,234
------------
UTAH (3.4%)
1,625 Intermountain Power Agency, (Refunding, Series
B), MBIA Insured............................... RB Aaa/AAA 07/01/09 6.500 1,836,120
5,130 Intermountain Power Agency, (Refunding, Series
C), MBIA Insured............................... RB Aaa/AAA 07/01/00 6.000 5,396,811
4,155 Intermountain Power Agency, (Refunding, Series
C), MBIA Insured............................... RB Aaa/AAA 07/01/01 6.000 4,404,757
6,645 Intermountain Power Agency, (Refunding, Series
C), MBIA Insured............................... RB Aaa/AAA 07/01/02 6.000 7,095,265
------------
TOTAL UTAH................................... 18,732,953
------------
VIRGINIA (1.4%)
5,000 Virginia Public School Authority, (Refunding,
Series 1991)................................... RB Aa/AA 01/01/02 6.000 5,340,600
2,000 Virginia Public School Authority, (Series A, due
08/01/04)...................................... RB Aa/AA 08/01/01(b) 6.500 2,188,260
------------
TOTAL VIRGINIA............................... 7,528,860
------------
WASHINGTON (8.0%)
1,555 King & Snohomish Counties, School District #417,
(due 12/01/02), FGIC Insured................... GO Aaa/AAA 12/01/00(b) 6.600 1,669,230
2,500 King County, (Refunding, Series A)............... GO Aa1/AA+ 01/01/99 5.000 2,548,275
6,355 King County, (Refunding, Series B)............... GO Aa1/AA+ 01/01/01 6.700 6,878,144
1,000 Pierce County School District #320, Sumner
Washington, (Series 1991, due 12/01/02), MBIA
Insured........................................ GO Aaa/AAA 12/01/01(b) 6.600 1,088,340
2,955 Seattle, Municipal Sewer Revenue, (Prerefunded,
Series T, due 01/01/31)........................ RB Aaa/AA- 01/01/00(b) 6.875 3,213,622
1,250 Snohomish County School District #2, (Refunding,
Series A, due 12/01/02), MBIA Insured.......... GO Aaa/AAA 06/01/01(b) 6.700 1,350,950
4,815 Washington Public Power Supply System, (Nuclear
Project #1, Refunding, Series A), MBIA
Insured........................................ RB Aaa/AAA 07/01/06 6.000 5,144,539
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
28
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 4,000 Washington Public Power Supply System, (Nuclear
Project #1, Refunding, Series B)............... RB Aa1/AA- 07/01/03 5.750% $ 4,192,000
2,000 Washington Public Power Supply System, (Nuclear
Project #2, Refunding, Series 1990A)........... RB Aa1/AA- 07/01/06 7.250 2,300,960
5,265 Washington Public Power Supply System, (Nuclear
Project #2, Refunding, Series 1990A)........... RB Aa1/AA- 07/01/01 6.300 5,596,221
2,000 Washington Public Power Supply System, (Nuclear
Project #2, Refunding, Series 1990C, due
07/01/01), FGIC Insured........................ RB Aaa/AAA 01/01/01(b) 7.000 2,189,260
1,500 Washington Public Power Supply System, (Nuclear
Project #2, Refunding, Series 1990C, due
07/01/02)...................................... RB Aa1/AA- 01/01/01(b) 7.500 1,659,825
1,000 Washington, (Prerefunded, Series 1990B, due
08/01/02)...................................... GO Aa/AA 08/01/00(b) 6.750 1,077,210
3,000 Washington, (Refunding, Series 1995C, AT-8 and
R-95 B)........................................ GO Aa/AA 07/01/02 5.750 3,176,820
1,750 Washington, (Refunding, Series R-92-A, due
09/01/02)...................................... GO Aa/AA 09/01/01(b) 6.300 1,891,785
------------
TOTAL WASHINGTON............................. 43,977,181
------------
WEST VIRGINIA (0.2%)
1,000 Berkeley County Board of Education, (Escrowed to
Maturity, Series 1988), MBIA Insured........... GO Aaa/AAA 04/01/01 7.300 1,109,030
------------
WISCONSIN (2.1%)
1,500 Racine Unified School District, (due 04/01/01),
AMBAC Insured.................................. GO Aaa/AAA 04/01/99(b) 6.500 1,561,905
5,000 Wisconsin, (Series A)............................ GO Aa/AA 05/01/99 5.750 5,185,500
5,000 Wisconsin, Transportation Revenue, (Refunding,
Series A)...................................... RB A1/AA- 07/01/06 4.600 4,857,700
------------
TOTAL WISCONSIN.............................. 11,605,105
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
29
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
WYOMING (1.0%)
$ 3,600 Platte County, PCR, (Basin Electric Power
Cooperative, Refunding)........................ RB A2/A 01/01/06 4.950% $ 3,572,316
2,115 Platte County, PCR, (Basin Electric Power
Cooperative, Refunding)........................ RB A2/A 01/01/07 5.050 2,101,591
------------
TOTAL WYOMING................................ 5,673,907
------------
TOTAL LONG TERM INVESTMENTS (COST $526,863,219)............................................ 547,705,744
------------
SHORT-TERM INVESTMENTS (1.1%)
FLORIDA (0.0%)
100 Hillsborough County, Florida Industrial
Development Authority, PCR, (Refunding, due
05/15/18)...................................... VRDN VMIG1/A-1+ 03/03/97(a) 3.450 100,000
------------
GEORGIA (0.1%)
500 Bartow County, Georgia Development Authority,
PCR, (Georgia Power Co., 1st Series, due
06/01/23)...................................... VRDN VMIG1/NR 03/03/97(a) 3.450 500,000
300 Burke County, (Development Authority, PCR,
Georgia Power Plant, Series 1994, Vogtle
Project-4th. Series, due 07/01/24)............. VRDN VMIG1/A-1 03/03/97(a) 3.550 300,000
------------
800,000
------------
LOUISIANA (0.0%)
50 Louisiana, Public Facilities Authority, (Colleges
& University Equipment and Capital-Series A,
due 09/01/10), FGIC Insured.................... VRDN VMIG1/A-1 03/11/97(a) 3.300 50,000
------------
MICHIGAN (0.7%)
3,900 Midland County, Economic Development Corp.,
Limited Obligation Revenue, (Dow Chemical Co.
Project, Refunding, Series 1993B, due
12/01/15)...................................... VRDN P-1/A-1 03/03/97(a) 3.450 3,900,000
------------
NEW YORK (0.2%)
800 New York, (Sub-Series B-4, due 08/15/22),
LOC-Union Bank of Switzerland.................. VRDN VMIG1/A-1+ 03/03/97(a) 3.550 800,000
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
30
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT SECURITY MOODY'S MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE S&P DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
OREGON (0.1%)
$ 700 Port St. Helens, PCR, (Portland, Oregon General
Electric Co, due 04/01/10), LOC-Canadian
Imperial Bank.................................. VRDN VMIG1/A-1+ 03/03/97(a) 3.450% $ 700,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST $6,350,000)............................................. 6,350,000
------------
TOTAL INVESTMENTS (COST $533,213,219) (100.1%)................................................. 554,055,744
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.1%).................................................. (797,404)
------------
NET ASSETS (100.0%)............................................................................ $553,258,340
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $533,213,219 for federal income tax
purposes at February 28, 1997, the aggregate gross unrealized appreciation and
depreciation was $21,361,633 and $519,108, respectively, resulting in net
unrealized appreciation of investments of $20,842,525.
(a) Variable Rate Demand Note tender dates and/or interest rates are reset at
specified intervals which coincide with their tender feature. The actual
maturity date is indicated in the security description.
(b) The date listed under the heading maturity date represents an optional
tender date. The actual maturity date is indicated in the security
description.
AMBAC - Ambac Indemnity Corp., FHA - Federal Housing Authority, FGIC -
Financial Guaranty Insurance Company, GO - General Obligation, IDR -
Industrial Development Revenue, LOC - Letter of Credit, MBIA - Municipal
Bond Investors Assurance Corp., PCR - Pollution Control Revenue, PP -
Private Placement, PSFG - Permanent School Fund Guarantee, RB - Revenue
Bond, VRDN - Variable Rate Demand Note.
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 of the bond.
Prerefunded - Bonds for which the issuer of the bond invests the proceeds
from a subsequent bond issuance in treasury securities, whose maturity
coincides with the first call date of the first bond.
Refunding - Bonds for which the issuer has issued new bonds and cancelled
the old issue.
The Accompanying Notes are an Integral Part of the Financial Statements.
31
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $533,213,219 ) $554,055,744
Cash 39,983
Interest Receivable 6,509,529
Prepaid Expenses and Other Assets 6,110
------------
Total Assets 560,611,366
------------
LIABILITIES
Payable for Investments Purchased 7,128,181
Advisory Fee Payable 126,219
Custody Fee Payable 38,616
Administrative Services Fee Payable 13,238
Administration Fee Payable 2,189
Fund Services Fee Payable 1,056
Accrued Trustees' Fees and Expenses 356
Accrued Expenses 43,171
------------
Total Liabilities 7,353,026
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $553,258,340
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
32
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $13,926,876
EXPENSES
Advisory Fee $775,954
Custodian Fees and Expenses 89,324
Administrative Services Fee 82,134
Professional Fees and Expenses 18,578
Fund Services Fee 10,138
Administration Fee 5,477
Trustees' Fees and Expenses 4,163
--------
Total Expenses 985,768
-----------
NET INVESTMENT INCOME 12,941,108
NET REALIZED GAIN ON INVESTMENTS 612,683
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 7,533,352
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $21,087,143
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX
MONTHS ENDED FOR THE FISCAL
FEBRUARY 28, 1997 YEAR ENDED
(UNAUDITED) AUGUST 31, 1996
----------------- ---------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 12,941,108 $ 22,197,847
Net Realized Gain on Investments 612,683 605,789
Net Change in Unrealized Appreciation
(Depreciation) of Investments 7,533,352 (4,888,459)
----------------- ---------------
Net Increase in Net Assets Resulting from
Operations 21,087,143 17,915,177
----------------- ---------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 134,710,086 224,578,237
Withdrawals (93,922,848) (163,747,318)
----------------- ---------------
Net Increase from Investors' Transactions 40,787,238 60,830,919
----------------- ---------------
Total Increase in Net Assets 61,874,381 78,746,096
NET ASSETS
Beginning of Period 491,383,959 412,637,863
----------------- ---------------
End of Period $ 553,258,340 $ 491,383,959
----------------- ---------------
----------------- ---------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE FOR THE PERIOD
FOR THE FISCAL YEAR JULY 12, 1993
SIX MONTHS ENDED ENDED AUGUST 31, (COMMENCEMENT OF
FEBRUARY 28, 1997 ------------------ OPERATIONS) TO
(UNAUDITED) 1996 1995 1994 AUGUST 31, 1993
----------------- ---- ---- ---- ----------------
<S> <C> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.38%(a) 0.38% 0.42% 0.41% 0.40%(a)
Net Investment Income 4.99%(a) 4.92% 5.15% 4.68% 4.58%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- -- -- 0.01%(a)
PORTFOLIO TURNOVER 13%(b) 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.
34
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
FEBRUARY 28, 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 no-load, diversified, open-end
management investment company which was organized as a trust under the laws of
the State of New York. The Portfolio commenced operations on July 12, 1993 and
received a contribution of certain assets and liabilities, including securities,
with a value of $466,873,082 on that date from The JPM 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 taxes 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.
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 six months ended February 28, 1997, this
fee amounted to $775,954.
35
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
b)The Portfolio has retained Funds Distributor, Inc. ("FDI"), a registered
broker-dealer, to serve as co-administrator and exclusive placement agent.
Under a Co-Administration Agreement, 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 Portfolio's officers affiliated with FDI. Under
the Co-Administration Agreement, the Portfolio 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 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 other portfolios (the "Master
Portfolios") in which The JPM Pierpont Funds, The JPM Institutional Funds
and The JPM Advisor Funds invest, JPM Series Trust and JPM Series Trust
II. For the six months ended February 28, 1997, the fee for these services
amounted to $5,477.
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 were 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 proportionate share of an annual complex-wide charge. This
charge is calculated daily based on the aggregate 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 paid by the Portfolio is determined by the proportionate share
that its net assets bear to the net assets of the Master Portfolios,
investors in the Master Portfolios for which Morgan provides similar
services, and JPM Series Trust. For the six months ended February 28,
1997, the fee for these services amounted to $82,134.
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 $10,138 for the six months ended February 28, 1997.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, the
Master Portfolios and JPM Series Trust. The Trustee's Fees and Expenses
shown in the financial statements represents the Portfolio's allocated
portion of the total fees and expenses. The Portfolio's Chairman and Chief
Executive Officer also serves as Chairman of Group and received
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $1,300.
36
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
FEBRUARY 28, 1997
- --------------------------------------------------------------------------------
3. INVESTMENT TRANSACTIONS
Investments transactions (excluding short-term investments) for the six months
ended February 28, 1997 were as follows:
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
$132,908,932 $ 65,278,445
37
<PAGE>
JPM PIERPONT 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
JPM PIERPONT DIVERSIFIED FUND
JPM PIERPONT EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE DISCIPLINED EQUITY FUND
JPM PIERPONT CAPITAL APPRECIATION 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
FOR YOUR FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411.
THE
JPM PIERPONT
TAX EXEMPT
BOND FUND
SEMI-ANNUAL REPORT
FEBRUARY 28, 1997
