<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
SCHEDULE OF INVESTMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (96.1%)
ALABAMA (0.8%)
$ 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% $ 1,090,820
1,810 Childersburg Industrial Development Board, PCR,
Kimberly Clark Corp. Project, (Escrowed to
Maturity, due 11/15/99) ....................... RB Aa2/AA 11/15/96(b) 7.400 1,887,052
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 1,106,340
------------
TOTAL ALABAMA ............................... 4,084,212
------------
ALASKA (2.5%)
2,000 Anchorage, (Prerefunded, Series 1991, due
07/01/02), MBIA Insured ....................... GO Aaa/AAA 07/01/01(b) 6.600 2,162,700
1,075 Anchorage, (Refunding, Series 1989, due
06/01/03), AMBAC Insured ...................... GO Aaa/AAA 06/01/99(b) 7.100 1,144,509
1,000 Anchorage, (Series 1990A), AMBAC Insured ........ GO Aaa/AAA 02/01/00 6.850 1,069,350
3,000 North Slope Borough, (Series 1992A), MBIA
Insured ....................................... GO Aaa/AAA 06/30/00 5.550 3,098,910
5,500 North Slope Borough, Capital Appreciation, Zero
Coupon, (Series 1996A), MBIA Insured .......... GO Aaa/AAA 06/30/99 0.000 4,816,350
------------
TOTAL ALASKA ................................ 12,291,819
------------
ARIZONA (1.2%)
1,000 Maricopa County School District #11, Peoria
Unified School Improvement, (Prerefunded,
Series 1990H, due 07/01/05), MBIA Insured ..... GO Aaa/AAA 07/01/01(b) 7.000 1,098,830
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 1,407,799
1,750 Phoenix, (Refunding, Series C) .................. GO Aa1/AA+ 07/01/02 6.375 1,899,817
1,235 Salt River Project Agricultural Improvement and
Power District Electric System, (Prerefunded,
Series A, due 01/01/28) ....................... RB Aaa/AAA 01/01/98(b) 7.875 1,318,572
------------
TOTAL ARIZONA ............................... 5,725,018
------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
CALIFORNIA (3.4%)
$ 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% $ 2,887,114
594 Kaweah Delta Hospital District, Tulare County,
(Series D, due 06/01/14) ...................... PP NR/A+ 06/01/97(b) 4.700 595,485
1,160 Kaweah Delta Hospital District, Tulare County,
(Series E, due 06/01/14) ...................... PP NR/A+ 06/01/97(b) 5.250 1,171,693
1,695 Kaweah Delta Hospital District, Tulare County,
(Series G, due 06/01/14) ...................... PP NR/A+ 06/01/04(b) 6.400 1,795,530
3,000 Los Angeles County Public Works, (Refunding,
Series A), MBIA Insured ....................... RB Aaa/AAA 09/01/05 6.000 3,204,150
2,500 Los Angeles County Public Works, (Refunding,
Series A), MBIA Insured ....................... RB Aaa/AAA 09/01/06 6.000 2,666,500
4,000 Los Angeles Department of Water & Power,
California Electric Plant, (Crossover Refunded,
due 05/15/30) ................................. RB A1/AA- 05/15/00(b) 7.125 4,410,840
------------
TOTAL CALIFORNIA ............................ 16,731,312
------------
CONNECTICUT (1.0%)
2,000 Connecticut Housing Finance Authority, Housing
Mortgage Finance Program, (Refunding, Series
1987B) ........................................ RB Aa/AA 11/15/97 8.100 2,063,520
2,815 Connecticut Transportation Infrastructure,
Special Tax Obligation, (Prerefunded, Series
1991A, due 06/01/04) .......................... RB A1/AA- 06/01/03(b) 6.600 3,082,312
------------
TOTAL CONNECTICUT ........................... 5,145,832
------------
DISTRICT OF COLUMBIA (2.7%)
3,000 District of Columbia, (Refunding, Series A), MBIA
Insured ....................................... GO Aaa/AAA 06/01/07 6.000 3,125,190
7,500 District of Columbia, (Refunding, Series C), FGIC
Insured ....................................... GO Aaa/AAA 12/01/03 5.250 7,530,750
2,600 District of Columbia, (Series B), MBIA
Insured ....................................... GO Aaa/AAA 06/01/02 6.000 2,715,154
------------
TOTAL DISTRICT OF COLUMBIA .................. 13,371,094
------------
FLORIDA (2.7%)
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 1,612,318
465 Florida Board of Education, Capital Outlay,
(Unrefunded Balance, Series 1986C, due
06/01/01) ..................................... GO Aa/AA 06/01/97(b) 7.000 475,518
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
FLORIDA (CONTINUED)
$ 5,475 Florida Turnpike Authority Department of
Transportation, (Series A), AMBAC Insured ..... RB Aaa/AAA 07/01/01 5.500% $ 5,681,298
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 3,436,224
2,000 Volusia County School District, (Refunding,
Series 1991, due 08/01/02), FGIC Insured ...... GO Aaa/AAA 08/01/01(b) 6.100 2,139,940
------------
TOTAL FLORIDA ............................... 13,345,298
------------
GEORGIA (8.6%)
3,750 Atlanta Airport Facilities, (Refunding), AMBAC
Insured ....................................... RB Aaa/AAA 01/01/98 5.000 3,786,412
2,630 Fulton County School District, (Refunding) . GO Aa/AA 05/01/14 6.375 2,856,548
4,265 Georgia Municipal Electric Authority, (Crossover
Refunded, Series O, due 01/01/17) ............. RB A/A 01/01/98(b) 8.125 4,540,391
1,000 Georgia Municipal Electric Authority, (Refunding,
Series D) ..................................... RB A/A 01/01/06 6.000 1,036,780
1,155 Georgia Residential Finance Authority, Single
Family Insured Mortgages, (Refunding, Series
1986A, due 12/01/98), FHA Insured ............. RB Aa/AA+ 12/01/96(b) 6.600 1,195,991
6,000 Georgia, (Series B) ............................. GO Aaa/AA+ 03/01/07 7.200 6,996,720
3,000 Georgia, (Series B) ............................. GO Aaa/AA+ 03/01/10 6.300 3,262,500
4,470 Georgia, (Series C) ............................. GO Aaa/AA+ 07/01/11 5.700 4,559,489
3,000 Georgia, (Series D) ............................. GO Aaa/AA+ 09/01/13 3.250 2,233,290
2,500 Gwinnett County School District, (Refunding,
Series B) ..................................... GO Aa1/AA 02/01/08 6.400 2,742,200
5,000 Metropolitan Atlanta Rapid Transit Authority,
Sales Tax Revenue, (Refunding, Series P), AMBAC
Insured ....................................... RB Aaa/AAA 07/01/11 6.250 5,366,000
1,000 Municipal Electric Authority, (First Crossover,
General Resolution) ........................... SO A/A 01/01/12 6.500 1,070,370
2,500 Municipal Electric Authority, Project 1, (Sixth
Crossover), AMBAC Insured ..................... RB Aaa/AAA 01/01/08 7.000 2,856,150
------------
TOTAL GEORGIA ............................... 42,502,841
------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
HAWAII (0.8%)
$ 2,000 Hawaii, (Series BZ) ............................. GO Aa/AA 10/01/12 6.000% $ 2,083,980
2,000 Honolulu, City & County Improvement, (Refunding,
Series B) ..................................... GO Aa/AA 10/01/11 5.500 1,989,760
------------
TOTAL HAWAII ................................ 4,073,740
------------
ILLINOIS (9.8%)
2,000 Chicago, (Refunding, Series B), FGIC Insured .... GO Aaa/AAA 01/01/00 5.000 2,020,040
1,500 Chicago, (Series 1995), AMBAC Insured ........... GO Aaa/AAA 01/01/05 6.500 1,634,655
1,000 Chicago, Board of Education Lease Certificates,
(Series A), MBIA Insured ...................... RB Aaa/AAA 01/01/06 6.125 1,063,840
4,130 Chicago, Board of Education Lease Certificates,
(Series A), MBIA Insured ...................... RB Aaa/AAA 01/01/07 6.125 4,406,586
4,000 Chicago, Equipment Notes, (Series 1996), AMBAC
Insured ....................................... GO Aaa/AAA 01/01/04 5.600 4,133,160
1,500 Chicago, O'Hare International Airport,
(Refunding, Series C-1), MBIA Insured ......... RB Aaa/AAA 01/01/09 5.750 1,526,415
3,280 Cook County, (Refunding, Series C), FGIC
Insured ....................................... GO Aaa/AAA 11/15/04 5.800 3,454,168
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 4,325,600
1,375 Du Page County, Illinois Alternative Revenue Jail
Project, (Prerefunded, Series C-1, due
01/01/21) ..................................... GO Aaa/AAA 01/01/02(b) 6.550 1,510,657
1,640 Illinois, (Prerefunded, due 06/01/03) ........... GO A1/AAA 06/01/97(b) 7.500 1,715,325
2,000 Illinois, (Refunding, Series 1987, due
04/01/02) ..................................... GO A1/AA- 04/01/97(b) 6.500 2,066,360
2,000 Illinois, (Series 1986, due 12/01/01) ........... GO A1/AA- 12/01/96(b) 6.250 2,051,800
3,000 Illinois, Sales Tax Revenue, (Refunding, Series
Q) ............................................ RB A1/AAA 06/15/09 6.000 3,130,590
3,250 Illinois, Sales Tax Revenue, (Refunding, Series
Q) ............................................ RB A1/AAA 06/15/12 6.000 3,360,597
3,350 Illinois, Sales Tax Revenue, (Series R) ......... RB A1/AAA 06/15/01 4.600 3,335,561
950 Kendall Kane & Will Counties, Community Unit
School District #308, FGIC Insured ............ GO Aaa/AAA 03/01/99 6.200 988,057
2,500 Metropolitan Pier & Exposition Authority,
McCormick Place Expansion Project, (Series
A) ............................................ RB A/A+ 06/15/06 8.500 3,096,025
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
ILLINOIS (CONTINUED)
$ 2,810 Regional Transportation Authority, (Series D),
FGIC Insured .................................. RB Aaa/AAA 06/01/07 7.750% $ 3,343,478
1,000 University of Illinois, Auxiliary Facilities,
(Escrowed to Maturity, Series 1992N, due
10/01/01) ..................................... RB Aaa/AAA 10/01/96(b) 6.000 1,032,640
------------
TOTAL ILLINOIS .............................. 48,195,554
------------
INDIANA (0.8%)
3,915 Indiana, Transportation Finance Authority,
Highway Revenue, (Refunding, Series A), AMBAC
Insured ....................................... RB Aaa/AAA 06/01/09 5.250 3,839,832
------------
KENTUCKY (0.9%)
3,900 Kentucky, Turnpike Authority, (Escrowed to
Maturity, Series A, due 07/01/02) ............. RB Aaa/NR 07/01/97(b) 7.100 4,202,484
------------
LOUISIANA (1.7%)
8,000 Louisiana, (Refunding, Series A), FGIC
Insured ....................................... GO Aaa/AAA 08/01/00 6.000 8,394,240
------------
MARYLAND (0.9%)
1,000 Maryland Department of Transportation,
(Prerefunded, Series 1990, due 08/15/05) . RB Aaa/AAA 08/15/99(b) 6.700 1,080,710
3,000 Maryland, (3rd Series, due 07/15/03) ............ GO Aaa/AAA 07/15/01(b) 6.400 3,224,880
------------
TOTAL MARYLAND .............................. 4,305,590
------------
MASSACHUSETTS (1.9%)
5,650 Massachusetts Bay Transportation Authority,
General Transportation System, (Refunding,
Series A) ..................................... RB A1/A+ 03/01/08 7.000 6,437,949
1,495 Massachusetts, College Building Authority,
(Refunding, Series A) ......................... RB A1/A+ 05/01/11 7.500 1,783,131
1,060 Wareham, School Project Loan Bonds, (due
01/15/03), AMBAC Insured ...................... GO Aaa/AAA 01/15/01(b) 6.800 1,163,392
------------
TOTAL MASSACHUSETTS ......................... 9,384,472
------------
MINNESOTA (1.2%)
5,265 Western Minnesota Municipal Power Agency,
(Prerefunded, Series 1983A, due 01/01/04), MBIA
Insured ....................................... RB Aaa/AAA 01/01/97(b) 10.125 5,854,522
------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
MISSISSIPPI (2.4%)
$ 11,000 Mississippi, (Refunding, Escrowed to
Maturity) ..................................... GO Aaa/AAA 02/01/08 6.200% $ 11,955,570
------------
MISSOURI (0.9%)
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 4,480,120
------------
NEBRASKA (0.8%)
4,000 Nebraska Public Power District, Nuclear
Facilities, (Refunding) ....................... RB A1/A+ 07/01/00 5.200 4,079,040
------------
NEVADA (4.5%)
500 Carson City School District, (Prerefunded, Series
1990, due 04/01/03), FGIC Insured ............. GO Aaa/AAA 04/01/00(b) 6.750 541,095
8,200 Clark County School District, (Series A), MBIA
Insured ....................................... GO Aaa/AAA 06/01/11 7.000 9,404,006
3,000 Clark County School District, FGIC Insured . GO Aaa/AAA 06/15/03 6.000 3,177,780
3,000 Clark County, Passenger Facilities, Las Vegas
McCarran International Airport, (Series A),
AMBAC Insured ................................. RB Aaa/AAA 07/01/08 6.250 3,245,190
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 1,820,744
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 1,301,292
1,280 Las Vegas, Clark County Library District,
(Refunding, Series B, due 08/01/04), FGIC
Insured ....................................... GO Aaa/AAA 08/01/01(b) 6.700 1,397,274
1,330 Nevada, Prison Facilities, (Prerefunded, Series
1990A, due 08/01/04) .......................... GO Aa/AA 08/01/00(b) 7.000 1,461,949
------------
TOTAL NEVADA ................................ 22,349,330
------------
NEW HAMPSHIRE (0.4%)
1,720 New Hampshire, (Series 1991A, due 06/15/03) ..... GO Aa/AA+ 06/15/01(b) 6.600 1,881,474
------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW JERSEY (8.1%)
$ 2,200 New Jersey, Economic Development Authority,
Market Transition Facilities, (Series A), MBIA
Insured ....................................... RB Aaa/AAA 07/01/00 5.125% $ 2,242,372
7,000 New Jersey, Economic Development Authority,
Market Transition Facilities, (Series A), MBIA
Insured ....................................... RB Aaa/AAA 07/01/02 5.400 7,221,900
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 1,405,957
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 2,115,489
1,500 New Jersey, Sports & Exposition Authority, Sports
Complex, (Refunding, Escrowed to Maturity) .... RB Aa1/NR 01/01/00 8.100 1,659,480
6,000 New Jersey, Transportation Authority, (Refunding,
Series B), MBIA Insured ....................... RB Aaa/AAA 06/15/01 6.000 6,349,140
6,000 New Jersey, Transportation Authority, (Refunding,
Series B), MBIA Insured ....................... RB Aaa/AAA 06/15/05 6.000 6,408,900
7,000 New Jersey, Transportation Traffic Authority,
(Refunding, Series B), MBIA Insured ........... RB Aaa/AAA 06/15/10 6.500 7,734,160
2,500 New Jersey, Turnpike Authority, (Refunding,
Series A), MBIA Insured ....................... RB Aaa/AAA 01/01/00 6.200 2,622,225
1,000 New Jersey, Turnpike Authority, (Refunding,
Series A), MBIA Insured ....................... RB Aaa/AAA 01/01/01 5.700 1,039,940
1,000 Ocean County, (General Improvement) ............. GO Aa/NR 04/15/00 6.375 1,060,630
------------
TOTAL NEW JERSEY ............................ 39,860,193
------------
NEW YORK (7.2%)
110 Monroe County, Public Improvement, (Prerefunded,
due 06/01/09), AMBAC Insured .................. GO Aaa/AAA 06/01/04(b) 6.000 117,755
120 Monroe County, Public Improvement, (Prerefunded,
due 06/01/10), AMBAC Insured .................. GO Aaa/AAA 06/01/04(b) 6.000 128,460
1,990 Monroe County, Public Improvement, (Unrefunded
Balance, due 06/01/09), AMBAC Insured ......... GO Aaa/AAA 06/01/04(b) 6.000 2,100,724
1,295 Monroe County, Public Improvement, (Unrefunded
Balance, due 06/01/10), AMBAC Insured ......... GO Aaa/AAA 06/01/04(b) 6.000 1,361,887
1,000 Municipal Assistance Corp. for the City of New
York, (Custodial Receipt Certificates,
Refunding, Series 1987-61, due 7/01/07), MBIA
Insured ....................................... RB Aaa/AAA 07/01/97(b) 6.875 1,043,360
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
NEW YORK (CONTINUED)
$ 1,500 Municipal Assistance Corp. for the City of New
York, (Refunding, Series D), AMBAC Insured .... RB Aaa/AAA 07/01/02 5.250% $ 1,536,195
2,000 Municipal Assistance Corp. for the City of New
York, (Series E) .............................. RB Aa/A+ 07/01/06 6.000 2,129,740
1,465 New York City, (Escrowed to Maturity, Series
B) ............................................ GO Aaa/AAA 06/01/01 8.000 1,668,620
4,675 New York City, (Refunding, Series H, Subseries
H-1) .......................................... GO Baa1/BBB+ 08/01/01 5.500 4,716,795
2,645 New York City, (Series A) ....................... GO Baa1/BBB+ 08/01/02 5.750 2,677,877
2,000 New York City, (Series F) ....................... GO Baa1/BBB+ 02/15/02 6.100 2,055,860
3,425 New York City, (Series F) ....................... GO Baa1/BBB+ 02/15/03 6.200 3,510,762
1,500 New York, Urban Development Correctional Capital
Facilities, (Prerefunded, Series 1, due
01/01/14) ..................................... RB Aaa/NR 01/01/00(b) 7.750 1,676,625
4,000 Triborough Bridge & Tunnel Authority, (Refunding,
Series V, due 01/01/05), FGIC Insured ......... RB Aaa/AAA 01/01/01(b) 6.875 4,406,080
5,500 Triborough Bridge & Tunnel Authority, (Refunding,
Series X) ..................................... RB Aa/A+ 01/01/12 6.625 6,104,670
------------
TOTAL NEW YORK .............................. 35,235,410
------------
OHIO (0.9%)
3,525 Ohio Water Development Authority, (Refunding,
Series Safe Water II, Escrowed to Maturity, due
12/01/10) ..................................... RB Aaa/AAA 12/01/96(b) 9.375 4,352,247
------------
PENNSYLVANIA (3.0%)
1,175 Bethel Park School District, (Prerefunded, Series
1991B, due 02/01/02), AMBAC Insured ........... GO Aaa/AAA 02/01/00(b) 6.550 1,250,506
2,800 Pennsylvania Higher Educational Facilities
Authority, Health Services Revenue, University
of Pennsylvania, (Series A) ................... RB Aa/AA 01/01/06 6.000 2,953,188
5,000 Pennsylvania Intergovernmental Coop Authority
Special Tax Revenue, (Refunding), FGIC
Insured ....................................... RB Aaa/AAA 06/15/01 6.000 5,262,450
1,500 Pennsylvania, (2nd Series 1991A, due 11/01/04),
MBIA Insured .................................. GO Aaa/AAA 11/01/01(b) 6.500 1,635,885
1,000 Pennsylvania, Custodial Receipt Certificates,
(Refunding and Projects, 1st Series A), AMBAC
Insured ....................................... GO Aaa/AAA 01/01/01 6.600 1,075,540
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
PENNSYLVANIA (CONTINUED)
$ 970 Pennsylvania, Higher Education Assistance Agency,
Student Loan, (Refunding, Series 1985A), FGIC
Insured ....................................... RB Aaa/AAA 12/01/00 6.800% $ 1,037,580
1,310 Pennsylvania, Higher Education Facilities
Authority College, (Refunding, Series A) ...... RB Aa/AA 09/01/02 6.500 1,424,953
------------
TOTAL PENNSYLVANIA .......................... 14,640,102
------------
PUERTO RICO (0.9%)
2,000 Puerto Rico Commonwealth Aqueduct & Sewer
Authority, (Refunding) ........................ RB Baa1/A 07/01/98 4.400 2,000,940
2,000 Puerto Rico Commonwealth Highway & Transportation
Authority, Highway Revenue, (Refunding, Series
Z), MBIA Insured .............................. RB Aaa/AAA 07/01/05 6.250 2,190,100
------------
TOTAL PUERTO RICO ........................... 4,191,040
------------
RHODE ISLAND (2.3%)
2,000 Rhode Island, (Prerefunded, Series 1990B, due
10/15/01) ..................................... GO A1/AA- 10/15/99(b) 6.700 2,159,660
3,785 Rhode Island, (Series 1991B) .................... GO A1/AA- 05/15/00 6.000 3,945,143
5,000 Rhode Island, Public Buildings Authority, Public
Projects, (Refunding, Series A), AMBAC
Insured ....................................... RB Aaa/AAA 02/01/00 4.700 4,999,800
------------
TOTAL RHODE ISLAND .......................... 11,104,603
------------
SOUTH CAROLINA (0.2%)
1,000 Piedmont Municipal Power Agency, (Escrowed to
Maturity), MBIA Insured ....................... RB Aaa/AAA 01/01/08 6.200 1,074,990
------------
TENNESSEE (0.4%)
2,000 Chattanooga, Industrial Development Board, (IDR,
Gerber/Buster Brown Manufacturing, Inc., due
11/01/05) ..................................... RB A1/NR 11/01/96(b) 4.000 2,000,720
------------
TEXAS (6.8%)
1,500 Addison, (Refunding, Series 1991, due 09/01/00),
FGIC Insured .................................. GO Aaa/AAA 09/01/98(b) 6.250 1,543,365
1,000 Arlington, Permanent Improvement School Fund
Guarantee, (Series 1989, due 08/01/00), AMBAC
Insured ....................................... GO Aaa/AAA 08/01/99(b) 6.850 1,061,890
1,050 Austin, Independent School District, (Refunding,
Series 1991), PSFG Insured .................... GO Aaa/AAA 08/01/99 6.200 1,100,033
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
TEXAS (CONTINUED)
$ 1,500 Austin, Utilities System, (Escrowed to Maturity,
Series 6, due 10/01/01) ....................... RB Aaa/AAA 10/01/96(b) 6.500% $ 1,621,515
335 Austin, Water Sewer & Electric, (Refunding,
Escrowed to Maturity) ......................... RB A/A- 11/15/97 13.500 371,401
25 Conroe, Independent School District, (Partially
Prerefunded, Series 1989, due 02/01/01), MBIA
Insured ....................................... GO Aaa/AAA 02/01/99(b) 7.100 26,338
975 Conroe, Independent School District,
(Prerefunded, Series 1989, due 02/01/01), MBIA
Insured ....................................... GO Aaa/AAA 02/01/99(b) 7.100 1,035,899
1,265 Conroe, Independent School District, Lot A, PSFG
Insured ....................................... GO Aaa/AAA 02/01/03 6.500 1,378,901
2,260 Corpus Christi, Independent School District,
(Refunding), PSFG Insured ..................... GO Aaa/AAA 08/15/05 6.000 2,408,098
1,305 Dallas County, Flood Control District #1,
(Prerefunded, due 04/01/10) ................... GO Aaa/NR 04/01/08(b) 9.250 1,738,169
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 1,780,994
3,805 Fort Worth, Independent School District,
(Refunding, Series 1987) ...................... GO Aa/AA 02/15/98 6.000 3,899,212
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 1,827,007
3,805 Lewisville, Independent School District,
(Refunding), PSFG Insured ..................... GO Aaa/NR 08/15/03 6.000 4,053,809
2,000 Plano, Independent School District, (Prerefunded,
Series 1991B, due 02/15/04), FGIC Insured ..... GO Aaa/AAA 02/15/01(b) 6.550 2,150,540
750 Texas A & M University, (Prerefunded, Series
1989, due 07/01/99) ........................... RB Aaa/AAA 07/01/97(b) 6.600 780,953
700 Texas A & M University, (Refunding, Series 1989,
due 07/01/98) ................................. RB Aaa/AAA 07/01/97(b) 6.500 727,391
2,000 Texas, Public Finance Authority, (Prerefunded,
Series 1988A, due 10/01/02) ................... GO NR/AA 10/01/00(b) 6.300 2,128,300
1,000 Texas, Public Finance Authority, (Prerefunded,
Series 1991A, due 10/01/05) ................... GO NR/AA 10/01/00(b) 6.500 1,071,530
2,500 University of Texas, Permanent University Fund,
(Refunding, Series 1991) ...................... RB Aaa/AAA 07/01/01 6.300 2,676,625
------------
TOTAL TEXAS ................................. 33,381,970
------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
UTAH (3.8%)
$ 1,625 Intermountain Power Agency, (Refunding, Series
B), MBIA Insured .............................. RB Aaa/AAA 07/01/09 6.500% $ 1,779,343
5,130 Intermountain Power Agency, (Refunding, Series
C), MBIA Insured .............................. RB Aaa/AAA 07/01/00 6.000 5,379,575
4,155 Intermountain Power Agency, (Refunding, Series
C), MBIA Insured .............................. RB Aaa/AAA 07/01/01 6.000 4,385,935
6,645 Intermountain Power Agency, (Refunding, Series
C), MBIA Insured .............................. RB Aaa/AAA 07/01/02 6.000 7,046,159
------------
TOTAL UTAH .................................. 18,591,012
------------
VIRGINIA (1.5%)
5,000 Virginia Public School Authority, (Refunding,
Series 1991C) ................................. RB Aa/AA 01/01/02 6.000 5,283,950
2,000 Virginia Public School Authority, (Series A, due
08/01/04) ..................................... RB Aa/AA 08/01/01(b) 6.500 2,175,320
------------
TOTAL VIRGINIA .............................. 7,459,270
------------
WASHINGTON (6.5%)
1,555 King & Snohomish Counties, School District #417,
(due 12/01/02), FGIC Insured .................. GO Aaa/AAA 12/01/00(b) 6.600 1,657,428
6,355 King County, (Refunding, Series B) .............. GO Aa1/AA+ 01/01/01 6.700 6,861,303
1,000 Pierce County, School District #320, Sumner
Washington, Custodial Receipt Certificates,
(Series 1991, due 12/01/02), MBIA Insured ..... GO Aaa/AAA 12/01/01(b) 6.600 1,081,930
2,955 Seattle, Municipal Sewer Revenue, (Prerefunded,
Series T, due 01/01/31) ....................... RB Aaa/AA- 01/01/00(b) 6.875 3,211,169
1,250 Snohomish County, School District #2, Everett,
Custodial Receipt Certificates, (Refunding,
Series A, due 12/01/02), MBIA Insured ......... GO Aaa/AAA 06/01/01(b) 6.700 1,343,150
1,000 Washington, (Prerefunded, Series 1990B, due
08/01/02) ..................................... GO Aa/AA 08/01/00(b) 6.750 1,074,410
3,000 Washington, (Refunding, Series 1995C, AT-8 and
R-95 B) ....................................... GO Aa/AA 07/01/02 5.750 3,144,900
1,750 Washington, (Refunding, Series R-92-A, due
09/01/02) ..................................... GO Aa/AA 09/01/01(b) 6.300 1,879,325
2,000 Washington, Public Power Supply System, Nuclear
Project #2, (Refunding, Series 1990A) ......... RB Aa1/AA- 07/01/06 7.250 2,218,800
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 1,644,285
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
WASHINGTON (CONTINUED)
$ 5,265 Washington, Public Power Supply System, Nuclear
Project #2, (Refunding, Series A) ............. RB Aa1/AA- 07/01/01 6.300% $ 5,534,621
2,000 Washington, Public Power Supply System, Nuclear
Project #2, (Refunding, Series C, due
07/01/01), FGIC Insured ....................... RB Aaa/AAA 01/01/01(b) 7.000 2,173,340
------------
TOTAL WASHINGTON ............................ 31,824,661
------------
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 1,107,350
------------
WISCONSIN (3.2%)
1,500 Racine, Unified School District, (due 04/01/01),
AMBAC Insured ................................. GO Aaa/AAA 04/01/99(b) 6.500 1,564,575
4,000 Wisconsin, (Refunding) .......................... GO Aa/AA 05/01/03 6.000 4,259,160
5,000 Wisconsin, (Series A) ........................... GO Aa/AA 05/01/99 5.750 5,167,900
5,000 Wisconsin, Transportation, (Refunding, Series
A) ............................................ RB A1/AA- 07/01/06 4.600 4,715,000
------------
TOTAL WISCONSIN ............................. 15,706,635
------------
WYOMING (1.2%)
3,600 Platte County, Pollution Control, Basin Electric
Power Cooperative, (Refunding) ................ RB A2/A 01/01/06 4.950 3,603,744
2,115 Platte County, Pollution Control, Basin Electric
Power Cooperative, (Refunding) ................ RB A2/A 01/01/07 5.050 2,134,373
------------
TOTAL WYOMING ............................... 5,738,117
------------
TOTAL LONG TERM INVESTMENTS (COST
$459,167,698) ............................. 472,461,714
------------
SHORT-TERM INVESTMENTS (3.1%)
CALIFORNIA (2.6%)
12,000 California, (Revenue Anticipation Notes, Series
A) ............................................ RAN MIGI/Sp1+ 06/30/97(b) 4.500 12,065,760
600 Los Angeles, (California Regional Airports
Improvement Corp., Los Angeles International
Airport, Series 1985, due 12/01/25), LOC
Societe Generale .............................. VRDN NR/A-1+ 09/03/96(a) 3.700 600,000
------------
12,665,760
------------
</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, 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE (UNAUDITED) DATE RATE VALUE
- -------------- ------------------------------------------------- ------- --------------- ---------- ------ ------------
<C> <S> <C> <C> <C> <C> <C>
COLORADO (0.2%)
$ 800 Moffat County, (Pollution Control Revenue,
Pacificorp Projects, due 05/01/13), AMBAC
Insured ....................................... VRDN VMIGI/A-1 09/03/96(a) 3.850% $ 800,000
------------
NEW YORK (0.3%)
500 New York City Municipal Water Finance Authority,
(Water and Sewer Systems, Series 1995A, due
06/15/25), FGIC Insured ....................... VRDN VMIGI/A-1+ 09/03/96(a) 4.000 500,000
1,100 New York State, Energy Research & Development
Authority, (Niagara Mohawk Power Corp., Series
1985A, due 07/01/15), LOC Toronto Dominion
Bank .......................................... VRDN NR/A-1+ 09/03/96(a) 3.950 1,100,000
------------
1,600,000
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$15,050,603) .............................. 15,065,760
------------
TOTAL INVESTMENTS (COST $474,218,301) (99.2%) ................................................. 487,527,474
OTHER ASSETS IN EXCESS OF LIABILITIES (0.8%) .................................................. 3,856,485
------------
NET ASSETS (100.0%) ........................................................................... $491,383,959
------------
------------
</TABLE>
- ------------------------------
Note: Based on the cost of investments of $474,218,301 for federal income tax
purposes at August 31, 1996, the aggregate gross unrealized appreciation and
depreciation was $14,999,285 and $1,690,112, respectively, resulting in net
unrealized appreciation of investments of $13,309,173.
(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, RAN - Revenue Anticipation
Note, RB - Revenue Bond, SO - Special Obligation, VRDN - Variable Rate Demand
Note.
Crossover Refunded - Bonds for which the issuer of the bond invests the
proceeds from a susequent 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 susequent 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.
32
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $474,218,301 ) $487,527,474
Cash 15,654
Interest Receivable 5,890,338
Prepaid Expenses and Other Assets 1,411
------------
Total Assets 493,434,877
------------
LIABILITIES
Payable for Investments Purchased 1,802,863
Advisory Fee Payable 124,357
Custody Fee Payable 38,866
Administrative Services Fee Payable 13,585
Administration Fee Payable 5,893
Fund Services Fee Payable 909
Accrued Trustees' Fees and Expenses 784
Accrued Expenses 63,661
------------
Total Liabilities 2,050,918
------------
NET ASSETS
Applicable to Investors' Beneficial Interests $491,383,959
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
33
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 31, 1996
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $23,902,214
EXPENSES
Advisory Fee $1,354,145
Custodian Fees and Expenses 126,668
Administrative Services Fee 80,281
Professional Fees and Expenses 50,685
Administration Fee 44,074
Fund Services Fee 24,602
Trustees' Fees and Expenses 10,586
Printing Expenses 8,589
Insurance Expense 2,377
Registration Fees 860
Miscellaneous 1,500
---------
Total Expenses 1,704,367
-----------
NET INVESTMENT INCOME 22,197,847
NET REALIZED GAIN ON INVESTMENTS 605,789
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS (4,888,459)
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $17,915,177
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
34
<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, AUGUST 31,
1996 1995
-------------- --------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 22,197,847 $ 20,242,631
Net Realized Gain on Investments 605,789 377,206
Net Change in Unrealized Appreciation of
Investments (4,888,459) 9,384,271
-------------- --------------
Net Increase in Net Assets Resulting from
Operations 17,915,177 30,004,108
-------------- --------------
TRANSACTIONS IN INVESTORS' BENEFICIAL INTERESTS
Contributions 224,578,237 221,887,625
Withdrawals (163,747,318) (248,866,727)
-------------- --------------
Net Increase (Decrease) from Investors'
Transactions 60,830,919 (26,979,102)
-------------- --------------
Total Increase in Net Assets 78,746,096 3,025,006
NET ASSETS
Beginning of Fiscal Year 412,637,863 409,612,857
-------------- --------------
End of Fiscal Year $ 491,383,959 $ 412,637,863
-------------- --------------
-------------- --------------
</TABLE>
- --------------------------------------------------------------------------------
SUPPLEMENTARY DATA
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE FISCAL YEAR JULY 12, 1993
ENDED AUGUST 31, (COMMENCEMENT OF
------------------- OPERATIONS) TO
1996 1995 1994 AUGUST 31, 1993
----- ----- ----- ----------------
<S> <C> <C> <C> <C>
RATIOS TO AVERAGE NET ASSETS
Expenses 0.38% 0.42% 0.41% 0.40%(a)
Net Investment Income 4.92% 5.15% 4.68% 4.58%(a)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement -- -- -- 0.01%(a)
PORTFOLIO TURNOVER 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.
35
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
AUGUST 31, 1996
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
The Tax Exempt Bond Portfolio (the "Portfolio") is registered under the
Investment Company Act of 1940, as amended (the "Act"), as a no-load,
diversified, open-end management investment company which was organized as a
trust under the laws of the State of New York. The Portfolio commenced
operations on July 12, 1993 and received a contribution of certain assets and
liabilities, including securities, with a value of $466,873,082 on that date
from The JPM Pierpont Tax Exempt Bond Fund, (formerly 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.
36
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
2. TRANSACTIONS WITH AFFILIATES
a)The Portfolio has an Investment Advisory Agreement with Morgan Guaranty
Trust Company of New York ("Morgan"). Under the terms of the 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, 1996, such
fees amounted to $1,354,145.
b)The Portfolio had retained Signature Broker-Dealer Services, Inc.
("Signature") to serve as administrator and exclusive placement agent.
Under an Administration Agreement, Signature provided administrative
services necessary for the operations of the Portfolio, furnished office
space and facilities required for conducting the business of the Portfolio
and paid the compensation of the Portfolio's officers affiliated with
Signature. Until December 28, 1995, the agreement provided for a fee to be
paid to Signature at an annual rate determined by the following schedule:
0.01% of the first $1 billion of the aggregate average daily net assets of
the Portfolio and the other portfolios subject to the agreement, 0.008% of
the next $2 billion of such net assets, 0.006% of the next $2 billion of
such net assets, and 0.004% of such net assets in excess of $5 billion.
The daily equivalent of the fee rate was applied each day to the net
assets of the Portfolio. For the period from September 1, 1995 through
December 28, 1995, Signature's fee for these services amounted to $8,718.
Effective December 29, 1995, the Administration Agreement was amended such
that the fee charged was equal to the Portfolio's proportionate share of a
complex-wide fee based on the following annual schedule: 0.03% on the
first $7 billion of the aggregate average daily net assets of the
Portfolio and the other portfolios (the "Master Portfolios") in which The
JPM Pierpont Funds, The JPM Institutional Funds or The JPM Advisor Funds
invest and 0.01% on the aggregate average daily net assets of the Master
Portfolios in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the total net assets of the The JPM Pierpont Funds, The JPM Institutional
Funds, The JPM Advisor Funds and the Master Portfolios. For the period
from December 29, 1995 through July 31, 1996, such fees amounted to
$34,436. The Administration Agreement with Signature was terminated July
31, 1996.
Effective August 1, 1996, certain administrative functions formerly
provided by Signature are provided by Funds Distributor, Inc. ("FDI"), a
registered broker-dealer, and by Morgan. FDI also serves as the
Portfolio's exclusive placement agent. Under a Co-Administration Agreement
between FDI and the Portfolio, FDI's fees are to be paid by the Portfolio
(see Note 2c). For the period from August 1, 1996 through August 31, 1996,
the fee for these services amounted to $920.
c)Until August 31, 1995, the Portfolio had a Financial and Fund Accounting
Services Agreement with Morgan which provided that Morgan would receive a
fee, based on the percentage described below, for overseeing certain
aspects of the administration and operation of the Portfolio and that was
also designed to provide an expense limit for certain expenses of the
Portfolio. This fee was calculated exclusive of the advisory fee, custody
expenses, fund services fee and brokerage costs at 0.10% of the
Portfolio's average daily net assets up to and including $200 million,
0.05% of the next $200 million of average daily net assets, and 0.03% on
any excess over $400 million. From September 1, 1995 until
37
<PAGE>
THE TAX EXEMPT BOND PORTFOLIO
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 31, 1996
- --------------------------------------------------------------------------------
December 28, 1995, an interim agreement between the Portfolio and Morgan
provided for the continuation of the oversight functions that were
outlined under the prior agreement and that Morgan should bear all of its
expenses incurred in connection with these services.
Effective December 29, 1995, the Portfolio entered into an Administrative
Services Agreement (the "Services Agreement") with Morgan under which
Morgan was responsible for overseeing certain aspects of the
administration and operation of the Portfolio. Under the Services
Agreement, the Portfolio had agreed to pay Morgan a fee equal to its
proportionate share of an annual complex-wide charge. Until July 31, 1996,
this charge was calculated daily based on the aggregate net assets of the
Master Portfolios in accordance with the following annual schedule: 0.06%
on the first $7 billion of the Master Portfolios' aggregate average daily
net assets and 0.03% of the Master Portfolios' aggregate average daily net
assets in excess of $7 billion. The portion of this charge paid by the
Portfolio was determined by the proportionate share its net assets bore to
the net assets of the Master Portfolios and investors in the Master
Portfolios for which Morgan provided similar services. For the period from
December 29, 1995 through July 31, 1996, the fee for these services
amounted to $66,696.
Effective August 1, 1996, the Services Agreement was amended such that the
aggregate complex-wide fees to be paid by the Portfolio under both the
amended Services Agreement and the Co-Administration Agreement (see Note
2b) is calculated daily based on the aggregate net assets of the Master
Portfolios in accordance with the following annual schedule: 0.09% on the
first $7 billion of the Master Portfolios' aggregate average daily net
assets and 0.04% of the Master Portfolio's aggregate average daily net
assets in excess of $7 billion. For the period from August 1, 1996 through
August 31, 1996, the fee for these services amounted to $13,585.
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 $24,602 for the fiscal year ended August 31, 1996.
e)An aggregate annual fee of $65,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds and the
Master Portfolios. The Trustees' Fees and Expenses shown in the financial
statements represents the Portfolio's allocated portion of the total fees
and expenses. The Portfolio's Chairman and Chief Executive Officer also
serves as Chairman of Group and received compensation and employee
benefits from Group in his role as Group's Chairman. The allocated portion
of such compensation and benefits included in the Fund Services Fee shown
in the financial statements was $3,200.
3. INVESTMENT TRANSACTIONS
Investments transactions (excluding short-term investments) for the fiscal year
ended August 31, 1996 were as follows:
COST OF PROCEEDS
PURCHASES FROM SALES
------------ ------------
$194,873,159 $108,569,465
38
<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, 1996, the results of its operations for the year then
ended, the changes in its net assets for each of the two years in the period
then ended, and its supplementary data for each of the three years in the period
then ended and for the period July 12, 1993 (commencement of operations) through
August 31, 1993, in conformity with generally accepted accounting principles.
These financial statements and supplementary data (hereafter referred to as
"financial statements") are the responsibility of the Portfolio's management;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these financial statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits, which included confirmation of securities at August
31, 1996 by correspondence with the custodian and brokers, provide a reasonable
basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
October 16, 1996
39
