<PAGE>
LETTER TO THE SHAREHOLDERS OF TAX AWARE U.S. EQUITY FUND
December 5, 1997
Dear Shareholder:
We are pleased to report that Tax Aware U.S. Equity Fund, which uses a
proprietary tax aware model that seeks to minimize capital gains distributions,
provided a solid absolute return of 24.46% from inception (as calculated from
December 31, 1996) through October 31, 1997. This performance was ahead of the
21.38% return posted over the same period by Fund competitors included in the
Lipper Growth and Income Average and slightly behind the 25.31% return for the
S&P 500.
The Fund's net asset value increased from $10.00 per share at inception
(December 18, 1996) to $12.57 at October 31, 1997 after making distributions
during the reporting period of $0.01 from ordinary income. The Fund's net assets
stood at approximately $25.6 million at the end of the period under review.
The report that follows includes a portfolio manager Q&A with Terry E. Banet, a
member of the portfolio management team. This interview is designed to answer
commonly asked questions about the Fund, elaborate on what happened during the
reporting period, and provide an outlook for the months ahead.
As chairman and president of Asset Management Services, we look forward to
sharing Morgan's insights regarding financial markets with you. If you have any
comments or questions, please call your Morgan representative or J.P. Morgan
Funds Services at (800) 521-5411.
Sincerely yours,
/s/ Ramon de Oliveira /s/ Keith M. Schappert
Ramon de Oliveira Keith M. Schappert
Chairman of Asset Management Services President of Asset Management Services
J.P. Morgan & Co. Incorporated J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
LETTER TO THE SHAREHOLDERS . . . . . 1 FUND FACTS AND HIGHLIGHTS. . . . . . 6
FUND PERFORMANCE . . . . . . . . . . 2 SPECIAL FUND-BASED SERVICES. . . . . 7
PORTFOLIO MANAGER Q&A . . . . . . . 3 FINANCIAL STATEMENTS . . . . . . . . 9
- --------------------------------------------------------------------------------
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to take a look at the growth of a hypothetical
investment of $10,000. The chart at right shows that $10,000 invested in the
Fund since inception* would have grown to $12,446 at October 31, 1997.
Another way to look at performance is to review a fund's average annual total
return. This figure takes the fund's actual (or cumulative) return and shows
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change of a fund's value over various time periods, typically 1, 5, or 10
years (or since inception). Total returns for periods of less than one year are
not annualized and provide a picture of how a fund has performed over the short
term.
GROWTH OF $10,000 SINCE INCEPTION*
DECEMBER 31, 1996 -- OCTOBER 31, 1997
[GRAPH]
Lipper performance averages are calculated by taking an arithmetic average of
the returns of the funds in the group. The average annualized returns which
result from this methodology will differ from annualizing the growth of the
minimum initial investment.
PERFORMANCE
<TABLE>
<CAPTION>
TOTAL RETURNS
------------------------------------
THREE SIX SINCE
AS OF OCTOBER 31, 1997 MONTHS MONTHS INCEPTION*
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
JPM Pierpont Shares: Tax Aware U.S. Equity Fund -4.77% 15.43% 24.46%
S&P 500 -3.76% 15.16% 25.31%
Lipper Growth and Income Average -1.99% 16.01% 21.38%
AS OF SEPTEMBER 30, 1997
- -----------------------------------------------------------------------------------------
JPM Pierpont Shares: Tax Aware U.S. Equity Fund 9.08% 25.84% 29.70%
S&P 500 7.49% 26.26% 29.64%
Lipper Growth and Income Average 9.04% 24.59% 25.95%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON DECEMBER 18, 1996 AND HAS PROVIDED A TOTAL
RETURN OF 25.83% FROM THAT DATE THROUGH OCTOBER 31, 1997. FOR THE PURPOSE OF
COMPARISON, THE "SINCE INCEPTION" RETURNS ARE CALCULATED FROM DECEMBER 31, 1996,
THE FIRST DATE WHEN DATA FOR THE FUND'S BENCHMARK, AND ITS LIPPER CATEGORY
AVERAGE WERE ALL AVAILABLE.
PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES AND ASSUME THE REINVESTMENT OF DISTRIBUTIONS AND REFLECT REIMBURSEMENT OF
CERTAIN FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. LIPPER ANALYTICAL
SERVICES, INC. IS A LEADING SOURCE FOR MUTUAL FUND DATA.
2
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with TERRY E. BANET, who is a member of the portfolio
management team for Tax Aware U.S. Equity Fund. Since joining Morgan in 1985,
Terry has done extensive work in product development for the firm's U.S. and
international clients and was key in helping to develop Morgan's tax aware
equity process. A member of Morgan's Equity and Balanced Accounts Group, Terry
earned an undergraduate degree in accounting from Lehigh University and an MBA
from Wharton. This interview was conducted on December 4, 1997 and reflects
Terry's views on that date.
HOW WOULD YOU DESCRIBE THE U.S. EQUITY MARKET OVER THE LAST YEAR?
TEB: In the first half of the year, the U.S. stock market was driven by the
performance of the largest capitalized companies, the so-called "Nifty Fifty"
and more specifically the five largest stocks. In the third quarter, however,
the market broadened and we saw good performance in both the larger and smaller
companies that are included in the S&P 500. In October, the last month of the
Fund's reporting period, a financial crisis in Southeast Asia had a ripple
effect around the world, and as a result, we saw a lot more volatility in the
U.S. market.
HOW HAS THIS RECENT VOLATILITY AFFECTED THE FUND?
TEB: Similar to our actions in April, when the market fell in October, we let
things settle, then carefully examined the entire portfolio. In particular, we
looked for loss positions. When we have positions at a loss, we ask ourselves if
the fundamentals have changed. We also look for a catalyst that might propel
this stock forward, and assess the risk of being out of the stock for the next
31 days.
After evaluating our position in ORACLE CORP., we asked ourselves several
questions. Is it affected by events in Asia? What are we hearing in terms of
earnings for the fourth quarter? Based on the answers to these questions, we
sold the stock, recognized the loss, and decided we could wait through the wash
sale period. After that period, we would re-evaluate.
COULD YOU EXPLAIN THE WASH SALE RULE AND HOW THAT WORKS?
TEB: In simple terms, if the Fund sells a stock for a loss, it can't buy it
back within 31 days and still deduct the loss for tax purposes. There are two
choices a portfolio manager needs to weigh when considering whether or not to
continue to own a security in a loss position. The first option is to "double
up," that is, buy a position of the same size, then 31 days later sell the
higher cost shares if they are still at a loss. This way, the Fund maintains its
exposure in the stock over the full 31 days, which is important if you believe
the stock could appreciate significantly over that time period. The second
choice is to sell the entire position or the portion of the position that is at
a loss and after 31 days buy it back again.
3
<PAGE>
In our case, we didn't feel that doubling up was warranted, therefore we sold
several loss positions. For example, we sold FIRST DATA CORP, R.R. DONNELLEY &
SONS CO. and a portion of APPLIED MATERIALS INC. We replaced these stocks with
more attractive positions in MOTOROLA INC., EMERSON ELECTRIC CO. and STARWOOD
LODGING TRUST. In other words, we used the volatility in October to our
advantage.
We pay a great deal of attention to realizing losses and offsetting them with
gains because of the Fund's sensitivity to the impact of capital gains on
shareholders. By not having a large capital gain distribution at the end of the
year, we should accomplish that objective. When the Fund recognized losses in
October, it did not immediately offset them with gains. Instead we "banked" the
losses to be used in the future, giving the fund trading flexibility.
TELL US ABOUT THE FUND'S SECTOR AND STOCK SELECTION STRATEGIES DURING THE
PERIOD?
TEB: We do not to take large sector bets. The fund is fairly sector neutral
compared to the market index. Within sectors, the biggest over and
underweightings were only about a half of a percent to a percent from the Index
weighting.
The more important aspect of our portfolio management approach is stock
selection. For example, in the basic industry sector, the stocks that we
selected outperformed the S&P. The fund was modestly overweighted in this
sector, which didn't perform particularly well this year. However, our stock
selection was good enough to more than overcome the sector overweighting.
WHAT WERE SOME OF THE MORE IMPORTANT STOCK POSITIONS?
TEB: A good stock story would be TELECOMMUNICATIONS, INC., one of the country's
largest cable operators. We overweighted the stock in the portfolio versus the
S&P 500 and it rose 75% for the year. EMC CORP. is another interesting story.
The company is in the technology sector but not widely covered by research
analysts on the street. EMC develops solutions to information storage problems.
With all the applications going through the Internet and the push to fix "Year
2000" systems problems, there is a big need for storage, particularly for
duplicate backup systems. Here too, we overweighted the position versus the S&P
and it has risen 70% since we first purchased the stock in March.
Our largest position in the Portfolio is WARNER-LAMBERT CO. The company had two
new drugs enter the market, Lipitor and Resulin. Lipitor is a cholesterol-
reducing drug and it could be the most effective drug of its kind. It started to
gain market share right away. The second drug was Resulin, a drug for diabetics.
Again, Resulin became a major drug on the market very quickly.
The Fund carried approximately a 3% position in WARNER-LAMBERT CO. for most of
the year, and it was up 93% for the ten months ending October. It outperformed
the S&P by 51%. While Resulin has recently seen some bad press (in December 97,
after the Fund's reporting period) and WARNER-LAMBERT'S stock has slipped, we
believe Resulin is still a beneficial and important drug, and we continue to
view Warner-Lambert as a company the Fund should continue to own.
4
<PAGE>
WHAT ABOUT YOUR OUTLOOK FOR THE COMING MONTHS?
TEB: We don't think we're going to see big gains in corporate profits. Also,
the market has severely penalized companies that don't meet analysts' earnings
expectations. Therefore, more than ever, stock selection will be critical to
success. Going into 1998, our plan is to stick to our fundamental discipline,
which is selecting what we think are the most attractively valued stocks, and we
definitely see some opportunities out there.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
Tax Aware U.S. Equity Fund seeks to provide high total return, while being
sensitive to the impact of capital gains taxes on investors' returns. The Fund
is designed for long-term taxable investors who are interested in minimizing
taxable distributions. The Fund invests primarily in common stocks and other
equity securities of large and medium-sized U.S. companies.
- --------------------------------------------------------------------------------
COMMENCEMENT OF OPERATIONS
12/18/96
- --------------------------------------------------------------------------------
NET ASSETS AS OF 10/31/97
$25,648,760
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
12/24/97
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/24/97
EXPENSE RATIO
The Fund's current annualized expense ratio of 0.85% covers shareholders'
expenses for custody, tax reporting, investment advisory and shareholder
services, after reimbursement. The Fund is no-load and does not charge any sales
or exchange fees; however, shares held for less than five years are subject to
redemption fees. There are no additional charges for buying, selling, or
safekeeping Fund shares, or for wiring redemption proceeds from the Fund. Fund
redemption fees are waived when shares worth over $250,000 are redeemed in kind
from the Fund. Shareholders owning more than 5% of the Fund's outstanding shares
should consult "Redemption of Shares" in the Prospectus.
FUND HIGHLIGHTS
ALL DATA AS OF OCTOBER 31, 1997
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
CONSUMER GOODS & SERVICES 20.4%
TECHNOLOGY 14.1%
FINANCE 13.8%
HEALTH CARE 11.5%
INDUSTRIAL PRODUCTS & SERVICES 9.3%
ENERGY 8.6%
UTILITIES 8.0%
BASIC INDUSTRIES 6.5%
SHORT-TERM HOLDINGS 6.0%
TRANSPORTATION 1.8%
% OF TOTAL
LARGEST EQUITY HOLDINGS INVESTMENTS
- --------------------------------------------------------------------------------
WARNER-LAMBERT CO. (HEALTH CARE) 3.0%
PROCTER & GAMBLE CO. (CONSUMER GOODS & SERVICES) 2.3%
EMC CORP. (TECHNOLOGY) 2.3%
EXXON CORP. (ENERGY) 2.2%
ALLIEDSIGNAL, INC. (INDUSTRIAL PRODUCTS & SERVICES) 1.9%
WAL-MART STORES, INC. (CONSUMER GOODS & SERVICES) 1.6%
FIRST CHICAGO NBD CORP. (FINANCE) 1.6%
TOSCO CORP. (ENERGY) 1.5%
XEROX CORP. (INDUSTRIAL PRODUCTS & SERVICES) 1.5%
MARSH & MCLENNAN COMPANIES, INC. (FINANCE) 1.5%
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
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>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW YORK
SERVES AS AN INVESTMENT ADVISOR AND MAKES THE FUNDS AVAILABLE SOLELY IN ITS
CAPACITY AS SHAREHOLDER SERVICING AGENT. SHARES OF THE FUND ARE NOT BANK
DEPOSITS AND ARE NOT GUARANTEED BY ANY BANK, GOVERNMENT ENTITY, OR THE FDIC. AN
INVESTMENT IN THE FUND WILL FLUCTUATE AND MAY LOSE VALUE.
Past performance is no guarantee for future performance. Returns are net of
fees, assume the reinvestment of fund distributions and may reflect the
reimbursement of the fund expenses as described in the prospectus. Had expenses
not been subsidized, returns would have been lower. References to specific
securities and their issuers are for illustrative purposes and only and are not
intended to be, and should not be interpreted as, recommendations to purchase or
sell such securities. Opinion expressed herein are based on current market
conditions and are subject to change without notice.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 521-5411 FOR A PROSPECTUS CONTAINING
MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES. PLEASE READ IT CAREFULLY BEFORE INVESTING.
8
<PAGE>
TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
COMMON STOCKS (99.8%)
BASIC INDUSTRIES (6.9%)
CHEMICALS (2.9%)
Albemarle Corp................................... 5,500 $ 133,375
E.I. du Pont de Nemours & Co..................... 7,200 409,500
Union Carbide Corp............................... 4,500 205,594
------------
748,469
------------
FOREST PRODUCTS & PAPER (1.2%)
Temple-Inland, Inc............................... 5,200 298,651
------------
METALS & MINING (2.8%)
Allegheny Teledyne, Inc.......................... 15,100 397,520
Aluminum Company of America...................... 4,300 313,881
------------
711,401
------------
TOTAL BASIC INDUSTRIES......................... 1,758,521
------------
CONSUMER GOODS & SERVICES (21.6%)
BROADCASTING & PUBLISHING (3.0%)
Tele-Communications Inc., Series A+.............. 16,732 383,267
Tele-Communications TCI Ventures Group+.......... 9,568 220,961
U.S. West Media Group............................ 6,700 170,187
------------
774,415
------------
ENTERTAINMENT, LEISURE & MEDIA (1.5%)
Time Warner, Inc................................. 6,700 386,506
------------
FOOD, BEVERAGES & TOBACCO (7.4%)
Anheuser Busch Companies, Inc.................... 4,600 183,712
General Mills, Inc............................... 3,400 224,400
Kellogg Co....................................... 4,200 180,862
PepsiCo, Inc..................................... 7,400 272,412
Philip Morris Companies, Inc..................... 7,700 304,978
Ralston-Ralston Purina Group..................... 4,500 403,875
Unilever NV (ADR)................................ 6,400 341,600
------------
1,911,839
------------
HOUSEHOLD PRODUCTS (2.4%)
Procter & Gamble Co.............................. 9,200 625,600
------------
PERSONAL CARE (0.9%)
Gillette Co...................................... 2,500 222,740
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
RETAIL (6.4%)
Circuit City Stores, Inc......................... 6,900 $ 275,137
Federated Department Stores, Inc.+............... 7,500 329,959
Mattel, Inc...................................... 5,100 198,262
Toys 'R' Us, Inc.+............................... 11,800 401,827
Wal-Mart Stores, Inc............................. 12,300 432,442
------------
1,637,627
------------
TOTAL CONSUMER GOODS & SERVICES................ 5,558,727
------------
ENERGY (9.1%)
OIL-PRODUCTION (9.1%)
Anadarko Petroleum Corp.......................... 3,000 219,750
British Petroleum Co. (ADR)...................... 4,332 380,133
Exxon Corp....................................... 9,600 589,800
Mobil Corp....................................... 4,300 313,040
Royal Dutch Petroleum Co. (ADR).................. 5,800 305,460
Tosco Corp....................................... 12,700 418,458
Valero Energy Corp............................... 3,600 108,450
------------
TOTAL ENERGY................................... 2,335,091
------------
FINANCE (14.7%)
BANKING (8.1%)
Banc One Corp.................................... 5,464 284,811
Chase Manhattan Corp............................. 2,400 276,900
First Chicago NBD Corp........................... 5,900 429,225
First Union Corp................................. 8,000 392,732
Firstar Corp..................................... 4,800 173,400
Fleet Financial Group, Inc....................... 2,800 180,271
NationsBank Corp................................. 5,500 329,312
------------
2,066,651
------------
FINANCIAL SERVICES (2.8%)
Federal National Mortgage Association............ 6,300 305,221
Morgan Stanley, Dean Witter, Discover & Co....... 5,300 259,434
Salomon, Inc..................................... 2,000 155,375
------------
720,030
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
INSURANCE (3.1%)
Financial Security Assurance Holdings Ltd.*...... 9,000 $ 391,609
Marsh & McLennan Companies, Inc.................. 5,800 411,800
------------
803,409
------------
REAL ESTATE INVESTMENT TRUSTS (0.7%)
Starwood Lodging Trust........................... 3,000 179,438
------------
TOTAL FINANCE.................................. 3,769,528
------------
HEALTH CARE (12.2%)
HEALTH SERVICES (3.8%)
Boston Scientific Corp.+......................... 2,000 91,000
Humana, Inc.+.................................... 17,100 359,127
Perkin-Elmer Corp................................ 4,200 262,500
United Healthcare Corp........................... 5,800 268,938
------------
981,565
------------
PHARMACEUTICALS (8.4%)
Alza Corp.+...................................... 5,300 138,131
Bristol-Myers Squibb Co.......................... 3,500 307,125
Forest Laboratories, Inc.+....................... 3,700 171,125
Pfizer, Inc...................................... 5,100 361,778
Schering-Plough Corp............................. 6,000 336,928
Warner-Lambert Co................................ 5,800 830,328
------------
2,145,415
------------
TOTAL HEALTH CARE.............................. 3,126,980
------------
INDUSTRIAL PRODUCTS & SERVICES (9.9%)
DIVERSIFIED MANUFACTURING (7.4%)
AlliedSignal, Inc................................ 14,600 526,030
Cooper Industries, Inc........................... 4,100 213,713
General Electric Co.............................. 3,200 206,600
Johnson Controls, Inc............................ 4,000 179,500
Tyco International Ltd........................... 9,700 366,823
Xerox Corp....................................... 5,200 412,715
------------
1,905,381
------------
ELECTRICAL EQUIPMENT (2.0%)
Emerson Electric Co.............................. 4,500 235,969
Grainger (W.W.), Inc............................. 3,200 279,916
------------
515,885
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
POLLUTION CONTROL (0.5%)
Waste Management, Inc............................ 5,000 $ 116,875
------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 2,538,141
------------
TECHNOLOGY (15.1%)
AEROSPACE (1.7%)
Boeing Co........................................ 6,400 306,400
Coltec Industries, Inc.+......................... 6,800 136,000
------------
442,400
------------
COMPUTER PERIPHERALS (0.7%)
Quantum Corp.+................................... 5,700 180,084
------------
COMPUTER SOFTWARE (0.5%)
Autodesk, Inc.................................... 3,400 125,588
------------
COMPUTER SYSTEMS (5.3%)
EMC Corp.+....................................... 11,100 621,989
International Business Machines Corp............. 4,100 402,114
Sun Microsystems, Inc.+.......................... 9,500 325,125
------------
1,349,228
------------
ELECTRONICS (4.4%)
Cabletron Systems, Inc.+......................... 9,300 269,700
Cisco Systems, Inc.+............................. 4,000 327,919
Harris Corp...................................... 6,000 261,750
Motorola, Inc.................................... 4,300 265,212
------------
1,124,581
------------
SEMICONDUCTORS (2.3%)
Applied Materials, Inc.+......................... 1,600 53,350
Intel Corp....................................... 4,100 315,828
National Semiconductor Corp.+.................... 6,100 219,600
------------
588,778
------------
TELECOMMUNICATIONS-EQUIPMENT (0.2%)
Lucent Technologies, Inc......................... 600 49,463
------------
TOTAL TECHNOLOGY............................... 3,860,122
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
TRANSPORTATION (1.8%)
RAILROADS (1.1%)
CSX Corp......................................... 5,300 $ 289,844
------------
TRUCK & FREIGHT CARRIERS (0.7%)
CNF Transportation, Inc.......................... 4,200 187,425
------------
TOTAL TRANSPORTATION........................... 477,269
------------
UTILITIES (8.5%)
ELECTRIC (2.7%)
Duke Power Co.................................... 5,400 260,550
New England Electric System...................... 4,300 168,506
Northern States Power Co......................... 5,100 256,810
------------
685,866
------------
TELEPHONE (5.8%)
Bell Atlantic Corp............................... 2,000 159,750
GTE Corp......................................... 4,200 178,360
MCI Communications Corp.......................... 6,700 237,641
SBC Communications, Inc.......................... 1,900 120,888
Sprint Corp...................................... 6,000 311,890
US West Communications Group..................... 3,000 119,438
WorldCom, Inc.+.................................. 11,000 370,297
------------
1,498,264
------------
TOTAL UTILITIES................................ 2,184,130
------------
TOTAL COMMON STOCKS (COST $22,770,206)......... 25,608,509
------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (6.4%)
OTHER INVESTMENT COMPANIES (4.0%)
Seven Seas Money Market Fund, 5.31% due
11/01/97....................................... $ 1,031,739 $ 1,031,739
U.S. TREASURY OBLIGATIONS (2.4%)
U. S. Treasury Bill, 5.08% due 1/22/98........... 610,000 602,961
------------
TOTAL SHORT-TERM INVESTMENTS (COST
$1,634,681)................................... 1,634,700
------------
TOTAL INVESTMENTS (COST $24,404,887) (106.2%).................
27,243,209
LIABILITIES IN EXCESS OF OTHER ASSETS (-6.2%).................
(1,594,449)
------------
NET ASSETS (100.0%)........................................... $ 25,648,760
------------
------------
</TABLE>
- ------------------------------
Note: For Federal Income Tax purposes, the cost of securities at October 31,
1997, was substantially the same as the cost for financial statement purposes.
The aggregate gross unrealized appreciation and depreciation was $3,113,996 and
$275,674, respectively, resulting in net unrealized appreciation of $2,838,322.
* Foreign security.
+ Non-income producing security.
(ADR) Securities whose value is determined or significantly influenced by
trading on exchanges not located in the United States or Canada. ADR, after the
name of a foreign holding, stands for American Depositary Receipt, representing
ownership of foreign securities on deposit with a domestic custodian bank.
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
TAX AWARE U.S. EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $24,404,887 ) $27,243,209
Receivable for Fund Shares Sold 56,120
Deferred Organization Expenses 39,335
Dividends Receivable 19,756
Receivable for Expense Reimbursements 14,085
Interest Receivable 596
Prepaid Expenses and Other Assets 5,475
-----------
Total Assets 27,378,576
-----------
LIABILITIES
Payable for Investments Purchased 1,569,667
Organization Expenses Payable 40,843
Custody Fee Payable 14,595
Advisory Fee Payable 9,394
Shareholder Servicing Fee Payable 5,219
Administrative Services Fee Payable 1,257
Administration Fee Payable 43
Fund Services Fee Payable 34
Accrued Expenses 88,764
-----------
Total Liabilities 1,729,816
-----------
NET ASSETS
Applicable to 2,041,270 shares outstanding
(par value $0.001, unlimited shares authorized) $$25,648,760
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $12.57
----
----
ANALYSIS OF NET ASSETS
Paid-in Capital $22,800,626
Undistributed Net Investment Income 91,177
Accumulated Net Realized Loss on Investments (81,365)
Net Unrealized Appreciation of Investments 2,838,322
-----------
Net Assets $25,648,760
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
TAX AWARE U.S. EQUITY FUND
STATEMENT OF OPERATIONS
FOR THE PERIOD DECEMBER 18, 1996 (COMMENCEMENT OF OPERATIONS) TO OCTOBER 31,
1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $2,248 ) $ 202,524
Interest Income 12,614
----------
Investment Income 215,138
EXPENSES
Advisory Fee $ 62,523
Registration Fees 46,492
Custodian Fees and Expenses 43,926
Professional Fees and Expenses 37,897
Shareholder Servicing Fee 34,735
Printing Expenses 27,256
Transfer Agent Fee 27,241
Amortization of Organization Expense 8,232
Administrative Services Fee 7,649
Fund Services Fee 451
Administration Fee 252
Trustees' Fees and Expenses 94
Insurance Expense 13
Miscellaneous 3,923
---------
Total Expenses 300,684
Less: Reimbursement of Expenses (182,588)
---------
NET EXPENSES 118,096
----------
NET INVESTMENT INCOME 97,042
NET REALIZED LOSS ON INVESTMENTS (81,365)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 2,838,322
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $2,853,999
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
TAX AWARE U.S. EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 18,
1996
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1997
----------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 97,042
Net Realized Loss on Investments (81,365)
Net Change in Unrealized Appreciation of
Investments 2,838,322
----------------
Net Increase in Net Assets Resulting from
Operations 2,853,999
----------------
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (5,865)
----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 23,089,222
Reinvestment of Dividends 5,640
Cost of Shares of Beneficial Interest Redeemed (319,236)
----------------
Net Increase from Shareholder Transactions 22,775,626
----------------
Total Increase in Net Assets 25,623,760
NET ASSETS
Beginning of Period 25,000
----------------
End of Period (including undistributed net
investment income of $91,177) $ 25,648,760
----------------
----------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
TAX AWARE U.S. EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout the period is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
DECEMBER 18,
1996
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1997
----------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
----------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.06
Net Realized and Unrealized Gain on Investments 2.52
----------------
Total from Investment Operations 2.58
----------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.01)
----------------
NET ASSET VALUE, END OF PERIOD $ 12.57
----------------
----------------
Total Return 25.83%(a)
----------------
----------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 25,649
Ratios to Average Net Assets
Expenses 0.85%(b)
Net Investment Income 0.70%(b)
Decrease Reflected in Expense Ratio due to
Expense Reimbursement 1.31%(b)
Portfolio Turnover Rate 23%
Average Broker Commissions $ 0.0321
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Tax Aware U.S. Equity Fund (the "Fund") is a series of JPM Series Trust, a
Massachusetts business trust (the "Trust"). The Trust, which was organized on
August 15, 1996, is registered under the Investment Company Act of 1940, as
amended, as a no-load open-end management investment company. The Fund's
investment objective is to provide a high total return, while being sensitive to
the impact of capital gains taxes on investors' returns. Prior to May 12, 1997,
the Fund's name was Tax Aware Equity Fund. The Trustees of the Trust have
divided the beneficial interests in the Fund into two classes of shares, JPM
Institutional Shares and JPM Pierpont Shares. The Fund commenced operations on
December 18, 1996, when the first public shareholder purchased JPM Pierpont
Shares. As of October 31, 1997, no sales of JPM Institutional Shares have
occurred. Prior to commencing its operations on December 18, 1996, the Fund had
no activities other than the sale of 2,500 JPM Pierpont Shares to FDI
Distribution Services, Inc. ("FDSI"), a wholly owned indirect subsidiary of
Boston Institutional Group, Inc. The Declaration of Trust permits the Trustees
to issue an unlimited number of shares in the Fund.
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) The value of each security for which readily available market quotations
exist is based on a decision as to the broadest and most representative
market for such security. The value of such security will be based either
on the last sale price on a national securities exchange, or, in the
absence of recorded sales, at the average of readily available closing bid
and asked prices on such exchange. Securities listed on a foreign exchange
are valued at the last quoted sale price available before the time when
net assets are valued. Unlisted securities are valued at the average of
the quoted bid and asked prices in the over-the-counter market. Securities
or other assets for which market quotations are not readily available are
valued at fair value in accordance with procedures established by the
Trustees. Such procedures include the use of independent pricing services,
which use prices based upon yields or prices of securities of comparable
quality, coupon, maturity and type; indications as to values from dealers;
and general market conditions. All portfolio securities with a remaining
maturity of less than 60 days are valued by the amortized cost method.
b) Securities transactions are recorded on a trade date basis. Dividend
income is recorded on the ex-dividend date or as of the time that the
relevant ex-dividend date and amount becomes known. 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) Distributions to shareholders of net investment income and realized net
capital gains, if any, are declared and paid annually.
d) The Fund incurred organization expenses in the amount of $47,567. Morgan
Guaranty Trust Company of New York ("Morgan") has paid the organization
expenses of the Fund. The Fund has
16
<PAGE>
TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
agreed to reimburse Morgan for these costs which are being deferred and
amortized on a straight-line basis over a period not to exceed five years
beginning with the commencement of operations of the Fund.
e) The Fund is treated as a separate entity for federal income tax purposes
and 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.
f) For United States federal income tax purposes, the Fund had a capital loss
carryforward at October 31, 1997 of $81,365 which will expire in the year
2005. No capital gains distribution is expected to be paid to shareholders
until further net gains have been realized in excess of such carryforward.
2. TRANSACTIONS WITH AFFILIATES
a) The Fund has an Investment Advisory Agreement with Morgan. Under the terms
of the agreement, the Fund pays Morgan at an annual rate of 0.45% of the
Fund's average daily net assets. For the period December 18, 1996
(commencement of operations) to October 31, 1997, such fees amounted to
$62,523.
b) The Trust, on behalf of the Fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the Fund. Under a Co-Administration Agreement between FDI
and the Trust on behalf of the Fund, FDI provides administrative services
necessary for the operations of the Fund, furnishes office space and
facilities required for conducting the business of the Fund and pays the
compensation of the Fund's officers affiliated with FDI. The Fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the Fund is based on the ratio of the Fund's net
assets to the aggregate net assets of the Trust and certain other
investment companies subject to similar agreements with FDI. For the
period December 18, 1996 (commencement of operations) to October 31, 1997,
the fee for these services amounted to $252.
c) The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for certain aspects of the administration and operation of the Fund. Under
the Services Agreement, the Fund has agreed to pay Morgan a fee equal to
its allocable share of an annual complex-wide charge. This charge is
calculated based on the aggregate average daily net assets of the Trust
and certain other registered investment companies for which Morgan act as
investment advisor in accordance with the following annual schedule: 0.09%
on the first $7 billion of their aggregate average daily net assets and
0.04% of their aggregate average daily net assets in excess of $7 billion
less the complex-wide fees payable to FDI. The portion of this charge
payable by the Fund is determined by the proportionate share that its net
assets bear to the net assets of the Trust and certain other investment
companies for which Morgan provides administrative services. For the
period December 18, 1996 (commencement of operations) to October 31, 1997,
the fee for these services amounted to $7,649.
17
<PAGE>
TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
In addition, Morgan has agreed to reimburse the Fund to the extent
necessary to maintain the total operating expenses of the Fund at no more
than 0.85% of the average daily net assets of the Fund through February
28, 1999. For the period December 18, 1996 (commencement of operations) to
October 31, 1997, Morgan has agreed to reimburse the Fund $182,588 for
expenses under this agreement.
d) The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services to Fund shareholders. The agreement provides for the
Fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.25% of the average daily net assets of
the JPM Pierpont Shares. For the period December 18, 1996 (commencement of
operations) to October 31, 1997, the fee for these services amounted to
$34,735.
e) The Trust, on behalf of the Fund, has a Fund Services Agreement with
Pierpont Group, Inc. ("Group") to assist the Trustees in exercising their
overall supervisory responsibilities for the Trust's affairs. The Trustees
of the Trust represent all the existing shareholders of Group. The Fund's
allocated portion of Group's costs in performing its services amounted to
$451 for the period December 18, 1996 (commencement of operations) to
October 31, 1997.
f) An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of the Trust, The JPM Pierpont Funds, The JPM Institutional
Funds, and certain other registered investment companies. The Trustees'
Fees and Expenses shown in the financial statements represents the Fund's
allocated portion of the total fees and expenses. Prior to April 1, 1997,
the aggregate annual Trustee fee was $65,000. The Trust's Chairman and
Chief Executive Officer also serves as Chairman of Group and receives
compensation and employee benefits from Group in his role as Group's
Chairman. The allocated portion of such compensation and benefits included
in the Fund Services Fee shown in the financial statements was $100.
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 PERIOD
DECEMBER 18,
1996
(COMMENCEMENT OF
OPERATIONS) TO
OCTOBER 31, 1997
----------------
<S> <C>
Shares of beneficial interest sold............... 2,065,835
Reinvestment of dividends........................ 551
Shares of beneficial interest redeemed........... (27,616)
----------------
Net Increase..................................... 2,038,770
----------------
----------------
</TABLE>
From time to time, the Fund may have a concentration of several shareholders
holding a significant percentage of shares outstanding. Investment activities of
these shareholders could have a material impact on the Fund.
18
<PAGE>
TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1997
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period from
December 18, 1996 (commencement of operations) to October 31, 1997 were as
follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- ----------
<S> <C> <C>
$26,569,380 $3,717,464
</TABLE>
5. CREDIT AGREEMENT
The Trust, on behalf of the Fund, together with other affiliated investment
companies (the "Funds"), entered into a revolving line of credit agreement (the
"Agreement") on May 28, 1997, with unaffiliated lenders. The maximum borrowing
under the commitment Agreement is $150,000,000. The Agreement expires on May 27,
1998, however, the Fund as party to the Agreement will have the ability to
extend the Agreement and continue its participation therein for an additional
364 days. The purpose of the Agreement is to provide another alternative for
settling large fund shareholder redemptions. Interest on any such borrowings
outstanding will approximate market rates. The Funds pay a commitment fee at an
annual rate of 0.065% on the unused portion of the committed amount which is
allocated to the Funds in accordance with procedures established by their
respective Trustees or Directors. The Fund has not borrowed pursuant to the
Agreement as of October 31, 1997.
19
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
Tax Aware U.S. Equity Fund
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 financial highlights present fairly, in all
material respects, the financial position of Tax Aware U.S. Equity Fund (one of
the funds comprising JPM Series Trust, hereafter referred to as the "Fund") at
October 31, 1997, and the results of its operations, the changes in its net
assets and the financial highlights for the period December 18, 1996
(commencement of operations) to October 31, 1997, in conformity with generally
accepted accounting principles. These financial statements and financial
highlights (hereafter referred to as "financial statements") are the
responsibility of the Fund's management; our responsibility is to express an
opinion on these financial statements based on our audit. We conducted our audit
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
audit, which included confirmation of securities at October 31, 1997 by
correspondence with the custodian and brokers and the application of alternative
auditing procedures where confirmations from brokers were not received, provides
a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
New York, New York
December 16, 1997
20
<PAGE>
JPM PIERPONT FEDERAL MONEY MARKET FUND
JPM PIERPONT PRIME MONEY MARKET FUND
JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
JPM PIERPONT BOND FUND
JPM PIERPONT EMERGING MARKETS DEBT FUND
JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
JPM PIERPONT SHORT TERM BOND FUND
JPM PIERPONT TAX EXEMPT BOND FUND
JPM PIERPONT SHARES: CALIFORNIA BOND FUND
JPM PIERPONT DIVERSIFIED FUND
JPM PIERPONT U.S. EQUITY FUND
JPM PIERPONT U.S. SMALL COMPANY FUND
JPM PIERPONT U.S. SMALL COMPANY OPPORTUNITIES FUND
JPM PIERPONT SHARES: TAX AWARE U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE DISCIPLINED EQUITY FUND
JPM PIERPONT EMERGING MARKETS EQUITY FUND
JPM PIERPONT EUROPEAN EQUITY FUND
JPM PIERPONT INTERNATIONAL EQUITY FUND
JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
JPM PIERPONT JAPAN EQUITY FUND
FOR MORE INFORMATION ON HOW THE JPM PIERPONT FUNDS CAN HELP
YOU PLAN FOR YOUR FUTURE, CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
JPM SERIES TRUST
TAX AWARE
U.S. EQUITY FUND
ANNUAL REPORT
OCTOBER 31, 1997
