<PAGE>
LETTER TO THE SHAREHOLDERS OF JPM PIERPONT SHARES: TAX AWARE U.S. EQUITY FUND
May 30, 1997
Dear Shareholder:
Tax Aware U.S. Equity Fund uses a proprietary tax aware model to seek to
minimize capital gains distributions from a portfolio of the U.S. market's
"most undervalued" stocks, as identified by Morgan research. A December 18,
1996 launch date meant that the Fund initially pursued its investment
strategy in an extended bull market that would soon give signs it might be
drawing to a close.
U.S. large capitalization stocks got off to a flying start in 1997, following
one of the largest two-year upswings in 40 years for the S&P 500 Index.
Fueling a narrowly focused 6.25% Index rise for January were optimism
regarding fourth quarter corporate earnings (amid a 3.9% annualized GDP
growth rate), as well as a record level of new assets committed to equity
mutual funds from 401(k), defined contribution, and bonus investing. The
seemingly relentless advance of the Index slowed to 0.78% in February,
largely in reaction to Congressional testimony by Federal Reserve Chairman
Alan Greenspan that suggested market overvaluation. Paired with declining
mutual fund inflows, the Fed's late March short-term rate increase (which
suggested that U.S. bond investments might become more attractive in relative
terms) helped trigger a resurgence in market volatility. This, in turn,
limited the S&P 500 to a modest 2.68% first quarter advance. Within a month,
however, U.S. large cap equities had managed to stage a dramatic 5.97%
comeback, thanks to a "Nirvana Channel" of low inflation, low unemployment,
and a strong economy that was extremely favorable for stocks.
Given these market challenges, we are pleased to report that the Fund's JPM
Pierpont Shares made a "strong break from the gate," providing a solid absolute
return of 7.82% from inception (as calculated from December 31, 1996) through
April 30, 1997 (the Fund's first fiscal year end will be October 31, 1997). This
performance was considerably ahead of the 4.64% return posted over the same
period by Fund competitors included in the Lipper Growth and Income Average.
While the Fund did underperform the S&P 500's 8.81% return, we feel it should be
noted that the Fund's benchmark is an unmanaged index whose performance does not
include fees or operating expenses and is not available to individual and/or
institutional investors.
The Fund's net asset value increased from $10.00 per share at inception
(December 18, 1996) to $10.89 at April 30, 1997 after making distributions
during the reporting period of $0.01 from ordinary income. The Fund's net
assets stood at $13.8 million at the end of the period under review.
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Table of contents
Letter to the shareholders........................1
Fund performance..................................2
Portfolio manager Q&A.............................3
Fund facts and highlights.........................6
Special fund-based services.......................7
Financial statements..............................9
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1
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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 we go forward, we welcome your comments, questions, or any suggestions on
how we can improve your financial reports. Please call J.P. Morgan Funds
Services, toll free, at (800) 521-5411.
Sincerely yours,
/s/ Evelyn E. Guernsey
Evelyn E. Guernsey
J.P. Morgan Funds Services
FUND PERFORMANCE
EXAMINING PERFORMANCE
One 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 you
what would have happened if the fund had achieved that return by performing at a
constant rate each year. Average annual total returns represent the average
yearly change in 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.
PERFORMANCE TOTAL RETURNS
------------------------------
ONE THREE SINCE
AS OF APRIL 30, 1997 MONTH MONTHS INCEPTION*
- --------------------------------------------------------------------------------
JPM Pierpont Shares: Tax Aware U.S. Equity Fund 4.61% 0.74% 7.82%
S&P 500 5.97% 2.41% 8.81%
Lipper Growth and Income Average 3.54% 0.32% 4.64%
AS OF MARCH 31, 1997
- --------------------------------------------------------------------------------
JPM Pierpont Shares: Tax Aware U.S. Equity Fund -3.97% 3.07% 3.07%
S&P 500 -4.11% 2.68% 2.68%
Lipper Growth and Income Average -3.54% 1.06% 1.06%
*12/18/96 -- COMMENCEMENT OF OPERATIONS (TOTAL RETURNS BASED ON MONTH-END
FOLLOWING INCEPTION). THE FUND'S TOTAL RETURN SINCE ITS COMMENCEMENT OF
OPERATIONS ON 12/18/96 IS 9.02%.
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. ALTHOUGH BENCHMARK
RETURNS ARE GATHERED FROM RELIABLE SOURCES, DATA ACCURACY AND COMPLETENESS
CANNOT BE GUARANTEED.
2
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PORTFOLIO MANAGER Q&A
[PHOTO]
Following is an interview with TERRY E. BANET, who is a member of the portfolio
management team for the 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 May 28, 1997 and reflects Terry's
views on that date.
THE TAX AWARE U.S. EQUITY FUND HAS GOTTEN OFF TO AN IMPRESSIVE START --
SIGNIFICANTLY OUTPERFORMING ITS LIPPER COMPETITORS DURING ITS FIRST FOUR MONTHS
OF OPERATION. HOW NEATLY DID THE FUND'S INVESTMENT STRATEGY DOVETAIL WITH THE
INCREASED MARKET VOLATILITY SEEN DURING THIS PERIOD?
TEB: We want the Fund to add long-term value in the large cap market -- but not
to have it assume imprudent levels of risk in the hope of achieving impressive
short-term performance. Since it is built for the long haul, our strategy of
combining informed selection of stocks Morgan has identified as "most
undervalued" with portfolio trades that seek to dampen capital gains
distributions should ideally perform well, regardless of the prevailing market
environment. This is consistent with our belief that attractive investment
opportunities are always out there, and that Morgan's in-depth research can help
us find them.
Having said that, however, we've been excited by the market's increased
volatility levels, which are really not that extreme when viewed in historical
terms. There's no question that large price swings can often be a headache for
investors who own only a handful of stocks. But since the Fund's portfolio is
diversified as a way to spread out risk, we view amplified volatility as a boon
to our strategy since it increases short-term mispricings across market sectors.
Our experience has been that the more unstable prices become, the more
opportunities we will have to purchase cheap stocks in companies that have
strong fundamentals.
THE TAX AWARE MODEL SEEKS TO OFFSET CAPITAL GAINS WITH CAPITAL LOSSES FROM THE
SALE OF STOCKS THAT HAVE DECLINED IN PRICE SINCE BEING PURCHASED BY THE FUND.
HOW HAVE YOU UTILIZED THIS STRATEGY IN THE FUND'S BRIEF LIFE SINCE INCEPTION?
TEB: As you may recall, March was a particularly heady month in terms of
resurgent market volatility. In this environment, some of the equity securities
that Morgan research had identified as undervalued experienced significant price
declines. In cases where we believed that companies' long-term fundamentals had
changed, the management team sold the stocks from the Fund's portfolio and
"banked" the capital losses that had resulted from their price depreciation.
These losses have yet to be offset, in an effort to limit short-term gains
during the initial three months of the Fund.
3
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WHERE WAS STOCK SELECTION MOST SUCCESSFUL IN THE FUND'S LARGELY SECTOR-NEUTRAL
APPROACH?
TEB: The Fund shares Morgan's commitment to adding value through individual
stock selection, rather than by pursuing large sector bets. For the period under
review, the Fund's holdings outperformed their benchmark counterparts in nine
out of the nineteen industry sectors into which we divide the S&P 500. The
economic sectors used by the portfolio management team differ slightly from the
stock groupings shown in the Schedule of Investments.
The Fund was very successful in relative terms within the market's drug,
telephone, and utilities sectors. Selections in these sectors rose 24.9%, 7.0%,
and 3.0%, respectively, versus Index advances of 14.7%, 1.9%, and -4.9%,
respectively.
Portfolio holdings that were particularly effective in enhancing overall Fund
returns included WARNER LAMBERT CO. (drugs), which rose 31.8% for the period as
its new cholesterol-reducing drug, Lipitor, continued to gain market share. TYCO
INTERNATIONAL, LTD. (multi-industry) moved forward 15.5% on improving profit
margins, PERKIN ELMER CORP. (health services) rose 23.7% on news of a corporate
restructuring that was widely expected to improve manufacturing efficiencies.
PROCTER & GAMBLE CO. (consumer stable, up 17.7%) continued to convince investors
it is one of the best-managed companies in its sector, with solid upside
potential thanks to its large brand name roster.
WHERE DID FUND PERFORMANCE LAG?
TEB: A "sin of omission" proved to be the biggest detractor from the Fund's
relative performance for the period. We decided not to hold technology leader
Microsoft in the portfolio, only to see the stock climb an impressive 47.1%.
Morgan research had identified Microsoft as overvalued. Also detracting from
overall returns was PAGING NETWORK, INC. (services), which declined -54.3% for
the period on concerns about pricing pressures and competition in the core
business as well as delays and, later, only limited acceptance of its new Voice
Now product.
Shareholders should note that the Fund will generally continue to hold stocks
that have experienced short-term downturns, provided we remain convinced the
company's underlying fundamentals remain strong. A good case in point is CISCO
SYSTEMS, INC. (data processing/electronics), which was a significant drag to
overall Fund performance for the period. Reasons for this disappointing
performance included concern on Wall Street of a slowdown in technology spending
along with increased competition from consolidation in the computer networking
sector. Since our continued research of Cisco Systems did nothing to change our
favorable view of the company, we used the stock's price decline as a buying
opportunity for the Fund and went on to overweight the security in the
portfolio. This decision has been rewarded in May as Cisco Systems became one of
the market's most visible "comeback kids."
Taking the larger view, our stock selection detracted from overall returns in
nine of the nineteen sectors into which we divide the S&P 500. Holdings in
the services sector had the greatest negative impact on relative
4
<PAGE>
performance as selections in this sector returned -9.0% for the period versus a
7.9% return for services stocks included in the benchmark.
WHY IS YOUR MANAGEMENT TEAM FINDING THE SERVICES SECTOR SO CHALLENGING?
TEB: Services stocks are a tough nut to crack because the sector encompasses so
many industries. I think it's safe to say that the strategy's success will only
be improved when we combine the ability to identify stocks within sectors that
are cheap in relative terms with the ability to identify cheap service
industries.
The stocks we identified as cheap on a long-term basis belonged to industries --
gaming, cable, and tele-communications -- that were generally out of favor.
Investor sentiment toward a service sector industry sometimes takes longer to
turn around than sentiment toward a specific stock in an industry already viewed
favorably by Wall Street. We believe that investors are waiting for more than
one company to report a positive earnings surprise before becoming bullish on
service sector stocks. Meanwhile, the Fund has held positions in the service
sector stocks for only a brief period, and we are confident things should turn
around for them soon.
MORGAN'S ECONOMIC OUTLOOK FOR THE NEXT TWO YEARS CALLS FOR GDP GROWTH AT
TREND-LIKE LEVELS FOR THE REST OF 1997, FOLLOWED BY A SLOWDOWN IN 1998. HOW DO
YOU EXPECT TO POSITION THE FUND IN THIS CHANGING ENVIRONMENT?
TEB: As I've mentioned, we hope that the Fund will perform well in all market
environments -- and we believe that maintaining a consistent market-neutral
investment strategy is the best way to achieve attractive long-term results in
both relative and absolute terms. Going forward, we will continue to rely on
Morgan's in-depth proprietary research as a way to identify and purchase stocks
within market sectors that appear to be undervalued based on their long-term
potential earnings power.
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.
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COMMENCEMENT OF OPERATIONS
12/18/96
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NET ASSETS AS OF 4/30/97
$13,762,997
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE
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 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 APRIL 30, 1997
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
CONSUMER GOODS 24.3%
HEALTH CARE 12.7%
INDUSTRIAL 12.7%
FINANCE 12.0%
TECHNOLOGY 11.7%
ENERGY 9.6%
UTILITIES 7.7%
BASIC INDUSTRIES 7.5%
TRANSPORTATION 1.6%
SHORT-TERM HOLDINGS 0.2%
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- --------------------------------------------------------------------------------
PROCTER & GAMBLE CO. (HOUSEHOLD PRODUCTS) 3.4%
WARNER-LAMBERT CO. (PHARMACEUTICALS) 3.1%
EXXON CORP. (OIL PRODUCTION) 3.0%
ALLIEDSIGNAL, INC. (DIVERSIFIED MANUFACTURING) 2.7%
ALLEGHENY TELEDYNE, INC. (METALS & MINING) 2.2%
E.I. DU PONT DE NEMOURS & CO. (CHEMICALS) 2.2%
NATIONSBANK CORP. (FINANCIAL SERVICES) 1.9%
RALSTON PURINA CO. (FOOD, BEVERAGES & TOBACCO) 1.9%
MCI COMMUNICATIONS CORP. (TELEPHONE) 1.8%
FIRST CHICAGO NBD CORP. (BANKING) 1.8%
6
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SPECIAL FUND-BASED SERVICES
PIERPONT ASSET ALLOCATION SERVICE (PAAS)
For many investors, a diversified portfolio -- including short-term instruments,
bonds, and stocks -- can offer an excellent opportunity to achieve one's
investment objectives. PAAS provides investors with a comprehensive management
program for their portfolios. Through this service, investors can:
* create and maintain an asset allocation that is specifically targeted at
meeting their most critical investment objectives;
* make ongoing tactical adjustments in the actual asset mix of their portfolios
to capitalize on shifting market trends;
* make investments through The JPM Pierpont Funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in The
JPM Pierpont Funds.
IRA MANAGEMENT SERVICE
As one of the few remaining investments that can help your assets grow
tax-deferred until retirement, the IRA enables more of your dollars to work for
you longer. Morgan offers an IRA Rollover plan that helps you to build
well-balanced long-term investment portfolios, diversified across a wide array
of mutual funds. From money markets to emerging markets, The JPM Pierpont Funds
provide an excellent way to help you accumulate long-term wealth for retirement.
KEOGH
In early 1995, Morgan introduced a Keogh program for its clients. Keoghs provide
another excellent vehicle to help individuals who are self-employed or are
employees of unincorporated businesses to accumulate retirement savings. A Keogh
is a tax-deferred pension plan that can allow you to contribute the lesser of
$30,000 or 25% of your annual earned gross compensation. The JPM Pierpont Funds
can help you build a comprehensive investment program designed to maximize the
retirement dollars in your Keogh account.
7
<PAGE>
FUNDS DISTRIBUTOR, INC. IS THE DISTRIBUTOR FOR SHARES OF TAX AWARE U.S. EQUITY
FUND (THE "FUND").
MORGAN GUARANTY TRUST OF NEW YORK ("MORGAN") SERVES AS INVESTMENT ADVISOR AND
MAKES FUND SHARES AVAILABLE SOLELY IN ITS CAPACITY AS SHAREHOLDER SERVICING
AGENT FOR CUSTOMERS. INVESTMENTS IN THE FUND ARE NOT DEPOSITS OR OBLIGATIONS
OF, OR GUARANTEED OR ENDORSED BY, MORGAN OR ANY OTHER BANK. SHARES OF THE
FUND ARE NOT FEDERALLY INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE FEDERAL RESERVE BOARD, OR ANY OTHER GOVERNMENTAL AGENCY. INVESTMENT
RETURN AND PRINCIPAL VALUE OF AN INVESTMENT IN THE FUND CAN FLUCTUATE, SO AN
INVESTOR'S SHARES WHEN REDEEMED MAY BE WORTH MORE OR LESS THAN THEIR ORIGINAL
COST.
Performance data quoted herein represent past performance. Please remember that
past performance is not a guarantee of future results. Fund returns are net of
fees and assume the reinvestment of Fund distributions and reflect the
reimbursement of certain 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 only and
are not intended to be, and should not be interpreted as, recommendations to
purchase or sell such securities. Opinions expressed herein are based on current
market conditions and are subject to change without notice.
MORE COMPLETE INFORMATION ABOUT THE FUND, INCLUDING MANAGEMENT FEES AND OTHER
EXPENSES, IS PROVIDED IN THE PROSPECTUS, WHICH SHOULD BE READ CAREFULLY BEFORE
INVESTING. YOU MAY OBTAIN ADDITIONAL COPIES OF THE PROSPECTUS BY CALLING
(800) 521-5411.
8
<PAGE>
TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1997
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<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
COMMON STOCKS (100.0%)
BASIC INDUSTRIES (7.5%)
CHEMICALS (3.2%)
E.I. Du Pont De Nemours & Co..................... 2,800 $ 297,150
Union Carbide Corp............................... 2,800 139,650
------------
436,800
------------
FOREST PRODUCTS & PAPER (0.8%)
Temple-Inland, Inc............................... 2,000 111,000
------------
METALS & MINING (3.5%)
Allegheny Teledyne, Inc.......................... 11,500 306,187
Aluminum Company of America (ALCOA).............. 2,500 174,687
------------
480,874
------------
TOTAL BASIC INDUSTRIES......................... 1,028,674
------------
CONSUMER GOODS & SERVICES (24.3%)
BROADCASTING & PUBLISHING (3.0%)
R.R. Donnelley & Sons Co......................... 4,900 167,825
TCI Satellite Entertainment,
Inc. - A+...................................... 1,300 9,831
Tele-Communications TCI, Series A+............... 14,100 194,756
U.S. West, Inc. Media Group+..................... 2,400 41,400
------------
413,812
------------
ENTERTAINMENT, LEISURE & MEDIA (2.5%)
Circus Circus Enterprises, Inc.+................. 3,600 86,850
Mirage Resorts, Inc.+............................ 1,500 30,187
Time Warner Inc.................................. 5,100 229,500
------------
346,537
------------
FOOD, BEVERAGES & TOBACCO (8.4%)
General Mills, Inc............................... 3,000 186,000
Kellogg Co....................................... 1,300 90,675
PepsiCo., Inc.................................... 6,400 223,200
Philip Morris Companies, Inc..................... 5,700 224,437
Ralston Purina Co................................ 3,100 255,362
Unilever NV (ADR)................................ 900 176,625
------------
1,156,299
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
HOUSEHOLD APPLIANCES FURNISHINGS (0.4%)
Black & Decker Corp.............................. 1,700 $ 56,950
------------
HOUSEHOLD PRODUCTS (3.4%)
Procter & Gamble Co.............................. 3,700 465,275
------------
RETAIL (5.5%)
Circuit City Stores, Inc. - Circuit City Group... 3,700 146,612
Federated Department Stores, Inc.+............... 4,900 166,600
Nine West Group, Inc.+........................... 1,300 51,512
Toys 'R' Us, Inc.+............................... 6,200 176,700
Wal-Mart Stores, Inc............................. 7,600 214,700
------------
756,124
------------
TEXTILES (1.1%)
Fruit of the Loom Inc.+.......................... 4,200 151,200
------------
TOTAL CONSUMER GOODS & SERVICES................ 3,346,197
------------
ENERGY (9.6%)
OIL-PRODUCTION (9.6%)
Anadarko Petroleum Corp.......................... 1,500 82,312
British Petroleum Co. (ADR)...................... 1,800 247,725
Exxon Corp....................................... 7,200 407,700
Mobil Corp....................................... 800 104,000
Royal Dutch Petroleum Co. (ADR).................. 900 162,225
Tosco Corp....................................... 7,900 234,037
Valero Energy Corp............................... 2,500 87,813
------------
TOTAL ENERGY................................... 1,325,812
------------
FINANCE (12.1%)
BANKING (5.5%)
Banc One Corp.................................... 700 29,663
First Chicago NBD Corp........................... 4,500 253,125
First Union Corp................................. 1,000 84,000
Fleet Financial Group, Inc....................... 2,000 122,000
NationsBank Corp................................. 4,400 265,650
------------
754,438
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
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<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
FINANCIAL SERVICES (4.3%)
Dean Witter Discover & Co........................ 4,000 $ 153,000
Edwards (A.G.), Inc.............................. 2,900 101,500
Federal National Mortgage Association............ 3,000 123,375
First USA, Inc................................... 2,800 134,750
Salomon, Inc..................................... 1,500 75,000
------------
587,625
------------
INSURANCE (2.3%)
Financial Security Assurance Holdings Ltd........ 5,500 178,063
Providian Corp................................... 2,300 132,825
------------
310,888
------------
TOTAL FINANCE.................................. 1,652,951
------------
HEALTH CARE (12.8%)
HEALTH SERVICES (4.3%)
Humana, Inc.+.................................... 8,200 178,350
Perkin-Elmer Corp................................ 3,200 232,400
United Healthcare Corp........................... 3,700 179,913
------------
590,663
------------
PHARMACEUTICALS (8.5%)
Alza Corp.+...................................... 4,900 143,325
American Home Products Corp...................... 2,900 192,125
Bristol-Myers Squibb Co.......................... 2,100 137,550
Pfizer, Inc...................................... 1,500 144,000
Schering-Plough Corp............................. 1,600 128,000
Warner-Lambert Co................................ 4,300 421,400
------------
1,166,400
------------
TOTAL HEALTH CARE.............................. 1,757,063
------------
INDUSTRIAL PRODUCTS & SERVICES (12.7%)
BUILDING MATERIALS (0.6%)
USG Corp.+....................................... 2,400 82,200
------------
DIVERSIFIED MANUFACTURING (10.5%)
AlliedSignal, Inc................................ 5,200 375,700
Cooper Industries, Inc........................... 4,200 193,200
General Electric Co.............................. 1,700 188,488
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
DIVERSIFIED MANUFACTURING (CONTINUED)
Johnson Controls, Inc............................ 6,200 $ 237,925
Tyco International Ltd........................... 3,800 231,800
Xerox Corp....................................... 3,500 215,250
------------
1,442,363
------------
ELECTRICAL EQUIPMENT (0.9%)
Grainger (W.W.), Inc............................. 1,700 128,138
------------
POLLUTION CONTROL (0.7%)
WMX Technologies, Inc............................ 3,500 102,813
------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 1,755,514
------------
TECHNOLOGY (11.6%)
AEROSPACE (1.8%)
Boeing Co........................................ 2,500 246,563
------------
COMPUTER PERIPHERALS (1.6%)
EMC Corp.+....................................... 3,400 123,675
Read-Rite Corp.+................................. 3,900 101,156
------------
224,831
------------
COMPUTER SOFTWARE (0.7%)
Autodesk, Inc.................................... 2,700 96,356
------------
COMPUTER SYSTEMS (2.4%)
International Business Machines Corp............. 900 144,675
Sun Microsystems, Inc.+.......................... 6,400 184,400
------------
329,075
------------
ELECTRONICS (1.8%)
Cisco Systems, Inc.+............................. 2,800 145,075
Harris Corp...................................... 1,200 102,600
------------
247,675
------------
INFORMATION PROCESSING (0.8%)
First Data Corp.................................. 3,100 106,950
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
SEMICONDUCTORS (2.3%)
Applied Materials, Inc.+......................... 1,400 $ 76,738
Intel Corp....................................... 1,400 214,375
National Semiconductor Corp.+.................... 1,300 32,500
------------
323,613
------------
TELECOMMUNICATIONS-EQUIPMENT (0.2%)
Lucent Technologies, Inc......................... 600 35,475
------------
TOTAL TECHNOLOGY............................... 1,610,538
------------
TRANSPORTATION (1.7%)
RAILROADS (0.8%)
CSX Corp......................................... 2,400 111,900
------------
TRUCK & FREIGHT CARRIERS (0.9%)
CNF Transportation, Inc.......................... 4,000 119,000
------------
TOTAL TRANSPORTATION........................... 230,900
------------
UTILITIES (7.7%)
ELECTRIC (2.4%)
Duke Power Co.................................... 2,800 122,850
New England Electric System...................... 3,300 112,613
Northern States Power Co......................... 2,100 95,550
------------
331,013
------------
TELEPHONE (5.3%)
Ameritech Corp................................... 2,000 122,250
GTE Corp......................................... 3,000 137,625
MCI Communications Corp.......................... 6,700 255,019
US West Communications Group..................... 2,900 101,863
WorldCom, Inc.+.................................. 4,700 112,506
------------
729,263
------------
TOTAL UTILITIES................................ 1,060,276
------------
TOTAL COMMON STOCKS (COST $13,137,160)......... 13,767,925
------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (0.2%)
OTHER INVESTMENT COMPANIES (0.2%)
Seven Seas Money Market Fund, 5.25% due 05/01/97
(COST $25,206)................................. $ 25,206 $ 25,206
------------
TOTAL INVESTMENTS (COST $13,162,366) (100.2%).................
13,793,131
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.2%).................
(30,134)
------------
NET ASSETS (100.0%)........................................... $ 13,762,997
------------
------------
</TABLE>
- ------------------------------
Note: The cost of securities for Federal Income Tax purposes at April 30, 1997,
was $13,162,366; the aggregate gross unrealized appreciation and depreciation
was $875,658 and $244,893, respectively, resulting in net unrealized
appreciation of $630,765.
+ 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 Depository 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 (UNAUDITED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $13,162,366) $13,793,131
Deferred Organization Expenses 44,128
Receivable for Expense Reimbursements 18,078
Dividends Receivable 11,430
Interest Receivable 525
Prepaid Trustees' Fees 5
-----------
Total Assets 13,867,297
-----------
LIABILITIES
Organization Expenses Payable 44,599
Custody Fee Payable 10,565
Advisory Fee Payable 4,811
Shareholder Servicing Fee Payable 2,673
Administrative Services Fee Payable 571
Administration Fee Payable 44
Fund Services Fee Payable 7
Accrued Expenses 41,030
-----------
Total Liabilities 104,300
-----------
NET ASSETS $13,762,997
-----------
-----------
ANALYSIS OF NET ASSETS
Paid-in Capital $13,205,219
Undistributed Net Investment Income 23,485
Accumulated Net Realized Loss on Investments (96,472)
Net Unrealized Appreciation of Investments 630,765
-----------
Net Assets $13,762,997
-----------
-----------
JPM PIERPONT SHARES
Applicable to 1,263,980 shares outstanding
(par value $0.001, unlimited shares authorized) $13,762,997
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $10.89
-----
-----
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
TAX AWARE U.S. EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD FROM DECEMBER 18, 1996 (COMMENCEMENT OF OPERATIONS) TO APRIL 30,
1997
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $347 ) $ 53,210
Interest Income 6,997
--------
Investment Income 60,207
EXPENSES
Custodian Fees and Expenses $ 24,886
Registration Fees 18,987
Advisory Fee 16,337
Professional Fees and Expenses 15,682
Printing Expenses 11,278
Shareholder Servicing Fee--JPM Pierpont Shares 9,076
Transfer Agent Fee 8,340
Amortization of Organization Expense 3,439
Administrative Services Fee 1,377
Fund Services Fee 100
Administration Fee 73
Trustees' Fees and Expenses 34
Miscellaneous 1,245
--------
Total Expenses 110,854
Less: Reimbursement of Expenses (79,998)
--------
NET EXPENSES 30,856
--------
NET INVESTMENT INCOME 29,351
NET REALIZED LOSS ON INVESTMENTS (96,472)
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 630,765
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $563,644
--------
--------
</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
FROM
DECEMBER 18,
1996
(COMMENCEMENT OF
OPERATIONS) TO
APRIL 30, 1997
(UNAUDITED)
----------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 29,351
Net Realized Loss on Investments (96,472)
Net Change in Unrealized Appreciation of
Investments 630,765
----------------
Net Increase in Net Assets Resulting from
Operations 563,644
----------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
JPM Pierpont Shares (5,866)
----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 13,174,579
Reinvestment of Dividends 5,640
----------------
Net Increase from Shareholder Transactions 13,180,219
----------------
Total Increase in Net Assets 13,737,997
NET ASSETS
Beginning of Period 25,000
----------------
End of Period (including undistributed net
investment income of $23,485) $ 13,762,997
----------------
----------------
</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>
JPM PIERPONT SHARES
FOR THE PERIOD FROM
DECEMBER 18, 1996
(COMMENCEMENT OF
OPERATIONS) TO
APRIL 30, 1997
(UNAUDITED)
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 10.00
-------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03
Net Realized and Unrealized Gain on Investments 0.87
-------------------
Total from Investment Operations 0.90
-------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.01)
-------------------
NET ASSET VALUE, END OF PERIOD $ 10.89
-------------------
-------------------
Total Return 9.02%(b)
-------------------
-------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 13,763
Ratios to Average Net Assets
Expenses 0.85%(a)
Net Investment Income 0.81%(a)
Decrease Reflected in Expense Ratio due to Expense
Reimbursement 2.20%(a)
Portfolio Turnover Rate 16%
Average Broker Commissions $ 0.0300
</TABLE>
- ------------------------
(a) Annualized
(b) Not annualized
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 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 April 30, 1997, no sales of JPM Institutional Shares have
occurred. 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
exists 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 exchanges. 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 Fund's 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 at amortized cost.
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)Net investment income (other than shareholder servicing fees) and
unrealized and realized gains and losses are allocated daily to each class
of shares based upon the relative proportion of net assets of each class
at the beginning of the day.
d)Distributions to shareholders of net investment income and realized net
capital gains, if any, are declared and paid annually.
e)The Fund incurred organization expenses in the amount of $47,567. Morgan
Guaranty Trust Company of New York ("Morgan") has agreed to pay the
organization expenses of the Fund. The
16
<PAGE>
TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
Fund has agreed to reimburse Morgan for these costs which are being
deferred and will be amortized on a straight-line basis over a period not
to exceed five years beginning with the commencement of operations of the
Fund.
f)The Fund is treated as a separate entity for federal income tax purposes.
The Fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute 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.
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 from December 18, 1996
(commencement of operations) to April 30, 1997 such fees amounted to
$16,337.
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
registered investment companies subject to similar arrangements with FDI.
For the period from December 18, 1996 (commencement of operations) to
April 30, 1997, the fee for these services amounted to $73.
c)The Trust, on behalf of the Fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
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 daily based on the aggregate net assets of the Trust
and certain other investment companies for which Morgan provides similar
services 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 the other investment companies provided
administrative services by Morgan. For the period from December 18, 1996
(commencement of operations) to April 30, 1997, the fee for these services
amounted to $1,377.
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
17
<PAGE>
TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
through February 28, 1998. For the period from December 18, 1996
(commencement of operations) to April 30, 1997, Morgan has agreed to
reimburse the Fund $79,998 for expenses that exceeded this limit.
d)The Trust, on behalf of the Fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal and 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 from December 18, 1996
(commencement of operations) to April 30, 1997, the fee for these services
amounted to $9,076.
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
$100 for the period from December 18, 1996 (commencement of operations) to
April 30, 1997.
f)An aggregate annual fee of $75,000 is paid to each Trustee for serving as
a Trustee of The JPM Pierpont Funds, The JPM Institutional Funds, other
investment companies in which they invest and the Trust. 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 $20.
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. Transactions in shares of
beneficial interest of the Fund were as follows:
JPM PIERPONT SHARES
<TABLE>
<CAPTION>
FOR THE PERIOD FROM
DECEMBER 18, 1996
(COMMENCEMENT OF OPERATIONS)
TO APRIL 30, 1997
(UNAUDITED)
-----------------------------
SHARES AMOUNT
------------- -------------
<S> <C> <C>
Shares of beneficial interest sold............................................ 1,260,929 $ 13,174,579
Reinvestment of dividends & distributions..................................... 551 5,640
------------- -------------
Net increase.................................................................. 1,261,480 $ 13,180,219
------------- -------------
------------- -------------
</TABLE>
18
<PAGE>
TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1997
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period from
December 18, 1996 (commencement of operations) to April 30, 1997 were as
follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
-------------- --------------
<S> <C>
$14,609,930 $ 1,376,232
-------------- --------------
-------------- --------------
</TABLE>
19
<PAGE>
JPM PIERPONT PRIME MONEY MARKET FUND
JPM PIERPONT TAX EXEMPT MONEY MARKET FUND
JPM PIERPONT FEDERAL MONEY MARKET FUND
JPM PIERPONT SHORT TERM BOND FUND
JPM PIERPONT BOND FUND
JPM PIERPONT TAX EXEMPT BOND FUND
JPM PIERPONT NEW YORK TOTAL RETURN BOND FUND
JPM PIERPONT SHARES:CALIFORNIA BOND FUND
JPM PIERPONT EMERGING MARKETS DEBT FUND
JPM PIERPONT DIVERSIFIED FUND
JPM PIERPONT U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE U.S. EQUITY FUND
JPM PIERPONT SHARES: TAX AWARE DISCIPLINED EQUITY FUND
JPM PIERPONT U.S. SMALL COMPANY FUND
JPM PIERPONT INTERNATIONAL EQUITY FUND
JPM PIERPONT INTERNATIONAL OPPORTUNITIES FUND
JPM PIERPONT EMERGING MARKETS EQUITY FUND
JPM PIERPONT EUROPEAN EQUITY FUND
JPM PIERPONT JAPAN EQUITY FUND
JPM PIERPONT ASIA GROWTH FUND
For more information on how The JPM Pierpont Family of Funds can help you plan
for your future, call J.P. Morgan Funds Services at (800) 521-5411.
JPM PIERPONT SHARES:
TAX AWARE
U.S. EQUITY FUND
SEMI-ANNUAL REPORT
April 30, 1997
