<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN TAX AWARE U.S. EQUITY FUND
May 23, 1998
Dear Shareholder:
J.P. Morgan Tax Aware U.S. Equity Fund uses a proprietary tax-aware model that
seeks to minimize capital gains distributions from a portfolio of U.S. large-
and medium-cap stocks. By avoiding stocks that Morgan research identifies as
overvalued, the fund seeks to outperform the S&P500 Index.
We are pleased to report that the fund provided a solid return of 21.42% for the
six months ended April 30, 1998. This performance was well ahead of the 17.38%
return posted over the same period by fund competitors included in the Lipper
Growth & Income Fund Average, and slightly behind the 22.49% return for the S&P
500 Index.
The fund's net asset value increased from $12.57 per share on October 31,
1997,to $15.18 per share on April 30, 1998, after making distributions during
the reporting period of approximately $0.07 from ordinary income. There were no
distributions from short- or long-term capital gains. The fund's net assets
stood at approximately $58.7 million at the end of the period under review.
The report that follows includes an interview with Terry E. Banet, a member of
the portfolio management team for the fund. This interview is designed to answer
commonly asked questions about the fund, elaborate on what happened during the
reporting period, and reiterate the fund's investment strategy.
As chairman and president of Asset Management Services, we appreciate your
investment in the fund. 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>
<CAPTION>
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<S> <C>
LETTER TO THE SHAREHOLDERS . . . . 1 FUND FACTS AND HIGHLIGHTS. . . . . . . 5
FUND PERFORMANCE . . . . . . . . . 2 SPECIAL FUND-BASED SERVICES. . . . . . 6
PORTFOLIO MANAGER Q&A. . . . . . . 3 FINANCIAL STATEMENTS . . . . . . . . . 8
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
One way to look at performance is to review a fund's average annual total
return. This figure takes 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 one, five,
or ten years (or since inception). Total returns for periods of less than one
year are not annualized and provide a picture of how a fund has performed over
the short term.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
---------------- -----------------------------
THREE SIX ONE SINCE
AS OF APRIL 30, 1998 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Tax Aware U.S. Equity Fund 14.12% 21.42% 40.15% 36.44%
S&P 500 Index 13.84% 22.49% 41.07% 38.05%
Lipper Growth & Income Fund Average 12.37% 17.38% 36.12% 30.47%
AS OF MARCH 31, 1998
- ------------------------------------------------------------- ----------------------------
J.P. Morgan Tax Aware U.S. Equity Fund 13.51% 14.05% 43.52% 36.90%
S&P 500 Index 13.95 17.22% 48.00% 39.89%
Lipper Growth & Income Fund Average 11.62% 12.49% 40.15% 32.14%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON DECEMBER 18, 1996, AND HAS PROVIDED AN AVERAGE
ANNUAL TOTAL RETURN OF 36.43% FROM THAT DATE THROUGH APRIL 30, 1998. 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 AVAILABLE.
PAST PERFORMANCE IS NO GUARANTEE OF FUTURE RESULTS. FUND RETURNS ARE NET OF
FEES, ASSUME THE REINVESTMENT OF FUND DISTRIBUTIONS, AND REFLECT THE
REIMBURSEMENT OF FUND EXPENSES AS DESCRIBED IN THE PROSPECTUS. HAD EXPENSES NOT
BEEN SUBSIDIZED, RETURNS WOULD HAVE BEEN LOWER. 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 the J.P. Morgan 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. She was key in helping to develop
Morgan's tax-aware equity management 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
7, 1998, and reflects Terry's views on that date.
HOW WOULD YOU DESCRIBE THE MARKET ENVIRONMENT OF THE PAST SIX MONTHS?
TEB: We've just been through a profitable yet volatile period. In November and
December of 1997, the market experienced aftershocks from the Asian crisis. The
first quarter of 1998 saw the market charge ahead, reaching record highs on
several days. In April, however, fears of a Federal Reserve interest rate hike,
coupled with worries about possible corporate earnings disappointments, left the
market jittery once more.
HOW DID THE PORTFOLIO PERFORM DURING THE PERIOD?
TEB: The portfolio surpassed its peers by a wide margin, but slightly
underperformed its benchmark, for the six months ended April 30, 1998. The
portfolio rose 21.42% for the period, versus 22.49% for the S&P 500 Index and
17.38% for the Lipper Growth & Income Fund Average. We were held back relative
to the Index due to difficult stock selection in November and December of last
year. Through April of 1998, however, we are outpacing the Index by nearly a
full percentage point.
On the tax-aware front, we continued to carefully manage the tax impact of
trading during the six months. When the portfolio distributed income in
December, we paid no capital gains distribution. That's because we offset all
realized gains against losses. In fact, we actually carried forward a net loss
that we can utilize this fiscal tax year. This means that through April of
1998, we once again have a net realized loss. This loss allows us to take gains
throughout the year without having to make a taxable distribution to
shareholders.
WHAT ARE SOME OF THE BENEFITS OF A TAX-AWARE APPROACH?
TEB: U.S. equity funds paid record amounts of gains in 1997 after a year of
prodigious growth by the stock market. In addition, the new tax code created a
wide disparity between the tax rate for short-term and long-term gains. This
makes it even more crucial to take taxes into account when buying and selling
stocks.
While most mutual funds focus only on returns, we are more concerned with how
much money our shareholders actually receive -- their after-tax return. We try
to manage the tax impact of trading by offsetting
3
<PAGE>
capital gains from the sales of stocks that have appreciated with capital losses
from sales of stocks that have declined in price. The less of an investor's
return that gets paid to Uncle Sam, the more money that investor has compounding
over time.
WHICH STOCKS HELPED THE PORTFOLIO'S PERFORMANCE FOR THE PERIOD?
TEB: One of the portfolio's larger technology holdings is EMC Corp., the
leading supplier of enterprise storage systems and software for mainframe and
open systems environments. The need for storage is increasing as companies
institute "data warehouses," wrestle with the Year 2000 problem, and increase
their activities on the Internet. EMC's growth and earnings prospects have
risen, which keeps the stock looking attractive. For the six months through
April 30, 1998, the stock rose 65.18%.
In December, the portfolio initiated a position in Best Buy Co., Inc., a
retailer of name-brand consumer electronics, personal computers, software, and
appliances. Although the company was operating with low margins based upon
industry standards, Best Buy's strategy for improvement seemed reasonable and
achievable. The company has not only started improving margins but experienced
exceptional comparable store sales in the fourth quarter of 1997. We still
believe there is more room for improvement and we continue to hold the stock.
Best Buy is up 109.70% since we began purchasing it.
Although United Healthcare posted lackluster performance in 1997, it has gained
an impressive 51.76% for the six months through April 30, 1998.
WHICH STOCKS HAMPERED THE PORTFOLIO'S PERFORMANCE?
TEB: Toys 'R' Us was a disappointment during the period. While sales trends
appeared strong during the spring and summer, the fourth quarter of 1997 was
below expectations. It appears that competitors such as WalMart, Kmart and
Costco are increasingly focused on adding to their assortment of the hot
Christmas items -- and competing heavily on price during this crucial period.
Toys 'R' Us has not fared well in this battle and its efforts to revamp stores
have not had a significant positive impact. We sold the stock in January after
holding it for ten months and experiencing a loss of 4.24%. We used the tax loss
to offset gains in other stocks.
The biggest negative impact during the period was the decision not to include
Microsoft in the portfolio. Microsoft is now the second-largest stock (based on
market capitalization) in the S&P 500 Index. Our research, however, views the
company as expensive relative to its peers in the technology sector. What's
more, the price/earnings ratio of Microsoft is more than double that of the S&P
500 Index.
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
TEB: We expect that GDP growth will slow throughout 1998 and 1999. Corporate
profit growth will be held back by a stronger dollar and rising labor costs. We
are currently forecasting lower after-tax profit growth this year. We have also
lowered our inflation forecast for 1998 to levels comparable to 1997's 1.9%.
4
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan 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
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/98
$58,740,474
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
7/31/98, 10/30/98, 12/18/98
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The fund's current annualized expense ratio of 0.85% covers shareholders'
expenses for custody, tax reporting, and 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 may be 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 Statement of Additional
Information.
FUND HIGHLIGHTS
ALL DATA AS OF APRIL 30, 1998
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
<TABLE>
<S> <C>
CONSUMER GOODS & SERVICES 21.5%
FINANCE 17.3%
TECHNOLOGY 14.0%
HEALTH CARE 11.8%
UTILITIES 9.4%
INDUSTRIAL PRODUCTS & SERVICES 9.3%
ENERGY 7.8%
BASIC INDUSTRIES 5.1%
TRANSPORTATION 1.7%
SHORT-TERM & OTHER INVESTMENTS 2.1%
</TABLE>
<TABLE>
<CAPTION>
% OF TOTAL
LARGEST EQUITY HOLDINGS INVESTMENTS
- --------------------------------------------------------------------------------
<S> <C>
WARNER-LAMBERT CO. (HEALTH CARE) 2.9%
EMCCORP. (TECHNOLOGY) 2.6%
PROCTER & GAMBLE CO.
(CONSUMER GOODS &SERVICES) 2.5%
MOBILCORP. (ENERGY) 2.2%
EXXON CORP. (ENERGY) 2.2%
FEDERAL NATIONAL MORTGAGE ASSOCIATION (FINANCE) 2.1%
BRISTOL-MYERS SQUIBB CO. (HEALTH CARE) 2.0%
INTERNATIONAL BUSINESS MACHINES CORP.
(TECHNOLOGY) 1.8%
ALLIEDSIGNAL, INC.
(INDUSTRIAL PRODUCTS & SERVICES) 1.8%
WAL-MART STORES, INC.
(CONSUMER GOODS & SERVICES) 1.8%
</TABLE>
5
<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 to
meet 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 J.P. Morgan Funds, a family of diversified
mutual funds.
PAAS is available to clients who invest a minimum of $500,000 in the J.P. Morgan
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 J.P. Morgan
Funds provide an excellent way to help you accumulate long-term wealth for
retirement.
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. MORGAN GUARANTY TRUST COMPANY OF NEW
YORKSERVES AS INVESTMENT ADVISOR AND MAKES THE FUND 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.
RETURN AND SHARE PRICE WILL FLUCTUATE AND REDEMPTION VALUE MAY BE MORE OR LESS
THAN ORIGINAL COST.
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.
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 THE PROSPECTUS CAREFULLY BEFORE INVESTING.
7
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
COMMON STOCKS (99.3%)
BASIC INDUSTRIES (5.2%)
CHEMICALS (2.8%)
Albemarle Corp................................... 10,600 $ 263,675
Dow Chemical Co.................................. 3,600 348,075
E.I. du Pont de Nemours & Co..................... 7,400 538,812
Rohm & Haas Co................................... 4,600 495,937
------------
1,646,499
------------
FOREST PRODUCTS & PAPER (1.3%)
Temple-Inland, Inc............................... 12,200 787,662
------------
METALS & MINING (1.1%)
Allegheny Teledyne, Inc.......................... 25,000 634,375
------------
TOTAL BASIC INDUSTRIES......................... 3,068,536
------------
CONSUMER GOODS & SERVICES (21.8%)
BROADCASTING & PUBLISHING (2.6%)
Comcast Corp., Class A........................... 4,200 150,019
Tele-Communications TCI Ventures Group+.......... 23,036 376,495
Tele-Communications, Inc., Series A+............. 16,732 540,130
U.S. West Media Group+........................... 11,400 430,350
------------
1,496,994
------------
ENTERTAINMENT, LEISURE & MEDIA (3.1%)
International Game Technology.................... 15,600 433,875
Mattel, Inc...................................... 14,900 570,856
Seagram Company Ltd.(i).......................... 7,200 307,350
Time Warner, Inc................................. 6,700 525,950
------------
1,838,031
------------
FOOD, BEVERAGES & TOBACCO (6.2%)
Anheuser Busch Companies, Inc.................... 14,100 645,956
Kellogg Co....................................... 4,200 173,250
PepsiCo, Inc..................................... 15,400 611,187
Philip Morris Companies, Inc..................... 16,900 630,581
Ralston-Ralston Purina Group..................... 6,400 678,400
Unilever NV (ADR)................................ 12,400 925,350
------------
3,664,724
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
HOUSEHOLD PRODUCTS (2.6%)
Procter & Gamble Co.............................. 18,400 $ 1,512,250
------------
MISCELLANEOUS (1.3%)
Service Corp. International...................... 18,300 754,875
------------
PERSONAL CARE (1.2%)
Gillette Co...................................... 6,000 692,625
------------
RETAIL (4.8%)
Best Buy Co., Inc.+.............................. 6,500 456,625
Federated Department Stores, Inc.+............... 17,700 870,619
Kroger Co.+...................................... 7,800 326,625
TJX Companies, Inc............................... 2,900 128,325
Wal-Mart Stores, Inc............................. 20,900 1,056,756
------------
2,838,950
------------
TOTAL CONSUMER GOODS & SERVICES................ 12,798,449
------------
ENERGY (7.9%)
OIL-PRODUCTION (7.9%)
Atlantic Richfield Co............................ 9,700 756,600
Exxon Corp....................................... 17,600 1,283,700
Mobil Corp....................................... 16,900 1,335,100
Royal Dutch Petroleum Co. (ADR).................. 6,100 345,031
Tosco Corp....................................... 20,500 730,312
Valero Energy Corp............................... 6,100 197,487
------------
TOTAL ENERGY................................... 4,648,230
------------
FINANCE (17.5%)
BANKING (6.3%)
BankAmerica Corp................................. 4,400 374,000
Chase Manhattan Corp............................. 1,900 263,269
Citicorp......................................... 2,400 361,200
First Chicago NBD Corp........................... 10,500 975,187
First Union Corp................................. 13,400 809,025
Firstar Corp..................................... 2,700 100,744
NationsBank Corp................................. 11,200 848,400
------------
3,731,825
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
FINANCIAL SERVICES (6.2%)
American Express Co.............................. 5,800 $ 591,600
Capital One Financial Corp....................... 6,600 634,012
Federal National Mortgage Association............ 21,000 1,257,375
Morgan Stanley, Dean Witter, Discover & Co....... 4,000 315,500
Travelers Group, Inc............................. 13,890 849,894
------------
3,648,381
------------
INSURANCE (3.9%)
American International Group, Inc................ 3,200 421,000
Financial Security Assurance Holdings Ltd........ 14,900 892,137
Marsh & McLennan Companies, Inc.................. 10,700 975,037
------------
2,288,174
------------
REAL ESTATE INVESTMENT TRUSTS (1.1%)
Starwood Lodging Trust........................... 12,700 637,381
------------
TOTAL FINANCE.................................. 10,305,761
------------
HEALTHCARE (12.0%)
HEALTH SERVICES (2.3%)
Perkin-Elmer Corp................................ 7,400 505,975
United Healthcare Corp........................... 12,100 850,025
------------
1,356,000
------------
PHARMACEUTICALS (9.7%)
American Home Products Corp...................... 9,300 866,062
Bristol-Myers Squibb Co.......................... 11,400 1,206,975
Monsanto Co...................................... 4,900 259,087
Pfizer, Inc...................................... 6,900 785,306
Schering-Plough Corp............................. 10,700 857,338
Warner-Lambert Co................................ 9,000 1,702,688
------------
5,677,456
------------
TOTAL HEALTHCARE............................... 7,033,456
------------
INDUSTRIAL PRODUCTS & SERVICES (9.4%)
DIVERSIFIED MANUFACTURING (7.3%)
AlliedSignal, Inc................................ 24,600 1,077,788
General Electric Co.............................. 3,200 272,400
Harris Corp...................................... 14,900 720,788
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
DIVERSIFIED MANUFACTURING (CONTINUED)
Johnson Controls, Inc............................ 8,100 $ 480,938
Tyco International Ltd........................... 18,700 1,019,150
Xerox Corp....................................... 6,500 737,750
------------
4,308,814
------------
ELECTRICAL EQUIPMENT (2.1%)
Emerson Electric Co.............................. 6,800 432,650
W.W. Grainger, Inc............................... 7,300 795,244
------------
1,227,894
------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 5,536,708
------------
TECHNOLOGY (14.2%)
AEROSPACE (1.7%)
Boeing Co........................................ 16,400 821,025
Coltec Industries, Inc.+......................... 6,800 170,000
------------
991,025
------------
COMPUTER PERIPHERALS (2.7%)
EMC Corp.+....................................... 34,200 1,577,475
------------
COMPUTER SOFTWARE (1.1%)
Autodesk, Inc.................................... 3,400 159,588
Oracle Corp.+.................................... 18,500 479,266
------------
638,854
------------
COMPUTER SYSTEMS (3.2%)
International Business Machines Corp............. 9,500 1,100,813
Sun Microsystems, Inc.+.......................... 19,600 806,663
------------
1,907,476
------------
ELECTRONICS (2.0%)
Cisco Systems, Inc.+............................. 12,050 883,039
Symbol Technologies, Inc......................... 7,950 306,075
------------
1,189,114
------------
SEMICONDUCTORS (2.6%)
Intel Corp....................................... 11,000 889,281
Motorola, Inc.................................... 4,100 228,063
Texas Instruments, Inc........................... 6,100 390,781
------------
1,508,125
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
TELECOMMUNICATIONS-EQUIPMENT (0.9%)
Lucent Technologies, Inc......................... 7,000 $ 532,875
------------
TOTAL TECHNOLOGY............................... 8,344,944
------------
TRANSPORTATION (1.7%)
RAILROADS (1.4%)
Union Pacific Corp............................... 15,300 837,675
------------
TRUCK & FREIGHT CARRIERS (0.3%)
CNF Transportation, Inc.......................... 4,200 162,225
------------
TOTAL TRANSPORTATION........................... 999,900
------------
UTILITIES (9.6%)
ELECTRIC (2.5%)
Duke Power Co.................................... 7,500 434,063
New England Electric System...................... 8,900 387,150
Northern States Power Co......................... 7,900 445,363
Southern Co...................................... 8,000 212,000
------------
1,478,576
------------
GAS-PIPELINES (0.5%)
Columbia Energy Group............................ 3,400 276,250
------------
TELEPHONE (6.6%)
Bell Atlantic Corp............................... 5,800 542,663
GTE Corp......................................... 12,800 748,000
MCI Communications Corp.......................... 12,900 648,628
SBC Communications, Inc.......................... 11,000 455,813
Sprint Corp...................................... 8,300 566,994
WorldCom, Inc.+.................................. 20,800 889,850
------------
3,851,948
------------
TOTAL UTILITIES................................ 5,606,774
------------
TOTAL COMMON STOCKS (COST
$47,476,527).................................. 58,342,758
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ------------ ------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.2%)
OTHER INVESTMENT COMPANIES (2.2%)
Seven Seas Money Market Fund,
5.21% due 05/01/98 (cost $1,263,191)........... $ 1,263,191 $ 1,263,191
------------
TOTAL INVESTMENTS (COST $48,739,718) (101.5%)..................
59,605,949
LIABILITIES IN EXCESS OF OTHER ASSETS (-1.5%)..................
(865,475)
------------
NET ASSETS (100.0%)............................................ $ 58,740,474
------------
------------
</TABLE>
- ------------------------------
Note: For Federal Income Tax purposes, the cost of securities at April 30, 1998,
was substantially the same as the cost for financial statement purposes. The
aggregate gross unrealized appreciation and depreciation was $11,171,811 and
$305,580, respectively, resulting in net unrealized appreciation of $10,866,231.
(i) 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.
10
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $48,739,718) $59,605,949
Dividends Receivable 39,573
Deferred Organization Expenses 34,620
Receivable for Expense Reimbursement 9,460
Receivable for Fund Shares Sold 7,472
Interest Receivable 4,521
Prepaid Trustees' Fees 122
Prepaid Expenses and Other Assets 5,167
-----------
Total Assets 59,706,884
-----------
LIABILITIES
Payable for Investments Purchased 821,437
Advisory Fee Payable 20,708
Custody Fee Payable 12,351
Organization Expenses Payable 12,060
Shareholder Servicing Fee Payable 11,505
Administrative Services Fee Payable 2,679
Administration Fee Payable 68
Fund Services Fee Payable 48
Accrued Expenses 85,554
-----------
Total Liabilities 966,410
-----------
NET ASSETS
Applicable to 3,868,788 shares outstanding
(par value $0.001, unlimited shares authorized) $$58,740,474
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $15.18
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $47,880,885
Undistributed Net Investment Income 26,536
Accumulated Net Realized Loss on Investments (33,178)
Net Unrealized Appreciation of Investments 10,866,231
-----------
Net Assets $58,740,474
-----------
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE SIX MONTHS ENDED APRIL 30, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $1,362) $ 260,946
Interest Income 23,023
----------
Investment Income 283,969
EXPENSES
Advisory Fee $ 88,571
Shareholder Servicing Fee 49,207
Custodian Fees and Expenses 23,510
Professional Fees and Expenses 19,246
Registration Fees 17,813
Administrative Services Fee 11,722
Transfer Agent Fee 9,923
Printing Expenses 8,381
Amortization of Organization Expenses 4,715
Fund Services Fee 616
Administration Fee 295
Trustees' Fees and Expenses 230
Insurance Expense 62
Miscellaneous 2,155
--------
Total Expenses 236,446
Less: Reimbursement of Expenses (69,144)
--------
NET EXPENSES 167,302
----------
NET INVESTMENT INCOME 116,667
NET REALIZED GAIN ON INVESTMENTS 48,187
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 8,027,909
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $8,192,763
----------
----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
STATEMENT OF CHANGES IN NET ASSETS
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE SIX FOR THE PERIOD
MONTHS ENDED DECEMBER 18, 1996
APRIL 30, (COMMENCEMENT OF
1998 OPERATIONS) THROUGH
(UNAUDITED) OCTOBER 31, 1997
------------ -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 116,667 $ 97,042
Net Realized Gain (Loss) on Investments 48,187 (81,365)
Net Change in Unrealized Appreciation of
Investments 8,027,909 2,838,322
------------ -------------------
Net Increase in Net Assets Resulting from
Operations 8,192,763 2,853,999
------------ -------------------
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (181,308) (5,865)
------------ -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 25,261,232 23,089,222
Reinvestment of Dividends 173,841 5,640
Cost of Shares of Beneficial Interest Redeemed (357,566) (319,236)
Service Charge 2,752 --
------------ -------------------
Net Increase from Shareholder Transactions 25,080,259 22,775,626
------------ -------------------
Total Increase in Net Assets 33,091,714 25,623,760
NET ASSETS
Beginning of Period 25,648,760 25,000
------------ -------------------
End of Period (including undistributed net
investment income of $26,536 and $91,177,
respectively) $ 58,740,474 $ 25,648,760
------------ -------------------
------------ -------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout each period are as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE DECEMBER 18, 1996
SIX MONTHS ENDED (COMMENCEMENT OF
APRIL 30, 1998 OPERATIONS) THROUGH
(UNAUDITED) OCTOBER 31, 1997
---------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.57 $ 10.00
---------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.03 0.06
Net Realized and Unrealized Gain on Investments 2.65 2.52
---------------- -------------------
Total from Investment Operations 2.68 2.58
---------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.07) (0.01)
---------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 15.18 $ 12.57
---------------- -------------------
---------------- -------------------
Total Return 21.42%(a) 25.83%(a)
---------------- -------------------
---------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Period (in thousands) $ 58,740 $ 25,649
Ratios to Average Net Assets
Expenses 0.85%(b) 0.85%(b)
Net Investment Income 0.59%(b) 0.70%(b)
Expenses without Reimbursement 1.20%(b) 2.16%(b)
Portfolio Turnover Rate 20% 23%
Average Broker Commissions $ 0.0315 $ 0.0321
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Tax Aware U.S. Equity Fund (the "fund") is a series of J.P. Morgan
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, diversified, open-end management investment
company. The fund's investment objective is to provide high total return while
being sensitive to the impact of capital gains taxes on investors' returns. The
trustees of the trust have divided the beneficial interests in the fund into two
classes of shares, Institutional Shares and Select Shares. Prior to January 1,
1998, the names of the fund, trust and classes were Tax Aware U.S. Equity Fund,
JPM Series Trust, JPM Institutional Shares and JPM Pierpont Shares,
respectively. Currently the fund only offers Select Shares. The fund commenced
operations on December 18, 1996. 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 short-term 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) Substantially all the fund's net investment income is declared as
dividends and paid quarterly. Distributions to shareholders of net
realized 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 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.
15
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
e) The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
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 six months ended April 30, 1998,
such fees amounted to $88,571.
b) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as the 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 six
months ended April 30, 1998, the fee for these services amounted to $295.
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 acts 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 six
months ended April 30, 1998, the fee for these services amounted to
$11,722.
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 six months ended April 30, 1998, Morgan has agreed to
reimburse the fund $69,144 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 service 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 fund. For the six months ended April 30, 1998, the fee for these
services amounted to $49,207.
16
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
Morgan, Charles Schwab & Co. ("Schwab") and the trust are parties to
separate services and operating agreements (the "Schwab Agreements")
whereby Schwab makes fund shares available to customers of investment
advisors and other financial intermediaries who are Schwab's clients. The
fund is not responsible for payments to Schwab under the Schwab
Agreements; however, in the event the services agreement with Schwab is
terminated for reasons other than a breach by Schwab and the relationship
between the trust and Morgan is terminated, the fund would be responsible
for the ongoing payments to Schwab with respect to pre-termination shares.
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
$616 for the six months ended April 30, 1998.
f ) An aggregate annual fee of $75,000 is paid to each trustee for serving as
a trustee of the trust, the J.P. Morgan Funds, the J.P. Morgan
Institutional Funds, and other registered investment companies in which
they invest. The Trustees' Fees and Expenses shown in the financial
statements represents the fund's allocated portion of the total fees and
expenses. The trust's Chairman and Chief Executive Officer also serves as
Chairman of Group and 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 SIX FOR THE PERIOD
MONTHS ENDED DECEMBER 18, 1996
APRIL 30, (COMMENCEMENT OF
1998 OPERATIONS) THROUGH
(UNAUDITED) OCTOBER 31, 1997
------------ -------------------
<S> <C> <C>
Shares of beneficial interest sold............... 1,840,833 2,065,835
Reinvestment of dividends........................ 13,281 551
Shares of beneficial interest redeemed........... (26,596) (27,616)
------------ -------------------
Net Increase..................................... 1,827,518 2,038,770
------------ -------------------
------------ -------------------
</TABLE>
Redemptions may be subject to service charges, retained by the fund, in
accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE OF
YEAR SINCE PURCHASE CASH PROCEEDS
- ------------------------------------------------- -------------
<S> <C>
Shares held for less than five years............. 1%
Shares held five years or longer................. None
</TABLE>
17
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1998
- --------------------------------------------------------------------------------
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ----------------- ----------
<S> <C>
$32,668,889....... $8,010,884
</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 Agreement expired
on May 27, 1998, however, the fund as party to the Agreement has extended the
Agreement and will continue its participation therein for an additional 364 days
until May 26, 1999. The maximum borrowing under the Agreement is $150,000,000.
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 April
30, 1998.
18
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
CALIFORNIA MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TOTAL RETURN BOND FUND
CALIFORNIA BOND FUND: SELECT SHARES
DIVERSIFIED FUND
DISCIPLINED EQUITY FUND
U.S. EQUITY FUND
U.S. SMALL COMPANY FUND
U.S. SMALL COMPANY OPPORTUNITIES FUND
TAX AWARE U.S. EQUITY FUND: SELECT SHARES
INTERNATIONAL EQUITY FUND
EUROPEAN EQUITY FUND
JAPAN EQUITY FUND
INTERNATIONAL OPPORTUNITIES FUND
EMERGING MARKETS EQUITY FUND
GLOBAL 50 FUND: SELECT SHARES
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES AT
(800) 521-5411.
J.P. MORGAN
TAX AWARE U.S. EQUITY FUND
SEMI-ANNUAL REPORT
APRIL 30, 1998
