<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN TAX AWARE U.S. EQUITY FUND
November 24, 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&P 500 Index.
We are pleased to report that the fund provided a solid return of 21.81% for the
fiscal year ended October 31, 1998. This performance was well ahead of the 9.88%
return posted over the same period by fund competitors included in the Lipper
Growth & Income Fund Average, and slightly behind the 21.99% return for the S&P
500 Index.
The fund's net asset value increased from $12.57 per share on October 31,
1997, to $15.19 per share on October 31, 1998, after making distributions
during the reporting period of approximately $0.11 from ordinary income.
There were no distributions from short- or long-term capital gains. The
fund's net assets stood at approximately $76.9 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 provide an outlook for the coming months.
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> <C> <C>
LETTER TO THE SHAREHOLDERS. . . . . .1 FUND FACTS AND HIGHLIGHTS. . . . . 6
FUND PERFORMANCE. . . . . . . . . . .2 FINANCIAL STATEMENTS . . . . . . . 8
PORTFOLIO MANAGER Q&A . . . . . . . .3
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE>
FUND PERFORMANCE
EXAMINING PERFORMANCE
There are several ways to evaluate a mutual fund's historical performance
record. One approach is to look at the growth of a hypothetical investment of
$10,000. The chart at right shows that $10,000 invested on December 31, 1996,*
would have grown to $15,160 on October 31, 1998.
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 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.
GROWTH OF $10,000 SINCE FUND INCEPTION*
DECEMBER 31, 1996 - OCTOBER 31, 1998
<TABLE>
<CAPTION>
JPM TAX AWARE US EQUITY 10,000 S&P 500 10,000 LIPPER GROWTH & INCOME 10,000
(FOR TAX AWARE US EQUITY ONLY (FOR TAX AWARE US EQUITY ONLY)
PLOT POINTS PLOT POINTS PLOT POINTS
<S> <C> <C>
12/31/96 10,000 12/31/96 10,000 12/31/96 10,000
1/31/97 10,703 1/31/97 10,625 1/31/97 10,435
2/28/97 10,733 2/28/97 10,708 2/28/97 10,491
3/31/97 10,307 3/31/97 10,268 3/31/97 10,119
4/30/97 10,782 4/30/97 10,881 4/30/97 10,493
5/31/97 11,446 5/31/97 11,544 5/31/97 11,145
6/30/97 11,891 6/30/97 12,061 6/30/97 11,575
7/31/97 13,069 7/31/97 13,020 7/31/97 12,428
8/31/97 12,436 8/31/97 12,291 8/31/97 12,002
9/30/97 12,970 9/30/97 12,964 9/30/97 12,610
10/31/97 12,446 10/31/97 12,531 10/31/97 12,169
11/30/97 12,901 11/30/97 13,111 11/30/97 12,502
12/31/97 13,032 12/31/97 13,336 12/31/97 12,713
1/31/98 13,241 1/31/98 13,484 1/31/98 12,725
2/28/98 14,116 2/28/98 14,456 2/28/98 13,593
3/31/98 14,793 3/31/98 15,197 3/31/98 14,197
4/30/98 15,111 4/30/98 15,349 4/30/98 14,296
5/31/98 14,892 5/31/98 15,086 5/31/98 14,002
6/30/98 15,420 6/30/98 15,698 6/30/98 14,234
7/31/98 15,280 7/31/98 15,531 7/31/98 13,867
8/31/98 13,127 8/31/98 13,286 8/31/98 11,835
9/30/98 14,054 9/30/98 14,137 9/30/98 12,461
10/31/98 15,160 10/31/98 15,287 10/31/98 13,365
</TABLE>
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.
<TABLE>
<CAPTION>
PERFORMANCE TOTAL RETURNS AVERAGE ANNUAL TOTAL RETURNS
--------------------- -----------------------------
THREE SIX ONE SINCE
AS OF OCTOBER 31, 1998 MONTHS MONTHS YEAR INCEPTION*
- --------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Tax Aware U.S. Equity Fund -0.78% 0.33% 21.81% 25.48%
S&P 500 Index -1.57% -0.41% 21.99% 26.05%
Lipper Growth & Income Fund Average -3.64% -6.54% 9.88% 16.94%
AS OF SEPTEMBER 30, 1998
- --------------------------------------------------------------------- -----------------------------
J.P. Morgan Tax Aware U.S. Equity Fund -8.86% -4.99% 8.35% 21.47%
S&P 500 Index -9.95% -6.97% 9.05% 21.88%
Lipper Growth & Income Fund Average -12.47% -12.20% -1.08% 13.26%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON DECEMBER 18, 1996, AND HAS PROVIDED AN AVERAGE
ANNUAL TOTAL RETURN OF 25.68% FROM THAT DATE THROUGH OCTOBER 31, 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
[PHOTOGRAPH]
Following is an interview with TERRY E. BANET, 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
November 10, 1998, and reflects Terry's views on that date.
HOW DID THE U.S. EQUITY MARKET PERFORM DURING THE 12 MONTHS ENDED OCTOBER 31,
1998?
TEB: In spite of the extreme volatility the market experienced during the
summer, stocks still posted a more-than-respectable gain for the 12 months. The
S&P 500 rose 21.99% for the period - nearly twice the long-term average annual
return for stocks. This outcome was hard to imagine earlier in the summer, when
the Asian contagion was spreading to other emerging markets and the stability of
the U.S. market was in doubt.
HOW DID THE J.P. MORGAN TAX AWARE U.S. EQUITY FUND PERFORM?
TEB: The fund was essentially even with the market. For the 12 months ended
October 31, 1998, the J.P. Morgan Tax Aware U.S. Equity Fund returned 21.81%,
versus 21.99% for the S&P 500 Index. Through the first 10 months of 1998,
however, the fund outperformed the market. The fund is up 16.33%, while the S&P
500 has gained 14.63%. As we would expect, our performance was led by stock
selection decisions. As is our practice, we kept sector bets to a minimum during
the 12 months.
During this summer's turmoil, we sought to lessen the impact of world events on
the portfolio by shifting our holdings to companies that are more domestically
focused, such as regional banks.
Within industry sectors, themes also played an important role this year. For
example, we knew that a U.S. or global economic slowdown would probably have an
impact on companies' capital spending. Typically, a large part of capital
spending is directed to technology. Figuring out which types of technology
companies will be affected is the key to successful stock selection decisions.
Will it be employees' requests for the new 21-inch flat screen monitors, or will
it be faster access to the firm's website? We believe the evidence points to the
latter, so we have bought or added to positions in Cisco Systems, EMC Corp., and
Sun Microsystems. By the same token, we decided to underweight PC "box"
manufacturers like Compaq and Dell Computer.
3
<PAGE>
WHICH STOCKS CONTRIBUTED TO THE PORTFOLIO'S PERFORMANCE?
TEB: During the fiscal year ended October 31, 1998, stocks that helped our
performance included Warner-Lambert, EMC Corp., TCI, and Capital One Financial.
Warner-Lambert has been one of our largest and most successful holdings since
the fund's inception. The company's successful new drugs Lipitor - a cholesterol
drug - and Rezulin - a diabetes drug - gained significant market share and
significantly boosted the company's earnings. We were satisfied with the gains
we earned in the stock, and decided to trim our position. We used losses
elsewhere in the portfolio to offset the gains in Warner-Lambert.
EMC Corp. is the leading provider of enterprise storage systems and software for
mainframe and open systems environments. The stock is performing well as the
systems storage industry continues to grow. The need for storage is increasing
as companies institute data warehousing, as Internet usage grows, and as
companies try to tackle the Y2K problem. We remain optimistic about the
continued need for storage.
Like most cable stocks in 1998, TCI has been strong. As the company increased
its cash flow and concentrated on its core cable business, investors noticed the
improvements and bought the stock. With TCI's upcoming sale to AT&T, we decided
to take our gains and trim our position in the stock. Losses elsewhere in the
portfolio offset the gains in TCI.
Capital One Financial, a credit card company, experienced strong earnings as a
result of increased margins and fee-based income, better credit quality, and
increased card issuance. The company's stock price was also boosted when it was
announced that Capital One was being added to the S&P 500.
WHICH STOCKS HINDERED THE PORTFOLIO'S PERFORMANCE?
TEB: Starwood Lodging, Computer Associates, and United Healthcare Corp. were
impediments to better performance. We sold our position in Computer Associates
in order to book a tax loss, which we used to offset capital gains elsewhere in
the portfolio. The proposed merger between United Healthcare Corp., a
comprehensive managed care provider, and Humana failed to materialize, and the
company took a reorganization charge of $900 million. We sold United Healthcare
and booked the tax loss.
HOW TAX-AWARE WAS THE PORTFOLIO THIS YEAR?
TEB: Very. We took advantage of this summer's market volatility and utilized
some losses. We used these losses to offset some of the portfolio's significant
gains. For the second year in a row, the fund distributed no capital gains. The
portfolio had a small dividend distribution, but it was unavoidable. The
portfolio's dividend yield remains at or below that of the S&P 500.
4
<PAGE>
WHAT IS YOUR OUTLOOK FOR THE COMING MONTHS?
TEB: There are some worrisome developments on the horizon, particularly in the
U.S. On the whole, we don't see good prospects for continued double-digit
earnings growth in the next few quarters. The problems in Japan, Brazil, and
other nations are not fully resolved and may impact the U.S. economy - another
possible cause for economic slowdown.
While we believe tax-aware money management is always important, sensitivity to
taxes can really pay off during flat or falling markets. Although it seems
counterintuitive, a fund can lose money and still hit investors with a capital
gains tax bill. When investors redeem fund shares during market declines, a
portfolio manager may have to sell winning stocks to raise the cash to meet
those redemptions. If these sales trigger the realization of capital gains, the
remaining fund shareholders will bear an uncomfortable tax burden.
A tax-aware fund manager, in contrast, will react to market turmoil by selling
losing positions and using those losses to offset capital gains elsewhere in the
portfolio. In addition, many tax-aware funds - like ours - offer protection
against redemptions by levying redemption fees to discourage short-term
investing.
Regardless of where the market heads next, we believe investors will find our
tax-aware approach valuable.
5
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Tax Aware U.S. Equity Fund seeks to provide high after-tax total
return from a portfolio of selected equity securities. 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 INVESTMENT OPERATIONS
12/18/96
- --------------------------------------------------------------------------------
FUND NET ASSETS AS OF 10/31/98
$76,923,591
- --------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
12/18/98
- --------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/18/98
EXPENSE RATIO
The fund's current annual 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 OCTOBER 31, 1998
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[CHART]
[PLOT POINTS TO COME]
<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- -------------------------------------------------------------------------------
<S> <C>
MOBIL CORP. (ENERGY) 3.3%
EMCCORP. (TECHNOLOGY) 3.0%
MCI WORLDCOM, INC. (TECHNOLOGY) 2.5%
SBC COMMUNICATIONS, INC. (UTILITIES) 2.4%
BANKAMERICA CORP. (FINANCE) 2.4%
INTERNATIONAL BUSINESS MACHINES CORP.
(TECHNOLOGY) 2.3%
CISCO SYSTEMS, INC. (TECHNOLOGY) 2.3%
PROCTER & GAMBLE CO.
(CONSUMER GOODS & SERVICES) 2.2%
PHILIP MORRIS COMPANIES, INC.
(CONSUMER GOODS & SERVICES) 2.2%
SUN MICROSYSTEMS, INC. (TECHNOLOGY) 2.2%
</TABLE>
6
<PAGE>
DISTRIBUTED BY FUNDS DISTRIBUTOR, INC. J.P. MORGAN INVESTMENT MANAGEMENT INC.
SERVES AS INVESTMENT ADVISOR. 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
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
COMMON STOCKS (98.9%)
BASIC INDUSTRIES (3.5%)
CHEMICALS (1.6%)
E.I. du Pont de Nemours & Co..................... 9,600 $ 552,000
Rohm & Haas Co................................... 20,100 678,375
------------
1,230,375
------------
FOREST PRODUCTS & PAPER (1.0%)
Georgia-Pacific Corp............................. 15,100 781,425
------------
METALS & MINING (0.9%)
Allegheny Teledyne, Inc.......................... 35,400 727,912
------------
TOTAL BASIC INDUSTRIES......................... 2,739,712
------------
CONSUMER GOODS & SERVICES (23.0%)
BROADCASTING & PUBLISHING (2.4%)
Comcast Corp., Class A........................... 12,400 612,637
News Corp. Ltd. (Spons. ADR)(i).................. 28,000 764,750
Tele-Communications TCI Ventures Group+.......... 11,534 214,460
Tele-Communications, Inc., Series A+............. 6,834 287,455
------------
1,879,302
------------
ENTERTAINMENT, LEISURE & MEDIA (3.0%)
International Game Technology.................... 18,600 419,662
Mattel, Inc...................................... 20,700 742,612
Seagram Company Ltd.(i).......................... 17,800 585,175
Time Warner, Inc................................. 6,400 594,000
------------
2,341,449
------------
FOOD, BEVERAGES & TOBACCO (8.1%)
Anheuser Busch Companies, Inc.................... 10,500 624,094
Campbell Soup Co................................. 11,700 623,756
Coca-Cola Co..................................... 10,500 710,062
PepsiCo, Inc..................................... 24,800 837,000
Philip Morris Companies, Inc..................... 33,100 1,692,237
Ralston-Ralston Purina Group..................... 19,200 640,800
Unilever NV (ADR)(i)............................. 14,790 1,112,947
------------
6,240,896
------------
HOUSEHOLD PRODUCTS (2.2%)
Procter & Gamble Co.............................. 19,100 1,697,512
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
MISCELLANEOUS (1.4%)
Service Corp. International...................... 30,800 $ 1,097,250
------------
PERSONAL CARE (0.7%)
Gillette Co...................................... 12,400 557,225
------------
RETAIL (5.2%)
American Stores Co............................... 22,000 716,375
Best Buy Co., Inc.+.............................. 11,100 532,800
Dayton Hudson Corp............................... 15,000 635,625
Federated Department Stores, Inc.+............... 17,700 680,344
Wal-Mart Stores, Inc............................. 20,300 1,400,700
------------
3,965,844
------------
TOTAL CONSUMER GOODS & SERVICES................ 17,779,478
------------
ENERGY (7.6%)
OIL-PRODUCTION (7.6%)
Atlantic Richfield Co............................ 10,900 750,737
Exxon Corp....................................... 20,200 1,439,250
Mobil Corp....................................... 33,100 2,505,256
Royal Dutch Petroleum Co. (ADR)(i)............... 15,100 743,675
Tosco Corp....................................... 13,300 373,231
------------
5,812,149
------------
FINANCE (15.9%)
BANKING (8.7%)
BankAmerica Corp................................. 32,002 1,838,115
Bankers Trust Corp............................... 5,500 345,469
Citigroup, Inc................................... 28,440 1,338,457
First Union Corp................................. 18,300 1,061,400
Norwest Corp..................................... 32,900 1,223,469
Washington Mutual, Inc........................... 24,500 916,453
------------
6,723,363
------------
FINANCIAL SERVICES (3.0%)
Associates First Capital Corp., Class A.......... 8,500 599,250
Federal National Mortgage Association............ 19,800 1,402,088
Morgan Stanley Dean Witter....................... 4,300 278,425
------------
2,279,763
------------
</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 (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
INSURANCE (3.5%)
American International Group, Inc................ 4,800 $ 409,200
Financial Security Assurance Holdings Ltd.(i).... 13,300 662,506
Marsh & McLennan Companies, Inc.................. 17,550 974,025
UNUM Corp........................................ 14,300 635,456
------------
2,681,187
------------
REAL ESTATE INVESTMENT TRUSTS (0.7%)
Starwood Lodging Trust........................... 18,900 535,106
------------
TOTAL FINANCE.................................. 12,219,419
------------
HEALTHCARE (11.6%)
BIOTECHNOLOGY (0.5%)
Genzyme Corp.+................................... 10,000 420,313
------------
HEALTH SERVICES (1.2%)
Perkin-Elmer Corp................................ 10,600 893,713
------------
PHARMACEUTICALS (9.9%)
American Home Products Corp...................... 24,100 1,174,875
Bristol-Myers Squibb Co.......................... 14,400 1,592,100
Forest Laboratories, Inc......................... 15,000 627,188
Merck & Co., Inc................................. 4,000 541,000
Monsanto Co...................................... 18,900 767,813
Pfizer, Inc...................................... 6,800 729,725
Schering-Plough Corp............................. 8,400 864,150
Warner-Lambert Co................................ 16,600 1,301,025
------------
7,597,876
------------
TOTAL HEALTHCARE............................... 8,911,902
------------
INDUSTRIAL PRODUCTS & SERVICES (9.5%)
DIVERSIFIED MANUFACTURING (6.4%)
AlliedSignal, Inc................................ 36,800 1,432,900
General Electric Co.............................. 4,400 385,000
Harris Corp...................................... 16,400 575,025
Johnson Controls, Inc............................ 9,800 551,250
Tyco International Ltd.(i)....................... 23,300 1,443,144
Xerox Corp....................................... 5,600 542,500
------------
4,929,819
------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
ELECTRICAL EQUIPMENT (2.1%)
Emerson Electric Co.............................. 12,800 $ 844,800
W.W. Grainger, Inc............................... 17,600 810,700
------------
1,655,500
------------
POLLUTION CONTROL (1.0%)
Waste Management, Inc............................ 16,462 742,848
------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 7,328,167
------------
TECHNOLOGY (18.2%)
AEROSPACE (0.8%)
Boeing Co........................................ 15,800 592,500
------------
COMPUTER SOFTWARE (1.3%)
Microsoft Corp.+................................. 9,500 1,006,109
------------
COMPUTER SYSTEMS (7.5%)
EMC Corp......................................... 35,800 2,304,625
International Business Machines Corp............. 12,000 1,781,250
Sun Microsystems, Inc.+.......................... 28,800 1,675,800
------------
5,761,675
------------
ELECTRONICS (2.7%)
Cisco Systems, Inc.+............................. 27,775 1,752,429
Symbol Technologies, Inc......................... 7,350 328,913
------------
2,081,342
------------
SEMICONDUCTORS (2.5%)
Intel Corp....................................... 13,500 1,204,453
Texas Instruments, Inc........................... 11,000 703,313
------------
1,907,766
------------
TELECOMMUNICATION SERVICES (2.6%)
MCI WorldCom, Inc.+.............................. 35,551 1,965,304
------------
TELECOMMUNICATIONS-EQUIPMENT (0.8%)
Lucent Technologies, Inc......................... 7,800 625,463
------------
TOTAL TECHNOLOGY............................... 13,940,159
------------
TRANSPORTATION (1.1%)
RAILROADS (1.1%)
Union Pacific Corp............................... 18,600 885,825
------------
</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 (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- --------- ------------
<S> <C> <C>
UTILITIES (8.5%)
ELECTRIC (2.6%)
Duke Power Co.................................... 6,700 $ 433,406
New England Electric System...................... 10,900 443,494
Northern States Power Co......................... 34,200 923,400
Wisconsin Energy Corp............................ 6,000 183,750
------------
1,984,050
------------
GAS-PIPELINES (0.5%)
Columbia Energy Group............................ 6,100 353,038
------------
TELEPHONE (5.4%)
Frontier Corp.................................... 15,000 450,938
GTE Corp......................................... 20,300 1,191,356
SBC Communications, Inc.......................... 40,600 1,880,288
Sprint Corp...................................... 8,100 621,675
------------
4,144,257
------------
TOTAL UTILITIES................................ 6,481,345
------------
TOTAL COMMON STOCKS (COST $66,131,685)......... 76,098,156
------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT
------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (1.3%)
OTHER INVESTMENT COMPANIES (1.1%)
Seven Seas Money Market
Fund....................... $ 824,773 824,773
------------
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ----------------------------- ------------ ------------
<S> <C> <C>
U.S. TREASURY OBLIGATIONS (0.2%)
U.S. Treasury Bill, 4.95% (y)
due 02/11/99............... $ 160,000 $ 158,119
------------
TOTAL SHORT-TERM
INVESTMENTS (COST
$982,529)................. 982,892
------------
TOTAL INVESTMENTS
(COST $67,114,214) (100.2%).............. 77,081,048
LIABILITIES IN EXCESS OF OTHER ASSETS
(-0.2%).................................. (157,457)
------------
NET ASSETS (100.0%)........................ $ 76,923,591
------------
------------
</TABLE>
- ------------------------------
Note: For Federal Income Tax purposes, the cost of securities at October 31,
1998, was substantially the same as the cost for financial statement purposes.
The aggregate gross unrealized appreciation and depreciation was $12,263,825 and
$2,296,991, respectively, resulting in net unrealized appreciation of
$9,966,834.
+ - Non-income producing security.
(i) - Foreign security.
ADR - American Depositary Receipt.
Spons. ADR - Sponsored American Depositary Receipt.
(y) - Yield to maturity.
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
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $67,114,214) $77,081,048
Receivable for Investments Sold 1,166,999
Dividends Receivable 61,699
Deferred Organization Expenses 29,905
Receivable for Expense Reimbursements 27,064
Receivable for Fund Shares Sold 22,000
Interest Receivable 3,804
Prepaid Trustees' Fees 575
Prepaid Expenses and Other Assets 612
-----------
Total Assets 78,393,706
-----------
LIABILITIES
Payable for Investments Purchased 1,331,583
Advisory Fee Payable 27,251
Shareholder Servicing Fee Payable 15,139
Organization Expenses Payable 12,060
Custody Fee Payable 7,380
Administrative Services Fee Payable 3,413
Payable for Fund Shares Redeemed 2,855
Administration Fee Payable 156
Fund Services Fee Payable 60
Accrued Expenses 70,218
-----------
Total Liabilities 1,470,115
-----------
NET ASSETS
Applicable to 5,065,409 shares outstanding
(par value $0.001, unlimited shares authorized) $76,923,591
-----------
-----------
Net Asset Value, Offering and Redemption Price
per Share $15.19
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $67,481,650
Undistributed Net Investment Income 54,814
Accumulated Net Realized Loss on Investments (579,707)
Net Unrealized Appreciation of Investments 9,966,834
-----------
Net Assets $76,923,591
-----------
-----------
</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
FOR THE FISCAL YEAR ENDED OCTOBER 31, 1998
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $4,897) $ 746,067
Interest Income 53,540
----------
Investment Income 799,607
EXPENSES
Advisory Fee $243,124
Shareholder Servicing Fee 135,069
Registration Fees 44,746
Professional Fees and Expenses 43,422
Custodian Fees and Expenses 34,217
Administrative Services Fee 31,306
Transfer Agent Fee 26,907
Printing Expenses 11,942
Amortization of Organization Expenses 9,430
Fund Services Fee 1,552
Administration Fee 734
Trustees' Fees and Expenses 181
Miscellaneous 6,896
--------
Total Expenses 589,526
Less: Reimbursement of Expenses (130,293)
--------
NET EXPENSES 459,233
----------
NET INVESTMENT INCOME 340,374
NET REALIZED GAIN ON INVESTMENTS 584,331
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 7,128,512
----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $8,053,217
----------
----------
</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 PERIOD
DECEMBER 18, 1996
FOR THE FISCAL (COMMENCEMENT OF
YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
---------------- -------------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 340,374 $ 97,042
Net Realized Gain (Loss) on Investments 584,331 (81,365)
Net Change in Unrealized Appreciation of
Investments 7,128,512 2,838,322
---------------- -------------------
Net Increase in Net Assets Resulting from
Operations 8,053,217 2,853,999
---------------- -------------------
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (376,737) (5,865)
---------------- -------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 48,063,688 23,089,222
Reinvestment of Dividends 358,591 5,640
Cost of Shares of Beneficial Interest Redeemed (4,847,949) (319,236)
Service Charge 24,021 --
---------------- -------------------
Net Increase from Shareholder Transactions 43,598,351 22,775,626
---------------- -------------------
Total Increase in Net Assets 51,274,831 25,623,760
NET ASSETS
Beginning of Period 25,648,760 25,000
---------------- -------------------
End of Period (including undistributed net
investment income of $54,814 and $91,177,
respectively) $ 76,923,591 $ 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
DECEMBER 18, 1996
FOR THE (COMMENCEMENT OF
FISCAL YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
----------------- -------------------
<S> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 12.57 $ 10.00
----------------- -------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.08 0.06
Net Realized and Unrealized Gain on Investments 2.65 2.52
----------------- -------------------
Total from Investment Operations 2.73 2.58
----------------- -------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.11) (0.01)
----------------- -------------------
NET ASSET VALUE, END OF PERIOD $ 15.19 $ 12.57
----------------- -------------------
----------------- -------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 21.81% 25.83%(a)
Net Assets, End of Period (in thousands) $ 76,924 $ 25,649
Ratios to Average Net Assets
Expenses 0.85% 0.85%(b)
Net Investment Income 0.63% 0.70%(b)
Expenses without Reimbursement 1.09% 2.16%(b)
Portfolio Turnover Rate 44% 23%
</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
OCTOBER 31, 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 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 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"), a wholly owned subsidiary
of J.P. Morgan & Co Incorporated ("J.P. 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 (CONTINUED)
OCTOBER 31, 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.
f) The fund accounts for and reports distributions to shareholders in
accordance with Statement of Position 93-2 "Determination, Disclosure, and
Financial Statement Presentation of Income, Capital Gain, and Return of
Capital Distributions by Investments Companies." The effect of applying
this statement was to increase Paid-in Capital by $1,082,673 and decrease
Accumulated Net Realized Gain on Investment by $1,082,673. Net investment
income, net realized gains and net assets were not affected by this
change. This reclassification is the result of gains on securities
redeemed in-kind that were treated as realized gains for financial
statement purposes but which are not recognized for tax purposes.
g) For Federal income tax purposes, the fund had a capital loss carryforward
of $579,679 at October 31, 1998, of which $81,365 will expire in the year
2005 and $498,314 will expire in the year 2006. To the extent that this
capital loss is used to offset future capital gains, it is probable that
the gains so offset will not be distributed to shareholders.
2. TRANSACTIONS WITH AFFILIATES
a) Prior to October 1, 1998, the fund had an Investment Advisory Agreement
with Morgan. Under the terms of the agreement, the fund paid Morgan at an
annual rate of 0.45% of the fund's average daily net assets. Effective
October 1, 1998, the fund's Investment Advisor is J.P. Morgan Investment
Management Inc. ("JPMIM"), an affiliate of Morgan and a wholly owned
subsidiary of J.P. Morgan & Co. Inc. ("J.P. Morgan") and the terms of the
agreement will remain the same. For the fiscal year ended October 31,
1998, such fees amounted to $243,124.
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
fiscal year ended October 31, 1998, the fee for these services amounted to
$734.
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 JPMIM
16
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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 similar services. For the
fiscal year ended October 31, 1998, the fee for these services amounted to
$31,306.
In addition, J.P. 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. This reimbursement arrangement can be changed or terminated at
any time after February 28, 1999 at the option of J.P. Morgan. For the
fiscal year ended October 31, 1998, J.P. Morgan has agreed to reimburse
the fund $130,293 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 fiscal year ended October 31, 1998, the fee for these
services amounted to $135,069.
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
$1,552 for the fiscal year ended October 31, 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 $300.
17
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
OCTOBER 31, 1998
- --------------------------------------------------------------------------------
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
FOR THE YEAR ENDED OPERATIONS) THROUGH
OCTOBER 31, 1998 OCTOBER 31, 1997
------------------ -------------------
<S> <C> <C>
Shares of beneficial interest sold............... 3,344,838 2,065,835
Reinvestment of dividends........................ 25,345 551
Shares of beneficial interest redeemed........... (346,044) (27,616)
------------------ -------------------
Net Increase..................................... 3,024,139 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.
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>
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the fiscal year
ended October 31, 1998 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- -----------
<S> <C>
$65,949,616 $23,172,200
</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 Agreement was $100,000,000. The agreement expired on May 27, 1998,
however, the fund as party to the Agreement has extended the Agreement and
continues its participation therein for an additional 364 days until May 26,
1999.The maximum borrowing under the new 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 allocable to the
funds in accordance with procedures established by their respective trustees or
directors. There were no outstanding borrowings pursuant to the Agreement as of
October 31, 1998.
18
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Trustees and Shareholders of
J.P. Morgan Tax Aware U.S. Equity Fund
(Formerly 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 J.P. Morgan Tax Aware U.S. Equity
Fund (one of the funds comprising J.P. Morgan Series Trust, hereafter referred
to as the "fund") at October 31, 1998, the results of its operations for the
year then ended, and the changes in its net assets and the financial highlights
for the year then ended and for the period December 18, 1996 (commencement of
operations) through 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 audits. We conducted our audits of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits, which included
confirmation of securities at October 31, 1998 by correspondence with the
custodian and brokers, provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
New York, New York
December 17, 1998
19
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
SUPPLEMENTAL PROXY INFORMATION
- --------------------------------------------------------------------------------
A Joint Special Meeting of Shareholders of the J.P. Morgan Family of Funds was
held on August 20, 1998. Each of the applicable funds voted in favor of adopting
the following proposals, therefore, the results are aggregated for the trust
unless otherwise specified. The meeting was held for the following purposes:
<TABLE>
<S> <C>
1. To elect a slate of five trustees to hold office for a term of unlimited duration
subject to the current retirement age of 70.
2a. To approve the amendment of the fund's investment restriction relating to
diversification of assets.
2b. To approve the amendment of the fund's investment restriction relating to concentration
of assets in a particular industry.
2c. To approve the amendment of the fund's investment restriction relating to the issuance
of senior securities.
2d. To standardize the borrowing ability of the fund to the extent permitted by applicable
law.
2e. To approve the amendment of the fund's investment restriction relating to underwriting.
2f. To approve the amendment of the fund's investment restriction relating to investment in
real estate.
2g. To approve the amendment of the fund's investment restriction relating to commodities.
2h. To approve the amendment of the fund's investment restriction relating to lending.
2i. To approve the reclassification of the fund's other fundamental restrictions as
nonfundamental.
3. To approve the reclassification of the fund's investment objective from fundamental to
nonfundamental.
4. To approve a new investment advisory agreement of the fund.
5. To amend the Declaration of Trust to provide dollar-based voting rights.
6. To ratify the selection of independent accountants, PricewaterhouseCoopers LLP.
The results of the proxy solicitation on the above matters were as follows:
</TABLE>
<TABLE>
<CAPTION>
VOTES
DIRECTORS/MATTER VOTES FOR AGAINST ABSTENTIONS
- ---------------------------------------------------------------------------- ------------- ------------ -----------
<S> <C> <C> <C> <C>
1. Frederick S. Addy 107,823,043 6,550 --
William G. Burns 107,823,043 6,550 --
Arthur C. Eschenlauer 107,823,043 6,550 --
Matthew Healey 107,817,936 11,657 --
Michael P. Mallardi 107,823,043 6,550 --
2. Amending of Investment Restrictions:
a. Relating to diversification of assets 36,357,817 4,656 --
b. Relating to concentration of assets 36,355,324 4,656 2,493
c. Relating to issuance of senior securities 36,350,818 4,656 6,999
d. Relating to borrowing 36,355,324 4,656 2,493
e. Relating to underwriting 36,355,324 4,656 2,493
f. Relating to investment in real estate 36,350,818 4,656 6,999
g. Relating to commodities 36,355,324 4,656 2,493
h. Relating to lending 36,168,896 191,084 2,493
i. Reclassification of other restrictions as nonfundamental 36,355,324 4,656 2,493
3. Reclassification of investment objectives N/A N/A N/A
4. Investment advisory agreement 36,509,715 4,656 2,493
5. Dollar-based voting rights N/A N/A N/A
6. Independent accountants, PricewaterhouseCoopers LLP 107,567,491 145,945 116,168
</TABLE>
20
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
SHORT TERM BOND FUND
BOND FUND
GLOBAL STRATEGIC INCOME FUND
EMERGING MARKETS DEBT FUND
TAX EXEMPT BOND FUND
NEW YORK TAX EXEMPT 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
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
ANNUAL REPORT
OCTOBER 31, 1998
