<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN TAX AWARE U.S. EQUITY FUND
June 1, 1999
Dear Shareholder:
We are pleased to report that the J.P. Morgan Tax Aware U.S. Equity Fund
delivered a strong total return of 23.32% for the six months ended April 30,
1999, beating the S&P 500 Index by 100 basis points and the Lipper Growth and
Income Funds Average by 493 basis points.
The fund's net asset value on April 30 was $18.68 per share, increasing from
$15.19 per share on October 31, 1998, after distributions of nearly $0.05 per
share in current income. There were no distributions from short- or long-term
capital gains. The fund's net assets rose to nearly $125 million on April 30.
Included in this report is an interview with Terry E. Banet, a member of the
portfolio management team. This interview is designed to reflect what happened
during the reporting period, as well as provide an outlook for the months ahead.
As chairman and president of Asset Management Services, we thank you for
investing with J.P. Morgan. Should you have any comments or questions, please
telephone 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. . . . . . . .5
FUND PERFORMANCE. . . . . . . . .2 FINANCIAL STATEMENTS . . . . . . . . . .8
PORTFOLIO MANAGER Q&A . . . . . .3
- --------------------------------------------------------------------------------
</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, 1999 MONTHS MONTHS YEAR INCEPTION*
- ------------------------------------------------------------- ------------------------------
<S> <C> <C> <C> <C>
J.P. Morgan Tax Aware U.S. Equity Fund 5.95% 23.32% 23.72% 30.75%
S&P 500 Index 4.67% 22.32% 21.82% 30.77%
Lipper Growth & Income Funds Average 5.99% 18.39% 10.73% 21.38%
AS OF MARCH 31, 1999
- ------------------------------------------------------------- ------------------------------
J.P. Morgan Tax Aware U.S. Equity Fund 4.27% 26.83% 20.50% 29.29%
S&P 500 Index 4.98% 27.34% 18.46% 29.86%
Lipper Growth & Income Funds Average 1.75% 20.06% 5.46% 19.21%
</TABLE>
*THE FUND COMMENCED OPERATIONS ON DECEMBER 18, 1996, AND HAS PROVIDED AN AVERAGE
ANNUAL TOTAL RETURN OF 30.90% FROM THAT DATE THROUGH APRIL 30, 1999.
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
Following is an interview with TERRY E. BANET, vice president, a
member of the portfolio management team of 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
[PHOTO] 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 M.B.A. from Wharton. This
interview was conducted on May 13, 1999, and reflects her views on
that date.
THE FUND HAS PERFORMED EXCEPTIONALLY WELL OVER THE PAST SIX MONTHS, BEATING BOTH
THE S&P 500 AND THE LIPPER AVERAGE. HOW DID YOU DO IT?
TEB: Stock selection. At Morgan, we have more than 20 U.S. equity analysts. We
take their most promising ideas, and then select the most attractive companies.
We then have the flexibility to moderately underweight or overweight our
holdings in the stocks and the various sectors. We are long term investors. We
want to avoid triggering tax liabilities.
JUST HOW TAX AWARE ARE YOU?
TEB: We're looking forward to our third year in a row of avoiding a capital
gains distribution or at the minimum, a very low one. Since the fund's inception
in 1996, we have not paid a capital gains distribution to our shareholders. We
avoid this tax liability by offsetting any capital gains we incur with capital
losses.
HOW DOES THE FUND KEEP ITS TAX OBLIGATIONS SO LOW?
TEB: We minimize taxes in several ways, but most importantly, we do not sell a
stock unless we expect that the after-tax consequences of the new holding will
be superior. That's a difficult standard to meet. By minimizing the amount of
capital that would go to pay taxes, we effectively have more assets that can
compound over time.
WHAT STOCKS DID BEST FOR YOU OVER THE PAST SIX MONTHS?
TEB: Generally, it was an outstanding time to be in technology stocks, so our
two top performers were Sun Microsystems and EMC. After technology, three other
stocks were clearly standouts: AlliedSignal, which benefited from the broad move
into cyclicals this spring; Mobil, which gained nicely as crude oil prices rose
more than 50% this year after OPEC announced production cuts; and Best Buy, a
retailer that benefited from the dramatic surge in consumer spending.
3
<PAGE>
TELL US ABOUT THE TECHNOLOGY STOCKS.
TEB: Sun Microsystems and EMC Corp. provide network capacity, data storage and
Internet connectivity and infrastructure. We were interested in the companies
that supply the hardware that keeps the Internet growing because we believed
that mission critical needs such as storage network capacity and internet
capabilities would win out over personal computer upgrades. A recent government
report confirmed our suspicions - purchases of personal computers for business
purposes slowed substantially in the first quarter, while communications
equipment spending is accelerating.
EMC is the leading producer of hardware and software for storage systems. Sun
Microsystems produces servers that are crucial for high-end uses such as the
Internet.
HOW ABOUT ALLIEDSIGNAL?
TEB: We were interested in AlliedSignal because it was an inexpensive
multi-industry company with good earnings resilience, it has a strong cash
flow and balance sheet, and the possibility that a number of catalysts might
drive its price higher; improving cash flow, acquisitions and/or divestitures
and clarification of its management succession. In addition, the market
reacted favorably after the resolution of AlliedSignal's bid for AMP.
YOU ALSO MENTIONED MOBIL AND BEST BUY.
TEB: We favored the international integrated oil companies, which have risen as
crude oil prices have surged off their February lows. As a group, the
international integrated oils have now retraced roughly half their decline from
November 1997 to January 1999.
Best Buy is the largest consumer electronics retailer in the U.S., and has been
benefiting from the popularity of digital products such as DVD players. Its
fourth quarter earnings rose 72% on higher margins. Because the company
carefully controls its inventory, it is not forced to sell its merchandise at
sharp discounts.
WERE THERE ANY DISAPPOINTMENTS?
TEB: Yes, two: Service Corp. International and Mattel. Funeral services
provider Service Corp. announced that quarterly earnings would be far below
analysts' expectations, blaming declining mortality rates, lower than expected
pre-need cemetery plot sales, fewer than expected acquisitions and poor results
from operations. It has recovered from its lows. Mattel announced a fourth
quarter earnings shortfall as a result of lower shipments, but we like their
acquisition of Learning Co., the second largest consumer software company after
Microsoft.
SINCE THE PORTFOLIO'S GAINS HAVE BEEN LED BY TECHNOLOGY, WHAT'S YOUR OUTLOOK ON
THE SECTOR?
TEB: Many people are worried about the impact of Y2K and we are watching very
closely for developments. But we doubt that our technology holdings would suffer
greatly because these companies provide incremental additions to existing
networks, rather than entirely new systems reconfigurations.
4
<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 4/30/99
$124,535,443
- -------------------------------------------------------------------------------
DIVIDEND PAYABLE DATES
7/30/99, 10/29/99
- -------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/20/99
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 one year 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, 1999
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
[PIE CHART]
<TABLE>
<S> <C>
TECHNOLOGY 22.3%
CONSUMER GOODS & SERVICES 19.5%
FINANCE 15.6%
INDUSTRIAL PRODUCTS & SERVICES 10.9%
HEALTH CARE 10.0%
ENERGY 7.1%
UTILITIES 7.1%
BASIC INDUSTRIES 3.7%
TRANSPORTATION 1.5%
SHORT-TERM & OTHER INVESTMENTS 2.3%
</TABLE>
<TABLE>
<CAPTION>
LARGEST EQUITY HOLDINGS % OF TOTAL INVESTMENTS
- ------------------------------------------------------------------------
<S> <C>
BANK OF AMERICA CORP. (FINANCE) 3.2%
MCI WORLDCOM, INC. (TECHNOLOGY) 3.2%
CISCO SYSTEMS, INC. (TECHNOLOGY) 2.9%
INTERNATIONAL BUSINESS MACHINES CORP.
(TECHNOLOGY) 2.8%
MOBIL CORP. (ENERGY) 2.6%
EMC CORP. (TECHNOLOGY) 2.5%
SUN MICROSYSTEMS, INC. (TECHNOLOGY) 2.5%
MICROSOFT CORP. (TECHNOLOGY) 2.4%
TYCO INTERNATIONAL LTD.
(INDUSTRIAL PRODUCTS & SERVICES) 2.3%
WAL-MART STORES, INC.
(CONSUMER GOODS & SERVICES) 2.2%
</TABLE>
5
<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.
6
<PAGE>
THIS PAGE HAS INTENTIONALLY BEEN LEFT BLANK
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
COMMON STOCKS (97.9%)
BASIC INDUSTRIES (3.6%)
CHEMICALS (1.6%)
Rohm & Haas Co................................... 45,400 $ 2,034,487
-------------
FOREST PRODUCTS & PAPER (1.3%)
Georgia-Pacific Group............................ 17,700 1,637,250
-------------
METALS & MINING (0.7%)
Allegheny Teledyne, Inc.......................... 39,800 890,525
-------------
TOTAL BASIC INDUSTRIES......................... 4,562,262
-------------
CONSUMER GOODS & SERVICES (19.6%)
BROADCASTING & PUBLISHING (2.0%)
Comcast Corp., Class A........................... 17,000 1,116,687
News Corp. Ltd. (Spon. ADR)(i)................... 43,900 1,432,237
-------------
2,548,924
-------------
ENTERTAINMENT, LEISURE & MEDIA (3.5%)
International Game Technology.................... 18,600 330,150
Mattel, Inc...................................... 51,100 1,322,212
Seagram Company Ltd.(i).......................... 31,100 1,784,362
Time Warner, Inc................................. 13,800 966,000
-------------
4,402,724
-------------
FOOD, BEVERAGES & TOBACCO (5.0%)
Anheuser Busch Companies, Inc.................... 5,900 431,437
Coca-Cola Co..................................... 24,000 1,632,000
PepsiCo, Inc..................................... 35,500 1,311,281
Philip Morris Companies, Inc..................... 45,000 1,577,812
Unilever NV (ADR)(i)............................. 18,900 1,227,319
-------------
6,179,849
-------------
HOUSEHOLD PRODUCTS (1.9%)
Procter & Gamble Co.............................. 25,100 2,354,694
-------------
MISCELLANEOUS (0.6%)
Service Corp. International...................... 35,300 732,475
-------------
RESTAURANTS & HOTELS (0.7%)
Starwood Hotels & Resorts Worldwide, Inc......... 22,800 836,475
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
RETAIL (5.9%)
American Stores Co............................... 22,000 $ 694,375
Best Buy Co., Inc.+.............................. 19,100 912,025
Dayton Hudson Corp............................... 17,500 1,177,969
Federated Department Stores, Inc.+............... 21,600 1,008,450
Home Depot, Inc.................................. 12,700 761,206
Wal-Mart Stores, Inc............................. 60,200 2,769,200
-------------
7,323,225
-------------
TOTAL CONSUMER GOODS & SERVICES................ 24,378,366
-------------
ENERGY (7.1%)
OIL-PRODUCTION (7.1%)
Exxon Corp....................................... 23,100 1,918,744
Mobil Corp....................................... 31,300 3,278,675
Royal Dutch Petroleum Co. (ADR).................. 43,200 2,535,300
Tosco Corp....................................... 41,900 1,120,825
-------------
TOTAL ENERGY................................... 8,853,544
-------------
FINANCE (15.7%)
BANKING (11.1%)
Bank of America Corp............................. 55,602 4,003,344
Bankers Trust Corp............................... 4,100 369,256
Citigroup, Inc................................... 33,550 2,524,637
Dime Bancorp, Inc................................ 21,000 484,312
First Union Corp................................. 28,600 1,583,725
KeyCorp.......................................... 38,000 1,175,625
Washington Mutual, Inc........................... 42,000 1,727,250
Wells Fargo Co................................... 45,400 1,960,713
-------------
13,828,862
-------------
FINANCIAL SERVICES (1.0%)
Federal National Mortgage Association............ 17,000 1,205,938
-------------
INSURANCE (3.6%)
Ambac Financial Group, Inc....................... 12,000 724,500
American International Group, Inc................ 7,700 904,269
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
INSURANCE (CONTINUED)
Marsh & McLennan Companies, Inc.................. 21,450 $ 1,642,266
UNUM Corp........................................ 21,300 1,163,513
-------------
4,434,548
-------------
TOTAL FINANCE.................................. 19,469,348
-------------
HEALTHCARE (10.1%)
BIOTECHNOLOGY (0.4%)
Genzyme Corp.+................................... 12,000 452,250
-------------
HEALTH SERVICES (1.2%)
HEALTHSOUTH Corp.+............................... 42,800 575,125
Perkin-Elmer Corp.+.............................. 8,400 908,250
-------------
1,483,375
-------------
MEDICAL SUPPLIES (0.3%)
Provident Companies, Inc......................... 9,000 354,375
-------------
PHARMACEUTICALS (8.2%)
ALZA Corp.+...................................... 14,000 469,875
American Home Products Corp...................... 32,300 1,970,300
Bristol-Myers Squibb Co.......................... 38,200 2,428,088
Forest Laboratories, Inc.+....................... 21,200 943,400
Merck & Co., Inc................................. 11,000 772,750
Monsanto Co...................................... 36,900 1,669,725
Pfizer, Inc...................................... 3,900 448,744
Schering-Plough Corp............................. 12,100 584,581
Warner-Lambert Co................................ 13,900 944,331
-------------
10,231,794
-------------
TOTAL HEALTHCARE............................... 12,521,794
-------------
INDUSTRIAL PRODUCTS & SERVICES (10.9%)
DIVERSIFIED MANUFACTURING (7.2%)
AlliedSignal, Inc................................ 45,300 2,661,375
General Electric Co.............................. 15,000 1,582,500
Johnson Controls, Inc............................ 18,700 1,363,931
Tyco International Ltd.(i)....................... 35,700 2,900,625
Xerox Corp....................................... 6,700 393,625
-------------
8,902,056
-------------
ELECTRICAL EQUIPMENT (0.7%)
Emerson Electric Co.............................. 14,200 915,900
-------------
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
PACKAGING & CONTAINERS (1.1%)
Kimberly-Clark Corp.............................. 21,600 $ 1,324,350
-------------
POLLUTION CONTROL (1.9%)
Waste Management, Inc............................ 42,262 2,387,803
-------------
TOTAL INDUSTRIAL PRODUCTS & SERVICES........... 13,530,109
-------------
TECHNOLOGY (22.3%)
COMPUTER SOFTWARE (2.4%)
Microsoft Corp.+................................. 36,800 2,991,150
-------------
COMPUTER SYSTEMS (7.8%)
EMC Corp.+....................................... 28,700 3,126,506
International Business Machines Corp............. 16,600 3,472,513
Sun Microsystems, Inc.+.......................... 51,800 3,099,906
-------------
9,698,925
-------------
ELECTRONICS (2.9%)
Cisco Systems, Inc.+............................. 32,000 3,651,000
-------------
SEMICONDUCTORS (2.8%)
Intel Corp....................................... 34,400 2,103,775
Texas Instruments, Inc........................... 13,300 1,358,263
-------------
3,462,038
-------------
TELECOMMUNICATION SERVICES (5.0%)
America Online, Inc.+............................ 10,000 1,427,500
Level 3 Communications, Inc.+.................... 10,000 900,313
MCI WorldCom, Inc.+.............................. 47,972 3,941,200
-------------
6,269,013
-------------
TELECOMMUNICATIONS-EQUIPMENT (1.4%)
Lucent Technologies, Inc......................... 27,900 1,677,488
-------------
TOTAL TECHNOLOGY............................... 27,749,614
-------------
TRANSPORTATION (1.5%)
RAILROADS (1.5%)
Union Pacific Corp............................... 31,300 1,878,000
-------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SECURITY DESCRIPTION SHARES VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
UTILITIES (7.1%)
ELECTRIC (1.9%)
Duke Energy Corp................................. 5,700 $ 319,200
New England Electric System...................... 7,600 376,200
Northern States Power Co......................... 34,200 825,075
Wisconsin Energy Corp............................ 32,800 881,500
-------------
2,401,975
-------------
GAS-PIPELINES (0.5%)
Columbia Energy Group............................ 12,800 615,200
-------------
TELEPHONE (4.7%)
AT & T Corp...................................... 23,850 1,204,425
Bell Atlantic Corp............................... 11,600 668,450
GTE Corp......................................... 28,700 1,921,106
SBC Communications, Inc.......................... 37,300 2,088,800
-------------
5,882,781
-------------
TOTAL UTILITIES................................ 8,899,956
-------------
TOTAL COMMON STOCKS (COST $95,465,196)......... 121,842,993
-------------
</TABLE>
<TABLE>
<CAPTION>
PRINCIPAL
SECURITY DESCRIPTION AMOUNT VALUE
- ------------------------------------------------- ----------- -------------
<S> <C> <C>
SHORT-TERM INVESTMENTS (2.3%)
OTHER INVESTMENT COMPANIES (2.3%)
Seven Seas Money Market Fund (cost $2,880,769)... $ 2,880,769 $ 2,880,769
-------------
TOTAL INVESTMENTS (COST $98,345,965) (100.2%).................
124,723,762
LIABILITIES IN EXCESS OF OTHER ASSETS (-0.2%).................
(188,319)
-------------
NET ASSETS (100.0%)........................................... $ 124,535,443
-------------
-------------
</TABLE>
- ------------------------------
Note: For federal income tax purposes, the cost of securities at April 30, 1999
was substantially the same as the cost for financial statement purposes. The
aggregate gross unrealized appreciation and depreciation was $28,268,177 and
$1,890,380 respectively, resulting in net unrealized appreciation of
$26,377,797.
+ Non-income producing security.
(i) Foreign security.
ADR - American Depositary Receipt.
Spon. ADR - Sponsored ADR.
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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $98,345,965 ) $124,723,762
Receivable for Fund Shares Sold 525,529
Dividends Receivable 71,667
Deferred Organization Expenses 25,099
Interest Receivable 8,681
Receivable for Expense Reimbursements 5,896
Prepaid Trustees' Fees 323
Prepaid Expenses and Other Assets 450
------------
Total Assets 125,361,407
------------
LIABILITIES
Payable for Investments Purchased 662,006
Advisory Fee Payable 44,482
Shareholder Servicing Fee Payable 24,712
Organization Expenses Payable 12,060
Custody Fee Payable 7,583
Payable for Fund Shares Redeemed 5,106
Administrative Services Fee Payable 5,092
Transfer Agent Fees Payable 3,437
Administration Fee Payable 92
Fund Services Fee Payable 47
Accrued Expenses 61,347
------------
Total Liabilities 825,964
------------
NET ASSETS
Applicable to 6,668,141 shares outstanding
(par value $0.001, unlimited shares authorized) $124,535,443
------------
------------
Net Asset Value, Offering and Redemption Price
per Share $18.68
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $100,200,821
Undistributed Net Investment Income 34,937
Accumulated Net Realized Loss on Investments (2,078,112)
Net Unrealized Appreciation of Investments 26,377,797
------------
Net Assets $124,535,443
------------
------------
</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, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Dividend Income (Net of Foreign Withholding Tax
of $2,319 ) $ 625,798
Interest Income 51,489
-----------
Investment Income 677,287
EXPENSES
Advisory Fee $ 227,555
Shareholder Servicing Fee 126,419
Administrative Services Fee 26,663
Custodian Fees and Expenses 20,750
Transfer Agent Fee 19,883
Professional Fees and Expenses 19,666
Registration Fees 13,515
Printing Expenses 9,173
Amortization of Organization Expenses 4,806
Fund Services Fee 1,034
Trustees' Fees and Expenses 709
Administration Fee 489
Miscellaneous 4,098
-----------
Total Expenses 474,760
Less: Reimbursement of Expenses (44,934)
-----------
NET EXPENSES 429,826
-----------
NET INVESTMENT INCOME 247,461
NET REALIZED GAIN ON INVESTMENTS 3,918,320
NET CHANGE IN UNREALIZED APPRECIATION OF
INVESTMENTS 16,410,963
-----------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $20,576,744
-----------
-----------
</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
MONTHS ENDED
APRIL 30, FOR THE FISCAL
1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
------------ ----------------
<S> <C> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 247,461 $ 340,374
Net Realized Gain on Investments 3,918,320 584,331
Net Change in Unrealized Appreciation of
Investments 16,410,963 7,128,512
------------ ----------------
Net Increase in Net Assets Resulting from
Operations 20,576,744 8,053,217
------------ ----------------
DIVIDENDS TO SHAREHOLDERS FROM
Net Investment Income (267,338) (376,737)
------------ ----------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 41,568,799 48,063,688
Reinvestment of Dividends 249,815 358,591
Cost of Shares of Beneficial Interest Redeemed (14,543,161) (4,847,949)
Service Charge 26,993 24,021
------------ ----------------
Net Increase from Shareholder Transactions 27,302,446 43,598,351
------------ ----------------
Total Increase in Net Assets 47,611,852 51,274,831
NET ASSETS
Beginning of Period 76,923,591 25,648,760
------------ ----------------
End of Period (including undistributed net
investment income of $34,937 and $54,814,
respectively) $124,535,443 $ 76,923,591
------------ ----------------
------------ ----------------
</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 SIX FOR THE PERIOD
MONTHS ENDED FOR THE FISCAL DECEMBER 18, 1996
APRIL 30, YEAR ENDED (COMMENCEMENT OF
1999 OCTOBER 31, OPERATIONS) THROUGH
(UNAUDITED) 1998 OCTOBER 31, 1997
------------ --------------- ---------------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.19 $ 12.57 $ 10.00
------------ --------------- ---------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.04 0.08 0.06
Net Realized and Unrealized Gain on Investments 3.50 2.65 2.52
------------ --------------- ---------------------
Total from Investment Operations 3.54 2.73 2.58
------------ --------------- ---------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.05) (0.11) (0.01)
------------ --------------- ---------------------
NET ASSET VALUE, END OF PERIOD $ 18.68 $ 15.19 $ 12.57
------------ --------------- ---------------------
------------ --------------- ---------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 23.32%(a) 21.81% 25.83%(a)
Net Assets, End of Period (in thousands) $124,535 $76,924 $25,649
Ratios to Average Net Assets
Net Expenses 0.85%(b) 0.85% 0.85%(b)
Net Investment Income 0.49%(b) 0.63% 0.70%(b)
Expenses without Reimbursement 0.94%(b) 1.09% 2.16%(b)
Portfolio Turnover 20% 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 (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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. The fund is a no-load and diversified, open-end management
investment company. The fund's investment objective is to provide high after tax
total return from a portfolio of selected equity securities. The trustees of the
trust have divided the beneficial interests in the fund into two classes of
shares, Institutional Shares and Select Shares. 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 (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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 $5,416,725 and decrease
Accumulated Net Realized Gain on Investment by $5,416,725. 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.
2. TRANSACTIONS WITH AFFILIATES
a) The fund has an Investment Advisory Agreement with J.P. Morgan Investment
Management Inc. ("JPMIM"), an affiliate of Morgan and a wholly owned
subsidiary of J.P. Morgan. Under the terms of the agreement, the fund pays
JPMIM at an annual rate of 0.45% of the fund's average daily net assets.
For the six months ended April 30, 1999, such fees amounted to $227,555.
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, 1999, the fee for these services amounted to $489.
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 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 six months
ended April 30, 1999, the fee for these services amounted to $26,663.
16
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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. This reimbursement
arrangement can be changed or terminated at any time at the option of J.P.
Morgan. For the six months ended April 30, 1999, J.P. Morgan has agreed to
reimburse the fund $44,934 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, 1999, the fee for these
services amounted to $126,419.
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
$1,034 for the six months ended April 30, 1999.
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 $200.
17
<PAGE>
J.P. MORGAN TAX AWARE U.S. EQUITY FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
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
MONTHS ENDED FOR THE FISCAL
APRIL 30, 1999 YEAR ENDED
(UNAUDITED) OCTOBER 31, 1998
-------------- ----------------
<S> <C> <C>
Shares of beneficial interest sold............... 2,441,098 3,344,838
Reinvestment of dividends........................ 14,801 25,345
Shares of beneficial interest redeemed........... (853,167) (346,044)
-------------- ----------------
NET INCREASE..................................... 1,602,732 3,024,139
-------------- ----------------
-------------- ----------------
</TABLE>
Redemptions may be subject to service charges, retained by the fund, in
accordance with the following schedule:
<TABLE>
<CAPTION>
PERCENTAGE
OF
CASH
YEAR SINCE PURCHASE PROCEEDS
- ------------------------------------------------------
<S> <C>
Shares held for less than one year............... 1%
Shares held one year or longer................... None
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the six months
ended April 30, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
- ------------- -------------
<S> <C>
$ 45,235,039 $ 19,819,847
</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 27, 1998, with unaffiliated lenders. The maximum borrowing
under the Agreement was $150,000,000. The Agreement expired on May 26, 1999,
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 23,
2000. 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. Prior to May 26, 1999 the funds paid a commitment fee
at an annual rate of 0.065% on the unused portion of the committed amount; under
the current Agreement, the commitment fee has increased to an annual rate of
0.085% on the unused portion of the committed amount. The commitment fee is
allocated to the funds in accordance with procedures established by their
respective trustees or directors. There were no outstanding borrowings pursuant
to the Agreement at April 30, 1999.
18
<PAGE>
J.P. MORGAN FUNDS
PRIME MONEY MARKET FUND
FEDERAL MONEY MARKET FUND
TAX EXEMPT MONEY MARKET FUND
TAX AWARE ENHANCED INCOME FUND: SELECT SHARES
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
SEMIANNUAL REPORT
APRIL 30, 1999
IM0414-M
