<PAGE>
LETTER TO THE SHAREHOLDERS OF THE J.P. MORGAN
TAX AWARE ENHANCED INCOME FUND
June 1, 1999
Dear Shareholder,
On April 16, 1999, J.P. Morgan launched the newest member in its lineup of
tax-sensitive investment products, the J.P. Morgan Tax Aware Enhanced Income
Fund Institutional Shares. The fund's net asset value was $14.99 per share on
April 30, 1999. The fund's net assets were approximately $129 million on April
30, 1999. Dividends of approximately $0.02 per share were paid from ordinary
income.
This report includes a discussion with Richard Oswald, the portfolio manager
primarily responsible for the J.P. Morgan Tax Aware Enhanced Income Fund. In
this interview, Dick talks about his strategy for this new fund and what he sees
on the horizon for the next six 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) 766-7722.
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>
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TABLE OF CONTENTS
<S> <C> <C> <C>
LETTER TO THE SHAREHOLDERS. . . . 1 FUND FACTS AND HIGHLIGHTS. . . .4
PORTFOLIO MANAGER Q&A . . . . . . 2 FINANCIAL STATEMENTS . . . . . .6
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</TABLE>
1
<PAGE>
PORTFOLIO MANAGER Q&A
[PHOTO]
The following is an interview with RICHARD OSWALD, vice president, who is
responsible for managing the J.P. Morgan Tax Aware Enhanced Income Fund. Dick
joined Morgan in October 1996 after eight years with CBS Inc., where he served
as corporate treasurer and president of the company's investment subsidiary.
Dick has also held financial positions with Primerica Corporation and Price
Waterhouse. He earned a B.A. from the University of Toronto and an M.B.A. from
the Rochester Institute of Technology, and is licensed as a C.P.A. in New York
State. This interview was conducted on May 18, 1999, and represents Dick's views
on that date.
THE FUND WAS LAUNCHED ONLY RECENTLY. WHY DON'T YOU TELL US A LITTLE ABOUT IT?
RO: The fund's stated goal is to provide high current after-tax income
consistent with principal preservation. We aim to give investors a return, after
taxes and fees, 30-50 basis points greater than that of money market funds,
while maintaining a lower risk profile than the typical longer-duration bond
fund. The fund is most appropriate for high-tax-bracket individuals who are
seeking cash management for long-term asset allocations, for long-term liquidity
needs, or in anticipation of future large expenditures.
We seek to add value beyond that of money market funds in a variety of ways. To
maximize high current income on an after-tax basis, we actively allocate the
assets of the fund between both tax-exempt and taxable fixed income securities
in an effort to take advantage of trends in those markets. And unlike money
market strategies, the J.P. Morgan Tax Aware Enhanced Income Fund may invest in
securities of any maturity, enabling us to seek price appreciation as well as
income. This also frees us up to invest in interest rate swaps, futures
contracts, options, and the like.
HOW HAVE YOU INVESTED THE FUND THUS FAR?
RO: We're obliged to have at least 50% of the portfolio invested in tax-exempt
securities, but right now we're 100% in tax-exempt municipal issues. At this
time of year, munis tend to be attractive relative to their taxable
counterparts; tax-exempt muni funds tend to experience significant outflows as
investors pay their income taxes through the redemption of fund holdings,
causing short-term muni rates to rise. This year, outflows were even greater
than expected, and short-term tax-exempt rates rose more than 100 basis points
over the course of April. This condition will probably exist through late spring
or early summer, at which point we expect taxable securities to become more
attractive.
We try to keep the duration of the portfolio at about one year, so we've also
been buying securities with maturities in the one- to four-year range,
capitalizing on the current steepness in the tax-exempt yield curve and locking
in those higher yields that we are seeing out to four years. We also bought a
number of callable securities where we felt that we were being adequately
compensated for the embedded call provision.
2
<PAGE>
WHAT IS YOUR OUTLOOK GOING FORWARD?
RO: We expect the U.S. economy to continue to be strong; in fact, we recently
raised our 1999 GDP forecast again. But since we also expect inflation to
continue to be benign, we think the Fed will stick with its patient approach to
rates and remain on hold in the near term, despite its recent shift to a
tightening bias from a neutral one. Regardless, we believe that concern in the
market about the domestic economy's continued strength may override indications
that inflation remains in check. As a result, we expect the 30-year Treasury
bond to trade between 5.40% and 6.00%, with risk on the upside of that range.
The fund was launched on April 16, and we've seen our assets under management
grow to $129 million from $50 million; we expect assets to continue to flow
steadily into the fund. As we get into the summer, we expect short-term muni
rates to come down, making taxable instruments relatively more attractive. We'll
likely cycle some funds into that arena. We'll keep duration near our one-year
target. Other than that, we'll continue to examine sectors on a daily basis to
assess fair value and the likelihood of a widening or narrowing of spreads, and
invest accordingly.
3
<PAGE>
FUND FACTS
INVESTMENT OBJECTIVE
J.P. Morgan Tax Aware Enhanced Income Fund seeks to provide high current after
tax income consistent with principal preservation by investing in tax exempt and
taxable fixed income securities.
- -------------------------------------------------------------------------------
COMMENCEMENT OF INVESTMENT OPERATIONS
4/16/99
- -------------------------------------------------------------------------------
FUND NET ASSETS AS OF 4/30/99
$128,714,785
- -------------------------------------------------------------------------------
DIVIDEND PAYABLE DATE
MONTHLY
- -------------------------------------------------------------------------------
CAPITAL GAIN PAYABLE DATE (IF APPLICABLE)
12/13/99
EXPENSE RATIO
The institutional shares' current annualized expense ratio of 0.25% 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. There are no additional charges for buying,
selling, or safekeeping fund shares, or for wiring redemption proceeds from the
fund.
FUND HIGHLIGHTS
ALL DATA AS OF APRIL 30, 1999
PORTFOLIO ALLOCATION
(AS A PERCENTAGE OF TOTAL INVESTMENTS)
<TABLE>
<S> <C>
INSURED 29.8%
SHORT-TERM AND OTHER 28.0%
AUCTION RATE DEBT BONDS 15.2%
GENERAL OBLIGATION 14.6%
REVENUE BONDS 12.4%
</TABLE>
4
<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 WORTH MORE OR LESS THAN
ORIGINAL COST.
Opinions expressed herein are based on current market conditions and are subject
to change without notice.
CALL J.P. MORGAN FUNDS SERVICES AT (800) 766-7722 (INSTITUTIONAL SHARES) FOR A
PROSPECTUS CONTAINING MORE COMPLETE INFORMATION ABOUT THE FUND INCLUDING
MANAGEMENT FEES AND OTHER EXPENSES. PLEASE READ THE PROSPECTUS CAREFULLY BEFORE
INVESTING.
5
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE RATINGS DATE RATE VALUE
- -------------- ------------------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
LONG-TERM INVESTMENTS (66.3%)
MUNICIPAL SECURITIES (66.3%)
CALIFORNIA (1.9%)
$ 2,500 Student Education Loan Marketing Corp.,
(California Student Loan Revenue, Callable,
Refunding, Series A, due 07/01/10)............. ARDB NR/AAA 05/25/99(a) 3.350% $ 2,500,000
-----------
ILLINOIS (4.0%)
2,000 Chicago Metropolitan Water Reclamation District,
(Greater Chicago Capital Improvement).......... GO Aa2/AA 01/01/01 7.000 2,104,920
3,000 Illinois Health Facilities Authority Revenue,
(Rockford Memorial Hospital Group, Callable,
due 08/15/24), AMBAC Insured................... ARDB Aaa/AAA 06/02/99(a) 3.440 3,000,000
-----------
TOTAL ILLINOIS............................... 5,104,920
-----------
IOWA (2.5%)
3,000 Polk County Revenue, (Health Facilities, Mercy
Health Center, Prerefunded, due 11/01/15), MBIA
Insured........................................ RB Aaa/AAA 11/01/01(a) 6.750 3,251,970
-----------
MAINE (2.3%)
3,000 Maine Educational Loan Marketing Corp., (Student
Loan Revenue, Callable, Refunding, Series A-2,
due 11/01/09).................................. ARDB Aaa/NR 06/02/99(a) 3.400 3,000,000
-----------
MARYLAND (1.7%)
2,000 Montgomery County, (Callable, due 10/01/03)...... GO Aaa/AAA 10/01/01(a) 5.900 2,137,880
-----------
MICHIGAN (1.6%)
2,000 Michigan Higher Education Student Loan,
(Callable, Refunding, Series XII H-1, due
10/01/20), AMBAC Insured....................... ARDB Aaa/AAA 05/25/99(a) 3.250 2,000,000
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
6
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE RATINGS DATE RATE VALUE
- -------------- ------------------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
MINNESOTA (1.6%)
$ 2,000 Northern Municipal Power Agency, (Minnesota
Electric System Revenue, Refunding), FSA
Insured........................................ RB Aaa/AAA 01/01/01 4.600% $ 2,031,780
-----------
MISSISSIPPI (3.9%)
3,000 Mississippi Higher Education Assistance Corp.,
(Student Loan Revenue, Callable, Refunding,
Series B, due 09/01/04)........................ ARDB Aaa/NR 06/02/99(a) 3.400 3,000,000
2,000 Mississippi Higher Education, (Callable, Series
B, due 09/01/09)............................... ARDB Aaa/NR 05/25/99(a) 3.290 2,000,000
-----------
TOTAL MISSISSIPPI............................ 5,000,000
-----------
MONTANA (3.9%)
5,000 Montana State Higher Education Student Assistance
Corp., (Student Loan Revenue, Callable, Series
A, due 12/01/15)............................... ARDB Aaa/NR 06/04/99(a) 3.550 5,000,000
-----------
NEBRASKA (4.0%)
3,000 Nebraska Public Power District Revenue, (Power
Supply System, Prerefunded, due 01/01/15), MBIA
Insured........................................ RB Aaa/AAA 01/01/03(a) 6.125 3,292,410
1,665 Omaha Airport Authority, (Airport Revenue,
Prerefunded, due 01/01/14)..................... RB A1/A 01/01/02(a) 8.375 1,889,775
-----------
TOTAL NEBRASKA............................... 5,182,185
-----------
NEW JERSEY (1.7%)
2,000 New Jersey Transportation Corp., (Callable,
Series A, due 09/01/03), FSA Insured........... RB Aaa/AAA 03/01/03(a) 5.500 2,119,780
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
7
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE RATINGS DATE RATE VALUE
- -------------- ------------------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
NEW MEXICO (1.6%)
$ 2,000 New Mexico Educational Assistance Foundation,
(Student Loan Revenue, Callable, Refunding,
Series A-1, due 11/01/25)...................... ARDB Aaa/NR 05/25/99(a) 3.250% $ 2,000,000
-----------
NEW YORK (2.1%)
2,620 New York, (Refunding,
Series D)...................................... GO A3/A- 08/01/02 5.000 2,708,346
-----------
PENNSYLVANIA (6.6%)
2,200 Pennsylvania, (Callable, 3rd Series, due
12/01/06)...................................... GO Aa3/AA 12/01/02(a) 5.875 2,362,338
5,900 Philadelphia School District, (Series A), MBIA
Insured........................................ GO Aaa/AAA 07/01/02 5.250 6,164,320
-----------
TOTAL PENNSYLVANIA........................... 8,526,658
-----------
PUERTO RICO (1.9%)
2,250 Puerto Rico Commonwealth Highway & Transportation
Authority, (Highway Revenue, Refunding,
Callable, Series V, due 07/01/12).............. RB Baa1/A 07/01/02(a) 6.625 2,453,085
-----------
RHODE ISLAND (2.3%)
3,000 Rhode Island Student Loan Authority, (Student
Loan Revenue, Callable, Series 1, due
12/01/30), AMBAC Insured....................... ARDB Aaa/AAA 06/02/99(a) 3.400 3,000,000
-----------
SOUTH CAROLINA (1.2%)
1,400 South Carolina Public Service Authority Revenue,
(Prerefunded, Series B, due 07/01/21).......... RB Aaa/AAA 07/01/01(a) 7.100 1,527,204
-----------
SOUTH DAKOTA (2.7%)
3,500 Education Loans, (Student Loan Revenue, Callable,
Series 1C, due 06/01/20)....................... ARDB Aaa/NR 06/03/99(a) 3.500 3,500,000
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
8
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE RATINGS DATE RATE VALUE
- -------------- ------------------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
TENNESSEE (1.1%)
$ 1,350 Tennessee, (Prerefunded, Series B, due
06/01/11)...................................... GO Aaa/AAA 06/01/01(a) 6.850% $ 1,457,028
-----------
TEXAS (8.1%)
1,000 El Paso, (Prerefunded, due 08/15/08), FGIC
Insured........................................ GO Aaa/AAA 08/15/04(a) 5.600 1,075,380
5,825 Houston, (Callable, Refunding, Series C, due
03/01/03)...................................... GO Aa3/AA- 03/01/02(a) 5.900 6,165,064
3,035 Humble Independent School District, (Callable,
Refunding, due 2/15/04)........................ GO Aaa/AAA 02/15/03(a) 6.000 3,240,166
-----------
TOTAL TEXAS.................................. 10,480,610
-----------
UTAH (1.6%)
2,000 Intermountain Power Agency, (Power Supply
Revenue, Prerefunded, Series B, due
07/01/23)...................................... RB A1/A+ 07/01/99(a) 6.000 2,008,300
-----------
WASHINGTON (8.0%)
2,600 Seattle Municipal Light & Power Revenue,
(Callable, Refunding, Series B, due
08/01/04)...................................... RB Aa2/AA 08/01/02(a) 5.500 2,775,344
1,000 Snohomish County Solid Waste Revenue,
(Prerefunded, due 12/01/10), MBIA Insured...... RB Aaa/AAA 12/01/01(a) 7.000 1,101,550
5,000 Washington Public Power Supply System, (Nuclear
Project #2, Prerefunded, Series C, due
07/01/10)...................................... RB Aaa/AAA 01/01/01(a) 7.625 5,414,550
1,000 Washington Public Power Supply System, (Nuclear
Project #3, Callable, Refunding, Series B, due
07/01/04)...................................... RB Aa1/AA- 07/01/00(a) 7.375 1,058,060
-----------
TOTAL WASHINGTON............................. 10,349,504
-----------
TOTAL LONG TERM INVESTMENTS (COST
$85,400,187)............................... 85,339,250
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
9
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE RATINGS DATE RATE VALUE
- -------------- ------------------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
SHORT-TERM INVESTMENTS (40.8%)
MUNICIPAL SECURITIES (40.7%)
ALABAMA (1.4%)
$ 1,750 Columbia Industrial Development Board, (PCR,
Alabama Power Co. Project, Refunding, Series C,
due 10/01/22).................................. VRDN VMIG1/A-1 05/03/99(a) 4.400% $ 1,750,000
-----------
CALIFORNIA (2.3%)
3,000 Contra Costa County Transportation, (Registered
D, Series A27, due 10/01/99), SPA-Bank of New
York Insured................................... VRDN VMIG1/A-1+ 05/05/99(a) 4.100 3,000,000
-----------
FLORIDA (3.0%)
3,800 Dade County Water & Sewer System Revenue,
(Callable, due 10/05/22), FGIC Insured......... VRDN VMIG1/A-1+ 05/05/99(a) 3.850 3,800,000
-----------
GEORGIA (0.2%)
200 Burke County Development Authority, (PCR, Georgia
Power Co., Vogtle Project-4th Series, Callable,
due 09/01/25).................................. VRDN VMIG1/A-1 05/03/99(a) 4.250 200,000
-----------
LOUISIANA (1.3%)
1,700 Louisiana Offshore Terminal Authority, (Deepwater
Port Revenue, Callable, Refunding due
09/01/06), LOC-Union Bank of Switzerland AG.... VRDN VMIG1/NR 05/03/99(a) 4.250 1,700,000
-----------
MISSISSIPPI (2.9%)
2,300 Jackson County PCR, (Chevron USA Inc. Project,
Callable, Refunding, due 06/01/23)............. VRDN P-1/NR 05/03/99(a) 4.250 2,300,000
1,500 Perry County PCR, (Leaf River Forest Project,
Callable, Refunding, due 03/01/02),
LOC-Wachovia Bank.............................. VRDN P-1/NR 05/03/99(a) 4.250 1,500,000
-----------
3,800,000
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
10
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE RATINGS DATE RATE VALUE
- -------------- ------------------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
MONTANA (1.6%)
$ 2,000 Montana.......................................... TRAN MIG1/SP-1+ 06/30/99 3.500% $ 2,000,304
-----------
NEVADA (2.7%)
3,500 Clark County Airport, (Improvement Revenue,
Callable, Refunding, Series A, due 07/01/12),
MBIA
Insured........................................ VRDN VMIG1/A-1+ 05/05/99(a) 3.850 3,500,000
-----------
NEW YORK (11.0%)
2,500 Long Island Power Authority, (Electric System
Revenue, Callable, Series 2, due 05/01/33),
LOC-Westdeutsche Landesbank and Bayerische
Landesbank..................................... VRDN VMIG1/A-1+ 05/05/99(a) 3.950 2,500,000
3,100 New York City Municipal Assistance Corp.,
(Prerefunded, Series K-1, due 07/01/08),
LOC-Westdeutsche Landesbank.................... VRDN VMIG1/A-1+ 05/05/99(a) 4.000 3,100,000
3,000 New York City Municipal Assistance Corp.,
(Prerefunded, Series K-2, due 07/01/08),
LOC-Bayerische Landesbank...................... VRDN VMIG1/A-1+ 05/05/99(a) 4.000 3,000,000
600 New York City Municipal Water Finance Authority,
(Water & Sewer Systems Revenue, Callable,
Refunding, Series A, due 06/15/25), FGIC
Insured........................................ VRDN VMIGI/A-1+ 05/03/99(a) 4.400 600,000
3,000 New York City Municipal Water Finance Authority,
(Water & Sewer Systems Revenue, Callable,
Refunding, Series G, due 06/15/24), FGIC
Insured........................................ VRDN VMIG1/A-1+ 05/03/99(a) 4.250 3,000,000
1,950 New York Energy Research & Development Authority,
(PCR, Electric & Gas, Callable, Refunding,
Series B, due 02/01/29), LOC-Union Bank of
Switzerland.................................... VRDN VMIGI/A-1+ 05/03/99(a) 4.250 1,950,000
-----------
14,150,000
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
11
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE RATINGS DATE RATE VALUE
- -------------- ------------------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
NORTH CAROLINA (1.9%)
$ 2,500 Wake County Industrial Facilities & Pollution
Control, (Financing Authority Revenue,
Callable, Refunding, Series B, due 06/15/14),
LOC-Bank of New York........................... VRDN VMIG1/A-1+ 05/03/99 4.400% $ 2,500,000
-----------
VIRGINIA (2.3%)
3,000 Virginia State Transportation Board,
(Transportation Contract Revenue, Series A6,
due 04/01/18), LIQ FAC-Bayerische Hypo......... VRDN VMIG1/NR 05/05/99(a) 4.150 3,000,000
-----------
WYOMING (2.3%)
1,900 Lincoln County PCR, (Exxon Project, Callable,
Series B, due 11/01/14)........................ VRDN P-1/A-1+ 05/03/99(a) 4.150 1,900,000
1,100 Sweetwater County PCR, (Pacificorp Project,
Callable, Refunding, Series B, due 01/01/14),
LOC-Canadian Imperial Bank..................... VRDN P-1/A-1+ 05/03/99(a) 4.400 1,100,000
-----------
3,000,000
-----------
OTHER (7.8%)
2,590 Puttable Floating Option, (Tax Exempt Receipts,
Callable, Series SG P-5, due 07/02/27), LIQ
FAC-Societe Generale........................... VRDN NR/A-1+c 05/06/99(a) 3.430 2,590,000
2,465 Puttable Floating Option, (Tax Exempt Receipts,
Callable, Series SG P-6, due 01/01/28), LIQ
FAC-Societe Generale........................... VRDN NR/A-1+c 05/06/99(a) 3.430 2,465,000
4,960 Puttable Floating Option, (Tax Exempt Receipts,
Series SG P-8, due 06/15/30), LIQ FAC-Societe
Generale....................................... VRDN NR/A-1+c 05/06/99(a) 3.430 4,960,000
-----------
10,015,000
-----------
TOTAL MUNICIPAL SECURITIES (COST $52,451,304)........................................... 52,415,304
-----------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
12
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
SCHEDULE OF INVESTMENTS (UNAUDITED) (CONTINUED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PRINCIPAL MOODY'S/
AMOUNT SECURITY S&P MATURITY
(IN THOUSANDS) SECURITY DESCRIPTION TYPE RATINGS DATE RATE VALUE
- -------------- ------------------------------------------------- -------- -------- ----------- ------ -----------
<C> <S> <C> <C> <C> <C> <C>
U.S. GOVERNMENT AGENCY OBLIGATIONS (0.1%)
$ 120 Student Loan Marketing Association (Cost
$119,968)...................................... ADN NR/NR 05/03/99(a) 4.866%(y) $ 119,968
-----------
TOTAL SHORT-TERM INVESTMENTS (COST $52,535,272)......................................... 52,535,272
-----------
TOTAL INVESTMENTS (COST $137,935,459) (107.1%).............................................. 137,874,522
LIABILITIES IN EXCESS OF OTHER ASSETS (-7.1%)............................................... (9,159,737)
-----------
NET ASSETS (100.0%)......................................................................... $128,714,785
-----------
-----------
</TABLE>
- ------------------------------
Note: Based on the cost of the investments of $137,935,459, for federal income
tax purposes at April 30, 1999, the aggregate gross unrealized appreciation and
depreciation was $12,707 and $73,644, respectively, resulting in net unrealized
depreciation of investments of $60,937.
(a) The date listed under the heading maturity date represents an optional
tender date or the next interest rate reset date, which may vary. The actual
maturity date is indicated in the security description.
(y) Yield to maturity.
ADN - Agency Discount Note.
AMBAC - Ambac Indemnity Corp.
ARDB - Auction Rate Debt Bond.
FGIC - Financial Guaranty Insurance Co.
FSA - Financial Securities Assistance.
GO - General Obligation.
LIQ FAC - Liquidity Facility.
LOC - Letter of Credit.
MBIA - Municipal Bond Investors Assurance Corp.
NR - Not Rated.
PCR - Pollution Control Revenue.
RB - Revenue Bond.
SPA - Standby Purchase Agreement.
TRAN - Tax Revenue Anticipation Note.
VRDN - Variable Rate Demand Note.
The Accompanying Notes are an Integral Part of the Financial Statements.
13
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF ASSETS AND LIABILITIES (UNAUDITED)
APRIL 30, 1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C>
ASSETS
Investments at Value (Cost $137,935,459) $137,874,522
Interest Receivable 1,531,709
Receivable for Expense Reimbursements 12,719
Receivable for Fund Shares Sold 6,500
------------
Total Assets 139,425,450
------------
LIABILITIES
Payable for Investments Purchased 9,760,600
Payable for Fund Shares Redeemed 880,672
Distributions Payable to Shareholders 49,348
Advisory Fee Payable 5,852
Shareholder Servicing Fee Payable 2,341
Due to Custodian 1,474
Administrative Services Fee Payable 1,139
Administration Fee Payable 20
Accrued Trustees' Fees and Expenses 15
Accrued Expenses 9,204
------------
Total Liabilities 10,710,665
------------
NET ASSETS $128,714,785
------------
------------
INSTITUTIONAL SHARES
Applicable to 8,587,225 shares outstanding
(par value $0.001, unlimited shares authorized) $128,714,785
------------
------------
Net Asset Value, Offering and Redemption Price
per Share $14.99
-----
-----
ANALYSIS OF NET ASSETS
Paid-in Capital $128,775,722
Net Unrealized Depreciation of Investments (60,937)
------------
Net Assets $128,714,785
------------
------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
14
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF OPERATIONS (UNAUDITED)
FOR THE PERIOD APRIL 16, 1999 (COMMENCEMENT OF OPERATIONS) THROUGH APRIL 30,
1999
- --------------------------------------------------------------------------------
<TABLE>
<S> <C> <C>
INVESTMENT INCOME
Interest Income $ 95,640
EXPENSES
Advisory Fee $ 5,852
Custodian Fees and Expenses 3,126
Shareholder Servicing Fee-Institutional Shares 2,341
Registration Fees 2,194
Professional Fees and Expenses 1,953
Administrative Services Fee 1,139
Printing Expenses 1,072
Transfer Agent Fee 632
Administrative Fee 20
Trustees' Fees and Expenses 15
Miscellaneous 227
--------
Total Expenses 18,571
Less: Reimbursement of Expenses (12,719)
--------
NET EXPENSES 5,852
--------
NET INVESTMENT INCOME 89,788
NET CHANGE IN UNREALIZED DEPRECIATION OF
INVESTMENTS (60,937)
--------
NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS $ 28,851
--------
--------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
15
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOR THE PERIOD
APRIL 16, 1999
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1999
-------------------
<S> <C>
INCREASE IN NET ASSETS
FROM OPERATIONS
Net Investment Income $ 89,788
Net Change in Unrealized Depreciation of
Investments (60,937)
-------------------
Net Increase in Net Assets Resulting from
Operations 28,851
-------------------
DIVIDENDS TO SHAREHOLDERS FROM NET INVESTMENT
INCOME
Institutional Shares (89,788)
-------------------
TRANSACTIONS IN SHARES OF BENEFICIAL INTEREST
Proceeds from Shares of Beneficial Interest Sold 131,624,804
Reinvestment of Dividends 40,439
Cost of Shares of Beneficial Interest Redeemed (2,889,521)
-------------------
Net Increase from Shareholder Transactions 128,775,722
-------------------
Total Increase in Net Assets 128,714,785
NET ASSETS
Beginning of Period --
-------------------
End of Period $ 128,714,785
-------------------
-------------------
</TABLE>
The Accompanying Notes are an Integral Part of the Financial Statements.
16
<PAGE>
J.P. MORGAN TAX AWARE ENHANCED INCOME FUND
FINANCIAL HIGHLIGHTS (UNAUDITED)
- --------------------------------------------------------------------------------
Selected data for a share outstanding throughout this period is as follows:
<TABLE>
<CAPTION>
INSTITUTIONAL
SHARES
FOR THE PERIOD
APRIL 16, 1999
(COMMENCEMENT OF
OPERATIONS) THROUGH
APRIL 30, 1999
-------------------
<S> <C>
NET ASSET VALUE, BEGINNING OF PERIOD $ 15.00
-------------------
INCOME FROM INVESTMENT OPERATIONS
Net Investment Income 0.02
Net Realized and Unrealized Loss on Investments (0.01)
-------------------
Total from Investment Operations 0.01
-------------------
LESS DISTRIBUTIONS TO SHAREHOLDERS FROM
Net Investment Income (0.02)
-------------------
NET ASSET VALUE, END OF PERIOD $ 14.99
-------------------
-------------------
RATIOS AND SUPPLEMENTAL DATA
Total Return 0.04%(a)
Net Assets, End of Period (in thousands) $ 128,715
Ratios to Average Net Assets
Net Expenses 0.25%(b)
Net Investment Income 3.84%(b)
Expenses without Reimbursement 0.79%(b)
Portfolio Turnover 0%
</TABLE>
- ------------------------
(a) Not annualized.
(b) Annualized.
The Accompanying Notes are an Integral Part of the Financial Statements.
17
<PAGE>
J. P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED)
APRIL 30,1999
- --------------------------------------------------------------------------------
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
J.P. Morgan Tax Aware Enhanced Income Fund (the "fund") is a series of J.P.
Morgan Series Trust, a Massachusetts business trust (the "trust") which was
organized on August 15, 1996. The trust is registered under the Investment
Company Act of 1940, as amended, as a no-load, diversified, open-end management
investment company. The trustees of the trust have divided the beneficial
interests in the fund into two classes of shares, Institutional Shares which
commenced operations on April 16, 1999, and Select Shares scheduled to commence
operations on May 6, 1999. The investment objective of the fund is to provide
high current after tax income consistent with principal preservation by
investing in tax exempt securities that are primarily municipal obligations and
taxable fixed income securities. 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 price 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.
Independent pricing services procedures include the use of 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. Securities or other assets for which market quotations
are not readily available are valued at fair value in accordance with
procedures established by the fund's trustees. All short-term securities
with a remaining maturity of less than 60 days are valued by the amortized
cost method.
Trading in securities on most foreign exchanges and over-the-counter
markets is normally completed before the close of the domestic market and
may also take place on days on which the domestic market is closed. If
events materially affecting the value of foreign securities occur between
the time when the exchange on which they are traded closes and the time
when the fund's net assets are calculated, such securities will be valued
at fair value in accordance with procedures established by and under the
general supervision of the fund's trustees.
The fund's custodian or designated subcustodians, as the case may be under
tri-party repurchase agreements, takes possession of the collateral
pledged for investments in repurchase agreements on behalf of the fund. It
is the policy of the fund to value the underlying collateral daily on a
mark-to-market basis to determine that the value, including accrued
interest, is at least equal to the repurchase price plus accrued interest.
In the event of default of the obligation to repurchase, the fund has the
right
18
<PAGE>
J. P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1999
- --------------------------------------------------------------------------------
to liquidate the collateral and apply the proceeds in satisfaction of the
obligation. Under certain circumstances, in the event of default or
bankruptcy by the other party to the agreement, realization and/or
retention of the collateral or proceeds may be subject to legal
proceedings.
b) The books and records of the fund are maintained in U.S. dollars. The
market value of investment securities, other assets and liabilities and
foreign currency contracts are translated at the prevailing exchange rates
at the end of the period. Purchases, sales, income and expenses are
translated at the exchange rates prevailing on the respective dates of
such transactions. Translation gains and losses resulting from changes in
exchange rates during the reporting period and gains and losses realized
upon settlement of foreign currency transactions are reported in the
Statement of Operations. Although the net assets of the fund are presented
at the exchange rates and market values prevailing at the end of the
period, the fund does not isolate the portion of the results of operations
arising as a result of changes in foreign exchange rates from the
fluctuations arising from changes in the market prices of securities
during the period.
c) Securities transactions are recorded on a trade date basis. 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.
d) The fund may enter into forward and spot foreign currency contracts to
protect securities and related receivables and payables against
fluctuations in future foreign currency rates. A forward contract is an
agreement to buy or sell currencies of different countries on a specified
future date at a specified rate. Risks associated with such contracts
include the movement in the value of the foreign currency relative to the
U.S. dollar and the ability of the counterparty to perform.
The market value of the contract will fluctuate with changes in currency
exchange rates. Contracts are valued daily at the current foreign exchange
rates, and the change in the market value is recorded by the fund as
unrealized appreciation or depreciation of forward foreign currency
contract translations. At April 30, 1999, the fund had no open forward
foreign currency contracts.
e) Futures -- A futures contract is an agreement to purchase/sell a specified
quantity of an underlying instrument at a specified future date or to
make/receive a cash payment based on the value of a securities index. The
price at which the purchase and sale will take place is fixed when the
fund enters into the contract. Upon entering into such a contract the fund
is required to pledge to the broker an amount of cash and/or liquid
securities equal to the minimum "initial margin" requirements of the
exchange. Pursuant to the contract, the fund agrees to receive from, or
pay to, the broker an amount of cash equal to the daily fluctuation in
value of the contract. Such receipts or payments are known as "variation
margin" and are recorded by the fund as unrealized gains or losses. When
the contract is closed, the fund records a realized gain or loss equal to
the difference between the value of the contract at the time it was opened
and the value at the time when it was closed. The fund invests in futures
contracts for the purpose of hedging its existing fund securities, or
securities the fund intends to purchase, against fluctuations in value
caused by changes in prevailing market interest rates or securities
movements. The use of futures transactions involves the risk of imperfect
correlation in movements in
19
<PAGE>
J. P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1999
- --------------------------------------------------------------------------------
the price of futures contracts, interest rates and the underlying hedged
assets, and the possible inability of counterparties to meet the terms of
their contracts. There were no open futures contracts at April 30, 1999.
f) The fund may enter into commitments to buy and sell investments to settle
on future dates as part of its normal investment activities. These
commitments are reported at market value in the financial statements.
Credit risk exists on these commitments to the extent of any unrealized
gains on the underlying securities purchased and any unrealized losses on
the underlying securities sold. Market risk exists on these commitments to
the same extent as if the security were owned on a settled basis and gains
and losses are recorded and reported in the same manner. However, during
the commitment period, these investments earn no interest or dividends.
g) The fund may engage in swap transactions, specifically interest rate,
currency, index and total return swaps. The fund will use these
transactions to preserve a return or spread on a particular investment or
portion of its investments, to protect against currency fluctuations, as a
duration management technique, to protect against any increase in the
price of securities the fund anticipates purchasing at a later date, or to
gain exposure to certain markets in the most economical way possible. An
interest rate swap is an agreement between two parties to exchange
interest payments on a specified amount ("the notional amount") for a
specified period. If a swap agreement provides for payments in different
currencies, the parties might agree to exchange the notional amount as
well. Risks associated with swap transactions include the ability of
counterparties to meet the terms of their contracts, and the amount of the
fund's potential gain or loss on swap transactions is not subject to any
fixed limit.
h) Net investment income (other than shareholder servicing fees) and
unrealized and realized gains and losses are allocated daily to each class
of shares based upon the relative proportion of net assets of each class
at the beginning of the day.
i) Substantially all of the fund's net investment income is declared as
dividends daily and paid monthly. Distributions to shareholder's of net
realized capital gains, if any, are declared and paid annually.
j) The fund intends to comply with the provisions of the Internal Revenue
Code of 1986, as amended, applicable to regulated investment companies and
to distribute substantially all of its income, including net realized
capital gains, if any, within the prescribed time periods. Accordingly, no
provision for federal income or excise tax is necessary.
2. TRANSACTIONS WITH AFFILIATES
a) The fund has an Investment Advisory Agreement with J.P. Morgan Investment
Management Inc. ("JPMIM"), an affiliate of Morgan Guaranty Trust Company
of New York ("Morgan") and a wholly owned subsidiary of J.P. Morgan and
Company, Incorporated ("J.P.Morgan"). Under the terms of the agreement,
the fund pays Morgan at an annual rate of 0.25% of the fund's average
daily net assets. For the period April 16, 1999 (commencement of
operations) through April 30, 1999, this fee amounted to $5,852.
20
<PAGE>
J. P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1999
- --------------------------------------------------------------------------------
b) The trust, on behalf of the fund, has retained Funds Distributor, Inc.
("FDI"), a registered broker-dealer, to serve as co-administrator and
distributor for the fund. Under a Co-Administration Agreement between FDI
and the trust on behalf of the fund, FDI provides administrative services
necessary for the operations of the fund, furnishes office space and
facilities required for conducting the business of the fund and pays the
compensation of the fund's officers affiliated with FDI. The fund has
agreed to pay FDI fees equal to its allocable share of an annual
complex-wide charge of $425,000 plus FDI's out-of-pocket expenses. The
amount allocable to the fund is based on the ratio of the fund's net
assets to the aggregate net assets of the trust and certain other
investment companies subject to similar agreements with FDI. For the
period April 16, 1999 (commencement of operations) through April 30, 1999,
the fee for these services amounted to $20.
c) The trust, on behalf of the fund, has an Administrative Services Agreement
(the "Services Agreement") with Morgan, under which Morgan is responsible
for overseeing certain aspects of the administration and operation of the
fund. Under the Services Agreement, the fund has agreed to pay Morgan a
fee equal to its allocable share of an annual complex-wide charge. This
charge is calculated based on the aggregate average daily net assets of
the trust and certain other investment companies for which Morgan provides
similar services in accordance with the following annual schedule: 0.09%
on the first $7 billion of their aggregate average daily net assets and
0.04% of their aggregate average daily net assets in excess of $7 billion,
less the complex-wide fees payable to FDI. The portion of this charge
payable by the fund is determined by the proportionate share that its net
assets bear to the net assets of the trust and certain other investment
companies for which Morgan provides similar services. For the period April
16, 1999 (commencement of operations) through April 30, 1999, the fee for
these services amounted to $1,139.
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 annual 0.25% and 0.50% of the average daily net assets of the
Institutional Shares and Select Shares, respectively. This reimbursement
arrangement can be changed or terminated at any time at the option of J.P.
Morgan. For the period April 16, 1999 (commencement of operations) through
April 30, 1999, Morgan has agreed to reimburse Institutional Shares
$12,719 for expenses under this agreement.
d) The trust, on behalf of the fund, has a Shareholder Servicing Agreement
with Morgan to provide account administration and personal account
maintenance services to fund shareholders. The agreement provides for the
fund to pay Morgan a fee for these services which is computed daily and
paid monthly at an annual rate of 0.10% and 0.25% for Institutional Shares
and Select Shares, respectively. For the period April 16, 1999
(commencement of operations) through April 30, 1999, the fee for these
services amounted to $2,341 for Institutional Shares.
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
21
<PAGE>
J. P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1999
- --------------------------------------------------------------------------------
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 will commence after 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 will commence after 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 PERIOD
APRIL 16, 1999
(COMMENCEMENT OF
OPERATIONS)
THROUGH
APRIL 30, 1999
----------------
INSTITUTIONAL SHARES
- -------------------------------------------------
<S> <C>
Shares sold...................................... 8,777,237
Dividend reinvestment............................ 2,698
Shares redeemed.................................. (192,710)
----------------
Net Increase..................................... 8,587,225
----------------
----------------
</TABLE>
4. INVESTMENT TRANSACTIONS
Investment transactions (excluding short-term investments) for the period April
16, 1999 (commencement of operations) through April 30, 1999 were as follows:
<TABLE>
<CAPTION>
COST OF PROCEEDS
PURCHASES FROM SALES
----------- ----------
<S> <C> <C>
Municipal Obligations............................ $85,409,825 $ 0
</TABLE>
22
<PAGE>
J. P. MORGAN TAX AWARE ENHANCED INCOME FUND
NOTES TO FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED)
APRIL 30,1999
- --------------------------------------------------------------------------------
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 current 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 as of April 30, 1999.
23
<PAGE>
FOR MORE INFORMATION ON THE J.P. MORGAN FUNDS,
CALL J.P. MORGAN FUNDS SERVICES:
INSTITUTIONAL SHARES (800) 766-7722.
J.P. MORGAN
TAX AWARE
ENHANCED
INCOME FUND
SEMIANNUAL REPORT
APRIL 30, 1999
